Page 79 - AAGLA-APR 2022

Property Management
Continued from page 76
As Justice McKenna pointed out (and so does the lawsuit) emergencies and crises, even when clearly established, should not, “induce the relaxation of constitutional requirements nor the exercise of arbitrary power.” That difference between what a unit could command on the market and the one set by, in this case, the Rent Guidelines Board is a model of arbitrariness and inefficiency. Rent control takes value away from a private asset without any process other than legislative fiat, then, as we’ve seen distributes it in a way that does not benefit the people it is supposed to help.
There Are Far Better Solutions
Those who believe that price is a social construct manipulated by property owners for their benefit generally embrace price controls not because it is good economics or even good housing policy but because, ironically, it puts the power of price in only a few hands. In contrast, a market sets price when people negotiate, bargain, and innovate. A market disperses power through production and price; when there is scarcity, the seller has an advantage, if there is an abundance, the consumer wins more often. The following are ideas built on the principle of expanding the abundance of housing and choice the only thing that will truly reduce the suffering created by housing scarcity.
More Housing Through Regulatory Reform
“Regulation raises housing rents and values and lowers homeownership rates.” This statement shouldn’t come as a shock if supply and demand are linked to price. There are three critical variables to consider when substantiating this, population, permits, and price.
The RentHop study is worth quoting at length. Between 2010 and 2016, the counties (and their respective cities) with the highest pop/permit ratios are Sacramento, San Antonio, Riverside, and Fairfax (Washington Metro). Sacramento is especially underbuilt, with over 7.4 people per building permit. Construction in San Antonio, Riverside, and Washington have also not kept pace relative to population, with pop/permit ratios of 6.5, 6.0, 5.2 respectively. Cities in California seem particularly tight in general. While California (the most populous state) has six counties in the largest 30 national counties, all of them are in the top 50th percentile in pop/permit. This might not be very surprising, since California has often been associated with NIMBY (“Not in my backyard”) behavior.
While this kind of data is highly localized a review of average price compared with population growth is easy to do and the ratio of permits to people is a worthwhile index and useful predictor of price. Local governments control permits and, in the end, control price. When regulations limit permits in the face of rising population growth, prices rise. If we’re concerned about rents, then local government needs to speed up the permitting of new housing by reducing regulation.
Producers of housing can meet most of the demand in the economies of urban and rural areas if government allows it. Here are some practical ideas of where to start pruning away the overgrowth of housing regulation:
• Encourage more mixed-use multifamily housing
• Allow smaller units with shared kitchens and common areas
• Eliminate design review and restrictions
• Eliminate all height, bulk, and scale limits
• Eliminate redundant and excessive utility requirements (including impact fees)
• No parking minimums or requirements
• Incentivize the speedy processing of permits
• Require annual review of building and land use codes
• Eliminate all rules, restrictions, code requirements not benefiting health or safety
• Require consumer cost impact for all existing and new rules or regulations
We Already Control Rents With Incentive Programs
There are already programs that cap rents and are far more efficient than rent control. For example, in Seattle the Multifamily Exemption (MFTE) Programs has created thousands of units with rent restrictions in for-profit market rate buildings. In addition, the Low-Income Housing Tax Credit (LIHTC) program and the voucher program supported by the Department of Housing and Urban Development (HUD) have created thousands more units with lower rents. How many?
There are already 36,000 [in Seattle] that are rent restricted, meaning the rents of those units are locked in — controlled if you like — for anywhere from 12 to 40 years. Those 36,000 units, roughly 44 percent of all the units at those levels of income are set by government agencies and covenants; they are a mix of units paid for by government grant, the city’s housing levy, through the city’s Multifamily Tax Exemption (MFTE) program, or vouchers issued by the Seattle Housing Authority. If politicians and activists want to control rents in privately managed apartments, then they can pay for that control by becoming an investor. Programs like the MFTE are very efficient because they buy down rent in 20 percent of new units in a new building by freeing the developer of a portion of property tax for 12 years.
And this is possible without having to buy land, build, pay for financing, or operations of that building.
This program could be expanded to include existing construction. Again, the advantage to the taxpayer’s investment is that there is very little risk and very high return on exchanging the deferred tax to create the benefit
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