With election season approaching once again, many of the issues we will be voting on next month are being discussed once again. Especially in the high-demand housing market of the Silicon Valley, one of the most widely debated propositions on the California ballot is Proposition 10.
Prop. 10 is an issue surrounding whether or not to repeal a state law that restricts the scope of rent control policies. The verbiage is confusing, but in simpler terms, there is currently a law that limits the rent control policies that cities can impose. By voting NO, a person votes to continue limiting rent control. By voting YES, a person votes to allow cities to increase rent control measures.
Living in the Bay Area, we can clearly see the housing crisis around us taking effect. People who have lived in their houses for years are being outbid and forced to move as property values increase exorbitantly. Voting yes on Prop. 10 protects tenants from unfair rent increases. As we see families forced to leave and homelessness become an epidemic, it seems like an obvious choice to enact rent control to prevent unwanted eviction.
However, the issue is not that simple. The extremely high market prices are determined by supply and demand. Because so many people want to live in the Bay Area, the demand is extremely high while the supply is not that high because there isn't much available land. This drives the prices up. Though this is unfortunately extremely difficult for all but the financially elite to afford, it is simply the price dictated by the open market. With this arrangement, renters make money as dictated by the market. When rent control is enacted, these renters cannot sell at market price, so they are not making the profits they otherwise would. If the rent control is extreme enough, they may be operating at a cost higher than what they are paid. In this instance, they are actually losing money by renting. With a deficit, there is no incentive to rent anymore, so renters will simply leave units empty or knock down the building and rebuild, where the building is subjected to the same rent controls.
Obviously, this does little in the long run to fix the housing crisis. It only lessens supply and pushes the issue farther down the road. However, pushing the issue farther down the road helps tenants in the short run, and eventually, property values will decrease as the Silicon Valley housing market bubble eventually bursts. In this case, pushing the issue down the road a few years will help.
Regardless of how you choose to vote (if you can), it is important to understand the arguments for both sides of this issue, which make more complex economic arguments than those that are often brought up when discussing rent control.
http://voterguide.sos.ca.gov/propositions/10/
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I think this debate about rent control is very interesting. Both sides have very compelling arguments, and like many things in economics, the majority is split on decision. Yet, I think it is important to keep housing affordable for the average tenant, despite how much profit landlords might receive. Your idea of pushing out the issue is interesting, because often times pushing the problem aside only makes the situation worse. Hopefully, there will be a balance of both sides, and there will be some middle ground that will benefit both parties to an extent.
ReplyDeleteTeagan: thanks for connecting the concepts we've learned about supply and demand and surpluses to our community. The housing crisis in the Bay Area is a great example of a market failure: the market is not supplying enough housing to meet demand. This is why governments have taken it upon themselves to create policies like rent control: economically, it solves one problem and creates another. Other solutions do the same. Unfortunately, because of the market failure, it seems that there is no one solution that will address the problem without causing more problems.
ReplyDeleteGreat post Teagan. The concepts that you touched on in this post were very interesting and I can see them being beneficial to people like teachers in our area who currently have very long commutes to come teach here. Also, the issue of Prop 10 pushing problems further down the road reminds me of Prop 6, the bill that will cut the gas tax, which will subsequently cut funding for our roads. By voting yes the voter will save money on gas, but may suffer from poorer road conditions and by voting no the voter will be losing money by having to pay steeper gas prices. These are both short term solutions because if the tax is kept then sooner or later a new one will be imposed to fix the same problem, but if it is eliminated there will be other taxes later on to help cover the state's spending. Thanks for such a great post!
ReplyDeleteProposition 10 is a very interesting topic to blog about, especially because it affects us as Silicon Valley residents more than most in the state of California. I think it's important to acknowledge that the main cause of the housing crisis is the influx of workers who want to live near their offices in Palo Alto, Mountain View, San Jose, etc. offices. So, there is competition between these tech workers and long time Bay Area residents for a limited supply of housing. The problem is that the tech workers have so much more money than the long time residents, many of whom are low income, and so they are being pushed out even though many of them, relocation is not a viable option.
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