Two Types of Affordability

If you’ve lived in an older apartment in LA for a while, you’ve probably had an experience like this: something happens in your life that makes you want to move, but you don’t, because you know you wouldn’t be able to find a comparable apartment for similar rent.

That “something” could be lots of things, like a new job that’s further away, a significant other moving in, a child being born, or an elderly family member moving in. Or maybe you have really noisy upstairs neighbors or a terrible landlord that does minimal maintenance and repairs. Whatever the motivation, you ultimately don’t move for one reason: LA has rent stabilization for older (pre-1978) buildings, so if you’ve been in the same apartment for a few years, you’ll have to pay more or accept a worse apartment. In a city that’s short on housing supply, rent stabilization does create affordability, at least for people who already have apartments.

Now, imagine a city that has what Austin boosters call abundant housing – a city that produces enough housing to be affordable and welcoming to everyone. In a city like that, with broad affordability, you’re much more likely to be able to find a new apartment that suits your needs.

The difference is clear: rent stabilization without housing supply creates affordability that constrains you. Abundant housing creates affordability that liberates you. It makes it easier for you to move, easier for your friends to move here from somewhere with less opportunity, easier to convince workers for your business to move here. LA’s deficit of affordable housing will take years to erase, which necessitates short run policies, but in the long run, abundant housing creates more opportunity for more people.

Is rent stabilization still necessary in a city with abundant housing? Maybe, because it has local effects that are, well, stabilizing. Abundant housing will keep housing prices in check at the regional level, but market changes might still create local impacts. For example, if a new transit line opens and makes it easy to commute to job centers, the relative desirability of neighborhoods at the stops will increase. This could cause a local jump in rents (offset, we suppose, by stagnation of rents in neighborhoods that have become relatively less desirable). Rent stabilization would alleviate local impacts – the micro stories of things like seniors getting evicted from long-time homes and communities. If landlords have the ability to buy out rent stabilized tenants, this lets tenants share in the passive increase in land values – which, after all, landlords have also often done little to earn.

Of course, rent stabilization might not be the best policy tool for addressing local impacts. Rent stabilization is easy to administer, but it is very blunt, because it applies to everyone regardless of need, creating subsidies for people that don’t deserve them. An upper class professional living in a rent stabilized building in LA will receive the same subsidy as a minimum wage worker, a system that makes no sense from a social policy perspective. An alternate system might offer a pre-funded rent allowance tax credit to low income households, scaling down to zero as income increases.

In any case, abundant housing is the right long-term policy to create a city that is affordable and welcoming to everyone. Broad affordability creates the most opportunity for the most people, and lets social policy be targeted at those most in need.

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11 thoughts on “Two Types of Affordability

  1. devin

    Re: “This could cause a local jump in rents (offset, we suppose, by stagnation of rents in neighborhoods that have become relatively less desirable).”

    —Or as likely, by population inflows into the metro area from others!

    Re: “An alternate system might offer a pre-funded rent allowance tax credit to low income households, scaling down to zero as income increases.”

    —Or how about, scaling down to something corresponding to the mortgage interest deduction? Or even, in an abundant-housing world, go further and exempt all rents from taxation in order to match the fact that homeowners’ imputed rents are untaxed? One might prefer the reverse and tax imputed rents, but that’s tougher..

    So many fun tax ideas to play with in an abundant housing world!

    Reply
  2. Jake Wegmann

    The housing economist John Quigley proposed a system where housing vouchers would be an entitlement delivered through the tax code, something akin to the Earned Income Tax Credit, for people below certain income levels. It’s an interesting idea. But my big philosophical problem with it is that it does nothing to ensure that low-income people, at least some of them, get to live at particular, valuable locations (near jobs, transit, amenities, good schools, etc, etc).

    However inefficient rent stabilization is, it has the outstanding virtues of i) not costing the public sector any money, at least not directly and ii) buffering vast numbers of people from wrenching changes in the housing market.

    Another way to look at it is that if you take it as a given that SF and LA will simply never again produce enough housing to meet the demand–and more often than not, I do take that as a given–then we will simply have to keep robust rent stabilization in place. If it went away, not only would there be massive social equity implications, there would be huge implications to the regional economy and to the environment because of so many more low-income workers having to commute from much further away. Just look at Latin American cities like Sao Paulo or Mexico City, where it’s routine for low-income workers to commute two hours each way to work on transit. Yes, we have some of that here but far, far less.

    Reply
  3. Shane Phillips

    I think it’s also important to remember that there’s no particular reason you can’t have both. Theoretically if you have abundant housing there’s relatively little need for rent stabilization — rent stabilization will mainly benefit longer-term residents as the benefit of reduced rent increases compounds over time. That, I think, is okay, and somewhat desirable. The problem is that cities that use rent stabilization tend to treat it as THE solution, when by itself it can actually make a lot of things worse.

    Reply
  4. Pingback: Lack of Housing Options Spells Uncertainty for Santa Monica’s Section 8 Renters | Santa Monica Next

  5. Dave

    You can forget about any ‘big bang’ overnight elimination of rent stabilization in LA, if for no other reason than the politically-connected owners of post 1978 non-stabilized buildings would see a big drop in property values (non-rent-stabilized buildings trade at a substantial premium, ceteris paribus).

    Reply
    1. letsgola Post author

      Agreed. A more realistic option might be to have the date start sliding in the future, so that it applies to any building over a certain age, say 40 years. This allows the initial owner to recoup investment and encourages renewal of the housing stock (provided the zoning is there to make it practical to redevelop the property at higher density). Note, though, that abundant housing will greatly reduce the premium for post 1978 buildings because owners will not be able to expect astronomic rent growth.

      Reply
      1. MarkB

        I too have thought of the sliding date feature, though I think a shorter window (e.g., 20-25 years) is better. With a 40-yr window, I bet you’d see a bunch of stumpies being torn down and rebuilt at about the 35-yr mark.

    2. Jake Wegmann

      That’s an interesting and astute observation I hadn’t thought of, i.e. I hadn’t thought of the divergent interests among building owners and how those could play out.

      But do you think the post 1978 building owners are a more powerful and better organized lobbying bloc than the pre 1978 building owners? After all, if the latter could get their buildings released from rent stabilization, they would realize a massive windfall.

      I honestly don’t know the answer to the question I posed above, but I’m curious about your or others’ assessment of how the politics would play out.

      Reply
      1. Dave

        >> But do you think the post 1978 building owners are a more powerful and better organized lobbying bloc than the pre 1978 building owners? <<

        Absolutely. Most pre-78 units are in small buildings owned by mom-and-pop landlords or affluent doctor/lawyer types on the westside. When there's a difference of opinion between the Apartment Owners' Association (representing mom-n-pops) and, say, CIM Group or Geoff Palmer, big money wins at city hall every time.

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