Is rent control the answer?

November 3, 2017 | Steve Hable

Housing in San Diego is a serious topic that has seen a lot of change over the past two decades. In a blog article I authored in September of 2016, we discussed rising apartment rents in San Diego County. The conclusion was apartment rents would increase because of a lack of adequate supply of housing units. We cited one national firm that suggested San Diego County is 80,000 residential units short of meeting current demand for housing. Unfortunately for renters, the cost of housing has risen substantially in the past year. Some properties have increased rents by 10% or more and additional rental increases still seem likely. The high cost of housing in San Diego County is definitely a serious social and political issue.

Recently, there have been discussions about establishing rent control ordinances for our area, where local government would limit the amount or percentage that rents could increase during a 12-month period. Therefore, as income increases over time, renters would pay less of their income for housing. The rapid increases in housing costs are contained and the housing issues are solved—or are they?

There is little doubt that the immediate effect would be stabilized rents. However, the long-term economic effects of rent control are not positive. Restricting rents from reaching market rates discourages new construction. Investors shift their focus from markets that restrict potential profitability to markets that permit competition to set rents. The result is that a lesser number of units is available to potential renters in rent controlled markets.

Setting maximum rents by law may also affect the existing housing inventory. First, landlords are reluctant to make property improvements because the return of the additional investment takes more time to recover. Property maintenance and repairs are minimal or postponed completely because it is not profitable to make the repairs or improvements. Property owners may also decide to tear down the property and build a different income-producing property type. Second, property owners of recently built units may consider converting their rental property to condominiums and sell the units instead of renting them as apartments.

There are other items to consider before supporting rent control ordinances. We clearly need to increase the number of housing units in San Diego County. As citizens, we need to be more acceptable to higher density housing, subsidized housing and other innovative housing ideas. Local governments also need to examine their roles in the permitting process, both in terms of time and cost. New construction at today’s costs will not be effective in adding adequate housing supplies.

Owning your own residence whether it is a home, condo or townhome is the best form of rent control. While that initial loan payment may seem like a stretch now, it generally won’t be changing in the next few years. At Mission Fed, your success is our bottom line. Visit a Mission Fed branch to see if you qualify for a Home Loan or Jumbo Loan. If you’re not ready to apply now, what you can do to get ready to purchase a home in the near future.

The content provided in this blog consists of the opinions and ideas of the author alone and should be used for informational purposes only. Mission Federal Credit Union disclaims any liability for decisions you make based on the information provided. References to any specific commercial products, processes, or services, or the use of any trade, firm, or corporation name in this article by Mission Federal Credit Union is for the information and convenience of its readers and does not constitute endorsement, control or warranty by Mission Federal Credit Union.

Steve Hable

Steve Hable

Steve Hable is Mission Fed’s 1st VP Member Business Lending and has been in the real estate finance industry for over 30 years. His experience includes all facets of residential and commercial real estate finance, including loan origination, loan underwriting, servicing, secondary marketing (plus establishing private mortgage-backed securities on Wall Street), and property management of commercial properties.

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