Economic Ignorance Driving California Rents Ever Higher

This article was published by The McAlvany Intelligence Advisor on Friday, June 21, 2018: 

The Sacramento Bee has performed an excellent public service not only by asking why rents are rising so fast in California, but by publishing many of the answers it received in response. Some of them are nearly staggering in their lack of understanding of basic fundamental economic law. For example, Angie Wei, Chief of Staff of California Labor Federation, told the Bee:

Allow local governments to adopt rent control policies. Incentivize home ownership, not investors. Increase housing production. Create good jobs near housing.

Rent control is the very last thing to use to “increase housing production.” Why would a builder, already faced with massive overregulation by California’s various codes, build something that politicians guarantee would not be profitable for him? History is replete with examples where rent controls have stopped all new residential building, but apparently Wei is free from the burden of any such knowledge.

In addition, if somehow home ownership could be “incentivized” beyond where it is currently, this would accelerate rent increases, not reduce them.

Wei is not alone. Daniel Zingale, Senior Vice President of The California Endowment, had his lengthy, abysmally ignorant answer published by the Bee:

Housing is a good example of where we can earn the confidence of millions who didn’t believe their vote mattered on June 5. That means better representing the half of Californians who are renters or lower income homeowners. Protect tenants from harassment and price gouging. Preserve existing public and private affordable housing. Produce more lower and moderate income units, including publicly owned housing. Most fundamentally, recognize housing should be more than just a commodity. It is a basic human right.

This writer suggests that whenever anyone claims something is “a basic human right” it is always good to ask, “At whose expense?” One need only look at the ghastly consequences of believing that health insurance is a “right” to uncover the falsity of such a belief.

To this list of the economic illiterates must be added Eric Bauman’s solution. Chair of the California Democratic Party, Bauman doesn’t disappoint: “Extend rent control, underwrite house down payments, and guarantee lower interest rates for purchase.”

Happily, most of the responses received by the Bee revealed real answers to the problem of rising rents in the Golden State. For example, Mike Madrid, Principal of Grassroots Lab, said: “All policy proposals to address this problem are insufficient without one critical element: a dramatic increase in supply at all levels.”

Erwin Chemerinsky, Dean and Professor of Law at University of California, Berkeley School of Law, was even more concise: “Build a lot more of it.” Joe Fleischman, Publisher of the FlashReport, gave a lesson in Economics 101:

We reduce the cost of housing by increasing the supply. This is done by reducing the taxes and regulations that increase the cost of building housing, and by reducing state and local regulations that inhibit the construction of new housing [along with] throwing out zoning restrictions.

Allan Zaremberg, President and CEO of the California Chamber of Commerce, was succinct: “Simply put, we need to build more housing.”

Kim Yamasaki, Executive Director of Center for Asians United for Self Empowerment, minced few words: “The short answer is to build more housing.”

The next question becomes: how? Linda Ackerman, President of Marian Bergeson Excellence in Public Service Series, took the time first to explore the real reasons behind the shortage of middle class housing in Silicon Valley, and everywhere else that politicians seek to override or ignore basic economic law:

The high cost of housing is driving residents out of our state; is this an unintended consequence of the draconian regulations that face the housing industry here?

In 1970 you could purchase a lovely three bedroom home on a 10,000 sq. ft. lot for $26,000; the average cost today is $500,000. The price of a typical single family home in California is more than twice that of the same typical home across the U.S.

The average home developer in California pays a $22,000 permit development fee to build a home and that does not include water fees, vs. the average $6,000 across the nation.

The additional regulatory fees they pay can bring this total from $50,000 to $85,000. We will be adding to that total $4,500 per unit in the near future due to a legislative mandate that will require solar panels to be installed on all new homes built by the developer.

CEQA [the California Environmental Quality Act], which breeds oppressive protracted environmental lawsuits as well as equally oppressive land-use lawsuits filed against developers, delays new home development for years and often results in fewer homes being built.

And then Ackerman provided the answer: “It will take the strength and the will of our Legislature to take a look at a backlog of hundreds of thousands of needed housing units to make tough decisions about the consequences of over regulation.”

Until that strength and will show up in sufficient quantities among California’s legislators, rising rents will continue to displace middle class citizens. They will be the beneficiaries of another rule: Ignorance of basic economic law forces people to live with its consequences.

Sources:

The Sacramento Bee: “Build a lot more of it”: What California can do to solve its housing problem

The Guardian: ‘Facebook is taking everything’: rising rents drive out Silicon Valley families

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