Original article by the Editorial Board of the Wall Street Journal.
The economic law of supply and demand is simple enough, but Los Angeles is defying it again by tightening its rent control law in the name of housing affordability. The result will be fewer apartments and less affordable housing.
The city currently restricts rent increases in properties built before 1978 to the consumer-price index (CPI) with an annual ceiling of 8%. These rent caps apply to about three quarters of the city’s multifamily housing units.
Last week the City Council voted to lower the cap to 90% of CPI with a maximum increase of 4%. Landlords will also no longer be allowed to raise rents to cover an increase in utility charges. That means they will have to eat rising electricity rates caused by the states’s destructive climate policies.
Rents in the city are already about 60% higher than the nationwide average. One reason is a shortage of all types of housing. State permitting regulations, building-code mandates, and local zoning rules add to the building costs and impede new construction.
Ditto the city’s current rent regulation and a 2019 state law that requires landlords to demonstrate “just cause” to evict tenants. Building permits for new housing have fallen 20% in California and LA since the law passed while increasing 6% in Teas and 9% in Florida.
Nearly all economists agree that rent control discourages housing investment and reduces supply. If landlords can’t raise rents to cover their costs–including repairs, insurance, and utilities–they won’t fix the leaky pipes or water heater. Forget about new developments.
Three decades ago the state passed a law that prohibited local governments from applying rent control to single-family homes and apartment buildings after 1995. Progressives have repeatedly tried to repeal the state law, including with a ballot referendum in 2024. Sixty-percent of voters, and 55% in Los Angeles County, rejected it.
The City Council and unpopular mayor Karen Bass are ignoring this as they try to mollify residents angry about the city’s high cost of living, sluggish economy, and the mismanagement that contributed to January’s horrific wildfire.
Employment in the city has declined 58,000 since January 2020, and its 6.4% unemployment rate is among the highest in the nation. Government, social assistance, and healthcare are among the few industries adding jobs. Culprits include the city’s $17.81 an hour minimum wage ($20 for fast food and $22.50 for hotel workers) and high local business gross receipts tax.
Landlords warn that reducing the rent cap may cause them to sell their properties at steep discounts or remove rental units from the market. This is what happened after New York tightened rent restrictions in 2019, but there’s apparently no education in the second kick of a progressive Democrat.