Jensen Gaul, Griffen Wolfe, Luis Muñoz, Steven Hoorfar, Ali Bilal, Catherine Hamilton, Nevin Prasad, Vin Fortenberry & Sophia Balkovski
THESIS
The shortage of affordable housing in Los Angeles can be combated with a two-pronged plan of action. The housing supply and rate of residential retention in LA will increase by: (1) replacing first generation rent control policies with a countywide rent-mirroring program and (2) incentivizing developers to experiment with affordable housing projects by removing all rent ceilings on properties designated as “Alternative Housing.” The profit made by these newly implemented “rent autonomy”-favoring policies should provide financial incentives for the further development of “Alternative Housing” infrastructure.
BACKGROUND
The downturn in American manufacturing since the 1970s has restructured the geography of the country. This process has pulled economic and cultural centers out of the interior and toward the coasts. Americans have followed the current of this reorganization. We leave the cities of the middle of the country for those on the coasts, seeking employment in the service sector, most visibly finance and technology. This movement results from profound problems in people’s state of origin but also creates problems for their destination. This surge of people is most visible in the high housing price in large coastal cities—this concentration of jobs without a corresponding concentration of housing results in massively inflated rents. In 2015, the average monthly rent in California was 50 percent higher than the national average, and the problem is most visible in LA.¹
Inflated prices are not just seen in rents. Many young people in high-cost areas like Los Angeles or New York City have entirely written off the idea that they could ever own a space of their own. According to data gathered by UK-based lending group Legal and General, over 50% of American millennials gauge achieving homeownership as “‘hard’ or ‘extremely hard.’” In major urban centers, the number rises to 70%.² If homeownership rates continue to trend downwards, we risk a real crisis of losing popular confidence in the economy.
POLICY IDEA
We will remove simple cap rent controls (sometimes called “first generation rent caps”) in the Los Angeles area and implement a more sophisticated, localized system that considers natural year-over-year increases in the cost of housing and the type of rented unit. This is meant to stimulate the building of new housing units without entirely destroying the rent control system that keeps many people off the street. Additionally, we will implement a tax incentive (funded by the profit made from altering the aforementioned rent control policies) to encourage the building of specific kinds of housing that are not typically seen as profitable projects for private developers. Lastly, total removal of all rent ceilings for “Alternative Housing” developments should take place to experiment with the long-term effects of such a policy and potential expansion to other forms of housing in the future.
POLICY ANALYSIS
In order to achieve a more equitable and sustainable housing market, the City of Los Angeles needs to remove first generation rent control policies that have contributed to the shortage of rental housing opportunities and the stagnation of further steps towards expansion. For this policy paper, first generation rent control shall be defined as the aspects of rent control that are determined based on countywide factors, such as annual percentage increase limits. In addition, we argue it should be more localized, so that rent caps can drastically change based on what is most needed and/or expected of individual neighborhoods. While, in principle, a firm cap on rent seems like a sustainable solution to abating skyrocketing rents, rent control is incredibly damaging to affordable housing markets in practice. As rents are capped, landlords have fewer incentives to maintain their buildings as their margins diminish, and developers consequently have a weaker pull to construct new housing that they see as less profitable. Moreover, existing renters are protected from rent increases as their housing asset value can increase unfettered. In contrast, those trying to enter the housing market are limited by a lack of available stock. The result is a housing market that feeds a growing wealth inequality system that limits the social mobility of low-income residents who cannot afford basic housing.
Accompanying this elimination of rent control caps is a rent mirror system, an idea adapted from a German system based on standardized rent across building and unit types. In essence, a rent mirror system creates an acceptable rent level broken down by city, unit size, location, building age, and other factors. It is adjusted annually based on current inflation and CPI.³ The City of Los Angeles should standardize rent and use these factors to create a housing market that functions reasonably for Angelenos across different demographics and income levels. “Alternative Housing” will not be governed by this standardized system. Instead, eliminating rent caps will take its place to increase incentives for developers to build such kinds of infrastructure. Charging above the price determined by the rent mirror system should be considered a criminal offense to create accountability between renters, landlords, and developers. In this manner, skyrocketing rent costs can be remediated while enabling social generation rent controls to inhibit.⁴
Generalized increases in housing stock help keep costs down for the average person. However, LA’s severe and prolonged housing problems have created circumstances that require different solutions. Under the above policy, a company may build many condos and duplexes to rent/sell to middle-class Americans. This is useful but would have minimal effect on LA’s homeless population. We propose a generalized tax incentive for any development project focused on creating housing for at-risk/homeless populations and/or increasing the volume/supply of housing within pre-existing properties. This incentive should be financed by the tax revenue gained through the removal of the first generation rent control caps while implementing the rent mirroring system. The tax revenue gained from the removal of rent control as a whole from “Alternative Housing” developments should also contribute to the financing of this tax incentive program. Property owners could alter their infrastructure and petition to get their property certified as “Alternative Housing” by the city government to take advantage of a decreased tax burden. Acquiring certification would involve meeting specific criteria such as completing nontraditional volume-expansion renovations (i.e. building accessory dwelling units or converting a commercial property into a multi-use commercial/residential hybrid property) in neighborhoods or populations not effectively served by traditional development. This is meant to be a broad category to encourage experimentation: tiny homes, certain types of cooperative housing, housing matching services, and housing with integrated mental health services are just a few of the ideas that we recommend to be included in an “Alternative Housing” description list, though constructing a list should involve further debate and discussion. The effectiveness of these and other innovations in housing can be used as data upon which to base future housing initiatives.⁵⁶
References
1. “California's High Housing Costs: Causes and Consequences.” 2015 California Housing Report. California Legislative Analysts Office, March 17, 2015. https://lao.ca.gov/reports/2015/finance/housing-costs/housing-costs.aspx
2. “US Millennials Priced out of the Housing Market.” US Millennials and Home Ownership – a Distant Dream for Most . Legal and General Financial Services, October 14, 2021. https://group.legalandgeneral.com/en/inclusive-capitalism/building-infrastructure/us-millennials-priced-out-of-the-housing-market.
3. Fitzsimons , Jonathan. “The German Private Rented Sector.” Boligøkonomisk Videncenter. The Knowledge Centre for Housing Economics, March 2014. https://www.bvc.dk/media/1332/the_german_private_rented_sector_web.pdf.
4. Monkkonen, Paavo. Housing Lessons From Around the World: Germany Rent Control. Other. YouTube. UCLA Lewis Center for Regional Policy Studies, March 8, 2021. https://www.youtube.com/watch?v=JUDkvHYCqbQ.
5. Horvath, C. J. “Community Land Trust Feasibility in Los Angeles County.” Open Access Publications from the University of California. University of California, August 19, 2020. https://escholarship.org/uc/item/42448429.
6. Jackson, April, Bridget Callea, Nicholas Stampar, Abigail Sanders, Alberto De Los Rios, and Jake Pierce. “Exploring Tiny Homes as an Affordable Housing Strategy to Ameliorate Homelessness.” MDPI Open Access Scientific Journals. Multidisciplinary Digital Publishing Institute, January 20, 2020. https://doi.org/10.3390/ijerph1702066.
Comentarios