Monday Morning Thoughts: New Rental Housing Supply is the Best Rent Control We Can Provide

Last week, state legislation that could have repealed a law that prohibits cities and counties from implementing most new rent control measures died after four members of the Assembly Housing and Community Development Committee, including Democrats Ed Chau of Arcadia and Jim Wood of Healdsburg, declined to support it.

They expressed concern that rent cpntrol could slow what is the primary problem in the state – lagging housing production.

“I’m concerned that the bill does nothing to increase the supply of housing and may in fact have the opposite effect of discouraging new construction during a time when we need it the most,” Assemblymember Wood said.

I have yet to see a hard local proposal, but I know the sentiment for rent control is creeping just below the radar in Davis as well.  The driver here is clear – the cost of housing is spiraling out of control in many locations and the result is many housing advocates are pushing for rent control as a bandaid to the larger problem.

The LA Times reported: “Tenant advocates chanted ‘housing is a human right’ in the hallways while landlords pleaded to committee members about the effects of expanding rent control on their livelihoods.”

I am not opposed to rent control on its merits.  For all of the talk about rent control slowing lagging housing production, the fact remains that the cost of housing is largely created by scarcity of supply rather than necessarily the cost of production.

This past week, we heard from numerous students complaining about the low vacancy rate making renters vulnerable to absentee or even predatory landlords.  The city has taken steps to better protect renters through its inspection program and ordinance.

However, at the end of the day, both affordability and quality control are the functions of supply.  Give us enough supply and the homes that are poorly maintained will be vacated and, in the age of social media and Yelp, will not likely be rented in the future.

The solution to affordability may not be rent control but rather a functioning market.  And the good news is that we are finally starting to move in the right direction here.

The chancellor this week announced for the first time that UC Davis would increase their on-campus student housing allotment from 6200 to 8500 new beds for students.

Writes UC Davis on the Campus Tomorrow page: “The proposed LRDP housing capacity significantly exceeds potential enrollment growth associated with the LRDP. The Plan provides capacity for an additional 8,500 students in campus housing; about 1,000 students in residence halls and about 7,500 students in apartments. In 2016-17 about than 9,800 students lived on campus; about 5,500 traditional first-year students (freshmen) lived in residence halls and another 4,300 upper-division undergraduate and graduate students lived in apartments. The Plan provides capacity to nearly double the overall housing population on campus and almost triple the number of non-freshmen living on campus in apartments; this is the most ambitious student housing plan in the history of UC Davis.”

This was big news.  There are people who would like to see the campus get to 10,000 new beds, which would push the amount of on-campus housing to half the student population.  But the biggest factor may be the combined total of on-campus and proposed off-campus housing now gets us to between 13,000 and 14,000.

Let us put this into practical terms.  Last year, we calculated that we needed about 10,000 beds combined, between the university and the city, to alleviate the housing crisis that sees rents rising
at roughly eight percent each year (triple inflation) and a 0.2 percent vacancy rate.

By going up to 13,000 to 14,000 beds, we have a real chance to reach a city goal of five percent vacancy.  At five percent, we would have a very healthy vacancy rate.  Students can move as needed.  Problems in specific rental units would result in renters leaving those units for other better units.  That will force landlords to have to either keep their units at spec or face the loss of revenue from rent.

A big factor is that it will reduce the incentive for students to live in houses, doubling and tripling up in their rooms.  It will reduce the stress on single family homes, on neighborhoods, and eventually it will lead to a glut in the market as the supply expands much faster than renters can adjust their behavior.

I spoke to one longtime apartment manager last week, who believes the result of a large amount of housing coming on line simultaneously will create probably a five-year period where there is more supply than demand.  Part of that is due to the fact that a number of students by necessity have moved into single-family homes – crowding in.  Another group have rented outside of town.

Eventually the availability of supply will change people’s behavior as they will no longer have to crowd into single-family homes.  And they will no longer have to live out of town.

The key, though, is that the supply will drastically change the market.  The widening vacancy rate will mean that prices that have been on a long and steep upward trajectory can drift downward.

I would argue that the best way, then, to control rents is by ensuring that we keep and maintain a five percent vacancy rate in town.

This isn’t just on the city.  The university has a huge role to play here too.  As many know, the university has agreed in the past to increase their housing on campus and then reneged.  The 8500 units will not help solve the problem unless they get built.

The immediate plans are in the works for expanding housing at two sites.  In 2016-17, West Village accommodated about 2000 students with housing.  The current plan is for an additional 3800 students with the possibility of an additional 550 students which would be “accomplished through a ‘double-up’ where existing large bedrooms, previously leased as individual rooms, may be leased as shared bedrooms.”

Meanwhile, at Orchard Park there were 1350 in 2016-17, with the LRDP calling for another 1400 students through the redevelopment of Orchard Park Apartments.  “The redevelopment is oriented towards graduate students and students with families. Additional capacity for student housing will be realized when new greenhouse facilities are built further south near the Bowley Plant Science Teaching Facility and the existing greenhouses near the Student Health and Wellness Center are redeveloped.”

Thus, just between West Village and Orchard Park, 5200 of the 8500 beds are planned to be built.

We know that, in the future, enrollment is likely to continue to increase.  We also know that the current housing crisis took about 15 years to really manifest, with the lack of new market rate student housing in the city combined with a lag in university-promised housing at places like Orchard and West Village.

To make this solution permanent, both the city and university need to be vigilant.  The bottom line for me is that, as long as we can maintain a five percent vacancy rate, the need for rent control and other extraordinary measures is reduced.  That should be our focus and that will be what enables us to avoid more cumbersome policy decisions.

—David M. Greenwald reporting