Mountain View voters will be asked in the upcoming election to consider two rent control measures, V and W. Both measures are an attempt to deal with rising rents and their impact on low-income residents.
Measure V was written by a special interest group, and in response, the Mountain View City Council voted to put an alternative ordinance, Measure W, on the ballot.
Rent control laws have a poor history of helping the people they are intended to help. If they are binding, they lead to huge queues of renters hoping to take advantage of the lower rents. They allow landlords to use non-price characteristics to discriminate between buyers rather than using the rental rate. Proponents argue that their ordinance provides a modern type of rent control that is more flexible than past price controls. They argue that the ordinance applies only to units built before 1995, that rents can be raised according to the annual Consume Price Index growth with a cap, and that rents must provide a "fair" rate of return to landlords. However, this is just clever window dressing. Both ordinances still impose rent controls on a segment of the rental market and will still create artificial shortages, which will lead to impacts on the non-price controlled rental market.
I have read both measures and find them both deeply flawed. Both measures reveal a lack of basic understanding of economics and price controls. They also reveal ignorance about the financial incentives that would lead a landlord to provide rental units. This is typical of reactionary decision-making. Measure V proponents like to tell a narrative of low-income renters being forced out of their homes after receiving extremely high rent increase notices. No doubt rents, like housing prices, have risen at higher rates than the rest of the country. Let's concede this is caused by the huge increases in highly skilled and highly paid workers hired by tech companies. When proponents argue that income is not rising as fast as rents, they are clearly wrong, since landlords would not be able to charge higher rents unless potential renters have higher incomes. Measure W proponents seem to believe the same false narrative. Since both measures only apply to units built before 1995, they falsely assume that old units must also be low-rent units rented by low-income workers. However it's very likely that some of these units have already been updated. During my term as council member, I observed many older units being upgraded. A rent control on these units will merely help subsidize wealthy renters who live in higher-priced rental units built before 1995.
There are too many flaws in both ordinances to discuss all of them, but here are a few. Both measures take away the right of a landlord and a tenant to decide the best rental rate along with the quality of services offered. Measure V is a charter amendment, which can only be revised by a vote of the residents. Measure W can be revised with a council vote, but my experience is that most council members are reluctant to admit they made a mistake and change an ordinance. Whatever flaws exist in these measures are sure to last for many years.
Measure V claims that landlords will receive a "fair" rate of return, but the ordinance excludes several cost factors that will impact a landlord's return. A council-appointed rent committee is expected to decide what is a "fair" return and will only include improvements necessary to bring a unit up to code. Specifically excluded in Measure V are "capital improvements that are not necessary to bring the property into compliance" with local codes. What landlord in his right mind would invest $100,000 or more in capital improvements only to be told they are not necessary and therefore not considered as part of a "fair rate of return? Under Measure W, a similar improvement could be appealed to an arbitrator who could also deny the expenditure. The net result is that landlords will be reluctant to improve the quality of their units and will just invest in basic maintenance.
Decision-making by a rental committee or the City Council is flawed because these bureaucrats have no stake in the game. They lack the detailed knowledge of either the landlord or the tenant in setting rental rates and determining a "fair" return. They are not stakeholders and bear no financial risk in making poor decisions. Individual buyers and sellers have far more knowledge in setting prices, quality and terms for an exchange. Let's not add more bureaucracy to a voluntary exchange between a landlord and tenant. Please vote no on measures V and W.
==ITom Means is a former City Council member who served as mayor in 2008 and director of the Council of Economic Education at San Jose State University.==