California, a state of unintended consequences

California is notorious for enacting laws that result in outcomes precisely opposite of what the law was designed to address. Think of trying to cure obesity by prescribing donuts.

Let’s start with high-speed rail. One of the “problems” HSR is supposed to address is climate change. The theory is that the rail project will supplant greenhouse gas emitting automobile traffic. But because of the cost of tickets, lack of promised speed and general inconvenience, transportation experts are in near-universal agreement that HSR will not take cars off the road. In the meantime, the construction of the project is itself putting millions of tons of GHG emissions in the air. Even California’s nonpartisan Legislative Analyst’s Office acknowledged that HSR is a net producer of GHG emissions and will be for the foreseeable future.

How about minimum wage policies? The theory is that low-income people need a “living wage” in order to survive. But if those policies reduce workforce participation and increase unemployment, how does this help low-income people who now have to rely on welfare? If California were serious about its higher-than-average unemployment rate, especially among urban youth, it would relax some of these laws rather than contribute to the disaffection of young people.

California’s hostility to new construction is manifested by byzantine and burdensome housing regulations. These environmental and labor regulations increase the cost of housing, pricing many citizens out of the market, and forcing them to either live on the streets or find substandard and unsafe housing. Thirty-three people died in the infamous Oakland “Ghost Ship” loft fire in 2016 despite Oakland being one of the most heavily regulated cities in America.

Another counter-productive housing policy is the recently imposed “recording tax.” This one makes no sense at all. Anyone recording a property-related document with their county recorder is now required to pay a tax of up to $225, ostensibly to help fund housing programs in the state. Only in California do we fund housing affordability programs by making real estate transactions more expensive.

Which brings us to the latest silly idea coming out of Sacramento: Making it easier for local governments to impose rent control.

Back in 1995 (when complete insanity had not yet gripped California), the Legislature enacted the Costa-hawkins Act, which prohibited rent control on newly constructed residential housing. It also allowed for “vacancy decontrol,” whereby the owners of rent-controlled buildings could raise the rent to market rate for new tenants when former tenants moved out voluntarily.

For two decades, Costa-hawkins has incentivized new housing construction as building investors were assured they could recover a reasonable rate of return. If lack of rent control were the cause of the current housing crisis, we would have known years ago. Authorizing the return of destructive rent control policies now would be profoundly counterproductive.

A report from the Legislative Analyst’s Office in 2015 stated what appears to most rational people as simple common sense: “the key remedy to California’s housing challenges is a substantial increase in private home building in the state’s coastal urban communities.” That the repeal of Costa-hawkins would dry up private investment in housing construction is selfevident. Suppressing the free market rarely leads to more of a good or service. That reality will be painfully true for affordable housing if destructive rent-control laws are given a green light.

At least for now, the noise emanating from the army of radical tenant interests wasn’t sufficient to cause the Legislature to completely abandon common sense because the bill failed to clear its first committee hearing this week. But the pressure is unlikely to abate any time soon.