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We Need More Housing, Not a Federal Attack on Local Rent-Control Laws

January 12, 1988|ROBERT KUTTNER | Robert Kuttner is the economics correspondent of the New Republic. His latest book is "The Life of the Party: Democratic Prospects in 1988 and Beyond" (Viking-Penguin).

Last week's notable piece of hypocrisy has to be the Reagan Administration's sneak attack on local rent control. Embedded in the Administration's 1989 draft budget is a proposal to prohibit cities with rent-control laws from receiving federal funds for housing repair.

The plan is hypocritical in two respects. The first has to do with federalism. In principle, conservative Republicans like President Reagan and his advisers profess great reverence for local government and loathing for Washington. Presumably local government is closest to the people and should determine local issues. But when right-wingers gain control of the more remote federal government, inconvenient principles are shelved and conservatives are quite willing to have Washington usurp local preferences to serve ideological ends.

Second, rent control is in heavy demand today, in no small part because of the Reagan Administration's own housing policies. Under the Reagan presidency, federal housing outlays have been cut more sharply than any other class of expenditure, declining from an annual spending level of $30.2 billion in the last Carter budget to just $7.8 billion in 1987. Most of the remaining spending goes to subsidize mortgage payments on low-rent apartments built in the 1960s and 1970s, not to increase the housing supply. Federally subsidized construction of new homes has dwindled to fewer than 25,000 units a year.

Ten million American families now spend more than a third of their income on rent; 6.3 million spend more than half their income. Because of the affordable-housing shortage, rents generally have soared. In the past decade average rents have risen twice as fast as average incomes.

Rent control is admittedly a second-best solution. The best solution, obviously, would be more affordable housing. In the idealized world of the economics textbooks, where Administration officials evidently dwell, supply and demand solve the problem. Get rid of the evils of government interference (like rent control and public subsidy), and the private market will supply the necessary housing.

But in the real world, where city land is astronomically expensive and where financing and construction costs are high, people of moderate means simply cannot pay the rents that are necessary to finance housing according to free-market principles. The effective demand is not sufficient to call forth the supply. An average-priced apartment unit today costs about $60,000 to build, which requires a monthly rental payment--for the developer's mortgages, taxes, maintenance and profit--of close to $1,000. The figure is much higher in big cities, where the housing squeeze is most severe.

The only way to bridge this gap is to subsidize housing construction, as every federal administration--Republican and Democratic--since Franklin D. Roosevelt's has recognized. This can be done in a variety of ways including low-interest mortgages, grants to tenant co-operatives and other nonprofit developers, and rental subsidies to increase the purchasing power of the tenant.

If the Reagan Administration was sincere about wanting to get rid of rent control, it would begin by increasing appropriations for housing. Yet, because of Administration opposition, the housing bill enacted last month keeps spending at roughly last year's depressed level.

Rent control is a conservative whipping boy for some valid reasons. It is very bureaucratic. Landlords have difficulty getting rent increases even when they are justified by higher costs. And tenants have a hard time getting redress even when they are harassed by landlords. Rent control creates a two-tier housing market where a controlled building contains outlandish bargains while an uncontrolled building across the street commands astronomical "market" rents.

Rent-controlled apartments always seem to be occupied, and not always by the most deserving people. While some large families pay exorbitant market rents, at least some rent-controlled apartments are inhabited by affluent professionals or by grandmothers rattling around in seven rooms. Developers claim, with some justification, that rent control depresses new construction and discourages spending on maintenance.

But imperfect as it is, rent control is a barrier against real hardship for millions of low-income families. An abrupt repeal of rent control would produce windfall gains to landlords and increase the problem of homelessness. If the Reagan Administration was sincere about housing--and federalism--it would stop trying to override the democratic choices of local governments and start restoring funds to build affordable homes.

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