The Rent Control Board (RCB) in Santa Monica, California has come up with a unique “solution” to the city’s shortage of affordable housing—force landlords to remove their properties from the rental market. The board wants to enforce a state law—the Ellis Act—that requires landlords who evict a tenant to leave the rental market for at least five years. In other words, the board wants to reduce the supply of rental housing in the city at a time Santa Monica needs more housing.
A recent report issued by the RCB found that some landlords are “abusing” the Ellis Act. Those landlords
are invoking Ellis in order to empty their rental properties and leave them vacant until such time as the re-control provisions allow the units to be re-offered at market rental rates, whether by the current owner or a successor owner.
The report went on to note that some landlords have determined that the losses incurred during the five-years waiting period are simply a “cost of doing business.” Then, when the property can be put back on the market, the owner can rent it for market rates or sell to a new owner for a premium. The RCB doesn’t like the fact that landlords want to make a profit and intends to change its regulations to address what it considers abuse of the Ellis Act.
Government economic interventions always distort the market. Producers then seek ways to overcome the regulations and controls. As one example, whenever rent control is implemented, many landlords convert their properties to other uses, such as condominiums, to escape the price limits imposed by rent control. Those invoking the Ellis Act are doing the same thing.
Government intervention in the market is an attempt to force individuals to act as government officials deem best. Such interventions are founded on the premise that individuals won’t do the “right” thing voluntarily, and therefore, must be compelled to do so. Government officials then become dismayed when individuals then seek ways around the interventions.
When government officials attempt to dictate how individuals must act, those officials should not be surprised when individuals rebel. Regulations like rent control compel individuals to act contrary to their own judgment. In response, those individuals more to Plan B.
The freedom to produce and trade is one application of the freedom to act on one’s own judgment. Government regulations and controls stifle the ability of individuals to act as they think best.