Kamala Harris’s Rent Subsidy Would Help Landlords, Not Renters

By Jibran Khan

Wednesday, August 1, 2018

Senator Kamala Harris (D., Calif.) has proposed a subsidy for renters, responding no doubt to the skyrocketing rents in the Bay Area. The sheer cost of living there has made it difficult for companies to attract talent; indeed, rents in faraway suburbs are priced like downtown rents elsewhere. This is a very real problem, and its recognition on the national stage is not unwelcome. But Harris’s subsidy won’t improve the situation, and could even make things worse by drawing attention away from actual solutions.

The Bay Area’s rent crisis is driven by a drastic shortage in housing. Strict rent control in San Francisco and “NIMBY” (not in my backyard) zoning policies have ensured that the area constructs only a fraction of the housing it needs. The San Francisco metro area added 373,000 new jobs between 2012 and 2017, but it allowed the construction of only 58,000 new units of housing. And there is considerable lag time to start a housing project: State watchdogs estimate that a building permit in San Francisco takes well over a year to approve; this is about twice as long as the approval time in inland California and triple the time it takes in the rest of the country. Should the permit run against zoning rules, it takes even longer.

Per Lawrence Yun, an economist who studies housing trends, the norm is for one housing unit to be built for every two jobs created. In the San Francisco area, there is less than one unit built for every six jobs created.

As a result, San Francisco isn’t just a city with high cost of living; it’s a wealthy city in the world’s richest country where homelessness is rife. Even if rents in the area were considerably lower, there still would not be enough housing for everyone. If the high rents were caused simply by landlords’ dogged insistence on charging them, there would be an excess supply of housing, which there is not.

The lack of housing also keeps people out of the area entirely, denying both them and their potential Bay Area employers the chance to work together and create economic value. Telecommuting is increasingly viable, but as the economist Tyler Cowen has pointed out, there are great benefits to working together in person in the way that a major city affords — a multiplier effect that is increasingly out of reach with skyrocketing rents. These effects are greatest early in someone’s career; in other words, at the point where it has become more and more difficult to live in a major city.

The state’s Legislative Analyst Office puts the Bay Area’s crisis bluntly, and lays the blame on decades of state policy:

We advise the Legislature to change policies to facilitate significantly more private home and apartment building in California’s coastal urban areas. Though the exact number of new housing units California needs to build is uncertain, the general magnitude is enormous. On top of the 100,000 to 140,000 housing units California is expected to build each year, the state probably would have to build as many as 100,000 additional units annually — almost exclusively in its coastal communities — to seriously mitigate its problems with housing affordability. Facilitating additional housing of this magnitude will be extremely difficult. It could place strains on the state’s infrastructure and natural resources and alter the prized character of California’s coastal communities. It also would require the state to make changes to a broad range of policies that affect housing supply directly or indirectly — including policies that have been fundamental tenets of California government for many years.

It is universally acknowledged that California’s housing crisis is driven by a lack of housing, so what will Harris’s plan do about this? Nothing. True, zoning laws are made at the state and local level, while Harris is a federal official — but the federal government could try to incentivize local-level reforms to build more housing, especially by leveraging the money it provides for local infrastructure projects. And yet under Harris’s proposal, the currently homeless would remain homeless, while renters would receive some very short-term relief at the cost of other taxpayers.

Why would the relief be short-term? Because as landlords become aware that renters are receiving a subsidy, they will simply raise rents by the amount of the subsidy. The cost will be the same for the renters — who today are lining up for a chance to rent, showing that they are willing to pay it. In the end, then, this would be an effective subsidy for landlords, not renters.

Indeed, Harris’s bill could compound the problems facing renters, by reducing the political pressure — currently building from both left and right in California via the “market urbanism” movement — to tackle the lack of housing. Defenders of the status quo will simply point to the Harris plan and insist that something has been done.

The real solution is the most obvious one: Build more homes. There was a brief housing boom in D.C., San Francisco, and New York in 2016, which led to a drop in rents. The Harris plan will not only ignore this fundamental factor, but it will actually make it harder to tackle. By the time the political luster wears off and the crisis is revisited, it will have gotten even worse.

If Harris is truly concerned about the plight of city renters, she ought to spend some time listening to the concerns of the market urbanists, and to use her influence to support attempts at housing reform in California. A recent attempt at a mild zoning deregulation to allow more homes, introduced by a left-wing state senator, Scott Wiener, was roundly defeated by the state’s political establishment in brazenly hypocritical ways. The Sierra Club roundly opposed the bill, even though it would mean a drop in carbon emissions thanks to less sprawl and increased access to transit.

The support of someone as prominent Kamala Harris could have an effect the next time such a reform is proposed. To make genuine progress on this issue, though, she will have to set aside her counterproductive subsidy bill and engage with the much less glamorous process that leads to real reform. Whether she is willing to tackle the real housing problem or cares more about her national political marketing remains to be seen.