A newly proposed rent ordinance targeting “junk fees” levied by landlords in the city and county of San Diego seeks to target some of the causes of high housing costs, but it ignores the greatest cause of all: government laws and regulations.
The proposed ordinance, sponsored by San Diego Councilmember Sean Elo-Rivera and San Diego County Supervisor Monica Montgomery Steppe, would prohibit landlords from charging certain fees, such as pet rent to protect against damage to properties and trash “valet” fees, which charge tenants for transporting their trash to pickup points like dumpsters. The ordinance would still allow for pet security deposits, although, as a 2018 San Diego Union-Tribune article explains, these can be questionable legal territory, which is why most landlords have moved to pet rents instead.
The ordinance would also limit total fees to no more than 5% of a tenant’s rent, and cap late fees at no more than 2% of rent. In addition, no charges not included in the original rental agreement could be imposed.
While such fees might seem maddening or unnecessary, it is understandable that landlords would try to find creative ways to protect their investments, particularly in the wake of the COVID-19 eviction moratoriums that particularly harmed smaller “mom and pop” landlords, who were struggling financially themselves, and the numerous other laws and regulations that drive up costs and make it difficult to remain in business.
Even if the measure were to be successfully implemented, it would not guarantee that housing costs would actually decline. The ordinance would not magically make the costs that landlords must pay to maintain their properties go away, so if fees were eliminated many would likely make up for it by simply raising rents. They may also feel compelled to put off planned maintenance improvements or cut back on amenities.
For some, the ordinance will be the last straw, prompting them to sell their properties. Many of those sales will be converted into owned homes or other uses, removing rental units from the market permanently. Others who might have considered becoming landlords or developing rental properties will be scared off by such government intrusions into the market and go elsewhere. The result will be reduced supply, higher rents and poorer quality housing.
Elo-Rivera told the Union-Tribune that the rental ordinance is intended to stem San Diego’s rising cost of living by eliminating some of the “unnecessary causes” of high housing costs. But if he is sincere in cutting these unnecessary causes of the housing affordability crisis, he should start with the government.
A 2022 study from the National Association of Home Builders and the National Multifamily Housing Council found that government regulations comprise an average of just over 40% of the cost of building multifamily housing developments nationwide. A prior study from the Fermanian Business & Economic Institute at Point Loma Nazarene University similarly determined that about 40% of the cost of building housing in San Diego County was due to government regulations.
Moreover, according to the NAHB/NMHC study, a whopping 88% of multifamily housing developers avoid building in places with rent control, and 48% avoid building in places with policies such as inclusionary zoning, which requires that developers either designate a certain portion of units as “affordable housing” (to be sold or rented below market prices) or pay the government “in lieu” fees that are intended to be used to build affordable housing. Such policies simply make it unprofitable or too risky for developers to do business.
The lesson is that simply trying to impose or shift more costs to landlords and developers through various laws and regulations only exacerbates the housing affordability problem by discouraging both current and future housing development, thereby restricting supply and driving up prices. In other words, you cannot solve the housing problem by making housing less profitable and less desirable an investment. We could encourage more housing development and drive down prices, however, merely by removing the many government-imposed obstacles that make it so expensive, from restrictive zoning ordinances to unnecessary building standards and environmental regulations, to lengthy, costly and litigant-friendly development review processes and many more.
It is no secret why bad economics can make for good politics when it comes to rental housing policies. As journalist and economist Henry Hazlitt noted in his insightful and influential book, “Economics in One Lesson,” “Tenants have more votes than landlords.” But by electing politicians who promise to give them something for nothing and ignore economic consequences, they only end up hurting themselves.
Summers is a columnist, economist, and public policy analyst, and a former editorial writer for the Orange County Register / Southern California News Group.