EP 2 - Nicole Montojo and Steve Barton on Rent Control

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In this episode of Who Belongs? we interview Nicole Montojo and Steve Barton, who recently co-authored a new research brief on the housing affordability crisis in California, called "Opening the Door for Rent Control: Toward a Comprehensive Approach to Protecting California’s Renters."

Nicole is a housing research analyst at the Haas Institute. She holds a Master's degree in city planning from UC Berkeley.

Steve is a former housing director for the city of Berkeley who holds a PhD in city and regional planning from UC Berkeley.

Find the report, along with a summary, press release, presentation video, and other resources, here.

For more episodes of Who Belongs? visit this page.

Soundtrack Credits:
Intro song: "Traction" by Chad Crouch
Outro song: "Wide Eyes" by Chad Crouch

 

Interview Transcript:

Marc Abizeid: Hello and welcome to Who Belongs?

Who Belongs? is a new podcast from the Haas Institute for a Fair and Inclusive Society at UC Berkeley, where we examine structures that perpetuate inequity and look at issues related to social inclusion and exclusion through a framework we call othering and belonging. I'm Marc Abizeid, one of the hosts of Who Belongs?

Today, we're talking with Nicole Montojo and Steve Barton, who recently co-authored a new research brief on the housing affordability crisis in California. Nicole is a housing research analyst here at the Haas Institute. She holds a Master’s degree in city planning from UC Berkeley. Steve, meanwhile, is a former housing director for the City of Berkeley who holds a PhD in city and regional planning, also from UC Berkeley. Welcome both.

Nicole Montojo: Thank you. Thanks, Marc.

Stephen Barton: Thanks for inviting us.

Marc Abizeid: Let's get right in to this new analysis you've published, which is called “Opening the Door for Rent Control.” The report's divided into two main parts. The first half describes this nightmarish reality that's facing millions of Californians with the skyrocketing rent prices, massive housing shortages, stagnant wages for millions of workers, which is driving people in to poverty and homelessness. So let's start off by talking about the scope of the crisis. I know the report talks about renters being overburdened by housing costs. Nicole, what does that mean to be overburdened by housing costs? And how many people is that affecting in California.

Nicole Montojo: So housing cost burden is commonly defined as spending 30% or more of your household's income on housing costs. So anything above 30% is what's typically considered unaffordable. What we did is look at the 2016 census data for all of California, and it shows that 54% of the state's renters are burdened by housing costs, and that's over 9.5 million households. And since 2000, that's an increase of 3.7 million. So that gives you a sense of how severe the crisis is, and how expansive it is.

Marc Abizeid: There's a graph in the report that also shows average rent prices in California from 1950 to 2017 adjusted for inflation. Basically, it just shows kind of the massive increases. There's a few dips, but then it continues to spike up. How does that compare with people's wages?

Stephen Barton: Well, unfortunately for the people who are paying those rent increases, wages have basically been stagnant for the past, well, for the past 20 years. Indeed, for a lot of people, the average wage when you adjust it for inflation has been stagnant for 40 years now.

Marc Abizeid: You have a lot of other figures in the report that talk about homelessness and poverty. How many people experience homelessness in California, and what does that compare to the rest of the country?

Nicole Montojo: So the state does what's called a point-in-time count of people experiencing homelessness every other year, and so they do this count on a single night. And what they found in 2017 for a single night in January was that there are approximately 134,300 people who are experiencing homelessness. And a lot of people also believe that that's an under-count.

Marc Abizeid: 134,000?

Nicole Montojo: Yes. And so that's a quarter of the people experiencing homelessness throughout the country, and it's the highest number for all 50 states. And so another thing to point out is that about 68% of that population doesn't have shelter, meaning they're residing in cars or parks or on the street, rather than, say, in an emergency shelter or transitional housing. And that's also the highest rate in the nation.

Marc Abizeid: Is that also a trend that's been worsening over time? Or is that something that goes up and down?

Nicole Montojo: Yes, it's definitely been worsening over time. And just the year from 2016 to 2017, the population of people experiencing homelessness in California increased by 16,000. So that's approximately 13.7% in just one year, so that gives you a sense of how extreme that is.

Marc Abizeid: And the report talks about the relationship between, they show a pretty clear correlation between rent prices and the rates of homelessness, doesn't it?

Stephen Barton: Yes. In fact, there's a study which basically says that, it was a study for the city of Los Angeles, and it said that for every 5% increase in rents and other, at least 2,000 people would end up on the streets. So if you project that out statewide, that's a pretty substantial number of additional homeless people.

Marc Abizeid: One of the things that makes the report so compelling is that it talks about how the housing crisis isn't just one of costs, but it really humanizes the crisis, and it talks about the social impact and who's being most severely impacted. It also talks about the relationship, or how the crisis affects people's physical or mental health or sense of belonging, sense of community and social support. Environmental health, air quality, traffic congestion, the academic performance of youngsters whose families are forced to move to low-income areas with bad schools, and just all these other things that you don't necessarily think about. It's not like, "Okay, I can't afford to live here anymore, so I'm just gonna take my stuff and move somewhere else and expect to have the same quality of life and the same standard of living as I did before." But it's a lot deeper than that, the effects of the crisis. So can you talk a little bit about those other effects of the crisis, starting with how it affects people's health, mental and physical?

Nicole Montojo: That's exactly right. That's one of the things that our research emphasizes, is that home is much more than shelter, and it really shapes so much in terms of a person's life and our overall societal outcomes that today are really deeply inequitable. And so housing and home defines so much. And so what we point out in the report is that the crisis is not only about the very real hardship that people are facing today. It's much more because the consequences of today can last for decades and generations and really impact a person's life over time.

We look at the research that's been done about the broader consequences that affect us all, but we also call attention to the tremendous body of research out there on the deep and long-lasting health impacts on individuals that are facing housing instability. And so we want to point out that there are these human costs that are really important for us to consider and that really direct what we should prioritize at this point in time. And the research shows that families facing housing insecurity are often forced to make trade-offs between different basic needs. There's a quote from Matthew Desmond, who says, "Rent eats first." And I think that's really apt. It really illustrates the struggle, as unaffordable rent might mean that you have to go hungry, that you might not take your medicine because you have to pay for your rent instead, and you might not be able to save or weather financial storms.

We don't always talk about those consequences when we are discussing the housing crisis, and we really want to bring attention to that because all of these things are very expectedly creating a lot of mental distress, and that's a tremendous distress for people are impacted. And the disconnection that comes with displacement is really a trauma. And on top of that, the physical impacts from health hazards and unhealthy living conditions, whether it's mold or pests, toxins that people might have to live with if they can't access adequate housing are also incredibly serious.

Marc Abizeid: The report also talks on that same point about how many in California are forced in to overcrowded housing arrangements, which can affect mental health, stress levels, relationships, sleep and which may increase the risk of infectious diseases. And you have a figure here that says, "Compared to those with stable housing, people experiencing housing insecurity are nearly three times more likely to be under frequent mental distress."

And then there's just one more section I wanted to read from in the report, which is a study by the Bay Area Regional Health Inequities Initiative that found that health impacts of residential displacement are "intense for children, causing behavioral problems, educational delays, depression, low birth weights and other health conditions. These can translate into poor academic performance marked by lower test scores, frequent absences in school and a lower likelihood of finishing school." I took that line from your report.

So that's about health and schools, but what about the issue of traffic congestion, which is a major issue, I think, in most metropolitan areas in California?

Stephen Barton: Sure, but I'm gonna go back just for a moment to the health and mental health impacts piece because I think it's worth noting that, whereas there used to be the widespread belief, I actually think the belief is widespread, but it's no longer agreed to by academic studies, that the United States had high social mobility, that people who started out poor could rise very easily, and that Europe was a place that had low social mobility, where people were frozen in place. And yet, over the past 20 years, studies have been showing that Europe actually has more social mobility, that people at the lower income levels are much more likely to move into higher income levels than they are in the United States.

And I think that likely major reason for that is that the United States allows a level of toxic poverty and allows, basically allows low-income and poor people to be pushed around, forcibly displaced and doesn't provide the kind of safety net that Europe does. And the result is that you get this kind of toxic distress that really harms people's physical and mental health.

Then, on top of that, we get to the kind of planning issues about, well, okay, and how do people get to work, for example? And what happens when you have a system that's raising the rents, especially throughout Coastal California, and in the centers of cities, where the jobs are concentrated is? You're pushing the lower income people who are not homeowners out farther and farther from where the jobs are, and the result is that they're filling up the freeways, engaging in long commutes, and at the same time, those are the people who can least afford cars and gasoline.

Stephen Barton: So you're making it harder and harder for them to access those jobs, and again, harming their social mobility and their chances of getting jobs and improving their situation.

Marc Abizeid: Yeah, and polluting the air with smog in the process.

Stephen Barton: Yes.

Marc Abizeid: Can you also talk little about, this was a big point in the report, about the disparate impacts of the housing crisis on certain groups of people? They're identified in the paper as seniors, Latinos, African Americans, low-wage workers, families with children and people with disabilities.

Nicole Montojo: It's important to acknowledge that not everyone is equally impacted by the crisis, and one of the things that we point to in the report is the disparate rates of renter cost burden, which is if you're looking by race and ethnicity, there are really big differences. So among black renters, 64.1% are rent burdened. And that's compare to 49.8% of white renters. And Latino renters also have a really high rate of rent burden, 57.6%. And another thing to note is that the census measures both moderate rent burden, which would be 30-49/50% of your income. And they also look at severe rent burden, so if you're spending 50% or more of your income, that's technically severe rent burden.

And while Asian Americans have a lower rate of overall rent burden, 49%, so slightly lower than white renters, their rate of severe rent burden is actually pretty high. It's 27.4%, which is close to what the rate is for Hispanic or Latino renters, as well.

Marc Abizeid: And there's an important line I wanted to also read from your report, which kind of illustrates the sort of cycle of poverty. You write, "Rapidly increasing rents are displacing members of marginalized populations to areas with fewer resources, fewer quality jobs, well-performing schools and other opportunities for upward mobility, essentially reproducing racial sociospatial segregation, particularly in suburban areas far from urban job centers."

So essentially, we're rolling back a lot of the progress we've made over the last 50, or so-called progress we've made, since the Fair Housing Act 50 years ago.

Nicole Montojo: Yeah. That's exactly what we mean when we talk about the long-lasting consequences that we are facing, given what's happening today. So it's more than the inconvenience of traffic, and it's also the effects of pollution that will go on and are directly related to our climate challenges. And then also, yes, it's this about reproducing spatial inequality.

Marc Abizeid: There was another figure here about the racial disparities, where it says it's also reflected in the experience of homelessness. While African Americans make up 6.5% of California's population, they represent 27% of persons experiencing homelessness.

Nicole Montojo: Mm-hmm (affirmative)-That's exactly right, and there is another data point that I wanted to mention. There was a study recently that found that less than 1%, so actually 0.6% of rental listings in the entire San Francisco Metropolitan Area are within the typical black household's budget compared to half of the rental listings that would be affordable to the typical white household in San Francisco. And so that gives you a sense of, if a family who's black is displaced from their home in San Francisco, they're highly unlikely to be able to find a place that they could afford within the city, which would mean that they would be more likely to be pushed out to an area outside of San Francisco where there are fewer jobs or less opportunity overall.

Marc Abizeid: I think that's a good summary of the first part of the report, which kind of just gives the scope of the crisis. The second half is the part that provides some of the solutions, some of the remedies. And first one, the principle one being the expansion of rent control. In the paper, you describe rent control as being first and foremost an anti-displacement tool. Can you explain what that means?

Stephen Barton: Sure. Even California's current form of rent control, which is severely limited, where it has what's called vacancy decontrol, whereas when a tenant moves, the landlord can raise the rent for the next tenant to whatever the market will bear. But even so, rent control for the current tenant, once they've gotten in to a place to live, gives them a predictable rent. So as long as they're able to maintain their income and keep paying it, they know what they need in order to keep their home, basically. And they aren't at risk that their neighborhood will become a hot neighborhood, that a tech giant will open up a new headquarters or wing of a headquarters and flood the area with high-paying jobs, and even if that happens, the landlord can't simply raise the rent to what the new market will bear level is. The tenant has a right to stay there. Usually, rent control ordinances are accompanied by what's called good cause for eviction, so that the landlord can't simply say, "You have to leave so that I can charge a higher rent to the next tenant." The landlord has to find that the tenant failed to pay their rent or damaged the unit or violated their lease in some way.

So that combination of rent control and good cause for eviction really greatly diminishes the amount of displacement that takes place in a rising market like the Bay Area's.

Marc Abizeid: One of the points that the paper makes is that rent control helps preserve economic diversity, meaning that poor people and rich people or wealthier people live together in the same neighborhoods. Why is that important?

Nicole Montojo: That's certainly related to what Steve had just mentioned, and for us, that's something that we value and believe in. And we also, based on some of other work, we've found that that is definitely something that a lot of Californians believe in. We talk about a survey that we did through our Blueprint for Belonging project that discusses some of what Californians value. And when we asked how important is it that Californians work together across racial groups to create fair and equitable public policy for everyone, 66% of people responded that it's very important to them. And so when we talk about preserving economic diversity, we're talking preserving what makes California what it is. And a the core of this, it's about who belongs in California and who is able to have the choice to stay in their homes.

Marc Abizeid: Now, the main argument against rent control is one, I think, that you're exposed to in high school when they tell you, "Oh, this is the trade-off. You get rent control that it benefits a few people, but as a whole it's not good because developers don't want to build units in rent-controlled areas because they don't want the state governing the prices. They're not gonna be able to turn a profit."

How does the analysis take that into account?

Stephen Barton: Well, one thing we have to understand is that housing is not an ordinary commodity like, say, heirloom tomatoes. If a whole lot more people want heirloom tomatoes, in the short run, the price will go up. Farmers will plant more tomato vines. In fairly short order, they'll produce a lot more heirloom tomatoes, and that will push the price back down. If the farmers double the production of heirloom tomatoes, then the following year, everybody gets twice as many heirloom tomatoes.

But when you're talking about housing, which is incredibly expensive to build, if we double the production of housing in the state of California, we will go from increasing the supply by 1% to increasing the supply by 2% in the following year. So the reality is that most people live in existing housing, and it takes a long time to build more new housing.

The next point that has to be understand is that most tenants don't live in new housing, and they can't afford to live in new housing. What they can afford is to live in older housing, where the cost of constructing that housing was paid off long ago, and where the landlord can, if pushed by a substantial supply so that it's a competitive situation, the landlord can produce, or can rent, the housing for the cost of operating and maintaining, plus a modest profit, which in most of the United States of America, by the way, is for an average landlord somewhere between $800 and $900 a month. In the Bay Area, it's at least double that.

What happens is that new housing gets built only for those people who can pay very high rents so that they're paying not only for the cost of operating and maintaining the housing, but also paying off that high cost of construction over 10 or 15 or maybe 20 years. So the market for new construction, unlike the market for tomatoes, responds only to the highest income segment of tenants.

So to the extent that the market works as a market, where a rising price is an indicator that more needs to be produced, it only matters if the price goes up for new construction, which every rent control system exempts so that it can go up for some period of time. Most tenants live in existing housing, but nobody can produce older housing. They can only produce new housing, and then you can wait for 20 years or longer for that housing to become older and possibly filter down in prices to other tenants.

So what happens is, you have an entirely necessary set of rent increases on the majority of tenants because rents go up on that older housing, where the increase in price doesn't lead to more housing being produced at all. It's a little complex, but it's really critical to understand that because housing is a different kind of commodity from heirloom tomatoes, that it simply doesn't work that way, and rent control, keeping down the unnecessary price increases on the older, already-built housing, will not have harmful effects on the market if it's done right. But it will protect the tenants from the kind of massive transfer of wealth from people who don't own real estate to the investors who do own real estate.

Marc Abizeid: Can you talk a little bit about the rules that govern rent control? Because a lot of units, all new units, they have restrictions against rent control, don't they?

Stephen Barton: Well, currently in the state of California, there is legislation that is referred to as Costa Hawkins Act because it's named after a couple of the legislators who sponsored. And what it does is it says that no housing built after 1995 can be subject to rent control, and for cities that had rent control at the time the law was passed that whatever date they had set for exemption is frozen place, which means that in Los Angeles, San Francisco, everything built since 1978 is exempt from rent control. It's somewhat of a travesty to say that housing that's now 40 years old is new housing that should be exempt from rent control, but that's what the law says.

Stephen Barton: It also says that single-unit properties, which means single-family homes and condominiums, can't be subject to rent control, even though one of the phenomena of the past decade since the financial crisis has been large, Wall Street, hedge funds and other major investors buying up single-family homes by the thousands. And then the third restriction is that the landlord gets to set the rent at whatever the market will bear when a tenant moves out, which creates a fairly strong incentive for landlords to try and push long-term tenants out of their homes so that they can get the much higher rent that they could get in the current market.

Marc Abizeid: So the state really creates a commodity of units that are eligible for rent control in the state.

Stephen Barton: Yes, it basically creates a smaller and smaller percentage of the state's rental housing that's covered by rent control. So in the city of San Jose, for example, the majority of the multi-family rental housing has been built since 1980, and there is no way to provide protection for the tenants who live there.

Marc Abizeid: But when about when you hear about new developments going up, and then they say, "Well, a few of these units in this development are gonna be low-income housing. They're gonna be rent control." How does that work?

Stephen Barton: That's something that is usually referred to as inclusionary housing, where a city, Berkeley has that, for example, it requires that 20% of the units in a particular project be set aside for low or very low-income tenants. So that's one way that communities can get some immediate affordable housing out of new development.

Marc Abizeid: There's a possibility now that these laws governing rent control might change. Isn't there a referendum coming up on the November ballot that could change that, could reverse Costa Hawkins?

Nicole Montojo: Yes. Essentially, exactly that, it would repeal Costa Hawkins. And that's Proposition 10 that the state will vote on in November.

Marc Abizeid: But if it did pass, that wouldn't mean automatically that the whole state is eligible for rent control, right?

Nicole Montojo: It would allow for local governments to make their own decision about whether they should pass rent control at a local level. So it's a little different. It's not that rent control would be implemented across California immediately because the proposition passed.

Stephen Barton: Yeah, what it really means is that at the local level, people can have a conversation about do we want rent control? What kind of rent control do we want? And try to arrive at something that they feel matches the needs of their community, instead of having the state, through the legislature, dictate what the limits are of what they can do.

Marc Abizeid: Now, the paper talks about rent control as being kind of the main prong in a multi-prong approach to the housing crisis. But it does acknowledge that rent control alone cannot solve the crisis. So what are the other policies that need to be coupled with rent control in order to approach the crisis long term? And can you frame it, in the paper you frame it within this five-P strategy, the five Ps being protection, production, preservation, power and placement? Can you take us through some of those?

Nicole Montojo: Yes, we like alliteration. Yeah. That's exactly right. We lay out those five Ps, and when we're talking about the five prongs, I like to think of rent control, not necessarily as the most important, but it's foundational and it's essential and provides an anchor for other approaches to housing policy because without it, if we don't rent control and prices continue to increase, if more folks are displaced, it will be too late by the time any of the other benefits of policy solutions are realized. Because like Stephen mentioned, it takes a really long time for housing to filter down and for even housing to be built.

So we want to emphasize that it's not an either or decision. It's not that we can or need to do rent control only or production only. It's that we need all five of these strategies together to get to a comprehensive solution that really responds to the needs of all Californians.

And so just to say a little bit more about those different Ps, when we talk about protection, we're talking about rent control, but also just cause for eviction policies and other policies that protect tenants and socioeconomically disadvantaged residents from displacement. And production, which we also discuss in the paper, we're referring to increasing the production of new housing, whether that's generating funding and also inclusionary housing policies like Steve mentioned would be considered production strategies.

Preservation, simply preserving existing affordable housing, which is important because we need to build more, but we can't lose what we already have. And power and placement are two that are, I think, newer to the conversation. A lot of housing advocates have been talking about the first three for a while, but there are more folks who are now talking about power and placement, meaning ensuring equitable community participation to get to responsive and inclusive housing decisions. And also, thinking about placement and what that means in terms of where housing is located and its proximity to opportunity and what sort of access it creates, and how do we build housing in the places that create opportunity for the people that live there?

Marc Abizeid: Okay. I think we're running out of time, but is there anything else you wanted to discuss or you think people should know about the housing crisis that we haven't already discussed.

Stephen Barton: Well, I'd add sort of one thing to what Nicole already said, which is that there has to be a broad effort at social equity. So while agree with all the housing strategies that she's mentioning, the fact that for ordinary people, wages and incomes have been relatively flat for 40 years while the national product has been going up, that it's virtually all being taken by people in the top 10%, 5% and 1% is an absolutely appalling thing, and there needs to be a broader movement that raises the minimum wage, that makes it easier for people to join unions and effectively organize for higher wages. There need to be all kinds of efforts at increasing the level of social equity so that we do become a more equal and reasonable and fair society.

Marc Abizeid: Okay.

Nicole Montojo: Thank you for mentioning that, yeah.

Marc Abizeid: Thank you, Steve. And thank you, Nicole. Did you want to add something?

Nicole Montojo: Yeah, I just wanted to add that the point we really get to at the end of the paper is that we need to be able to have these conversations about rent control and the policy designs that work for local jurisdictions because the answer isn't going to be the same in every city. So we don't put forward a specific policy recommendation because that's something that we still need to have as a conversation broadly with people throughout the state, and everyone needs to be able to have that conversation. And right now, we can't.

Marc Abizeid: And that wraps up this episode of Who Belongs, where we've been talking with Nicole Montojo, who is a housing analyst for the Haas Institute, and Steve Barton, who's a former housing director for the City of Berkeley, about their new report titled Opening the Door for Rent Control, which is available for download on our website at HaasInstitute.Berkeley.edu.

If you enjoyed this interview and want to hear more episodes of Who Belongs, visit us online at HaasInstitute.Berkely.edu/WhoBelongs. You can also find us on social media using our handle @HaasInstitute. Thank you for listening.