Whenever a natural disaster occurs, public officials commonly enforce “anti-gouging” laws, a type of price control.
The problem is, any price controls limit supplies, making shortages worse. President Nixon’s 1971 national price controls remain a disastrous precedent.
On Jan. 7 Gov. Gavin Newsom sensibly declared a State of Emergency to deal with the Pacific Palisades and Eaton wildfires, including easing construction regulations. Unfortunately, the declaration, by law, also included rent-increase limits of 10% for Los Angeles and Ventura counties for one-year leases. On Feb. 4 he expanded the declaration’s to leases of any length.
A Jan. 27 report by Rent Brigade identified “1,343 instances of illegal rent increases totaling $7.7 million monthly,” branding it “disaster capitalism at work.”
The mistake could expand. In a Jan. 31 letter, DAs Todd Spitzer of Orange, Mike Hestrin of Riverside, Jason Anderson of San Bernardino and John Savrnoch of Santa Barbara counties asked the governor for “an additional Declaration of Emergency” for their counties. Doing so “would allow us to aggressively prosecute those who seek to profit from victims who have lost everything.”
But the DAs miss the importance of profits. For example, the owner of a 10-unit rental building might want to convert it to condos, but postpones that to rent the units at 125% of the current price to make a quick profit. If that profit is illegal, the owner has no incentive to rent the units, worsening the rental shortage. And because rent controls cast uncertainty on future profits, overall future investment in new units could be slowed.
The DAs’ “request is currently under review,” Ed Chapuis told us; he’s a spokesperson at the Governor’s Office of Emergency Services. What should be done? In L.A. and Ventura counties, rent limits cannot be lifted without ending the entire emergency declaration, including the good parts speeding the recovery. Only the Legislature can change the law, which isn’t going to happen.
For the other counties, the best way to speed the overall Southland recovery would be to ignore the DAs’ request. Let the market work its magic.
