The Santa Barbara City Council voted 4-3 last week to approve what it calls “rent stabilization.”
Starting Jan. 1, rent increases on covered units will be capped at 60% of the Consumer Price Index or 3%, whichever is lower.
The rent stabilization name is gentle. The policy is rent control, and the economics don’t change because the label does.
I have written before about how rent control shrinks the rental supply, with evidence from Sweden to San Francisco going back more than 80 years.
Here I want to make a broader point: This ordinance will hurt nearly everyone in Santa Barbara. The City Council looked at one dot — rents rising too fast — and never connected it to the others.
Start with the Arithmetic
Tying the cap to 60% of inflation guarantees that the real rent on every covered unit falls every year.
If inflation runs at 3%, rents can rise 1.8%. After 10 years, the inflation-adjusted rent is about 11% lower; after 20 years, about 21% lower.
Costs are not capped at 60% of anything. Under Proposition 13, a property’s assessed value — and so its tax bill — rises 2% a year.
Insurance premiums have soared. The producer price index for construction materials, which covers what it costs to fix a roof or replace plumbing, is up about 60% since early 2020.
Rental properties locally trade at cap rates of roughly 5% to 6%, the annual return on the money invested.
When revenue is capped below inflation and costs are not, that return shrinks until a Treasury bond looks better — without tenants, repairs or a rent board.
This is not about greedy landlords; many are local families and retirees. Faced with a shrinking return, owners sell to owner-occupants, move in themselves or stop spending on the building.
Developers do the same math and build somewhere else.
Next, the Renters
Tenants in covered units get rents that rise slowly, and that benefit is real. But when revenue can’t cover costs, maintenance is the first thing cut.
The roof gets patched instead of replaced. The carpet stays another five years. The worn-out refrigerator gets repaired one more time, the walls go another few years without paint, and the leaky faucet waits.
The building gets a little shabbier every year.
Now Connect the Dots to Everyone Else
When the rental supply shrinks and construction stalls, the people who pay are the next ones in line: the restaurant server, the hotel housekeeper, the nurse Santa Barbara Cottage Hospital is trying to recruit, the teacher the school district hopes to hire.
Controlled units rarely turn over, and the uncontrolled market becomes more expensive. So employees commute from Lompoc or Ventura, or they don’t come at all.
Restaurants cut hours, hotels struggle to fill shifts, and Highway 101 gets more crowded.
Homeowners who have never rented a unit are affected, too. Deferred maintenance spreads into neighborhood decline, which pulls down property values next door.
When Cambridge, Massachusetts, ended rent control in 1995, MIT economists David Autor, Christopher Palmer and Parag Pathak found that property values rose sharply, and not just for the formerly controlled buildings.
Much of the gain went to never-controlled properties nearby, roughly $2 billion in all. Rent control had been dragging down the value of homes that were never subject to it.
Lower property values also mean a smaller tax base and less money for schools, parks and public safety.
‘But This Ordinance Is Different’
Rent stabilization supporters will note that state law exempts single-family homes and buildings built after 1995 and lets rents reset when a tenant moves out, and that the City Council exempted Housing Authority-owned and deed-restricted units.
These provisions weaken the effects somewhat, but they don’t make them go away.
In 2019 research, now-Harvard University economist Rebecca Diamond and her then-Stanford University co-authors studied San Francisco under these same state rules and found that landlords subject to control cut rental supply by 15%, raising rents 5.1% across the city.
Softening changes how fast the damage comes, not whether it comes.
The Problem of Housing Affordability
Housing affordability is a real problem, and we all want teachers, nurses and service workers to be able to live here.
But landlords didn’t cause it, and it is neither fair nor effective to make them alone pay to fix it.
If bread were “too expensive,” we wouldn’t force bakers to sell below cost. We would help the people who need it, and housing vouchers do that without choking off supply.
The long-run fix is building more housing, and Austin, Texas, shows what that looks like.
Between 2015 and 2024, Austin expanded its housing stock by 30%, more than three times the national rate. Its median rent went from 15% above the U.S. median in 2021 to 4% below it by January of this year.
Some of the decline reflects slower migration, but rents fell even as the city kept growing. Rents in older, lower-cost buildings fell about 11%. No rent board, no registry, no cap. Just more homes.
Rent stabilization appeals because it is easy: one vote, no new taxes. But it picks winners: the tenants who already hold a covered lease.
But even they win less than it appears. Their rent rises slowly, but the rent buys a little less apartment each year, and the longer they stay, the more it costs them to leave.
Everyone else — the next renter, the nurse who can’t find a place, the homeowner down the street, the restaurant that can’t find staff — pays the full price.
That’s not a policy for the community. It’s a shrinking benefit for one part of it, paid for by the rest.
The dots run from the rent cap to the landlord’s books, to the building that doesn’t get built, to the nurse who takes a job elsewhere, to the neighborhood that slowly declines.
The City Council still has to formally adopt the ordinance. It should take the time to connect them.
