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Other Unintended Consequences <br />“Lock-In” Effect. Households residing <br />in affordable housing (built via subsidized <br />construction or inclusionary housing) or <br />rent-controlled housing typically pay rents well <br />below market rates. Because of this, households <br />may be discouraged from moving from their <br />existing unit to market-rate housing even when it <br />may otherwise benefit them—for example, if the <br />market-rate housing would be closer to a new job. <br />This lock-in effect can cause households to stay <br />longer in a particular location than is otherwise <br />optimal for them. <br />Declining Quality of Housing. By depressing <br />rents, rent control policies reduce the income <br />received by owners of rental housing. In response, <br />property owners may attempt to cut back their <br />operating costs by forgoing maintenance and <br />repairs. Over time, this can result in a decline in <br />the overall quality of a community’s housing stock. <br />MORE PRIVATE HOME BUILDING COULD HELP <br />Most low-income Californians receive little <br />or no assistance from existing affordable housing <br />programs. Given the challenges of significantly <br />expanding affordable housing programs, this is <br />likely to persist for the foreseeable future. Many <br />low-income households will continue to struggle <br />to find housing that they can afford. Encouraging <br />more private housing development seems like a <br />reasonable approach to help these households. But <br />would it actually help? In this section, we present <br />evidence that construction of new, market-rate <br />housing can lower housing costs for low-income <br />households. <br />Increased Supply, Lower Costs <br />Lack of Supply Drives High Housing Costs. As <br />we demonstrate in California’s High Housing Costs, <br />a shortage of housing results in high and rising <br />housing costs. When the number of households <br />seeking housing exceeds the number of units <br />available, households must try to outbid each other, <br />driving up prices and rents. Increasing the supply <br />of housing can help alleviate this competition and, <br />in turn, place downward pressure on housing costs. <br />Building New Housing Indirectly Adds to the <br />Supply of Housing at the Lower End of the Market. <br />New market-rate housing typically is targeted at <br />higher-income households. This seems to suggest <br />that construction of new market-rate housing <br />does not add to the supply of lower-end housing. <br />Building new market-rate housing, however, <br />indirectly increases the supply of housing available <br />to low-income households in multiple ways. <br />Housing Becomes Less Desirable as It Ages . . . <br />New housing generally becomes less desirable as it <br />ages and, as a result, becomes less expensive over <br />time. Market-rate housing constructed now will <br />therefore add to a community’s stock of lower-cost <br />housing in the future as these new homes age and <br />become more affordable. Our analysis of American <br />Housing Survey data finds evidence that housing <br />becomes less expensive as it ages. Figure 1 (see <br />next page) shows the average rent for housing <br />built between 1980 and 1985 in Los Angeles and <br />San Francisco. These housing units were relatively <br />expensive in 1985 (rents in the top fifth of all rental <br />units) but were considerably more affordable by <br />2011 (rents near the median of all rental units). <br />Housing that likely was considered “luxury” when <br />first built declined to the middle of the housing <br />market within 25 years. <br /> www.lao.ca.gov Legislative Analyst’s Office 7 <br />AN LAO BRIEF 8.A - Page 15