California real estate

The Idea of Rent Control Won’t Go Away in California – but Should It?

By Anthony SanFilippo
January 2020

Some ideas, no matter how flawed, just never go away. In California, one of those ideas is rent control.

And now, after voters in the Golden State overwhelmingly rejected an effort to expand rent control in 2018, they’re probably going to have to duke it out at the polls again.

That’s because in December, the AIDS Healthcare Foundation, a Los Angeles-based nonprofit that spearheaded the same ballot initiative a year ago, submitted just shy of one million signatures to get it back on the ballot for November 2020.

“The housing affordability and homelessness crises are the most pressing social justice and public health emergencies in our time,” Michael Weinstein, president of the AIDS Healthcare Foundation, said in a statement published in the San Francisco Chronicle. “We must take action to stop it now.”

“California’s housing affordability issue isn’t that hard to explain. It is the most populous state in the country. As such, the demand for housing is quite high and the supply is disparagingly low.”

And the notion of making rent more affordable is a well-meaning one that on the surface, makes some sense. Capping rent increases allows more people to be able to afford the housing they need and would seemingly start to eat away at the size of the homeless population.

However, that’s pretty much been debunked over years of studies of housing markets, affordability, and availability – even in California itself – have created more unintended consequences.

San Francisco and Los Angeles are two places with longstanding rent control laws on the books.

And yet, they remain two of the least-affordable cities in America to live in and both have homelessness problems that are completely and embarrassingly out of control.

California’s housing affordability issue isn’t that hard to explain. It is the most populous state in the country. As such, the demand for housing is quite high and the supply is disparagingly low.

Any macroeconomics 101 class in college will tell you that to lower the demand, you need to increase the supply.

However, rent control has a history of doing just the opposite.

That’s because landlords are business people. And if they find that there isn’t enough profit in renting – and their profits definitely diminish, if not disappear entirely with rent control capping rent increases – then they’ll simply take their homes off the market.

That has happened continually in San Francisco, where year over year the numbers get worse and worse. With fewer housing options available, non-rent-controlled properties spike their rents even higher than before, and these units become even more less affordable.

This is counter-productive in California, which needs more housing, not less. And in 2018, voters understood that and crushed Proposition 10 at the ballot box.

Nevertheless, it looks like it’s coming back again.

That’s because rent control advocates have been emboldened by the state legislature passing the first statewide rent cap in October, done so with the support and urging of California Gov. Gavin Newsom.

The new cap sets a maximum annual rent increase at 5 percent plus regional inflation and also provides eviction protection for some longer-term tenants.

It did not repeal the much-debated Costa-Hawkins Rental Housing Act of 1995 which limits cities to adopt rent ordinances for new housing and prohibits local governments from imposing rent control on vacant units or on single-family homes.

While that deal may seem like a win for rent control advocates, those at the AIDS Healthcare Foundation do not think it went far enough and believe the political leaders in Sacramento caved too hard on a deal with landlords.

Which is why the push is back for a ballot measure in 2020.

There is no guarantee that the measure will make it onto the ballot. Submitting signatures is just the first step. There is some bureaucratic red tape that will run through the Secretary of State’s office to confirm signatures that could take until February.

The measure needs about 623,000 valid signatures from registered California voters to qualify for the November ballot.

If approved by voters, it would repeal Costa-Hawkins and give cities more authority to create their own rent controls for homes built after 1995. It would also go into effect for landlords who are renting out three or more single-family homes.

Additionally, like the new statewide rent cap, it would exempt units that were built after 2005, though unlike that law which expires in 2030, the changes would be permanent.

According to the Chronicle, the California Apartment Association, which represents owners and developers of rental properties, said the proposal was too extreme and would discourage new construction or even limit the availability of existing units because the profit margins would be reduced or even eliminated altogether.

Tom Bannon, CEO of the Association, said in a statement published in the Chronicle that the proposal to cap rent increases on vacant units “would lead to a mass exodus from the rental housing market and exacerbate California’s housing shortage.”

 


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