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Is Rent Control Coming?

Is Rent Control Coming?

The November elections are just a month away and a very important measure will be presented to all California voters: Proposition 10.


If passed, Proposition 10 will repeal the Costa-Hawkins Act of 1995 which limits local city governments from enacting rent control measures on single family homes or any multi-family housing built on or after February 1, 1995. Costa-Hawkins prevents cities from regulating what a landlord can charge for rent to a new tenant moving in.


If Costa-Hawkins is repealed cities can begin to create rent control laws that regulate single family homes instead of just multi-family homes as well as limits on rent increases for new tenants.


Prop 10 Background


To briefly summarize the measure, it claims that California has the highest median rents of any state in the country and has had the 4th highest rent increases over the last several years.


The state has found that over half of all California renters spend over 30% of their income on rent, which according to the Federal Government makes their rent unaffordable. In fact, approximately one third of California renters pay over 50% of their income in rent.


Homeownership rates have fallen to their lowest since the 1940s and approximately 25% of millennials between the ages of 25-34 still live with their parents.


California is home to 22% of the nation's homeless and three times as many Californians are living in overcrowded apartments as compared to the U.S. as a whole.


Increased housing costs means renters are forced to find places to live far away from where they work which is increasing traffic in California and harming the environment.


All of these combined issues have led to the proposal to repeal Costa-Hawkins so that cities and counties can make an attempt to lower rents and increase affordable housing for renters.


Prop 10's Promise


Prop 10 promises to restore authority to local cities and counties to control rent prices and thus ensuring that renters are able to find affordable places to live.


It also promises to improve the quality of life for millions of California voters and decrease homelessness. It will help the environment and decrease traffic as less people will be commuting so far to get to work.


Lastly, Prop 10 promises that a landlord's right to a "fair return" on their rental property shall not be abridged by any city, county or city and county. It is not clear how "fair return" is determined.


All of these promises are excellent goals and address real and important issues that all Californian's face. These are seemingly noble goals and the argument that controlling rent will address these issues is logical.


The question is, can rent control solve these problems?


Current Rent Control Effects In California


Rent control is currently alive and well in approximately 15 California cities, the most notable of which is San Francisco. A Stanford study released in October 2017 showed that rent control in San Francisco reduced housing available to renters by 15%.


Why? Since condos aren't covered by rent control, property owners converted several multi-unit apartments into condos or redeveloped them to exempt themselves from rent control. Several also sold to owners that planned on occupying the home instead of renting it out.


The city also saw a 7% increase in rent and over $5 billion in welfare losses to all renters.


The effect of rent control in San Francisco? Less rentals on the market and higher rents. The exact opposite of what rent control measures promise.


The Concern With Prop 10


Beyond converting multi-unit apartments to condos in order to avoid rent control, many property owners will likely convert their long-term rentals to short-term rentals using services such as AirBnb and VRBO in an attempt to receive a higher return. Rent control won't affect short-term rentals. This will further exasperate the housing supply issue that other cities such as San Francisco have seen.


The passing of Prop 10 will also likely decrease housing prices by as much as 10% according to an MIT study which would result in the average California homeowner losing approximately $60,000 in value.


Prop 10 would also discourage new construction due to a predicted decrease in home values and less interest from investors wanting to purchase rental property in California. This leaves the market for new construction to buyers that intend to occupy, which does nothing to increase affordable housing for renters who cannot afford to buy but would be able to rent one of these new homes.


Will Prop 10 Pass?


Even the briefest research into Prop 10 will show that the numbers just don't add up. Research from Standord, UC Berkeley and USC all show that rent control will decrease affordable housing in California. Historically, rent control has increased rent, not decreased it.


However, the name "rent control" sounds like an excellent idea to anyone who is currently paying rent and feels that it is too high.


Many people will not do any research into the matter and will simply vote to pass Prop 10 believing they are acting in their own interest to decrease rent. And the fact is, rent is extremely high in California and the housing crisis is real and serious.


In 2016, 46.36% of Californian's were renters and that number has certainly increased in the last 2 years. What this means is that almost half of all voters on November 6 will be renters. Even if Prop 10 doesn't pass this time around, as the number of renters in California increases along with rent amounts, the next time a similar measure is proposed the likelihood of its passing will only increase.


Whether or not Prop 10 or future versions of it pass are dependent upon whether or not renters are educated as to the true effects of rent controls and its alternatives. The way it will read on the ballot makes it sound like an excellent idea that will solve the high rent problem in California. If no prior research was done by voters, this measure will only make sense to vote yes on in the voting booth. Landlords and homeowners are largely expected to vote against it.


What Will The Immediate Effects Of Prop 10 Be?


In short, the immediate effects will be minimal. Since Prop 10 simply repeals Costa-Hawkins, cities and counties will still have to propose their own rent control measures on their next ballots that must also pass.


Rent control has proven to do the exact opposite of what it tries to accomplish. While something does in fact need to be done about the housing and homeless crisis in California, rent control has shown in the past that it does not assist in this area.


For landlords and tenants alike, rent control is a net negative. However, regardless of your stance on rent control or any other measure that will be proposed in November, it is important that all members of the community participate and vote. If you are not registered to vote, you can do so here.