A proposed ballot initiative that supporters call the “Tenant Justice Act” is on the streets for signatures. If you want to see more homes built in California, don’t sign it.
The measure is circulating under the official title “Expands the power of local governments to enact rent control on residential properties”. This is the third attempt by the Los Angeles-based AIDS Healthcare Foundation to convince California voters to repeal the Costa-Hawkins Rental Housing Act of 1995, which placed limits on local rent control laws.
AHF’s first trial was Proposition 10 in 2018. The campaign to support the measure spent $25.6 million, including $22.5 million for the AIDS Healthcare Foundation. Prop. 10 was beaten by a margin of 59.43% to 40.57%.
Then in 2020, the AHF tried again with Proposition 21. The campaign to support Prop. 21 raised $40.8 million, of which $40.6 million was donated by the AIDS Healthcare Foundation. Prop. 21 was also beaten, 59.85% to 40.15%.
Last year, on December 22, a new initiative was filed with the Attorney General’s office to try again to convince voters to repeal the 1995 law. The measure needs 546,651 valid signatures by the August 28, 2023 to qualify for the November 2024 ballot.
But the voters were right the first two times. It’s a terrible idea.
The Costa-Hawkins Rental Housing Act of 1995 did some things to limit the scope of local rent control laws. For example, it protected the right of landlords to increase the rent to the market rate of a dwelling after the departure of a tenant. Without this protection, an incoming tenant would pay the same rent as if the outgoing tenant was still there, even if maintenance costs, utilities, landscaping, insurance, taxes, security, and property rates mortgage interest increases. The rental housing business would be unsustainable.
Costa-Hawkins also prevents cities and counties from enacting rent controls on single-family homes and condominiums. And it prevents local rent control on units built and first occupied after February 1, 1995.
If Costa-Hawkins is repealed, every city council and county board of supervisors could, at any time, pass sweeping rent control legislation that would completely change the economics of the rental housing industry. Even without actually passing a law, if the distant sound of voices simply proposing new laws reaches the offices of lenders and developers, it could be enough to cause the cancellation of new housing projects. Real estate developments require long-term financing and the possibility of unlimited rent control in the coming years will become a new risk factor.
In 2017, three Stanford University scholars published an article titled “The Effects of Rent Control Expansion on Renters, Landlords, and Inequality: Evidence from San Francisco.”
The study by Rebecca Diamond, Tim McQuade and Franklin Qian found that “rent control increased the likelihood that a tenant would stay at their address by nearly 20 percent.” These tenants experienced an advantage. However, the study also found that landlords whose properties were under rent control “reduced their supply of available rental accommodation by 15%”. They did this by redeveloping buildings, converting them to condos, or “selling to owner-occupiers.”
The result was “a 7% increase in citywide rents” and “$5 billion in welfare losses for all tenants.”
In other words, rent control is good for people who take the deal, but inevitably it reduces the number of available apartments, and it ends up costing everyone else more.
Costa-Hawkins isn’t the only law rent control proponents love to hate. Some have expressed a desire to repeal the Ellis Act, which protects rental property owners’ right to shut down.
Now, why, you might be wondering, in a free country, does California need a law that says people have the right to file for bankruptcy?
Because in 1984 the California Supreme Court ruled no.
The case was Nash v. the city of Santa Monica. Jerome J. Nash bought a six-unit apartment building in Santa Monica in 1978, and then in 1979, city voters passed an initiative to implement rent control. Nash decided he didn’t want to own it and applied for a permit to demolish the building.
Santa Monica said it would first have to prove it couldn’t get a fair return on its investment, and that it would also have to show that removing the units wouldn’t displace low- or middle-income people or n would not affect the city. housing offer.
The state Supreme Court sided with Santa Monica and ruled that Nash had no right to file for bankruptcy because the city’s housing supply was simply greater than his rights.
This caused a healthy dose of outrage and the result, two years later, was the Ellis Act, a law that allows rental property owners to vacate an entire building and opt out of the rental housing industry.
California now has statewide rent control, and in case that’s not enough to discourage investment in new apartment buildings, we just had three years of pandemic restrictions that prevented countless rental property owners collect rent.
Is the government supposed to step in and use public funds to build all the necessary housing when private investment flees the housing sector? How many tax increases would that require, and how many U-Haul rentals and “Closing Business” signs would result?
Rent control is an unfortunately counterproductive policy that gradually reduces the supply of housing. It is unfortunate that the AIDS Healthcare Foundation is once again pursuing this quest to repeal reasonable limits.
Write to [email protected] and follow her on Twitter @Susan_Shelley
