November 2018 marks a critical time for California voters and the ballot proposal (Proposition 10) to repeal Costa-Hawkins Rental Housing Act (also known as ‘Costa-Hawkins’).  

This California state law was put into action in 1995 and set limits around rent control for buildings that were built before February 1995. It also prohibits municipalities from expanding rent control to include “vacancy control.” This refers to taking away the rights of landlords to increase rent of vacant units to match market price.

This is obviously a very hot topic in our market given inventory, home prices and days on market.

To help provide some additional insight on this topic, we’ve created a list of common arguments for and against the repeal.

There are two distinct sides to this Proposition, and two key figures recently shared their thoughts about the pros and cons at a recent public forum meeting held by The Urban Land Institute of San Francisco at the Google Community Space

No on 10 (to not repeal Costa Hawkins)

According to John Eudy, co-chair of the “no” campaign Californians for Responsible Housing, here are a few reasons to vote NO on Proposition 10. And, while Eudy doesn’t support the repeal, he is open to amending it.

  • Costa-Hawkins passed as a state law for one reason: Because the state and the legislature and the voters understood that housing was being suppressed because of rent control, that some cities went a little too far.”
  • The short-term solution of rent control would only cause a bigger problem in the long run.
  • The state would shut down. There would be no housing built, that’s a fact.
  • The math doesn’t work. We [developers] are producing in urban markets, and we voluntarily produce affordable housing. We’re trying to do our part, most responsible landlords do. It’s down to basic financial feasibility: If you eliminate the rate of returns, capital won’t come and it won’t get built.
  • Construction costs have gone up dramatically, that’s what’s putting deals on hold. Because of that thin margin issue, couple that with the threat of possible rent control, that’s putting some capital on the sidelines. I’ve had a number of calls with investors in the last few months worried about the effects of Costa Hawkins [repeal], if it goes off the radar in a city they might be investing in, because they don’t know. Give the power to the local communities you never know what you’re going to get.

If you’re interested in learning more about why to oppose Proposition 10, visit the Vote Yes on Prop 10 website.

Yes on 10 (to repeal Costa Hawkins)

Arguing in favor of Proposition 10 is Amy Schur, the director of the Alliance of Californians for Community Empowerment.

Here are a few reasons she cited Costa Hawkins should be repealed.

  • “Why rent control? There is in fact no other policy solution that’s viable right now that’s at scale and quick enough to keep people in their homes while we build more housing.”
  • “Let’s say we get rid of some of the blocks and NIMBYs and some of the zoning challenges, how long will it take to ease the supply deficit? Economists say 20, 30 years. Are we going to let this crisis continue for 30 years?”
  • “They’re building a lot of housing in California, but they’re choosing to build at only the high end. They’re not building the housing so many people need right now. The market is not going to fix itself.”
  • “Our state constitution guarantees landlords a reasonable rate of return. There are a lot of protections for landlords under the state constitution. We just want some fairness for tenants.”
  • “Are we really going to believe developers are going to stop building new housing when we have wealthy folks who want to move in and there’s tremendous demand? […] Developers and apartment owners are squeezing out everything they can in a hot market boom and tremendous demand. It’s a landlord’s market, they can ask what they want, they are getting in return far more than they need to make reasonable profit. I get what you’re saying about uncertainty, but tenants have a right to some certainty too.”

If you’re interested in learning more about why to support Proposition 10, visit the No Prop 10 website.

 

What are your thoughts about Proposition 10? Do you see it doing positive things for the California housing market and economy, or do you think it will take things in a downhill direction?