Rent Control’s Broken Record

written by Chris Bricker

As the dust settles on the 2018 Costa-Hawkins fight, a new package of housing legislation has been proposed.

Last fall, our already embattled industry faced one of its biggest threats with the introduction of Proposition 10, the ballot measure to eliminate the Costa-Hawkins Rental Housing Act. As many of you know, Costa-Hawkins is the statewide statute that protects single-family homes and multifamily buildings built after 1995 from falling under rent control.

It also stops cities like San Francisco that already have rent control from expanding that policy to buildings built after rent control was enacted locally in 1979. Finally, it allows property owners with rent-controlled units to raise rents to market rate upon turnover. In short, Costa-Hawkins is one of the biggest tools landlords have to keep afloat in an increasingly restrictive landscape and its repeal would have been disastrous—not only for our industry, but also for its proponents’ stated goal of creating more affordable housing.

That’s because, as the San Francisco Chronicle pointed out when it recommended a “no” vote on the measure: “More rent control—and more local government control—will probably further suppress the supply of housing and deepen the crisis for the state.” The editorial went on to say that, “More housing is the way out of the housing shortage. Proposition 10 is not.”

In addition to major publications, most of the candidates for governor did not support Prop. 10, including eventual winner, and former San Francisco mayor, Gavin Newsom. “Getting rid of these protections overall, I think, may have unintended consequences on housing production that could be profoundly problematic,” Newsom told the Sacramento Bee before the election. “I would hope, if there’s an opportunity to find consensus, that we would get there.”

But rather than trying to work out a compromise plan with rental industry leaders, the backers of Prop. 10 took an all or nothing approach. Proponents even publicly spoke of eventually applying vacancy control to exiting rent-controlled tenancies. “Had the Prop. 10 proponents come to the table with real solutions, there may have been positive discourse and workable compromises,” said former SFAA President David Wasserman, who had a front-row seat for the negotiations, or lack thereof. “However, their position was, ‘We don’t need to compromise because we are going to win.’ With that kind of attitude, there was no choice but to mount an all-out defense to this outright repeal of Costa-Hawkins.”

Of course, we now know that the confidence Prop. 10 proponents exhibited had no basis in reality. The measure was soundly defeated, getting only 40 percent of the vote. Statewide, Prop 10 lost by twenty points, 60.2% to 39.8%. In San Francisco, the measure narrowly won, by a margin of 52.2% to 48.8%.

“The stunning margin of victory shows California voters clearly understood the negative impacts Prop. 10 would have on the availability of affordable and middle-class housing in our state,” Tom Bannon, CEO of the California Apartment Association, said in a statement after the election.

But that resounding loss was far from certain when Prop. 10 first made the ballot. With basic property rights under attack, industry groups including SFAA donated generously to fight the initiative and combat the healthy budget, largely donated by one wealthy individual, on the pro-Prop 10 side. SFAA also supported measures that would actually bring a housing solution, like Proposition 1, a $4 billion bond for Affordable Housing and veterans’ home loans. (Proposition 1 passed in the end, by a 55.5-45.5 margin.)

Now that the dust has settled, industry leaders are left shaking their heads. So much money was spent fighting this needless measure that could have been spent actually advancing the very necessary goals of increasing affordable housing in the state.

Wasserman explained: “The opposition groups and proponents of Prop. 10 spent about $100 million combined during the 2018 election cycle. The average price per foot to build housing in California is roughly $250. This means that 400,000 square feet of affordable housing could have been built for the cost of the campaigns, which in theory could have permanently housed over 2,500 California residents. Instead, nothing changed in terms of the state’s housing policies because of the zero-sum strategy pursued by the proponents of Prop 10.”

Even worse, it seems that those who seek to repeal Costa-Hawkins have learned nothing from their recent defeat. In his state of the state address, Governor Newsom called for lawmakers to create legislation to ease the housing crisis; in response, state legislators unveiled several more attempts to pick away at Costa-Hawkins’ protections. Assembly Bill 36 would allow cities to expand rent control to buildings ten years and older, along with condos and single-family homes. Assembly Bill 1482 would set the limit on rent raises in areas without rent control to an as-yet-unknown percentage above the Consumer Price Index, which is typically used to measure inflation. Assembly Bill 1481 would create a statewide “just cause” policy that would require owners to list a reason every time they terminate a tenancy. Finally, Assembly Bill 724 would create a statewide rental registry that, according to the bill’s language, “would serve as a repository for data collected by cities and counties about their stock of housing and other data on evictions, displacements, and other tenancy information.” For more details on these bills, and what they could mean for California property owners, turn to page 10.

It’s an intimidating list of possible new laws, to be sure. But this time around at least there are some signs that the other side is willing to come to the negotiating table. “We have to get beyond what happened in the past and really sit down and get into serious negotiations,” Assembly member Richard Bloom told KQED. Bloom (D-Santa Monica) introduced AB 36 just one month after Prop 10 went down in defeat.

But CAA’s Debra Carlton told the public radio station that the word “negotiate” may be a bit strong. “I think we’re going to listen to what they have to say and then we’ll take it back to our leadership. It will be interesting to see if we can find some middle ground at all,” she said, adding, “these bills cannot get in the way by scaring off development in California or we won’t solve the true problem, which is lack of housing.”

It all feels like a broken record that’s been playing for far, far too long. Tenant groups try again and again to push rent control and other restrictions on owners. They try at the state legislature and when that doesn’t work they try at the ballot box. When that doesn’t work, they head back to the legislature again.

For our part, rental industry groups explain over and over that only dramatically increasing the amount of new housing will bring any lasting changes to our affordability challenges. Then we are forced to raise money to quash efforts to impinge on our ability to provide safe and high-quality homes, rather than spending that money on building more housing.

The cycle continues, but the end result is an unsatisfying stalemate. The Chronicle summed up the confounding conundrum in a March editorial in reaction to the recent assembly bills entitled, “Rent Control Still Can’t Solve California’s Housing Crisis.”

“Rapidly rising rents are among the most visible and destructive consequences of the housing shortage, contributing in the worst cases to homelessness, which is why stopping or slowing rent increases by fiat is an idea that won’t go away,” it reads. “The challenge for legislators is to protect beleaguered tenants from the most abusive price increases without further discouraging supply—and to remain focused above all on increasing supply. While residents need help staying in the homes California has, the only way out of the crisis is to build many more of them.”

Chris Bricker is the President of the San Francisco Apartment Association.