“The Rent Is Too Damn High.” Will California’s Proposition 10 Help?

In less than two weeks, California voters will decide whether to pass Proposition 10, which would allow cities and counties across the state to expand rent control.

Supporters of the measure say it will protect tenants during a time of unprecedented housing affordability problems in California. Opponents argue that the measure will stall housing construction—the levels are already low—and further increase costs.

What Would Proposition 10 Do?
Prop. 10 would repeal the Costa-Hawkins Rental Housing Act of 1995 in its entirety—plain and simple. According to a report by the Terner Center for Housing Innovation at UC Berkeley, 15 of California’s 482 local jurisdictions currently have some form of rent control, covering 25% of the state’s rental units.

Since 1995, the Costa-Hawkins Act has restricted these laws in three main ways:

• Cities cannot apply rent control to any housing built after 1995.
  • The law locked into place ordinances in cities with rent control when Costa-Hawkins passed. (For example, San Francisco can only impose rent control on housing built prior to 1979, in Los Angeles, the threshold year is 1978, and in Oakland, 1983.)
• Once a current tenant vacates, landlords can raise rents to the market rate (i.e., Costa-Hawkins prohibits any form of “vacancy control”).
• All single-family homes are exempt from rent control.

Prop. 10 would remove these provisions from the state code and allow cities and counties to impose rent control as they see fit. In other words, passage of Prop. 10 would not, in most cases, immediately lead to new rent control rules. To comply with previous California court rulings, such as Birkenfeld v. City of Berkeley, Prop. 10 contains language that requires cities and counties to guarantee landlords a “fair rate of return” on their investment. Courts have yet to substantially define this vague standard.

Prop. 10 would also be hard to undo in the future. The measure includes a provision that says any effort to pass future statewide rent control restrictions would have to be approved by California voters, not the legislature.

Prop 10’s Prospects Appear to be Fading
Prop. 10 faces a steep deficit with two weeks until Election Day. In September, the nonpartisan Public Policy Institute of California (PPIC) conducted a survey that revealed 48% of likely voters opposed the initiative, 36% supported the initiative, and 16% were undecided.

October polls by Survey USA and USC Dornsife/Los Angeles Times confirm that the Yes on Prop 10 campaign is in trouble. Survey USA corroborates PPIC’s earlier findings. The USC Dornsife/Los Angeles Times poll finds that 41% of likely voters favor Prop. 10, with 38% opposed to the measure, and 21% undecided. However, this apparent improvement is still not very encouraging for Prop. 10 proponents. For one, ballot measure opponents historically gain momentum as Election Day nears. In the case of Prop. 10, opponents also have significantly more money to spend in the waning weeks of the campaign, which allows them to pour an avalanche of cash into defeating the measure, should they choose to do so.

Regardless of the outcome, Prop. 10 has been an expensive fight for both sides. Opponents, primarily landlords organized under the California Apartment Association, have contributed over $64 million, according to California campaign finance records. Supporters have donated $25 million; the AIDS Healthcare Foundation, a Los Angeles-based nonprofit, has contributed over $22 million of that amount. All in, the campaigns could reach $100 million by November 6.

Pros

• Costa-Hawkins sets an arbitrary and static threshold date for limiting rent control (e.g., 1995 or much earlier in some cities). As a result, cities with rent control can only see their stock of rent-controlled units go down over time. Updating exemption dates could bring additional units under rent control.
• If cities decide to impose or expand rent control, Prop. 10 would benefit existing tenants by potentially creating more rent-controlled units.

Cons

• Allowing local elected officials (or activists through the initiative process) to apply rent control to new buildings would disincentivize new rental housing production. If Prop. 10 repeals Costa-Hawkins in its entirety, investors and builders would immediately face a climate of uncertainty, as each city and county could impose a new and different regulatory framework. Under such conditions, investors are unlikely to invest significant capital in long-term rental housing projects.
• Allowing cities to impose vacancy control could increase the number of rental units that are converted to condos. (For example, on November 6, Berkeley residents will vote on a measure to impose vacancy control—contingent upon Costa-Hawkins being repealed.) A recent Stanford University study estimates that rent control caused San Francisco rents to rise by 5.1% because many landlords, when faced with the financial limitations of rent control, chose to convert rental units to condos or other owner-occupied housing (e.g., TICs). Collectively, this removed 15% of rental stock from the market, driving up competition and increasing rents overall.

Voters will soon decide the fate of Prop. 10. If the measure passes, expect many new local battles over rent control. Mountain View, which in 2016 passed a limited version of rent control permitted under Costa-Hawkins, has since endured three years of contentious political debate over rent control policy, with no end in sight.