The Year’s Most Important Housing Vote
Happy Tuesday and welcome to another edition of Rent Free. Election day is fast approaching, and with it a decision that could have major implications for the country’s housing shortage.
I don’t mean the presidential election, in which I don’t think there’s an obvious “pro-housing” major party candidate. Harris and Trump are both offering a mixed bag of policies and rhetoric that will build housing with one hand and block it with the other.
Rather, I’m referring to California’s Proposition 33, which gives voters the option of repealing all state-level limitations on rent control. The implications of a “yes” vote would be dire for new housing supply.
The End of Rent Control Control?
Next Tuesday, California voters will be asked for the third time in six years whether they want to give local governments a freer hand in adopting rent control.
“The state may not limit the right of any city, county, or city and county to maintain, enact or expand residential rent control,” reads the succinct but potentially far-reaching text of Proposition 33.
The initiative’s main supporter is the AIDS Healthcare Foundation (AHF), a nonprofit operator of discount pharmacies for AIDS patients that has become the state’s most profligate rent control supporter.
Twice now, in 2018 and 2020, AHF has spent tens of millions of dollars running initiatives that pare back state-level rent control limits on local rent control policies. Both times, roughly 60 percent of voters rejected them.
By repealing all existing state-level limits on rent control and forbidding the state Legislature from adopting future restrictions, Prop. 33 is perhaps AHF’s most radical measure to date.
The third time might be the charm.
The initiative garnered the support of a slim majority of voters in one poll from late August. Another October poll found it had the backing of a slim 37 percent plurality of voters (with 34 percent opposed and 27 percent undecided.)
Prop. 33 has attracted predictable opposition from business and real estate groups, who have spent a combined $112 million opposing the measure. A healthy cadre of the state’s Yes In My Backyard (YIMBY) academics and activists, some of whom have endorsed more modest rent control policies, have also come out against it.
The most recent poll from the Public Policy Institute of California shows support for Prop. 33 falling below a majority.
But a “yes” or “no” vote is well within the realm of possibility. It’s important then to understand what Prop. 33 will do, and the dire implications it would have for housing production in the Golden State.
Background
To say that California’s rent control regulations are a confusing patchwork is an understatement.
Some 30 municipalities within the state (including Los Angeles, San Francisco, and San Jose) have rent stabilization ordinances dating back to the 1970s that limit rent hikes to some fraction of inflation.
In 1995, the Legislature passed the Costa-Hawkins Rental Housing Act that placed several restrictions on localities’ rent control powers.
Under Costa-Hawkins, cities with existing rent stabilization ordinances were forbidden from expanding them to cover newer housing. Cities without rent control could still adopt it but only on units built before 1995.
Costa-Hawkins also established statewide “vacancy decontrol,” meaning landlords could raise the rent as much as they wanted at rent-controlled properties once an existing tenant moved out.
In 2019, the California Legislature approved a statewide rent control law that limits annual rent hikes at multifamily buildings built within the last 15 years to the lesser of 10 percent or 5 percent plus annual inflation.
Backers of the 2019 law argued it struck the right balance between guaranteeing stability for existing tenants while preserving developers’ incentive to build.
But the state’s more vociferous rent control advocates, including AHF, weren’t mollified. They argued the 2019 law is much too weak and that Costa-Hawkins does too much to tie the hands of local governments.
Enter Prop. 33, which would repeal Costa-Hawkins in its entirety and give local governments free rein to adopt whatever rent control policies they want.
Damaging Supply
Even within the confines of Costa-Hawkins, there’s evidence that California’s rent control policies have reduced the supply of rental housing.
A landmark 2019 study on rent control in San Francisco found that the city’s rent stabilization ordinance encouraged landlords to convert rental units into owner-occupied condominiums (which could be sold at any price).
Abolishing Costa-Hawkins’ guardrails will almost certainly lead to an even greater reduction in the supply of rental housing.
By prohibiting localities from rent-controlling newer properties, the law helps ensure that builders have an incentive to construct new units. Whenever localities are allowed to control rents on new construction, developers have responded by building a lot less.
Witness the example of St. Paul. In 2021, voters approved a 3-percent cap on annual rent increases with no exception for new construction. As a result, developers canceled existing project proposals and fled the c
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