For more than twenty years, the Costa-Hawkins Rental Housing Act (“Costa-Hawkins”) has served as a critical check on the expansion of rent control in California. Enacted in 1995, Costa-Hawkins bars local jurisdictions from imposing rent control on single family residences, condominiums, and newly-built units (units constructed after February 1, 1995 or, in those jurisdictions where rent control ordinances had previously been passed, after the date of that ordinance). In addition, it prohibits the use of “vacancy control,” i.e., limits on the amount of rent increases allowed when a unit is vacated.
Since the passage of Costa-Hawkins, a number of efforts have been undertaken to circumvent the restrictions of this legislation or to do away with its consequences. To date, those endeavors have proven to be unsuccessful. An attempt to repeal this law died in the state legislature earlier this year.
As I have reported in this blog previously, however, we have witnessed in recent years a surge of support for the expansion of rent control in Silicon Valley. When Californians go to the polls in November, they will be asked to weigh in on the question of whether all local governments should be allowed greater authority to impose rent control within their borders by repealing Costa-Hawkins, as sought under Proposition 10.
If approved, Proposition 10 would repeal the existing language of Costa-Hawkins and add the following language to the California Civil Code:
A city, county, or city and county shall have the authority to adopt a local charter provision, ordinance or regulation that governs a landlord’s right to establish and increase rental rates on a dwelling or housing unit.
This new measure would transfer the power to regulate rent control from the state to each local government in California. As such, according to the California Legislative Analyst’s Office, it could result in new rent control measures in those cities where housing is scarce, and could allow rent control to be imposed on single family homes and new construction.
Advocates for Proposition 10, including the California Democratic Party, hail the initiative as “returning the power to respond to the state’s housing affordability crisis back to the people and back to local communities,” according to campaign strategist Joe Trippi. Those against the measure argue that the resulting increase in rent control ordinances would have a negative effect on the market; passage of Proposition 10 “could depress property values and hinder new supply, exacerbating the housing shortage,” according to analysists from Sun Trust. They point to a recent study conducted by researchers from Stanford University on the effects of rent control in San Francisco, which showed that, since the adoption of its ordinance in 1979:
- Renters remained in units 10%-20% longer.
- Due to reduced rental yields, total housing inventory was reduced by 15%.
- The gentrification of San Francisco increased, as the number of rent-controlled units fell by 25%, rents rose across the city, and middle-class and minority residents were forced out.
Even as the state Democratic Party organization endorsed Proposition 10, however, many Democrats in the state oppose the measure, including Gavin Newsom, candidate for governor of California. In taking a position against the adoption of this measure, Newsom argues that eliminating Costa-Hawkins could have unintended consequences for the state.
Ultimately, the cost of housing in California is still governed by the laws of supply and demand. Proposition 10 does nothing to deal with that fact. Any meaningful approach to dealing with this situation must focus primarily on resolving the imbalance between the high demand for housing here and the acute shortage of same. As such, this initiative is not the answer to our housing dilemma, and I’m recommending a “no” vote on Proposition 10.