Should California rents be regulated by local government or priced at what the market will bear? That is the controversy at the heart of the Proposition 10 debate. Framed one way, it’s unscrupulous landlords against working class tenants. Framed another: an economic disaster in the making. So what are the facts of California’s Proposition 10?
Prop 10 Would Repeal Costa-Hawkins
A Yes vote on Proposition 10 would repeal the Costa-Hawkins Rental Housing Act, a statewide law that prohibits rent control on single-family dwellings and condominiums, as well as all apartment units constructed after February 1995. If passed, Prop 10 would not mandate statewide rent control, but it would grant cities and counties the opportunity to expand existing rent control policies or to create more comprehensive programs than allowed under Costa-Hawkins. In some cities, such as Los Angeles and Santa Monica, where rent caps are already in place for homes and condos, these caps could be amended if Costa-Hawkins were repealed.
There is no guarantee that Prop 10 would change anything about California’s housing situation without the action of local governing bodies.
“We have the worst housing crisis in the country,” Peter Dreier, distinguished professor of politics and the founding chair of the Urban and Environmental Policy Department at Occidental College, told the Business Journal. “Rents are going up. The price of owning a home has gone up so fast that middle class families can’t afford to buy homes anymore.”
The California Association of Realtors (CAR) reports that the percentage of home buyers that could afford to purchase a median-priced existing single-family home in California fell to 26% in the second quarter of 2018, down from 31% in the first quarter. “This is the 21st consecutive quarter that the index has been below 40%,” CAR adds. Housing affordability has dropped in five Southern California counties (Los Angeles, Orange, Riverside, San Bernardino, San Diego) compared to a year ago.
In the Los Angeles-Long Beach-Anaheim metropolitan area, more than half (53.9%) of housing units are rented, not owned, according to the U.S. Census Bureau’s 2015 American Community Survey. HSH, the nation’s largest publisher of mortgage and consumer loan information, calculates that a median-priced home in the L.A. metro area requires a salary of no less than $98,315 (with a 20% down payment) to afford. The median household income of the L.A.-Long Beach-Anaheim area is $65,950, according to most recent census data.
Phil Jones, CEO of Long Beach-based Coldwell Banker Coastal Alliance and a director of the California Association of Realtors, emphasized that the housing crisis is a major problem. “Our state is unaffordable right now,” he said. “Fewer than 20% of first-time home buyers can get into the median price [home]. It’s outrageous. To keep up with population growth, California at a minimum needed to be building 180,000 new units a year. Well, for the last 14 years we have built less than 80,000 on average.”
California contains six of the 11 most expensive large metropolitan rental markets in the United States, according to a 2018 analysis by the Public Policy Institute of California. In 2016, Long Beach rents climbed 10.8% year-over-year, according to an annual report by Apartment List, an online search engine for apartment listings. The last two years have seen relatively moderate increases by comparison, 3.5% (2017) and 1.6% (2018).
The Case For Prop 10: ‘The Rent Is Too Damn High’
The ACLU of Southern California, as well as its affiliates in Northern California and San Diego and Imperial Counties, are in full support of Prop 10. “We believe economic rights, including housing, are civil rights,” Clarissa Woo Hermosillo, Economic Justice project director and director of policy advocacy for ACLU SoCal, told the Business Journal. “[Prop 10] is a very simple measure that restores the power of communities to regulate rent increases by repealing a very old, outdated, ineffective law – the Costa-Hawkins Rental Housing Act of ’95.”
Elena Popp, executive director of the Eviction Defense Network, a nonprofit organization that provides legal assistance and representation to tenants in Los Angeles County, explained her position in more succinct terms: “The rent is too damn high!” she said. “Every day, my office – and we are but one small office – sees between 20 and 40 people coming in with either exorbitant rent increases or 30- to 60-day notices to quit without cause because the landlords are trying to take advantage of an escalating rental market.”
In its 2017 report on California’s housing future, the State Department of Housing and Community Development reported that not only is supply continuing to fall short of demand, but that high housing costs are impacting residents in all sectors of life, including health, education, the environment and transportation.
The transportation issue is of particular concern to Dreier, who last year co-wrote a study on the working conditions at Disneyland. “We discovered that something like half the people who work at Disneyland are . . . traveling two to three hours every day back and forth to get to work. The cost of housing is so high that people are living further and further out, doubling up. They’re paying 40-, 50-, 60-percent income for rent, which means they don’t have much money to spend on the local economy.”
For the sixth year running, Los Angeles topped the list of the world’s most gridlocked cities on the INRIX Global Traffic Scorecard. During peak congestion hours in 2017, Angelenos spent an average of 102 hours in traffic, resulting in a cumulative $19.2 billion in direct and indirect losses to the city. INRIX calculates the direct cost as the value of fuel and time wasted, and indirect costs as freight and business fees from company vehicles idling in traffic. These costs are passed on to households via higher prices.
For the California Democratic Party, there is no question that the state needs rent control. “We are absolutely pro Prop 10,” John Vigna, the party’s communications director, said. “The housing crisis has just absolutely hammered working class folks all over the state.”
While Prop 10 doesn’t address the totality of the housing crisis (“it addresses one very specific and one very damaging pressure”), Vigna considers it a powerful tool that cities need in their toolbelts. “You’re looking at a significant population in the state who are struggling literally paycheck to paycheck just to keep a roof over their heads,” he explained. “If you can’t make a decent middle-class salary stretch into decent middle-class housing, obviously something is broken economically. There’s a whole host of problems . . . that need to be fixed. This is the one that the proponents have chosen to address.”
“If I were a landlord I’d be against Prop 10,” Dreier said. “But there’s got to be some balance. Society needs affordable housing. The economy needs affordable housing. So you’ve got to balance what the society needs with the rights of property owners and landlords to make exorbitant profits.”
Prop 10 specifically mandates that landlords will not be precluded from making a “fair return“ on their properties. According to the California Legislative Analyst’s Office, this means that landlords must be allowed to increase rents enough to receive some profit each year.
The Case Against Prop 10: There Will Be Less Housing
Opponents of Prop 10 fear that the potential for expanded rent control would drive away housing investors and developers. If the measure passes, low-income housing would become even less available, Jones of Coldwell Banker Coastal Alliance said, while developers would focus on the assured returns from luxury apartments.
“What happens in New York City is a prime example,” he continued. “The only building that takes place in rent-controlled communities is not low-income housing, because of the cost. The investors shy away from it. Upscale housing gets built, but the low-income housing does not get built. That’s one of the unintended consequences of rent control. It discourages investment in housing, it discourages building, and it just exacerbates the problem that we’re trying to fix.” In other words, if developers are afraid that their profits will be limited by new rent control legislation, it is more likely that they would focus on building higher-end properties that represent a guaranteed a return on investment.
Jones believes that the proponents of Prop 10 have their hearts in the right place, but that the initiative would not improve the current crisis. As a member of the California Association of Realtors, Jones participated in the 11-year process that produced the Costa-Hawkins bill. “It was rent control that chased away the investment in housing,” he said. If California votes yes on 10, he argued, it would undo a critical incentive for new development.
The twin specters of gentrification and blight were cited as prime arguments for passing Costa-Hawkins in the 1990s, Debra Carlton, senior vice president of public affairs for the California Apartment Association, said. “Property owners still have the ability to decide who they’re going to rent to. If they’re being forced to have rents that are capped, they’re going to take only a sure bet. And they’re going to take the person with the ability to pay – obviously, the highest income. We saw a lot of gentrification in those cities in the ’70s and ’80s because owners weren’t accepting people in need.”
According to Carlton, single-family houses constitute almost 50% of the rental market in some cities. She fears that Prop 10 will compel homeowners to remove their properties from the market. “We saw that [occur] when cities were allowed to impose strict forms of rent control. Berkeley, for example, lost over 3,000 units, and Santa Monica over 9,000 units, because people just went out of business,” she said. “They’re allowed to do that if they can’t make ends meet or they don’t want to operate under the strict rent control system.”
For Dan Yukelson, executive director of the Apartment Association of Greater Los Angeles, rent control is bad for business because it’s just another leash to restrain the market. “You look at the impacts of attempts to control gasoline prices back in the ’70s,” he said. “It was a disaster. We had huge shortages as a result. People had to get gas on alternate days and there was limited supply. That’s what’s going to happen to housing if rent control is expanded in this way. Property owners are just going to exit the business – they’ll convert their properties into condominiums or Airbnbs or other uses and there will be no financial incentive for people to stay in the business. There will be an even worse housing shortage.”
Yukelson further predicted job losses and major drains on the state economy. “[Prop 10] is just a stupid answer to the state’s housing problems. We need to build our way out of this. We need to provide incentives to developers to build more affordable housing. They need tax breaks. We need voucher programs to help tenants that are in need and can’t afford their rent. There’s a lot of different solutions that would work far more than rent control.”
Californians are looking for a way out of their collective housing crisis, Jones said. Rent control may seem like the answer now, but tomorrow? “What [rent control] has done historically throughout our country – New York City, San Francisco, Santa Monica – is it discourages building,” Jones said. “Investors no longer want to come. In fact, interesting to note, when we were fighting the rent control measure here in Long Beach, just getting it on the ballot. . . investors were backing away from Long Beach even just from the threat of rent control.”
Beyond the real estate community, the California NAACP and United Latinos Vote both oppose the proposition. “Under Prop. 10, families searching for affordable housing will find themselves with even fewer choices and more expensive housing options,” Robert Apodaca, executive director of United Latinos Vote, said in a statement to the California Voter Guide.
Who’s For It? Who’s Against It?
Supporters of Proposition 10 include Los Angeles Mayor Eric Garcetti, the California Democratic Party, the San Francisco Board of Supervisors, the League of Women Voters and both the nurses’ and teachers’ unions. Opponents include the California Republican Party, the California Chamber of Commerce, the California NAACP, United Latinos Vote and possibly both 2018 candidates for governor, Lt. Gov. Gavin Newsom and businessman John Cox. Both Phil Jones and Steven Maviglio, a spokesperson for the No on Prop 10 campaign, claim Newsom is against the proposition. John Vigna, of the California Democrats, could neither confirm nor deny the claim.
Californians will vote on Prop 10 on Tuesday, November 6, 2018.