Last November, California voters went to the polls and decisively defeated a ballot measure that would have opened the door to rent control statewide based largely on the model that has been in place for some time in several cities, such as Los Angeles and San Francisco.
But Gov. Gavin Newsom, who was swept into office at the same time by the same voters, has decided that their will doesn’t matter when it comes to issues where he has an alternative view. He has attempted to circumvent the election results by pushing regulations through the state legislature that would cap rent increases statewide at 5%, plus inflation, for the next decade and also weaken laws on evictions, putting an additional burden on landlords.
The new rent control bill that Newsom is sponsoring, AB 1482, has been altered somewhat from the Draconian measures that the governor first proposed, not long after last November’s ballot measure failed, in an attempt to keep organized real estate and landlord groups from opposing it. But it is not clear at this point if the bill has enough backing among legislators to pass. Real estate groups are going back and forth with the governor’s office trying to find a compromise, but at the end of August, Newsom announced an agreement with legislative leaders that looks tenuous at best.
The proposed rent caps – which might or might not get into the final version of the bill that goes before lawmakers – would apply to apartment units built in the past 15 years but not to single-family homes, unless they are owned by a large corporation.
But all this jockeying in Sacramento does nothing to help the real solution to the problem: creating more housing, and especially more affordable housing, in California. As much as the real estate industry has tried to educate state leaders, the red tape, over-regulation and burdensome costs associated with building new housing are not going away and only act as a detriment to more housing production.
There are a number of excellent affordable housing programs in California that create solid incentives for private developers and municipalities to build housing to serve those that can’t afford the high-priced market rents that abound in this state. But the ever-increasing red tape together with the ever-increasing local and state fees that builders have to pay are among the chief reasons that the promise of these existing programs has not been met.
The problem seems to be in the real-world application of the remedies to California’s high housing costs. As we have seen in states like New York, rent control produced all kinds of unintended consequences for the state’s lending institutions and property owners – and weakened the property market right out of the gate.
To do the same in California would weaken property values – which would impact literally thousands of small-business owners – not to mention the impact on the real estate and lending industries in this state, which are considerable. Some developers fear that rent control will even decrease the amount of new housing that will be built.
California is said to have the sixth largest economy in the world, so one would think that with that kind of economic clout real solutions could be found to ease these housing problems. Taking one industry and setting price controls, like rent control, is putting the entire equation out of balance, since those who own and manage rental housing have costs of their own and have no such caps on their expenses.
A much better solution would be for our state leaders to use the resources at their disposal to evaluate and improve the programs already in place by streamlining the over-regulation currently stifling new housing and help developers get projects through a process that has become the laughingstock of the nation. The next initiative should be to establish additional incentives for the private sector to provide more affordable housing programs through subsidies and tax credits that help both renters and landlords meet their goals.
Terry Ross, the broker-owner of TR Properties, will answer any questions about today’s real estate market. E-mail questions to Realty Views at firstname.lastname@example.org or call (949) 457-4922.