The 2018 elections officially begin this week as Californians start receiving their vote-by-mail ballots. With rent control at the center of this year’s legislative debate, the statewide rent control measure, Proposition 10, has made waves amongst rental housing professionals and tenant’s rights activists. Before you hit the polls in November, take some time to consider what will happen if Proposition 10 passes.
What is rent control?
Rent control (also known as rent stabilization) would allow local and/or state governments to control and regulate rental housing rates. While California has the Costa-Hawkins Act in place to prevent rent control, some local governments have been able to bypass this by creating ordinances that target specific types of housing. Many states have similar laws prohibiting rent control in place. Click here to see if your state or city currently has rent control.
What is Proposition 10?
Proposition 10 is a California voter initiative that would repeal the Costa-Hawkins Act. While many cities have rent control ordinances already in place, the Costa-Hawkins Act currently exempts single-family homes and apartments built after 1995 from these rent control laws. If Prop. 10 passes, local governments across California will be able to establish their own rent control laws.
The effects of Proposition 10 for rental property owners
You Are No Longer Exempt
If you’ve been sheltered from your city’s current rent control ordinance because of the Costa-Hawkins Act, that exemption will likely be removed whether it happens immediately or within a forthcoming ordinance amendment.
From rent caps to additional tenant protections, it’s difficult to say what regulations you’ll have to face. While it’s highly likely that your city council will create some rental caps and could tack on protections like “just cause” evictions or legislation regulating vacancies, it’s difficult to point to specifics at this time, and it will likely vary by city.
Your Colleagues Might Be Leaving
No one likes being told what to do – and rental properties are no exception. Some property owners have already decided to liquidate their assets, and it’s likely that more landlords will do so if this proposition passes. Caps on how much can be charged for rentals, regardless of competition or fair market value, has historically shown it can become difficult to turn a profit.
Long Term Benefits
Thankfully, there are a few benefits to sticking it out post Prop. 10. A working paper by the National Bureau of Economic Research shows that rent control in San Francisco has increased renters’ probability of residing at their addresses by nearly 20%, which means you can look forward to higher retention rates and lower yearly vacancy costs. Plus, as long as you adhere to your city’s rent cap and regulations, it’s perfectly legal to raise the rent after the lease is up.
The effects of Proposition 10 for renters
The Rent Can Still Rise, But Not So Much
If Proposition 10 passes, rents do not suddenly get cheaper or more affordable. Each city will consider creating its own rent control ordinance, with its own defined rent caps. With a rent cap in place, there can still be a rental increase when the lease is up, but it’s likely that it won’t be as expensive as the current increases.
While rents might not rise significantly enough that they require renters to move annually, when the renter decides it’s time to move, the rental homes and apartments that are available are more likely to be scarce and significantly more expensive. Landlords aren’t going to want to invest their capital into more rent controlled and regulated properties that make it difficult to turn a profit, and rent control doesn’t incentivize big apartment developers for similar reasons. A lack of supply is likely to lead to some significant complications with demand.
Moving Gets More Expensive
In the long term, most renters will decide to stay in their current rent-controlled apartments and rental homes because the rent is cheaper. Once a tenant moves out, the property owner or manager doesn’t have to charge the same rental price anymore. With an even lower supply of rental housing on the market, rental prices are likely to get a lot higher when renters need to move the most. Not to mention it’ll dramatically increase the competitiveness of the market and make renting nearly impossible for younger generations with no prior rental history.
Vulnerable Renters are MORE Vulnerable
Those who can’t afford the more expensive rental rates on the market will choose to stay in the same rental home for years, even if their family has outgrown the space or they’ve gotten a job far away. This financially traps renters, and can become problematic if the living conditions are not up to par. This creates a lose-lose situation as the renters don’t have many options to find the housing they need, and rental property owners are more likely to struggle making money on a property that is being rented for below fair market value.
From rental property owners to renters, we can all agree that California simply needs more rental housing and not more regulation that deters increasing the supply. While Proposition 10 will allow rent control to temporarily stunt the growth in rental rate hikes, it won’t treat the long-term issue of affordability and housing scarcity. Only an increase in the housing supply will alleviate the growing renter demand in California.