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This is third try by the Los Angeles-based AIDS Healthcare Foundation to convince California voters to repeal the Costa-Hawkins Rental Housing Act of 1995, which placed limits on local rent control laws.

 

A proposed ballot initiative that proponents call the “Justice for Renters Act” is on the street for signatures. If you’d like to see more housing built in California, don’t sign it.

The measure is circulating under the official title, “Expands local governments’ authority to enact rent control on residential property.” It’s the third try by the Los Angeles-based AIDS Healthcare Foundation to convince California voters to repeal the Costa-Hawkins Rental Housing Act of 1995, which placed limits on local rent control laws.

AHF’s first try was Proposition 10 in 2018. The campaign in support of the measure spent $25.6 million, of which the AIDS Healthcare Foundation provided $22.5 million. Prop. 10 was defeated by a margin of 59.43% to 40.57%.

Then in 2020, AHF tried again with Proposition 21. The campaign in support of Prop. 21 raised an eye-popping $40.8 million, $40.6 million of it donated by the AIDS Healthcare Foundation. Prop. 21 also went down to defeat, 59.85% to 40.15%.

Last year, on December 22, a new initiative was filed with the Attorney General’s office to try again to convince voters to repeal the 1995 law. The measure needs 546,651 valid signatures by August 28, 2023, to qualify for the November 2024 ballot.

But the voters were right the first two times. It’s a terrible idea.

The Costa-Hawkins Rental Housing Act of 1995 did a few things to limit the reach of local rent control laws. For example, it protected the right of property owners to raise the rent to market rate on a unit after a tenant moves out. Without that protection, an incoming tenant would pay the same rent as if the outgoing tenant was still there, even as the owner’s cost of maintenance, utilities, landscaping, insurance, taxes, security and mortgage interest rates rise. The rental housing business would be unsustainable.

Costa-Hawkins also prevents cities and counties from enacting rent control on single-family homes and condominiums. And it prevents local rent control on units built and first occupied after February 1, 1995.

If Costa-Hawkins is repealed, every city council and county board of supervisors could, at any time, pass a radical rent control law that completely changes the economics of the rental housing business. Even without actually passing a law, if the distant sound of voices simply proposing new laws reaches the offices of lenders and developers, that could be enough to cause new housing projects to be called off. Housing developments require long-term financing, and the possibility of unlimited rent control in coming years will become a new risk factor.

In 2017, three scholars at Stanford University published a paper titled, “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco.”

The study by Rebecca Diamond, Tim McQuade and Franklin Qian found that “rent control increased the probability a renter stayed at their address by close to 20 percent.” Those renters experienced a benefit. However, the study also found that landlords whose properties were subjected to rent control “reduced their supply of available rental housing by 15%.” They did this by redeveloping buildings, converting to condos or “selling to owner-occupied.”

The result was “a city-wide rent increase of 7%” and “$5 billion of welfare losses to all renters.”

In other words, rent control is good for the people who get in on the deal, but inevitably it reduces the number of available apartments, and that ends up costing everybody else more money.

Costa-Hawkins isn’t the only law that rent-control advocates love to hate. Some have expressed a desire to repeal the Ellis Act, which protects the right of rental housing owners to go out of business.

Now why, you may be asking yourself, in a free country, does California need a law stating that people have the right to go out of business?

Because in 1984, the California Supreme Court ruled that they didn’t.

The case was Nash v. City of Santa Monica. Jerome J. Nash bought a six-unit apartment building in Santa Monica in 1978, and then in 1979 the city’s voters passed an initiative to implement rent control. Nash decided that he did not want to be a landlord, and he applied for a permit to demolish the building.

Santa Monica said he would first have to prove that he couldn’t earn a fair return on his investment, and he would also have to show that the removal of the units would not displace low- or moderate-income people or adversely affect the city’s supply of housing.

The state Supreme Court sided with Santa Monica and said Nash did not have the right to go out of business because the city’s housing supply was simply more important than his rights.

That caused a fair amount of outrage, and the result, two years later, was the Ellis Act, a law that allows the owners of rental property to vacate an entire building and get out of the rental housing business.

California now has statewide rent control, and in case that wasn’t enough to discourage investment in new apartment buildings, we’ve just had three years of pandemic restrictions that prevented countless owners of rental housing from collecting rent at all.

Is the government supposed to step in and use public funds to build all the housing that’s needed when private investment flees the housing sector? How many tax increases would that require, and how many U-Haul rentals and “Going Out of Business” signs will be the result?

Rent control is a sadly counter-productive policy that gradually reduces the supply of housing. It’s unfortunate that the AIDS Healthcare Foundation is again pursuing this quest to repeal sensible limits on it.

 

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WRITTEN BY: Susan Shelley, columnist for the Southern California News Group and VP of Communications for the Howard Jarvis Taxpayers Association.

 

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