[REN #615] Prop 10 Battle at the Ballot Box

Picture of apartment interior for Real Estate News for Investors Podcast Episode #615

It’s called Proposition 10 and it’s a hot potato among those for and against rent control. It would give local governments the green light for rent control on virtually every kind of property by overturning the 1995 Costa-Hawkins Act. But, two recent polls show support for the measure is trailing by a good 10%.

The Costa-Hawkins Act provides crucial protections for California landlords. It bans any kind of rent control on certain kinds of rentals including single-family homes, townhomes, and newer apartment buildings. The Act also gives landlords the right to raise rents to market rates when tenants move out, which is also called vacancy de-control.

If the November ballot measure passes, it doesn’t mean rent control measures would take effect immediately. It would simply allow local governments to include previously protected properties in whatever ordinances they deem appropriate. [1]
 

Polls Show Prop 10 is Losing

Two recent polls show the measure is losing. The Survey USA poll says that just 35% of the respondents would vote “yes” on the measure, while 46% would vote “no.” The others hadn’t decided yet. The Public Policy Institute of California reported similar results with 48% opposed and 36% in support of the measure.

As Curbed San Francisco reports, voters in the Bay Area showed even weaker support with just 33% saying they would vote “yes.” According to Survey USA, the proposition is getting most of its support from younger voters, who are also likely renters.

But don’t let those numbers lull you into thinking it’s a decided issue, and your vote isn’t necessary. If it does pass, it could unleash a new effort for a massive expansion of current rent control regulations across California. And, it could spark a new strategy by rent control advocates to get voter approval for rules that local governments may not support.
 

Prop 10 Getting National Attention

According to the California Apartment Association, “The passage of Prop 10 could invite radical activists to circumvent elected leaders and pursue extreme rent control measures through the initiative process.” In fact, this measure is so important to the real estate industry, in general, that “The Nation” has called it one of the nation’s top-10 races to watch. And, it’s attracted some deep pockets on both sides of the debate. [2]

According to Ballotpedia, donations in support of a “yes” vote have topped $24,000,000 while those for a “no” vote are more than double that amount. Among the top donors supporting the issue are the AIDS Healthcare Foundation, California Teachers Association, Committee to Save Our Neighborhoods, and the California Nurses Association. Those opposed to the measure include Blackstone Property Partners, Essex Property Trust, and Equity Residential. [3]

Those real estate opponents represent some big names in the industry, but a “yes” vote on the measure would also hurt scores of mom & pop type investors. Many of them have one or two rentals that will provide income for their retirement, or their kids education, or to simply make ends meet in pricey California.

Rent control is not common in the United States. You’ll only find it in California, New York, Maryland, and the District of Columbia. Most states prohibit any kind of rent control, while several don’t have any laws for or against it.
 

Prop 10 Will Hurt Mom & Pop Landlords

Here in California, high rents are creating a huge burden for lower-income tenants. But, California is also a popular place to live so demand is high, along with housing prices. It’s true that many renters are paying more than they can afford to live where they are, but owning property doesn’t mean you are obligated to subsidize someone else’s lifestyle. Owning property also doesn’t mean you can afford to do that. Many California landlords have managed to get one or two properties into the rental market because they need the income.

Let’s say you’ve decided to downsize from a family home, but instead of selling the home, you decide to rent it out. It’s part of your retirement plan. If this measure passes, you could suddenly be subject to strict rent control rules that make it financially undesirable to rent that home. That would actually work against a solution for California’s housing crisis by reducing the supply and increasing the demand. When you have rent control, supply and demand are no longer relevant.

According to The Economist, “When prices are capped, people have less incentive to fix up and rent out their basement flat, or to build rental property. Slower supply growth exacerbates the price crunch. And those landlords who do rent out their properties might not bother to maintain them.”

Caleb Malik, of Market Urbanism, says, “Rent control is the equivalent of limiting the pay of professional basketball players to $50,000 a year. Athletes would instead play baseball, football, soccer, and other more remunerative sports. Likewise, in a rent controlled market, builders turn to making commercial buildings so they can continue to turn a profit.”

Supporters say that rent control is good for renters who are at risk of becoming homeless as rents go higher. And, they say, it’s also good for local economies because renters will have more cash in their pockets to spend. But, that’s only good for the short term. It’s not a long-term solution.

There simply needs to be a better balance between supply and demand, which isn’t a simple thing to accomplish in California. But, that’s where the effort should be focused… on regulations that make it easier to build homes.

Whatever your opinion on the issue, it’s important to cast your ballot on November 6th.
 
Links:

[1] Proposition 10

[2] California Apartment Association Article

[3] Ballotpedia Article

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