The Pros and Cons of Rent Control and California’s Proposition 10

By Stuart R. Simone

Rent control is back on the front burner of public discussion nationally because rents are squeezing middle- and lower-income Americans from coast to coast, and locally because the issue is on the California ballot in the guise of Proposition 10.

Before getting into the pros and cons of rent control, let’s be clear about what Proposition 10 would do.  That’s a necessary exercise because as with almost all California Propositions, the advertising on all sides is confusing at best and downright dishonest at worst.

First of all, Proposition 10 would NOT change local rent control laws anywhere in the state.  Rather, it would overturn the Costa-Hawkins Rental Housing Act, a pro-landlord measure that Governor Pete Wilson signed in 1995.  Costa-Hawkins barred municipalities from imposing rent control on single family homes, condos or apartments constructed after Feb. 1, 1995, and sometimes even earlier and generally mandated “vacancy decontrol,” in which a rent-controlled apartment is exempted from price increase regulation after a tenant moves out.

Proposition 10 would take those handcuffs off municipal lawmakers and voters, allowing local governments to implement their own rent control ordinances.  Or not.  Rent control has been, and will continue to be, regulated by local governments.  There are a few exceptions, such as Costa-Hawkins as well as the recent state ADU (“Granny Flats”) laws, which override some local red tape for garage conversions and such.

As of now, nineteen California municipalities have some form of rent control, including the cities of Los Angeles, San Francisco, Beverly Hills and Santa Monica.  But they’re all constrained by Costa-Hawkins.

That brings us to the question of whether rent control is a good idea, including whether it leads to more or less available and affordable housing.  This debate is generally waged between economists (leaning conservative) and more housing advocates (trending liberal).

The former conclude that rent control leads to less housing, on the principle that when you cap the price that can be charged for something, you’ll get less of it.  In other words, if a property owners are limited in the amount of income they can make, they are less likely to build rental housing, and might not build any new rental property at all.  Stanford economist Rebecca Diamond and colleagues, examining the evolution of rent control in San Francisco from 1979 through the present, found in a recent paper that the law enabled a sizable percentage of residents to remain in the city rather than being driven out.  But they also asserted that it encouraged landlords to seek exemptions for their properties by converting them to condos or moving in because owner-occupied buildings also were exempt.  As a result, they say, rent control ended up fueling the gentrification of San Francisco and increasing income inequality by creating more housing for rich tenants and condo buyers.

Housing advocates examine the issue from the standpoint of existing renters, who are currently being priced out of their homes in much of California as prices continue to rise.  Indeed, rent control generally becomes popular when affordable housing grows scarce; for example, a housing shortage after the close of World War II produced some of the strictest such measures in U.S. history.

A crisis is building again in California, where more than 54% of renters spend more than 30% of their income on housing, a benchmark for unaffordability.  Housing experts at UC Berkeley blame the cost of housing for the state’s persistently high poverty and homelessness rates.

The biggest mistake in discussions of rent control is viewing it in isolation.  The crisis has been created by many factors, including too much red tape to build new housing, not enough incentives to build affordable housing, geographical restraints – how far out can Greater Los Angeles expand anyway? – and a population that continues to increase with no end in sight.  Thus Rent Control can’t solve the housing affordability crisis on its own, and it probably won’t have much effect on housing availability by itself.  On the other hand, it’s one housing policy that can be implemented quickly and at low cost.

“Making up for 40 years of insufficient rental housing production is going to take a minimum of another 20 to 30 years,” says Stephen Barton, a former housing director for the city of Berkeley and coauthor of a brief on rent control for UC Berkeley. “So what do you do when you have immense hardship now and the ultimate solutions are very long-term?  Pretty much the only thing on the table is rent control.”  Nicole Montojo, lead author of the Berkeley brief, concludes “Rent control is not a silver bullet, but without it, all the other solutions will come too late.”

In other words, the question of whether rent control in general — or Proposition 10 in particular — will lead to more or less affordable housing is doesn’t lead to a simple yes/no answer.  Relieving the housing crisis will also require such measures as streamlining the housing permit process and creating better incentives for construction of market-rate and affordable units.

The right approach to Proposition 10 is to take it on its own terms.  In and of itself it’s not a rent-control mandate, nor is it designed to bring new protections to renters or encourage the construction of new housing, affordable or otherwise — those provisions are left to municipalities.  The initiative is an enabling measure aimed at giving local governments the flexibility to design rent control ordinances that fit their local conditions, no more, no less.

Gomez & Simone is a full service real estate law firm representing families and business people, homeowners and renters, landlords and tenants, with offices throughout Southern California.  This article is informational only and should not be used as legal advice.  Please note that laws may have changed since this article was published.  Before taking action, we recommend that you consult with one of our attorneys about your specific matter.  Please contact your local Gomez & Simone office or call us at 1-855-219-3333 or email us at info@ gomezsimonelaw.com.