FAQ: What You Need to Know About California’s Costa-Hawkins Law Limiting Rent Control
Why Some Are For It and Others Want It Repealed
By costar writers: Karen Jordan and Jacquelyn Ryan
“The rent is too damn high.”
The sentiment may have been made famous by New York mayoral candidate Jimmy McMillan, but it’s been adopted far and wide by renter activists and those worried about affordable housing in the state of California in recent years.
Housing costs in the Golden State are nearing peaks as rents rise faster than incomes. Five of the country’s top 10 most cost-burdened large metropolitan areas are located in California, where people commonly pay 30 percent or more of their income on rent, according to Apartment List, a rental listing marketplace that also analyzes housing data.
In major cities like San Francisco and Los Angeles, median rental rates for a two-bedroom apartment ranges from $3,200 to $4,560 a month.
Meanwhile, homelessness has reached critical mass statewide.
Some efforts to deal with the housing and affordability crisis, such as bills to allow higher-density building near transit stops statewide, have been stymied in the legislature.
Now, renters and activists, backed largely by AIDS Healthcare Foundation President Michael Weinstein, are seeking relief through another ballot initiative. Known as the Affordable Housing Act, the measure seeks voter approval in November to repeal the 20-year-old Costa-Hawkins Rental Housing Act that restricts rent control in cities statewide.
While there are those who are adamantly against it, and those just as adamantly for it, there are also questions that remain about exactly what type of impact a possible repeal would have statewide.
What is the Costa-Hawkins Rental Housing Act?
The Costa-Hawkins Rental Housing Act of 1995 restricts the ways in which local governments in California can regulate the costs of rental housing.
It provides specific regulations to 15 cities, including Los Angeles, San Francisco and West Hollywood, that had some kind of rent control law before the act took effect.
It restricts cities from implementing rent control in buildings built after 1995 as well as any buildings that were exempt before the law took effect, such as those built after 1978 in Los Angeles and after 1979 in San Francisco.
Under Costa Hawkins, property owners can set their own rental rates when a unit becomes vacant.
Why is everyone talking about it now?
A coalition of tenant groups and other civic leaders and organizations garnered more than half a million signatures to add a measure called the Affordable Housing Act to the November ballot. In essence, the measure would repeal the Costa-Hawkins Act and allow municipalities to issue rules controlling their rental markets again.
What will the Affordable Housing Act do?
At its core, the Affordable Housing Act repeals Costa-Hawkins, which would give cities the power back to implement rent control.
But the measure has three aims, as stated:
a) “To restore authority to California’s cities and counties to develop and implement local policies that ensure renters are able to find and afford decent housing in their jurisdictions.”
b) “To improve the quality of life for millions of California renters and reduce the number of Californians who face critical housing challenges and homelessness.”
c) “To repeal the Costa-Hawkins Rental Housing Act.”
What doesn’t it do?
It doesn’t create statewide rent control or force cities to implement any form of rent control. Each city government would decide whether it wanted to take its own steps to determine and approve any sort of rent control within its own jurisdiction.
Who favors the repeal of Costa Hawkins and why?
Those in favor include many tenant groups, some city governments and officials including Los Angeles Mayor Eric Garcetti, the Alliance of Californians for Community Empowerment and other community and activist organizations.
They argue that cities need to be allowed to keep rental rates and their increases in check in order to maintain affordability. They note that it provides renters protections from getting pushed out of their homes and neighborhoods by rental increases and unattainable asking rates.
The Los Angeles Tenants Union supports the repeal and has made it part of the organization’s mission statement, according to Susan Hunter, a caseworker for the Hollywood Local Chapter.
“By creating stability in the rental markets and giving control back to local governments, that gives overall stability to the larger state economy,” said Hunter via email. “When people know what their rent will be for the time they plan on renting a unit, they are given an opportunity to save and prepare for other possible negative life events.”
By relieving people of the burden of paying higher rents, they would, therefore, have more money to invest in their local economies, she added.
Who is against the ballot measure and why?
Those against the repeal include many apartment developers and landlords as well as groups such as the California Apartment Association.
Many developers are concerned about the economic impact there will be on new development if it is subject to rent control.
It would change the “whole economics” of how developers view potential development opportunities, according to San Francisco attorney Daniel Bornstein, whose clients include property managers, commercial real estate brokers, real estate agents and investors.
“It’s hard enough and costly enough for a developer to make a decision to build housing when they make a decision to build housing, and they are now put on notice that the housing may be subject to rent regulation,” Bornstein said. “They may very well be unwilling to make those tough decisions of being invested in building a development.”
Developers and landlords argue the repeal of Costa-Hawkins and implementation of local rent control ordinances threatens their ability to continue to develop and operate rental units in the state. They worry about vacancy control, which limits a property owner’s ability to ask market-rate rents that they say allow their projects to be financially viable.
If it passes, it gives cities more authority to decide what rent can be achieved by a landlord once the tenant moves out, according to Bryan Glenn, managing director of the investment services group at Charles Dunn Company Inc.
“Restrictions can apply to buildings currently exempt from rent control, including new construction and single-family homes and condos,” Glenn said.
What impact could it have?
Well, that depends on who you ask.
“It could have a tsunami effect throughout California,” according to Bornstein.
“We all want people to have stable housing, but impacting market-rate rents doesn’t necessarily create stable housing for all,” Bornstein said. “What it does create is a terrible situation where there is a limitation on supply and an over demand on the available vacant units which ends up increasing rents for those vacant units.”
There are some estimates it could impact the valuations of properties 10 percent across the board, according to Bornstein. He said this is especially true for single-family homes and condominium units that property owners choose to rent.
“If all of a sudden across the board all single-family homes and condominium units lose 10 percent in value when they go to be sold, there’s a 10 percent loss in the transfer tax,” he said.
Tenant groups argue it could make a large dent in the affordability crisis that is forcing renters out of cities across the state – and many into homelessness.
“Having no access to affordable housing is a root of many social issues that perpetuate poverty and marginalization,” said Chant’e Catt, president of Homeless Housing Advocate Alliance, in a press release on the issue. “Repealing the Costa-Hawkins Rental Housing Act is a step in the right direction for people on the verge of homelessness.”
What is going to happen?
It’s hard to say, which is difficult for brokers to stomach.
“The lingering questions create a lot of uncertainty for owners and brokers and people in the industry,” Glenn said.
A repeal of the act has been attempted before, but a 2009 court ruling upheld it. However, as rents continue to increase, renters continue to get evicted to make way for newer luxury units, and the homeless crisis remains at the forefront of community conversations, things may be different this time.
Officials in many cities are already drafting possible legislation in order to immediately implement new forms of rent control in the event it passes.
What is for sure is an all-out battle is on the horizon. The coalition for the measure is spending millions of dollars on marketing campaigns to garner favor with voters.
But opponents are putting together their own forces and planning to spend what could also amount to millions of their own money to defeat the measure.