Rent control has been on the march in the Bay Area as of late. In just the last year, rent control has been newly established in 3 cities, expanded in 3 cities, and considered and denied in another 3 cities in the region. A repeal of the Costa Hawkins Act – the 1995 law that defines the boundaries of a rent control scheme a city may adopt – was proposed in the State Legislature this term. While that proposal died in committee, it lit a match – a group called the Alliance of Californians for Community Empowerment just submitted a ballot initiative that would repeal the Costa Hawkins Act, which would put the future of landlord/tenant rights in the hands of California voters in November 2018.
As originally approved, the Costa Hawkins Act struck a delicate balance between landlords and tenants. The Act allowed California cities to apply rent control on older, more naturally affordable housing stock to protect existing tenants. Newer housing units (those built after 1995) were exempted from rent control; the idea being not to discourage the construction of new housing with limits on rent rates. Rent control was also limited to “vacancy decontrol” only – that is, even a protected unit could be re-rented at market rates when an existing tenant legitimately vacated. This allowed existing tenants to stay in place without major rent increases while allowing landlords to increase their return on investment once a tenant voluntarily vacated a unit.
That delicate balance appears to be teetering. The median rent in the entire state of California (population 39M; land area 163k square miles) is now $1,410/mo. – nationwide only behind Washington, D.C. (population 681k; land area 68 square miles) at $1,470/mo. and Hawaii (population 1.4M; land area 11k square miles) at $1,490/mo. These next stats should affect the entire political spectrum: From 2000 to 2015, 800,000 residents near the poverty line left the state – and studies show the lack of affordable housing is costing the state $143B to $233B annually. People may disagree on the solution, but you don’t meet many people these days that don’t recognize the problem with housing costs.
What would be the effect of repealing Costa Hawkins? Cities could enact or expand rent control to apply to housing built any time (including single-family homes and condos) and could apply vacancy control (prohibiting landlords from raising rents to market rate when a unit is voluntarily vacated). Clearly, this would be a major policy shift, so expect an intense debate over the next year. The initiative needs 366,000 signatures to make the ballot – but if it makes it on, just 50%+1 of the vote would be needed for it to pass.
Authored by Reuben, Junius & Rose, LLP Attorney, John Kevlin
The issues discussed in this update are not intended to be legal advice and no attorney-client relationship is established with the recipient. Readers should consult with legal counsel before relying on any of the information contained herein. Reuben, Junius & Rose, LLP is a full service real estate law firm. We specialize in land use, development and entitlement law. We also provide a wide range of transactional services, including leasing, acquisitions and sales, formation of limited liability companies and other entities, lending/workout assistance, subdivision and condominium work.