Prop. 21 – Another Attempted Costa-Hawkins Takedown

Costa-Hawkins

This November, California voters will be asked for the second time in as many years to overturn statewide restrictions on rent control in the Costa-Hawkins Rental Housing Act (“Costa Hawkins”). The following provides a summary of Proposition 21, named by its proponents as the Rent Affordability Act (“Prop. 21”), and its potential implications for residential landlords and tenants in California.

Prop. 10 and Costa-Hawkins

Its predecessor, Proposition 10, was rejected by nearly 60% of voters in 2018. It would have repealed Costa-Hawkins and allowed local governments to adopt rent control on any type of rental housing.  Costa-Hawkins, passed in 1995, allows local governments to enact and use rent control, except on (a) housing that was first occupied after February 1, 1995, and (b) certain classes of housing units, such as condominiums, townhouses, and single-family homes.  Landlords protected by Costa-Hawkins are currently allowed to increase rent to market rates when a tenant vacates a unit.

Prop. 21

If approved by voters, Prop. 21 would allow local governments to adopt rent control on housing units, except for (a) housing first occupied within the last fifteen (15) years and (b) units owned by natural persons who own no more than two (2) housing units with separate titles, such as single-family homes, condominiums, and certain duplexes, or subdivided interests, such as community apartment projects and stock cooperatives.  Prop. 21 would continue to allow local limits on annual rent increases to be more restrictive than the current statewide limit.  For vacancies where the previous tenant voluntarily vacated, abandoned or was lawfully evicted from a dwelling unit, Prop. 21 would impose, over the first three (3) years of a new tenancy, a combined rent increase cap of fifteen percent (15%) from the rental rate in effect for the immediately preceding tenancy.  This three-year rent increase cap would be in addition to any rent increases otherwise authorized by local law.

Tenant Protection Act of 2019

Prop. 21 follows the January 2020 roll-out of the Tenant Protection Act of 2019, which enacted a statewide rent control cap on annual rent increases of five percent (5%) plus the percentage change in the Consumer Price Index or ten percent (10%), whichever is lower.  The Tenant Protection Act of 2019, while considered to provide among the strongest state-implemented rent increase caps and renter protections in the country, does not affect vacancy decontrol, meaning landlords are currently able to set initial rents for new tenancies.  If passed, Prop. 21 would effectively foreclose the ability of landlords now protected by Costa-Hawkins to set initial rents at market rates if it would result in more than a fifteen percent (15%) increase from the prior tenant’s rental rate.

Support of Prop. 21

Proponents of Prop. 21 contend that the measure would provide more financial security for renters, reduce homelessness, and help alleviate a statewide housing affordability crisis.  The Prop. 21 campaign is sponsored by the Aids Healthcare Foundation, and notable supporters include Senator Bernie Sanders, House Representative Maxine Waters, the California Democratic Party, and the ACLU of southern California.

Opposition to Prop. 21

Opponents of Prop. 21 posit the proposed statutory changes would hurt renters by discouraging private sector builders from bringing more affordable housing units to market and diminish property values, resulting in less revenue for communities.  Californians for Responsible Housing is leading the campaign in opposition to this initiative, with other opponents including Governor Gavin Newsom, the Howard Jarvis Taxpayer Association, California NAACP State Conference, and Congress of California Seniors.

Votes Needed to Pass

For Prop. 21 to pass and become state law, greater than fifty percent (50%) of the votes cast for this proposition must vote “yes”.

 

Authored by Reuben, Junius & Rose, LLP Attorney Michael Corbett.

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.

SB 1085 Emerges from Crucial Committee Vote

Affordable Housing

SB 1085 Clarifies that Affordable Housing Fees Do Not Apply to Affordable or Density Bonus Units

When Senator Nancy Skinner introduced Senate Bill 1085 (SB 1085) in February, the bill proposed numerous revisions to the state Density Bonus Law. Many were geared toward incentivizing the development of moderate-income rental housing, including a 35% density bonus for projects that provide at least 20% of the units affordable to moderate-income families, concessions, and reduced parking requirements. The bill also limited cities’ ability to deny requested concessions, limited parking ratios for certain senior housing projects, and allowed concessions for student housing projects. Of particular interest to developers with projects in San Francisco, SB 1085 clarified that “[a]ffordable housing impact fees, including inclusionary zoning fees, in-lieu fees, and public benefit fees, shall not be imposed on a housing development’s affordable units or bonus units.”

SB 1085 was passed by the full Senate in late June, after which it moved to the Assembly.

On July 30, the Assembly Committee on Housing and Community Development approved SB 1085 conditioned on Senator Skinner amending the bill to remove the incentives for development of moderate-income rental units. These amendments were encouraged by affordable housing advocacy groups that argued the incentives would cause a reduction in the supply of low-income and very-low income units. The prohibition on imposing Affordable Housing fees on affordable or Density Bonus units remains in the bill.

The City of San Francisco imposes an Affordable Housing Fee on Density Bonus units. Many practitioners believe that the imposition of these fees on Density Bonus units is fundamentally incompatible with the Density Bonus Law. In April 2019, Attorney General Xavier Becerra issued an Opinion that bolstered this view, concluding that the imposition of a “public benefit fee” on Density Bonus units reduced the benefits that the Density Bonus Law is intended to promote, and was therefore invalid. While the Attorney General’s Opinion addressed fees imposed only on the Density Bonus units, most practitioners understood its reasoning would also preclude generally-applicable Affordable Housing fees that were being applied to Density Bonus units. SB 1085 would make it explicit that Affordable Housing fees cannot be applied to Density Bonus or affordable units.

The Committee’s approval of SB 1085 with the language limiting fees could be interpreted as a promising sign, given that Assembly Member David Chiu, a former San Francisco Supervisor, chairs the Committee. The bill must be approved by the full Assembly and the full Senate by August 31 to make it to the Governor’s desk in 2020. The San Francisco Board of Supervisors remains opposed to the bill.

 

Authored by Reuben, Junius & Rose, LLP Attorney Matthew D. Visick.

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.