Rent control is on the California ballot for the third time in six years, forcing voters to confront some painstaking questions: Can cities and counties be trusted to rein in rental costs without discouraging new construction?
Proposition 33 looks deceptively simple. But it comes with complications that are hard to see at first glance, raising questions for which there are few definitive answers.
The measure would repeal Costa-Hawkins, the state law that prevents local governments from putting rent controls on most single-family homes, as well as on housing built on or after Feb. 1, 1995, or on rents charged to new tenants when they first move in.
The proposition wipes away all those restrictions but adds one for the state: “The state may not limit the right of any city, county, or city and county (like San Francisco) to maintain, enact, or expand residential rent control.”
That sweeping sentence makes legal experts, economists and even some rent control proponents nervous. With good reason.
There are few laws that tie the state’s hands so completely. The few that do are mostly about taxes. This potential law would require voters to trust their local government instead of their state elected representatives with matters of rent and housing policy.
It’s clear this ballot issue would result in the state losing some authority over housing policy, especially some of its ability to strong-arm cities into meeting affordable housing obligations. Voters must weigh if that’s a worthwhile tradeoff.
Ben Metcalf, managing director of the Terner Center for Housing Innovation at UC Berkeley, said he believes Prop. 33 weakens penalties the state uses against cities that are unwilling to add housing, such as the “builder’s remedy,” which lets developers move forward with a project — over a city’s objections — if that city’s state-mandated housing plans don’t meet goals for affordable units.
Prop. 33 and NIMBYs
Some anti-growth, not-in-my-backyard champions are salivating at the prospect of removing the state’s cudgel.
A Huntington Beach City Council member in March said his growth-averse city could slap low rent limits on some new multi-unit apartment projects to protect that community’s “surf vibe.”
A building set to have 40 apartment units with four retail stores was under construction in Santa Monica on May 24, 2023. Photo by Zaydee Sanchez for CalMatters
And at a recent Prop. 33 discussion, the president of Santa Monica Mid City Neighbors Association suggested his city could use a similar tactic to discourage a developer planning three projects, including a 30-story high-rise. That builder had threatened to use the builder’s remedy to build 16 projects.
The argument that Prop. 33 arms opponents of new housing is perhaps the strongest reason to give it a second thought. With Prop. 33, the snooty suburbs and wealthy enclaves wanting to exclude moderate or lower-income housing could gain another legal, easy way out, UC Davis law professor Christopher Elmendorf told me.
But that’s only if cities and local voters allow it. Prop. 33 opens the door; local elected officials must decide whether to walk through it. And local voters should hold them accountable.
If it passes, UCLA housing expert and author Shane Phillips has said he believes most cities will be reasonable with their newfound power and will use it for “good faith” reasons, such as a desire to keep rents affordable. Phillips, project manager of the Randall Lewis Housing Initiative at the UCLA Lewis Center for Regional Policy Studies, said he supports rent control but opposes Prop. 33 because it lacks guardrails. Once passed, it would be very hard to reverse. It would take another ballot proposition and another public vote.
These ballot measures also don’t leave much room for compromise, not like the regular legislative process does.
California’s current statewide rent stabilization law, passed in 2019, is a product of hard won compromise between tenant advocates and real estate and landlord operatives. Under that law, annual rent increases are capped at 5% a year, plus inflation, but never to exceed 10% for most renters. The law expires in 2030. It’s only 4 years old and perhaps it hasn’t had enough time to work yet.
A bad situation or worse
Letting cities do their own thing unravels that and permits variations that could be harmful to renters and landlords, Metcalf said.
“Most reasonable people believe we should be in the middle,” he said, “that if we throw out the state-brokered compromise we’re allowing more variation. You’ll see some examples of both extremes … Is the current state of things so bad that we’re willing to risk it being bad in some cities?”
Today’s situation is indeed already bad. There are more than 186,000 unhoused people and that number grows every time a landlord pushes out a tenant in pursuit of higher profits. Corporate investors are buying up properties and jacking up rents. For years rents have risen — often in double digits — beyond inflation, despite state and local limits.
First: Bay Area tenants from the KDF Tenants Association protest housing conditions and rent increases outside KDF Communities LLC’s office in Newport Beach on October 26, 2023. Last: For rent sign in the Richmond district of San Francisco on July 12, 2023. Photos by Jules Hotz and Semantha Norris for CalMatters
That has to be worse than a few California cities possibly abusing their new power to set rent limits and scare away developers.
When economists study rent control’s effects, they often warn about the financial ramifications they can measure — the potential loss in property values and property tax revenues, the uncertainty about future profit margins, the possible shrinkage of properties available to rent, as owners take them off the market or choose not to build.
Most studies do mention, at least in the short term, that rent control succeeds in stabilizing rents for tenants, which then stabilizes families and often whole neighborhoods, because people in rent-controlled spaces tend to live there longer. But few economic studies seem to be able to put a dollar value on that.
Rent control’s cost
Rebecca Diamond, a Stanford University economics professor, is one of the few known to have tried.
She studied San Francisco’s rental market after 1994, when the city extended rent control to most multifamily structures built before 1980. She found that, if rent-controlled buildings were located in high-value neighborhoods, landlords would buy out tenants, tear down their properties and rebuild. They wanted to either rent at higher rates, move in or sell the buildings.
The result of rent control over time was 6% fewer rental units were available and citywide rental rates rose 5.1%, her paper stated. “Rent control has actually fueled the gentrification of San Francisco,” Diamond wrote.
According to her calculations, the most established families who stayed in rent-controlled units for years saved what she called “rent equivalent dollar benefits” of $119,837 from 1995 through 2012. Families that moved more often saved the equivalent of $41,121.
Those savings, when added together with what landlords paid other tenants to move, equaled $2.9 billion in total benefits, Diamond wrote. That just happened to be the same amount that other renters in non-rent-controlled buildings ended up paying because there were fewer rental units available, she wrote.
The benefits cancel themselves out. Financially, rent control looked like a wash.
However, her study didn’t try to quantify how many people rent control kept in their apartments and homes who otherwise would have moved out of state or wound up on the street. In fact, the 66-page working paper doesn’t mention the word “homeless.”
It’s also not clear if San Francisco’s experience would be typical of other cities given its higher cost of living. About three dozen California cities have some form of local rent control, including Los Angeles and San Jose.
Not Econ 101
There are other studies with differing results. For example, a 2007 study analyzed 76 New Jersey cities with rent control programs over 30 years. The study found no statistically significant effect of the variety of “moderate rent controls” on the amount of new housing construction or on overall rent levels in that state.
There is even a question about the widely held belief that rent control will result in fewer rental units available. A group of 32 economists from such universities as MIT, Rutgers, Cambridge and the UC Santa Barbara questioned that in a joint letter to federal housing officials last year, saying it reminds them of similar arguments against minimum wage increases — that they would result in lost jobs, which didn’t happen.
“The economics 101 model that predicts rent regulations will have negative effects on the housing sector is being proven wrong by empirical studies that better analyze real world dynamics,” the economists wrote.
Empowering local governments with tools to keep people in homes and more leverage with developers are good goals. Prop. 33 would give more responsibility to local officials, so it looks like a step toward more participatory democracy.
New housing construction in the Crocker Village neighborhood in Sacramento on Feb. 10, 2022. Photo by Miguel Gutierrez Jr., CalMatters
But that system of participatory democracy has stifled housing development for decades. The state wound up with too few homes, creating an affordability crisis that made rent control necessary.
Yet state legislators entrusted with passing sound rent control laws have for too long bowed to landlords and land investors.
Voters are right to see Prop. 33 as a worthwhile risk when so many Californians are desperate for help. But this proposal won’t fix the problems it’s vowed to solve.
Here’s to hoping the vote is close at least, to send a clear signal to legislators that they need to make greater progress on rent stabilization. Otherwise Prop. 33 could come back, and the fourth time might be the charm.