Rent control on ballot as California seeks a fix for housing costs

The startling dimensions of California’s housing crisis take shape through numbers. More than 134,000 people lack permanent shelter, accounting for a quarter of the country’s homeless population. Some 3 million tenants – more than half the statewide total – meet the federal definition of “rent-burdened,” spending at least a third of their income on housing. The state needs to add an estimated 3.5 million new housing units by 2025 to satisfy demand as the population grows.

The problem appears obvious. The proposed solutions, on the other hand, elicit conflicting opinions as reflected by the expensive fight over a ballot measure to remove restrictions on rent control that California voters will decide Nov. 6.

Proposition 10 would grant cities authority to create stronger rent stabilization policies than the state has permitted since lawmakers passed the Costa-Hawkins Rental Housing Act in 1995. Named for its legislative authors, the law prohibits cities from capping rents on properties built since early that year and gives landlords a free hand to boost rents after tenants vacate units. The law also exempts condominiums and single-family homes from rent control rules.

The tussle over Prop. 10, which would repeal Costa-Hawkins, has drawn $80 million in campaign donations and inflamed debate over the potential impact of rent control on the state’s housing shortage. Supporters contend the measure’s passage would curb soaring rents and provide low-income tenants with greater stability. Opponents claim that abolishing Costa-Hawkins would deter new construction, and they call instead for easing building regulations to speed housing projects along.

Tenant and affordable housing advocates agree in principle for the need to accelerate construction. But they emphasize that, given the gulf between the ever-deepening demand for housing and the available supply, rent control can deliver immediate relief for tenants struggling to survive.

“These are the people who are a lost job or eviction notice away from winding up on the streets,” says Zev Yaroslavsky, a senior fellow at the Luskin School of Public Affairs at the University of California, Los Angeles. He led a recent study that suggests Costa-Hawkins has contributed to Los Angeles County’s housing crisis. “What do we do about people with a bull’s-eye on their back right now?”

Yet as election day looms, public support for Prop. 10 remains tepid. A poll last month showed 36 percent of voters favor the measure while 48 percent oppose it. Perhaps more revealing, the survey by the Public Policy Institute of California found that a majority of renters would vote against the initiative.

The campaign opposing Prop. 10 has amassed $62 million in contributions and assailed rent control in TV ads as an ill-advised proposal that will widen the housing gap and inflate rents. Stephen Barton, co-author of a report from the University of California, Berkeley that details the merits of rent control, asserts that the simplified message and a general unfamiliarity with rent stabilization have tipped public opinion.

“If you listen to a discussion on rent control, you’ll hear people say, ‘Well, it has defects,’ ” says Mr. Barton, a former housing director for the city of Berkeley. “And then they’ll talk about how a well-functioning housing market can fix everything. But we don’t have a well-functioning housing market, and rent control is one of the tools that can help address the problems.”

The L.A. experience

Elizabeth Rivera lost her apartment in Los Angeles this summer when the landlord announced plans to demolish the eight-unit building. A few weeks later, her daughter, who has two young sons, had to leave her apartment after the property manager decided to more than double her $700 monthly rent.

Ms. Rivera and her daughter moved in together, renting a one-bedroom unit in Koreatown for $1,300 a month. The cost consumes about 40 percent of their combined income from Rivera’s $800 monthly Social Security check and her daughter’s minimum-wage job.

“It’s so much stress,” Rivera says. “We have trouble sleeping because we wonder if we’re going to be kicked out into the streets.”

A recent UCLA poll showed that more than a quarter of Los Angeles County’s 10.1 million residents worried about losing their home in the previous year. The figure spiked to 41 percent among tenants in a county with a median monthly rent of $2,440 and where renters occupy more than half the households.

The annual “quality of life” study found that almost three-quarters of residents favor legislation that would protect tenants from steep rent hikes while still enabling landlords to raise rents at an equitable rate.

“One of the things that’s wrong with Costa-Hawkins is that it’s a one-size-fits-all approach to rent stabilization statewide,” says Mr. Yaroslavsky, who oversaw the survey. For the former Los Angeles city councilman and county supervisor, the Prop. 10 scrum echoes a similar fracas that occurred in the city 40 years ago.

At the time, a confluence of forces – high inflation and a surge in property taxes, rental rates, and housing values – persuaded officials to enact rent control over the protests of landlords and developers.

Rulings by the US Supreme Court and California courts guarantee the rights of landlords to receive a “fair return” on rent-regulated properties. The city’s ordinance, passed in 1978, allows annual rent increases between 3 percent and 8 percent. Los Angeles officials deemed that range adequate to help property owners cover rising costs and prevent them from pricing tenants out of their homes.

But Costa-Hawkins has curtailed the city’s efforts to rein in rents. In addition to barring local officials from crafting new rent stabilization policies, the state law froze in place any such rules that cities already had established.

The restriction precludes Los Angeles – one of 15 cities in California with rent control – from enforcing rent control on properties built after 1978. Meanwhile, construction of below-market housing has ebbed. Those parallel trends, coupled with a drop in state and federal housing subsidies, have fueled gentrification and created an affordable housing gap of nearly 570,000 units across the county.

“The state doesn’t do anything for renters. It does everything for property owners and developers,” Yaroslavsky says. “If we keep this up for another generation, we’re going to have far more homelessness that we do now.”

Buffer for tenants

Construction and apartment industry groups top the list of Prop. 10 critics, who insist that loosening tax, environmental, and zoning regulations on new projects offers the best long-term answer to the housing crisis. Denton Kelley, a partner with LDK Ventures, a real estate developer in Sacramento, explains that the stubborn math of construction makes builders leery of rent control.

“If my costs keep going up on the development side but I can’t charge more for rent, I’m out of business,” he says, adding that the state should share the onus of alleviating the housing shortage.

“There’s no disagreement by anyone that there needs to be more housing and more affordable housing in California,” Mr. Kelley says. “But to bring more income-restricted housing to market, there needs to be a significant public source of funding to help cover the costs.”

An estimated 1.5 million tenants spend more than half their income on rent in California. The National Low Income Housing Coalition calculates that renters in California earn an average of $1,118 a month; the market rate for a one-bedroom apartment averages $1,355 a month.

A state report last year estimated that California stands to lose another 31,000 apartments to market-rate conversions by 2021. Barton, the former Berkeley housing director, contends that rent control policies allow cities to counter the pervasive resistance of residents to any type of new housing.

“Even market-rate apartment projects get attacked,” he says. “In most communities, you’re not going to overcome the attitude of exclusion to build enough new housing. So you have to come up with another way to help lower-income tenants.”

In the analysis of Manuel Pastor, a sociology professor at the University of Southern California, Prop. 10 would create a buffer for tenants against unemployment, illness, and other sudden misfortune. He co-authored a report published this month that found rent control enhances the odds of low-income renters remaining in their homes and, in turn, improves their financial security and overall health.

“Rent control isn’t the end-all, be-all solution,” says Mr. Pastor, director of USC’s Program for Environmental and Regional Equity. “But it’s an important tool for helping cities take the action that suits them and protecting tenants who might be vulnerable.”

The redevelopment void

The pace of housing construction in California plunged a decade ago as the country descended into a recession. The state has built an average of 80,000 units a year since 2007, less than half the supply needed to meet demand through 2025.

City planners and housing researchers regard rent control as a safeguard from rent-gouging and unjust evictions for low-income tenants, and dispute the notion that it stymies construction. In contrast, economists claim rent stabilization harms renters by shrinking the housing supply.

Foes of Prop. 10 cite studies on rent control in San Francisco and elsewhere to bolster their case. They predict that the initiative would hamper the ability of developers to attract financing for new projects, by squeezing profit margins. They also assert it would prompt landlords to repurpose rental units into condos to maintain their rate of return. In a paper last month, Kenneth Rosen, a UC Berkeley economist, argued that “the best model for the California housing market would be to reduce barriers to construction.”

Yet the call for deregulation from the measure’s skeptics draws the disapproval of one of their own. Mike Madrid, a Republican political consultant and the founder of Grassroots Lab, a public affairs firm based in Sacramento, describes the push to lower environmental and other building requirements as misguided.

“This idea that if you only streamlined the regulatory process, everything would be hunky-dory – no,” he says. “Just letting the market do what the market will do won’t be enough to solve the problem.”

Mr. Madrid favors reviving the state redevelopment program that Gov. Jerry Brown eliminated in 2011 as California confronted a massive budget deficit. The program funneled $5.5 billion a year to local agencies for low-income housing and other urban renewal projects. Although a state audit uncovered examples of questionable spending, the funding aided affordable housing efforts statewide.

In Los Angeles County, the loss of that money and additional cuts to state and federal subsidies caused public funding for housing to plummet by almost two-thirds – from $712 million to $255 million – between 2008 and 2016. San Diego County’s funding fell from $179 million to $55 million; Sacramento County’s from $68 million to $23 million.

“When the autopsy of the housing crisis is written,” Madrid says, “killing the redevelopment agencies is going to be the No. 1 culprit.”

Governor Brown’s probable successor, Gavin Newsom, the Democratic nominee for governor who holds a double-digit lead over Republican candidate John Cox, supports resurrecting the program. (Both oppose Prop. 10.) But even if that transpires, relief for renters could take years to arrive, and the measure’s advocates view rent control as a potential remedy in the interim.

Elsa Stevens and her husband live in an apartment complex without rent control for people age 55 and older in Richmond, Calif. They survive on Social Security and disability payments and estimate they spend 40 percent of their income on rent. Ms. Stevens has volunteered for a phone bank to help the Prop. 10 campaign out of concern for fellow renters on fixed incomes.

“Without rent control, it’s a free-for-all for landlords,” she says. “If they can charge someone two or three times what they’re getting from you, they’re going to push you out. It’s scary for renters in California.”