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One Law May Be Preventing Affordable Housing in California

Eric Samek

· Brasa Capital,Eric Samek,business,affordable housing

A state ballot initiative to expand rent control options for cities across California has gained enough signatures to qualify for the 2018 November ballot. If Measure 10 passes, it will revoke the 1995 Costa-Hawkins Rental Housing Act. Removing the Costa-Hawkins Act will have a dramatic impact on renters, property owners, and developers.

Although there are many supporters of the Costa-Hawkins repeal, there are those who argue that eliminating the current regulations on rent control can cause more damage than good to property owners and California’s economy altogether.

Even though the topic is highly debated, not all California residents are well versed in what the act entails. The following is a brief explanation of what the Costa-Hawkins Act is and how it is impacting California residents.

The Costa-Hawkins Rental Housing Act was put in effect over 20 years ago to place limits on municipal rental control ordinances. The law enforces two essential points:

1. When a tenant moves out, landlords are allowed to raise the rent to market rate.

2. Cities are not allowed to establish rent control on residential buildings such as single family dwellings, condominiums and new apartments constructed after February 1995.

When the law went in effect, it froze Los Angeles’ Rent Stabilization Ordinance (RSO), and restricted rent control to buildings that were constructed before October 1978. Under the RSO, rent increases can only go up by 3 to 8 percent. However, landlords of buildings that precede 1978 are allowed to reset the rent to market for the next tenant.

Repealing Costa Hawkins will give municipalities the latitude to institute whatever means of rent control they or their constituents deem appropriate.

The first issue with the repeal is that inconsistencies between municipalities will make it impossible for larger metros to implement a coherent growth plan. Infrastructure programs like a freeway and public transportation systems that take decades to plan and implement may not match up with micro-market densities. Schools, job centers, and traffic patterns will be heavily impacted as suburban sprawl is exaggerated by a lack of supply in infill neighborhoods.

A second major issue is that supply and demand dynamics will be further manipulated by the newly instituted governing of rents. Developers, who are already struggling to make sense of new development in many infill locations given affordable housing requirements and land and construction cost escalations, will be severely disincentivized to redevelop older obsolete product or construct new apartments given artificially deflated rents. An overwhelming percentage of economists argue that the reduction in supply the repeal is expected to bring about will actually cause an increase in rental rates and the vast majority of renters who will not be able to take advantage of rent control measures long term will be left worse off than they are now.

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