Mixed feelings about California Proposition 10
I want to write about my thoughts on California’s upcoming Proposition 10. There are strong voices within the YIMBY community on both sides of the debate. I’ve thought about it a bit (though I’m certainly not an expert) and while I have mixed feelings, I’ve decided I’m against Proposition 10. If the proposition were just slightly different, I’d be in support, but given the proposition that’s on the ballot and the way the proposition requires a referendum to change key provisions, I think it’s best to vote no, and at the same time encourage the legislature to do some of the things that the proposition does.
So what does Prop 10 do? It does three things:
- In Section 4, it repeals the Costa-Hawkins Rental Housing Act, specifically sections 1954.50 through 1954.53 of the Civil Code. Costa-Hawkins basically does two things. First (and omitting some details), it forbids cities from establishing any form of rent control on single family houses or condos, or on buildings newer than 1995 (or, if the local government already established an earlier threshold date, from moving it forward); the latter restriction is designed to retain market incentives for new construction. Second, it forbids cities from establishing rent control that doesn’t reset to a market rate across most types of vacancies; that is, cities can regulate rent increases but not initial rents. (This requirement is called “vacancy decontrol.”) Section 4 of Proposition 10 would repeal these restrictions on the power of local governments.
- In Section 5, it explicitly authorizes cities and counties to regulate residential rents.
- In Section 7, it allows the legislature to amend the proposition by 2/3 vote, with the restriction that any restriction on the powers restored to cities and counties requires a majority vote in a statewide referendum.
Allowing local governments to enact rent control laws that control rents after vacancies could have a huge positive effect on some low and middle income renters (the ones who win the scarce housing). Costa-Hawkins requires that these benefits be given exclusively to those who have been in their apartments the longest; repeal would allow different rules that let them be distributed (by governments or by landlords) in different ways, such as lotteries for housing. (It could also be done by waiting list, which tends to give the housing to those who have been around the longest.) The new rent control rules could also allow people whose family size has changed (marriage, divorce, new children, children leaving home, etc.) to be able to move apartments more easily while keeping the benefits of rent control, and thus allocate the apartments that can hold larger families to those who actually need them. On the flip side, controlling initial rents also opens up large opportunities for discrimination when there are large numbers of applicants for every apartment.
These effects on renters also have effects on society. While rent control has a number of well-known disadvantages, the Bay Area is also facing a problem that I think is less well-studied: what happens when the housing costs over an entire metropolitan area become too expensive for the working class and middle class. Given the risks that the consequences will be disastrous, I’m willing to let local governments experiment more with rent control as a way to remedy these risks, at least until California is able to change the way local governments can forbid housing to the point that prices come down substantially.
One flip side to renters is landlords; if renters pay less rent, landlords receive less rent. Frankly, I don’t see this as a problem. Inequality has been rising, and much of the source of that inequality has been rising values of land (see Rognlie’s paper). Ownership of land isn’t on its own a productive activity, but the political process in local governments throughout the United States has essentially allowed a form of corruption by landowners, where they vote (as a majority) in ways that make the government increase the value of their land at the expense of non-landowners and of future generations. (This isn’t illegal corruption since it’s by majority vote at the ballot box, but I don’t think that makes it any less wrong.) So if landlords get less money, fine. Holding ownership of existing housing isn’t an inherently productive activity that we need to encourage.
But there’s another flip side: the development of new housing. We want the market to ensure that the development of new housing remains a viable business so long as there’s real demand for that housing. This requires providing developers a reasonable guarantee that they can earn money from their investment in building rental housing. This is why rent control laws have typically exempted new housing from rent control. The use of fixed dates (1979, 1995) would be better replaced by a rolling window (30 years is often suggested), so developers would know that the state guaranteed they could get market rents for 30 years before rent control applied. Not having this guarantee could significantly hurt development: it will almost certainly cause buildings not to be built, and buildings that would have been built as rental housing to instead be sold as condos.
Thus, I strongly support repealing the part of Costa-Hawkins that cities with existing rent control thresholds can’t move their thresholds forward, and the fixed 1995 threshold in the law, but I still believe the state should guarantee market rents for a reasonable rolling window following new construction. I’d support allowing cities to impose rent control on new construction when an old rent-controlled building (or building that would have been rent-controlled under current law) is destroyed to build a new one, but only exempting a portion of the units equivalent to the size (in units? bedrooms? floor area?) of the old building. Without such an exemption for new construction, I fear that repeal of Costa-Hawkins will vastly slow development of new housing in California, especially housing suitable for lower and middle income Californians, and that rent control will become a tool of rich cities to keep construction of new rental housing out and maintain their segregation. And if rich cities start using rent control this way, Proposition 10 will forbid the legislature from doing anything about it.
I am also willing to support repealing the restrictions on rent control that crosses vacancies with the expectation that some but not all cities will experiment with this form of rent control. This stronger form of rent control could mess up the housing market more than the weaker form of rent control that we have today, but it also has advantages, and given that restrictions on land use are already messing up the housing market even more, I’m fine with letting cities or counties experiment with this although I’m unsure whether it’s a good idea.
If the proposition contained a solid exemption for new construction (such as the rolling 30-year window I mention above), I would be supporting it. If the proposition before the voters allowed the legislature to fix this, I’d probably be willing to support it. However, the proposition explicitly forbids the legislature to pass basic measures needed to keep development of new rental housing functioning without submitting such a change to the voters, and thus I oppose Proposition 10.
I still hope that the legislature will repeal some or most of Costa-Hawkins on its own, as I described above. But I can’t support the repeal that Proposition 10 imposes and the way that it forbids the legislature from modifying the repeal without submitting a statewide referendum to the voters.
While I support the goals of the proposition, a vote on a proposition is a vote on a specific law (and a hard-to-change law at that), so my vote has to be based on what I think the consequences of the law will be, not just on the intentions of its authors.
I continue to believe that the real solution to the housing crisis is to aggressively build housing until housing prices fall enough. This requires substantial state intervention to make it easier to build dense housing across entire metro areas, including in areas currently zoned as exclusively for the rich. Denser housing is better for the environment, better for the economy, and in high demand by people who want to live in California’s cities and are driving prices up.
