The Death of California Housing: Vote NO on Prop 10

Understanding the Misunderstood: The Costa-Hawkins Rental Housing Act

Costa-Hawkins and rent control has been a hot-button topic, and I feel very few understand how the dynamics will affect our housing market.

Let’s take a 30,000-foot view on this topic.

What is Costa-Hawkins?

The Costa- Hawkins Rental Housing Act is a California State Law that passed in 1995 that set requirements for 15 cities that had rent control legislation in California by establishing three guidelines:

1. It forbade cities from creating rent control policies on units constructed after February of 1995.
2. It protected the land owner’s rights to increase the rent to market rate on a unit once the renter moved out.
3. It spared single-family residences and condominiums from rent control restrictions.

1. The Birth of Costa-Hawkins

In 1972, Berkeley became the first city to have a rent control ordinance.

In 1976, Governor Jerry Brown voted against a state legislative bill (AB 3788) that prevented local rent control laws supported by the California Housing Council (CHC) where it lost 65% to 35%.

In 1978, Proposition 13 was overwhelmingly voted into law by a 2:1 ratio resulting in a freeze in the increase of property taxes. The underlying assumption by voters was that lowering property taxes would mean lower rents.

The CHC had opposed the Proposition 13, afraid that tenants would retaliate if landlords did not lower the rents.

It didn’t happen.

True to their worries, only a few landlords reduced their rents that led to the revolt of tenants.

In 1995, Jim Costa and Assemblymember Phil Hawkins supported the act to regulate the rental market.

This was supposed to regulate the housing market.

2. You Get What You Pay For

Costa-Hawkins affords landlords the right to reset the rental rates once the unit becomes vacant, allowing new residents to enjoy a well-maintained and, perhaps even, renovated rental unit.

The additional rent allows for the renovation to happen as the higher amounts can cover any unexpected operating and capital expenditures, typically result in a better community experience.

The common misunderstanding about vacancy control revolves around why rental rates increase after someone moves out.

The answer to this comes down to fundamental principles of supply and demand.

If the demand for housing outweighs available opportunities, then prices will invariably adjust upward in response to market dynamics.

By restricting supply, we are only incentivizing for prices to keep moving upwards.

3. Costa-Hawkins protects small property owners.

This law protects small property owners by prohibiting rent control laws on single-family homes and individually owned condominiums.

The Costa-Hawkins legislation allows the owners to have a fixed income opportunity during their retirement.

Conclusion

In sum, the Costa-Hawkins is not a burden to many renters as opposed to what people thought it is.

It became a basis of protection for both landlords and tenants.

Repealing Prop 10 will change that dynamic for the worst.