Beyond Costa-Hawkins Repeal: Expanding Renter Protections in California
There’s a new battlefield in the war over housing affordability in California. In November, a statewide initiative to repeal the state’s ban on rent control on new buildings will likely be on the ballot. The bill banning rent control on newly-constructed buildings, known as Costa-Hawkins, was passed in 1995 and is seen by many tenant advocates as a leading reason for California’s displacement crisis. Developers and landlords, on the other hand, see Costa-Hawkins as a necessary facilitator of ongoing housing production. They argue that if more property were covered under rent control, less new housing would get built because there wouldn’t be as much of a financial incentive for investors; lower potential rents over time means less profit. Both sides are staking a lot on the ballot initiative and the outcome of the vote could be a turning point in the housing crisis.
But, despite the effort both sides are investing in this fight, not much would change immediately after the election. A repeal would simply mean that, by removing the barrier that Costa-Hawkins enacted, cities would be free to expand rent control to cover buildings that have been built since 1995 (or earlier in some cities). But doing so would require changing ordinances or enacting new ones. Currently only fifteen cities in the state — accounting for roughly 15% of the state’s rental housing units — have rent control ordinances on the books and very few others would be open to implementing them, even without Costa-Hawkins in place. Repealing Costa-Hawkins is hardly a silver-bullet solution to the displacement crisis.
In our view, neither option on the table — status quo or full-scale repeal of Costa-Hawkins — is a great one. We think there are potential solutions beyond this false binary choice between repeal or status quo that could offer more protections for more California renters while at the same time reducing the risk of disincentivizing new development.
To explore what these solutions might be, we partnered with the Terner Center for Housing Innovation at UC-Berkeley to workshop several possible options. The outcome of that process is outlined on the Terner Center’s blog, including a link to potential policy proposals.
The proposal that we’re most excited about is the anti-gouging cap which would make it illegal for landlords to increase rent more than 5% (though this figure is negotiable) + cost of living each year. The cap would apply to all rental property in the state, whether it falls under rent control or not. This would create a basic level of protection for the other 85% of rental households that don’t currently fall under rent control.
Some may argue that an eight percent annual increase in rent (which is what the Terner Center is proposing for the cap in San Francisco, and amounts to cost of living increase of 3% plus an additional 5%) is still untenable for most renters. They’re right. But there’s reason to believe that the market wouldn’t sustain annual increases of this amount, and having any protections at all is better than having no protections. Think of this as a floor that creates a modicum of predictability and prevents against the most egregious rent increases that have resulted in so much displacement over the last few years. There’s precedent for a rent cap in California’s anti-gouging statute which makes it illegal to raise rent more than 10% in the wake of a natural disaster. The law has been invoked in the North Bay in the time since the 2017 fires.
The other benefit of a rent cap is that it would live independently from rent control — it doesn’t preclude cities from implementing stronger rent control ordinances if they want to, and it won’t override rent control in cities that already have it. Nothing about the anti-gouging rent cap precludes advocates to continue working to institute stricter rent control at the local level.
We’re looking forward to seeing which way the Costa-Hawkins repeal ballot initiative goes this Fall. Either way, we hope to continue to push for this anti-gouging rent cap which will create the conditions so that all renters in California, not just those in the handful of cities with rent control, will be protected from extreme increases in their cost of living. If you’re interested in joining this effort with us, sign up today.