Californians have been no stranger to new laws concerning rental housing in recent years. The landscape of landlord-tenant law has been rapidly developing, and depending on the results of this year's election day, it could get even more extreme for landlords in the state.
Prop 33 is the latest proposed change to California state law and will be on the ballot on November 5th. This proposed regulation would expand rent control for local governments and remove limitations that protected property owners for decades.
While supporters of the bill tout this as the answer to affordable housing, don't be fooled. Prop 33 would not only harm the interests of residential property owners, but it would also be disastrous for California's rental housing market as a whole.
Let's talk about Prop 33 and why rent control laws like this are not the answer to affordable housing in our state.
What is Prop 33?
Prop 33 is a ballot initiative seeking to repeal the Costa Hawkins Rental Housing Act. This would allow local jurisdictions to impose wider-reaching rent control laws on a city level. It would remove key limitations on a city government's power to enact rent control and strip the ability to set rental prices away from landlords.
So what is the Costa Hawkins Rental Housing Act? This state law was enacted in 1995 specifically to protect California from the dangers of rent control policies. It limits local governments from enacting rent control laws in their city on single-family homes, condominiums, and apartments built after February 1, 1995.
If Prop 33 passes, the Costa Hawkins Rental Housing Act would be repealed outright and local governments would be free to enact rent control on their cities and counties without restrictions.
The Potential Impact of Prop 33
For obvious reasons, opening up the floodgates on rental control laws is bad for people who own rental properties. Cities affected by new rental control laws will see decreased revenue and property values for rental properties. But the proposition would have farther-reaching consequences than just the surface-level implications.
Expanded Rent Control
As discussed, Prop 33 would remove rent control protections for privately owned single-family homes, condos, and newly built apartments. But the new possibilities for local rental control go even further than this. The proposition would also open the door for local rent control laws that limit a landlord's ability to adjust rental rates for existing tenants and even shut down their ability to change rent prices when new tenants come in.
In cities that take an especially aggressive approach, this would effectively take away every bit of freedom that a property owner has over their rental property business. Landlords would be unable to adjust rates based on the market even when tenants change, leaving their business stagnant.
Effects on Local Governments
The push for rent control measures has been especially rampant in the years following COVID. Activist groups and organizations with ulterior motives would be quick to pressure local governments to implement new measures with the passing of Prop 33. This would potentially bring a wave of unnecessary changes across the state, including in previously unaffected cities and counties.
Handing more power to local governments isn't a good thing either, not even for the government offices themselves. The Legislative Analyst's Office estimates that Prop 33 could cost city governments as much as tens of millions of dollars annually. All of that would have to come from taxpayer dollars.
Property Values and Housing Development
As any real estate investor will tell you, one of the biggest contributing factors to rental property value is the rental income level of the property. An increase in local rent control means a decrease in property values for rental property across the city. While this is obviously bad for property owners in the state now, it has broader implications. Lower property values mean a decrease in the construction of new housing as developers shy away from the state. This would only lower California's inventory of residential properties and make it even harder for people to find homes.
Local Property Tax Revenues
Another consequence of Prop 33 that isn't immediately apparent is a reduction in local property tax revenues for cities that adopt local rent control policies. As property values decrease, local governments would also face a decrease in property taxes paid. This reduction in revenue could negatively impact the city's ability to fund vital public services and infrastructure.
The Outlook for the Housing Market
Supporters of Prop 33 have touted the expansion of rent control laws in major cities as a solution to the state's homeless crisis. This line of thinking comes from the idea that forced low rental rates will naturally create more affordable housing in California; however, the truth is Prop 33 would create the opposite effect.
California property owners have already seen a host of new changes to state law in recent years that have restricted their freedom of choice, including AB12 and SB329. A sudden prevalence of even more local laws restricting their ability to control their rental rates could lead to some landlords pulling their properties off the market altogether.
This combined with the decrease in new housing means this initiative would see the housing crisis in our state only get worse. Properties with city-mandated minimal rent prices won't matter if there are not enough homes for people to rent. What's more, there's historical evidence to support this being the case.
Evidence for Negative Outcomes
San Francisco passed a city-wide initiative that enforced rent control on multi-unit apartments with 4 units or less. A study published by Stanford researchers in 2017 found that 30% of the units they studied were removed from the rental market. This led to a 15% decrease in the total rental inventory in the city and, ironically enough, a 7% increase in citywide rent prices due to less competition.
And that was only from rent control on a small subsection of properties in this one city. Imagine state law changing to allow this in cities and counties all across California for all types of properties.
Looking Forward - Vote No on Prop 33
The decision on Prop 33 is ultimately in the hands of California voters. Fortunately, they have wisely turned down these types of radical propositions with their votes before. And you can play a part in that. Come November, say no to Proposition 33 to protect our housing market and the state of California.
If you're a rental property owner looking for guidance in these turbulent times, Advantage Property Management Services is here for you. Contact us for a free consultation today.
