Possible Repeal Of Rent Control Limitations Not Just A California Issue, It’s A National Issue

If California voters decide to repeal the Costa-Hawkins Rental Housing Act, an action that would expand the use of rent control in the state, it could have serious ramifications on future multifamily construction and development in the state and set a precedent for other states and cities weighing rent control nationwide.

“This is a big issue,” Equity Residential Executive Vice President Barry S. Altshuler said during Bisnow’s Multifamily Annual Conference SoCal on Thursday in Los Angeles. “This is the No. 1 issue on the ballot in California this year, but beyond California this is an existential threat to cities around the country.”

Joined by Berkadia Managing Director Jeff Rowerdink, TruAmerica CEO Bob Hart and Essex Property Trust Chief Investment Officer John Eudy during a fireside chat on the rent control issue, Altshuler called Costa-Hawkins the “single most important issue for the life of our industry.” 

With a glaring housing shortage, rental and housing prices in many major markets soaring and the homeless population also increasing, rent control has become a hot political issue across the nation.

Local leaders in California and Illinois are exploring repealing their rent control laws. Community activists in Denver, Minneapolis and other cities are looking to expand tenant rights.

“There’s a fine line between advocacy and understanding the issue,” TruAmerica CEO Bob Hart said. “If you tap someone on the street and say, ‘What do you think about rent control?’ They’ll say, ‘That’s a good idea. I’m paying a lot on rent.’ But I don’t think they necessarily understand the ramifications.”

Altshuler implored the hundreds of people in attendance to encourage their friends, co-workers and others who live in big cities across the nation to get involved or donate to the cause to educate voters. The California Apartment Association and other local multifamily groups are raising money to get the word out and counter the claims from the other side that limits on rent control are bad.

“People look at California and as California goes, so goes many big cities across the U.S. They need to pay attention to what’s happening because these tenants' rights groups are national and spreading this type of rhetoric about rents and people who own apartment buildings across the country,” Altshuler said.

The event's Costa-Hawkins fireside chat was one of nine panels discussing several issues facing the multifamily industry.

More than 400 commercial real estate professionals attended the annual multifamily conference that included a diverse number of speakers from tech and data companies, brokerage firms, management, finance and affordable housing developers.

Speakers discussed how multifamily developers could take advantage of the new Opportunity Zones program, locate value-add properties and use strategies to adjust for the ever-evolving multifamily landscape. 

But many of the attendees were most interested in the possible repeal of Costa-Hawkins, which could affect everyone in the room and have a ripple effect across the multifamily industry.

Enacted in the mid-1990s, the Costa-Hawkins Rental Housing Act prohibits cities from enacting rent control on single-family homes, condominiums and apartments built after 1995. It also allows for vacancy de-control, which means if a tenant vacates a rent-controlled unit, the landlord would be able to move the rent to market rate.

Several cities across the state, such as Los Angeles, Berkeley, San Francisco, Santa Monica, Fremont and others, enacted rent control ordinances before the passage of Costa-Hawkins that are still in effect.

The ballot measure comes as proponents of rent control have spearheaded a movement to repeal the rental housing act. 

Protests and rallies have sprouted in big cities statewide. Many rent-control advocates say the cost of housing has skyrocketed to the point that low- and middle-income earners and families are being evicted because they can’t afford the rent hikes. This is escalating the growing homeless crisis in major cities, they argue.

Opponents of rent control say there is a huge housing shortage and the only way to keep rent down is to build more multifamily and residential housing across the board. Land prices are also high, making it difficult to build moderate-income housing, they say.

Essex Property Trust's Eudy said if Costa-Hawkins is repealed and cities begin to pass ordinances supporting rent control, things would only get worse. 

“This will shut down the industry,” Eudy said, adding that investors won't put money in projects if they can't get a reasonable rate of return.

Altshuler said construction and development of single-family residential homes, which has been exempt from rent control under Costa-Hawkins, would also be impacted.

“It would devalue single-family homeownership and create a second crisis,” Altshuler said. “I think there’s going to be less construction, less investment and the value of real estate in California could go down … I don’t want to say it’s a disaster, but it could be.”

TruAmerica's Hart said the groups representing the multifamily industry will have to spend a lot of money to educate voters to better understand the impacts of repealing Costa-Hawkins.

More than that, Hart said this issue is beyond checking a yes or no on the ballot.

There is an affordable housing crisis and there are other underlying housing issues that need to be further addressed, he said. 

Hart and Eudy stressed the importance of having the state and or cities adopt density bonuses, provide other incentives and reform the California Environmental Quality Act so developers can build more affordable housing.

“The battle doesn’t end in November, it is only beginning,” Hart said.