Battle Over Costa-Hawkins AB1506

Homeless-collageI’ve been getting a lot of calls lately from nervous investors asking about what I think about the recent attempts to repeal Costa Hawkins. For those who aren’t familiar, Costa-Hawkins Rental Housing Act enacted in 1995 is a state mandate that places limits on rent control that municipalities often establish through populace support. It prohibits cities from enacting rent control on certain types of properties such as single-family homes and condos.

It also prohibits rent control on newer buildings that were constructed prior to 1995 or earlier, depending on the date the municipal legislation had been enacted. For example in San Francisco any building constructed after 1979 is exempt from rent control, in Oakland and Berkeley after 1980. Perhaps most importantly, Costa Hawkins prohibits “vacancy control” which prevents a landlord from raising rents to market when someone moves out even voluntarily. Costa Hawkins provides general protections to landlords from municipal overreach fueling the battle between tenants and landlords exasperated by a housing crisis. Renters blame landlords, landlords blame the city, those living in poverty pay the price and are pushed into the street.

Due to the rocketing housing costs in California and the explosion of homeless encampments there is a movement towards repealing Costa-Hawkins and allowing cities to set their own rent control. AB 1506 authored by David Chiu of San Francisco and Richard Bloom of Santa Monica would have repealed Costa-Hawkins and reverted control to cities, but in January of 2018 the bill died in committee, not even making it to the senate floor. Now it will move to voters in November 2018 where it will almost certainly make it on the ballot.

You don’t have to look far to see how rising housing costs are affecting those around us. In my hometown Alameda, some of our friends and families have been forced to move or fight for their right to fair priced rental housing. A single greedy landlord can wreak havoc on the lives of dozens of long-term residents. Our housing crisis reaches literally into every facet of our economy and lifestyle and touches us all in some way. Across the estuary in Oakland, homelessness has risen 25%-37% over the past two years. Encampments are proliferating under every freeway overpass like never before seen, sometimes preventing a pedestrian from crossing the street safely.

Yet while the Oakland city council recently allocated $14 million to purchase transitional housing, and has finally provided portable toilets and garbage services, cities have been slow to share the responsibility, instead foisting the blame on landlords and painting them all as profit hungry monsters. Landlords cannot and should not be the only responsible parties to subsidize housing. Developers have proven to be hungry to build, so why can’t we clear the bottleneck already?

In California there are 482 cities, of those fifteen have enacted forms of rent ordinances and twelve have full blown rent control. I was surprised to learn that Santa Rosa recently voted to reverse their rent control law, so that can be done. Generally speaking the cities with rent control seem to be the most desirable and affluent. I’ve often wondered about the reverse correlation between rent control and property value. Why are rent-controlled cities both the bane and desire of landlords? By what distorted psychology do dis-incentivized landlords enable value to get trapped in buildings with artificially low rent? It’s almost as if rent controlled apartment buildings are encased in a void of disrepair like David Blaine in a cube of ice. They are difficult to show, impossible to finance and often languish on the market.

Regardless of where you stand on the issues of rent control, and weather you’re a landlord or tenant, rich or poor, Democrat or Republican, we all stand to benefit from solving homelessness. It is a deep and divided social problem plaguing our communities. Unfortunately our current administration is not helping the issue, instead the Presidents’ rhetoric fuels more division and hatred. Any lasting solution to homelessness must be a joint effort between tenants, landlords, city council, developers and government leadership.

 

 

 

 

 

 

 

 

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About BayApartmentAdvisor

Nick Myerhoff is a Bay Area apartment market specialist. He owns and operates his own multi-family real estate and assists clients and prospects with their purchases and exchanges of residential commercial real estate in the bay area.
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