With Prop. 33, voters could remove state limits on rent control

Demonstrators hold signs about high rents

Oct. 17, 2024 3 AM PT

If voters approve Proposition 33, it would allow cities to put rent caps on properties and units that they currently cannot cap, including newer apartment buildings, single family houses and vacant units.
Proponents argue the measure is necessary to tackle the state’s affordable housing crisis and provide immediate relief to struggling tenants. Opponents argue the measure will backfire by stifling needed housing construction.

Seeking to wield the power of government to keep rents low amid an affordability crisis, San Francisco officials last week passed a measure to dramatically expand the city’s rent control law to cover newer buildings than it does now.

The thing is, the expansion may never happen. The city first needs help from voters statewide.

That’s because California law currently bans local jurisdictions from placing rent control on buildings constructed after Feb. 1, 1995, and in some cities, such as San Francisco and Los Angeles, even earlier.

Voters twice rejected attempts to overturn the prohibition in recent years, but they once again have the issue before them next month in what’s become the most expensive statewide fight on the ballot.

Proposition 33, like previous attempts, is sponsored by the AIDS Healthcare Foundation, which has contributed more than $46 million toward the measure. It would repeal a state law known as the Costa-Hawkins Act that limits how expansive local rent control laws can be at a time when most tenants face financial burdens and tens of thousands of people sleep on the streets.

“This will give us another tool to address the unaffordability of the city,” said Los Angeles City Councilmember Hugo Soto-Martinez. He wants L.A., like San Francisco, to look into expanding its rent control rules if Proposition 33 passes. “Local municipalities should be the ones that decide policy for our residents.”

As in the previous repeal attempts, the real estate industry is outspending supporters, worried the measure will harm investments. So far real estate groups in opposition have raised more than $100 million to fight Proposition 33. They argue that by opening the door to greater limitation on profit, it would reduce the quality and availability of housing, making the state’s affordability problems even worse.

“Californians understand the answer to our housing crisis is more housing, but Prop. 33 would do the opposite,” said Nathan Click, a spokesman for the No on 33 campaign. “It would be a crushing blow to our ability to build affordable housing, market rate housing and housing of all kinds.”

At its most basic, a yes vote bans the state from limiting the right of local jurisdictions to “maintain, enact, or expand residential rent control.”

In practice, Proposition 33 could mean big changes.

Costa-Hawkins not only bans cities and counties from putting rent control on buildings built in recent decades but also bars them from capping rent on single-family houses of all ages.

When a landlord is subject to rent control, the state law says they have the right to charge as much as they want each time a unit becomes vacant. Once a new tenant moves in, annual limitations return.

If Proposition 33 passes, cities and counties don’t have to do anything. But they’d gain the right to place rent caps on newer apartments, single-family homes and vacant units if they choose.

A state rent cap law that took effect in 2020 does limit rent increases in apartment buildings and corporate-owned single-family homes older than 15 years to the lesser of 10%, or 5% plus inflation.

But that level can still be a struggle for tenants, Proposition 33 supporters point out, and is far above what some individual cities allow on older properties.

The exact effects of Proposition 33 will depend on how landlords and developers respond and what kind of ordinances cities actually pass, according to interviews with independent economists and housing experts.

For example, today in Los Angeles, some for-profit developers willingly build new apartment buildings knowing they’ll be subject to rent control under a limited exemption to state rules, but the caps these developers face are less strict than what could be imposed if Proposition 33 passes.

A 2019 study from Stanford researchers found rent control in San Francisco kept people in their homes who otherwise would have been displaced. But rent caps also encouraged some landlords to turn units into condos or demolish their properties, which reduced supply and probably pushed up rents citywide, according to the researchers.

Rent control supporters argue the supply problem the study cited could be fixed by banning property owners from removing rentals from the market.

Richard Green, director of the USC Lusk Center for Real Estate, said even if cities do nothing, Proposition 33 could depress construction at least somewhat, because some developers may fear that municipalities will later change their minds and subject their properties to strict controls.

But he said such a fear-based drop probably would be relatively minor. Most developers will react to what cities actually do.

As a hypothetical, if Los Angeles expanded rent control to cover buildings built up to 2004, but still allowed landlords to charge whatever for vacant units, the effect on construction probably would be “barely measurable,” Green said.

He predicted if a city went further and regulated vacant units — a policy known as vacancy control that Proposition 33 would also allow — housing development would take a serious hit.

“Vacancy control means you can never raise rents that much,” Green said. “You can’t financially justify new construction under those circumstances.”

The California Apartment Assn., whose board members include executives from large corporate landlords such as Equity Residential and Irvine Co., has warned of worse consequences, stating in an ad through a campaign committee that the measure would repeal a hundred affordable housing laws, including the state’s rent cap bill.

In fact, Proposition 33’s language does not repeal any of those laws. But in response to questions from The Times, the No on 33 committee argued the measure would effectively repeal affordable housing laws because it would allow cities to pass rent control ordinances so strict that it wouldn’t make sense to build even subsidized housing. Alternatively, they said cities could override the state rent cap by passing weaker rent control laws.

The Yes on 33 campaign called those claims false and misleading, saying that 33 only allows localities to pass stronger rent control laws than the state’s and that constitutional protections mean any rent control law must give property owners the ability to earn a reasonable return. Supporters argue concerns over waning housing development represent an industry scare tactic and note that in the decades before Costa-Hawkins became law in the mid-1990s, when cities had the ability to put caps on vacant units and new construction, California saw an apartment development boom.

Back then, different cities took different paths.

Los Angeles and San Francisco always allowed landlords to charge what they wanted for vacant units, with caps limited to existing tenants. West Hollywood and Santa Monica regulated rent between tenancies.

All those cities had a cutoff date of when the units were built, after which the rent caps didn’t apply. In Los Angeles the date was in 1978; it was a year later in San Francisco, Santa Monica and West Hollywood.

When Costa-Hawkins became law it barred cities that established cutoff dates for rent control from extending them, while allowing other jurisdictions to impose rent control on buildings built up to 1995. The measure also gave landlords the right to set rents on vacant units, stripping so-called vacancy control from ordinances in places like Santa Monica.

Daniel Yukelson, executive director of the Apartment Assn. of Greater Los Angeles, said the prospect that vacancy control could return is a major threat for the small mom-and-pop landlords he represents.

Already, those property owners are spending more on insurance, utilities and maintenance because of inflation, and Yukelson said if cities limited their ability to raise rent when a tenant moves, many landlords would be forced to leave the business.

“The only thing that keeps our heads above water with strict rent caps is when we have a vacancy we can raise the rent in one of our units to market,” he said. “Quite simply, it is a bankruptcy bill for us.”

Manuel Pastor, director of the Equity Research Institute at USC, said ultimately California needs to build much more housing — particularly of the affordable variety — to fix its housing crisis, but he said Proposition 33 would enable cities to bring more immediate relief to tenants while long-term solutions are hashed out.

“When the fire is creeping up the hillside toward people’s houses, you don’t say, ‘Hey let’s sit down and have a seminar about the need to reduce greenhouse gas emissions and avoid this problem in the future,’” Pastor said.

Times data journalist Gabrielle LaMarr LeMee contributed to this report.