CAA, FPI Management and REALTORS warn lawmakers that repealing Costa-Hawkins would worsen housing crisis

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The California Apartment Association, FPI Management and the California Association of REALTORS on Thursday warned state lawmakers, during an informational Assembly Housing and Senate Judiciary meeting, that an initiative to repeal the Costa-Hawkins Rental Housing Act would worsen the state’s housing crisis.

Debra Carlton, CAA’s senior vice president of public affairs, testified that repealing Costa-Hawkins would return an extreme form of rent control to California, bringing with it a slew of unwanted consequences.

If Costa-Hawkins is repealed, cities will be authorized to apply rent control to single-family homes and new multifamily housing. They’ll also be able to make rent caps permanent, even after changes in tenancy.

These policy changes would reduce the existing stock of rental housing, increase rents in neighboring communities, and increase blight and homelessness, said Carlton, pointing to findings from California’s Legislative Analyst’s Office and studies on rent control.

“And because rent control is rarely means tested,” Carlton said, “we know that the benefits don’t come to those who truly need it.”

Still, the hearing attracted spirited debate and hundreds of people from across the state, both for and against the measure. The fervor of tenant activists can be seen in this video from the Sacramento Bee, in which activists chant “The rents, the rents, the rents are too damn high.

Thursday’s overflow crowds were reminiscent of a January committee hearing on Assembly Bill 1506, a proposal that would have repealed Costa-Hawkins legislatively.

The January hearing, also chaired by Assemblyman David Chiu, D-San Francisco, ended with the defeat of AB 1506. With the Legislature unwilling to repeal Costa-Hawkins, tenant activists concentrated their energies on collecting signatures to place a repeal measure before voters.

Initiative qualifies, certification expected

On Friday, June 15, the Secretary of State’s Office confirmed that the initiative has indeed qualified for November’s ballot. While proponents this week can still withdraw the measure, and some lawmakers are urging a compromise, all signs point to it being certified for the ballot Thursday, June 28.

Speakers opposed to the initiative Thursday acknowledged that California has a housing crisis but emphasized that repealing Costa-Hawkins would fail to address the problem and would even exacerbate it.

“We’ve all seen news reports that tell us soaring housing costs have led thousands of people to leave California,” Carlton said. “This will continue even if this initiative passes. While existing tenants may experience lower rents, it will be harder to find vacant units for new employees and students.

“This initiative does not address the problem of lack of housing. It pours gasoline on our housing crisis and makes it worse.”

Also testifying Thursday were supporters of the initiative, including Occidental College Professor Peter Dreier. Although economists universally consider rent control an ineffective policy, Dreier touted rent control as a boon to the local economy.

“If landlords are limited from excessive rent increases, tenants will have more money to spend,” Dreier said. “They will spend almost all of their money in the local economy; that will boost local businesses, increase local sales taxes and increase jobs for businesses that prosper as a result of the additional consumer demand.”

However, Brian Uhler, principal fiscal and policy analyst for Legislative Analyst’s Office, said the repeal of Costa-Hawkins could drive down the value of rental housing, meaning landlords would pay less in property taxes.

And as property values go down and landlords feel other effects of extreme rent control, many will leave the rental housing business, Carlton warned. Instead of staying in the business, she said, owners will convert rental housing to condos, owner-occupied housing or tenancies-in-common.

“As an organization that represents rental property owners, CAA does not want to see a reduction in rental housing, but when rent control becomes too extreme, getting out of the business is an option that is chosen by some owners, and CAA will continue to defend that right,” she said.

Mom-and-pop landlords will feel impact

Karim Drissi of the California Association of Realtors said if Costa-Hawkins is repealed, about 3 million units — or roughly 23 percent of the housing stock in California — could be subjected to strict rent control, and independent owners of single-family rentals would be hit particularly hard.

“These rental property owners, a vast majority of whom are small mom-and-pop operators, would be unable to maintain their properties under the dire financial constraints imposed by extreme rent control,” Drissi said. “As a result, these single-family rentals would be sold and converted to owner-occupied properties, further exacerbating the state’s housing affordability crisis.”

Uhler of the Legislative Analyst’s Office also pointed to rental owners leaving the market as a possible outcome.

“This would shift the composition of the housing stock in a community, reducing the number of rentals available and increasing the number of units that are for sale,” he said.

In addition to eroding the current housing stock, a repeal would bring new development to a halt, opponents to the repeal say.

New housing projects on hold

“The flawed initiative will have a devastating impact on new residential construction,” said Cynthia Wray, senior director of acquisitions at FPI Property Management and a member of the CAA board of directors. “The uncertainty regarding the future of Costa-Hawkins has already put on hold a number of new housing projects that we have been working on for years.”

“With the additional costs relating to land and construction, these projects will simply not pencil if subjected to extreme and permanent rent control.”

Dan Kalb, an Oakland city councilman and a supporter of repealing Costa-Hawkins, testified that local rent control measures could exempt buildings for 15 years as a way to encourage new construction and address concerns about a damper being placed on new housing. The councilman also read a communication from Greenlining, an Oakland-based organization, stating that they were in support of the ballot measure to repeal Costa-Hawkins.

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