What is Proposition 10? Why Does It Matter?
As November nears, many California residents are hearing about Proposition 10 - if you're not intimately involved in real estate you might be unaware of it, but it has massive ramifications for investors in California moving forward for years to come.
Proposition 10 calls for the repeal of the 1995 Costa Hawkins Act. Costa Hawkins limits rent control in the state of California. It does this through 3 primary provisions
- It protects a landlord's right to raise rents to market when a tenant moves out
- It exempts rent control from units built after February 1995
- It exempts single family homes and condos from rent control ordinances
It also limits the rate at which rent control can be raised, typically around 3.5-5% a year.
As the states affordable housing crisis continues, many are calling for the repeal of Costa Hawkins through Proposition 10. This would allow for local municipalities to enact their own rent control ordinances - and the concern for investors is that we could see a return of strict rent control measures that would prevent investors from raising rents to market once a tenant vacated the unit (similar to local rent control ordinances enacted prior to Costa Hawkins in Santa Monica, West Hollywood and SF).
Personally, I don't see how we can legislate ourselves out of a supply problem. The state needs more units, desperately (anywhere from 1.8-3.5 million per the LA Times). Rent control in California thus far has done nothing to protect the most vulnerable tenants (it creates an incentive for owners and landlords to remove rent controlled units from the market) and there's zero incentive for owners and landlords to update their properties and communities end up blighted (the city of Torrance, which is half rent controlled is a great example).
What's the most shocking is that the city of Los Angeles has actively voted against adding additional units to the market recently - bowing to the pressure of their constituents who don't want additional high density housing in their neighborhoods. See link below for more:
California's Housing Crisis, LA Times
For Additional Information on Costa Hawkins, Curbed Los Angeles has a great article which I've included a link to below:
Costa Hawkins, California's Rent Control Law Explained
Despite the dire news for investors, we are strongly organized thanks to groups like the Apartment Owner's Association at a state level and at the local level groups like Better Housing Long Beach are fighting for owner's rights. Earlier this year rent control measures were defeated at the local level in Long Beach, Pasadena and Glendale.
If you want to get involved with either group I've included links below.
Happy Investing!
John
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