The Facts About Prop 21, The Rent Control Initiative

Unlike many California ballot measures, the title of Proposition 21 is clear and upfront. There’s no intent to deceive with misleading language. It’s not “an argument designed to influence the voter,” and isn’t likely to prejudice the electorate.

The “Expands Local Governments’ Authority to Enact Rent Control on Residential Property” initiative would do just that. According to the Legislative Analyst’s Office:

A YES vote on this measure means: State law would allow cities and counties to apply more kinds of rent control to more properties than under current law.

A NO vote on this measure means: State law would maintain current limits on rent control laws cities and counties can apply.

The Costa-Hawkins Act has prevented local governments from enacting rent control on housing units that were first occupied on or after Feb. 1, 1995. It has survived at least one legislative attempt at repeal as well as a 2018 ballot initiative – Proposition 10 – which was defeated by voters by a 62-38 percent margin.

Despite these setbacks, rent control proponents didn’t give up. Last year the Legislature passed, and Gov. Gavin Newsom signed, a law that caps rent increases over the next 10 years at 5% plus inflation. This year, they put Prop 21, which modifies but doesn’t repeal Costa-Hawkins, on the ballot.

Given the high cost of housing in California, it’s understandable that capping rent to keep costs from rising even higher would be a popular proposal. There are some facts, however, that, if more widely known, would likely temper that popularity:

  • The Legislative Analyst’s Office says rent control laws fail to “increase the supply of housing and, in fact, likely would discourage new construction.” Boosting the housing stock is critical to solving the state’s affordability crisis.
  • Like it or not, landlords need profit, and the higher the better. According to economist Anthony Downs, “stringent controls prevent owners from reaping the unusually high profits that would trigger the development of additional new rental units.” He made this point not recently but three decades ago while at the Brookings Institution.
  • “Landlords treated by rent control reduced rental housing supply by 15%, causing a 5.1% city-wide rent increase,” say the authors of a National Bureau of Economic Research paper who studied the consequences of rent control in San Francisco.
  • Those same researchers also noted “a substantial body of economic research has warned about potential negative efficiency consequences to limiting rent increases below market rates, including over-consumption of housing by tenants of rent controlled apartments.”
  • An analysis by California State University, Sacramento, and the Sacramento Regional Research Institute of the effects of rent control in Santa Monica and Berkeley over two decades found that rental housing supply fell by more than 8.7% in the former, and by almost 7.5% in the latter.
  • Landlords prevented from increasing rent might become unwilling, or unable, to make repairs on their units, contributing, says the LAO, to the “decline in the overall quality of a community’s housing stock.” Or they could decide they’d be better off financially by repurposing their property for a use other than housing, thereby shrinking the supply of homes in the market.
  • Current renters would benefit from laws that prevent or limit rent increases (except for those forced to move because their landlords decided to convert their property to a more financially productive use). No one else would.

Come November we’ll find out if voters still feel the same way about rent control they did two years ago.

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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