California’s rent control ballot measure could reverberate across the US

This story was originally published by Stateline.

Among the many ballot questions American voters will consider next month, housing experts are paying close attention to California and a question known as Proposition 33 — a proposed repeal of the state’s restrictions on local rent control.

If passed, the measure would give authority back to local governments to enact or change laws on rent control. For advocates, passing Proposition 33 would be a critical opportunity to address California’s housing crisis head-on. For the real estate industry, defeating Proposition 33 would mean maintaining the status quo in a market that has made billions for corporate landlords.

While rent control — caps on rent increases — provides relief to tenants, some economists suggest there are significant trade-offs: Rent control policies can lead to higher rents for uncontrolled units, reduce landlords’ incentive to maintain units, and dampen the creation of new rental housing — exacerbating affordable housing shortages.

Since January 2021, states and localities across the country have implemented more than 300 new tenant protections, according to the National Low Income Housing Coalition, a nonprofit that pushes for housing affordability.

And some housing advocates think that if Californians approve the ballot question, other states could follow suit, expanding rent control in the coming years as a way to prevent large rate hikes that can force out low- and middle-income tenants.

The ballot initiative could have “a reverberating effect across the country” if it is passed, said Chris Melody Fields Figueredo, executive director of the Ballot Initiative Strategy Center, a liberal-leaning advocacy group. “Renter protections have shown to have a path [to being passed] when put in the hands of voters since the pandemic.”

Rent control has a long history in California. Before 1995, local governments were allowed to impose rent controls, as long as landlords were still receiving reasonable financial returns.

But that year, lawmakers, with the support of the housing industry, passed the Costa-Hawkins Rental Act. It imposed new mandates: no rent control on condominiums or single-family homes, and no rent control on properties built after 1995.

In both 2018 and 2020, voters rejected measures that, similar to Proposition 33, would have repealed the Costa-Hawkins law. This year, lobbyists on both sides of the issue have poured money into the Proposition 33 campaign, and it’s drawn national attention from housing advocates and landlord industry groups.

According to the Los Angeles Times, backers of Proposition 33, led by the AIDS Healthcare Foundation, have raised nearly $40 million; opponents, led by the California Apartment Association Issues Committee, have amassed about $75 million to defeat it.

A Different Landscape

A lot has changed in housing policy since the measure was last defeated in 2020.

Since the COVID-19 pandemic, the deficit of affordable housing has deepened, with rental prices up 26% nationwide, according to the Joint Center for Housing Studies of Harvard University. The nation currently needs more than 7 million units for extremely low-income renters, according to the National Low Income Housing Coalition. The shortage of such homes increased by nearly 500,000 between 2019 and 2022.

“This puts millions of Americans in a position where they are forced to choose between paying rent and affording basic necessities like food and lifesaving medication,” said Emily Benfer, director of the Health Equity Policy & Advocacy Clinic and an associate professor of clinical law at the George Washington University Law School.

“It’s become an issue affecting people across the political spectrum,” Benfer said.

And California has been hit especially hard: A higher portion of households, 44%, are renters than in any other state but New York, according to the Public Policy Institute of California.

According to a recent Stateline analysis, 56% of California tenants spend at least 30% of their income on housing, a situation known as being “cost burdened.” It’s the fifth-highest rate in the country.

While a 2019 law caps how much landlords can increase rent annually across the state — the limit is no more than 10% in one year for most apartments and homes that are at least 15 years old — rent in California continues to skyrocket, well past the wages of renters.

Polling in recent years shows that voters nationally are increasingly prioritizing housing affordability and tenant protections. Democratic presidential nominee Kamala Harris has talked about rent control in her campaign, and the Biden administration this summer floated a plan to cap rent increases nationally for two years.

Some economists, however, say rent control is a bad idea, because it can exacerbate the housing crunch.

“Rent control has been about as disgraced as any economic policy in the tool kit. The idea we’d be reviving and expanding it will ultimately make our housing supply problems worse, not better,” Jason Furman, a Harvard professor who served as a top economist in the Obama administration, told The Washington Post in July.

The National Apartment Association, a lobbying group that represents corporate owners of more than 12 million apartments globally, says rent control measures disincentivize developers from building new units.

“With little to no ability to earn a profit, investors will transfer their funding to other non-rent controlled jurisdictions,” the group says on its website. “In practice, these policies have the effect of increasing the cost of all housing by forcing a growing community to compete for fewer units.” The organization declined an interview with Stateline.

Alexandra Alvarado, director of marketing and education at American Apartment Owners Association, an industry group that helps landlords with tenant screening and other services, said California’s small mom-and-pop landlords — an often overlooked group in the tug-of-war between renters and corporate landlords — can’t recoup the losses that rent control may cause, unlike financially healthy corporate landlords.

“Mom-and-pop landlords typically don’t raise rents as often as corporate landlords, but rent control forces them to keep increasing rent or risk falling behind, particularly when a tenant moves out,” she said in an interview.

‘A Major Testing Ground’

In addition to the state measure, two California cities — Berkeley and San Francisco — have affordable housing measures on the ballot. A proposal backed by Berkeley’s City Council would cap annual rent increases at 5% and eliminate some rent control exemptions, while San Francisco’s would fast-track affordable housing projects by streamlining the permitting process.

A competing Berkeley proposal, brought forth by landlord groups, would expand rent control exemptions, direct some city revenue to property owners on tenants’ behalf, and restrict the authority of the city’s rental oversight board.

The California Apartment Association maintains that rent control reduces incentives for developers to build new units. The group argues that rent control can lead to shadow markets, where wealthy renters benefit from artificially low rents in highly desirable areas, limiting access for those truly in need.

But some of the association’s claims have been challenged in court, with a ruling calling the group out for sharing potential misinformation with voters.

A superior court in Sacramento ruled in August that the group must revise several misleading claims made about Proposition 33 in its voter guide opposition. The court found that the association’s claims that Proposition 33 “would effectively overturn more than 100 state housing laws” and “eliminates” statewide rent control were misleading.

Alvarado, of the American Apartment Owners Association, said that if Proposition 33 fails, voters may have signaled that states, and by extension, the country, aren’t ready for strict rent control policies.

“California is a major testing ground. The country tends to look at what California is doing, and housing is one of the issues where people at the federal level pay attention to what’s working,” said Alvarado. “If [rent control] doesn’t pass in California, other states may hesitate to adopt similar measures, and it could set a boundary for rent control efforts across the country.”