Costa-Hawkins Rental Housing Act reform

The Affordable Housing Act is a 2018 California ballot initiative to repeal the 1995 Costa-Hawkins Rental Housing Act which places limits on municipal rent control ordinances. It was filed on filed 23 October 2017 by Michael Weinstein, Elena Popp, and Christina Livington. 

A similar measure was proposed as legislative bill AB 1506, filed in 2017, but this failed to pass out of the housing committee in a vote on 11 January 2018. 

 

Costa Hawkins Act terms

• The Act exempts single family dwellings, and new construction.^[37] 
• It prohibits local government "vacancy control" in most situations.^[38] 
• For the five cities with "vacancy control" the Act is phased-in.^[39] 
• It situates government contracts with owners about rent charged, and the effects of a notice of violation, e.g., about health or safety.^[40] 
• Costa-Hawkins also addresses subtenancies,^[41] and other issues.^[42]
• The Act was amended in 2002 to close a loophole related to condominium conversion.
  It prevented owners of apartment buildings, who obtained a certificate for conversion, to avail themselves of the Act's exemption to rent control law, without actually
  selling any of such apartments as condominiums.^[43]

 

Issues / Concerns

what's the point of repealing C-H if landlords can just convert to condos?

Kenneth Stahl‏ @kookie13 12:20 PM - 11 Jan 2018
what's the point of repealing C-H if landlords can just convert to condos?
Don't we need to amend the Ellis Act to limit condo conversion before repealing C-H?

 

Alternative reform proposals

Rolling rent control 

(make rent control apply to buildings only after a certain time - 10, 20, 30 years.)

“providing a rolling definition of what ‘new construction’ is.”  - Rob Bonta, at Jan 11 2018 hearing. 

@housingforLA supports. 

 

 

References

• California Legislative Information. "AB-1506 Residential rent control: Costa-Hawkins Rental Housing Act." (bill text, history, updates). https://leginfo.legislature.ca.gov/faces/billStatusClient.xhtml?bill_id=201720180AB1506.
   
• Diamond, Rebecca, Tim McQuade, & Franklin Qian (2017). “The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco.” NBER working paper, October 11, 2017. http://conference.nber.org/confer//2017/PEf17/Diamond_McQuade_Qian.pdf.
  "Abstract: 
  In this paper, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants, landlords, and the rental market as a whole. Leveraging new micro data which tracks an individual’s migration over time, we find that rent control increased the probability a renter stayed at their address by close to 20 percent. At the same time, we find that landlords whose properties were exogenously covered by rent control reduced their supply of available rental housing by 15%, by either converting to condos/TICs, selling to owner occupied, or redeveloping buildings. This led to a city-wide rent increase of 7% and caused $5 billion of welfare losses to all renters. We develop a dynamic, structural model of neighborhood choice to evaluate the welfare impacts of our reduced form effects. We find that rent control offered large benefits to impacted tenants during the 1995-2012 period, averaging between $2300 and $6600 per person each year, with aggregate benefits totaling over $390 million annually. The substantial welfare losses due to decreased housing supply could be mitigated if insurance against large rent increases was provided as a form of government social insurance, instead of a regulated mandate on landlords."
   
• Dillon, Liam. “Rent control in California could expand dramatically under a possible 2018 initiative.” LA Times, 23 Oct 2017. http://www.latimes.com/politics/essential/la-pol-ca-essential-politics-updates-rent-control-in-california-could-expand-1508785237-htmlstory.html.
   
• East Bay For Everyone. "RE: AB 1506 - Residential Rent Control: Costa-Hawkins Rental Housing Act." (letter). 2017. https://www.scribd.com/document/350029454/Ab-1506-Support#from_embed.
   
• Initiative on Global Markets (at University of Chicago Booth School) [IGM 2012]. “Rent Control” [poll of economic experts]. 
  February 7th, 2012. http://www.igmchicago.org/surveys/rent-control. 
  Poll statement:  “Local ordinances that limit rent increases for some rental housing units, such as in New York and San Francisco, have had a positive impact over the past three decades on the amount and quality of broadly affordable rental housing in cities that have used them.” 
  40 respondents. 
  0 Strongly Agree
  2% Agree
  7% Uncertain
  49% Disagree
  32% Strongly Disagree
  2% No Opinion
   
• Legislative Analysts Office (California). Review of proposed statutory initiative pertaining to rent control (A.G. File No. 17-0041). 12 Dec 2017. http://www.lao.ca.gov/ballot/2017/170629.pdf.
   
• McFarlane, Alastair. “Rent stabilization and the long-run supply of housing.” Regional Science and Urban Economics, Volume 33, Issue 3, May 2003, Pages 305-333. DOI: 10.1016/S0166-0462(02)00031-5
  https://doi.org/10.1016/S0166-0462(02)00031-5.
  "Abstract: 
  This paper examines the impact of moderate rent controls on the construction and replacement of urban housing. It studies a common form of rent regulation that limits rent growth to below-market increases but permits landlords to set the base rent at free market levels and allows them to re-set rents when the incumbent tenant vacates, after which rents are re-controlled (‘vacancy decontrol–recontrol’). One of the primary insights is that neither the timing nor the density of construction is affected by rent stabilization when base rents are perfectly flexible. Allowing landlords to set the initial contract rent lets them capture the benefits to the renter of rent stabilization. Perfect capitalization of rent stabilization into a higher base rent provides the landlord with a free market rate of return and thus does not distort development activity. However, redevelopment of land will be hastened because rent stabilization complemented by vacancy decontrol–recontrol increases the difference between rents before and after redevelopment, increasing the opportunity costs of postponing redevelopment. Extensions include an analysis of other common rent regulations and the impact of rent stabilization on the urban rent gradient."
   
• Murphy, Katy. “California considers repealing rent control restrictions.” Mercury News. 11 January 2018. https://www.mercurynews.com/2018/01/11/california-considers-repealing-rent-control-restrictions/. 
   
• Murphy, Katy. “Rent-control policy `likely fueled the gentrification of San Francisco,’ study finds.” The Mercury News, 2 November 2017.  https://www.mercurynews.com/2017/11/02/rent-control-policy-likely-fueled-the-gentrification-of-san-francisco-study-finds/.
  (referring to [Diamond et al 2017]). 
   
• Weinstein, Michael, Elena Popp, and Christina Livington. “Affordable Housing Act” (filing letter).  20 October 2017
  https://oag.ca.gov/system/files/initiatives/pdfs/17-0041%20%28Affordable%20Housing%29_0.pdf. 
   
• Wikipedia. "Rent regulation." https://en.wikipedia.org/wiki/Rent_regulation.
   
• Wikipedia. "Costa-Hawkins Rental Housing Act." [1]. 
   
• Willis, John W. “Short History of Rent Control Laws,” 36 Cornell L. Rev. 54 (1950). http://scholarship.law.cornell.edu/clr/vol36/iss1/3.