by Robert Cabrera
Proposition 10 on the November 2018 ballot may hinge on the vote of homeowners in the state of California, where renters are a minority.
Polling on this issue is missing but looking at the ballot measures in California cities which recently sought to strengthen rent controls may be useful.
The list includes the percentage owner population of each municipality which proposed to expand rent controls, and the outcome, in the last election cycle:
Pacifica: 68% percentage owner population, measure failed.
Santa Rosa: 52% owner population, measure failed.
Alameda: 52.2% owner population, measure failed.
Sam Mateo: 52% owner population, measure failed.
Burlingame: 46.6% owner population, measure failed.
East Palo Alto: 43% owner population, measure passed.
Mountain View: 40.8% owner population, measure passed.
Richmond: 49.6% owner population, measure passed.
A clear correlation arises between majority owner population and the failure of stronger controls proposed. Note that in Burlingame, the population outlier, many tenants voted against the measure or failed to show up in sufficient numbers at the polls.
Proposition 10, like the above, seeks to strengthen rent controls by nullifying the provisions of the Costa-Hawkins Rental Housing Act, removing the exemptions of rent controls on single family homes and condominiums.
It goes much farther than any of the proposals discussed in the chart above by making owners direct targets of Proposition 10.
With rent control, the present residents of any community can vote themselves handsome benefits, while the adverse effects are pushed onto outsiders and future residents.
What are these adverse effects?
1. According to the Legislative Analyst’s Office, the taxes derived from rentals is a major source of revenue for the state of California.
It states that the passage of Proposition 10 would diminish this source. Eventually homeowners will have to pay higher taxes to make up the shortfall which could result in tens or hundreds of millions of dollars of lost tax revenue according to the report.
Not only would owners face higher taxes, but would lose the rent control exemptions which, in the case of some cities such as Berkeley, an owner trying to regain occupancy would have to pay relocation fees of about fifteen thousand dollars and a costly legal bill while the tenants involved get free legal aid. These cases normally drag on months.
2. Properties under rent control are worth less, and for a single family homeowner who toiled hard for a down payment this would be intolerable. Not only would the house be under rent control but the owner would receive less at the time of sale if tenant occupied.
3. Proposition 10 does away with vacancy controls, virtually freezing rents and forcing owners to rent an apartment for the same amount paid by the departing tenant. Under this scenario, owners will prefer to rent to long term tenants. Living near a job or educational institution will not be an option adding to congestion in large metropolitan areas.
Students will be one of the demographics most affected.
4. As time passes, the budget of rental property owners will decrease with expenses such as taxes, insurance, repairs and maintenance increasing. They will spend less on maintenance and it will show in the form of uncollected trash, peeling paint, yards full of weeds, etc. Since many rent control boards do not allow improvement costs to be passed to tenants, these communities in time will appear shabby and unkempt.
California homeowners will see Proposition 10 as not only an assault on their property rights but a threat to the equity of their biggest investment. In a sense, statewide exemption from rent control can be seen as an entitlement, like Social Security, Medicare or Prop 13. These are nearly impossible to rescind and Proposition 10 will most likely fail.
“With rent control, the present residents of any community can vote themselves handsome benefits, while the adverse effects are pushed onto outsiders and future residents”
That is an excellent summary. Though I would add “the community at large” as well.
There are also substantial fixed costs which I have not heard anyone stepping up to pay.
Without rent control, developer/landlords will continue to renters as pawns (the same ones that they’re overcharging to begin with), in their continuing effort to bypass local zoning and plans (which pits “neighbor against neighbor”).
Essentially, encouraging renters to do their dirty work, for them. Ultimately ensuring that politicians end up on the same side as developers, as has been the pattern for decades.
I recall that Gavin Newsom recently discouraged voters from supporting Proposition 10, and stated that he has an alternative “plan”.
See if you can guess what that plan is, if you don’t already know. (Hint – it’s a continuation of what’s already occurring, regarding weakening local control and forcing more growth and development onto communities statewide, using taxpayer dollars and other incentives.) Oh, wait – that’s more than a “hint”.
If you don’t like how the WDAAC Affordable developer is being used to advocate for sprawl, I’m pretty sure that you won’t like what the future holds without rent control (and with Gavin Newsom in office).
The other thing that will occur (without rent control) is that lower-income renters will continue to be pushed out by higher-income renters. But, this isn’t something that the developer/landlords want to talk about.
California is losing lower-wage workers to other states, while gaining (a smaller number of) higher-wage workers.
That’s why supply is important – but you refuse to acknowledge that there is a such thing as a market.
Folks like you believe that market demand should dictate planning decisions. Makes sense, since you’ve acknowledged interning with a developer.
New supply would be used to house higher-income renters. And, can result in displacement of lower-income renters.
How do you create affordability? THere are three ways: (1) Subsidies, (2) Go Tiny (3) by allowing supply to exceed demand. This isn’t rocket science.
Supply will not “exceed” demand, when in equilibrium. But, it’s the height of arrogance for some to advocate for abandonment of long-term plans, presumably so they might get slightly cheaper rent. While simultaneously advocating against both rent control, AND Affordable housing.
“Tiny” housing is not actually much cheaper.
Rent control puts the “subsidy” where it belongs, as long as employers are not willing to pay what the labor market would otherwise demand. (It’s actually subsidizing those employers, as well.)
Note that rent control normally just restricts future rent increases, to some degree.
Craig
I cannot recall anyone saying that there is not a market. I have made the statement many times that there is no such thing as a “free market”. There is a huge difference between those two statements.
VACANCY TAX: BETTER THAN RENT CONTROL
Rent control doesn’t force owners to offer their properties “to let” at the allowed rent. Nor does it force land owners to build more housing. Indeed it discourages both, reducing the supply of housing and therefore RAISING the rents of whatever part of that supply is not subject to rent control. Exempting NEW buildings from rent control may avoid deterring construction, but it still doesn’t open up EXISTING buildings for tenants. Worse, it means that the stock of rent-controlled housing becomes a shrinking fraction of the whole housing stock — unless the exemption is only for a limited time, in which case you’re discouraging construction again!
Will removing regulatory barriers to construction solve the problem? Not by itself, although it’s obviously a necessary condition. Cheaper housing requires developers, builders, and owners to increase supply to a point where it reduces their return on investment. They obviously won’t do that voluntarily. They will do it only if they are penalized for NOT doing it.
SOLUTION: Put a punitive tax on vacant lots and unoccupied housing, so that the owners can’t afford NOT to build housing and seek tenants. By increasing supply and reducing owners’ ability to tolerate vacancies, a vacancy tax strengthens the bargaining position of tenants and therefore reduces rents (and forces landlords to expedite any necessary repairs in order to attract tenants). It yields both an *immediate* benefit, by pushing existing dwellings onto the rental market, and a *long-term* benefit, by encouraging construction.
Such a tax, by reducing the cost of housing, would make it easier for employers to pay workers enough to live on. A similar tax on commercial property would reduce rents for job-creating enterprises. That’s GOOD FOR BUSINESS and GOOD FOR WORKERS.
A vacancy tax is also GOOD FOR REALTORS because they get more rental-management fees for properties coming onto the rental market, plus commissions from any owners who decided to sell vacant properties to owner-occupants (who of course don’t pay the tax).
Best of all, the need to avoid the vacancy tax would initiate economic activity, which would expand the bases of other taxes, allowing their rates to be reduced, so that the rest of the city/state/country gets a tax cut!
Gavin R. Putland,
grputland.tumblr.com .
I’m wondering if Gavin can let us know how much per month the “punitive tax on vacant lots and unoccupied housing” will be. Will it be a flat rate like $100/month or a percentage of value so a bigger home pays more than a smaller home and a bigger lot pays more than a smaller lot.
It may be more effective to allow people to homestead vacant land and dwellings
There is some indication that housing prices across the nation are falling. That is a good thing and we can thank Trump’s economics.
However, there is still the problem of too little supply of housing in areas where demand exceeds supply by a large margin… especially for those areas of the country with high immigration… especially high illegal immigration.