Fatally Flawed Proposition 10 Will Raise Rents and Reduce Apartment Choices Across California

Repeal Of Rent Control Limits To Have Chilling Effect On Housing, Construction

If voters pass Proposition 10, the repeal of the Costa-Hawkins Rental Housing Act that limits rent control, experts say it would have a chilling effect not only on California’s housing market but also on the construction workforce.

On a Marcus & Millichap web panel Thursday, Sacramento Regional Builders Exchange Director of Government Affairs Damon Conklin said the state is already facing a shortage of construction workers. Repealing Costa-Hawkins would make it worse, he said. “Costa-Hawkins offers protection for our industry. It provides predictability, forecastability for projects in the pipeline,” Conklin said during the webcast, called Proposition 10: A Threat to All Renters and Property Owners. “When those protections are threatened … then all of a sudden it would have a chilling effect on the housing market and construction industry.”  Californians will head to the ballot in November and ultimately decide whether cities could adopt rent control ordinances. Passed in 1995, the Costa-Hawkins Act prevents cities from expanding rent control laws, prohibits rent control on newly constructed apartments built after 1995 and single-family homes and condos, and allows multifamily owners to raise rents to market rate when tenants move out.

About two dozen cities in the state, such as Santa Monica and Berkeley, adopted some form of rent control ordinance before Costa-Hawkins went into effect. Repealing Costa-Hawkins would allow other cities to adopt their own rent control policies. Proponents of Prop. 10 say lower and middle-class families that rent cannot keep up with the high cost of living and yearly rent increases and are struggling to pay rent. More than 1.5 million renters in the state are paying 50% of their income toward rent, according to a study by the California Department of Housing and Community Development.

But as the state continues to grapple with a massive housing shortage crisis, Essex Property Trust co-Chief Investment Officer John Eudy said repealing Costa-Hawkins would exacerbate the state’s housing crunch. More housing needs to be built and a streamlined building process to allow developers to build more units is the answer, said Eudy, who was one of the panelists.

Repealing Costa-Hawkins, Eudy said, “would put capital on hold and investment decisions on hold.”  “There is no motivation to develop,” he said. “It is incumbent upon all of us to push back on this measure, which only makes a bad problem worse — that is, the housing shortage in California.” Conklin worries about the construction industry, which is already facing a shortage of skilled workers.

The construction trade industry lost tens of thousands of workers during the recession, Conklin said, but has been slowly recovering. If developers and investors are not going to build more housing or units because of the cost and rent control limits, there would be less work.  “For every five construction workers that are in the pipeline and set for retirement, there is only one coming in through the apprenticeship or journeyman [program] to backfill them,” Conklin said. “We’re going to have a huge vacuum of skilled workforce.”