California’s contentious Proposition 10, a measure designed to expand rent control across the state, was dealt a resounding defeat when more than 60% of voters rejected it.
The election results provide a reality check for other local governments across the country where lawmakers believe that regulating rents is the answer to gaining more affordable housing for residents.
Several California cities already have adopted rent control — Los Angeles, San Francisco, and San Jose included. However, state legislation dubbed the Costa-Hawkins Rental Housing Act limits the use of rent control in California.
Under current law, cities cannot cap rents on newer housing (post-1995) or single-family units. Also, landlords have the right to adjust rent to market rate after a tenant moves out. Courts in California have ruled that landlords are entitled to a “fair rate of return.”
Proposition 10 would have changed that by effectively repealing Costa-Hawkins, paving the way for local governments to enact rent control or expand current controls to more properties.
The Legislative Analyst’s Office, a nonpartisan policy advisor, warned of possible adverse financial consequences of Proposition 10. The LAO predicted that state and local governments could lose tens of millions of dollars each year, largely the result of reduced income and property taxes from landlords spurred by waning landlord profits and lower property values.
The LAO also found that local governments likely would incur increased regulatory and administrative costs as high as tens of millions of dollars per year. Rent control ordinances typically are policed by local rental boards and funding those boards is a costly enterprise. The fees likely would have been passed on to landlords, further discouraging investment in new and existing rental housing.
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Disclaimer: The information provided in this post is not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.