There Are Many Reasons to Say “No” to the Rental Affordability Act

Written by Apartment Management Magazine on . Posted in Blog

There Are Many Reasons to Say “No” to the Rental Affordability Act

Over the last 30 years or more, Wall Street, via our State and Federal governments, has quietly been attacking the private rental housing industry in the United States, even more here in California.   This attack has driven up the cost of existing housing and suppressed the development of new housing by curtailing many of the tax benefits that had been available for decades.  In addition, changing securities laws totally upended the secondary financial marketplace adding unscrupulous new players.  The real estate industry is not immune to the law of “supply and demand.”  There are simply too few housing units available in California in relation to the ever-increasing housing demand.  This November’s ballot proposition, the so-called “Rental Affordability Act,” will make the California housing crisis, and in particular the affordable housing crisis even worse. 

Here in California we have had a growing demand for housing, coupled with major housing shortages and ever-increasing costs. Our housing problem is a direct result of the more than four decades of old housing regulations we’ve endured in this state, including rent (price) controls, limits on evictions, and now rent increase freezes, right to counsel and eviction moratoriums to name just a few.

Many millennials are caught in a double “whammy.”  On the one hand, the higher housing prices keeps many of them out of the housing market.  On the other, student loan debt has them saddled with high loan payments so they can’t manage the savings to afford to buy or even rent housing.  Many of them who are able, are living with parents with the idea that they will save the down payment to purchase a home someday, which is a good thing. 

Rental housing prices in California today are high, and again, the forces of supply and demand are at work here.  Over the last 40 years, the population in California and resulting demand for housing has grown exponentially, but the housing supply has not kept pace.  In fact, California has regulations at both the state and local levels that make housing more expensive, and difficult to build.  In California the State no longer require cities to address housing elements in their general plans, as the law requires.  Coupled with exclusionary zoning, (R-1) is there any wonder why we have expensive housing. 

As the price of housing has risen, wages have not kept up.  The “Tech Boom” has created winners and losers.  We now have a “Gig Economy” where many workers are independent contractors.  The upside for them is they have more flexibility with their time.  The downside, often they make less money and lack healthcare and other benefits associated with employment.  This “Tech Boom” is wreaking havoc on big box retailers.  Malls are closing across the state and with them go those jobs.  This is a microcosm of a much larger problem.  Neiman Marcus, J.C. Penny’s and Sears have recently filed for bankruptcy! 

Given the high housing prices and the scarcity of supply, is it any wonder that minimum wage workers can’t afford rent?  However, to anyone who has been in the rental housing business for any length of time, this isn’t anything new.  In previous years, minimum wage workers paired up to share the costs of housing.  In many instances, two or more workers would rent together as roommates.  Minimum wage was never meant to provide full support for a family.    

As more people move into urban areas looking for jobs, housing has become even more of a challenge.  Workers are making longer commutes to their jobs, and that can also be expensive.  Here again, in California everything is more expensive, including food, medicine, gasoline, and utility bills are all way too expensive.  To address the affordability gap we have in housing, we need to really look at the restoration and expansion of Federal housing programs.  If we could again couple Federal dollars with private dollars, we could build more housing, particularly more affordable housing.  Not suggesting that we go back to the projects, but programs like HUD Section 236, public/private programs that actually worked in their day. 

I agree with the labor unions that housing is a real issue for their members.  In urban areas we need to streamline the entitlement process for building.  Between the state tax credit allocation committee, local planning commissions, the California Environmental Quality Act (CEQA) lawsuits, and the elimination of redevelopment agencies, it’s a wonder any affordable housing ever gets built in California today.  In South Los Angeles, a recent project using Proposition HHH dollars (A City Bond Measure) ended up costing $560,000 for a two-bedroom unit.  This is crazy and unsustainable.  Billions of dollars generously approved by California’s voters to provide affordable housing often goes to waste and barely makes a dent in our housing shortage crisis.  When over half a million dollars is spent to construct just one unit of housing, we’re doing something wrong. 

Clearly, California is the epicenter for homelessness.  However, much of this population is suffering from much more than simply being unable to afford the rent.  Los Angeles County Jail is the largest mental institution in the United States.  The weather in California is also an attraction to the unhoused population – rental housing providers can’t help that year-round moderate weather attracts the homeless to California.  That said, there are people living in motor vehicles and all manner of places who don’t have those issues, and deserve a place to live.   

Solving our state’s homelessness crisis will take a multifaceted approach.  We are going to have to build more dormitory style housing to accommodate some of this population, as one workable solution.  Just as with another recent initiative in Los Angeles County, in addition to building units, we will also have to provide “wrap-around” services such as counseling and substance abuse rehabilitation to go along with these shelters.  In addition, we may want to revisit using underutilized motels and hotels to house people and encouraging development of accessory dwelling units (granny flats) and micro units. 

We could debate the link between higher rents and people living on the street forever, but in the meantime, we must help unsheltered individuals and families today.  I find it interesting that they discuss rents with no mention of housing prices.  Many of the people now living in one bedroom units, at one time would have been purchasing starter homes.  Housing across the spectrum is more expensive and wages have not kept pace.  With that being said, the UCLA Anderson School Forecast mentioned by the initiatives proponents, didn’t recommend rent control as a solution to the housing crisis.  Nobel Economics Laureate Paul Krugman said: “Rent Control: An Old, Bad Idea That Won’t Go Away.”  Krugman went on to say, “introductory economics teaches that artificially compressing rents results in a shortage of rentable properties.”  “The lower fixed price increases the demand for rental housing while reducing the quantity of it offered for rent.”

Conservative economist Thomas Sowell said, “The goals of rent control and its actual consequences are at opposite poles.”  How often do you get a liberal and a conservative to agree on anything?  Socialist Swedish economist, Assar Lindbeck, once said about rent control that it is: “The most efficient technique presently known to destroy a city—except for bombing.”

Let’s all agree homelessness is a major problem.  But will rent control have any positive impact on the vast majority of the unhoused population, the answer is emphatically NO!  This is a total “Red Herring.”  As the economists noted, as you make it more difficult to be in the rental housing business, you lose supply, making the problem you wanted to solve worse.  Any solution that doesn’t involve increasing housing supply is no solution at all.  When it comes to homelessness, any solution will also require greatly expanded mental health services.  In time we will have to revisit how we handle mental health issues.  Court decisions have handcuffed local governments, who in many instances have sought punitive solutions to the homeless problem.    

We can all agree that long commutes are bad.  Back in the day when Ozzie and Harriet were on television, single family houses with big back yards were the thing.  As freeways were developed, we saw “white flight” from inner city neighborhoods, as folks sought to preserve that lifestyle.  Back then with fewer folks living in the suburbs the commute wasn’t that bad.  That was then.  Today neighborhoods that were once scorned, are now in demand.  Living closer to work is more important than that backyard birthday party, welcome Chuck E. Cheese.   

We have another problem on the local government end.  Much of the land in California’s inner cities is zoned for R-1 development or for single-family homes.  This low density makes all housing more expensive.  If we don’t increase density, there simply is not enough land to house all the folks who want to live near their work.  If we don’t do something about our zoning, we will never keep up with the growing demand for housing.  The Southern California Association of Governments (SCAG) refers to this as the “jobs housing balance.” 

Another model to consider would be the one cited in the Century Foundation report titled “An Economic Fair Housing Act.”  They term the R-1 preponderance in many urban areas “exclusionary zoning.”  Its origin would be the subject for another paper.  Ironically, the proponents of the so-called Rental Affordability Act, have opposed efforts to increase density which would actually lower cost!  

This November a ballot proposition is being disguised as “rental affordability” would be bad for renters, bad for the economy, and bad for the environment.  Everyone should vote no on the so-called “Rental Affordability Act,” like you did when its predecessor was on the ballot in November 2018.  More housing regulation equals less housing supply and expanding price controls causes greater housing shortages and rising rents.  It is just a matter of simple “Economics 101.”

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Roderick Wright is a former member of the California State Senate and Assembly.  He developed affordable housing with the Inner-City Housing Corporation.  He worked in the Planning Department of the City of Los Angeles.  He also worked at the Southern California Association of Governments (SCAG).  Mr. Wright has been a rental property owner for over 40 years and is also a member of the Apartment Association of Greater Los Angeles.

READ THE RENTAL AFFORDABILITY ACT HERE:

The People of the State of California do hereby ordain as follows:

Section 1. Title: This Act shall be known and may be cited as the “Rental Affordability Act.”

Section 2. Findings and Declarations: The People of the State of California hereby find and declare the following:

(a)    More Californians (over 17 million people) are renting housing than ever before. According to the State’s figures, home ownership rates in California have fallen to their lowest level since the 1940s. One quarter of older millennials (25-34 years of age) still live with their parents. (U.S. Census Bureau)

(b)     Rental housing prices have skyrocketed in recent years. Median rents are higher in California than any other state in the country, and among all 50 states, California has the 4th highest increase in rents.

(c)      As a result of rising rental housing prices, a majority of California renters are overburdened by housing costs, paying more than 30% of their income toward rent. One-third of renter households spend more than 50% of their income toward rent.

(d)     According to the National Low-Income Housing Coalition, a Californian earning minimum wage would have to work 92 hours per week in order to afford renting an average one-bedroom apartment.

(e)      Families faced with housing insecurity are often forced to decide between paying their rent and meeting other basic needs, which negatively impacts their health outcomes. Workers suffering from unstable housing and a deterioration in their health struggle to keep their jobs, pushing them into poverty and homelessness.

(f)      Labor unions, such as the California Teachers Association, the California Nurses Association and Service Employees International Union (SEIU) have made affordable housing a priority for their members. Teachers in California’s urban centers are paying 40% to 70% of their salaries on housing and many are being forced to live an hour or more from their jobs to afford a home.

(g)    Even though the state represents only 12% of the total U.S. population, California is home to 22% of the nation’s homeless population. (California Department of Housing and Community Development)

(h)     According to a 2018 study in the UCLA Anderson Forecast, there is a strong link between higher median rents and the number of people living on the streets or in temporary shelters. When combined with individual at-risk factors, less affordable housing markets contribute to an increase in homelessness.

(i)       Homelessness is a major public health issue. People who are homeless are 3 to 4 times more likely to die prematurely and are more likely to contract communicable diseases, according to the National Health Care for the Homeless Council.

(j)       The Centers for Disease Control and Prevention warn that vulnerable populations face lower life expectancy, higher cancer rates and more birth defects when they are displaced from their homes due to gentrification of their neighborhoods.

(k)      The increased cost of housing is worsening traffic congestion and harming the environment by forcing commuters to live farther away from their places of employment, increasing commute times. A report by the Pew Charitable Trust noted that the number of Californians who commute more than 90 minutes each way increased by 40% between 2010 and 2015; the increase is a direct result of the lack of affordable housing near jobs.

(l)      A growing body of evidence suggests that stabilizing rents can bring broad- based benefits to renters, the state’s economy, the environment, and its public services.

Section 3. Purposes and Intent: The People of the State of California hereby declare the following purposes and intent in enacting this Act:

(a)      To allow California’s cities and counties to develop and implement rent control policies that ensure renters can find and afford rental housing in their jurisdictions.

(b)     To improve the quality of life for millions of California renters and reduce the number of Californians who face critical housing challenges and homelessness.

(c)      To stem the tide of evictions and displacement affecting communities across California.

(d)     To allow a city, county or city and county to exercise any local law controlling the rental rates for residential property provided that it has been at least 15 years since the property received its certificate of occupancy.

(e)      To allow local laws to control rental rates following a vacancy while permitting a landlord to increase the rental rates on a vacated unit by no more than 15% over the subsequent three years in addition to any other increase allowed under a local ordinance.

(f)      To exempt the owners of one or two residential dwellings from any local rental control law.

Section 4. Section 1954.50 of Chapter 2.7 of Title 5 of Part 4 of Division 3 of the Civil Code is amended to read: “1954.50. This chapter shall be known and may be cited as the Rental Affordability Act.”

Section 5. Section 1954.52 of Chapter 2.7 of Title 5 of Part 4 of Division 3 of the Civil Code is amended to read:

“1954.52. (a) Notwithstanding any other provision of law, an owner of residential real property may establish the initial and all subsequent rental rates for a dwelling or a unit about which either of the following is true:

(1)  It has been issued its first residential certificate of occupancy within fifteen (15) years of the date on which the owner seeks to establish the initial or subsequent rental rate.

(2)  (A) It is alienable separate from the title to any other dwelling unit or is a subdivided interest in a subdivision, as specified in subdivision (b), (d), or (f) of Section 11004.5 of the Business and Professions Code, and the owner is a natural person who owns no more than two residential dwelling or housing units.  (B)  This paragraph does not apply to either of the following:

  • A dwelling or unit where the preceding tenancy has been terminated by the owner by notice pursuant to Section 1946.1 or has been terminated upon a change in the terms of the tenancy noticed pursuant to Section 827.
  • A condominium dwelling or unit that has not been sold separately by the subdivider to a bona fide purchaser for value. The initial rent amount of the unit for purposes of this chapter shall be the lawful rent in effect on May 7, 2001, unless the rent amount is governed by a different provision of this chapter. However, if a condominium dwelling or unit meets the criteria of paragraph (1) of subdivision (a), or if all the dwellings or units except one have been sold separately by the subdivider to bona fide purchasers for value, and the subdivider has occupied that remaining unsold condominium dwelling or unit as his or her principal residence for at least one year after the subdivision occurred, then subparagraph (A) of paragraph (2) shall apply to that unsold condominium dwelling or unit.

(b)     Subdivision (a) does not apply where the owner has otherwise agreed by contract with a public entity in consideration for a direct financial contribution or any other forms of assistance specified in Chapter 4.3 (commencing with Section 65915) of Division 1 of Title 7 of the Government Code.

(c)     Nothing in this section shall be construed to affect the authority of a public entity that may otherwise exist to regulate or monitor the basis for eviction.

(d)     This section does not apply to any dwelling or unit that contains serious health, safety, fire, or building code violations, excluding those caused by disasters for which a citation has been issued by the appropriate governmental agency and which has remained unabated for six months or longer preceding the vacancy.

(e)     In accordance with California law, a landlord’s right to a fair rate of return on a property shall not be abridged by any local charter provision, ordinance, or regulation enacted by a city, county, or city and county.”

Section 6. Section 1954.53 of Chapter 2.7 of Title 5 of Part 4 of Division 3 of the Civil Code is amended to read:  “1954.53. (a) Notwithstanding any other provision of law, and except as provided in Section 1954.52 and in subdivision (b) of this section, a city, county, or city and county may by local charter provision, ordinance, or regulation control the initial and all subsequent rental rates for residential real property.”

(b)     In any jurisdiction that controls by charter provision, ordinance, or regulation the initial rental rate of a dwelling or unit, if the previous tenant has voluntarily vacated, abandoned, or been evicted pursuant to paragraph (2) of Section 1161 of Code of Civil Procedure, the owner of the dwelling or unit shall be permitted to establish the initial rental rate for the vacant or abandoned dwelling or unit provided that the initial rate established pursuant to this subdivision, in combination with any increases in the rental rate during the subsequent three year period, is no greater than 15 percent more than the rental rate in effect for the immediately preceding tenancy. Any increase in the initial rental rate permitted by and established pursuant to this subdivision may be in addition to any increases in rental rates otherwise authorized pursuant to local law.

(c)     Nothing in this section shall be construed to affect any authority of a public entity that may otherwise exist to regulate or monitor the grounds for eviction.

(d)     Subdivision (b) of this section does not apply to any dwelling or unit if all the following conditions are met:  (1)  The dwelling or unit has been cited in an inspection report by the appropriate governmental agency as containing serious health, safety, fire, or building code violations, as defined by Section 17920.3 of the Health and Safety Code, excluding any violation caused by a disaster.  (2)  The citation was issued at least 60 days prior to the date of the vacancy.  (3)  The cited violation had not been abated when the prior tenant vacated and had remained unabated for 60 days or for a longer period of time. However, the 60-day time period may be extended by the appropriate governmental agency that issued the citation.

Section 7. Liberal Construction:  This Act shall be broadly construed to accomplish its purposes.

Section 8. Amendment and Repeal: Pursuant to Article II, Section 10, Subdivision (c), of the California Constitution, the Legislature may amend this Act to further its purposes by a statute passed in each house by roll call vote entered in the Journal, two-thirds of the membership concurring, signed by the Governor. No statute restricting or eliminating the powers that have been restored by this Act to a city, county, or city and county to establish residential rental rates shall become effective unless approved by a majority of the electorate.

Section 9. Severability: If any provision of this Act or the application thereof to any person or circumstances is held invalid, that invalidity shall not affect other provisions or applications of the Act which can be given effect without the invalid provision or application, and to this end the provisions of this Act are severable.

Section 10. Conflicting Measures: If this Act and any other measure addressing the authority of local government agencies to establish residential rental rates shall appear on the same statewide election ballot, the provisions of the other measure or measures shall be deemed to be in conflict with this Act. If this Act receives a greater number of affirmative votes than another measure deemed to be in conflict with it, the provisions of this Act shall prevail in their entirety, and the other measure or measures shall be null and void.

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