News & Insights

With the exorbitant price of housing in California, some local governments have attempted to alleviate costs by restricting a landlord’s ability to increase rent each year – a policy known as rent control. Currently over 20 cities and counties in California – including San Francisco and Santa Monica – have rent control ordinances for residential rental housing.

On this November’s ballot, the measure known as Proposition 33 seeks to give local governments broader power to implement rent control on residential properties currently exempt from rent control policies. If passed, the law would expand local government’s ability to control rental costs for single-family homes, accessory dwelling units and apartments built after Feb. 1, 1995, by repealing the Costa-Hawkins Rental Housing Act. Since 1995, these types of residential housing assets have been exempted from local rent control policies following the passage of the Costa-Hawkins Act – allowing landlords to raise rental rates on an annual basis as they see fit, subject to the state’s Tenant Protection Act. If Prop 33 passes, local governments will not be required to regulate rents on such properties, but they will be permitted to place additional limits on a landlord’s ability to increase rent each year. It is important to note that a more recent state law, the Tenant Protection Act, went into effect in 2020 and sets a state-mandated rent control which is capped at 5% plus inflation, with a maximum increase of 10%. This law is not at issue and would remain as the floor in municipalities that do not set stricter standards.

The Ellis Act, which gives landlords the unconditional right to evict tenants if they want to exit the rental market business (i.e., change the use of the building), is not addressed in Prop 33. However, supporters of Prop 33 have voiced their backing for the repeal of the Ellis Act and that could mean landlords will have fewer options to exit the rental market.

The debate around rent control is always contentious. Rent control proponents believe it provides stability and that the state cap is too high. Rent control is designed to prevent sharp rent increases year-over-year to the same tenant, but Prop 33 would also expand the structure of rent control and potentially allow local governments to place limits on the initial rental rate that landlords may charge a new tenant – for all types of housing – as well as restrict the ability to adjust rental rates to market value once a tenant moves out.

Supporters of Prop 33 have raised more than $20 million and argue that rent controls will help keep people from becoming homeless by addressing California’s affordability crisis and ensure that rent does not rise faster than wages. They believe it will prevent corporate landlords from charging unaffordable rents and that local governments should have the power to harness soaring rents. The hope is that Prop 33 will actually encourage the development of affordable housing projects, as developers may seek to align with government incentives and subsidies signed to offset the impacts of rent control.

Those opposed to Prop 33 are also spending big, and have raised more than $65 million – asserting that the proposed rent controls would make California’s housing shortage even worse and could negatively impact the broader economy. Opponents of the measure say it distorts the market by artificially lowering rents for some tenants and can actually drive up the rental costs by reducing the housing supply. They argue property values will drop – by reducing income-generating potential – and property owners will have less incentive to maintain their property, potentially leading to a deterioration of housing quality. Opponents also warn the passage of Prop 33 could discourage developers from building and lenders from funding new housing developments in municipalities that enact stricter rent control ordinances, which, in turn, will drive up existing rental rates – worsening the already severe housing shortage in some localities. Non-partisan researchers at MIT estimate that measures like Prop 33 could result in an average reduction in property values of up to 25%.

If this all seems like déjà vu – it is. Rent control has been a hot-button issue for decades and similar measures to Prop 33 have appeared on the ballot twice – in 2018 and 2020. Both times these initiatives were rejected by California voters.

While this latest measure has sparked heated debate with multiple arguments on both sides, one thing remains beyond question: housing in the Golden State is increasingly unaffordable for both renters and buyers. It remains to be seen if rent control provides a viable solution.

Riley Cutner-Orrantia is an attorney, and Eurie Hwang is a law clerk at Crosbie Gliner Schiffman Southard & Swanson (CGS3). The full article was published in The Daily Transcript and The Daily Journal.