AHF Rent Control Measure Analysis

By Max Dubler

Introduction

(Updated to reflect that this measure has been placed on the ballot as Proposition 33)

In November 2024, California will vote on Proposition 33, also known as the Justice For Renters Act, a ballot measure that removes state-level restrictions on local governments’ power to enact rent control.

This analysis of the measure is intended to help pro-housing voters understand the relevant policy and legal issues, Prop 33’s likely impact on housing markets, and how California YIMBY reached its position.

We conclude that the Justice For Renters Act is a poorly-conceived, over-broad measure that will likely worsen housing affordability by empowering NIMBY jurisdictions to block new housing. We recommend an oppose position.

Background: Rent Control and Existing Rent Regulation Law

“Rent control” is a blanket term that describes a variety of policies that affect housing costs, affordability, and markets in different ways. “Rent control” can refer to everything from modest limits on how much a landlord can raise the rent each year, to bans on rent increases, to outright price controls that determine how much rent can be charged for a home.

The primary reason to regulate rents is to prevent economic displacement, or people being forced to move out of their long-time homes because the market price of housing has risen steeply.

In other words, rent control provides tenants with security of tenure by preventing them from getting priced out of their homes. Note that rent control does not reduce the cost of housing; it just slows the rate at which housing becomes more expensive for renters who already have housing. Strong rent control can protect tenants from displacement, but it is not a recipe for broad housing affordability. 

Rent control can make it financially infeasible to build new housing or maintain existing buildings. Building a new apartment building costs money. If the revenue generated by the new homes is not sufficient to cover construction and maintenance costs, then new homes won’t get built: investors are willing to take on some financial risk, but not if the likelihood of losing money is guaranteed. In such cases, the housing shortage gets worse, and rents and home prices get higher in all of the existing homes.

Fortunately, there is a policy fix for this: exempting buildings from rent control for the first 15 or 20 years of their existence. By the time rent control takes effect – and as long as it allows for customary operating and maintenance expenses – most buildings will have stable rental income, meaning the risk that builders and owners face from rent regulation is greatly diminished. As a result, a rolling rent control policy that exempts newer buildings will not disincentivize construction.

Also, the point of regulating rents is to protect vulnerable tenants who may not be able to find replacement housing at prices they can afford. Because brand new apartment buildings are always more expensive to build than older apartments, they tend to attract tenants with higher incomes who are more able to afford market-rate rents than some long-time residents of older buildings.

In short, limiting rent stabilization to older, less-expensive buildings protects the most vulnerable tenants without creating financial risks that discourage the construction of badly-needed housing.

Maintaining and operating existing buildings also costs money. If the rent a landlord can collect is not high enough to cover maintenance and operating costs, they will neglect their buildings.

We see this in declining industrial cities with high vacancy rates, like Detroit, where the market price of rent is not high enough to fund basic building maintenance. In such places, landlords neglect their properties, with deleterious effects for tenants.

Similar neglect issues persist in cities with high housing demand and extreme rent control, like Mumbai, where strict rent controls and inflation have eroded the value of the rent that landlords are allowed to collect. Some rents are held at pre-1940 levels, which works out to less than $10 a month for some apartments. Because that rent is nowhere near enough to cover basic structural maintenance costs, older buildings regularly collapse in heavy rains.

New York City’s vacancy controls, which prevent landlords from resetting rents on some pre-war apartments to market rates when tenants move out, have a similar effect: landlords hold tens of thousands of these apartments off the market because allowable rents are not high enough to pay for the repairs and renovations necessary to make them fit for human habitation.

Allowing for modest rent increases, roughly in line with inflation or wage growth — and allowing rents to reset at market rates between tenants — preserves tenants’ stability of tenure while ensuring building managers have enough operating income to maintain their buildings.

Current law limits the ability of local jurisdictions to impose rent control. The Costa Hawkins Rental Housing Act of 1995 forbids cities from imposing vacancy control—limits on how much a landlord can raise rent between tenants—on any housing and forbids the imposition of rent controls on single family homes, condos, and any housing built after February 1, 1995.

California has statewide rent stabilization. AB 1482 (2019) imposes statewide rent stabilization on most rental housing more than 15 years old, limiting allowable rent increases to 10% or 5% plus inflation, whichever is lower. The law also grants most tenants “good cause” eviction protections, which forbid landlords from declining to renew a lease unless the tenant has failed to pay rent or has violated the terms of their lease. California YIMBY supported the passage of AB 1482.Some cities go beyond the state’s rent stabilization rules. Local rent stabilization ordinances, notably in Los Angeles and San Francisco, further limit rent increases. In San Francisco, the maximum allowable increase is set at 60% of local CPI. Los Angeles’ Rent Stabilization Ordinance is based on inflation, with allowances for greater increases in the event of capital improvements, seismic retrofitting, and renovations. San Jose limits rent increases to 5%.

Proposal

The Justice For Renters Act is a state ballot measure proposed by a subsidiary of the AIDS Healthcare Foundation (AHF), a Los-Angeles based philanthropy that has been criticized as a “slumlord” for its continued poor management of single room occupancy housing for formerly-homeless tenants. AHF tenants have been found to reside in dangerous conditions that have led to severe injury. (Thanks to a loophole in federal Medicaid policy, AHF makes hundreds of millions of dollars a year from its chain of pharmacies, which it frequently uses to fund political campaigns.)

The measure itself reads as follows: “The state may not limit the right of any city, county, or city and county to maintain, enact or expand residential rent control.”

If passed, this measure would empower cities to impose any form of rent control they wanted. They would be able to require rent control on new construction, implement vacancy control, and mandate below-inflation rent stabilization. Further, they would not be required to include “circuit breakers” that allow rents to rise when landlords add improvements like seismic retrofitting or upgrades for habitability.

Assessment

The measure would empower jurisdictions to deliberately make new multifamily development financially infeasible. As discussed above, well-designed rent control policies need not discourage new housing development.

However, cities that do want to block new housing construction would gain a powerful new tool if the Justice For Renters Act passes. By mandating strict, below-inflation rent control with vacancy control for all new multifamily housing, a city could make essentially all new multifamily housing financially infeasible to build. Indeed, a Huntington Beach city councilman has already expressed his enthusiasm for the measure on these grounds according to Politico (emphasis added):

[Huntington Beach City Councilmember Tony] Strickland said [the Justice For Renters Act] would block “the state’s ability to sue our city” because Huntington Beach could slap steep affordability requirements on new, multi-unit apartment projects that are now exempt from rent control. Such requirements, he argued, could stop development that would “destroy the fabric” of the town’s quaint “Surf City” vibe.

This bears repeating: anti-housing lawmakers who do not care about housing affordability are supporting the Justice For Renters Act because they want to weaponize bad-faith rent controls to get out of having to follow state housing law.

Some rent regulations allowed under this rule could have unintended consequences, even if introduced in good faith. If granted the authority, some city governments may pass poorly designed rent control regulations that have unintended consequences. This has already happened elsewhere.

In Saint Paul, a local ballot initiative applying rent control to new construction cut new housing permit applications in half before the city council amended it to exempt new construction. In New York City, as noted above, 26,000 older, vacancy-controlled apartments that need major renovations and repairs currently sit empty because the allowable rent increases are not high enough to cover the cost of making them habitable.

Some cities, notably Pasadena, have already passed rent control ballot initiatives that call for the immediate imposition of vacancy control in the event of a Costa Hawkins repeal or override.

Current state law strikes a reasonable balance on rent stabilization. AB 1482, the statewide rent stabilization and good cause eviction law that passed in 2019, already includes best practices for rent control and eviction protection. By limiting rent increases, AB 1482 protects tenants from landlord rent gouging; and by exempting buildings less than 15 years old, it avoids restricting the housing supply.AB 1482 was further strengthened by the passage of SB 567 (2023), which tightens eviction protections and gives tenants the right to sue their landlord for damages if they illegally raise the rent.

Recommendation

Oppose