MBA Mobilizes Against California Rent Control Proposal

Mike Sorohan msorohan@mba.org

October 04, 2018

In California, propositions--ballot initiatives that give voters tremendous influence in public policy--are a way of life (think Howard Jarvis and Proposition 13, the landmark 1978 measure that capped state property taxes). But the Mortgage Bankers Association says one such ballot initiative this November could have unintended consequences for affordable housing.

Proposition 10 would repeal the state's Costa-Hawkins Rental Housing Act and allow local governments to adopt rent control ordinances. Specifically, it would:

--Eliminate protections on housing built after February 1, 1995;

--Remove municipal vacancy control restrictions; including single-family homes;

--Potentially lead to establishment or reinstatement of more than 500 different regulatory structures among the state's local governments; and

--Prohibit a future single statewide solution without a new ballot measure.

Proponents of Prop 10, including rental advocates, affordable housing groups, labor unions, the California Democratic Party and several high-profile public officials such as Los Angeles Mayor Eric Garcetti (D), argue that more than 1.5 million California households, particularly minority families, pay more than half their income on rent and have been displaced from high-rent cities such as San Francisco, Berkeley and Los Angeles. They assert that Prop 10 would remove financial incentives for landlords to evict long-term tenants to reprice units at current market rates.

"Cities up and down the state will instantly regain broad authority to regulate rents as they see fit, including placing rent controls on apartments built after 1995, which are exempt under state law," according to a state voter guide.

However, Prop 10 has also generated considerable opposition, including both candidates for governor, Democrat Gavin Newsom and Republican John Cox. The NAACP, landlords, taxpayer groups, Veterans of Foreign Wars and small business groups have also lined up against the measure--and they're getting out their checkbooks, too: as of September, Prop 10 opponents have raised more than $35 million; its supporters, just $13 million.

Because of the economic implications--California's economy alone ranks higher than all but five countries; and its population (39.5 million) dwarfs other states--Prop 10 got MBA's notice. Working with the California Mortgage Bankers Association, the Mortgage Action Alliance (MBA's grassroots advocacy arm) issued a Call to Action last week, urging its California members to vote no on Prop 10 and to educate others about the implications of its passage.

"Proposition 10 would have a chilling effect on the ability of middle class families to find affordable housing in what is already one of the nation's most costly states for rental housing and homeownership," MBA said. "Make no mistake, Proposition 10 will not lead to more affordable housing. Instead, it will remove any incentive to develop new affordable housing units and lead to higher housing costs in California's already expensive market. This will harm the entire real estate finance industry in general and especially multifamily mortgage lenders. Moreover, if Proposition 10 succeeds, it is certain to be emulated by other states."

Independent academic analyses said Prop 10 would discourage new construction and reduce availability of affordable and middle-class housing and drive up rents for many Californians--even result in property owners to take rental units off the market in favor of vacation listing services such AirBnB. It would also eliminate protections for homeowners and allows regulators to tell single-family homeowners how much they can charge to rent out a single room in their homes. "Homeowners will be subject to regulations and price controls enacted by unelected boards," according to www.noprop10.org, an ad hoc coalition website, adding some homeowners could lose up to $60,000 in home value if the initiative passes.

Prop 10 opponents said better solutions for providing rent relief to Californians include increasing tax credits for renters, passing new bonds to provide public funding for affordable housing construction and requiring developers and cities to build more affordable housing across the state.

With the election less than five weeks away, anti-Prop 10 sentiment would appear to be winning. The Public Policy Institute of California released a poll last week showing nearly half of likely voters (48 percent) opposed Prop 10. Just 36 percent said they favored the initiative; 16 percent remain undecided. "Given the amount of attention to housing affordability and the stress it's causing, you would expect it to start out with more support," Mark Baldassare, PPIC president and CEO, told the Sacramento Bee.

MBA and the California MBA recently hosted a webinar on Prop 10; it can be accessed at https://mba.adobeconnect.com/p99oa2f0ymjg/?proto=true. For more information about the Mortgage Action Alliance, visit https://www.mba.org/get-involved/take-action-with-maa.

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