Prop 10: What is it?

Prop 10: What is it?

On the ballot in November is Proposition 10.  From the Legislative Analyst’s Office, the ballot reads as follows:

Each city in California imposes their own rent control laws, if any.  Approximately 1/5 of the cities do.  Los Angeles is an example of having rent control already in place.  Should this proposition pass, it repeals the Costa-Hawkins Act, which limits rent control to multifamily, buildings built before 1995, and condos build prior to 1978.

If it passes, a few things can happen:

• Single family homes, newer condos, and newer construction could be subject to rent control guidelines.
• Local municipalities could impose fees to landlords.
• Possible guidelines could include that landlords cannot raise rent to market value once a tenant moves out.

Supporters of the Proposition refer to the undisputed fact that California is a high cost state.  Rents have been rising faster than incomes, making it difficult for medium to low income residents to find affordable rentals.  According to the Bureau of Labor Statistics, wages have increased by 3.1% for the year ending June of 2018 for Los Angeles.  The Los Angeles Times reports that rents in the City have risen 4.3% over the year, which happens to be a decline from 6.3% the year before. If this proposition passes and cities decide to enact rent control, in theory, this is supposed to give tenants the opportunity to have their wages increase and catch up to rents, considering that on average, almost 50% of their income goes to rent.  In addition, this isn’t to say that rent control will become stricter, it just means that the opportunity is there.

Opposers look at this from a very different position.  Should this pass, there is a strong prediction that small time investors will either (1) leave the rental market by selling their properties to owner users further restricting the available units for rent, or (2) convert their existing long-term rentals into short term such as for Airbnb.  If investors decide to sell their homes, that means millions of dollars lost in Federal and State income taxes.  In addition, if rental increases are restricted, then multifamily property values will go down, resulting in lower property taxes paid out when transferred.  This can result in millions of dollars lost for the Counties.

What it comes down to for voters is to whether to allow cities the opportunity to impose any sort of rent control.  For example, in the City of Burbank, there is no rent control.  That would explain why inventory is so low for multifamily units on the market for sale.  They generally sell fast.  Recently we sold a duplex in Los Angeles that was going to be delivered vacant.  We received multiple offers, with the primary advantaged being the fact that it was vacant, leaving the investor multiple options with the property, from living in there personally to booking units through Airbnb.

Time will tell when November 6^th comes around and what the voters decide.  And if it does pass, it will be interesting to see how city councils reacts.