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Millions of California renters are about to receive some of the nation’s strongest protections against rent hikes and evictions—and the primary advocacy group for California landlords is OK with that.

State legislators this week passed AB 1482, a bill from Assemblyman David Chiu, a Democrat from San Francisco, which limits annual rent increases to 5 percent plus the rate of inflation (typically 2-3 percent). Modeled after a first-in-the-nation Oregon measure adopted earlier this year, the bill also requires landlords to provide a “just cause” for evicting tenants and, in some circumstances, pay for tenants to relocate.

“We do not have time for those suffering in our streets,” Chiu said after the bill’s final passage. “We do not have time for those (who are) one rent increase away from eviction and homelessness.”

Gov. Gavin Newsom has lobbied fiercely for the bill in recent weeks, arguing that the measure is necessary to combat the state’s twin gentrification and homelessness epidemics. Half of all California renters—more than 3 million households—spend more than 30 percent of their income on rent, meeting the federal government’s definition of “rent-burdened.”

“These anti-gouging and eviction protections will help families afford to keep a roof over their heads, and they will provide California with important new tools to combat our state’s broader housing and affordability crisis,” Newsom said in a statement. The bill now awaits his signature.

Here are five takeaways from the most ambitious renter-protection bill the state has passed in recent memory.

The new measure would curb extreme rent hikes, and it’s stronger than what Oregon passed. But it’s not conventional rent control.

Oregon made national headlines when it became the first state in the country to pass a statewide measure capping how much landlords could increase rents. Often characterized as rent control by the national press, the Oregon law limited yearly rent increases to 7 percent plus inflation.

Although Chiu’s bill imposes a tighter cap—5 percent plus inflation—the assemblyman has been very careful to frame the measure as “anti-rent-gouging,” as opposed to typical rent control. Fifteen California cities currently impose some form of traditional rent control on apartments, with the legally allowable rent increase hovering between 1 and 4 percent. Chiu’s bill also does nothing to prevent landlords from raising rents when a tenant leaves, a provision called “vacancy control” that is often associated with how rent control worked decades ago in places like Santa Monica and Berkeley.

“Words matter. This is not rent control. This is an anti-rent-gouging bill,” said Assemblyman Rob Bonta, Democrat from Alameda, a co-author of the bill.

So how many renters will the new California law actually help?

While landlords have access to proprietary data that can better answer that question, publicly available data can’t. A UC Berkeley study of 10 gentrifying California communities found that over a five-year period, the average yearly rent increase exceeded 10 percent about once every three years. An analysis by the real estate data company Zillow, working with admittedly incomplete data, found that about 7 percent of California renters would have benefited from Chiu’s cap in 2018. While a minority of California renters will enjoy real savings from the new law, those who do benefit are very likely to be low-income and thus most vulnerable to rent hikes.

Mike Wilkerson, an economist with ECONorthwest, which analyzed the Oregon plan with proprietary landlord data, said the majority of major rent increases in Oregon are occurring in lower-cost units. He suspects the same is true of California.

“Really, what this is doing is protecting lower-rent units, where we’re consistently seeing rents going up,” Wilkerson said shortly after the California bill was introduced. “And the benefit is preserving more units to be naturally affordable.”

Some opponents of the California legislation argue that the measure could backfire: Landlords, they say, may treat the rent cap not so much as a limit on what they can charge but as a benchmark for what they should charge—especially if they fear future unanticipated costs or having to take a tenant to eviction court.

“The large property owners can build this cost into their business because they have a lawyer on payroll,” said Sid Lakireddy, president of the California Rental Housing Association, an advocacy group for smaller landlords. “That’s not the case for mom and pop (landlords) throughout the state.”

Although the rent cap has received most of the attention, the eviction protections are arguably more controversial. And a “third rail” of California housing policy gets very lightly touched.

In most parts of California, landlords can evict a tenant without stating an explicit reason why they don’t want that renter in the property anymore.

When Gov. Gavin Newsom said in August he wanted to strengthen the rent-cap bill, he mostly meant he wanted to see “just-cause” eviction protections included. Assuming Newsom signs the bill, California landlords will have to list one of several specific reasons why they want a tenant out, such as dealing drugs from an apartment or failure to pay rent on time. Landlords who want to convert a unit into a condo or move a family member in will have to fork over one month’s rent to the displaced tenant for relocation assistance.

Marcos Segura, an eviction defense lawyer with the nonprofit Central California Legal Services, said a relatively small minority of his clients in the Central Valley are evicted without cause. Most of the time, landlords accuse them of not paying rent or otherwise breaking the lease.

But he says “just cause” protections could prove beneficial in preventing landlord retaliation. When landlords do evict tenants without cause, he says, it’s often because tenants have been complaining about shabby living conditions.

“If you take that option away from landlords, where they can serve no-cause eviction notices, in those cases, it would make all the difference in the world,” Segura said.

To compromise with landlords and developers, Chiu exempted an increasingly popular swath of California rental housing from his rent cap: single-family homes. While single-family homes owned by investment firms would be subject to the new measure, those owned by “mom and pop” landlords—the vast majority of the single-family-home rental market—would be exempted.

Even with that carve-out, Chiu’s bill represents the largest expansion of renter protections in recent California history, applying to 8 million renters, according to estimates from the lawmaker’s office.

Many of the renters live in cities that already have local controls but aren’t eligible for it. A state law passed in 1995, colloquially known as “Costa-Hawkins,” bans cities from expanding rent control to units built after 1995 and in some cities limits control to units built well before then. In Los Angeles, for example, rent control can apply only to units built before 1978.

Chiu’s bill would apply to all eligible California rental units built at least 15 years ago, meaning units built as recently as 2005 would be subject to rent caps.

That would be a major shift in California housing policy. Costa-Hawkins has been considered a “third rail” for the California Legislature for decades. While AB 1482 doesn’t actually touch the language of the 1995 law—cities would still be banned from expanding tighter rent limits on newer properties—millions of new housing units would be subject to a legal limit on rent increases.

Developers say the measure shouldn’t impede new construction, and they don’t oppose it. But no signature housing-production legislation will accompany the rent cap.

For those concerned with California’s million-unit housing shortage, the most compelling argument against a rent cap was that developers kept saying it could impede the construction of new housing.

While California apartment builders generally forecast annual rent increases of 2 to 3 percent when lining up financing for their projects, the flexibility to raise rents to what the market can bear helps persuade investors to plow money into the often uncertain and time-consuming process of building new housing.

But even before Gov. Newsom’s public comments, the California Building Industry Association—the premier lobbying group for California developers—announced it would not oppose the bill after it exempted new construction from the rent cap for 15 years.

“The new construction exemption is key, because it’s hard to get investors to invest in multifamily units on a 10-year window; it just doesn’t pencil out,” said Dan Dunmoyer, head of the group. “Fifteen years is a balance of what is doable for attracting capital. Anything less than that just makes it harder to bring investors to California.”

The organization’s withdrawal of opposition was also notable, because it has had mixed success in pushing through legislation it says would ease regulatory burdens and allow for more housing. Many Capitol insiders thought packaging a pro-development bill with a pro-tenant bill was a logical way to ensure that both could become law.

In Oregon, a bill that allowed developers to build fourplexes in areas zoned exclusively for single-family homes was passed shortly after the rent-cap bill. A similar developer-backed effort in California, SB 50, fizzled this year.

When making public comments about strengthening the rent cap bill, Newsom also publicly embraced SB 330, a bill from Sen. Nancy Skinner, a Democrat from Berkeley, that would limit many of the tools developers say cities use to stymie new housing.

Dunmoyer says Skinner’s proposal is a step in the right direction. But he admits it wasn’t the big boost to housing production that developers had hoped for, considering Newsom’s audacious goal of 3.5 million new housing units by 2025.

“I’m not surprised (the rent cap bill passed) because I’m a political analyst who looks at the dynamics—it’s easier to regulate than reform,” Dunmoyer said.

This is a big win for Newsom, who angered a key interest group to make it happen.

Gov. Gavin Newsom kind of needed this.

Shortly after a state ballot initiative that would have allowed cities to expand rent control failed overwhelmingly last November, Newsom (who very quietly opposed it) said he wanted to broker a deal between tenant groups and landlords. He reiterated his desire in February in his inaugural State of the State speech, calling on lawmakers to send him a package of renter protections he could sign into law this year.

Newsom’s late efforts to strengthen the bill by adding eviction restrictions and tightening the rent cap flipped opposition among key interest groups. While he was able to secure a compromise from the state’s biggest landlord lobby, he angered the powerful California Association of Realtors, who thought the governor was breaking a deal they had struck on a softer version of the rent cap.

The Realtors are a major source of fundraising for California Democrats, contributing nearly $1.38 million in campaign funds to sitting Democratic lawmakers and $2.5 million to the state Democratic Party since 2017. Since the stronger bill was introduced, Realtors have flooded Democratic lawmakers with phone calls and emails.

How Newsom’s intervention will affect future relations between the Realtors and state Democratic leaders remains to be seen.

The Realtors have a reputation for holding a grudge, no matter the party involved. After Rep. Mimi Walters, a Republican from Irvine, voted for a Trump tax-reform plan the Realtors opposed, the state and national realtor advocacy groups spent $3 million supporting her 2018 Democratic opponent, Katie Porter. Porter won.

The big landlord lobby is OK with this. Which could hurt the prospects for rent control at the ballot box in 2020.

The California Apartment Association and its allies spent more than $70 million against a statewide rent-control initiative in 2018, defeating it by nearly 20 points. That victory gave landlords a major rhetorical advantage in pushing back against Chiu’s bill: Californians had already been given an opportunity to expand rent control and voted it down.

So why cave now, less than a year removed from that decisive victory?

Progressive firebrand Michael Weinstein, president of the Los Angeles-based AIDS Healthcare Foundation, is currently collecting signatures for yet another statewide rent-control initiative for the November 2020 ballot. Weinstein maintains Chiu didn’t go far enough to protect tenants. However, landlords can now say lawmakers have already moved to curb excessive rent increases and egregious eviction practices without endangering new development.

“We will argue the state has already spoken on this topic; we will argue this is a balance; we will argue everyone came to the table and found some common ground finally for a temporary solution,” said Debra Carlton, lobbyist for the California Apartment Association.

Landlords may have also gained assurances from key Democratic leaders that they may oppose, or simply mute their support for, rent control in 2020. Asked by the Los Angeles Times whether the California Apartment Association had requested that Gov. Gavin Newsom oppose Weinstein’s potential initiative, Carlton gave no comment.

CalMatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics. 

Published in Politics

It wouldn’t be election season without a bunch of big-money interests trying to tell you how to vote—and with hundreds of millions of dollars rolling into initiative campaigns over housing and health care, California hit a new record this year.

The $111 million campaign against Proposition 8 on kidney-dialysis clinics amounts to the most money poured into a single side of a ballot measure in the United States—at least since electronic record-keeping began in 2002, and possibly ever.

Here are three industries spending huge sums to influence your vote:

Landlords and real estate agents outraising rent-control advocates 3-to-1

Landlords are largely bankrolling the campaign against Proposition 10, which would allow local governments to expand rent control.

“They don’t want to see their property values decline; it’s that simple,” said Steve Maviglio, spokesman for the No on Prop 10 campaign, which has raised $74.7 million.

Prop 10 would repeal a 1995 state law that forbids cities from applying rent control to single-family houses, or any type of home built after 1995; that 1995 law also allows landlords to raise apartment rent any time a tenant moves out. Instead, the ballot measure would give cities the option to expand rent control to cover more homes—making it harder for landlords to turn a profit.

“It’s about their future, their bottom line. That’s why they’re spending so much,” said Charly Norton, spokeswoman for the Yes on Prop 10 campaign, which has raised $25.9 million, mostly from the AIDS Healthcare Foundation.

Supporters say Prop 10 is necessary, because homelessness is on the rise, and a growing share of Californians spend more than half their income on rent. Opponents say it will worsen the state’s housing shortage by discouraging developers from building more homes.

Donors against Prop 10 include corporate property owners like Blackstone, Essex and Equity Residential, as well as many individual landlords. The biggest donor is the California Association of Realtors, which has given $8 million to the campaign.

The Realtors' association also has poured $13.2 million into the campaign for Proposition 5, making it the sole funder of that push to change California’s property-tax law.

Californians now generally pay much higher property taxes if they buy a new home after selling a house they’ve owned for many years. That’s because property taxes are based on the sales price of a house, not how much it’s worth as it appreciates over time. This initiative would allow three categories of homeowners—those over 55, disabled or who lost their homes in natural disasters—to keep the property-tax levels of the home they sold if they buy a new home. Real estate agents say it would encourage older Californians to sell their homes, making more houses available in our tight market. (Experts disagree.) Of course, it also would boost their commissions.

“It will give a huge windfall to the real estate industry,” said Mike Roth, spokesman for the campaign against Prop 5, which has raised about $3.2 million, largely from public-employee unions that could see cuts if the government loses tax revenue.

Steve White, president of the California Association of Realtors, insisted it’s about “meeting a need. The unaffordability of housing in California … is largely dictated by lack of availability,” he said. “We have tens of thousands of homes that could be waiting for all those tens of thousands of younger families.”

Dialysis clinics outraising labor opponents 5-to-1

The most expensive fight on the California ballot this year is over Proposition 8, which would limit profits for dialysis companies. The businesses are fighting back, pouring $111 million into the campaign against Prop 8—most of it from two dialysis companies, DaVita and Fresenius.

“Prop 8 was designed to have a negative impact on dialysis clinics in California, and that’s why the groups that are opposed are fighting it so heavily,” said Kathy Fairbanks, spokeswoman for the No Prop 8 campaign.

She said the measure wouldn’t allow dialysis clinics to be reimbursed by insurance companies for many routine business expenses. Ultimately, that would cause companies to close clinics, Fairbanks said, giving patients fewer places to seek treatment.

Workers at dialysis clinics are not unionized. A labor group that represents other health-care workers has had its sights on organizing dialysis workers, and put Prop 8 on the ballot as part of a much larger feud within the industry.

“This record amount of (campaign) spending speaks to the priorities of the dialysis corporations, which is to protect their profits,” said Sean Wherley, spokesman Service Employees International Union-United Healthcare Workers, the sponsor of Prop 8.

The Prop 8 campaign has raised $20.3 million, most of it from SEIU United Healthcare Workers. The union argues that dialysis clinic companies are netting huge profits while allowing shoddy health and safety conditions at some clinics. Limiting the companies’ profits to 15 percent, as Prop 8 calls for, would encourage the clinics to put more money into improving patient care, the union argues.

Ambulance companies outraising labor opponents more than 600-to-1

Colorado-based company American Medical Response put Proposition 11 on the ballot and contributed most of the $29.9 million raised to support it. The measure would allow private ambulance companies to require workers to remain on call during breaks, so they can respond to an emergency even if it comes while they’re eating lunch. That’s already the common practice, but this measure comes in response to a court ruling that security guards cannot be required to stay on call while they’re on breaks. Ambulance companies don’t want to be held to the same standard.

“If applied to the ambulance industry, it would have a significant public safety risk,” said Marie Brichetto, spokeswoman for the Yes on Prop 11 campaign.

Opponents—the emergency responders who work on ambulances—aren’t raising much money; the American Federation of State, County and Municipal Employees union contributed just $47,000 to oppose Prop 11.

“This is a classic ‘big corporation against its own employees,’” said Jason Brollini, president of the United EMS Workers union that is affiliated with AFSCME.

He contends the ambulance companies’ real motive with Prop 11 is to eliminate any liability they could face from employees who sue over not getting the extra pay they’re supposed to receive when their breaks are interrupted by an emergency call.

CALmatters.org is a nonprofit, nonpartisan media venture explaining California’s policies and politics.

Published in Politics

One way or another, two words are likely to dominate the complicated politics of California’s housing crisis in 2018: rent control.

On Thursday, Jan. 11, state lawmakers are slated to hear a proposal from Assemblyman Richard Bloom, a Democrat from Santa Monica, that would allow cities to dramatically restrict what landlords can charge tenants year over year.

The bill couldn’t even get a hearing last year amid intense opposition from landlords. But looming over legislators’ heads this time around is a potential ballot initiative supported by tenants’ rights groups that would do much of the same. If the bill stalls, there’s a good chance you’ll see the rent-control question on your November ballot.

What should an average Californian know about a rent control debate poised to gobble up so much political oxygen? Here are five key points:

1. Under current state law, a wide swath of California’s housing stock can’t be placed under rent control.

Rent-control or rent-stabilization policies come in different shapes and sizes, depending on the city in which you may find them. Some place a hard cap on how much a landlord can raise rents year over year, while others may be indexed to inflation. Currently, 15 California cities have some form of rent control on the books, including major population centers like San Francisco, Los Angeles and Oakland—and one Coachella Valley city, Palm Springs.

But current state law prohibits any locality in California from imposing rent control on properties built after 1995. That’s the year the state passed the Costa-Hawkins Act, which also prohibited cities that already had rent control laws on their books from updating them for new properties. Thus in Los Angeles. rent control only applies to buildings constructed before 1978, and in San Francisco, rent control only applies to buildings built before 1980. Palm Springs’ ordinance only covers properties built before April 1979, among other exclusions.

A bit of background: After some cities responded to tenants’ concerns about rising rents in the 1970s and 80s by adopting rent-control ordinances, real estate interests first tried to stop them in the courts. Unsuccessful there, they focused on the Legislature. Bills to pre-empt local rent control would routinely pass the Assembly and then die in the Senate, held up by then-Senate President Pro Tem David Roberti, a West Hollywood Democrat. The year after he was termed out of office, Costa-Hawkins passed by a one-vote margin.

Both Bloom’s bill (as it is currently written) and the initiative would fully repeal Costa-Hawkins, massively expanding the number of properties on which cities could impose rent control. That includes single-family homes, which Costa-Hawkins also excluded from rent control protections. (Palm Springs’ ordinance currently excludes “buildings consisting of four units or less containing one unit occupied by the owner as his/her primary residence.”)

2. Most economists—left- or right-leaning—think rent control is bad.

Economists have a hard time agreeing on most things, but regardless of partisan leaning, most economists say rent control is not great policy. Even prominent progressives like Paul Krugman have expressed opposition.

Rent control is quite literally the textbook example of a “price ceiling,” and undergrad economics textbooks will often feature problem sets with questions about what’s wrong with rent control. The classic microeconomic downsides include killing the incentive to build more housing, causing landlords to neglect maintenance and repair, and inflated prices for non-rent-controlled units. A poll of ideologically diverse economists found that only 2 percent agreed with the statement that rent control had a positive impact on housing affordability in cities like New York and San Francisco.

3. Scholars in other fields are generally bigger fans. And if you took away rent control, the results could be disastrous for affordability.

Many urban planners and other scholars studying gentrification and displacement cite rent control as an effective policy to keep long-time residents in the communities in which they live and work. And because rent control has become so deeply embedded in the housing markets of some cities, taking it away—no matter how economically inefficient it may be—could spell disaster for current residents.

The Bay Area Council Economic Institute—a business-aligned policy think tank—ran a simulation of 20 policy changes that could improve or worsen housing affordability in San Francisco. The policy that would make things worst? Getting rid of rent control, which they found would plunge 16,000 households into an unaffordable housing situation.

4. One of the best studies of rent control shows that it primarily benefits older households—at the expense of households without rent control.

There actually aren’t a ton of empirical studies looking at how rent control plays out in practice. But a groundbreaking Stanford University study released last year on San Francisco’s rent-control experience has shed new light on who wins and loses from the policy.

Looking at a roughly 20-year span of proprietary rental and migration data, the study authors found that rent-controlled tenants age 40 or older saw average savings of nearly $120,000 from rent control; by contrast, younger rent-controlled tenants only saved an average of $40,000.

That’s because younger households were more likely to move out of rent-controlled apartments because of various life milestones—a new job, a new family, buying a house in the suburbs, etc.

5. The study also found that rent control paradoxically fueled gentrification, as landlords converted units to condos.

The Stanford study found that rent controlled buildings were 10 percent more likely to be converted to a condominium or some other type of non-rental property, as landlords searched for ways to evade the law. Those units being drawn off the market partly drove up rental prices for tenants searching for apartments in San Francisco. In this sense, the study authors argue, rent control paradoxically contributed to the well-publicized gentrification the city has experienced over the past few decades.

While the study also found that rent-controlled tenants were more likely to stay in the city than tenants without rent control, the gap may not be as wide as you think. After 10 years, about 11 percent of tenants without rent control were living at the same San Francisco address. Tenants with rent control? Just 13 percent stayed put.

The rent control bill will be heard by the Assembly Housing and Community Development Committee on Thursday, Jan. 11 at 9 a.m., and will include a public comment period. You can watch the hearing—which should be pretty lively as far as legislative hearings go—here.

CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics. For more of Matt Levin’s housing coverage, check out the CALmatters podcast “Gimme Shelter.” Jimmy Boegle contributed to this version of this article.

Published in Local Issues