How will Prop 10 shape future of housing, rents? Experts debate at Price panel

October 14, 2018

To view the full video from the Dean’s Policy Breakfast panel, please click here »

By Matthew Kredell

The first event in this year’s Dean’s Policy Breakfast Series, hosted by the USC Price School of Public Policy, tackled an issue on the November ballot that could have a crucial impact on the future of rental housing and development in California.

“We want the Dean’s Policy Breakfast series to convene civic and business leaders to share their in-depth expertise on really important issues facing our communities,” USC Price School of Public Policy Dean Jack H. Knott said.

Knott led the discussion on Proposition 10 with a balanced panel that included USC Price Professor Richard Green, Director of the USC Lusk Center for Real Estate; Rochelle Mills, President and CEO of Innovative Housing Opportunities; Chris Payne, President of Multifamily Development for SARES-REGIS Group; and Molly Rysman, Housing and Homelessness Deputy for Los Angeles County Supervisor Sheila Kuehl.

Knott opened the conversation by providing background on Prop. 10, which allows California voters to decide whether they want to repeal the Costa-Hawkins Rental Housing Act of 1995, which limits the kind of rent-control policies that cities are able to impose.

Costa-Hawkins has three main provisions: first, it allows property owners of rent-controlled units to raise rents to market rates once existing tenants move out; second, it exempts single-family homes and condos from rent-control restrictions; and third, it prevents cities from enacting rent-control regulations on apartments built after 1995, or whenever local rent control laws went into effect.

Some form of rent control is used in a handful of major cities in California, including Los Angeles, Beverly Hills, Santa Monica, West Hollywood, San Francisco, Oakland and San Jose. Los Angeles passed its rent control laws in 1978, so rent control in the city does not apply to dwellings built after that time.

A “yes” vote on Prop. 10 would repeal the Costa-Hawkins Act, allowing municipalities, by changing local laws, to impose rent control for residential rental properties, and to limit how much a property owner can increase rent when a tenant moves out. A “no” vote means the Costa-Hawkins Act will remain in place as is.

What are the pros and cons?

Prop 10 panel
USC Price Professor Richard Green with panelists (from right) Molly Rysman, Chris Payne and Rochelle Mills.
(Photo by Tom Queally) See more photos on Flickr »

Green started off by stating that he was against Prop. 10, but that he understood why it is on the ballot.

“People are upset, not just in California but nationwide, because they’re worse off than they were 16 or 17 years ago,” Green said. “If you look at the median income, it has not risen as quickly as median rents in about 95 percent of American metropolitan areas.”

Green explained some reasons for this issue. On the demand side, wages are falling for people in low-skilled places as they lose high-skilled people to high-skilled cities. Meanwhile, in those increasingly high-skilled cities, the low-skilled workers are worse off because the influx of high-skilled workers in a market with already tight housing options is driving up their rents faster than their wages.

“I think the reason we’re here is people are desperate for solutions,” Green said. “Personally, I don’t think this is a good one, but I understand why people are looking for a solution to what is a very real problem.”

As an owner and developer, Payne agreed with Green in opposing Prop. 10.

“While I acknowledge there’s definitely a housing issue, particularly for medium- to lower-income families and individuals throughout this state and many parts of the country, I think this has the potential in the long term to actually be counterproductive,” Payne said. “We have seen in the cities that have had long-term rent control policies in place that it becomes an impediment to develop new properties and actually incentivizes existing property owners to remove rental housing from the stock and convert to for-sale or other uses because there is no upside potential.”

Rysman indicated that she and Supervisor Kuehl don’t think that Prop. 10 alone is going to solve the affordable housing crisis, but they support it because they think it would lead to rent stabilization, protecting tenants from excessive rent increases.

Rysman said that she didn’t think repealing Costa-Hawkins would lead to vacancy control, or capping a unit’s rent even after a tenant moves out, because there wouldn’t be the political will for such a move in cities.

However, Mills and Green didn’t feel comfortable with that being an option. Mills, who said her nonprofit developer is neutral on the proposition, expressed concern that the well-meaning legislation will have unintended consequences.

“I don’t see a provision in Prop. 10 to skew it so that it benefits those who we would like to benefit,” Mills said. “I would love for a measure like this to be able to assure us that the people they’re trying to serve will be the beneficiaries, but there is nothing that demonstrates that right now.”

Mills brought up how developers today are not only looking to build new units but also rehab Naturally Occurring Affordable Housing (NOAH), which could be made infeasible if developers can’t raise rents on some of the units they are improving.

Green took it a step further, asserting that he feared the proposition could create an opportunity to potentially exploit rent control as a method of preventing new construction.

“I’m not so sanguine that if Prop. 10 passes there won’t be political will behind putting rent control on newer buildings and doing vacancy control,” Green said. “If you’re a developer, and I say you can’t ever raise your rent, no one is going to develop in my community. I’d like some reassurance that it wouldn’t be used that way, and given the way I observe local governments behave in California, I’m not reassured.”

Related faculty

  • Richard K. Green

    Director and Chair of the USC Lusk Center for Real Estate
    Chair, Department of Policy Analysis and Real Estate