Would Getting Rid of Costa Hawkins Provide More Affordable Housing?

DEEGAN ON LA-Now that it’s been killed in committee, the attempt to repeal the Costa Hawkins Rental Housing Act, a state law that prohibits rent control in new housing constructed after 1995, moves the controversial subject from the hands and minds of state legislators to the voices and votes of the public through a prospective ballot initiative in November. 

Both pro and con forces are referring to the very relevant issue of what is “affordable” housing when arguing for and against Costa Hawkins. Those for rent control (and against Costa Hawkins) often can’t afford to rent where they want without rent controls in place, while those against rent control (and for Costa Hawkins to remain in place), can’t afford to make profits by owning buildings where rent control is enforced.  

Quiet advocates of repealing Costa Hawkins (and maintaining their lifestyles) are tenants who have substantial incomes but occupy rent-controlled units. They have the best of both worlds: joining the chorus about the necessity for rent control and affordable housing while enjoying rock bottom rents compared to what they have the capacity to pay -- and taking up space that someone less fortunate, for whom repeal of Costa Hawkins would be meaningful, would benefit from having. There is no “needs test” for living in a rent-controlled duplex or apartment, although it would be a great social equalizer if rents were tied to income, with supply and demand curves replacing both Costa Hawkins and rent control. 

Even with a repeal of Costa Hawkins, the city would still need to enact its own legislation addressing rent control, beyond what we already have with our Rent Stabilization Ordinance. It’s not certain, depending on what might replace Costa Hawkins, that repeal would satisfy rent control advocates. That would depend on what the development and density friendly City Council decided to do about updating the Rent Stabilization Ordinance that, since 1978, has been our form of rent control. Locally, only State Assemblyman Richard Bloom (A50) and State Senator Ben Allen (SD26), both from the West Side, have voiced support for Costa Hawkins repeal. They were authors of the proposed act that was just shot down in Sacramento. No Los Angeles City Councilmember or County Supervisor has yet taken a public position on the repeal of Costa Hawkins. 

Many Los Angeles neighborhoods are primarily comprised of renters which makes the question of whether or not to repeal what affordable housing advocates say is a landlord-friendly Costa Hawkins Act relevant for a huge slice of this city. The state legislature letting a measure to repeal Costa Hawkins -- the AB-1506-Residential Rent Control: Costa-Hawkins Rental Housing Act -- die in committee  led to the traditional response of assembling sponsors, in this case the Aids Healthcare Foundation and others, and the launching of a ballot initiative -- what Costa Hawkins opponents are calling the Affordable Housing Act Ballot Initiative

Supporters of this initiative need to submit 365,880 valid signatures by June 25, 2018 to make the ballot for the November 6 election, which should have a strong turnout to choose our new Governor and one of our U.S. Senators. 

What are the anti-Costa Hawkins proponents of rent control trying to accomplish? Simple: the repeal of the 1995 Costa Hawkins Rental Housing Act that is a state law protecting a landlord’s right to set rents at “market rate” and prohibiting rent control on units constructed after February 1995. In Los Angeles, there are 631,000 rental units covered by our Rent Stabilization Ordinance which does the same, but the cutoff date is for units built prior to 1978 and annual increases are capped at 3% to 8%. Any landlord of a post-1978 building in LA can set “market rate” rents without restriction, responding to the market forces of supply and demand. The now-dead AB1506 would have set limits on rent control policies for cities across the state. 

Who benefits most from Costa Hawkins? Landlords gain regulatory certainty and an environment where the economics of supply and demand set dynamic pricing. Conversely, under rent control, the threshold for occupancy is that housing must be “habitable.” Without the ability to increase rents beyond narrowly defined annual caps, landlords of rent-controlled units do not have operating capital or margins to use for improvements because those costs cannot be factored into the rent. This usually means tenants exist in an “as is” environment, except when improvements are mandated by a housing authority. 

What is the proposed ballot initiative? If passed by the voters in November 2018 this initiative will repeal the Costa Hawkins Act, the state law that currently restricts the scope of rent-control policies that cities and other local jurisdictions may impose. Passage of the ballot initiative will allow policies that would limit the rental rates that residential-property owners may charge for new tenants, new construction, and single-family homes. 

A 2016 report from the Legislative Analyst’s Office found that expanding rent control would likely  discourage new construction by limiting the profitability of new rental housing. 

Voters will need to sort through this complex issue, weighing the benefits and detriments on both sides to arrive at a solution. Do they favor rent-controlled habitability with potentially no improvements and amenities or do they support habitability under Costa Hawkins that offers amenities, improvements but with market-rate rents? That may be the choice for voters as repeal of Costa Hawkins begins to capture attention through a ballot initiative that could wind up on the November ballot, asking which form of “affordable housing” they want. 

(Tim Deegan, is a civic activist whose DEEGAN ON LA weekly column about city planning, new urbanism, the environment, and the homeless appears in CityWatch. Tim can be reached at timdeegan2015@gmail.com.) Edited for CityWatch by Linda Abrams.