Defense of Ellis Act successful in 2017

Amid fierce opposition from CAA, lawmakers have once again fallen short in their efforts to weaken California’s Ellis Act – the 1985 law that protects a property owner’s right to exit the rental housing business.

Since 1985, the Ellis Act has provided an important safety valve for landlords operating in rent controlled jurisdictions, guaranteeing they can walk away from the business when rent control becomes too burdensome.

For three straight years, lawmakers have taken aim at this legislation, and each time, the California Apartment Association has derailed the proposals.

The latest efforts included AB 423 by Assemblyman Rob Bonta, D-Oakland, and AB 982 by Assemblyman Richard Bloom, D-Santa Monica.

AB 423 would have exempted residential hotels in Oakland from the Ellis Act, prohibiting owners from closing their buildings, even if facing financial hardships. The bill, however, failed passage Tuesday on the Assembly Floor after receiving only 21 votes. It needed 41 votes to pass.

AB 982 would have expanded the number of tenants who are entitled to receive a year’s notice from the landlord before the owner closes a building as allowed under the Ellis Act. While Bloom suspended efforts to pass AB 982 this year, the bill could be reconsidered in 2018.

Under current law, tenants who have lived in the unit for at least one year and who are at least 62 years of age or are disabled are entitled to a year’s notice from the landlord before the building is closed. Other tenants are entitled to a 120-day notice.

AB 982 would have extended the one-year notice requirement to all tenants, regardless of age or disability.

Proposed repeal of Costa-Hawkins Act on hold for 2017

For the remainder of 2017, lawmakers have shelved a bill that would repeal the Costa-Hawkins Rental Housing Act, landmark legislation that’s protected California from extreme forms of rent control for more than 20 years.

Amid strong opposition from the California Apartment Association, legislators this week decided to make AB 1506 a two-year bill, meaning the Legislature won’t consider a repeal of Costa-Hawkins this year but could take it up again in 2018.  The author will instead host a series of public hearings to determine what can be done on this topic.

Under the Costa-Hawkins Act, apartments built after 1995 are exempted from local rent control laws, as are single-family homes. Costa-Hawkins also allows a property owner to set the rent at the market rate once a tenant moves out and a new tenant moves in – known as vacancy decontrol.

Applying rent control to new construction and vacant units would have brought construction of rental housing in California to a halt, exacerbating the state’s existing housing shortage.

“We certainly appreciate the fact to move the bill and make it a two-year bill,” said Debra Carlton, senior vice president of public affairs at CAA, said in this Los Angeles Times story. “Rent control builds no new housing and that has to be our focus in the Legislature.”

AB 1506 was introduced Friday, Feb. 17, the last day to propose bills in the California Legislature for 2017. Assemblymen Richard Bloom, D-Santa Monica; Rob Bonta, D-Oakland; and David Chiu, D-San Francisco, authored the proposal with Sen. Ben Allen, D-Santa Monica, as a co-author.

“Looking at the entirety of the legislative process, the right thing is to step back and do additional work with various constituencies,” Bloom told the Los Angeles Times.

Legislative Analyst’s Office cites flaws with rent control

Leg Analyst headerTo help California’s low-income families secur
e housing, elected officials should focus more on encouraging private residential development and less on existing government programs that subsidize construction or impose rent control, the Legislative Analyst’s Office says in this report.

Removing barriers to private construction, however, will take time and a political shift, says the report by the nonpartisan office, which advises the Legislature on fiscal and policy matters.
“Doing so will require policymakers to revisit long–standing state policies on local governance and environmental protection, as well as local planning and land use regimes,” says the study, Perspectives on Helping Low-Income Californians Afford Housing.

While extolling more private construction, the report highlights significant downsides to other approaches to housing issues, such as expanding rent control — a move being considered by several California cities.

“By depressing rents, rent control policies reduce the income received by owners of rental housing,” says the document, issued in February 2016. “In response, property owners may attempt to cut back their operating costs by forgoing maintenance and repairs. Over time, this can result in a decline in the overall quality of a community’s housing stock.”

The Legislative Analyst’s Office considered the impacts of expanding rent control in two ways — applying the policy to more properties and barring landlords from resetting rents at market rates when tenancies turn over.

“Neither of these changes would increase the supply of housing and, in fact, likely would discourage new construction,” the report says. “Households looking to move to California or within California would therefore continue to face stiff competition for limited housing, making it difficult for them to secure housing that they can afford. Requiring landlords to charge new tenants below–market rents would not eliminate this competition.”

The LAO also refers to the detrimental effects that rent control can have on a household — a phenomenon known as the “lock-in effect.”

“Households residing in affordable housing (built via subsidized construction or inclusionary housing) or rent–controlled housing typically pay rents well below market rates,” the study says. “Because of this, households may be discouraged from moving from their existing unit to market–rate housing even when it may otherwise benefit them — for example, if the market–rate housing would be closer to a new job. This lock–in effect can cause households to stay longer in a particular location than is otherwise optimal for them.”

Despite strong evidence that increasing the private housing stock would bring down prices, much of the focus remains on government programs — such as rent control — that fail to help many of the residents who need it most and never address the underlying problem — a lack of housing, according to the LAO report.

“Existing affordable housing programs assist only a small proportion of low–income Californians,” the LAO says. “Most low–income Californians receive little or no assistance. Expanding affordable housing programs to help these households likely would be extremely challenging and prohibitively expensive.”

The LAO report also debunks some myths about the impacts of residential construction. For example, many believe that new housing doesn’t help low-income families because new homes tend to cater to wealthier households. While this tends to be true initially, residences initially built for the rich aren’t tied to that market forever.

“New housing generally becomes less desirable as it ages and, as a result, becomes less expensive over time,” the study says. “Market–rate housing constructed now will therefore add to a community’s stock of lower–cost housing in the future as these new homes age and become more affordable.”

The Legislative Analyst’s Office concedes that remedying California’s housing crisis will come neither quickly nor easily.

“The changes needed to bring about significant increases in housing construction undoubtedly will be difficult and will take many years to come to fruition,” the LAO says. “Policy makers should nonetheless consider these efforts worthwhile. In time, such an approach offers the greatest potential benefits to the most Californians.”

Voters reject rent control in 3 of 5 cities

Voters in the November election rejected strict rent control laws in Burlingame, San Mateo and Alameda but approved them in Richmond and Mountain View.

In Burlingame and Alameda, voters rejected rent control by a roughly 2-1 margin. Ballots cast in favor of Burlingame’s Measure R garnered 33 percent of the vote, while yes votes for Alameda’s M1 earned 34 percent. In San Mateo, the rent control measure also failed decidedly, with Measure Q receiving just 39 percent approval.

Despite a strong campaign to defeat rent control, Richmond’s Measure L won approval with 64 percent of the vote. Among other things, Measure L has:

  • Rolled rents back to July 2015 levels
  • Limited rent increases to the rate of inflation (CPI)
  • Imposed strict eviction controls
  • Established a rent commission to oversee the rental housing industry in Richmond

Mountain View’s rent control initiative, Measure V, passed with 53 percent of the vote. Enforcement of the law is on hold pending a lawsuit challenging the measure’s constitutionality.

If utlimately implmeneted, Measure V, among other things, will:

  • Roll rents back to October 2015 levels
  • Cap rent increases between 2 percent and 5 percent per year based on CPI with banking unused increases up to 10 percent
  • Impose strict eviction controls
  • Require owners to allow family members of tenants to move in without a credit check so long as the occupancy standards are not exceeded
  • Establish a rent commission to oversee the rental housing industry in Mountain View.

Cities with rent control

Although communities across the country have removed old heavy-handed rent control policies, more than a dozen California cities continue to enforce rent control on multifamily housing:

California cities enforcing rent control on apartments:

Alameda
Berkeley
Beverly Hills
East Palo Alto
Hayward
Los Angeles
Los Gatos
Mountain View
Oakland
Palm Springs
Richmond
San Francisco
San Jose
Santa Monica
West Hollywood

* Thousand Oaks (program being phased out)

Beacon Economics study criticizes rent control

Evidence that rent control is the wrong approach to solving California’s housing crisis continued to mount in 2016.

A Beacon Economics report found that low-income tenants in cities with rent control are not likely to benefit from the policy as intended.

Moreover, California’s nonpartisan Legislative Analyst’s Office published a study that points to flaws with rent control.

The Beacon Economics report found that rent control helps a select few — those lucky enough to live in a rent-controlled unit when the law takes effect. Once benefiting from rent control, however, many individuals stay put to keep reaping the benefits — even if they don’t need the assistance.

“The data suggests that this is particularly true of higher-income households who have a propensity to move less frequently,” the study says. “In cities like Santa Monica or San Francisco, where rents are very high, this means that wealthier individuals, who might otherwise move to more expensive housing, stay in their lower-cost apartments.”

Christopher Thornberg, a founding partner of Beacon Economics, said this restricts the available supply of local affordable housing.

“You encourage middle-income households to stay in older stock, which typically is made available for low-income families in normal markets, and by doing that, you end up reducing the supply available for low-income families,” Thornberg said at Outlook. “So not only is this policy not effective — it actually hurts the people we’re trying to help.”

The Legislative Analyst’s Office also cited problems with tenants living for extended periods in rent-controlled housing — a problem termed the “lock-in effect.”

“Households residing in affordable housing (built via subsidized construction or inclusionary housing) or rent–controlled housing typically pay rents well below market rates,” the study says. “Because of this, households may be discouraged from moving from their existing unit to market–rate housing even when it may otherwise benefit them — for example, if the market–rate housing would be closer to a new job. This lock–in effect can cause households to stay longer in a particular location than is otherwise optimal for them.”

The Beacon report cites rent control’s chilling effect on multifamily construction. This stifles supply and drives up prices for all those living in unregulated rentals, including a community’s most disadvantaged residents.

In its analysis, Beacon used demographic and housing data from the 2000 U.S. Census and the 2013 American Community Survey.

New bill would restrict landlords’ ability to exit rental housing business

For the third consecutive year, bills have surfaced to modify California’s Ellis Act, the 1985 law that protects a property owner’s right to leave the rental housing business, an important safety valve for property owners in rent controlled jurisdictions.

One of the proposals, AB 982, would expand the number of tenants who are entitled to receive a year’s notice from the landlord before the landlord closes the building as allowed under the Ellis Act.

At this point, tenants who have lived in the building for at least one year and who are at least 62 years of age or are disabled are entitled to a year’s notice from the landlord before the building is closed. Other tenants are entitled to a 120-day notice.

This bill, authored by Assemblyman Richard Bloom, D-Santa Monica, would extend the one-year notice requirement to all tenants of one year or more, regardless of age or disability.

Another bill addressing the Ellis Act, AB 423, would exempt residential hotels in Oakland from the Ellis Act, prohibiting them from closing their buildings. Already exempted are San Francisco, Los Angeles and San Diego. This bill was authored by Assemblyman Rob Bonta, D-Oakland.

Efforts to weaken the Ellis Act in the state Legislature are nothing new. In 2015 and 2016, Sen. Mark Leno, D-San Francisco, proposed bills that would have forced many rental property owners in San Francisco to wait at least five years before removing their units from the market under the Ellis Act, even if losing money month after month. Leno’s bills failed both years.

Before the Ellis Act, rent-controlled cities — Santa Monica in particular — were forcing landlords to stay in business, even if they were losing money or experiencing other hardships.

Besides trying to change the Ellis Act, Assemblymen Bloom and Bonta are among four lawmakers who’ve authored legislation to repeal the Costa-Hawkins Rental Housing Act. The other authors of this proposal, AB 1506, include Assemblyman David Chiu, D-San Francisco, and Sen. Ben Allen, D-Santa Monica, who is listed as a co-author.

Costa-Hawkins prevents rent control from applying to single-family homes and multifamily housing built after 1995. It also requires vacancy decontrol, meaning that once rent controlled apartment voluntarily changes hands, rents can return to market rate.

Another bill related to Costa-Hawkins – and from Bloom – is AB 1505, which would allow a local government to mandate that a percentage of new development be affordable to low-income individuals and families. It proposes to overturn the Appellate Court decision in Palmer vs. City of Los Angeles. The court ruled that Los Angeles’ multifamily rental inclusionary-zoning ordinance violated Costa-Hawkins, which prohibits rental price controls on new multifamily construction.

AB 1505 mirrors a bill introduced last year that CAA successfully opposed.