8+ Ballot Measures on Rental Housing to Watch on Election Day

Sponsored by: Madera Residential

One question I’m asked a lot right now: How will the presidential election impact the rental housing outlook?

My answer: Probably not much – at least immediately*. BUT Election Day could significantly impact rental housing investors and renters in a handful of states and cities where voters will decide housing-specific ballot measures. And while California’s Prop 33 headlines that list, it’s not the only thing out there.

(Before I go on: I wrote extensively on the housing plans for both Harris and Trump in previous editions of this newsletter. And the * above refers to one thought to add here: How will the next president approach Fannie and Freddie? Could we see further steps toward operational regulations as a condition of GSE financing? Could we see steps toward privatization? No one really knows, but former Freddie Mac CEO David Brickman and former Fannie Mae CEO Hugh Frater touch on some “future of the GSEs” topics in two recent episodes of my podcast — which you can find on Spotify, Apple, Amazon or YouTube. The Frater episode is already out, and the Brickman episode releases on Thursday morning. Both provide fascinating insights!)

Here are 8+ ballot measures to watch on Election Day:

#1: California Prop 33 (and 34)

Let Me Tell You About Jim and Phil

You probably know by now that Prop 33 would repeal California’s Costa-Hawkins Rental Housing Act. Costa-Hawkins is named for a Democrat (Jim Costa) and a Republican (Phil Hawkins) in the state legislator who came together to pass bipartisan legislation in 1995. That law put some guardrails on rent controls within the state, banning vacancy controls (which cap rents after a move-out) and limiting renewal rent caps to older apartments.

Modern media and politics tend to look unfavorably at historical pre-emptions on rent controls, as their original authors and contemporaries age out of the public eye. We often see their thoughtful, data-driven rationale reduced to some version of “because of landlord pressure at the time.” I wish more folks did their research on legislators’ intent and the historical factors that drove such pre-emptions.

Jim Costa and Phil Hawkins believed their legislation was first and foremost about protecting renters in California. They were concerned that runaway rent control laws – often passed haphazardly by cities with minimal research – resulted in artificial constraints on the rental market. Rental availability, supply and quality were all deteriorating. (And I’d argue they allowed conditions to worsen for some by allowing renewal rent controls to persist in older apartments, as we continue to see erosion of quality combined with low availability. But it was a point of compromise, and I don’t question their intent.)

In the decades that followed, California has further tightened its rent control laws through the state legislature, enacting a statewide rent cap at 5% plus inflation (for renewals only) – arguably the most rigid in the country at the state level – while also applying restrictions on evictions. It also extended rent caps to corporate-owned single-family rentals, but notably not for “mom and pops” given that would be politically unpopular. Cities across the state have also been allowed to pass lower rent caps for eligible properties, while also pushing through numerous tenant protections and eviction restrictions.

In other words: No one in the business of housing supply investment would ever mistake California as a “landlord friendly” state – even with Costa-Hawkins’ guardrails.

Some People Want to Erase Jim and Phil

Let’s be clear: Pretty much everyone agrees California has a shortage of affordable housing. The question is how to best address it.

Prop 33 would repeal Costa-Hawkins and allow cities to effectively do whatever they want. Cities like San Francisco have already lined up to do just that, teeing up legislation to expand rent control if Prop 33 passes. Others could pursue vacancy controls – a form of rent control that one socialist economist (Assar Lindbeck) famously deemed the “most efficient technique presently known to destroy a city, except for bombing.”

How? Science and history show rent controls invariably backfire on the very people they’re intended to protect. Earlier this year, a major “study of studies” examining 100+ previous research papers on rent control’s effects and concluding the vast majority showed negative impacts to both housing supply and to housing quality.

Bipartisan Support to Retain the Legacies of Jim and Phil

Polls show a tight race, but encouragingly, California voters have already shot down similar ballot measures by the same organizers back in 2018 and 2020. Also encouragingly, it’s not just the housing industry campaigning for science and common sense. California’s governor, a Democrat, came out against Prop 33 – as did the Los Angeles Times editorial board.

Another top Democrat, state Assembly Appropriations Chair Buffy Wicks, was quoted telling Politico: “Make no mistake about it: This ballot measure will end housing production in California full stop,” said Wicks, who Politico noted “has championed tenant protections as well as laws to make it easier for developers to build more housing.”

She’s not wrong…

What About Prop 34?

After fighting three expensive battles in six years on the same issue, California apartment owners are pushing Prop 34 – which would ban the Prop 33’s organizer (the AIDS Healthcare Foundation) from using taxpayer dollars meant for healthcare on non-healthcare causes like political campaigns.

Opponents call it in a “revenge measure” that would set a bad precedent. But even Prop 34 opponents must surely agree that public education is expensive — especially on a but-it-sounds-good topic like rent control.

I don’t know enough about healthcare spending to opine on its merits, but I do know this: Fighting three different deceptive ballot measures on rent control expansion is expensive, costing hundreds of millions of dollars over 6+ years. Those political battles just drive up the costs of building and operating rental housing in California … and at the end of the day, who do you think that impacts most?

#2: Berkeley, CA, Measure BB (and CC)

Berkeley deserves some credit, in a backwards way, for the original passage of Costa-Hawkins in 1995. Berkeley’s strict rent controls – including vacancy control – led to reduced rental supply, backfiring on renters unable to find quality housing to rent. That helped inspire the bipartisan coalition to curtail ill-informed (even if well-intended) policies like Berkeley’s.

But even in the Costa-Hawkins era, Berkeley continues to do what it can to disincentivize investment in maintaining quality rental housing.

On November 5, Berkeley voters will be asked to vote on two different yet directly conflicting ballot measures.

Measure BB would piggyback on state Prop 33 (if it passes), expanding the number of properties subject to rent control by removing exemptions 15 years after completion. It would also reduce renewal rent caps from 7% to 5% annually, tighten restrictions on evictions, create tenant organization with rent-negotiating rights, limit renters’ utility charges and (on a positive note) create a rental assistance program.

But a 15-Year Exemptions Means New Supply Isn’t Impacted, Right? Well…

Some people might look at the 15-year exemption and say, “Look, it exempts new construction so it’s okay!” But it’s not that simple. Merchant builders comprise a massive share of new construction. Their business model is to build and sell, then repeat. Measures like this discourage merchant building because it limits the buyer pool to forever holders, who represent a minority of the market. Liquidity is an important variable. So a 15-year exemption amounts to a ticking time bomb.

Bizarrely, Berkeley’s mayor suggested that Measure BB “aims to strike a compromise between landlords and tenants.” Compromise? The same media article quoted a landlord calling the city’s approach “illegal, unjust and unfair.”

Measure CC is an opposing measure. In nearly any other city, an uninformed voter could mistake Measure CC for a tenant rights’ proposal. But in Berkeley, it’s actually the landlords’ pitch. It creates a rental assistance program, caps rent increases at 7.1%, scales back some eviction restrictions (particularly for owners wanting to live in their own properties) and (like Measure BB) creates tenant organizations with rent negotiating rights (though only with two-thirds vote of residents within a property).

If both BB and CC pass, the one with the most votes will take precedent.

(BTW: BB and CC make me think about BeBe and CeCe, the great Grammy-winning R&B/gospel brother-sister duo.)

#3: Hoboken, NJ

Hoboken’s ballot offers voters a very modest rollback of rent controls – at a cost – thanks to organizing efforts by a local group.

Currently, Hoboken’s rent control (set at CPI or 5%, whichever is less) includes partial vacancy control. After a renter moves out, property managers can raise rents (up to 25%) ONLY if the prior resident lived in the unit 3+ years.

If this referendum passes, it would remove vacancy control (allowing any increase regardless of prior residents’ term length) IF the property owner pays a $2,500 fee to the city’s Affordable Housing Trust Fund.

Hoboken’s mayor called the referendum “offensive and unacceptable.” Hmmm. Is it also offensive and unacceptable for a mayor to support a widely discredited policy that hurts low- and moderate-income renters unable to find affordable places to rent?

#4: Santa Ana, CA, Measure K

Santa Ana (in Orange County) is, like Berkeley, a sizable California city with rent control on the ballot. But this one is a unique case. Measure CC doesn’t amend the city’s rent control rules, but enshrines the city’s existing laws in such a way that future city councils could not unwind them without another public ballot measure.

Santa Ana’s council passed a law in 2021 capping rents at 80% of CPI or 3%, whichever is less, and currently that would cap rent increases below 2%. It makes no effort to cap rental housing operating or capital costs at a similar rate.

If voters reject Measure CC, the city’s rent control laws would remain unchanged – a rather remarkably disingenuous feature of the ballot measure.

Also disingenuously, the proponents claim rent control “reduces crowded neighborhoods” and would help address parking shortages. Friendly reminder: Rent control creates no new housing and, in fact, leads to reduced supply and reduced quality. So the impact of Measure CC is likely the opposite – more crowding.

#5: Larkspur, CA, Measure K

Larkspur is a town in the San Francisco suburb of Marin County.

Measure K would cap rent increases at either 60% of CPI or 3%, whichever is lower. That would amount to a cap of less than 1.5% based on today’s inflation rate. The measure makes no effort to ensure the property owners’ operating costs or capital costs are also capped proportionally.

Additionally, Measure K includes a number of new restrictions on evictions and requires property owners to pay relocation assistance for any “no-fault” evictions, such as when the owner’s family decides to move into the unit or sell to an owner-occupant.

#6: San Anselmo, CA, Measures N and O

Just north of Larkspur, San Anselmo voters also have rent control on the ballot through two companion measures, N and O – nicely spelling out NO. (Proponents prefer to the acronym ON instead of NO.)

Measure N would cap multifamily rents at 60% of CPI or 5%, whichever is higher. Like in Larkspur, this would result in a current cap below 1.5% without any accompanying cap on operating costs or capital costs. The ballot organizers throw in a bone by allowing landlords to request a hearing to pitch their case for a larger increase. (Nothing encourages more supply like a public hearing!)

Measure O would require relocation assistance for “no-fault” evictions, but again exempts single-family homes. Perhaps most concerningly, the language appears very broad in requiring landlords to pay residents $180/day if the resident is forced to move out for renovation or repairs. But what if those repairs were necessitated by a non-criminal mistake by the resident, such as a fire resulting from a cooking mishap?

I find it interesting that rent control organizers here (like others across the country) try to convince voters that their proposals are “fair” to landlords. Another common trope we see here is to target “out-of-town landlords” while suggesting “mom and pops” will be fine. Sure. But did you actually talk to these groups, or are you just putting words in their mouths?

#7: Fairfax, CA, Measure I

Voters in a third Marin County town, Fairfax, have a very different type of rent control measure on the ballot. Measure I would repeal the town’s 2019 law capping rent increases at 75% of CPI (currently less than 2%) and revert to a cap of 5%. Still a cap.

Measure I is supported by a couple former Fairfax mayors, while the current mayor opposes it.

#8: Funding for Affordable Housing in Cities/States Across the Country

Bendix Anderson has a succinct summary in Affordable Housing Finance of ballot measures in seven different U.S. cities to help fund new affordable housing.

What is especially striking about the list is the small scale of most proposals. Consider that a 200-unit apartment community will probably cost AT LEAST $50 million to build, and very easily could cost $100mm+ depending on the location and other variables.

Everything helps, yes, but I bet most voters will assume a $100 million ballot measure is bigger and more impactful than it really is.

In reality, this money would likely be used to fund only portions of different new affordable housing developments, complementing private capital and federal financing. It does make a difference, absolutely. But the massive cost of building new housing is a stark reminder of the difficulties meaningfully addressing the shortage of affordable housing.

• Rhode Island: $120 million for affordable housing.

• Charlotte, NC: $100 million for affordable housing.

• Baltimore, MD: $20 million for affordable housing.

• San Francisco, CA: $8.25 million annually for low-income rental subsidies.

• Oroville, CA: Approval of a new 18-unit low-income affordable housing apartment community (with no city dollars – just asking for voters to do what zoning ordinances theoretically should do without a public vote).

• Other cities – including Los Angeles and Albany, CA – are pitching tax increases to (at least in part) boost affordable housing.

• California Prop 5 would lower the vote threshold needed to pass local bond measures to fund housing and public infrastructure, from 66.67% to 55%.

Parting Thoughts

Did you notice a common denominator across this list? Lots and lots of California – both for rent control-related measures and to raise public dollars to invest in affordable housing.

Remember that modern rent controls have been around in California since the 1970s, starting with Berkeley in 1972 and later followed by Los Angeles and San Francisco. On the other side of the country, rent controls have been around for a century in New York.

And yet these places continue to suffer from severe shortages of affordable housing and high barriers to any type of new housing construction. Unfortunately, rent control does not create any new housing. It just drives up the cost of new housing and limits what gets built – further exacerbating the root issue. Maybe try something different … something supported by academic research? Something around collaboration instead of demonization?

Build, baby, build!

And for anyone interested in real, lasting solutions and proven policies on rental housing, check out one of our recent podcast interviews with former Fannie Mae CEO Hugh Frater (Episode 6), Bellevue Mayor Dr. Lynne Robinson (Episode 5) or former Freddie Mac CEO David Brickman (Episode 7, releasing on Thursday 10/31).

Disclaimer: The contents of this newsletter are for informational purposes, not investment advice. No recommendation or advice is being given.

Got this newsletter forwarded to you and want to subscribe? It’s free. Sign up at www.jayparsons.com.