Keep your recycling bin close by, as Proposition 10 season is upon us with pounds of fliers and pamphlets sure to litter your mailbox and front door between now and election day.

Bornstein Law has strongly opposed the measure and we are encouraged that a growing number of cooler heads are prevailing in the debate against the repeal of Costa Hawkins. Aside from landlord groups and other predictable foes against Proposition 10, sensible progressives such as the California NAACP leader and other odd bedfellows have staked their case against expanded rent control because they correctly point out that it will only aggravate the housing deficit.

A growing chorus of editorial boards has joined the opposition to Proposition 10, including our own San Francisco Chronicle in their indictment of the ill-advised proposal. 

“… More rent control — and more local government control — will probably further suppress the supply of housing and deepen the crisis for the state. More housing is the way out of the housing shortage. Proposition 10 is not.”

The passage of Proposition 10 is more than a whispering possibility

We’d like to think that the glass is half full and that the many cogent arguments against Proposition 10, coupled with the millions of dollars infused into the machinery to defeat it will prevail. Yet the lawyers in us tell us that we must prepare for the worst. While we can’t predict the future, we can do the next best thing by advising rental property owners on courses of action they can contemplate in the eventuality that voters pass the biggest tenants’ rights bill in decades. First, a little backdrop. 

We noted in an earlier article that after nearly a quarter of a century of trying to repeal Costa-Hawkins to no avail, pro-tenant groups may actually succeed in a new cosmosphere. With cities becoming magnets for high-paying jobs and a corresponding rise in rents and quarrels over gentrification, coupled with a burgeoning homelessness epidemic, the political winds have shifted in the favor of militant tenant advocates who pose a more formidable threat to landlords than the failed campaign of yesteryears.

Cities are grappling with the eventuality of Costa Hawkins repeal and none more tortuously than the City by the Bay.

California cities are the arbiters of what happens if Costa Hawkins is repealed

If Proposition 10 is passed, it will not automatically trigger expanded rent control, but it would remove barriers to a city’s desire to impose more stringent rent stabilization policies. In cities that already have ensconced tenant protections, this is shaping up to be a messy exercise in democracy, as municipalities attempt to strike a delicate balancing act between satisfying tenant advocates who are salivating at the prospect of increased rent control and engaged, tax-paying landlords who may exit the rental housing business or let their properties atrophy if they cannot make a buck.

After some soul searching, Berkeley City Council’s answer was to kick the can down the road to November, when proposed amendments to the rent ordinance will be decided by the voters. As the proverbial capital of tenant’s rights, San Francisco’s debate on how to modify their rent ordinance is more cantankerous.

Under Costa Hawkins, San Francisco cannot move its rent-control date forward from 1979. With tens of thousands of units built since then, the passage of Proposition 10 would have consequences of epic proportions. It is far from resolved, but Supervisor Jane Kim offers a premonition. 

“My guess is that this Board would pass legislation that’s balanced… The fear that we’d go crazy and establish these laws saying tenants could stay in their units no matter what they do … This Board wouldn’t do that.”

At Bornstein Law, we don’t want to get mired into the wranglings of City Council – inquisitive minds can get that here – but suffice it to say that there is no reason to believe that if Proposition 10 is passed, it will not lead to expanded rent control in San Francisco and expose owners now exempt from the rent ordinance to a new set of rules that were previously foreign to them. This begs the question of what San Francisco investment property owners should do in anticipation of Costa Hawkins repeal, or for that matter, landlords throughout California. 

With Costa Hawkins repeal efforts gaining traction, owners currently exempted from rent control should take a hard look at their options

Owners of single family homes, condos, and newly constructed rental properties should have a “heart to heart” discussion about whether current rents are sustainable and if not, consider raising rents to future-proof their rental business before expanded rent control is ushered in.

With the possibility of vacancy decontrol – a rule which would bar a landlord from raising the rent on a unit once a tenant moves out – forward-thinking landlords may also consider terminating the tenancy, a difficult subject but one worth having. Of course, raising rents and transitioning tenants out of rental units are not trivial matters and are best journeyed with a real estate attorney who specializes in the nuances of landlord-tenant law. 

There are some rental property owners who prefer to ride out the storm and not upset the applecart, whatever metaphor you like, perhaps wanting to avoid conflict. In this LA Times article, the author suggests a novel exemption to Proposition 10 by making landlords live alongside their tenants, because “no one is evil enough to live among people, look them in the eye, and raise their rent by $500 a month.

No matter how you are leaning, it requires careful deliberation best journeyed with the landlord attorneys at Bornstein Law – for informed advice, get in touch.

With the wind against the backs of tenant advocates, rental housing providers are getting nervous about efforts to repeal the decades-old Costa Hawkins Rental Act, a state law which tempers a municipality’s inclination to enact onerous rent control ordinances.

What we predicted as inevitable has become reality, with the Secretary of State’s office recently reporting that backers of the initiative – dubbed the “Affordable Housing Act” – have crossed the finish line by garnering well over the 365,880 signatures needed to qualify for the November ballot.

Up until now, attempts to strike the law from the books have flopped. A state appellate court ruling in 2009 struck down an affordable housing mandate in the City of Los Angeles, a decision that had statewide implications by upholding Costa Hawkins.

Undeterred, affordable housing advocates took to the dome of the Capitol and introduced legislation to repeal the Act. Had it passed, Assembly Bill 1506 would have enabled cities throughout California to impose vacancy control – a landlord’s ability to set rent at market rate when a unit is vacant a new tenancy is established – and to place single family homes, condominiums, and buildings built after 1979 under rent control.

What is Costa Hawkins? Get an overview here →

In an earlier article, we warned our fraternity not to get a false sense of bravado after this legislation was dead on arrival in an Assembly committee following spirited testimony from residents who said the rent was too damn high, and worried landlords looking to protect their investments.

Although the battle was won by defeating AB 1506, the war on property owner rights morphed into different shapes, forms and sizes as inventive legislators in the tenant’s camp seemed to adopt a new strategy.

When it became too ambitious to repeal Costa Hawkins, lawmakers who we coined the “gang of three” introduced more insidious bills aimed to chip away at property owner rights in a piecemeal fashion. If the outright repeal of Costa Hawkins was met with too fierce opposition, progressives pivoted to proposals that would melt away owner protections slowly like a candle, a clever retooling of their agenda, but a tactic which ultimately failed.

These bills shared the same fate as AB 1506 by dying on the vine, yet even as the champions of tenant rights unsuccessfully moved their agenda forward, another effort behind the scenes was gaining more traction – a mass gathering of signatures to place Costa Hawkins repeal on the November ballot. 

Now that the grassroots effort has reached its goal to take its agenda directly to the ballot box, the reality is beginning to set in for jittery property owners – the repeal of Costa Hawkins is more than a whispering possibility. It just might pass this time around.

A movement long in the making

Since progressives waged the battle against Costa Hawkins years ago, the political winds have increasingly blown in favor of their cause, but what changed? It was a multiplicity of factors and one catalyst has been the migration of Corporate America to cities.  After hunkering down in suburbs, huge companies have established urban beachheads, lured by tax incentives and a pool of young, digital talent who seek urbane life and are willing to forgo the American dream of homeownership.

With cities becoming a magnet for high-paying jobs, upward pressure on rents ensued. Discontent with rising rents, quarrels over gentrification, and a burgeoning homeless population created the perfect breeding ground for the rent control movement to spread. This time, it has reached critical mass with a well-organized and well-funded coalition that poses a more formidable threat to Costa Hawkins than the failed campaigns of yesteryears.

Bad housing policy

The rental housing industry has always opposed rent control in every form or fashion, but the calls to arms now seem apocalyptic.

“The heart and soul of our argument is something this radical pours gasoline on our housing crisis and makes it worse,” said Steve Maviglio, a spokesman for the opposition campaign called Californians for Responsible Housing.

Visitors who click on the California Rental Housing Association’s website are greeted with an “urgent” and “critical” alert about Costa Hawkins. Once clicked, the important information? “The flawed housing initiative will make California’s housing crisis even worse”, is the headline in big bold font highlighted in red, before railing against the flawed initiative.

Noni Richen, President of the Small Property Owners of San Francisco, doesn’t mince words in his message to the architects of the initiative.

To renters, we have an honest and responsible message: If you think it’s hard to find a rental now, imagine how hard it will be when builders have no incentive to build rentals and owners resist renting out units…

Other owner advocacy groups echo this sentiment in clear and sometimes scathing terms, yet it is not only rental property owner advocates who are debunking the logic of the assault on Costa Hawkins, but a phalanx of economists and sensible newspapers – this editorial board says trying to fix a housing crisis with rent control is like sending an oil tanker to put out a forest fire.

Our take

“It could have a tsunami effect throughout California,” founding attorney Daniel Bornstein was quoted as saying in this article. Noting the repeal of Costa Hawkins would alter the “whole economics” of how developers eye development opportunities, he observes that “it’s hard enough and costly enough for a developer to make a decision to build housing, and they are now put on notice that the housing may be subject to rent regulation.” He goes onto say that developers “may very well be unwilling to make those tough decisions of being invested in building a development.”

All of us want stable housing, but according to Daniel, more rent control is not the solution. “Impacting market-rate rents doesn’t necessarily create stable housing for all,” he says, but instead, it would create “a terrible situation where there is a limitation on supply and an over demand on the available vacant units, which ends up increasing rents for those vacant units.”

The Affordable Housing Act is a misnomer, then, because it would only aggravate the affordable housing deficit. 

What you can do

With the campaign to nix the Costa Hawkins Rental Act almost Presidential in scope, the rental housing industry has been asked to infuse money into the machinery necessary to defeat it. Get involved.