LAO Study: Statewide Rent Control Prop. Would Cost Cities Tens Of Millions

According to a Legislative Analyst’s Office study made public earlier this week, the ballot initiative expanding rent control, Proposition 21, would lead to more severe repercussions for Californians, including a reduction of available rental units and a drop in housing values.

A ‘domino effect’ of negative repercussions

Prop. 21, if passed, would, according to the ballot, “allow local governments to enact rent control on housing that was first occupied over 15 years ago, with an exception for landlords who own no more than two homes with distinct titles or subdivided interests.” If it’s rejected, the current law of prohibiting rent control in rentals built in 1995 or after would stand.

The LAO study found that, if Prop. 21 is passed, cities would receive less in overall property taxes due to a decline in rental property tax payments. The huge drop in revenue would lead to close to $100 million in lost state and local revenue per year. The LAO also found that many landlords would sell rentals as a result, leading to a reduction units, most notably, affordable units, in favor of houses and buildings going on the market.

While some positive effects were noted, including a slight overall rent reduction, more sales taxes paid by renters due to having more spendable income, and landlords having more longer-term renters due to more affordable rents, the LAO study also warned that these could be mitigated by more local rent control laws which could lead to more lost local and city revenue.

“It’s a domino reaction,” explained former developer and housing expert Mat Howard to the California Globe. “Rent control leads to the loss of revenues all around. Only big developers and rental owners like Blackstone could really take the hit. It would force a lot of mom and pop landlords out, especially of those renting out houses. When those are sold, they’re going to go to people who won’t rent them, or if they do, they can make a new price point.”

“California has a housing crisis. We need affordable housing. But spring rent control all of a sudden, instead of gradually or in strategic low-income areas, it’s going to harm more people than help.”

Californians for Responsible Housing, the group that opposes Prop. 21, also agrees.

“Californians can’t afford Proposition 21,” said Californians for Responsible Housing spokesman Steven Maviglio in a press release. “Just like the version of this ballot measure California voters rejected less than two years ago, Proposition 21 would be a disaster for our schools and our communities.

“Passage would likely mean our cities, already struggling because of COVID-19, would be forced to make even greater cuts in services and/or raise taxes. Meanwhile, homeowners would see the value of their properties drop and renters would have fewer housing options. We are in the greatest recession since the Depression; it is clear that voters will reject a ballot measure like this that will mean increase costs to their families, cuts to the government services they rely on, and make California’s affordable housing crisis even worse.”

Prop 21 supporters defend statewide rent control

However supporters, most notably the AIDS Healthcare Foundation, have maintained that Prop. 21 would help many of the 17 million renters in California

“Among the 17 million renters in California, the suffering is unabated. Not only do we see increased homelessness, but the affordability crisis has reached epic proportions with many people paying 50 percent or more of their income to keep a roof over their head,” noted AIDS Healthcare Foundation president Michael Weinstein in an earlier statement.

“We’re going to see cheaper rents over time,” added Alicia Smith, a rent control advocate in LA, in a Globe interview. “That’s what we need now. These ‘negative effects’ that the study found would hurt only a small part of the population. A lot of people are hurting, and this is one of many fixes the average Californian needs badly.”

Proposition 21 is expected to be close this November. While the similar Proposition 10 failed in 2018 by a margin of over 2 million votes 40.6% to 59.4%, a growing housing crisis and many Californian renters unsure of their situation after eviction protection runs out has swayed many to be in favor of statewide rent control.

Prop 21 is scheduled to be on the November 2020 ballot.