Proposition 10 - Our Thoughts

Proposition 10 – The Santa Barbara Group Discussion

The midterms are coming and with them are lots of propositions for California voters to consider. Among them is Proposition 10, often referred to as the Rent Control Initiative.

If you think you’ve seen lots of commercials on Proposition 10, there are lots more coming. It’s a controversial ballot item with money and voices on both sides. In this article, we’d like to share some of our thoughts since we work in the housing industry.

What is Proposition 10?

Prop 10, in itself, is very simple. It repeals an existing law called the Costa-Hawkins Rental Housing Act. The act barely passed the State Senate in 1995 when it was signed into law by then-Governor Pete Wilson.

The Costa-Hawkins Act prohibits local municipalities from enacting rent controls on multi-family properties built after 1995 as well as single family homes and most condos. If passed, Prop 10 would give cities and towns the choice to enact rent controls in their areas. If not passed, Costa-Hawkins would remain in force.

Pros and Cons for Prop 10.

There are lots of arguments on both sides of this issue. Below we would like to offer just a few from each side.

Pro-Proposition 10 

The League of Woman Voters is one of many organizations supporting the bill. Here is what they have to say on their website.

Multiple strategies are needed to address the significant housing shortages and inequities that exist across California. While this rent control measure offers little systemic progress and may not result in adding new affordable housing units, it does allow local communities to respond to the housing crisis in ways that are appropriate for each of them. We support providing local communities with this control.

Here is another Pro 10 argument from the California Nurses Association.

Prop. 10 is a limited measure that answers one question: who decides housing policy—local communities or Sacramento special interests and powerful real estate investors? It doesn’t establish new housing policies, it just lets local communities—which are closer to the people—decide what works best for them. It’s time we had the power to tackle the problems of homelessness and skyrocketing rent within our own communities.

Here is a link to the Yes on Prop 10 website. It has more information.

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Against Prop 10:

Below are several brief arguments against Prop 10:

Tom Bannon, CEO of the California Apartment Association, said, “It’s a disincentive for the construction of new, multifamily housing.”

Erika D. Smith, associate editor of The Sacramento Bee, described rent control as an “imperfect, blunt-force policy tool that could very well make the housing crisis worse by shrinking supply.”

Jim Lapides, vice president of strategic communications for the National Multifamily Housing Council, said, “When milk is expensive, you figure out how to get more cows to make more milk. You don’t put a cap on the price.”

Here is a link to the No on Prop 10 website for your review.

Proposition 10 Pros & Cons From The Santa Barbara Group

Everyone agrees, we have a significant housing problem in the Santa Barbara area and throughout California. Since we work in the SB market, our thoughts will focus locally.

The proponents of Prop 10 feel giving cities the choice to enact rent controls will help solve the high rent crisis. The opposition feels a free market approach is best.

Most economists we’ve met with or read say mandated rent controls may work in the short term, yet not over time. They base their opinion on simple supply and demand models, the nature of humans to find workarounds to things they don’t like and reviewing rent control projects in the US and Europe.

In reviewing the latest rental rate stats, it looks like our rental market is settling down. There was a sharp uptick in rental prices after the Thomas fires and Montecito events. Since then, rental rates have flattened out with some lowering of rates on 1-bedroom units while larger places are still going up a bit.  (See Graph)

Our concern is the uncertainty of how the City of Santa Barbara would approach the problem.

Too often the City takes a potentially simple idea and makes it quite complex, especially when it comes to housing.  The “unknown” factor concerns us.

If the proposition had concrete solutions versus merely giving power and options to municipalities, we would feel better.

What Can Be Done To Help Renters?

We all know high rents have both benefits and drawbacks, depending on which side of the fence you are on. Understanding who the winners and losers are can help find solutions

Who Benefits if Prop 10 is voted down? 

• Naturally, landlords benefit by having no mandated controls.
• Developers and investors hate the idea of municipalities telling them how much rent they can charge. The concern is exacerbated by the fact that rules could change at any point in time, altering their business model in unexpected ways.
• Economists suggest that renters will loose over time due to a reduction in rental inventory and existing inventory being less well-maintained due to lower profits to investors.

Who Benefits if Prop 10 is approved?

Truthfully, it is hard to say. In some places, renters could see less volatility in the market with rents not spiking due to landlord/investor greed or significant changes in market conditions.

Since no one knows what city officials would do, the outcome of a yes vote is just a guess.

• Would the City cap annual increases at 3%, 4%, 5%, 7%?
• What other restrictions would municipalities impose?
• Would the city’s choices cause the builders to forgo building lower-cost units in lieu of more profitable luxury places?

If rental rates did go down and future hikes minimized, business owners and employees who rent would benefit. Perhaps more people could live closer to work.

Naturally, renters would benefit if rents went down and/or increases were curbed to modest rates.

NOTE: The City’s pushback on the State mandated Auxiliary Dwelling Unit law adds to our concern with how they’d handle rent control measures.

What Alternatives Could Help The Rental Market Crisis?

• Social pressure on investors and landlords could help curb the drive for high profits. We know the power social media can have, thus utilizing Twitter, FB, Instagram and Linkedin to point the finger at gougers could help reign them in a bit.
• Employers have a strong incentive for affordable housing. Large employers may want to look at building affordable housing projects that could be utilized by their employees. They may have to work with the city to make restricted usage possible.
• Employers could partner with investors to build projects with rents partially subsidized by their business partners.
• Local cities could reduce the red tape, costs and time required to build a low-income designated development in Santa Barbara.  We’ve all heard the horror stories of trying to get a project through the City of Santa Barbara, even a simple remodel can take months and sometimes longer.
• The recently passed “granny unit laws” are certainly a step towards more affordable housing, especially for those looking for 1 bedroom units.

NOTE: Adding additional housing units comes with social and environmental costs. Additional density can create traffic problems and adds burdens to long-term water usage.

Proposition 10 Conclusions:

We do want to see solutions to the rental crisis affecting our City and State. It is essential on so many levels. In our opinion, there are just too many unknowns to jump on the pro-Prop 10 bandwagons.

That said, you may feel strongly about supporting the proposition, and we certainly do not want to sway your passion. The great thing about our Country is the right to your opinion.

The folks at Ballotpedia have lots of information you may want to read as you make your own decision. They work hard to be a neutral information site.

We hope our input has been helpful and please feel free to post your comments on Proposition 10 in the comments section below.

Respectfully yours,

Joe Parker, Garrett McCaw, Avi Becker
The Santa Barbara Group
Berkshire Hathaway HSCP
3868 State Street Santa Barbara, CA 93105
info@thesantabarbaragroup.com