Real Estate Round-Up: Proposition 10 is NOT an Affordable Housing Solution


Real Estate Round-Up: Proposition 10 is NOT an Affordable Housing Solution

2018-08-28T10:00:51+00:00August 28th, 2018|Advocacy, Local Updates|

“Sometimes things are not as they appear. Take for example Proposition 10, The Affordable Housing Act, which will be on the Nov. 6, ballot. Proposition 10 gives local governments the right to adopt rent control ordinances-regulations that govern how much landlords can charge tenants for renting apartments and houses.

Proposition 10 can also enact controls that may prevent landlords from receiving a reasonable return on their rental properties. The motivation behind the proponents of the initiative is based on a social justice point of view – shelter is a most basic right and it should be provided to everyone.

Currently only 26 percent of California’s population has the income required to purchase a median priced home. That is a very sad number. If you’re reading this, I’ll bet you are one of the lucky ones who already own a home and have been enjoying the appreciation the state has experienced over the past 10 years. Rising interest rates and strong market appreciation have priced 74 percent of potential homebuyers out of the market.

This group is currently renting and competing for the limited available properties. Available rental property inventory is so low that rental costs have risen even faster than the price of homes for sale.

The 74 percent who are currently renting are spending approximately 50 percent of their income on rent. That doesn’t leave much left for all of life’s other expenses, let alone funds to put aside for savings. It becomes a never-ending cycle that without some relief, may never be able to be rectified. Enter, The Affordable Housing Act.

The only problem is, this solution is not the solution. Let me tell you why. First, I want to share some of the history behind Proposition 10. In 1995 the California State Legislature passed Costa-Hawkins. It mandates that cities cannot enact rent control on housing first occupied after Feb. 1, 1995, and that free-standing housing units were forever exempt. It also provides that housing exempted from the local rent control ordinance before Feb. 1, 1995, must remain exempt and that landlords have a right to increase rent prices to market rate when a tenant moves out (a policy known as vacancy decontrol).

Rent control does not work, it does the opposite. Rent control, first and foremost would discourage investment in new rental housing. No investor is going to build rental property knowing that their ability to earn a return on their investment is not based on simple supply and demand but on some arbitrary guideline. Let’s be honest, if there were more rental properties available, rents would go down, because tenants would have choices. If there are less properties being built, and if values on homes to purchase continue to rise along with higher interest rates, there will be more tenants and less choice.”

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