A major rent control initiative will find itself on the November 2024 ballot. The ‘Justice for Renters Act’ aims to reverse and dismantle the Costa-Hawkins Rental Housing Act of 1995, and if passed, it will allow local governments to impose rent control on new construction apartments, single-family homes and condominiums. It will also open the door for local municipalities to pass vacancy control, which has been banned in California since the 1990s.
Dangerous initiatives similar to Justice for Renters had the effect of tanking multifamily property values in other cities like New York, and it presents a massive issue for the CA and LA property markets.
Reversing Costa-Hawkins
This ballot initiative aims to upend the Costa-Hawkins Act of 1995, which has essentially protected apartments built after 1995 and single family homes / condos from rent control. Costa Hawkins has also banned cities from implementing vacancy control, which limits landlords from re-renting vacant units to market rates.
Vacancy Control
This new law would allow local municipalities to pass vacancy control. Essentially, it would prevent owners from re-renting their units to market rates when they become vacant. We can think about it like rent control on vacancies. Cities like West Hollywood and Santa Monica used to impose vacancy control in decades past, and the City of LA would likely implement its own version of vacancy control if Justice for Renters passes.
So, what would be the effect of vacancy control on our market? In theory, many buildings would lose a significant amount of value overnight. We saw this happen NYC in 2019, and we will see it happen in California just the same.
Many investors purchase properties because of the untapped upside potential on the current rents. Properties are valued not just off current rents, but also factoring in future rent potential. However, in a vacancy controlled market, this incentive would cease to exist, and many owners would stop investing in their properties altogether. Additionally, investors would require a much higher return on their initial investment, since appreciation will be limited, and values will decline drastically in turn.
This would be bad news for property owners and for renters as well in the long term.
Stifling New Construction
Many people are talking about vacancy control when it comes to the Justice for Renters Act. What few people are talking about is the potential for rent control to be implemented on new construction apartment buildings. One of the main incentives to build and to own new apartments is that they are excluded for local rent control ordinances. If Costa Hawkins is reversed, cities like LA will be able to implement rent control on brand new apartment supply. In theory, if this law passes it will disincentivize new development and devalue the new construction supply.
Vote NO This November
It is crucial that fellow members of the California real estate community band together to vote NO on the Justice for Renters Act this November. We saw it happen with the passing of Measure ULA (Mansion Tax) in 2022, which has been a complete failure – California constituents are often uninformed about the measures they vote on, and typically side with “tenant friendly” initiatives regardless of the long term ramifications.
