Prop 21: Local Governments and Rent Control
Should current state law be changed to allow cities and counties to apply rent control to housing 15 years old or older and limit rent increases to 15% once a new renter moves in?
California renters typically pay 50 percent more for housing than renters in other states, sometimes more than twice as much. Rent is high here because housing demand greatly exceeds supply.
About one-fifth of Californians are subject to so-called “rent control laws” which limit how much their housing rent can increase annually. Courts have ruled that such laws must allow landlords to receive a “fair rate of return,” meaning that landlords must be allowed to realize some profit each year.
Currently, a state law, known as the Costa-Hawkins Rental Housing Act (Costa-Hawkins), limits local rent control laws.
- they cannot apply to any single-family homes
- they can never apply to newly built housing completed since early 1995
- they cannot say how much rent can be charged to a new renter moving in.
Prop 21 would reduce the limits on local rent control laws in Costa-Hawkins, so that cities and counties can apply rent control to more properties. Specifically, cities and counties would be able to apply rent control to all housing which is more than 15 years old, with the exception of single-family homes owned by landlords who own one or two properties. Additionally, cities and counties would be able to limit how much a landlord can increase rents when a new renter moves in--to increase rents by just up to 15 percent during the first three years after a new renter moves in.
Prop 21 would require that rent control laws allow landlords a fair rate of return (this would put past court rulings into the state law).
Economic Effects. If communities expand rent control laws, the most likely effects are:
- Some landlords would sell their rental housing to new owners who would live there.
- The value of rental housing would decline.
- Some landlords would receive less rental income.
- Some renters would move less often.
The overall effects would depend on how many communities pass new laws, how many properties are covered, and how much rents are limited.
State and Local Revenues. Overall, Prop 21 likely would reduce state and local revenues over time, particularly property taxes. A decline in the value of rental properties would reduce property tax payments over time, only partially offset by higher property tax payments resulting from the sales of rental housing. Renters paying less rent would use some of their savings to buy taxable goods, increasing sales taxes. The overall effect on state income tax revenue is not clear.
Increased Local Government Costs. If cities or counties create new rent control laws or expand existing ones, local rent boards would have increased costs. Depending on local government choices, these costs could range from very little to tens of millions of dollars per year, likely offset by fees charged to owners of rental housing.