What the Measure Would Do

Proposition 33 would fully repeal the Costa-Hawkins Rental Housing Act of 1995, a state law that restricts local rent control laws. California cities currently have the ability to pass rent control ordinances, but the Costa-Hawkins Act limits those laws in the following ways:

• Housing units built after February 1, 1995, as well as all single-family homes and all condominiums, cannot be regulated through local rent control.
• Cities that already had rent control when the state law passed can only regulate the units that were built when they passed their local ordinances. In San Francisco and San José, only units built before 1979 can be rent controlled. In Oakland, the threshold year is 1983.
• When units become vacant, landlords can reset the rents to market rate (known as “vacancy decontrol”).

If Prop. 33 passes, local jurisdictions could regulate rents for any housing type and limit how much a landlord may increase rents when a new renter moves in (“vacancy control”).¹ However, as the Legislative Analyst’s Office has noted, courts would require local legislation to be designed to allow property owners to increase rents enough to receive a “fair rate of return.”² What this would mean in practice is unclear.

The Backstory

Proponents of Prop. 33 aim to expand the number of housing units that can be rent controlled. Rent control has provided protections for many low- and moderate-income tenants who might not otherwise be able to compete for market-rate housing in hot markets like San Francisco.³ According to a 2018 policy brief by the Terner Center for Housing Innovation at the University of California, Berkeley, 15 local governments in California have passed some form of rent control.⁴

The Ellis Act, passed by the state legislature in 1985, allows landlords who are getting out of the property rental business to evict tenants and remove the units from the rental market without interference from local governments. As a result, tens of thousands of rent-controlled units have been lost over time. Efforts by the state legislature to modify the Ellis Act over the past decade have been unsuccessful.

The Costa-Hawkins Rental Housing Act was originally passed by the California State Legislature in 1995 in response to the adoption of strong rent control ordinances by several cities (Berkeley, East Palo Alto, West Hollywood, Santa Monica, and Cotati) in the 1980s. Legislators were responding to concerns that rent control could stymie housing production. The law was intended to protect the production of housing by exempting new construction from rent control and to protect landlords’ right to set rents upon the turnover of units.

Over the years, tenant advocacy groups have failed numerous times to persuade the California State Legislature to amend or repeal the Costa-Hawkins Act. Proponents of Prop. 33 have placed two other similar measures on the ballot, including Prop. 10 in 2018 and Prop. 21 in 2020. Both were rejected by nearly 60% of voters.

In 2019, the legislature passed Assembly Bill 1482 (Chiu), the Tenant Protection Act, as a compromise solution that allowed jurisdictions to place modest restrictions on rent increases on a rolling basis to help the market absorb the change. AB 1482 limits annual rent increases in buildings older than 15 years to 5% plus the change in the cost of living according to the Consumer Price Index up to a maximum of 10%, whichever is less.

Prop. 33 was placed on the ballot through a signature-gathering effort funded by the AIDS Healthcare Foundation. It needs a simple majority (50 percent plus one vote) to pass.

Equity Impacts

The equity impacts of rent control are complicated and unclear because the benefits are not specifically targeted to people of color or low-income households. In addition, adoption of a local rental control ordinance will vary by jurisdiction.

Some studies have shown that people of color disproportionately live in rent-controlled housing.⁵ More than 60% of white California households and 58% of Asian California households own their homes, while only 33% of Black California households are homeowners.⁶ The expansion of rent control could disproportionately benefit Black households because they are a disproportionate share of renters.

However, the availability of rent-controlled units to close racial and wealth gaps is not at all guaranteed. Rent-controlled apartments are offered on the competitive market and higher-income households can out-compete lower-income households for these units.

Lastly, while rent control clearly benefits a household living in a rent-controlled unit, it disproportionately hurts those with the least ability to compete in the broader housing market through its negative impacts on new housing production and reduction of existing rental opportunities. Strict rent control rules can incentivize landlords to remove rentals from the housing market and to convert them to condos. These phenomena have resulted in the outmigration of low- and moderate-income people of color from cities like San Francisco and Oakland in recent years.

Pros

• California’s affordable housing shortage is a crisis and deserves immediate action. In cities that decide to impose or expand rent control ordinances, Prop. 33 would allow more units to be rent-controlled, which could have immediate benefits for those tenants whose rents are rising with the market every year.
• Costa-Hawkins set an arbitrary and static threshold date for exemption from rent control, and cities with rent control ordinances have experienced a reduction in rent-controlled units over time. Allowing cities to set rolling exemption dates could bring additional housing units under rent control after a carefully considered time past their construction.
• Allowing cities to apply rent control to single-family homes could protect a significant number of households in California because these homes make up 37% of the rental housing stock.

Cons

• Allowing cities to apply rent control to newer buildings and to limit the rent landlords could charge new tenants would likely lead to a significant reduction in the construction of new rental homes because more rental housing projects would become financially infeasible to build.
• Allowing vacancy control, even with limitations, would probably increase the number of rental units that are converted to condos. A 2017 study found that rent control caused San Francisco’s overall rents (including units not covered by rent control) to rise because many landlords, when faced with the financial limitations of rent control, chose to convert rental units to condos or other owner-occupied housing. Collectively, these individual choices removed 15 percent of the rental stock from the San Francisco market between 1994 and 2012.⁷ This reduction in the rental housing stock drove up competition, increasing rents overall.
• Rent control is an imperfect tool for stabilizing communities because it is not specifically targeted to help people of color, low-income households, or other disadvantaged populations. Supporting low- and moderate-income affordable housing programs and adopting right-to-return and neighborhood preference policies better targets people of color and lower-income individuals facing gentrification pressures.
• If adopted by cities, rent control would make the potential cost of vacancy control to landlords arbitrary and uneven. A unit that a new tenant occupied in 2020, for example, would forever after be rented out at a vastly higher rent than an identical unit to which a tenant moved in 1980.
• Overly restrictive rent control measures could be intentionally weaponized to deter new housing development and to invite litigation by property owners.