A world without Costa-Hawkins

Before the law’s inception in 1995, five major cities — including San Francisco, Berkeley and West Hollywood — placed limits on rent increases regardless of whether rental units were vacant. Today, Costa-Hawkins remains the one law standing in the gap for property owners to charge market rent for their units. Under the Act, apartments and single-family homes built after 1995 are exempt from local rent control laws. Without Costa-Hawkins, property owners would be left to the mercy of unrestrained rent limitations imposed by municipalities.

Beyond that, Costa-Hawkins spurs an economic engine for our state in that it exempts new construction of single-family homes from rent control. This incentivizes construction companies to build housing units throughout our state, enabling us to keep up with population growth’s skyrocketing demand for housing.

Let’s be clear. Rent control is aimed to address a real problem. Today, tenants on average pay at least half their earnings to a landlord. For years, hardworking middle and working class residents have been forced to rent less than desirable units at astronomical rates. As such, it comes as no surprise that the movement to expand rent control has drawn traction. Without Costa-Hawkins, college and post-graduate students, part-time workers and retired individuals would have access to more affordable housing, all at no consequence to new construction or the housing market. At least, that is what advocates of the repeal will tell you.

Allow me to spare you the rhetoric from advocates for and against the legislation. To get a better picture of what our state’s housing market would look like without Costa-Hawkins, we need only revisit 1994 — the year before Costa-Hawkins was enacted.

We learned in the early 1990s that extreme forms of rent control can leave tenants and property owners in poverty and even displaced. Without an exemption for newly constructed buildings, construction companies had a disincentive to construct single and multi-family units for the increasing population. More importantly, the rent control limitations forced property owners to rent their units at rates so low that many could not afford to keep up with building code regulations and maintenance.

The end results were nothing short of disastrous: hundreds of neighborhoods throughout our state left with dilapidated housing, a housing market that could not keep up with population’s demand and an alarming increase in the homeless population. Ironically, the rent control ordinances designed to provide affordable housing to more residents failed secure housing for an increasing homeless population.

In all fairness, much has changed since 1994. First, the state population has grown by nearly 10 million n the past two decades, making our need for housing more urgent now than ever before. Secondly, in the wake of the most destructive California wildfires on record, we have witnessed nearly 10,000 structures burn to rubble or collapse beyond repair. To place the loss of 10,000 structures in context, consider that the State Legislative Analyst’s Office tells us that we need to build more than 100,000 new rental units per year to make room for the state’s growing population.

Put simply, the state’s real housing crisis is not merely high rents; it is an absolute shortage of housing. This problem demands a solution that incentivizes, not discourages, private investment in affordable housing. The problem requires a solution that encourages the new construction of single-family units, giving middle and working-class tenants access to more units and rents from which to choose. In short, the problem requires the continued existence of Costa-Hawkins, not a repeal.

Without Costa-Hawkins, we would witness an unprecedented exodus of construction companies from our state that rely on the Costa-Hawkins exemption. Most devastating would be the impact on pending construction projects that were executed under the presumption that Costa-Hawkins would exempt the units from rent control. Without the law in place to honor those contracts, we could witness construction companies completely withdraw from completing such projects.

History tells us our housing market is fragile. Enacting too many laws to address a market-driven problem will almost always result in unintended consequences. The best model of a housing market is one that encourages homeownership; a market that incentivizes, rather than punishes, property owners to offer affordable housing; and a market that breeds prosperity at every socioeconomic level. These noble goals are achievable when we establish a market that protects renters without unduly burdening property owners.

A native of Pacifica, Jonathan Madison worked as professional policy staff for the U.S. House of Representatives, Committee on Financial Services, from 2011-2013. Jonathan can be reached via email at jonathanemadison@gmail.com.