The $91 million fight to reconsider rent control
California real estate developer Bob Champion did something last year that he says put other builders "in a tizzy": He agreed to impose rent control on new apartments he's planning in Hollywood.
The project calls for tearing down an existing apartment complex to make way for a new residential tower, hotel, shops and restaurants a block from the Capitol Records building. Tenants organized against it, so Champion made a bold gesture to win over opponents. In addition to putting the whole development under rent control, he agreed to help defray costs for displaced residents during construction and let them return to the new property at their previous rents. It was — as one tenant told a real estate blog last November — "frankly beyond our expectations."
"I felt I needed to make a dramatic enough statement to get political support," Champion said in a recent interview. He was also making a calculated decision about future regulation. Rent control — long prohibited on newer buildings in California — was likely to be allowed sooner rather than later, he said.
Next month, voters in the most populous U.S. state will consider a ballot measure that would usher in that change. Backers of Proposition 10 are seeking to give cities from Los Angeles to San Francisco new tools to address a widening housing crisis. The measure would eliminate a 1995 state law, the Costa-Hawkins Rental Housing Act, that has long crimped local officials' ability to limit how much rents in newer buildings rise annually and whether they can be reset when a tenant vacates a unit. Big landlords including Essex Property Trust Inc. and Equity Residential have poured in money to defeat the effort.
No other state faces a housing shortage as deep and wide as California. Fees, regulations and delays have pushed building costs to among the highest in the nation, and the state adds far fewer new units than it needs each year to meet demand. As a result, median home prices have doubled in since 2011, to almost $600,000. Two in five households in the state are considered "cost-burdened," paying more than 30 percent of their income on housing. Homelessness is surging.
The situation has prompted sharp debate over what to do and dovetailed with a renewed national conversation over how best to help renters at a time when housing costs have skyrocketed and wages remain stagnant. In addition to Prop 10, California voters will also get a chance to weigh in on whether to borrow more money to build affordable and supportive housing.
The rent-control measure, however, has proven to be especially contentious — and a magnet for political donations from companies with a vested interest in keeping rent control limited. Publicly traded real estate investment trusts and other landlords have helped raise $65.7 million for groups that aim to defeat Prop 10. Companies affiliated with Blackstone Group LP have given more than $5 million to the effort.
"We agree steps should be taken to address housing affordability in California, but virtually all independent economists agree this measure exacerbates California's existing shortage by discouraging new construction and reducing new investment in affordable housing," said Matt Anderson, a Blackstone spokesman, adding that Blackstone's portfolio companies have an obligation to protect shareholders.
"Yes, rents are expensive, but this is going to make matters worse," said Steve Maviglio, a spokesman for the "no" campaign. Approving Prop 10 would stymie new building and be like "pouring gasoline on the fire that is the housing crisis."
Proponents of the measure had raised $25.6 million. Almost all that came from the AIDS Healthcare Foundation, a nonprofit run by Michael Weinstein that bankrolled a previous, unsuccessful effort to curb development in Los Angeles. They argue that repealing Costa-Hawkins simply gives local governments more flexibility.
"We're not suggesting that every single community needs to have a rent-control law on the books by Nov. 7, but that option should at least be available," said Charly Norton, a spokeswoman for the Yes on 10 campaign. "What works in Modesto may not work in L.A."
Rent Increases
Besides, California apartment landlords have been able to enjoy decades of rent increases that have outstripped inflation, said Zev Yaroslavsky, director of the Los Angeles Initiative at the UCLA Luskin School of Public Affairs, who helped pass a rent-control ordinance when he was a city council member in the 1970s.
"Something has to be done" to address housing affordability in the state, he said. "This is a human crisis of unprecedented proportions."