Ten months after California voters rejected a rent control ballot initiative by more than 2.3 million votes – 59 percent to 41 percent – the state is on the brink of enacting a rent control measure approved by the Legislature and backed by Gov. Gavin Newsom.

Proposition 10 failed last year after two political action committees backed by apartment owners, real estate agents and others in the rental business paid for tens of millions of dollars in TV ads that depicted the measure as being a threat to seniors – a tactic that was effective but criticized as manipulative. This view that they didn’t lose a fair fight is one reason that Prop. 10’s main backer – the AIDS Healthcare Foundation – and other advocates plan a 2020 ballot measure on rent control.

This belief that rent control was a political winner despite Prop. 10’s result was also on display in Sacramento with Assembly Bill 1482. Assemblyman David Chiu, D-San Francisco, and other Democrats barely acknowledged Republican complaints that the bill amounted to an end run around the will of voters. Instead, they said Californians demanded relief from soaring rent.

Newsom opposed concessions made by bill author

But Chiu was worried enough about winning support for AB1482 that he weakened some of its provisions to get business groups to remain neutral on the bill. This led to an unusual scenario over the last month in which a high-profile, controversial measure actually was strengthened – not weakened – as final votes neared. That came after Newsom and his staff told Chiu he shouldn’t have compromised.

The Assembly passed AB1482 on the strength of 48 Democratic vote. It was opposed by a bipartisan group of 26 members. It passed the Senate 25-10 on a close to party-line vote.

The version that reached Newsom’s desk this week limits most annual rent increases to 5 percent plus inflation, with the law sunsetting in 2029. It doesn’t supersede local rent control laws in place in Los Angeles and about 20 other cities in the Golden State, with many in the Bay Area. Apartments built within the last 15 years are not covered. Nor are rented-out single-family homes – with the exception of those owned by investment groups or corporations. 

The passage of the rent control measure comes amid evidence that despite three years of new laws meant to ease the housing crisis, homebuilding in the state is actually declining in 2019. Capitol watchers said now at least lawmakers who backed it can tell their constituents they got something big done on housing.

Will California again be a national trendsetter?

But the steady advance of AB1482 was also treated as a national story by the New York Times and many other major news outlets because of California’s long history as a national trendsetter.

Cea Weaver, campaign coordinator of Housing Justice for All, told the Times that the bill’s likely enactment could be a game-changer. “Any victory helps to build a groundswell,” Weaver said. “There is a younger generation of people who see themselves as permanent renters, and they’re demanding that our public policy catches up to that economic reality.”

California became the second state after Oregon to adopt statewide rent control. Chiu’s bill was modeled on one that Oregon lawmakers enacted in February.

Many economists believe rent control ends up being counterproductive because it discourages construction and adequate maintenance, among other problems.

In 1992, when the American Economic Association surveyed its members on the topic, 93 percent agreed that “a ceiling on rents reduces the quality and quantity of housing.”

Opponents of rent control and new restrictions on how landlords treat tenants succeeded in either weakening or blocking bills that needed to advance last week to have a chance of being enacted this legislative session.

Coming seven months after voters decisively rejected Proposition 10, a statewide rent control measure, the setbacks were a fresh reminder of the limited political clout of renters – even in a state where millions of residents’ complaints about the cost of housing are a constant of life.

Assembly Bill 1482, by Assemblyman David Chiu, D-San Francisco, was the focus of the most wrangling. Inspired by a similar law newly adopted in Oregon, the original bill would have limited annual rent increases to 5 percent plus the federally reported increase in California’s consumer price index. It had a 2030 sunset clause.

But after intense opposition by the California Association of Realtors and other business groups who said it would discourage housing construction in a state with a huge housing shortage, Chiu agreed to concessions that were so significant that most critics took a neutral stand on his bill, starting with Realtors.

It now limits rent increases to 7 percent plus consumer price index inflation and sunsets in 2023. It also doesn’t apply to housing projects built in the last 10 years or to landlords renting 10 or fewer units.

The bill doesn’t apply to housing units in areas where local rent-control laws are in place and puts no limit on how much rent can be increased after a tenant moves out.

But even with Chiu’s concessions, AB 1482 still only got the votes of 43 of 80 Assembly members. Chiu’s fellow Democrats made up the big majority of the 31 no votes. Even with reduced business opposition, the bill may not make it through the state Senate.

Tenant protection bill fails without getting committee vote

Yet it still fared much better than Assembly Bill 1481, by Assembly members Tim Grayson, D-Concord, and Rob Bonta, D-Alameda, which would have set up a “just cause” bureaucratic process that most landlords would have to follow to evict tenants for reasons other than failure to pay rent, property damage or repeated violations of rules. The process would have required landlords to provide a written reason for the eviction, then give renters an opportunity to correct problems that were cited.

“If landlords wanted to move into the property, intend to remodel it or were seeking eviction for other circumstances that were not tenants’ fault, property owners would in most cases have had to provide relocation assistance,” a Los Angeles Times analysis noted.

AB 1481 never even come up for a committee vote, reflecting a lack of enthusiasm for the bill by the Assembly’s Democratic leaders.

In a statement issued by Grayson, he praised the Assembly for passing the rent-control measure, but said “rent-gouging protections are not enough when tenants can still be evicted without cause or due process.”

AB 1482 did include one notable tenant protection. It says landlords of properties covered by the bill cannot seek evictions solely because they want to raise rent by more than the measure allows.

Meanwhile, an aide to Gov. Gavin Newsom said he was pleased by the measure’s passage. Newsom called for lawmakers to enact some form of rent control in a February speech and again in April.

2018 rental data suggest bill will have limited effect

But rental statistics for 2018 compiled by the RENTCafé website suggest AB 1482 won’t necessarily have a substantial effect on landlords. According to the state Department of Finance, California had a 3.7 percent increase in its consumer price index in 2018. (Federal figures for the Golden State were not available.) That means under Chiu’s bill, landlords probably could have raised rates by about 10.7 percent in homes covered by AB 1482.

But according to RENTCafé data, that’s much less than the average rent increase seen in the California cities with the highest percentage hikes in 2018 – Los Angeles (6.6 percent), Fresno (5.7 percent), Riverside (5.6 percent) and Long Beach (5.5 percent).

By far the most buzz is going to Assembly Bill 1842 by Assemblyman David Chiu, D-San Francisco, that is being framed as much different than Proposition 10, which lost by 18 percentage points in November. Chiu says his bill would prevent “rent gouging.”

Instead of the hard caps on rent increases seen in many local rent control ordinances adopted by California cities before 1995, Chiu’s measure would ban landlords from increasing rents each year by more than an as-yet-undetermined percentage more than inflation.

Oregon recently became the first state in the nation to adopt an “anti-gouging” rent law. The measure limits annual rent increases to inflation plus 7 percent for existing tenants in buildings that are at least 15 years old. Rents can go up by more than that when apartments are vacated, but the law contains additional protections meant to prevent landlords from seeking to evict tenants with solid records of timely rent payments solely so they can raise the rent.

UC Berkeley researchers concluded that if a similar law passed in California, 4.9 million homes, condos and apartments would be covered.

Some landlord and business groups didn’t oppose the bill as it moved through the Oregon Legislature – seeing it as preferable to the harder, smaller caps that some state lawmakers and activist groups preferred and that polls suggest are popular.

But stronger and more consistent opposition to Chiu’s bill looms in California. “We need to encourage new housing, not create policies that stifle its creation,” Tom Bannon, CEO of the California Apartment Association, told the Bay Area News Group. He said any state law capping rent increases would be counterproductive and ineffective at remedying the housing crisis.

Gov. Gavin Newsom has not taken a public stand on Chiu’s bill. Last month, however, he told lawmakers at his State of the State address, “Get me a good package on rent stability this year and I will sign it.”

Assemblyman Richard Bloom, D-Santa Monica, has also once again introduced a bill including more traditional rent control provisions. Assembly Bill 36 would allow local governments to mandate rent control on apartments and single-family homes as soon as they were 10 years old. Landlords with only a few units would not be covered.

Assemblyman Rob Bonta, D-Oakland, has also once again introduced a bill meant to make it significantly more difficult to evict tenants. Assembly Bill 1481 would set a statewide “Just Cause for Evictions” standard. Most cities already have such policies.

The least controversial measure affecting renters was proposed by Assemblywoman Buffy Wicks, D-Oakland. Assembly Bill 724 would set up a state housing information clearinghouse that would list all available units, their monthly rents, how long units were vacant and how many tenants are evicted. Landlords would be required to submit this information on a timely basis.

Wicks thinks this would lead to more informed decisions on housing by the Legislature and the Newsom administration.

In January 2017, state lawmakers returned to the Capitol determined to make a difference on the state housing crisis. Dozens of bills were touted – including Senate Bill 35, by state Sen. Scott Weiner, D-San Francisco, which ended up as the most far-reaching law to reduce obstacles to housing construction in modern California history.

But even as momentum built for SB35 and other housing measures, the head of the respected, nonpartisan Legislative Analyst’s Office warned in a 12-page report issued in March 2017 that state lawmakers would never be able to reduce the housing shortage without much more support from the public.

“Unless Californians are convinced of the benefits of significantly more home building – targeted at meeting housing demand at every income level – no state intervention is likely to make significant progress on addressing the state’s housing challenges,” wrote Mac Taylor.

Now a USC Dornsife/Los Angeles Times survey offers the most definitive support yet for the legislative analyst’s conclusion that when it comes to building new housing, Californians aren’t very enthusiastic.

Few see lack of construction as big problem

The survey asked 1,180 Californians why they thought housing was so expensive in the Golden State. They were given a list of eight possible primary reasons.

The most popular reasons were lack of rent control (28 percent) and lack of affordable housing programs (24 percent).

In the middle tier of explanations were environmental regulations (17 percent), foreign home buyers (16 percent) and the influence of the tech industry (15 percent).

Bringing up the rear were a lack of homebuilding (13 percent), Wall Street buyers (10 percent) and restrictive zoning rules (9 percent).

The Times’ analysis of the poll noted how at odds the public’s view of housing is with the view of economists, policy analysts and housing experts.

There is “general agreement that a lack of supply is at the root the problem. Reports from the state Department of Housing and Community Development, the nonpartisan Legislative Analyst’s Office and a host of academics contend that California has a chronic shortage of home building that has failed to keep pace with the state’s population growth – especially during the recent economic expansion – which has forced prices up.”

But this wasn’t the only way Californians parted with conventional wisdom. The survey also included other questions that showed two-thirds of those surveyed backed local control over housing even if local governments weren’t meeting state-set goals for adding housing stock.

It is this local power over the approval process that empowers motivated NIMBYs in city after city. Taylor’s March 2017 study identified it as the single biggest reason behind the emergence of the housing crisis.

“For decades, many California communities – particularly coastal communities – have used this control to limit home building,” the legislative analyst wrote. “As a result, too little housing has been built to accommodate all those who wish to live here. This lack of home building has driven a rapid rise in housing costs.”

Tech industry certain to keep pushing for housing 

While the USC-Times poll could influence candidates in close elections to side with NIMBY views, it is unlikely to blunt new efforts by the Legislature to use legislation to bring down housing costs. The deep-pockets, influential Silicon Valley Leadership Group is one of many business organizations that sees the housing crisis as a threat to the state’s future prosperity because of its potential to hurt recruitment and retention of workers.

Another of the state’s most politically potent forces – the California Teachers Association – also sees the housing issue as bad news for its members. But the CTA’s main policy prescription for now is Proposition 10 – the Nov. 6 ballot measure that would overturn a 1995 state law and let cities impose rent control. It has generally trailed in state polls, although with high numbers of undecided voters.

With the cost of housing driving California’s emergence as the state with the highest percentage of impoverished households, it’s easy to see the appeal of rent control to key Democratic constituencies – starting with poor and lower-middle-income families, often minorities, who struggle paycheck to paycheck.

This was why a diverse coalition was able to easily gather enough signatures to place Proposition 10 on the Nov. 6 ballot. It would repeal a sweeping 1995 state law – known by the shorthand of Costa-Hawkins – that grandfathered in some rent control laws but made significant new such laws difficult to impose.

The most notable provisions of the law were its ban on rent control for units built after 1995 and for all single-family homes and condominiums. It also forbids what’s known as “vacancy control,” which requires landlords to leave rents unchanged when a unit becomes empty.

The eagerness to undo Costa-Hawkins was plain in July at a meeting of the California Democratic Party in Oakland, where 95 percent of the party’s executive board voted to back the rent-control measure. That comes with a party commitment to send email and direct mail endorsements of the measure to as many as 2 million Democrats in the state, according to the San Francisco Chronicle.

Newsom splits with Democratic Party, opposes Prop. 10

But with less than a month to the election, this early momentum hasn’t translated into strong support. The most important Democrat on the fall ballot – Lt. Gov. Gavin Newsom, the heavy favorite to succeed Jerry Brown as governor – is against rent control. While most of what might be called the Bernie Sanders wing of California Democrats is all aboard the Proposition 10 bandwagon, a significant number of prominent and/or elected Democrats are in opposition. This includes Newsom’s primary rival, former Los Angeles Mayor Antonio Villaraigosa, and Assembly members Jim Cooper, Tom Daly, Adam Gray, Patrick O’Donnell and Bill Quirk.

A number of reasons appear to be driving Democratic opposition to a seemingly potent populist wedge issue. Newsom, who revels in his reputation as a policy wonk, has told newspaper editorial boards up and down the state that rent control actually would make the housing crisis worse.

In economic circles, the belief that rent control is counterproductive is the overwhelming consensus of Keynesians, supply siders and nearly all the factions across the ideological spectrum. In 1992, a poll of the American Economic Association showed 93 percent agreed with the statement that rent control “reduces the quality and quantity of housing.” A Stanford University study of rent control in San Francisco released last December reached similar conclusions.

Californians in communities with rent control don’t need to be told by economists that it doesn’t work well. As Ken Calhoon, an El Dorado County real estate broker, pointed out in a July commentary, “Rent control has been a long-time ordinance in the following cities: Berkeley, Beverly Hills, Campbell, East Palo Alto, Fremont, Hayward, Los Angeles, Los Gatos, Oakland, San Francisco, San Jose, Santa Monica, Thousand Oaks and West Hollywood. It’s not a coincidence that the two most expensive rental areas in our state, the Los Angeles and Bay Area regions, happen to have every city that has enacted rent control policies.”

Also helping the No on Proposition 10 campaign is an unusually broad collection of groups that includes not just the usual business interests but several construction unions and seniors groups and a long list of organizations with ethnic or racial affiliations, starting with the California NAACP.

A Public Policy Institute of California poll released two weeks ago showed Proposition 10 losing 48 percent to 36 percent, with 16 percent undecided. Among Democrats, it led narrowly, 46 percent to 43 percent.

Rent-control foes stake claim to populist label

In a state where even banged-up, aging two-bedroom apartments go for $2,000-plus a month in most urban areas, these results seem hard to fathom – especially  given that the Yes on Proposition 10 side is backed by such powerful, high-profile groups as the California Teachers Association, the California Nurses Association, several government unions and the AIDS Healthcare Foundation, led by Los Angeles political activist Michael Weinstein.

But this may be a case where money and superior strategy – not the views of economists or California’s history with rent control – are overcoming the populist inclination of voters. The No on Proposition 10 campaign, which has had at least a 2-1 advantage in fundraising so far, has been advertising for weeks. A Google search for Proposition 10 returns results that are topped with a paid No on 10 link. It goes to a page with the simple message that the measure is bad for veterans and seniors, doesn’t reduce rent and doesn’t provide funds for affordable housing. Some of these claims are solid and some are non sequiturs – why would rent control be expected to reduce rent?

But they make the case that this is not a simple attempt by moneyed interests to allow them to keep exploiting renters – instead making a seemingly populist case for No on 10.

Meanwhile, as an Oct. 5 story in the Ventura County Star noted, there may be high-profile supporters of Yes on 10, but only one is offering significant financial support. While the AIDS Healthcare Foundation has donated more than $10 million, “the only other major contributors to the campaign are the California Nurses Association and the AFSCME 3299 union, which contributed $50,000 and $60,000, respectively.”

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“It is time that big beverage companies dip into their millions of dollars of profits and help pay for the damage their products cause,” Mary Pittman, president of the Oakland-based Public Health Institute, told KQED. The $6 million to $12 million the tax would generate annually would be divvied up by an advisory panel for worthwhile public health programs, the PBS affiliate noted.

But there is no hard requirement on what the money be used for. As the San Jose Mercury-News reported, those tax dollars would go into the city of Oakland’s general fund — a detail that wasn’t included in some of the stories about the soda tax.

This infusion would come as Oakland continues to deal with decades of budget headaches. The Silicon Valley economic boom has had far fewer benefits for Oakland’s treasury than those seen in many neighboring cities and suburban communities.

The two-year, $2.4 billion budget approved by the Oakland City Council in June 2015 included money for 40 new police officers and pay “restoration” increases for some municipal employees. But pleas were rejected for extra funding to address and reduce child prostitution; improve programs for refugees; remedy quality-of-life issues; allow for longer hours at libraries and animal shelters; and more.

‘Financial time bomb’ hanging over city

On long-term pension liabilities, Oakland has a huge hole to dig out of because of its pioneering role in borrowing money — so-called pension obligation bonds — to cover pension payments in the presumption that investing the borrowed money would generate such high returns that they could both pay off the borrowing and pay for annual city pension contributions.

As it has periodically since 1985, in 2012, Oakland issued pension bonds — $212 million worth — so it wouldn’t have to make contributions again until fiscal 2016-17. The last budget includes new funding for pension obligations, but the overall problem remains a “financial time bomb,” as the San Francisco Chronicle described it in 2012. The city has continued to use these bonds even though the the investments they were used for haven’t come close to providing the hoped-for returns.

Oakland’s dire fiscal straits also explains city leaders’ disinterest in providing any help to the Oakland Raiders to prevent the storied NFL franchise from moving to Los Angeles, Las Vegas or San Antonio in coming years. As CalWatchdog reported last year, NFL officials were dismayed at Oakland’s unwillingness to provide the sort of help that San Diego was considering to keep the Chargers in town.

When it comes to help from the city, “there is no there, there,” ESPN’s John Clayton wrote in August.

CA has long history of tax bait-and-switch

Perhaps if Oakland voters approved the soda tax in November, the $6 million to $12 million it generated annually would be used for the exact sort of public health programs that advocates. But California has a long history of taxes and fees being pitched for one intended use and being used for another.

In 2011, Gov. Jerry Brown was successful in his push to shut down city redevelopment programs that diverted billions of dollars in local property taxes. Instead of being used to reduce blight, fund economic development and pay for affordable housing, then-Controller John Chiang found the funds were routinely used around the state to pay salaries of city officials, police officers and other government employees not in traditional agencies, as well as to pay for general administrative costs, a day-care center and more.

In 1998, California voters adopted Proposition 10, which imposed a 50-cents a pack tax on cigarettes. The proceeds were supposed to go strictly to early childhood education programs known collectively as “First 5.” But there has been little oversight and years of critical headlines about money being spent on projects having little to do with early childhood education.

In 2006, it was revealed that First 5 chairman Rob Reiner, the Hollywood director/producer, had used $18 million in taxpayer funds on a “preschool for all” TV ad campaign at the same time that he had launched a signature-gathering effort for a “preschool for all” initiative. Reiner and others faced allegations of misuse of public funds, but charges were never filed.

But in Oakland, the Mercury-News reports the list of prominent supporters for the Oakland soda tax is long and growing. So far, the list includes “state Sen. Loni Hancock, state Assembly members Rob Bonta and Tony Thurmond, Alameda County supervisors Wilma Chan and Keith Carson, Oakland Mayor Libby Schaaf, Oakland school Superintendent Antwan Wilson and City Council members Lynette Gibson McElhaney and Desley Brooks.”