Multifamily Has a Lot to Gain—And Lose—in the Midterms
From North Carolina to Hawaii, ballot measures are stirring the housing pot.
When U.S. voters enter the booths for the Nov. 3 midterms, many will find measures affecting multifamily—and housing at large. California’s citizen-led just-cause eviction initiative, Hawaii’s bond issuance and Florida’s assessment cap cuts are just a few of the proposals that, if passed, could send policy ripples across the country.
Hotly contested rent control initiatives may appear on some local ballots, but no such measure has reached the state level. In June, the Massachusetts Supreme Judicial Court ruled that a proposed statewide rent control ballot initiative was unconstitutional.
Industry positions on these items mostly point one way. “Restricting landlords’ ability to raise rent to levels appropriate to cover our operating expenses impedes our ability to operate in the black,” said Ivy Dench, senior vice president of community revitalization at Pennrose.
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However, there’s much more at stake, and legislative legalese can bury highly consequential topics. Here are our highlights of measures to watch this fall.
California Proposition 45
Proposition 45 would amend the California Environmental Quality Act process for what its backers term “essential projects,” imposing new timelines for environmental review of specific types of housing and other projects. Under the proposition, broadband internet access would be treated like essential services such as water and electricity rather than as a separate item that often requires a lengthy environmental review.
“This dramatically reduces the amount of time to develop a project,” mentioned Sandy Jack, vice president of strategic relations, multifamily, with Vingcard/Nomadix.
The need to reform CEQA, she added, is exemplified by Liberty Lane, an 80-unit, 100 percent affordable veterans’ housing project in Redlands, Calif. A citizens group blocked the development, filing a CEQA lawsuit against the city, claiming the project would cause harm. After a delay costing the developer an additional $21 million—a 70 percent increase over the original cost—the project proceeded and opened this year.
When it comes to affordable housing, anything we can do to speed up the process and make it affordable for property owners to build is welcome. When they’re developing in other states, they may say, ‘Here’s what California did, and it would make sense here as well.’
—Sandy Jack, Vice President of Strategic Relations, Multifamily, Vingcard/Nomadix
California Proposition 1
Calling for voters to authorize an $11.3 billion general obligation bond, California Proposition 1 would earmark $10 billion of that to create to preserve affordable rental housing, among other objectives. Another $1.3 billion would expand veterans’ homebuying opportunities through the CalVet Home Loan program.
The measure, proponents argue, would create construction jobs, bring more than 40,000 new affordable housing units and preserve thousands of others. For Nicole Upano, assistant vice president of housing policy and regulatory affairs with the National Apartment Association, it is evidence that Californians “are taking affordability challenges seriously.”
Redwood City, Calif., Measure E
Measure E is a citizen-led rent control and just-cause eviction measure potentially rendering rental housing provision untenable and extending far beyond the state’s rent control framework, opponents say.
According to Upano, the measure would restrict annual rent hikes, impose relocation expenses up to $18,000 if leases are terminated and tack on an added expense for evicted residents 62 and older.
Redwood City’s Measure E also includes a right-to-return policy, forcing landlords to hold units for prior residents after major renovations, delaying property transactions. Opposing the measure, the city council commissioned an economic impact report, which found that Measure E would cost the city up to $11 million to administer and cost housing providers $750 per unit per year.
“We remain concerned about those efforts to continue to ratchet down failed rent control policies that making the development of new housing untenable,” Upano said.
With its profound affordability challenges, California is ground zero for policy debates that tend to migrate from both coasts toward the center. “Even places like North Dakota may consider rent control in the coming year,” Upano pointed out.
I view this as a detriment to housing in Florida as it will lead to renters dealing with the passed-on costs or inferior infrastructure (or) housing.
—Franklin Eruo, Founding Principal, Eruo Advisory
Hawaii RISE Amendment
The Hawaii Authorize Resilient Infrastructure for Shelter and Equity Bonds Amendment would amend the Hawaii Constitution. The state legislature would be authorized to allow counties to issue housing infrastructure growth bonds for specified public works, public enhancements and community development.
The bonds would be fully backed by revenue from increased property taxes within designated districts and exempt from some county-debt limitation provisions.
The provision could help those whose projects have stalled due to infrastructure needs, said Alexei Morgado, founder of Lexawise. “Don’t assume you can include RISE in your plans too early for a simple reason,” he added. “You can still be responsible for the infrastructure costs if the municipality doesn’t have the appropriate financing mechanism and district in place.”
Florida Amendment 3
This measure would cut the non homestead assessment cap from 10 to 5 percent. In turn, it would slow the growth of tax bills on existing assets but leave a large gap in local government revenues if left unaddressed, said Franklin Eruo, founding principal of Eruo Advisory.
Eruo believes the measure will benefit existing assets impacted by the assessment cap, but it could lead to millage-cap pressure on properties that don’t receive exemptions. Alternatively, the result could be service cutbacks that bring about steeper insurance costs, code enforcement lags or infrastructure decay impacting asset value indirectly.
The measure would need 60 percent approval to advance.
For Amo Realty President Daniel Amodeo, any reduction in non-homestead property taxes may sound terrific to apartment owners. “But buyers still need to model the property’s post-sale tax assessment, not just plug the seller’s current tax bill into their pro forma,” he added. “On a large multifamily acquisition, getting that assumption wrong can change net operating income.”
Danny Fishman, CEO of GAIA Real Estate, believes relief from the homestead exemption will primarily impact lower- and middle-income homeowners, making “buying cheaper and renting less economic at this end of the market,” he reasoned. “When mortgage rates come down, that drop combined with the tax cuts will affect cheaper apartments rather than those at the luxury end of the market.”
North Carolina HB 1089 and SB 1080
Twin Tar Heel State amendments carry potential impacts on multifamily, according to Eruo. HB 1089 would amend the constitution to mandate that the General Assembly create a statutory cap on how much local governments can raise property taxes annually. “It doesn’t set the actual number,” he said. “That gets written into law later if voters approve. It’s a structural change rather than an immediate rate cut.”
Meanwhile, SB 1080 would cap the state income tax rate at 3.5 percent vs. the current 7 percent constitutional ceiling. “The ramifications of this being passed will be a great test case for adoption in other states,” Eruo added.
“This could jump-start more corporate relocations or migration for tax purposes, but that remains to be seen. Tax levy caps, if handled appropriately, would give investors more clarity (or) comfort when investing in the market. However, both measures have offsetting public services that will need tax revenue to continue working.”
