The expectations going into Tuesday were that the Proposition 10 statewide ballot measure to make it easier to expand rent control in California would not pass but multifamily developers, apartment REITs and trade organizations weren’t taking any chances. Armed with a war chest of $75 million from industry donors, the “No on 10” campaign outspent their opponents 3 to 1 as they made their case on television and social media. They enlisted former Los Angeles Mayor Antonio Villaraigosa to make a Spanish-language ad to appeal to the state’s Latino voters.
Their efforts paid off as voters rejected Proposition 10 with 62 percent, or 4,310,298, voting no and 38 percent, or 2,675,378, voting yes. Two other rent control measures on the ballot in National City, Calif., and Santa Cruz, Calif., were also voted down Tuesday.
“This was a $100 million dollar wake-up call for the industry,” Robert Hart, CEO & founder of Los Angeles-based TruAmerica Multifamily, told Multi-Housing News. The firm owns or manages more than 32,000 apartment units across the U.S., with about 20 percent of that in California. “This is really the beginning of a much bigger discussion.”
Prop 10 would have repealed the state’s 23-year-old Costa-Hawkins Rental Housing Act which limits rent control measures on properties completed before 1995 and bars local governments from imposing price controls on vacant units. If passed, local governments would have been able to put unrestricted caps on all rental properties, including single-family homes. Opponents of rent control initiatives such as Prop 10 argue they have the opposite effect, pushing up rents by discouraging new development and further dampening supply.
While the proposition was defeated, landlords and industry leaders expect and proponents have stated they will try to get a rent control measure back on the ballot for 2020.
“It’s not going to go away,” said multifamily real estate investment veteran Eddie Lorin, CEO & founder of Strategic Realty Holdings LLC and Impact Housing REIT LLC in Calabasas, Calif.
“No one is celebrating here. It’s more like we dodged the bullet but that doesn’t mean they don’t have another gun in their hand,” David Nagel, CEO of Decron Properties, a Los Angeles-based real estate firm that owns about 7,500 apartment units in California, told Multi-Housing News.
Nagel said his firm contributed “a substantial amount of money” to the campaign against Prop 10, which he called “over-reaching and overbearing.”
“We were very concerned it would have hurt our company in substantial ways but more importantly we were committed to improving a number of properties in our portfolio, many of which we were in the middle of and some of which we were starting very soon. It would have derailed us,” he said.
Jonathan Woloshin, a real estate and lodging analyst at UBS, noted that publicly traded companies focusing on multifamily, especially in California, had a “relief rally” Wednesday after the proposition was defeated. Companies like Essex Property Trust, a REIT that has most of its portfolio in California and was a major contributor to the “No on 10” campaign, saw their stocks rise during the day.
But Woloshin also expects the issue to persist even though he agrees that rent control is not the solution. “This would be a really good time for the industry along with legislators, for everybody to get together and say we really need to do this whether it is through opportunity zones or policy initiatives,” he said of creating more affordable housing.
Doug Bibby, CEO of the National Multifamily Housing Council, who called Proposition 10 “an example of short-term, wrongheaded policy,” also noted it highlights the very real affordability problems families are facing.
“Addressing this crisis will require a three-pronged approach,” Bibby said in a prepared statement. “First, we must address the tremendous shortage of homes and remove barriers to adding more supply. Without doing so, we will never meet the demand for 4.6 million new apartments by 2030. Second, local governments must take the lead and find innovative, public-private partnership opportunities to bring the price point down to create more affordable housing. Third, we must use targeted subsidies to help the neediest families today.”
Lorin has been working to create more affordable housing through his Impact Housing REIT, the first REIT to use crowdfunding to buy and renovate neglected or poorly managed buildings to add more affordable units. He recently purchased a 50-unit, 1920s-era building in Los Angeles in a public-private partnership with the city’s Housing & Community Investment Department.
According to Lorin, government needs to do more to encourage more affordable housing properties to be redeveloped and more multifamily housing in general to create more stratification in the market so people have the ability to move up and leave the affordable units for those in need.
Hart also said state and local governments need to come together with the developers to create incentives and increase density in suburban as well as urban areas. “We’ve got to stimulate supply and got to upzone. That’s the only way to get enough supply and hopefully enough affordable supply,” Hart said.
Images courtesy of UBS, TruAmerica Multifamily and Decron Properties