Vacancy Control Bill Gets New Life
Key Community Groups Put Fire Power Behind AB1506
Written by Peter Strauss of Iconic Investments
In February, we told you about a bill (AB1506) in the California State Legislature that would repeal the Costa-Hawkins Rental Housing Act and threaten the livelihoods of multi-family housing owners. The bill -- introduced by Assembly members Richard Bloom, David Chiu and Rob Bonta -- was tabled shortly after introduction due to push-back from lobbyists and landlords. Now, AB1506 is back and the momentum behind it is stronger than ever.
Passed in 1995, The Costa-Hawkins Rental Housing Act mandated that units built after 1995 would not be subject to rent control. The regulation also did away with “vacancy control,” allowing property owners to adjust rents on rent-controlled properties when they were vacated. It also exempted from rent control single-family homes, condos, and rental properties with less than two units. Costa-Hawkins was a victory for owners because it allowed them to control their properties while ensuring the viability of their investments.
The repeal bill has recently been revived by leaders of tenant advocacy groups, such as the Eviction Defense Network (EDN) and the Alliance of Californians for Community Empowerment (ACCE). Supporters also include Michael Weinstein of the AIDS Healthcare Foundation, which over the last few years has been a big proponent of development (NIMBY) and spent many millions pushing for Measure S, which would have put a two-year moratorium on new development projects that require zoning changes or other amendments to the general plan.
This is the fuel that Assembly Member Richard Bloom needs to move AB1506 forward and get it on the November 2018 ballot. But critics feel that the largest global AIDS organization, with over $1.3 billion, shouldn’t have a bone to pick with development and rent control laws and should stick to their core business.
Making Affordable Housing Viable
There is undoubtedly a shortage of affordable housing in Los Angeles. Tenants are being forced to move out the City of Los Angeles, and there is an increase in homelessness. But AB1506 is not the answer. Los Angeles is finally becoming a city with dense urban living and a widespread metro system. There is no way to prevent growth in a highly desirable city like LA.
Rather than discouraging investment, the City/State needs to incentivize affordable housing developers, update community and general plans, streamline the approval process, eliminate CEQA, and give no voice to neighbors at City Council Meetings who disagree with the scale of affordable housing projects. That’s what will help build more affordable housing projects.
Recently passed bills, like SB3, will create $4 million in bonds for affordable housing. SB2, which tacks on an additional $75 fee for every real estate document filed at the County Recorder’s Office, is estimated to raise $200 to $300 million annually. Bill SB35 streamlines the time it takes to get plans approved.
Repealing Costa-Hawkins would be detrimental to apartment building values. Buildings would have no upside in rents; some estimate Cap Rates would increase overnight by 200 to 300 basis points. It would bring back “vacancy control,” under which landlords can't raise rents to market on vacant units, only by the allowable annual rent increase above the previous rent. It would also make non-rent controlled units subject to rent control. As we have seen in the past when municipalities place restrictions on what private landlords can charge, the quality of housing diminishes. Landlords have no incentive to provide higher quality housing, no reason to renovate building interiors and exteriors. They will do the bare minimum to keep buildings habitable.
Some believe that AB1506 is just a negotiation tool to get landlords to the table. In February 2017, Beverly Hills City Council passed an ordinance reducing the annual allowable rent increase from 10% to 3% and created a rent registry program similar to Los Angeles. A compromise for Assembly members like Bloom and tenant advocacy groups could be a reduction in the annual rent increase from 3% to 1%. This could happen in the City of LA.
Landlords and developers have faced new obstacles in recent years such as measures JJJ, LV, and S. And time will tell what the true intention of the Los Angeles Rent Registry Program is. Meanwhile, support for affordable housing initiatives will only continue to get stronger. As for AB1506, Richard Bloom needs 365,000 signatures to get it on the November 2018 Ballot. That goal does not seem unreachable. Landlords should not take this new threat lightly.
UPDATES:
After posting this blog we received questions from landlords about Costa Hawkins. Please see below:
11/03/2017
QUESTION: How can landlords help to defeat this Assembly Bill?
ANSWER: Iconic spoke with Fred Sutton, Director of Government Affairs at the Apartment Association of Greater Los Angeles about fighting Costa Hawkins. As of now, the Bill has not received the required signatures to get on the November 2018 ballet. Therefore, AAGLA has not setup a specific PAC to fight Costa Hawkins. It does have a general PAC https://aagla.org/aagla-pac/ that protects landlords rights. If you are interested in getting involved to help fight Costa Hawkins Fred Sutton is happy to speak with you.
Frederick Sutton
Director of Government Affairs
AAGLA, 621 S. Westmoreland Ave. Los Angeles, CA 90005
t: 213/384-4131 ext 309 | f: 888/384-4131
www.AAGLA.org fred@aagla.org
Iconic Investments is a Los Angeles-based boutique commercial real estate brokerage firm focusing on multi-family properties of 15 to 100 units throughout Los Angeles in all different sub-markets. Iconic represents multi-family property owners in dispositions, acquisitions, and 1031 exchanges.