Proposition 10 on the Nov. 6 ballot — the local rent control initiative — is a delicious mess.
It sounds tantalizing and your political taste buds may be salivating at the thought, but you might end up making the housing market lethargic which in turn may create all sorts of economic health problems.
In a nutshell Proposition 10 repeals all state restrictions on cities in terms of what they can and cannot do when it comes to rent control.
It means cities that opt to can assess rent control on free-standing homes, townhouses and condos — something they cannot now legally do.
This means if you have one rental home it could be subject to rent control. It means if you rent your home on Airbnb or any other platform you could also be limited in what you can charge.
It doesn’t take a genius to understand the appeal of Proposition 10. Housing costs are sky high in California to the point they are borderline obscene especially when it comes to “workforce” housing meaning reasonable shelter that someone making the standard workingperson’s wage of a region can afford to pay.
We know how that is playing out in Manteca and surrounding Northern San Joaquin Valley cities. People squeezed out of the Bay Area housing markets are continuing to head east over the Altamont to secure housing that is affordable for them to rent or own. Meanwhile people who hold jobs on this side of the pass are finding it more and more impossible to work and live here.
There are a lot of forces at work. Fees need to be assessed to provide basic infrastructure and services. Banks are more comfortable loaning money to developers building traditional single family homes due to the demand, risk, and cost to return ratio. We have expectations for shelter that’s firmly rooted in 1960s sensibilities that have been merely supersized.
And no matter how you slice or dice it, the housing market is out of whack not because of the private sector but because of the public sector.
Set aside growth-related fees since those costs must be covered or else we will end up with inadequate infrastructure and extensively malnourished public amenities. What ails California when it comes to housing is basic government manipulation of the housing market that makes new developments major ordeals through the environmental review process that has elevated NIMBYism (not in my backyard) to a full-scale employment act for lawyers and consultants.
That’s not to say the things that environmental impact reports elevate importance to is not something we as a society want or need to address but it comes at a big price.
One of the reasons housing is so much less expensive in Texas is because they have ultra-light environmental and development laws. There is relatively little restriction on the housing market so the supply is keeping up fairly will with demand that keeps more of a lid on rents and sale prices.
Passage of Proposition 10 would be just another disincentive for developers to invest in large scale rental housing — read that apartments. Already the funding and process to secure approval is significantly more risky, challenging, and time consuming for apartments than traditional homes built for people who are going to buy them.
The legislative analyst’s assessment of Proposition 10 doesn’t address impacts per se on future investments in rental housing although it offers language that says it in a roundabout way.
The analyst expects more robust local rent control to depress the resale market of rental properties.
This brings up the $25 million question. That’s the neighborhood of borrowing developers of the 149-unit Tesoro Apartments now under construction at Van Ryan Avenue and Atherton Drive have had to do to make more rental housing plausible.
It’s safe to say a bank that assesses risk before it doles out money to developers is going to become even less enthralled about apartment complex projects if a municipality at any time could put in place draconian rent control that would — by the admission of an independent analyst in Sacramento — devalue the investment they are underwriting. That means the bank could get left holding the bag if the project goes under due to rent control devaluing it.
Then consider the developer. They have to worry about ongoing costs such as increasing property taxes and eventually the need for major maintenance and remodeling just like you would on a house after 20 or so years. They also have to worry about rising operating and management expenses as well as repair services.
Why would you basically play roulette when you can do something significantly less dicey by simply building and selling houses?
The only way you can bring housing costs more in-line with the economic realities of most California residents is to build significantly more housing whether it’s free standing homes, condos, townhouses, apartments or some version of shelter that passes muster with state codes and local zoning.
That comes with a price. We’d have basically Texas-style development patterns in the intricate geological diversity of California.
There are tradeoffs to everything. The powers that be in California decided long ago it was worth sacrificing affordable housing to accomplish certain things even if they did so with their heads buried in the sand.
Proposition 10 is not buyer’s remorse as much as it is a bold-faced case of being in denial that when you tweaked the market to accomplish certain goals it didn’t impact housing costs.
In California’s case that means we get to enjoy some of the most unaffordable housing in the country.