Why AB1506 Was Bad for Housing

If you have been following the issue of housing in the California State legislature for any significant period of time then you have probably heard of the Costa-Hawkins Act, otherwise known as the Rental Housing Act, or “Rent Control” Act. Costa-Hawkins is a piece of legislation enacted in 1995 that regulates how local jurisdictions (Cities and Counties) can implement rent control. It specifically does 3 things:

  • It Exempts all Single Family Homes from rent control
  • It Exempts all Apartments built after 1995 from rent control–specifically because the bill author’s didn’t want to discourage the development of new rental housing.
  • Vacancy Control: when a tenant leaves a rent controlled unit the landlord can “reset” the rent to the market rate.

The whole purpose of Costa-Hawkins was to allow for rent control in the areas of the State that have an economic case for it (mainly the larger metro areas where rents have been shown to skyrocket during economic booms and busts), and mitigate the potential impact that rent control might have on specific types of housing, and in particular, new development. This last part is key, because if Costa-Hawkins were to be repealed, then theoretically every new housing unit built could be subject to price controls, which would create a massive dis-incentive to build in the first place.

Think of it this way, if you were planning on investing tens of millions of dollars to build a new apartment building, the last thing you would want to hear is that the local government can dictate what you can charge for those units–perhaps indefinitely, if vacancy control is also removed. That risk alone would deter you, and more specifically your lenders, from moving forward.

That is why AB1506 – a direct repeal of Costa-Hawkins, which was introduced at the beginning of this year, was so controversial. Proponents had mixed messaging, varying from “it’s just about empowering local jurisdictions and local control” to the more honest “we want to be able to apply rent control to more units” message.

Now there can be no doubt that the intentions behind the bill were, in theory, good. Our state is in the worst housing supply crisis in its history, and rents are skyrocketing, everywhere. Thus many activists’ first reaction was to try and stop the rent from rising, directly and bluntly. However, as has been shown time and time again through countless studies, rent control is a demand focused policy, with the unintended consequences of limiting supply. If the real solution to the supply problem, which is undoubtedly build more housing, then anything that deters new investment in more supply is inherently problematic.

Thankfully AB1506 died last week in Committee, thanks to the caution employed by many of our more moderate legislators, and supporters from the California Apartment Association, who showed up en mass to protest the bill. Supporters have now indicated that they will instead try to put a ballot initiative to repeal Costa-Hawkins before voters in November, a move that will be much more expensive to fight.

Yet what is truly surprising about the attempt to get AB1506 passed is the poor political tactics employed by its supporters. Rather than amending Costa-Hawkins, to perhaps change the dates of exempted apartment units, or the type of units, or even to just address the vacancy control provision; they instead chose the scorched earth strategy of complete repeal. The move drew easily identifiable lines in the sand, and immediately alienated any moderate support they may have been able to court for smaller amendments. This leads even the casual political observer to the conclusion that they are either not very well organized, and thus unlikely to get the signatures needed to get it on the ballot; or that they had no faith in the efficacy of their initial push for the legislation anyway–meaning that they don’t actually believe a repeal to be good for rental housing. If they did, then surely they would have attempted to negotiate incremental changes in good faith.