Capitol Alert

Strict rent control has been banned in California for 20 years. Now voters could resurrect it.

Walk into almost any rent-controlled apartment building in California, and you will likely find new tenants paying twice the price charged to their neighbors who moved in long ago.

That wasn’t always the case.

In Berkeley and Santa Monica, two liberal cities that 40 years ago pioneered some of the strongest rent control laws in the nation, tenants new and old once paid about the same for rent-controlled apartments.

But that was before a sweeping, 1995 law limited rent control’s reach. Today, a Bay Area News Group and Sacramento Bee analysis shows that the monthly cost of a rent-controlled, one-bedroom apartment would be about $1,000 less today for new tenants in those cities if local rules — which capped how much landlords could raise rents for newcomers as well as existing tenants — had remained in place.

Now those rules, and the state law that banned them, are now at the heart of a costly, high-stakes battle over rent control in California.

A renters’ revolt, fueled by a growing statewide housing-affordability crisis in which 1.5 million California households are paying more than half their income on rent, is driving a November ballot measure to repeal a sweeping 1995 state law called the Costa-Hawkins Rental Housing Act.

If voters approve Proposition 10, cities up and down the state will instantly regain broad authority to regulate rents as they see fit, including placing rent controls on apartments built after 1995, which is currently prohibited under existing state law.

At the crux of the debate is a polarizing policy banned by Costa-Hawkins called “vacancy control,” which Berkeley, Santa Monica and the smaller cities of East Palo Alto and West Hollywood once used to prevent property owners from charging market rate for apartments even after a tenant moved out.

If the initiative passes, “I think you’ll see people organizing all over the state to get or strengthen rent controls, and that would have an enormous ripple effect through the rest of the state’s politics,” said Stephen Barton, a former Berkeley city housing official and rent-control expert who is supporting the Proposition 10 campaign.

But critics of such strict rent control, including most economists, argue it will stymie housing development, worsening the state’s already severe housing shortage. Some landlords, they say, will simply sell their properties if it becomes far less profitable to rent them — as many did in Berkeley and Santa Monica decades ago.

“We need some form of rent control, but vacancy control has probably more negative effects than it has positive effects, overall,” said Greg Morrow, executive director of the real estate development and design program at UC Berkeley’s College of Environmental Design. “It’s kind of a bridge too far for me, anyway – and I would think probably for most people.”

An analysis of research and city rental data from Berkeley and Santa Monica — cities poised to resurrect vacancy control if Proposition 10 passes — reveals just how high the stakes are for landlords, tenants and the housing supply in California.

Tenants: In Santa Monica, the median price of a rent-controlled, one-bedroom was $1,907 a month at the end of 2017, the most recent city data available. That same unit would have gone for $900 per month under the city’s now-banned vacancy control rules. Had Berkeley continued to enforce rent caps for new and old tenants alike, the median rent-controlled, one-bedroom apartment would have cost a new tenant just less than $1,050 last year, assuming rents rose with inflation. That’s half the price a new tenant paid last year to get into a rent-controlled apartment set at market rate.

Landlords: Landlords in Berkeley last year collected nearly $424 million from their rent-controlled properties. But that would have dropped 34 percent – to just $279 million – if vacancy control rules had been in effect and rents had merely risen with inflation, Barton estimated. In Santa Monica, landlords’ total income was $489 million by the end of 2017, significantly more than the $229 million they would have taken in had Costa-Hawkins not been in place, according to a city estimate based on median market-rate rents.

Housing supply: Berkeley lost about 3,300 total rental units between 1980 and 1990, when enforcing its strict rent-control rules — a decline of nearly 12 percent, according to a published paper by Barton analyzing census data. Santa Monica saw a decline of 1,312 total rent-controlled units from 1986 to 1998, about 4.5 percent of its rent-controlled housing stock, according to city records. All of those were taken off the market by property owners under the Ellis Act, which allows landlords to evict tenants if they plan to stop renting those apartments. Such evictions have continued, with 1,695 in the years since.

Renters’ advocates argue that vacancy control will ease the crushing cost burden that has led to a mass exodus of poor and working-class residents from pricey cities like Berkeley and Santa Monica and remove the financial incentive for landlords to push out long-term tenants in order to hit the “reset” button to current market rates for new tenants.

One tenant who says she has felt pressure to move out is Christine Schwartz, who earns barely over minimum wage as a caretaker for her adult sister, Francine. Schwarz first moved into her apartment as a UC Berkeley student in 1995 — and stayed. Her relatively low rent, which she declined to share publicly, has allowed her to remain in Berkeley and become active as an advocate for disability rights. Without it, she fears she could become homeless.

“If anything happened and I had nowhere to go, that’s where I’d be,” she said, pointing to the SUV parked on the street outside.

Just upstairs from Schwartz, a group of four college students who moved in this year pay $3,700 for their rent-controlled two-bedroom apartment – nearly four times what a typical long-term tenant in Berkeley would pay for a similar unit. “The rents here are ridiculous,” said Kaya Turan, a 20-year-old studying political science and film at UC Berkeley who said he was in favor of Proposition 10.

Because Schwartz pays so much less than tenants like Turan, she feels that she has been treated as a pariah by the management. The possibility of eviction weighs heavily on her.

“Special tenants, special rents, special treatment,” she said, wryly referring to long-term residents such as herself, as she sat on a curb across from the building.

The strict rent control laws that Berkeley and Santa Monica voters approved 40 years ago allowed landlords to raise the rent only minimally each year, generally with inflation. But since 1999, when vacancy control was fully phased out in both cities, 70 percent of the rent-controlled housing stock in Santa Monica and 89 percent in Berkeley has been re-rented at market rates, according to public records.

As with other cities that have rent control, new tenants will be buffered from large rent increases in the future if they remain in their rent-controlled apartments. But proponents of strict rent control note that the units have become unaffordable for newcomers.

“Whoever can afford it, whoever has the highest income, gets in,” said Sue Himmelrich, a Santa Monica city councilwoman who supports rent control. “Two-thirds of our housing stock under rent control is no longer really affordable because of Costa-Hawkins.”

But John Steuart, co-founder of Savvy Properties, a Berkeley-based company that develops and manages rental housing in the East Bay, said forbidding property owners from charging market-rate rent for their properties would deal a big blow — not just to businesses like his, but to any renter looking for a place to live. He warns that units could become as scarce as they were in the 1980s when he was a UC Berkeley student and rented a room at the YMCA while he hunted for apartments.

“It’s an unfortunate circumstance in history,” he said, “that we have people who don’t understand how economics work and are backing ideas that are diametrically opposed to their interests.”

Carl Lambert, a Santa Monica developer and landlord, said he fears he’ll have to stop renting his properties if Proposition 10 passes. He sees it as a compromise: Tenants receive minimal rent increases, and landlords have the chance to charge a market rate after the renters move out.

“You live with it, knowing when tenants do move out, you can raise the rent,” Lambert said.

Evie Lansberry, who pays $780 per month for a Santa Monica apartment where she has lived with her husband for nearly 30 years, says rent control has allowed the couple to “age in place,” even as prices have risen around them, including in their own rent-controlled building.

“I’m so grateful for rent control,” said Lansberry, 63. “I love this place that we’re in. I love the green, the beauty, the big trees and birds and butterflies...I can’t believe how lucky we are.”

In Santa Monica, where 70 percent of residents are renters, officials say they want to re-establish and update their old vacancy control rules if voters upend the current rent control restrictions. They also are considering measures to permanently preserve the low rents of some 7,000 units now occupied by tenants who have lived in the same place since 1998 or earlier.

In Berkeley, vacancy control is set to automatically take effect if Proposition 10 passes, as the city never took it off the books. The city has already placed a local initiative on the November ballot to update its old policy if Costa-Hawkins is repealed, a change that would include rolling new construction into rent control after 20 years.

It’s less certain whether tiny East Palo Alto will restore its former policies. The historically working-class, but quickly changing city is situated next to some of the wealthiest enclaves in the country.

Mayor Ruben Abrica, a former tenant organizer, said he would welcome a discussion about how much rents could rise when tenants move out. “In some ways, we feel that we had something that was taken away by the state,” he said. “It took something away that was working for us. It was working to stop the displacement.”

Some who experienced the protracted political and courtroom battles over rent control in the late 1970s and 80s said the atmosphere is strikingly similar today. “Rents were going up. Property values were going up. People were leaving,” said Denny Zane, a co-founder of Santa Monicans for Renters’ Rights, which spearheaded the city’s original rent control campaign in 1978.

“There was this wave of rent increases and condominium conversions, and wealthy people who could afford the rents were moving in while the people who were most vulnerable were being pushed out,” he said. “It was all very charged. That’s what’s happening today.”

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