Costa-Hawkins act puts housing for vulnerable Berkeley residents at risk

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Ameena Golding/Staff

In order to rein in the runaway price gouging being inflicted on renters in Berkeley and the rest of California, the law that is the root cause of the housing affordability crisis needs to be repealed — I’m talking about the Costa-Hawkins Rental Housing Act, or Costa-Hawkins.

This law, enacted in 1995, handcuffed California cities from establishing rent control protections on single-family homes, condominiums and on any new multi-unit buildings built after 1995. For cities that already had rent control ordinances, including Berkeley, Costa-Hawkins froze the law to only cover buildings built before enactment of the law — Berkeley voters approved it in 1980. This means that buildings that are now as much as 38 years old are still considered new construction. Costa-Hawkins also eliminated Berkeley’s vacancy control portion of the law, and gave landlords the power to raise the rent on a newly vacant unit based on the “prevailing market rent.”

Costa-Hawkins has proved to be a one-sided law that only benefits one set of stakeholders: developers, investors and property owners. In its wake, renters have had to bear the cost of exorbitant rents. According to the Berkeley Rent Stabilization Board’s March 2018 report, “Market Medians: January 1999 through December 2017,” market rents in Berkeley rent-controlled units have increased by 50 to 67 percent from 2012 to 2017. This is shown in the accompanying table.

These rent-controlled rates might seem “affordable” when compared to the rents being charged in “new buildings,” which in some cases charge more than $3,000 per month for studio apartments and more than $6,000 per month for two-bedroom apartments. Granted, these bloated prices reflect new construction and amenities such as gyms and air conditioning. The prices also reflect the sky-is-the-limit attitude that Costa-Hawkins protects and promotes to developers, investors and property owners. This might explain why rents in studio apartments increased by almost 10 percent in a 12-month period from 2016 to 2017.

Students at UC Berkeley are the worst affected by Costa-Hawkins because they are the ones who are constantly moving into newly vacated units. Stories abound of students crowding into apartments, sleeping in living and dining rooms so they can afford the outrageous rents. And with these rent prices, it is no wonder that, according to outgoing ASUC Housing Commission chair Taylor Harvey, “Around 11 percent of (UC Berkeley) students will experience, have experienced or are currently homeless.”

Costa-Hawkins keeps the rental housing industry deregulated but this is an industry in dire need of regulation, especially during this period of housing scarcity. Although economists may defend the high rents as just a reflection of the basic economic principles of supply and demand, this perspective does not account for the negative economic impact that exorbitant rents have on families forced to pay higher percentages of their hard-earned wages for housing in order to have roofs over their heads, or for the communities displaced because of the inability to pay those higher rents.

Developers, investors and property owners claim that if Costa-Hawkins is repealed, it will disincentivize the construction of new housing. However, Costa-Hawkins has been the law in California for the past 23 years, and under it, the statewide housing shortage has only been exacerbated. The irony is that Berkeley, with its nearly four decades of rent control, has had lots of construction of new apartment buildings and even more are on the way. In a New York Times interview last June, Berkeley Mayor Jesse Arreguín stated that Berkeley has “4,000 apartments in the pipeline.” Under rent control, new construction is always exempt from the law for a period of time. Moreover, it will take years before these units actually become available and make a dent in the supply-and-demand issue affecting Berkeley right now.

Developers, investors and property owners also claim that the repeal of Costa-Hawkins will limit their profits and prevent them from making maximum returns on their investments. The fact is, rent control ordinances always allow for fair market returns on investments or they would be against the law. The United States Supreme Court, in Fisher v. City of Berkeley (1986), found that Berkeley’s rent control law, as administered by the Berkeley Rent Stabilization Board, does indeed provide landlords a fair return on their investments. That means that landlords can and do raise rents yearly on their tenants; it’s just not to price gouging levels.

If Costa-Hawkins is repealed, it will remove the handcuffs binding Berkeley from protecting more tenants from having their rents increased by price gouging rates the next time their leases are up. Rent control in Berkeley, including the Rent Stabilization and Eviction for Good Cause Ordinance, holds down the cost of living, prevents displacement and preserves diversity, while allowing developers, investors and property owners to earn fair returns on their investments. That is why numerous cities in California support new rent control measures, so that they are ready to provide the same benefits to their citizens when Costa-Hawkins is repealed — because the rent is too damn high!

Paola Laverde is a member of the Berkeley Rent Stabilization Board.

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  • Ned Ryerson

    Paula,

    Your opinion is misguided. It ignores the fundamentals of economics. Repealing Costa-Hawkins will reduce supply, increase demand, thereby making housing price go up.

    Consider the following: Single Family House owner A lives in Berkeley. She gets a temporary assignment to work out of state for two years. She rents out her house for two years, until she moves back.

    After repealing Costa-Hawkins, she cannot move back to her own house, because she cannot get the tenant out of it. Her single family home now has to be permanently rented out, at price dictated by the city, unless she goes through costly legal processes – which, you, as a member of the Berkeley Rent Stabilization Board, will try to make as hard as possible.

    As such, would owner A rent out her house? I think not. The house sits empty for two years. Owners and tenants both lose.

    While I do not doubt your good intention, you’ve got to understand – economic policies may have unintended consequences. Your advocacy of repealing Costa-Hawkins will hurt everyone except bureaucrats and politicians.

    • Tony Toppano

      But people will vote for it anyway. Statewide rent control with income restrictions on who gets it is a possible solution. Subsidizing tenants that could otherwise afford to buy homes at the expense of a landlord is stealing. These tenant groups want to do to landlords the same thing they are accusing landlords of. More hypocrisy.

      • Foto Fan

        Stealing? Raising the rent more than 10% is considered price gouging. Didn’t you read the article, the Commissioner said that in the past five years rents have gone up 50-to-67 percent. Who is stealing from whom?

        • Ned Ryerson

          Raising the rent more than 10% is considered price gouging?

          How about raising the BART fare by 10%? How about raising the price of milk by 10%? Gas price prices have gone up 300% in the past 20 years. Is everybody a price gouging thief?

          Part of the reasons that rents have gone up is rent control. A team of economists at Stanford University recently studied a 1994 ballot initiative in San Francisco that brought in rent protections for small multi-family housing built before 1980. The policy inspired landlords affected by it to convert their units into condos or redevelop their buildings, reducing their supply of rental housing by 15% and pushing up rents by 5% across the city.

          Again, good intentions sometimes lead to bad consequences. The thoughtless effort to repeal Costa Hawkins will only make things worse.

    • StanFromSomewhere

      Goo-goo liberals are far more concerned with stated intentions and virtue signaling than actual results.

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