The Governor’s Carrot and Stick Approach to Housing

By Progressive Property Management - Wednesday, January 30, 2019
During the election, Gavin Newsom was rather quiet on his stance for tenant protection and rent stabilization (rent control) measures. However, he did promise to add 3.5 millions homes by 2025, which equates to more homes than have ever been built in any 5 year period. Only in 1963 did California build anything close to that (322,018), short of the 500,000 goal. To build 500,000 affordable units would require high density housing which takes years to secure land, financing, obtain permits and then build. What about rising housing costs for the other 6 million renter households until those 3.5 million housing units are built?

"Carrot and Stick" Approach

The Governor seems to be using a carrot and stick approach to appease everyone in the room: the builders who want to be able to build more units and ease the affordability issue by having more supply, as well as tenant rights groups who want more relief given the current short supply. On January 15, Governor Newsom signed an executive order and then included large sums of money in his proposed budget to spur the construction of housing units. The housing “carrots” includes:
  • Free up state land for housing
  • Force cities to allow “accessory dwelling units”, adu’s or granny flats.
  • Provide up to 1.75 billion in new housing production dollars broken down as follows:
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  • 500 million...
  1. to house the homeless
  2. for low income housing incentives
  3. for moderate income housing incentives
  4. 25 million for federal disability programs
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  • Penalize local communities for refusing to hit their state mandated housing goals with the following “sticks”
  • Allow developments around transit oriented developments in the state to bypass local approval and receive state approval
  • Penalize cities that willfully ignore their state mandated housing goals by withholding transportation tax dollars
  • Sue cities who don’t comply with their state mandated housing goals.
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The "Casa Compact"

Now the Governor is working with the legislature to increase protection and provide relief to renters. As an indicator of these possible protections, he has embraced the “Casa Compact”, a 15-year housing policy package developed by the Bay Area and forward to the legislature for approval. Some nuggets from this proposal:
  • Just Cause Eviction – Only when tenants have "fault" can they be removed from a property.
    • Failure to pay rent
    • Breach of a material term of the contract
    • Illegal conduct
  • Rent Cap – An owner would not be able to raise rents to any amount.
    • Rent cap in effect for the emergency period of 15 years
    • There can be no increase in rent more than Consumer Price Index (CPI) plus 5%
    • Capital improvements can be passed on an amortized basis
  • Legal Assistance – Low income tenants would have access to free legal counsel and emergency rent assistance.
    • Tenants can have “legal representation” for the full scope of eviction.
    • Paid for by parcel, vacant home and ¼ cent sales tax.
 The political path of the legislature seems clear: try to appease all constituents and allow the state to be more heavy handed with local governments when it comes to both tenant rights and their housing elements.  Will tenants be satisfied with potential 5% to 10% annual rent increases? Will the offer of just cause eviction offset the desire for minimal rent increases (2% to 3% annually in most rent controlled cities)? I doubt it. In the end, local cities will fight back, a recession will put a hitch in the housing goals, and tenants will clamor for more protections and lower rent increases.  By trying to please everyone, perhaps no one will be.

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