Proposition 10 is one of the most highly contested ballot measures this fall. Where you live may determine how it affects you. The impact of Prop 10 may be different in Calabasas than it is in Woodland Hills or other towns that fall under L.A. city ruling. Real estate owners should be especially aware of the proposition, however it will impact renters greatly as well. There are two very different interpretations of how this Proportion will impact housing. Generally one side consists of real estate professionals and landlords and the other side consists of concerned tenants & those who are fed up with the high cost of housing. Seems pretty simple right? Evil landlords v.s. honest working folks. (obviously I’m kidding) That is how it is painted in some media outlets and I thought I would share my opinion and real estate knowledge without automatically jumping to the Real Estate Professional & Landlord Side of the argument. It is also important to reiterate that the impact will be different depending on where you live. Woodland Hills v.s. Calabasas for example.
First, I will give a brief description of Prop 10. In general the bill focuses on removing limitations within the current rent control laws. Rent control is the practice of limiting the amount rent can be increased which protects tenants from being priced out of their home. There are already many rent control laws in effect. Real estate in Woodland Hills, as an example, falls under city of Los Angeles rent control laws. This means that rents can not be raised more than 3% (in most cases) per year protecting tenants from unreasonable rent increases. The limitations on rent control in Woodland Hills create “non-rent control” units which are more desirable to landlords. Units that are not under rent control include newer buildings (which encourages construction), units which are VACATED and re-rented and single family homes. Single family home limitations are intended allow single homeowners to do as they please with their own property. Each area has their own current set of rent control laws. Calabasas is different than Woodland Hills or Los Angeles.
Even though I am a realtor in Calabasas and Woodland Hills, I have no interest in un-affordable housing. Contrary to popular belief high prices do not necessarily mean wealthier real estate agents. If transactions are constricted so is my business. Prices are secondary. A healthy market with lots of buyers and sellers is really in my best interest. The same can be said for landlords in many ways. Apartment buildings that are full is their primary concern. More so than just higher rent. I say this because it is a common argument that real estate professionals want to keep prices high which hurts individuals who can not afford it. I do not find this to be the case. I am actually (as are most realtors) extremely concerned with the high cost of housing. I would love it if everyone could afford a house or apartment.
Prop 10 has the best intention. There is a housing crisis in California. Homelessness is at a high. Rents are at a high and first time buyers are getting priced out of the market. In the proposed theory increased rent control would make homes more affordable to more people. This would be at the cost of landlord profit, which few individuals have concern for. It seems like a no brainer. People are missing a potentially devastating economic impact however. Prop 10 could kill the apartment business, housing market and potentially create an economic landslide.
As apartments and homes get older their costs increase. Roofs, plumbing, ac all wear out and need replacing. The advantage to owning real estate as rental property is that you can increase the rent over time to offset costs. Also returns grow over time as you would expect with any investment. You do not buy stock to have the same amount of money 10 years from now. With that said there will be a potential mass exodus of landlords if strong rent control is applied. Buildings would go up for sale at a massive rate, potentially crashing the market. Anything that could be converted from rental property would be, and it would actually greatly constrict the supply of units available for rent. (not what they want) In addition it would kill the incentive to build new rental units, constricting the supply of rental units further. Lastly if applied to single family homes there would be a flood of homes for sale, which would quickly depress real estate prices. GOOD YOU SAY! No, not good. While affordability is a major issue, a housing market crash is not the solution. If you recall last great economic crash was caused by a crashing housing market. The general public underestimates how much the housing affects the economy. How many people are in the business of real estate, investing, lending, construction? How many people use equity to purchase investments, remodel or pay debt? An increase in rent control makes owning residential real estate as an investment unattractive. This will greatly decrease the amount of rental units available. The measure does not mean the same thing in every town. Local cities can increase the rental restrictions under their own guidelines so the impact will not be immediate and uniform. Hence the impact in Calabasas could be very different than Woodland Hills.
So you think I just took the side of the real estate professionals and landlords. Well I suppose I did but because I come from an educated position as to how real estate affects the economy and individuals. There is an absolute need to reform the out of control costs of living in Los Angeles. The solution is not restricting rent however. More housing is the solution. Increasing supply helps builders, encourages investors and protects tenants and homeowners from high prices through natural supply & demand economics. There are many ways to impose this. The most simple solution is provide more incentives or opportunities for builders. My favorite solution is to increase density. Allow taller buildings, more units per lot etc. I know, I know “Not in your back yard”. We can discuss NIMBYS density and zoning another day. For now I would like to stay focused on Prop 10. Hopefully it does not pass. For everyone’s sake.
If you would like to discuss this post further you can reach Aaron Scott at: here