On Tuesday, November 6, 2018, Californians took to the polls to determine the fate of Proposition 10, a statewide rent-control measure that would repeal the Costa–Hawkins Rental Housing Act (Costa-Hawkins) and allow individual municipalities to exercise more control over multifamily rental rates. The citizen-run measure was stopped in its tracks with a voting margin of 65.0% against it and 35.0% in favor. California will continue to impose limits on rent control for cities across the state, including Los Angeles.
With the high degree of uncertainty leading up to the vote now resolved, property owners and lenders can once again assume a “business as usual” approach to the real estate industry and participate in the market based on the rules and regulations that remain in place. New multifamily developments are likely to continue on track, assuming the original configuration of rental rates.
These new multifamily developments may loosen the tight vacancy percentage in the city (currently reported at 4.0% according to CBRE’s Los Angeles Multifamily MarketView Figures Q2 2018 report) over the long term, as new supply takes a while to be fully absorbed. Opponents of Costa-Hawkins argued that rent control would degrade profits for real estate investors and, given the sheer cost of construction, that companies may be less inclined to develop multifamily properties within the city or even cancel some developments in more extreme cases.
Housing affordability remains a national concern, and low-income renters will continue to struggle to keep up with rising rental rates. However, for now, proponents of the Costa-Hawkins repeal will likely explore alternative options to help alleviate this concern.
A copy of this commentary is available on the DBRS website.
Follow Stephanie Hughes on Twitter @StephHughes95.