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What Does “Rent Control” Mean? What is Prop 10?

by | Nov 27, 2018


There’s been a lot of discussion about the different propositions ever since the election this past November. In California, Proposition 10, also known as the Affordable Housing Act, is one of the most popular as it deals with laws surrounding rent control and vacancy control.

What is rent control?

Rent control is when there is a limit to how much rent can be increased. That being said, tenants who are still living in the same complex for years are paying much cheaper rent than new tenants.

The Costa-Hawkins Act basically limits the use of rent control in California. It states that owners are unable to rent control buildings built after 1995, and units that have separate ownership (condos and townhouses). It also states that landlords are able to adjust the rental price to market prices once the tenant leaves.

What could have happened with Prop 10?

Since Prop 10 did not pass, it means the people of California voted against Costa-Hawkins. If Prop 10 passed, this never guaranteed that your city will have rent control. It would however opened up the discussion to have it in your area and possibly have it in the future. Economists argued that rent control could actually make the problem of high-rent and homelessness even worse than it is now. Their argument is that controlled rent will backfire. Will controlled rent, tenants will be staying in their units for as long as possible. Furthermore, because the landowner is unable to increase the rental price to reflect the market, they won’t be able to make as much profit.

They also argued that construction for new housing developments would have slowed down because investors won’t see a return on their investment. Housing in turn would be less available because of less turnover, and when there is a demand but low supply, the rental prices are predicted to increase. Rental properties were already bracing themselves for the outcome of this year’s election by increasing the rent citing “the election.” The loophole was to increase the rent substantially before it went into effect, had Prop 10 passed.

They also argued that construction for new housing developments would have slowed down because investors won’t see a return on their investment. Housing in turn would be less available because of less turnover, and when there is a demand but low supply, the rental prices are predicted to increase. Rental properties were already bracing themselves for the outcome of this year’s election by increasing the rent citing “the election.” The loophole was to increase the rent substantially before it went into effect, had Prop 10 passed.

What Could Have Happened to the Real Estate Market?

Homeowners who have multiple rental properties were expected to sell their properties since the profits they earn would be limited. This also meant that investors who buy rental properties would slow down, thus freeing up more supply to aspiring homeowners and slowly bringing down the prices of homes.

So What Happens Now?

The residents of California have spoken and it seems as though there are a lot of property owners who saw their property as an investment, and rightfully so. The only issue here is that many economists voiced their concern of high rent costs due to Prop 10 passing, but it doesn’t look like the final result of it not passing will lessen rent anytime soon, if ever. People are still flocking over to the West Coast, which still impacts the demand for housing. If there is property being built, the citizens of California won’t be seeing relief for a while.

It seems the best way to not fall victim to rising rent is to aim to stop renting and buy your own place. Of course, there are benefits to both. It’s best to assess your situation and see what works best for your lifestyle and situation and then decide what you want to pursue.

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