Proposition 98 in the June 3 ballot is good for tenants. It phases out rent controls on a unit only when that unit becomes voluntarily vacant. Via Prop. 98, the local rent law is folded into the state constitution and the current tenant is protected from any changes in the law. Changes do happen: the Costa-Hawkins Rental Housing Act, undermined rent control in Berkeley, San Francisco, Oakland, and other California cities. Many people say that if 98 passes then there will be mass evictions. This same claim was made prior to the passage of vacancy decontrol (Costa-Hawkins) in the mid ’90s, but the evictions never materialized. It is nearly impossible to evict a tenant and Prop. 98 does not change that fact.
Furthermore, a unit becomes more valuable to the landlord after passage of Prop. 98, and therefore a tenant who eventually plans to vacate has a chance of negotiating a larger relocation fee than at present or in a future without Prop. 98.
Proposition 98 is good for cities. The phasing out of rent control gives cities the opportunity to address subsidizing the housing of the truly needy and let the market apply to everyone else.
Rent control is defined by economists as the classic example of why price controls do not work and lead to shortages. For example, in Berkeley in 1980, just before the passage of rent control there were nearly 28,000 rental units according to the U.S. Census. Today the Berkeley rent board controls only 19,000. The most poignant loss is represented in the single-family home category: in 1980 there were 4,900 rented in Berkeley and by 1999 only 290 remained; a 94 percent loss.
Prop. 98 is good for homeowners. Rent controlled buildings are worth less and therefore pay less in property taxes because they sell for less than rent control exempt buildings. Cities have to resort to increasing the taxes of homeowners to make up for the shortfall. The city of Berkeley is a classic example of this problem and it is currently polling its voters to determine how much of a tax increase they are willing to bear. Many homeowners are approaching retirement age and Prop. 98 creates the incentive to rent their homes rather than sell to an owner occupant. Owners of single-family homes tend not to rent if the cloud of rent control hovers over the property (see Berkeley statistic above).
Some people maintain that rent-controlled units rent for less than uncontrolled units and use this fact to justify rent control. But it is like comparing apples and oranges. Only newly built units are exempt from rent control and these are usually more attractive, thus rent for more.
Prop. 98 protects homeowners and small businesses from eminent domain seizures in which municipalities turn over the seized property to a private developer who usually has in mind controversial projects such as big-box stores or large condo developments with hundreds of units. These are not welcome by most communities since they increase traffic and density. In many cases these seized homes have been razed and then the developers have backed down and left a wasteland where a neighborhood once stood. This happened in Seattle.
The biggest threat is to agricultural areas adjacent to growing metropolitan areas. We cannot afford to lose any more farmland to development in our state. Many California cities are on the brink of bankruptcy due to unfunded liabilities in the form of contracts to municipal employees (recall Vallejo). Developers team up with local politicians to target private properties via eminent domain seizure, including farms, to be developed with the promise of higher tax revenue to fund these municipal salaries and retirements; these are often more generous that anything in the private sector. This is the real engine behind Prop. 99 and opposition to 98.
Prop. 99 is deceptive and was designed to confuse voters. It exempts only single-family homes, leaving the door open for municipalities to seize small mom and pop businesses to turn over to wealthy developers. However, even this single-family home exemption is weak since Prop. 99 seems to allow for the rezoning of homes from residential to industrial or commercial and thus making them vulnerable to seizure. Prop. 99 also contains an unfair provision invalidating Prop. 98 if both pass.
The authors and backers of Prop. 99 are very influential and powerful and have got away with building a legal firewall to prevent voters from finding out who is really behind it.
Vote yes on 98 and no on 99.
Robert Cabrera is a former president of the Berkeley Property Owners Association.