California Voters Reject Rent Control for a Third Time

Voters in California have rejected a ballot measure that would have expanded rent control laws there, the third time such a proposal has failed in the famously progressive state.

The measure known as Proposition 33 appeared headed for a sound defeat following Tuesday’s vote, with more than 60% of voters opposing the proposal at the latest count.

The proposition would have rolled back state restrictions on local rent-control ordinances, which currently ban California cities from imposing rent control on single-family homes, properties built after 1995, or new tenants moving into a property.

The ballot measure was the third such attempt to loosen California’s ban on rent control sponsored by the AIDS Healthcare Foundation, which backed similar failed ballot measures in 2018 and 2020. It might represent the foundation’s last attempt on the issue, as a related ballot measure that would effectively bar the group from political spending appeared headed for passage by a narrow majority.

The debate over Proposition 33, which divided California’s Democrats, came as rent control emerged as a talking point in the presidential election. Before withdrawing from the race, President Joe Biden proposed a first-of-its-kind national rent-control law for large landlords.

After taking over as the Democratic standard bearer, Vice President Kamala Harris did not explicitly endorse Biden’s national rent-control plan. But on the campaign trail, she used tough language about stopping “corporate landlords” who “unfairly rip off renters.”

Supporters of rent control might hope the concept finds broader support at a time when renters are undeniably suffering under affordability strains. Nationally, half of renters in the U.S. spend more than 30% of their income on rent, according to U.S. Census Bureau data.

The share is even higher in notoriously expensive California, where 56% of households are rent-burdened, and nearly a third are severely rent-burdened, meaning they spend more than half of their income on rent.

Proposition 33 drew support from tenants’ groups, some workers unions, and the California Democratic Party. Opponents included landlords, business groups, the state’s Republican Party, and some Democratic elected officials. Notably, Gov. Gavin Newsom, a Democrat with national political aspirations, broke ranks with his state party organization to oppose the proposition.

Supporters of rent control argued the measure would bring much-needed relief to tenants, with the group Yes On 33 saying it would “put an end to predatory corporate landlords charging unfair and unaffordable rents.”

Opponents argued that the measure did nothing to increase funding for affordable housing. They also warned that so-called NIMBY cities, which have a history of resisting construction of denser or more affordable housing options, could use rent-control laws to set caps so low that they effectively ban new construction.

“On paper, it would be legal to build new homes. But it would be illegal, largely speaking, to make money doing so,” Louis Mirante, vice president of public policy at the Bay Area Council, told Politico.

Real estate economists are typically skeptical of rent control, based on historical evidence that it tends to distort rental markets, discourage construction, and raise rents for renters not covered by the protections.

“Rent-control measures have been shown time and time again to be harmful to builders and rental property operators, who are disincentivized from building and maintaining rental properties, and also to renters, who end up with fewer and lower-quality rental options on the market,” says Realtor.com® senior economist Joel Berner.

“The solution to the housing crisis in California and across the country is to incentivize construction of new housing units. Building affordable units is great, but even building new high-end units is a boon to renters because it makes existing units more affordable and increases the option set for renters across the board. Politically, leaders in California would see more progress by collaborating with builders than by continuing to push failed populist policies,” he adds.

However, Jon Katz, a volunteer director with Yes On 33, tells Realtor.com that he believes opponents of the measure were mistaken on key points, and that California’s existing laws would have barred the use of rent control as a de facto ban on housing construction.

“What people got wrong in the argument against [Proposition 33] is that the California constitution guarantees developers and landlords a fair rate of return on their investment. Therefore, even if a NIMBY city does try to create immediate rent control that discourages production, that would be ruled unconstitutional by the state Supreme Court,” Katz wrote in an email.

“Likely, a new standard would be set as far as what counts as a fair rate of return, and rent control would be limited by that new metric. Let’s say it’s fifteen or twenty years after a building goes to market, it would become eligible for rent control. That would give lots of incentive for developers to keep building the much needed housing for all income levels, but would also benefit tenants by creating a mechanism by which more rent controlled units would continue to add into the housing market rather than only depleting over time,” he continued.

Currently, California is one of only seven states, plus Washington, DC, that has some form of rent-control laws in place at the state or local levels. California’s Tenant Protection Act of 2019 caps annual rent increases at 5% plus regional inflation through 2029, but it does not apply to homes built in the past 15 years, or to single-family homes unless they are owned by corporations.