Siding with landlords and lenders, Calif. voters reject expanded rent control

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California voters rejected Proposition 10, which would have reduced state restrictions on municipal rent control laws that proponents said would create more affordable housing options for tenants, but was opposed by real estate and mortgage industry interests.

Prop 10 failed by a vote of 61.7% to 38.3%, according to the California secretary of state. Opponents raised nearly $75 million to fight the measure, while supporters only raised about $26 million, according to Ballotpedia, a nonprofit, nonpartisan election tracking website.

The Mortgage Bankers Association opposed Prop 10, arguing that it would have actually harmed those it was intended to help, while also putting mortgage lenders at risk.

"We recognized early on that this could have a very far-reaching impact on the multifamily industry and the housing industry, so we're very pleased with the outcome of the election," said Sharon Walker, associate vice president of multifamily at the Mortgage Bankers Association, adding that methods other than rent control can be explored to support affordable housing.

While Prop 10 could've temporarily driven down rent for tenants in certain cities, it may have paved the way for a bigger problem, Walker said. California's housing shortage is driving up rent as demand outpaces supply, but Prop 10 would've given homebuilders and investors less incentive to support the affordable housing cause because of property devaluations triggered by lower rental income.

As a result, lenders would have faced difficulties evaluating the creditworthiness of developers and municipalities planning housing projects due to the uncertainty of a particular profit guarantee.

"The measure would have allowed each of the municipalities in the state to come up with their own rent control regime, which would make it difficult to manage some several hundred different regimes instead of having one consistent policy," Walker said. "It also would have impacted development of a deal because of uncertainty from trying to size the deal and having to make certain that future income stream from the rent would be able to cover the expenses of the property."

And while some argue that repealing the initiative avoided a housing crisis, others point out that a crisis in California is very much alive, and that voters were misguided in their failure to protect tenant affordability.

"It's disappointing that Proposition 10 was defeated last night, but I would say Prop 10 was defeated by Wall Street, and not by the people of California," said Paulina Gonzalez-Brito, director of the California Reinvestment Coalition, adding opponents were able to "outspend the truth" by out-fundraising tenants' rights groups by a 3-to-1 margin.

"I think that there were a lot of misconceptions. The strategy by those that were funding the defeat of Prop 10 was to confuse the voter, and their strategy worked very well," she said.

"We're in a housing crisis now. People can't afford to rent in places like Los Angeles and San Francisco and Oakland, and the crisis is spreading beyond those cities, so to say that Proposition 10 was avoiding a crisis is negating the fact that we're in a housing crisis now," Gonzalez-Brito added.

While the MBA didn't dip into its lobbying war chest to defeat Prop 10, the national group did coordinate with the California MBA to make its case with industry professionals in the state through member meetings, committee groups and a webinar, while also calling for donations to help fight the measure.

As a result of the vote, the state's Costa-Hawkins Rental Housing Act will remain in place. The law has three main provisions: it protects a landlord's right to raise the rent to market rate once a tenant moves; it prevents cities from establishing rent control on units built after the law was enacted; and it exempts single-family homes and condos from rent control restrictions.

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Affordable housing Multifamily Law and regulation CRE Housing inventory Housing market Mortgage Bankers Association California