For residents of East Palo Alto, a majority-minority community of 30,000 residents nestled near the technology behemoths of Silicon Valley, housing has been a key issue since the city was incorporated in 1983.
To protect low-income tenants, East Palo Alto passed a “vacancy control” law in 1983 that strictly limited the ability of landlords to raise rent after a tenant has moved.
The 1995 Costa-Hawkins Rental Housing Act outlawed the policy of vacancy control statewide and limited the ability of cities to pass certain rent-control measures. This year, for the third time in six years, rent control is on the ballot in November under Proposition 33. Prop 33 aims to repeal Costa-Hawkins, increasing the power of local governments to enact rent control and tenant protection measures. Residents of East Palo Alto would have to vote to approve a vacancy control measure if Prop 33 passed.
Central to the discussion about Prop 33 is the debate around the efficacy of rent control and whether the free market can solve California’s housing shortage. While proponents of Prop 33 say that rent control can provide immediate benefits to the most vulnerable populations, opponents say that it would make the housing problem worse for everyone in the long run because it would deter new construction. The solutions proposed by parties on each side of the debate depend on their diagnosis of the problem and at what time horizon.
Proposition 33 “is a Band-Aid on a broken system, and we’re very much focused on fixing the system as opposed to additional Band-Aids,” said Corey Smith, executive director of the San Francisco-based nonprofit Housing Action Coalition that opposes Prop 33.
Smith lives in rent-controlled housing in San Francisco himself. Still, he believes that the fundamental reason for the high cost of housing in California is constrained housing supply. If Prop 33 passed and Costa-Hawkins was repealed, Smith said, less housing would be built overall.
The politics of Prop 33 are muddled, and institutions that may appear to be strange bedfellows are allied on each side of the debate. The AIDS Healthcare Foundation is heavily funding the measure, and the Democratic Party of California has endorsed the proposition alongside various labor unions and housing advocacy groups.
To make matters confusing, however, various housing advocacy groups such as California YIMBY have opposed the proposition along with groups such as the California Apartment Association, a member organization representing apartment building owners.
Arguments such as Smith’s are based on a body of economic research that suggests rent control policies disincentive the development of new housing, driving up rents in the long term. Michael Owyang, an economist at the Federal Reserve Bank of St. Louis, researches business cycles and economic policy and has written about the trade-offs of rent control policies.
“You have a long-run supply effect and you have the more direct short-run price ceiling effect,” Owyang said in an interview. “Those two things are essentially competing and you have to decide how you trade them off.”
Economists have traditionally viewed rent control as misguided since it can lead to higher rents in the long term. In 2023, however, a cadre of 32 economists penned a letter to the Federal Housing Finance Agency advocating for stronger tenant protection laws and certain types of rent control policies, citing research that suggests that “well-crafted” policies do not limit the construction of new housing and benefits the most vulnerable tenants, including low-income people, older households, and renters of color.
Stephen Barton, a now-retired economist who served as the Berkeley Housing Director for eight years, says the downsides of rent control are exaggerated. Additionally, according to Barton, providing stable promotes physical and mental health as well as better child education outcomes.
Opponents of Prop 33 are not convinced that repealing Costa-Hawkins is the right solution. An important component of Costa-Hawkins is that it exempts certain categories of housing from any form of rent control. This includes all single-family homes and condominiums as well as “new construction,” or properties built after 1995. The “new construction” exemption was included in the law to encourage the development of new housing.
Opponents fear that if Prop 33 was passed and Costa-Hawkins was repealed, cities could pass laws that do not provide rent-control exceptions for new construction, disincentivizing developers to build new housing.
Developers are “not going to take the chance, right?” said Debra Carlton, executive vice president for state government affairs at the California Apartment Association, which opposes Prop 33. Carlton noted that builders are less likely to develop in a city with rent control on new housing because they “can’t be guaranteed [they’re] going to be able to even pay the mortgage, the insurance, or even just the cost of maintenance.”
According to Cartlon, the lengthy horizon associated with constructing new housing opens developers to new risks. These risks include a changing legal landscape that can impose obstacles to construction and concerns that developers could not recoup the high cost of construction.
One thing that both sides can agree on is that solving the housing shortage in California will take time: not just years, but decades.
Rent control proponents, though, say that tenants do not have years or decades to wait for new housing to be constructed. Barton estimated that hundreds of thousands of households in the Bay Area are severely rent burdened, meaning they pay over half their wages in rent. Though some households receive rental assistance vouchers, sometimes referred to as Section 8 vouchers, there is not enough federal funding for all households who are eligible. The alternative, said Barton, is homelessness.
“What do you do for the tenants in the meantime?” Barton asked. “It seems to me the least you can do for tenants is have a rent control system that holds rent increases to a reasonable level.”
For Ruben Abrica, a City Councilmember in East Palo Alto, the issue is about values as much as efficacy. Abrica endorsed Proposition 33.
“Housing should be a human right,” said Abrica. “Governments should work to make sure that the most vulnerable people aren’t subject to the market. The market is really cruel.”
