“Progressives” and Prop. 10

At first glance, it might seem easy for any Alamedan who identifies herself as a “progressive” to decide to back Proposition 10, which would repeal the Costa-Hawkins Act and permit cities to enact rent-control ordinances covering all rental properties within their jurisdiction.

After all, the California Democratic Party, with 95 percent of its executive board voting in favor, recently endorsed the proposition.  The ACLU, numerous public-employee unions, and multiple chapters of the Democratic Socialists of America all support it.  And, although he didn’t write the initiative, our own State Assemblyman Rob Bonta previously co-authored a bill – which didn’t make it out of committee – to accomplish the same result.

At the same time, the opponents of Proposition 10 consist of the usual aggregation of villains:  the California Republican Party, the state Chamber of Commerce, the California Association of Realtors, the California Apartment Association, the state N.A.A.C.P., and Lieutenant Governor Gavin Newsom.

So, plainly, every enlightened Alamedan ought to vote . . . hey, wait a minute:  Did we just say that the state’s leading civil-rights organization and the Democratic candidate for Governor oppose Proposition 10?

Yes, we did, and, yes, they do.

What is especially intriguing is that the reasons offered by the N.A.A.C.P. and Mr. Newsom for opposing the repeal initiative are strikingly similar to those advanced by the hated landlords, who emphasize the potential negative effect of rent control on the supply of housing.

“It will make affordable rental housing even more scarce than it is today, widening the gap between our state’s haves and have-nots,” California N.A.A.C.P. President Alice Huffman was quoted as saying after the organization announced its opposition to Proposition 10.  “We need to increase the availability of affordable housing targeted to those most in need – but this initiative is the wrong approach that will only make the problem worse.”

Mr. Newsom originally was more circumspect, telling the 2018 California Housing Conference in March that, “Getting rid of these protections [provided by Costa-Hawkins] overall may have unintended consequences in terms of housing production that could be profoundly problematic.”  More recently, both the Los Angeles Times and KQED reported that the Democratic gubernatorial candidate “opposes” or “is opposed to” the repeal initiative.

We doubt that someone slipped a copy of the landlords’ talking points in front of Ms. Huffman or Mr. Newsom when they made their statements.  But they weren’t just winging it.  In fact, a recent study by two Stanford professors (and a doctoral candidate) backs up the stated concerns.

The study examined the effects on tenants and landlords of the rent control initiative passed by San Francisco voters in 1994.  It concluded that landlords “actively respond to the imposition of rent control by converting their properties to condos and TICs or by redeveloping the building in such as a way as to exempt it from the regulations.”  The result was a 15 percent reduction in the supply of available rental housing.  Moreover, average rents were seven percent higher than they otherwise would have been.  The study found that all renters collectively had suffered $5 billion in losses “due to rent control’s effect on decreasing the rental housing [supply] and raising market rents.”

One of the study’s authors, assistant professor of economics Rebecca Diamond, put this conclusion more bluntly in an interview with CityLab.  Rent control had a “counterproductive” effect, she said.  “It just dramatically limited the supply of rental housing.  On top of that, it pushed landlords to supply owner-occupied housing and new housing – both of which are really the types of housing consumed by rich people.”  She added, “So we’re creating a policy that tells landlords, ‘It’s much more profitable to cater to high-income housing taste than low-income housing tastes.’”

We don’t claim to be the first to notice this split among “progressives” over Proposition 10 specifically and rent control generally.  Indeed, KQED titled its analysis, “Rent Control:  Will It Divide Democrats?”  But our focus, as always, is on Alameda.

The City of Alameda Democratic Club has not taken a position on Proposition 10.  But its long-time treasurer, former School Board member Mike McMahon, told us that, “If the City of Alameda Democratic Club places any ads for Statewide ballot measures, it would list the California Democratic Party position in the ad.”  And, of course, the state party’s executive board voted overwhelmingly last month to endorse the repeal initiative.

Moreover, the co-president of the local Club, Gabrielle Dolphin, already has made her own views well-known.

Ms. Dolphin attended the committee hearing on the bill co-authored by Assemblyman Bonta and then published an “open letter” alleging that the “vast majority of those bussed to the hearing at the Capitol by the California Apartment Association and Realtors lobby were those representing a wave of investors from China yelling ‘No, no, no!’”  It was Alamedans’ “civic and human duty,” she wrote, to “protect those lined up as fodder for the out-of-control real estate and property management interests, much of which (it is clear from Sacramento) comes from overseas by those with no commitment to what we in America (Alameda) claim to be our strength and beacon of hope:  we are champions of human (not market) rights . . . or are we?”

Presumably, Ms. Dolphin will make a similar argument when the Club decides whether to endorse or oppose Proposition 10 or other measures on the November ballot.

What about our local housing advocates?

Rather than assume that they all support the repeal initiative, we sent emails to representatives of Renewed Hope, the Alameda Home Team, and the Alameda Renters’ Coalition.

Laura Thomas of Renewed Hope responded that the organization had not yet taken a position on Proposition 10 but she intended to put the item on the group’s agenda.  We didn’t hear back from Patricia Young of the Alameda Home Team or Eric Strimling of ARC, but we found an article by Mr. Strimling on the ARC website reporting, with approbation, the endorsement of the proposition by Tenants Together, the statewide renters’ advocacy group.

Now for the hortatory part of this piece.

To our readers who care about the rental situation in Alameda, we offer two suggestions – and make one request.

First, don’t get your all of your information about Proposition 10 from Facebook or Twitter (or any predictably partisan source).  Instead, read the introduction and conclusion – that way, you’ll be able to skip the math – in the study done by the Stanford professors, and the rebuttal written by the executive director and the communications and development coordinator of Tenants Together, who assert that the Stanford study is “at best ill-informed and at worst flat-out biased.”  (If that’s too much homework, check out the article by CityLab summarizing the study and the release by Tenants Together outlining the rebuttal.)  Then, based on the evidence and arguments you deem most compelling, make up your own mind.

(For our part, being suckers for research by economists even if we can’t parse the formulas, we found the Stanford study persuasive.  It seems to us entirely rational for landlords, faced with the limits on return on investment created by rent control, to take existing rental properties off the market, and for developers, faced with the lower market value of apartment projects subject to rent control, to focus on building high-end complexes.  The data appears to confirm that this kind of rational behavior in fact occurred, with the resulting negative impact on housing supply and affordability.  Moreover, we think the study’s ultimate prescription is a sensible one:  “If society desires to provide social insurance against rent increases, it would be more desirable to offer this subsidy in the form of a government subsidy or tax credit.  This would remove landlords’ incentives to decrease the housing supply and could provide household[s] with the insurance they desire.”)

Second, if you go to any of the candidate forums this fall, ask the mayoral and council contenders to state, specifically, their position on Proposition 10 and rent control.  Don’t let them get away with claiming that voting in favor of the proposition isn’t the same as voting to impose rent control because a city still must enact its own rent-control ordinance if the ballot measure passes.  Unless you believe that rent control is a good idea, there’s no point in repealing Costa-Hawkins in order to enable a city to apply the restrictions more widely.

Moreover, if the candidate seems to be simply spouting slogans crafted to cater to one interest group or another, call her (or him) out.  Ask anyone supporting Proposition 10 why the Stanford study is wrong in its conclusion about the detrimental effect of rent control on housing supply and affordability.  Or ask anyone opposing the repeal initiative what alternative legislative actions Council should take to make rents more affordable by lower-income households.

Finally, let’s knock off the name-calling.

According to an article in the East Bay Express, an audience member at a public meeting last month denounced Vice Mayor Malia Vella as a “union whore.”  This was bad enough, but it set off a spate of opinion pieces suggesting that Ms. Vella’s critics were motivated by racism (as distinguished from distrust of her ties to organized labor) because she is, according to Alameda Magazine, a “mixed-race Filipina.”  Yet the polemicists leveling this charge are prominent among those who delight in demeaning former Councilman Tony Daysog, who is also of Filipino heritage.  Imagine their outrage if they were accused of ethnic bias based on their treatment of Mr. Daysog!

Perhaps the divergence of opinion over rent control among groups and individuals with impeccable “progressive” credentials can teach us all a lesson.  Does anyone truly believe that the N.A.A.C.P. and Gavin Newsom are evil because they oppose repealing Costa-Hawkins?  If not, there’s no reason to demonize anyone else who takes the same stance as they do on this issue.  And – news flash – it’s not only “progressives” who can offer a non-conforming opinion in good faith – and who deserve a hearing rather than a harangue in response.

Sources:

For a good summary of Prop. 10 and its background, check out the article in Ballotpedia.

Stanford rent-control study: Stanford study re rent control

Tenants Together rebuttal: Tenants Together response to Stanford study

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
This entry was posted in Development, Housing and tagged , , , , , , , , , , , , , . Bookmark the permalink.

15 Responses to “Progressives” and Prop. 10

  1. Mark Palmer says:

    Robert, Great article with lots of FACTS not FEELINGS. As I understand Prop 10 it also has ADDED vacancy control as well. This would greatly limit rents charged after a tenant vacates of their own volition or payed to leave. It is interesting that most all of the rent controls in effect throughout the state have vacancy decontrol-meaning market rents can be charged on any types of rental property be it single family or multifamily residences.

    It’s interesting, being a housing provider (not a landlord-lording over people) that the main finger pointing of the cause of sky rocket recents rents is the GREEDY LANDLORDS. Being in the business in Alameda since 1974 i have seen an average of 3 to 3.5% increases in residential rents over that period, very similar to our Bay Area CPI. Is that greed or just mom’s and pop’s making a living. Don’t we deserve some small income for the “hands on” business we are in. I can give you a laundry list of damage almost 100 % of our former residents leave us.

    Which comes to my real point. What is the cause of these recent, since the Great Recession of 2008-2012? If it’s not the housing providers then who is to blame? Well yes its the tenants. But which tenants? Ask economists who understand rental markets. Our Bay Area, I believe, has the 5 greatest economy in the WORLD. Why? It’s the TECH INDUSTRY workers looking for places to live who make huge salaries. They are settling the bar higher and higher and squeezing out the middle class. I read recently that since 1970 the middle class, in the whole country, has stagnating income and the cost of living has increased 30%.

    Hold on it gets better. I’m also a 40 year Alameda real estate broker who has seen Alameda residential properties go through the roof. Now it’s common knowledge that it takes $1+ million to buy a simple bungalow in town. I knew this fact 3 years ago when your lovely wife, Jane came through my open house at 1518 Gibbons Drive, Alameda buyers can’t afford Alameda homes. I had 12 offers with the Alameda buyers being at the bottom of the heap and not even considered. The top bids were from out of town. So again what’s my point. The problem is created by our super booming West Bay Area economy.

    Are we doomed? Remember Newton with a twist. What goes up must go down. The law of gravity. At a near time we will probably have another recession (a cooling off). I predicted the last recession to start in 2008. I’m not smart but I looked at several factors. The main one is the CITY AFFORDABILITY INDEX. it is published by the California Association of Realtors quarterly. I used SF as the leader and affordability went down to 9%, that is the point where only X% can pay 20% downpayment and have PITI (principle, interest, taxes and insurance and buy the median priced home in that city. Right now it’s at 12-14% so we aren’t to the point yet. Thank Ed Lee for attracting high tech to the city of SF. Anyway, as you know, the economy will cool off someday.

    To summarize my ramblings, Prop 10 is poison and strict rent control like SF and Berkeley will only benefit a few select “lifer tenants” and not the masses of tenants who move around a lot. My wife, Judy Wong, and I will leave the residential rental business when there is no INCOME in income producing property. I was told by John Cashman, who was past president of Berkeley Association of Realtors, that 30,000 rental units were taken off the market since there rent control went on the books. Also, the few rentals that are advertised are such high rents average folks have to move out of the Bay Area How does that help renters?

    I will see your lovely wife, Jane, on August 30 for the joint Senior Men’s and Women’s golf tourney.

    Be Blessed,

    Mark Palmer-broker Directions Real Estate 2911 Sea View Pkwy Alameda, CA 94502 markpalmer@realtor.com Ph 510.599.6000

    >

  2. Mike McMahon says:

    For those of you who do not want to read the Stanford study and Tenant Together, KQED did a decent job on the topic of rent control.

    https://www.kqed.org/news/11677380/is-rent-control-working-and-should-we-have-more-or-less-of-it

  3. Tony Daysog says:

    Without yet reading the Stanford study, it appears aligned with findings from a rent control study I helped-out on while in grad school. Here’s a link to the outfit who I worked for in helping out in that study: http://www.stjohnandassociates.net/articles/rentControlInPerspectivereport.html

  4. AN says:

    Rent control does reduce supply of properties, and therefore raise prices. You’ll note, however, that the authors suggest that low-income people be helped via subsidies, paid for by taxes. How likely is that to happen? Rent control is a vastly inferior solution, but is politically more feasible.

    You present only a partial picture of the issues at play. Research by actual economists (your previously posted piece doesn’t quite meet that standard) strongly supports the (similarly) intuitive proposition that land-use restrictions raise housing costs. The estimates of extent, of course, vary, but are substantial. A good starting point for some pretty readable empirical work is that of Ed Glaeser at Harvard.

    Restrictions on land use (such as those imposed by Californian cities) raise prices. Calls for rent control increase when housing is unaffordable. Is it surprising that we’re seeing so much support for rent control now?

    There are good reasons for restricting land use (visit Houston). But the cost is expensive housing.

  5. The California State NAACP has not been “the state’s leading civil-rights organization” since the late 1960s. Around that time the NAACP was a leader against Proposition 14, the initiative sponsored by the California Real Estate Association to repeal the Rumford Fair Housing Act. Interestingly, many of the same arguments for Proposition 14 in 1964 echoed in the arguments against Proposition 10 today.

    Our State NAACP–at least some of its leadership–has a history over the past decades of being out of touch with the needs of its own local chapters, and Black folks generally, while being in the pocket of corporate interests. Sadly, their perspective or positions are then used as if they are representative of all of us or our collective interests.

    There’s a difference between “civil rights” and “silver rights.” While you “doubt that someone slipped a copy of the landlords’ talking points in front of Ms. Huffman,” there is no doubt that powerful landowning interests have influenced Black political elites, like Ms. Huffman, who probably have not been personally impacted by rent increases. Unfortunately, the only silver lining is Ms. Huffman lining her own pockets.
    https://www.sfchronicle.com/politics/article/Rent-control-foes-hire-California-NAACP-leader-13144448.php

  6. Steve Gerstle says:

    For every study supporting rent control, you will find one that opposes it.
    https://shelterforce.org/2018/03/28/rent-control-works/
    It has been this way for over 40 years, since I served on a Bay Area rent control board.
    Those advocating for landlords — excuse me — housing providers, will cite their studies while those advocating for tenants, or as some wish to describe them, the landless, will cite theirs.

    People will read these studies based on their own experiences and position in life. This issue is not black and white — it is about something that few wish to discuss because unlike racism, it is not acknowledged to exist in America. It is about class. Those who have property and those who will never be able to own property because they lack the financial resources to do so. The solution? No more landlords and no more landless. Every American should be able to own her or his own home, even if it is a tiny home on a tiny piece of land. While Rasheed has not said this explicitly, it does come down to 40 acres and a mule.

    • dave says:

      If is true that the number of studies pro and con rent control are equal, and I doubt it, that would simply be the Study Industrial Complex at work. In reality there is nearly universal agreement among economists that rent control reduces supply and sends rents higher in long run. There are precious few topics in the Dismal Science that have such an overwhelming consensus.

    • carol says:

      Steve, I never knew you were such a socialist! 😉

    • Mr. Gerstle,

      I agree that the issue of rent control is not “black and white,” nonetheless, evoking the position of the California State NAACP to bolster an argument implies opposition to Proposition 10 is good for “civil rights” and thus Black folks. When I wrote “Sadly, their perspective or positions are then used as if they are representative of all of us or our collective interests,” that’s what I was speaking to.

      Class is certainly important, especially when examining the political positions of Black (financial/political) elites. Yes, class is certainly and Americans are often impoverished in our ability to discuss it (probably because I think I’ll be a millionaire one day!) Yet, in the same way a woman might discourage me from dismissing sexism, I want to encourage you not to dismiss race as a fundamental ordering of American society. Class matters when examining how homeowners often have higher incomes than renters. And, if 93 percent of Africans in Alameda are renters, it might not just be about class. There is not only a correlation but a causation (systematic or structural racism).

      Don’t be so quick to deemphasize race for class alone, especially when evoking “40 acres and a mule”.

      p.s. Eric Foner in some ways inspired my upcoming talk at the Museum. Sept. 27 if you’re available.

  7. Mike McMahon says:

    And if the repeal of Costa-Hakwins passes, here is next battlefront:

    https://sfpublicpress.org/news/2018-08/housingsolutions2018/remaking-rent-control-if-voters-approve

  8. Karen says:

    I posted a piece earlier explaining the “root cause” of the housing shortage in Alameda.

    California is now the 5th largest economy in the world – larger than the UK. Couple this with the fact that Alameda has not built any apartments (due to Measure A) in over 40 years, this explains the housing shortage we’re experiencing in Alameda.

    The study shows that placing the burden of the housing shortage on small mom and pop landlords will not solve the problem, it will only drive them out of the rental business. Older mom and pops who historically have kept their rents low, are choosing to cash out by selling their properties to “investors” who run their rental properties more like a business.

    Other older mom and pops who own single family homes, are choosing to sell them concerned that Costa Hawkins will be overturned – and will eat into their fixed income that helps to pay for their rising costs in health care. A 2-bedroom home in the Bay Area sells between $800K and $1M.

    The more you squeeze this population of rental property owners – the more they will choose to leave the rental business. These are the unintended consequences of shifting the burden of the housing shortage onto this small population of property owners, who historically have been fair, good landlords.

    • David says:

      Again with Measure A…

      Since 1979, when state law was introduced to facility the construction of affordable housing, developers could have easily side-stepped Measure A, using the density bonus law, so long as they were willing to build the requisite number of affordable units. Nobody ever asked for waivers on the restrictions of Measure A, to build multi-family units and affordable housing, somehow. (Hmm… because private development corporations don’t profit from building affordable housing?)

      Suddenly, in 2010, the City of Alameda got on board with the density bonus law, when federal funding was threatened re: the housing element. Then, suddenly, the city planner was touting the density bonus law as the path forward, and plugging it into every block of planned development for Alameda Point.

      There are many – Peter Cohen of the SF Council of Community Housing, for example – who argue that it’s un-realistic to expect private development to provide affordable housing. i.e. it should be done by non-profits and government.

      As we look at recent developments in Alameda approved by council and the planning board, there are very few to none affordable units – it’s mostly market rate housing.

      In the 1930s, the federal government had programs to build housing for the middle class, albeit, those programs were stained with structural racism.

      However, it may be time to return to that model, even a model whereby government undertakes to plan and construct affordable housing – subsidizing the immense capital costs – and then turn it over to private operators to manage ongoing.

      How San Francisco Saved Its Public Housing By Getting Rid of It
      https://www.politico.com/magazine/story/2017/07/20/how-san-francisco-turned-its-tenements-into-treasures-215391

      Santa is back for the developers
      http://www.sfexaminer.com/santa-back-developers/

      CA League of Cities on the Density Bonus Law
      https://www.cacities.org/Resources-Documents/Member-Engagement/Professional-Departments/City-Attorneys/Library/2016/Annual-2016/Hutchins_Tiedemann_Not-Just-Density-Bonuses.aspx

      • David says:

        To be clear… I’m suggesting returning to the model of the federal or state government building housing for the middle class, ABSENT the structural racism…

  9. chrisrabe says:

    Great article. Alameda “progressives” won’t be satisfied until we’re all poor and starving equally. If AUSD keeps teaching our kids Marxist crap it will only take one more generation for this to happen.

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