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6711 Forest Lawn Dr., Suite 107
Los Angeles, CA 90068

(323) 882-6606

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How the Costa Hawkins Repeal will Affect Our Economy after the November Election?

How the Costa Hawkins Repeal will Affect Our Economy after the November Election

As the November ballot for the Costa Hawkins repeal approaches, many renters and community advocates are eager to welcome the changes that will impact rent control. While supporters of the repeal strongly believe that the end of the state-leveled act will increase affordable housing in California and its 15 cities, the Apartment Association of Greater Los Angeles remains against the Costa Hawkins ballot measure. Not only will our economy suffer but also the essence of the repeal of the act will boomerang after a very short while.

What the Supporters of the Costa Hawkins Repeal Believe?

Since 1995, Costa Hawkins has defined the requirements for housing in California including Los Angeles, Santa Monica, West Hollywood, and other cities. The policies have given property owners a stable platform to offer their property and apartments to renters.

However, a loud cry has gone out to say that this act has made housing unaffordable. Also, renters claim that it has given landlords the right to heartlessly eject tenants from their homes. Advocates of the repeal insist that the Costa Hawkins repeal will stop extortion of renters and families by California politicians and other investors. They further argue that this act will be replaced with better policies which will allow renters to enjoy housing as a human right. But do these impacts seem stronger than the realities that are bound to present themselves on the wake of the repeal?

Negative Impacts of the Costa Hawkins Repeal on the Economy

Contrary to the belief that the repeal of Costa Hawkins will improve housing supply and reduce the cost of rent, the ballot initiative will result in the following:

  • Reduced construction of newer properties
  • Shortage of housing
  • Increased cost of rent
  • Unemployment crisis
  • Poor landlord-tenant relationship
  • Low maintenance of properties
  • Reduced property taxes

These are some of the many adverse effects of the repealing of Costa Hawkins. If the State of California were more realistic, it would realize that the impacts of the so-called “Affordable Housing Bond Act” are limited.

First, the Association is strongly against this initiative because the most pressing result of this is a reduction in the construction of new apartment units. More and more investors will become unwilling to engage developers in building new properties in cities where rent control has been expanded. The limitations attached to the new policies will impact the real estate market in ways that investment will become increasingly cheapened.

Already, some property owners have begun to sell their units and leave their cities. They can predict that the protection which the repeal will offer renters will force real estate investors out of California specifically and reduce the value of their equity. Also because the small owners are scared and may sell there will be a lot more institutionalized owners to take their place quickly making our diverse market into a lot of the same.

Now, if you understand the implication of this, the housing shortage will become prevalent. Since property owners can no longer enjoy the leverage of increasing the rent of a unit once a former tenant moves out, it will be wiser to sell their investment. And when more landowners or apartment owners decide to part with their investment, the previous housing crisis will return.

With an acknowledgement of the laws of supply and demand, when houses become fewer, demand will increase. Landlords will then increase their prices. And of course, renters will be willing to pay more. Irrespective of how much renters are willing to pay, apartment owners will become discriminatory in their attitude to individuals or families.

Another perspective we should consider is how property owners treat their homes and buildings. When property owners gain little or no extras from their building units, they will most likely relinquish the need to keep their properties in top shape. Hence, when living facilities become devalued, taxes will reduce, and other sectors of the state may bear the brunt.

In addition, when many members of the Association opt out of the housing industry, the need for tradesmen will disappear. Apparently, people supply people, and when there are no property owners to hire contractors, plumbers, painters, carpenters or even flooring and other maintenance experts, everyone in the industry will suffer. Unemployment rates would increase, and the State of California may lose as much as $5.7 billion of economic output.

Bottom Line

Inasmuch as the Costa Hawkins repeal looks promising for renters and the City Council as a whole, the truth is that rent control complicates many things. When prices of properties are no longer dictated by the market and investors lose interest in developing new constructions, the housing crisis will return in an even worse form.

All parties involved in this controversy must never lose sight of the fact that property owners are responsible for keeping the city on its feet. Indeed, this real estate market vs. community battle is not as simple as it appears.

For more information on property management and leasing, send an email to Kari via kari@SKYprop.LA. SKYpropertiesInc.com offers professional guidance to apartment and property owners of buildings with 20-100 units.