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Episode 7: What Happened in 2024? Ballot Measures Edition
48 Plays1 month ago
I dive into what the California voters saw on their ballots in November: Prop 33 (rent control), Prop 34 (supposedly health care, actually rent control), and Prop 5 (borrowing for housing etc.), what these measures would have done, the personalities and interests responsible for this array of proposals, and what their outcomes (fail, win, fail) mean for housing policy this year
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Transcript
Introduction to California Housing Legislation 2024
00:00:01
Speaker
Hello, and welcome to another episode of John Nerds Out on California Housing Legislation. This week, I am talking about what happened in 2024 with housing ballot measures.
00:00:16
Speaker
Some of this may overlap somewhat with stuff I mentioned in one of my earlier episodes when I was talking with Scott and the subject came up.
Overview of 2024 Housing Ballot Initiatives
00:00:26
Speaker
There were three ballot initiatives before the voters of the state of California in 2024 that had to do with housing.
00:00:33
Speaker
Two of them failed, one of them passed. I'm going to be talking about primarily Prop 33 and Prop 34, as well as Prop 5.
00:00:46
Speaker
Their numbering was weird this year. Prop 33 and Prop 34 are intimately connected, even though they didn't look like it on the surface. So I'm going to tell the whole story about who was behind them, how their backers came to back them, what happened in November, and what that means for the future of California housing policy.
00:01:10
Speaker
As a reminder, ballot initiatives are legislation. They are the voters deciding whether or not to pass a given law. Usually, if the voters pass the law, it contains provisions that make it virtually impossible for the legislature to amend it.
00:01:27
Speaker
And therefore, if you want to change it, you have to put another proposal on the ballot that says how you're going to change it. Because of the number of signatures required to bring a measure to the ballot, it takes a great deal of money to accomplish that.
00:01:42
Speaker
because it's too many signatures for pretty much any volunteer operation, no matter how well supported, to collect. I read somewhere that no ballot initiative in California has succeeded without having at least some paid signature gathering since 1988.
What is Prop 33's Impact on Rent Control?
00:02:03
Speaker
Prop 33 is the core I'm going to be talking about today, and it was essentially a measure supporting rent control. So what is rent control as a policy?
00:02:14
Speaker
And what are its pluses and minuses? Essentially, rent control usually says in the US context that it is illegal to raise someone's rent by more than some threshold every year.
00:02:29
Speaker
That threshold could be decided different ways. 3% a year, 5% year, 10% year. Usually it's pegged at least somewhat to inflation, the rate of inflation as measured in the Consumer Price Index.
00:02:43
Speaker
It is rarely anything below 60% inflation, and it is certainly never 0%. It pretty much never says that you cannot increase rents.
00:02:56
Speaker
Neither does it mandate that rents drop. So essentially, it freezes in place, controlling for inflation, the rents that people are facing at the moment it is applied.
00:03:09
Speaker
It rarely affects the rents that are charged for a unit that is currently vacant. So if you have an apartment and it's been controlled and the rent has been going up 3% year, whatever the limit then after 10 years,
00:03:25
Speaker
and then after ten years the occupants leave, usually existing rent control laws do not say anything about what you were able to rent it at to the next tenant.
00:03:37
Speaker
This is called vacancy decontrol. So it keeps rent from increasing by, quote, too much, however you define too much. So it protects people who are already there. It freezes in place the starting situation.
00:03:52
Speaker
It does not reduce rents. It has a very poor track record at that. Rent control policies always have to make choices about what they are applicable to.
00:04:04
Speaker
So, for example, some policies might say you can control the rent of multifamily apartments, but not single family homes. That is one thing California actually does.
00:04:15
Speaker
It might say that if an apartment is owned as a condo, as a separate unit from the rest of its building, then that cannot be rent controlled. You can set a particular age of unit. You can say, we are only going to control the rents of buildings that are more than 10 or 15 or 20 years since the construction.
00:04:37
Speaker
It's also important for the viability of rent control to know how well can it be enforced. Do you have to hire a lawyer and go to court? Who pays for that lawyer? Is there assistance?
00:04:50
Speaker
Does the government know what rents are to begin with, and is it going to be obvious to anyone if you, and if you the landlord, increase the rent too much? One solution that can make everything more transparent is a rental registry, where landlords report to a local or state government what they are charging month to month, year to year, and therefore it will be very obvious to the government if they are increasing rent by too much.
00:05:19
Speaker
Those are the kinds of features that rent control can have on paper. You could also imagine more complicated protocols like adjusting for income, saying you only get your rent controlled if you are below a certain income.
00:05:34
Speaker
Obviously, this makes the whole thing a lot more complex because it means you have to prove your income to someone, hopefully not the landlord themselves. And I'm not aware of any place that has that.
00:05:46
Speaker
Here is the big potential downside of rent control in the published literature. And it really depends on the details, how much of a risk this is. It's very much a balancing act.
00:05:58
Speaker
It is that rent control does seem to have the potential to reduce new construction. That is to make it less attractive to build a new apartment building. And fundamentally, it is building new housing, new apartments that gets rent down at all, that has the potential to get rent down.
00:06:18
Speaker
Because rent is fundamentally a function of supply. If supply is too low, then your rents are going to be high, and rent control is not going to solve that underlying issue.
00:06:32
Speaker
So fundamentally, rent control, in my opinion, has an important role as harm reduction. It protects people who are currently renting who large increases could force out.
00:06:46
Speaker
It is not the solution in the form of what makes housing affordable. What makes housing affordable is primarily more supply, be that public, private, market rate, or guaranteed ah income limited.
00:06:59
Speaker
So the question is, what level of rent control has the risk of reducing construction versus not? Making a very long story of research short, the research seems to me to indicate that the point at which rent control starts to reduce the likelihood of construction is if it is applied to new construction.
00:07:23
Speaker
And I see that in the research, in my interpretation, but you can also kind of see this when you think about the prospects of getting together investment for a new apartment building.
00:07:36
Speaker
Because you were going to plot out the rents and you were going to say, okay, how much can we increase rent every year on average? And if your projection says that you can only increase rent by so much every year, then at some point, you know, maybe that's 3%, maybe that's 1%, but at some point, that is going to make your investment in the apartment seem less profitable and even unprofitable.
00:08:03
Speaker
And, It can push investment into things other than housing and reduce the overall amount of construction. But
Challenges of Rent Control on New Construction
00:08:11
Speaker
imagine you are talking about rent control that kicks in once the building turns 15 years old.
00:08:17
Speaker
Well, that's pretty far out in the future. At that point, the investors have usually made their money back, and it is considered too far in the future to really worry about at the point of construction.
00:08:30
Speaker
you were going to be looking at a 10, 15-year timeframe to see how well the investment is going to pay off. Past that point, probably someone else is going to own it, or at least it's not the task of those figuring out the investment prospects to figure out how good an investment prospect it's going to be in 15 years.
00:08:48
Speaker
Getting back to the mechanics, rent control can be imposed at different levels. So usually in practice in the United States, where you have rent control, it is a city policy. But nothing prevents it from being imposed by the state or even the national government.
00:09:03
Speaker
California does have a level of state rent control now, which I will get to, which is sometimes called rent caps because it is not as restrictive as some of the city ones. But then finally, in California, the state can basically say what kind of laws can cities pass or not pass.
00:09:21
Speaker
with only a few exceptions. And there are two things that limit how much cities in California can impose rent control. First is legislation called Costa-Hawkins from approximately 1995.
00:09:34
Speaker
It's called that because it was passed by ah guy named Costa and a guy named Hawkins. The other one that you don't hear about as much is federal courts. There is something called ah fair or reasonable return on investment, and courts evaluate rent control laws against that rubric.
00:09:55
Speaker
The reason is that if you imagine really severe rent control, you could imagine that it could be what's called a taking. In constitutional terms, taking is taking your property or taking your ability to use property.
00:10:09
Speaker
So if you said you can only rent out property if you cut your rent by half, Well, then I think a landlord could reasonably say, this is making the property worth so little that it is effectively taking it from me, and the courts would agree.
00:10:26
Speaker
But then, what is the fair return on investment or reasonable return on investment that the courts look for and will strike down rent control if it is too restrictive? In practice, what courts have converged on when looking at rent control ordinances in places like Berkeley is that you can take, as as long as you adjust it for inflation in some way, you can do something below inflation, like 60% of the consumer price index growth.
00:10:56
Speaker
You can't keep it flat. You can't say 1%. You have to allow there to be some adjustment to cost of living. So again, that's not going to change. If it changes at all in the next 10 years, it's probably going to be for the worse.
00:11:10
Speaker
I could imagine the Supreme Court saying all rent control is a taking, although usually they're not focused on local issues as much as that. And it is weird that courts get to decide this. You know, it makes sense for them to say that at a certain point of ridiculousness, ah regulation becomes a taking.
00:11:27
Speaker
But their ability to actually make that judgment call is pretty suspect. I don't know what makes 60% okay and, 40% not. you know forty percent not But at any rate, we do have that in the background, that Costa-Hawkins is not the only thing limiting how much cities can control rent.
00:11:47
Speaker
Now, what does Costa-Hawkins do? Costa-Hawkins, passed in 1995, was a pretty big victory for those against rent control, the biggest group of which is landlords, but to some extent realtors, to some extent right-wingers who see it as socialistic.
00:12:03
Speaker
And it said that cities could not control the rent of anything built after 1995. And in some cases earlier, 1989, 1979, depending on the city, that was complicated, depended what they had at the moment.
00:12:21
Speaker
It also said that no city could reduce rent increases below something like CPI or 60% of CPI, so that fixed in place the standards the courts had already done at that point.
00:12:34
Speaker
It said that cities may not, in any event... control the rent on single-family homes or separately-owned condos, and because it did not change the date at which rent control became illegal, meant that the year it was passed, it applied to almost no housing.
00:12:54
Speaker
But then everything built in 1995 was presumptively free of any future rent control, anything in 96, 97, and so forth. And as time goes on, what that would have meant and what it still means, because it's still a law to this day,
00:13:11
Speaker
is that rent control would eventually phase out. You know, in 60 or 70 years, everything that had been, or you know, 99% of what had been built before 1995 would be replaced.
00:13:25
Speaker
And therefore, nothing would be rent controlled, even in the cities that wanted to do it, which at the time were pretty few. San Francisco, Berkeley, maybe Oakland, maybe Los Angeles. a few others.
00:13:37
Speaker
But it was a declaration that rent control was fundamentally a bad thing, and cities doing it should be kept under very strict guardrails. So among those who support rent control, one thing they've been doing is expanding the fight to more cities, you know, making it getting to where cities can pass the maximum rent control possible under state law.
00:14:01
Speaker
But another goal for a long time has been changing the state law itself to repeal Costa-Hawkins or otherwise allow for cities to make a lot more decisions within the guidelines set by federal courts on how much they control rent.
Costa-Hawkins and Prop 33's Repeal Efforts
00:14:17
Speaker
Prop 33 is such a repeal. It repeals Costa-Hawkins very simply. It would have. So keep the mechanism in mind here.
00:14:29
Speaker
Repealing Costa Hawkins does not in itself control rent. It frees the hands of cities to control rent, and only if they want to. If you repealed Costa Hawkins, many cities have more conservative governments, more conservative councils, and they would not take that opportunity.
00:14:47
Speaker
Some would take the opportunity to control rents much more. again, until a federal court stopped them. And some might be ready to do more. And it might embolden some cities in the middle to start controlling rent when they had not before.
AIDS Healthcare Foundation's Role in Housing Legislation
00:15:02
Speaker
Prop 33 was brought to the ballot almost entirely by the funding of a non-profit called the AIDS Healthcare care Foundation. They had gotten involved in rent control policy, and they had been among those fighting to repeal Costa Hawkins, I believe around 2017 or 2018.
00:15:18
Speaker
When they found this is a very tall order, you know, a lot of people oppose it, not just the landlords, also the realtors, also the forces of centrist order generally.
00:15:31
Speaker
It is very tall order to repeal it in the legislature. And they said, okay, we think the people want to do this, so we're going to bypass the legislature and go to the people. Now, what is the AIDS Healthcare care Foundation, and why do they have all these millions of dollars needed to not only put a measure on the ballot, but also spend the tens of millions of dollars that tend to be necessary at a minimum to get a controversial measure over the 50% mark?
00:16:00
Speaker
Well, they've been around for decades, maybe 50 years at this point. And they really are ah health clinic network, more specifically a pharmacy network, although they do other things too.
00:16:12
Speaker
They've been around for decades, and they do focus on dispensing people with HIV or AIDS, their drugs that control their HIV or AIDS. They have a lot of clinics, primarily in Southern California, and they serve a lot of people.
00:16:26
Speaker
They have a charity shop that supports them a little, the out-of-the-closet thrift shop, which you may have heard of. So they are large. They are a nonprofit. Their president is a guy named Michael Weinstein.
00:16:40
Speaker
He essentially controls them. He is not, to my knowledge, kept in much check by his board, or his board completely agrees with him on everything or takes his lead.
00:16:51
Speaker
Now, this doesn't make them very strange, having nonprofit network with a lot of clinics focused on one population. But what makes them different is that they actually have a lot more money to burn than your average nonprofit.
00:17:06
Speaker
This is not because of anything illegal, but it is questionable that they are very well set up to take advantage of a federal drug subsidy program called 340B.
00:17:17
Speaker
What that does is that for usually safety net providers or some hospitals, these providers are allowed to get drugs from the pharmaceutical manufacturers at certain prescribed discounts.
00:17:30
Speaker
This is a federal law. So they get the drugs cheaper than most buyers, and then they can sell them and get whatever the normal payment would be from an insurance plan, especially Medi-Cal, but also private insurance, Medicare, and so forth.
00:17:47
Speaker
What that means is that they actually make money often on every drug they dispense. Most providers do this for some of their services,
00:17:59
Speaker
You know, whatever applies, whatever 340B applies to, that cross-subsidizes the other things they do that do not get that 340B subsidy. Well, the AIDS Healthcare Foundation only does stuff that gets the 340B subsidy.
00:18:15
Speaker
I don't think they planned it that way, but that's how it turned out. And that's certainly how they keep it. So what it means is that they get like a billion dollars in revenue from all the drugs they dispense primarily every year.
00:18:29
Speaker
And a few percent of that is actually profit over their expenses. So call it 30 to 50 million dollars a year. That is real money politically. That is enough money to do a lot of political advocacy including putting measures on the ballot.
00:18:46
Speaker
As a nonprofit, they can't support candidates, but they can do issue lobbying, and this it counts as issue lobbying. It is not really a health function.
00:18:56
Speaker
It is not really in the health area. They obviously can draw the connections they want between housing and healthcare. It is questionable that they use their nonprofit status for all this politicking. They also issue grants to various nonprofits around the area issue of housing.
00:19:14
Speaker
It is questionable that they use all this federal money in this way and do not use it to spend on other health programs. But it is a gray area, and By virtue of having all this money, they have some latitude of how to use it.
00:19:31
Speaker
And how they use it primarily now is spending on rent control. Used to be other things. It kind of depends on whatever is the hobby horse of their president, Michael Weinstein. Before he got really into housing around, i think, 2017, they put other ballot measures on every couple of years.
00:19:51
Speaker
They did a ballot measure to require porn filming, include condoms, first in l LA, then statewide. I believe it passed in LA and failed at the state level. They put forward a statewide measure that would have turned over all drug purchasing and negotiating to the state as opposed to other healthcare entities.
00:20:13
Speaker
and sort of made single-payer but for pharmaceuticals. That failed by a wide margin. But at a certain point, their president got into housing, ah supposedly because he was really angry at a big skyscraper in West L.A. where his office was coming up to block his view.
00:20:33
Speaker
That isn't a news article somewhere. It is still speculative. But his perspective is very much what I call the left NIMBY perspective, that The problem with housing is not a problem of supply, but a problem of corporate power, fundamentally.
00:20:52
Speaker
And that breaking corporate power, which means hurting landlords and hurting developers, you forcing developers somehow to build everything affordable and stopping their projects if they're not fully affordable, is the way to go.
00:21:07
Speaker
That means rent control should be as stringent as possible And it should reduce property values. And it should, to the extent possible, not just freeze, but also reduce rents. In 2018, the AIDS Healthcare Foundation sponsored Prop 10 that would have simply repealed Costa Hawkins.
00:21:27
Speaker
Done a few more things, but it was all revolving around repealing Costa Hawkins. And importantly, it did not put any guardrails on how cities could control rent after they repealed Costa Hawkins.
00:21:40
Speaker
So this is where a lot of this revolves around is the new construction question. Because one of the big objections is if it allows cities to control rent from the day a building opens, then that is what really has a risk of reducing housing construction.
00:21:58
Speaker
Something that would be a better reform, I think, and many people think, is would be to create a rolling date. So when a building turns 15, then a city may control the rent, but not before.
00:22:11
Speaker
So Prop 10 in 2018 failed. He came around for another pass in 2020 with Prop 21. And Prop 21 was more of a compromise because it did say, Costa-Hawkins is repealed, but...
00:22:27
Speaker
Cities may not control rent of a building younger than 15 years. Prop 10 and Prop 21 were both vastly, vastly opposed by essentially the landlords.
00:22:40
Speaker
Maybe to some extent the realtors, but mostly the landlords. On each of them, the AIDS Healthcare Foundation spent, I believe, in the $30, $40, maybe as much as $50 million range.
00:22:51
Speaker
The landlords usually spent around $100 million. So they blanketed the airwaves with stuff saying, this is the worst proposition imaginable. This is going to make the housing crisis worse. They said whatever they needed to.
00:23:03
Speaker
And it got the message got out to enough people. And both of these failed by wide margins, usually by about 20 points. And what was a little disappointing for my policy wonkishness is Prop 21, which was more moderate from a policy perspective, failed by pretty much the same margin as Prop 10, which was not as moderate.
00:23:28
Speaker
But it boils down to the biggest voice in the room was the landlords, and the people who voted for it were the people not disposed to listen to landlords, and the policy issues didn't really affect that cutoff.
00:23:44
Speaker
Now, the other thing to know is that, as I said, you can have rent control at the state level or the city level, or indeed the national level.
California's 2019 Rent Control Reforms
00:23:53
Speaker
And in 2018, although AHF may have gotten disheartened with going to the legislature, there was a form of rent control passed.
00:24:03
Speaker
And that was Assembly Bill 1482, the California Tenant Protection Act of 2019. correction, 2019, not 2018. And that controlled rent for buildings that were
00:24:14
Speaker
and that controlled rant for buildings that were More recent than 1995, for the first time, it instituted the rolling 15-year cutoff, so it controlled everything in apartment buildings, built more than 15 years before.
00:24:33
Speaker
So at this point, that's 2004, and this year, that's 2010. It had the same exemptions that Costa Hawkins does. It did not control single-family homes.
00:24:44
Speaker
It did, I think... catch up some single family homes if they were owned by companies and the company owned more than a certain number. Depends on the ownership and how it's structured.
00:24:56
Speaker
But it was designed to catch some of the private equity firms, real estate trusts and so forth that are to some extent ah buying up single family housing for rental purposes.
00:25:10
Speaker
So did catch up some of those. It still exempted condos, and it came together with the just cause protections, that is, laws against evicting a tenant without cause that are one of the other laws you need to make rent control have teeth.
00:25:24
Speaker
So that was passed in 2019. Oh, and the level of rent increases that are allowed is not inflation or even 60% of inflation like some cities have.
00:25:37
Speaker
It is inflation plus five points. So if inflation is two points, then you can raise the rent legally by 7%. If inflation is five points, as it was recently but for one year, you can raise the rent by 10%.
00:25:52
Speaker
Under no circumstances can you raise rent by more than 10%. So obviously, if you raise rent by seven eight percent a year for 10 years, that's still a lot of increase. So obviously, that was a big weakness.
00:26:05
Speaker
And in fact, a lot of what it protects people against is really sudden rent increases, not so much significant increases that pile up over time. But that was a huge change that that protection suddenly existed statewide, not just for the cities that had politics amenable to rent control, but everywhere.
00:26:28
Speaker
And enforcement has still been a work in progress, but many people have been protected by it. AHF has not really been part of that discussion because they are continuing to go to the ballot over and over again because they think they can do better.
00:26:45
Speaker
And again, one criticism is, okay, you're helping maybe the cities, the population, the renters in cities that have pro-rent control city council, but lots of city councils are not so protective, and maybe you can do more with those millions by having a lobbying organization that convinces legislators to tighten AB 1482. At any rate.
00:27:13
Speaker
at any rate 2022, they did not come back for another pass. 2024, they did. And this was Prop 33. So going back to the applicability question, Prop 33 not only repealed Costa Hawkins, but it did something similar to what they did in 2018. It gave cities unchallengeable right to regulate rent in any way they saw fit.
00:27:41
Speaker
So it did not have a 15-year cutoff. It had a no-year cutoff. It allowed cities to control rents at whatever amount they saw fit, limited only by, of course, the federal courts.
00:27:57
Speaker
So it was kind of strange and disappointing to me that it did not have a 15-year cutoff because, to me, that is one of the minimum requirements for good rent control.
00:28:11
Speaker
And considering that they had had such a cutoff in 2020, but not 2024, one has to ah imagine that this was deliberate, that they no longer agreed that it was good policy, that they actually thought that cities should be able to control new construction.
00:28:30
Speaker
Compounding that, city council members in some very anti-housing cities, and believe it was especially one city council member in Huntington Beach who got in the news for it, Explicitly said,
00:28:42
Speaker
if prop thirty three passes this is a great opportunity for us because we can pass rent control from day one and that will make it a lot harder for them to build housing because these are cities that have fought tooth and nail against allowing practically any new housing And increasingly, state law has made it hard for them to resist in such a way and has even ah penalized and fined them for rejecting housing without any basis other than their preferences.
Criticism and Empowerment Concerns of Prop 33
00:29:13
Speaker
And Prop 33, if it had passed, would have given them a huge new tool that, according to the provisions of Prop 33, the state could not have limited.
00:29:25
Speaker
The state could not have said, your rent control ordinance is counterproductive to the cause of new housing, so we're going to put some limitations on it. Prop 33 explicitly wrote in that the state may not interfere.
00:29:37
Speaker
So this was something that made California YIMBY oppose it, some other people oppose it who had not before, maybe made some people go neutral on it who had not before.
00:29:48
Speaker
But then yet another wrinkle.
Prop 34's Aim and Impact on AHF
00:29:50
Speaker
And now we come to the other measure, 34. Prop 34. So Prop 34 was coming from the landlords, and it was essentially striking back at AHF because the landlords have the money to heavily advertise against rent control and knock down these attempts.
00:30:12
Speaker
But they don't like spending $100 million. dollars Obviously, who would? And they felt, okay, AHF has done this for ah three election cycles now, close together.
00:30:23
Speaker
It costs us a lot of money. We need to do something that keeps them from being this thorn in our side. So Prop 34 was officially a health measure. because it was about how health nonprofits could use their 340B subsidy money.
00:30:41
Speaker
So it said that organizations meeting a long list of criteria had to spend 98% of their 340B federal money on direct patient care.
00:30:54
Speaker
And wouldn't you know it, it just turns out that AHF is the only organization that meets all those criteria. So from a policy point of view, It sort of made sense because it was always questionable that they were using all this for essentially political causes, all this federal money, federal health money for political causes.
00:31:14
Speaker
And indeed, I believe that something like this had occasionally been batted around in the legislature because AHF made itself very obnoxious, not just in state ballots.
00:31:25
Speaker
They also, I believe, going back to last decade, were To give you an idea, they once sued LA County and tried to get the city of l LA to make its own health department so that they could contract with the city of LA and cut out the county.
00:31:40
Speaker
And it was basically because they were sore at the county over negotiations for their health services that they were part of the county network for. So they are very much the take our ball and go home types.
00:31:55
Speaker
And again, it's all down to what their president is feeling this week. But it is absolutely true when they said this bill, Prop 34, is an act of revenge against us.
00:32:06
Speaker
It absolutely was. It was the landlord saying, we don't like AHF's involvement in this issue, and we want to reduce their ability to put on these measures.
00:32:17
Speaker
So that is pretty questionable in itself. And it's the fundamental reason I voted against 34, even though... I may have supported it if it were pushed forward by the legislature.
00:32:28
Speaker
and Importantly, it did not affect the business models of anyone but the AIDS Healthcare Foundation. It was very carefully tailored. Amusingly, it did use as a criterion – that the organization had to not only be a health provider, but also have affordable housing in its ownership portfolio and to have had a certain number of complaints in its housing, because that was another thing AHF used its money for to buy up a bunch of LA residential hotels in Skid Row that were often people's last resort before homelessness.
00:33:05
Speaker
but were not public very publicly subsidized except by Section 8. And they tried to make affordable housing work on their own terms by maintaining it at in economical ways and keeping the rents low.
00:33:19
Speaker
Well, they didn't put enough money in it, and you got some really horrific stories of neglect, like one person ah fell into an empty elevator shaft and was severely injured in one of their buildings after they bought it.
00:33:35
Speaker
So the landlords used that yeah in writing their criteria that it has to be not only a health provider, but a health provider that gets 340B money and that has housing and that it has had a certain number of complaints.
00:33:49
Speaker
So it was very much meant to influence housing policy, Prop 34. But it was listed and the entire description of it was about health policy because on paper, that's what it was.
00:34:05
Speaker
And that made it pretty confusing to the voters. So what were the results of these paired bills?
Outcome of Prop 33 and Prop 34
00:34:11
Speaker
So 33 failed and 34 passed. 33's failure was by a very wide margin, pretty much the same 20% that you had seen before, because there was all the usual spending against it.
00:34:25
Speaker
34 passed by a very, very narrow margin, a little more than 50%, but it still passed. And, you know, the landlords didn't spend nearly as much for it as they spent to get defeating Prop 33. Defeating Prop 33 was their main priority. But it looked like a good bill. It looked like it was, quote, making health care more affordable by requiring certain health care entities to spend more of their money on direct patient care and reducing their profits.
00:34:51
Speaker
And so generally people did vote for it. and And it passed, which I was not expecting. I thought people would be, this is confusing. I'm just going to set it aside. And setting it aside means voting no on it.
00:35:05
Speaker
So i don't know if it's going to really come into effect, Prop 34. I have to assume that AHF is going to fight for its life in the courts ah to make it to say it's unconstitutional, either state level or federal level or both.
00:35:22
Speaker
They did argue during the election year that it was an act of attainder, that it was declaring AHF guilty or an ex post facto law.
00:35:32
Speaker
you know, punishing AHF for stuff it had done in the past, which are both unconstitutional. I think it was written carefully enough that both of those would not likely succeed in court, but I'm not a lawyer. You know, the only penalty was not putting them out of business. It was saying, here is how you have to spend your money going forward.
00:35:52
Speaker
So Prop 33 failed, and now they've tried three times and failed by the same wide margin all three times, Even if, you know, landlord spending is a big part of that, it does seem like it was quixotic and, you know, not well favored.
00:36:11
Speaker
It did not look like rent control had good prospects at the beginning. And after trying it three times, the prospects still look just as bad. And AHF honestly looks pretty silly over it.
00:36:23
Speaker
They will be spending a lot for lawyers in the next year or two, so we'll see what happens there. But they may fight it off. They may come around for another pass. But they are increasingly isolated, I think.
00:36:36
Speaker
But it's interestingly not as simple as saying that the voters rent rejected rent control just as they had four years before and six years before. Because the county distribution really changed.
00:36:48
Speaker
If you look at county by county, who voted for rent control in the form of Prop 33 in 2024 versus who voted for rent control in Prop 21 in 2020, the counties that supported rent control the most in 2020 were San Francisco, Alameda, and Los Angeles.
00:37:09
Speaker
And behind them, Santa Cruz, Sonoma, Monterey, San Mateo, Marin, Contra Costa. So basically the Bay Area and its outskirts, Santa Cruz, LA, the bluest counties in the state.
00:37:21
Speaker
Almost all of those, except Monterey, greatly reduced their support by as much as 20 points or 18 points in the case of San Francisco, nine points less in the case of LA. So San Francisco went from supporting it by four points to opposing it by 15 points.
00:37:38
Speaker
LA went from opposing it by one point to opposing it by 10 points. Alameda went from supporting it by 0.3 points to opposing it by nine points. So the big populist blue counties turned significantly against it.
00:37:55
Speaker
And I think it is possible that this is the housing crisis narrative getting out and saying, you have to think about the effect of rent control measures on new construction.
00:38:07
Speaker
that there may be some contingent in these counties that is blue voters, that is progressive voters who are well disposed to rent control in 2018, 2020, and are less so.
00:38:19
Speaker
Again, it would be just 10 or at most 20% of the voting public, but that may be happening. But then on the other side, most of the counties that are purple or red, and especially the rural counties,
00:38:37
Speaker
greatly increased their support for rent control in 2024.
Shift in County Support for Rent Control in 2024
00:38:41
Speaker
So Sacramento went from opposing it by 27 points to opposing it by 19 points. Riverside from 32 to 21.
00:38:50
Speaker
Kern from 48 to 30. So they didn't become supporters on net. They're still way behind, but they supported it a lot more than four years ago. So some of this could be that rent is much more of a live issue in those parts of inland California than it was four years ago, that it was the Bay in LA primarily that were getting the rawest deal.
00:39:11
Speaker
And now that is spreading everywhere as people emigrate from the core of coastal California. two more the outskirts. Maybe there is something that people perceive as anti-establishment in rent control, but it is ah it is definitely changing.
00:39:29
Speaker
In both of those two years, it was still voted for yes on by almost exactly 40% of the population, meaning it lost by 20 points. But the distribution, again, changed a great deal within all the counties.
00:39:44
Speaker
But rent control is not dead in the state, I think that there are still a lot of legislators who would like to reduce the caps.
Legislative Efforts for Rent Control and Housing Construction
00:39:53
Speaker
There was a proposal to turn it from CPI plus five to CPI plus zero and therefore make 1482 a lot stronger.
00:40:03
Speaker
So there is a contingent in the legislature that is seeking that and they could get closer to success. I haven't checked the recent votes. I think they usually get bottled up at some point without a floor vote.
00:40:17
Speaker
But from a policy perspective, there was always the idea that you could have a grand bargain, that you protect tenants at the same time that you open up development for more new construction.
00:40:30
Speaker
And I think many people felt that 1482 was the gesture toward rent control. you know Again, it's not firm rent control, but it's a lot more than we used to have. And the 1482 back in 2019 should have been paired with a big production bill.
00:40:46
Speaker
Well, that didn't happen, ah but there is a big production bill coming up this year, so maybe the time will be ripe for it. And I will talk about the big production bill in the next episode.
Challenges in Funding Affordable Housing
00:40:58
Speaker
The other important proposition that unfortunately failed, it was a good measure, but I don't need to give as much time on it, is Prop 5. Prop 5 was simply making it easier for local governments to pass bond measures that supported affordable housing or infrastructure.
00:41:21
Speaker
Issuing a bond means basically borrowing money. Right now, if you issue a bond, then you have to get two-thirds of the local electorate on board And therefore, that means that many measures pass that try to borrow money for something that is manifestly needed, like affordable housing.
00:41:42
Speaker
And, you you know, it can get 60 or 65 or even 66 percent of the vote saying yes and still lose, because that's what the Constitution says. You need exactly two thirds plus one.
00:41:53
Speaker
Importantly, I should acknowledge that what backs the borrowing is that you raise the money and then you pay it off by an extra increment that is added to people's property tax.
00:42:04
Speaker
So, you know, maybe it's another 0.5% or whatever tax rate that is dedicated just to paying off these loans. So it is more or less about taxes, but More than it is about are these good things to have? It's are we okay with having a lower threshold to raise taxes?
00:42:26
Speaker
Unfortunately, ah Prop 5 did fail. It got 45% of the vote. And probably this was greater sensitivity to taxes while everyone was annoyed about inflation and other costs.
00:42:41
Speaker
There was also not a lot of spending for it. There was some, but ah probably not as much as necessary, getting it out, getting the message out to people of what it was doing and why it was good.
00:42:52
Speaker
There were some weird exceptions in Prop 5 that made the San Francisco Chronicle oppose it, that made it a little hard to use it for affordable housing if it required buying a single-family home to build that new affordable housing on.
00:43:08
Speaker
So that was... Problematic in terms of policy, but I believe that that was a compromise that had to be made to keep the realtors from spending big money against it.
00:43:20
Speaker
And it was not as powerful as it was not as powerful an exception as it may have seemed on paper. But since Prop 5 failed, we don't need to think about that anymore.
00:43:31
Speaker
The takeaway is that California still has a deeply, deeply anti-tax constitution going back to Prop 13 in 1978, which is ah much huger tax restriction than almost any other state has.
00:43:46
Speaker
And it makes it very difficult to use our vast wealth toward ah public ends. And as a result, a lot of the politics in the legislature is about not spending, but requiring or enabling.
00:44:00
Speaker
Are we going to require rents to stay flat? Are we going to allow construction to go up? But taxes are difficult to change, as except at the local level, or with very big pushes at the state level.
00:44:16
Speaker
So that is going to remain a sticking point in California in making especially income-restricted housing, housing for the homeless, and so forth, more abundant in the future.
00:44:27
Speaker
In my opinion, Prop 5 losing was the biggest setback of housing policy the in the whole year.
Future of California's Housing Legislation
00:44:35
Speaker
It was pretty disappointing, but that sets us up for the coming year.
00:44:39
Speaker
Once again, if we want to make housing affordable, we have to open up production in sustainable ways, and we need to not put as many straitjackets on it.
00:44:53
Speaker
And whether California takes on the mantle of really achieving this and not just making gestures in that direction while also protecting tenants is going to be the big question this year.
00:45:08
Speaker
So that is my recap of 2024 complete. Thank you for listening. I will be back talking about Senate Bill 78 and the proposals for 2025 legislation.
00:45:19
Speaker
See you then. And until then, keep on learning.