The debate over rent control has long been a hotly contested issue in California. In Berkeley, a city with a relatively long history of rent control ordinances, the process started in 1976. In June of this year, the Supreme Court of California unanimously ruled that rent control ordinances are within the jurisdiction of local government in Birkenfeld v. City of Berkeley (SCOCAL). Two years later, the city of Berkeley introduced its first regulations on rent, calling for a reduction at the start of the new year. The next major milestone was in June 1980, when the Rent Stabilization and Eviction For Good Cause Ordinance was passed, establishing the basis for future provisions of rent control in the city. These provisions include the establishment of a rent ceiling, controls on evictions, and allowing the discretion of rent increases to be determined by the nine-member Rent Board (History 1995).
The provisions of the Costa-Hawkins Act are not extensive, but impactful. The Act created two key exemptions to already established rent controls. First, rental housing constructed after February 1, 1995, the year in which the law was passed by California legislature, is automatically exempt from any local rent control ordinances. This includes housing units previously “exempt from the residential rent control ordinance of a public entity on or before February 1, 1995, pursuant to a local exemption.” The second exemption includes housing units that qualify as single-family homes and condominiums. These forms of housing, along with other forms of property that are “separate from the title of any other dwelling unit,” are exempt from any municipal rent control regulations (Costa-Hawkins 1995). These exemptions constituted the majority of the impact resulting from the enactment of the law, as over a dozen cities throughout California had active municipal rent control at the time of its passing.
That being said, the second main provision of Costa-Hawkins had more direct consequences on the city of Berkeley. Section 1954.53 prohibited the concept of vacancy control, also known as “strict” rent control. Before the passing of Costa-Hawkins, this “strict” form of rent control prevented the owners of residential units from increasing rent after a vacancy or change of tenants in the unit. Only five cities had adopted this more extreme policy of rent control, including Berkeley. After the Costa-Hawkins Act went into effect, owners were allowed to charge market price for their unit after a tenant voluntarily leaves, so long as the unit passes safety inspections and the owner renews the necessary governmental contracts (Costa-Hawkins 1995).
The intent of the Act was to roll back the extensive rent control that had sprung up throughout California in the previous two decades. As stated in the bill analysis, the “legislative intent [is] to streamline and improve state housing policy by repealing obsolete, outmoded, and inoperative programs and statutes” (Holloway 1995). Proponents of the bill saw these rent control ordinances as having an overreaching impact on the free market, discouraging new housing developments and causing owners to sell their properties. According to census data, the number of “renter-occupied housing units” decreased between 1980 and 1990 in Berkeley, suggesting that rent control had a net negative impact on the availability of affordable housing in the city (Holloway 1995). By passing this law, proponents hoped to shift the housing market back towards market equilibrium, therefore decreasing misallocation among tenants and improving the availability of affordable housing as a whole. Opponents of the bill, however, suggested its passing would result in an immense rise in rent costs, which would in turn reduce affordable housing options.
While limitations on rent control are generally associated with Republican ideologies, the Costa-Hawkins Act saw enough bipartisan support to pass both the state Senate and Assembly. In fact, the bill was sponsored by politicians on both sides of the aisle, Jim Costa (Democrat) and Phil Hawkins (Republican), hence the name given to the bill. Republican Pete Wilson, who was openly against rent control, was Governor of California when the bill entered legislation (Vanzi 1995). As the bill has aged, it has lost support among Democrats specifically in the Bay Area, with three assembly members introducing a bill earlier this year to repeal the Costa-Hawkins Act (CalRHA 2017).
The Costa-Hawkins Act placed state law at a higher jurisdiction than municipal law when concerning rent control. Prior to its enactment, fourteen cities had established rent control policy, with five of these fourteen cities imposing vacancy control (Holloway 1995). The state law essentially overrode all prior legislation, causing affected cities to submit to the state’s authority to implement such a blanket restriction. Now, over twenty years after it was signed in to law, the question remains whether the Costa-Hawkins Rental Housing Act did result in more affordable housing, or was a mistake by intruding on municipal ordinances.
On a case by case basis, enforcement of the Costa-Hawkins Rental Housing Act is largely up to the landlord and tenant. The Act is in favor of the landlord, so any provisions that the landlord is breaking would have to be brought up by the tenant. That being said, Costa-Hawkins is also enforced to ensure that landlords aren’t being subjected to local rent control ordinances, so long as they fulfill one of the requirements of Costa-Hawkins, such as rental housing constructed after February 1, 1995 or if the housing unit qualifies as a condominium or single-family home. Hence, enforcement of the Act is mostly settled in Court, whether the dispute is between Landlord and Tenant or between City Board and Landlord. For example, Mosser Companies v. San Francisco Rent Stabilization and Arbitration Board ruled against a landlord’s improper use of vacancy decontrol, stating that children are included as part of the original “occupants” even after the parents move out (Industry Insights). This is a typical example of enforcement of the Costa-Hawkins Act, as the legal ambiguity stems from uncertainty between local ordinances and state law.
Since the law’s inception, it has been challenged in court by both individuals and property companies. The 2009 case Palmer/Sixth Street Properties, LP v. City of Los Angeles addressed a discretion between the Costa-Hawkins Act and a local ordinance in Los Angeles. The city enacted an ordinance that required developers to include a certain number of affordable housing units within their new construction, or pay a fee to the city. Costa-Hawkins, however, protected the developer from having to oblige to these demands, as long as Palmer did not receive financial assistance from the local government (Industry Insights). The California Appellate Courts ruled in favor of Palmer, with the court’s opinion stating that Los Angeles’s “housing ordinance conflicts with and is preempted by the vacancy decontrol provisions of the Costa-Hawkins Rental Housing Act (Civ. Code, § 1954.50 et seq.; the Costa-Hawkins Act or the Act), which allows residential landlords to set the initial rent levels at the commencement of a tenancy” (Court of Appeals of California).
This ruling excluded rental units from the ongoing efforts to increase inclusionary housing, or sectors of new construction that are made affordable to low-income individuals or families. This establishment, however, received backlash from politicians concerned with the lack of affordable housing, who argued that Costa-Hawkins was spreading into unchartered waters that were not originally intended. In February 2013, Assembly Bill 1229 was passed by California legislature, specifically targeting the Palmer ruling on inclusionary housing. Section 2(c) states “While many of these local programs have been in place for decades, the recent decision in Palmer/Sixth Street Properties, L.P. v. City of Los Angeles (2009) 175 Cal.App.4th 1396, has created uncertainty and confusion for local governments regarding the future viability of this important local land use tool,” while section 2(a) cites 80,000 Californians that have benefited from approximately 30,000 units of inclusionary housing (AB-1229). Eight months later, however, Governor Jerry Brown vetoed the bill, reestablishing the power of Costa-Hawkins in this territory of rental legislation (California Apartment Association).
The enforcement of the Costa-Hawkins Act has been impacted by technicalities and seemingly inconsistent rulings by California courts. While the appellate court ruled in favor of the development company in Palmer v. City of Los Angeles in 2009, a similar case resulted in an opposite result in 2015. San Jose adopted an inclusionary housing ordinance after the Palmer case was decided, but was brought to court by the California Building Industry Association in a similar case to Palmer’s six years prior. In California Building Industry Association v. City of San Jose, the California Supreme Court ruled in favor of the city, upholding the inclusionary housing ordinance (Industry Insights). The city of Berkeley instituted a similar ordinance in 2012, requiring developers of new construction to either include affordable housing units or pay a fee. This “Affordable Housing Mitigation Fee” penalizes developers for not constructing affordable housing units by charging a fee, which parallels Palmer/Sixth Street Properties, LP v. City of Los Angeles. The city of Berkeley has been able to continue this arrangement, however, with the city council voting to increase the per-unit fee from $34,000 to $37,000 this past summer (Raguso).
The main purpose of the Costa-Hawkins Act is to reverse and reduce the onslaught of rent control throughout California while keeping housing affordable. Proponents of the bill hoped that the enactment would prompt new construction of rental units, while concurrently shifting the housing market towards equilibrium and eliminating the widespread misallocation. In recent years, however, Berkeley has been hit with unprecedented increases in rent prices, with the median cost peaking at $3,772 in February of this year. This number is more than double the national average of $1,400, and represents almost a 100% increase since 2011. Much of this increase can be attributed to 2015, which saw rates jump over 32% from 2014 (Berkeleyside). Low-income families and individuals have particularly felt the burden of high rent, with The Daily Californian reporting that Berkeley “produced only 14 percent of the housing production goal set by the Association of Bay Area Governments for moderate, low or very low-income units” from 2007 to 2014 (Koshino). Berkeley has also struggled with the development of new affordable housing, as mentioned above, possibly due to the lack of rent control. Based on this evidence, it seems that the Costa-Hawkins Act hasn’t had as positive an impact as planned, giving merit to past calls of repeal or reformation.
Recently, there has been a resurgence of talk to repeal the Costa-Hawkins Act. In February, four years after AB 1229 was passed by California legislature, a trio of Assemblymen introduced Assembly Bill 1506 which consisted of only one line of legislation – the repeal of the Costa-Hawkins Rental Housing Act (Khouri). This attempt at repeal resulted in an angry response from landlords statewide, and the bill is currently on hold until next year. It is unlikely for a full repeal to pass through California legislature and gain the Governor’s approval, but there is room for compromise. The Costa-Hawkins Act has two main provisions, the first limiting rent control and the second prohibiting the concept of vacancy control, or “strict” rent control. While over a dozen cities across California were affected by the first component of legislation, only five cities implemented policies of vacancy control, including Berkeley. Therefore, a possible reformation to the Act would be to repeal this second statute. Rent control would still be regulated, but for the units that are still able to be controlled, following the restrictions of Costa-Hawkins, the cities could enforce vacancy control. In other words, with this reform, Costa-Hawkins would limit the number of units affected by rent control, but allow a stricter control on these specific units. This reform could result in lower median housing costs, but may not be a complete solution to the affordable housing issue.
“A General Overview of California’s Costa-Hawkins Rental Housing Act.” California Apartment Association, June 2017, caanet.org/app/uploads/2015/01/Costa-Hawkins-Rental-Housing-Act.pdf.
“AB-1229 Land Use: Zoning Regulations.” California Legislative Information, California Legislature, 5 Sept. 2013
CalRHA. “LEGISLATIVE ALERT: Costa-Hawkins Rental Housing Act Threatened with New Bill.” California Rental Housing Association, National Apartment Association, 27 Feb. 2017, cal-rha.org/legislative-alert-costa-hawkins-threatened/.
Costa-Hawkins Rental Housing Act of 1995, CHAPTER 2.7. Residential Rent Control [1954.50 – 1954.535] (1995)
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Holloway, Stephen. “Assembly Bill 1164 – Bill Analysis.” California Legislative Information, 20 July 1995.
Khouri, Andrew. “The Largest Effort to Expand Rent Control in Decades Is on Hold in Sacramento.” The Los Angeles Times, The Los Angeles Times, 6 Apr. 2017
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Plaintiffs and Respondents, v. CITY OF LOS ANGELES, Defendant and Appellant. Court of Appeals of California, Second District, Division Four, 22 July 2009
Raguso, Emilie. “Despite Concerns about Lack of Data, Berkeley Votes to Increase Developer Fee.” Berkeleyside, 23 July 2017
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“The Average Rent in Berkeley Is $3,800 – What Does That Get You?” Berkeleyside, 10 Feb. 2017
“Update: Brown Vetoes Inclusionary Zoning Bill.” California Apartment Association, 16 Jan. 2015
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