Will Prop 10 Solve the Housing Crisis?

SAN FRANCISCO—According to the California secretary of state, Proposition 10 initiative statute expands local governments' authority to enact rent control on residential property. It would repeal state law that currently restricts the scope of rent control policies that cities and other local jurisdictions may impose on residential property. It would have a potential net reduction in state and local revenues of tens of millions of dollars per year in the long term, and depending on actions by local communities, revenue losses could be less or considerably more, says the state voter guide.

In this exclusive, John Sebree, first vice president and national director, national multi-housing group with Marcus & Millichap, recently weighed in on the downside of Prop 10, its impact on rental properties and what a yes vote would mean for the California housing crisis.

GlobeSt.com: What is Marcus & Millichap's position on Prop 10?

Sebree: Proposition 10 fails to address the underlying housing challenges faced by California residents, and instead it opens the door to a broad range of unintended consequences. Californians face elevated housing costs that stem from an imbalance in supply and demand, and Proposition 10 does nothing to solve this important issue. Strong population and job growth, generally a blessing for a state economy, has dramatically outpaced housing construction, particularly in the major metropolitan areas. As a result, a shortage of workforce housing has driven home prices and rents upward significantly. Proposition 10 would create significant new risks for Californians while failing to solve the housing problems it targets.

GlobeSt.com: How did the firm come to establish its position about Prop 10?

Sebree: Marcus & Millichap engaged a range of industry-leading professionals including housing experts, economists and public policy leaders to carefully review Proposition 10. They considered not only implications of the proposition itself, but the underlying causes of the challenges it intends to resolve. Upon studying the cause and effect of Proposition 10, the team concluded that it does not address the problem and it will make the state's housing problems worse.

GlobeSt.com: What do proponents claim about Prop 10?

Sebree: Proponents claim that rents are too high and that they want to lower housing costs. That's it. Their solution, however, benefits very few people, and it will create additional barriers to adding housing supply where Californians need it most.

GlobeSt.com: Why do you believe it will not fulfill those claims?

Sebree: Strong job creation and population growth have outpaced housing construction. This imbalance that pushed up housing costs at an above-average rate in California. To balance the economic scale, an increased supply of housing is needed, particularly in the metropolitan areas with the strongest employment growth. Prop 10 does nothing to increase the number of housing units. This proposition works against housing development in California by adding bureaucracy and restricting economic incentives that lead to construction. That will only worsen the situation.

GlobeSt.com: What are the major impacts to tenants, landlords and the real estate industry?

Sebree: First let's briefly look at the impact on California's economy. If California does not devise a strategy to increase the amount of workforce housing throughout the state, areas with a workforce housing shortage will restrain the growth of companies doing business in those areas. Businesses in other parts of California can still grow and hire new employees but the overall lack of housing makes it a less desirable destination for companies.

If Prop 10 is passed, it will allow rent control boards to implement vacancy control. Currently vacancy control is not allowed under Costa Hawkins and landlords are able to calibrate rents on vacant units to market levels. If vacancy control is implemented, it will likely raise operating expenses faster than rents rise, reducing owner's ability to maintain the quality of the property.

GlobeSt.com: If Prop 10 is approved, how do you see renters getting the help they need?

Sebree: If Prop 10 passes, only a select few renters will benefit from the overall effect. To really address the issue and assist renters statewide, California needs to devise and implement a comprehensive strategy to greatly increase the number of new housing units built for working-class families. On a basic level, the problem as it stands is one of supply and demand. Demand for housing in California has risen dramatically and supply has not kept up. Balancing the scales requires a significant amount of new workforce housing be produced. To accomplish this, the state needs to streamline the development approval process, reduce soft costs involved in the development of new units and address issues associated with the California Environmental Quality Act/CEQA that needlessly restrain housing construction. In recent years, CEQA has been abused by those who oppose new development. Delays from CEQA-related lawsuits dramatically increase the costs of delivering new housing and limit the ability of the state to address workforce housing needs.

GlobeSt.com: What are alternative solutions to the housing crisis?

Sebree: The fundamental solution to the housing crisis is providing additional housing in areas where it is needed most. To accomplish that, California needs to make it much easier and less costly to build new homes in the state. This can be achieved by streamlining the laws, building permit process, CEQA and architectural standards so developers can deliver units that meet the needs of the workforce. Not only will this alleviate the housing crisis, but it could enhance California's appeal to businesses, fueling long-term economic growth for the state.

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Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.