California Prop 21
Here we go again. My firm has axed CA from our target list since 2018, how are you all viewing this and what is your prediction?
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I'm not sure what you expect here. I doubt anyone browsing the WSO Real Estate forum is in favor of rent control.
California has a massive NIMBY problem that drives their housing affordability crisis. They need to build far more units and at a far greater pace than they current have and are. Rent control obviously does the opposite of this and encourages slumlord behavior on top of that. It looks like Prop 21 is attempting to address this by restricting post-vacancy rent increases, so landlords have less incentive to act like shits in order to get the tenant to vacate, but that still fails to address the actual issue.
If you read through their findings and declarations, they specifically mention:
1. The rate of people renting vs. buying is at an all-time high.
2. Median rents in California are the highest in the country and has the 4th highest growth rate.
3. California renters are overburdened with housing costs.
4. There are way more homeless people in California than other states.
Well, 1 and 3 on some level have far more to do with the millennial generation being completely overburdened with student loans and living through two recessions, but 2-4 are solved by building more housing and apartments, not by providing disincentives to develop additional housing.
To be fair, #4 might also be in part because of the weather and relatively benign attitude of CA towards homeless people. They aren't blaring "Baby Shark" in public places to keep the homeless from sleeping there, like in some other states
The initiative changes the cut off for rent control from 1995 to a rolling 15 years. How much would it really affect a potential developments underwriting that the building could be under rent control 15 years after completion?
It becomes more unpredictable but if you take the time to understand your market, it’s pretty clear which ones could institute draconian rent control versus others. It won’t be bad, and the winners will be sensible investors who actually took the time understand the likelihood of RC in their target markets. You cannot just run away from a $3t economy, it’s stupid. Especially an innovation based economy. Plenty of real estate lobbying power in LA and SF. Orange County to SD likely is not going to institute controls. Once property tax revenues begin to fall due to lack of development in niche markets then the city councils will come around.
I think this is an over simplistic, and naive answer. The way CA ballot measures work it would take another Proposition to reverse this measure. This is the same issue the split roll is facing from the original 1978 Prop 13 victory. Do you really not think cities realize this was a short sided approach to rising single family taxes? If you think Prop 13 is the 3rd rail of CA politics wait till a state that's predominantly renters is asked give up the safety of vacancy control after getting used to it for 10 years. CA has been trying every which way to make up the shortfall but over time these ballot measures have proven quite powerful. To say city councils would come around, yes, I agree, but what tools would they have to reverse vacancy control? Sure, I could see cities seesawing back and forth every 5-8 years once they realize how absolutely terrible this measure is for everyone but what does that do to investment in these markets? The entire appeal of multifamily is steady cashflow and yields. If you start whiplashing vacancy controls every few years it blows up the entire system and money will fly out of the state faster than it is now.
I realize that is this passes nothing on the surface actually changes but the uncertainty this brings to operators, equity groups, and lenders would be insane. And as someone who has been buying/building deals here for the last 7 years there is zero way we build out of this crisis on our own. Politics, over regulation, special interest groups and just general NIMBYism have made this impossible. It's going to take a bipartisan approach at the state and federal level to solve. Bottom line is VOTE and let's hope the CAA can get something moving legislation wise so the industry doesn't have to waste $100M every two years fighting this non-sense. If not I'm afraid the Yes side will eventually get their message right and CA will be relegated to eastern bloc state run housing projects.
A-fucking-men. No matter what state you're in, you should donate to the PAC, because this shit is moving across state lines (https://noonprop21.vote/donate/). Also, buy John Eudy a beer the next time you see him; that dude is taking a lot of heat for all of us.
Prop 21 did not pass, phew! Prop 15 still has no official decision yet.
Big win for common sense
looks like none of the shitty real estate props will be passing. amazing how on the ballots these incredibly complex measures like prop 15 are described as "raising property taxes to put more funding into public schools" without any mention of the negative externalities that could/would arise
Didn’t prop 21 get defeated meaning there won’t be more rent control?
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