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Proposition 21 will be on the ballot for California voters this election year. In this essay, I will highlight some of the most important, and often unknown, aspects of this proposed law.

The greatest virtue of Proposition 21 is that it expands the power of local governments to enact rent control laws in their jurisdictions. The state government, centered in Sacramento, has the power to regulate rents statewide, and has used this power to severely restrict what local governments can do. For example, state law prohibits local governments from regulating rents on any buildings built in the past 25 years.

In Sacramento, legislation is often dictated to officials by the lobbyists for the self-serving, superrich corporate residential property owners. Prop 21provides a way around that corruption. Thus, as I will discuss further below, Prop 21 answers the democratic call of “Power to the People.”

While popular participation in local government is often low, Prop 21 provides a powerful incentive for people to start to take part in their local governments.

At the local level, the people can be closer to the law making process. By their very presence they can pressure local officials to disregard the demands of corrupt lobbyists, and vote in the people’s best interest. While popular participation in local government is often low, Prop 21 provides a powerful incentive for people to start to take part in their local governments. Not only will folks experience the intrinsic rewards of feeling the power of self-governing and collective action, as I will show in a moment, they can be paid to play. 

Prop 21 offers a huge opportunity to expand democratic self-government in California. If America was founded as an “Experiment in Democracy,” then Prop 21 is a fully American measure. Prop 21 can, and should in my view, be seen not simply as an economic relief measure, but as a new step in Human Liberation.

Current Rent Control Law

There are just over a dozen local governments in California that have enacted rent control provisions in their jurisdiction. Los Angeles, Santa Monica, and San Francisco are among them. Prop 21 will allow those laws to stand, if that is what the people want. Or, the people can change those laws to better suit their needs.

As I mentioned, rent control in California is also regulated statewide by laws passed in Sacramento. Three of these laws are especially relevant to Prop 21.

First, Costa-Hawkins prohibits rent control on buildings built in or after 1995. Even in the dozen or so cities that have rent control, the reach of their ordinances is barred from post-1995 buildings – a 25 year period, and continuing.

The second statewide law is known as “AB 1482." Signed by Governor Newsom in November 2019, the law took effect on January 1, 2020. It has two very significant provisions. One ostensibly sets a statewide cap on rent increases at 5%. But the law also allows rent increases to include an adjustment for the local inflation rate, which is generally figured at about 3%. In practice, then, AB 1482 would supposedly cap rent increases at 8% per year, but if inflation is higher, an increase can go up to 10%. Landlords can take the increase even if the local inflation does not affect them. It’s a gift from the state. Landlords, then, can still enjoy a substantial profit.

AB 1482 also enacts a “just cause” requirement for evictions. Now, landlords cannot arbitrarily evict a tenant without a legally acceptable reason; such as, non-payment of rent, creating a nuisance, or causing a health hazard.

Unfortunately, AB 1482 is set to expire in 2030, unless extended by a new law. But by that time, the Governor may not be as friendly to renters as is Newsome. He or she could veto any extension of this rent control and eviction protection measure. Or, the Legislature at that time might decline to renew that law, and let it die. So, for housing rights advocates, this is unfinished business.

A third statewide law has recently been enacted by Sacramento, just for the Coronavirus Pandemic. On August 31, 2020, Governor Newsom signed into law AB 3088. Although complex, this new law generally stops evictions for nonpayment of rent through January 31, 2021, if the non-payment is COVID-19 related. But it requires that the tenant give the landlord written notice to that effect. At least 25% of the rent must be timely paid. The non-paid portion is not forgiven, and can be collected through small claims court, if not paid. However, eviction is not allowed for that unpaid money.

If Prop 21 is passed, the Costa-Hawkins provisions will be stricken from the books. But the other laws mentioned will continue in effect, until they expire. In the meantime, local governments can be more restrictive, but not less restrictive, on rent control than is AB 1482 or AB 3088. Prop 21 has no eviction protection provision, but the statewide eviction protections of AB 1482 and AB 3088 will continue until they expire – generally, in 2025 for AB 3088, and in 2030 for AB 1482.

What New Powers are given to the People by Prop 21?

Technically, Prop 21, which is entitled the “Rental Affordability Act,” it is NOT a “rent control” measure. It does not say how much rents should be. Nor does it proscribe any limits on rent increases. It simply empowers local governments to control rents. Every local government will be free to work the will of its people.

Suppose the people of a city or county agree with Bernie Sanders and Alexandria Ocasio-Cortez, who have proposed bills for national rent control, with increases generally capped at 3%

Under Prop 21, a local government would have the power to enact a 3% cap on rent increases.

However, a 3% cap on rent increases still leaves rents where they are, even though they may be outrageously high. But Prop 21 empowers local governments to go much further than merely capping increases on already too high rents. 

There is no law requiring that the term “rent control” must be restricted to caps on increases. Prop 21 is a new law, inviting new meanings to old terms. Section 7 states that “This act shall be broadly construed to accomplish its purposes.” These purposes include improving the quality of life for the people in a jurisdiction, especially by ensuring affordable rental housing. This “broad construction” rule invites innovation.

Also, section 5 of Prop 21 recognizes that landlords are entitled to a “fair rate of return” on their rental property investments. This principle has long been a part of California law.

Under Prop 21, the term “rent control,” then, can be re-defined to mean that the amount of rent a landlord can charge must be limited to a “fair rate of return” on his or her rental property investments. Rather than a fixed cap on rent increases, rents as such can be subjected to the test of the fairness of the landlord’s “rate of return,” or profit. In this way, instead of a 3% cap on rent increases, a city or county could enact an ordinance setting the “fair rate of return” at 3%.

The law is well established in California that a local government can define for its jurisdiction what the phrase “fair rate of return” for investments on residential property means (TG Oceanside, L.P. v. City of Oceanside, 2007).

One way to set an amount for a “fair rate of return” is to look at comparable businesses in the city or county. By this standard, 3% is a generous profit for the landlord. Grocery stores generally make less than a 3% profit. Since both housing and food are necessities of life, allowing a roughly comparable profit seems eminently fair.

A 3% cap on profits not only benefits tenants, but landlords as well. Under a rule fixing a 3% cap on rent increases, landlords could profit more as costs went down, or profit less as costs went up. In fact, they could wind up losing money if rising costs exceeded a 3% increase on incoming rents. Landlords have to pay for such costs as maintenance, insurance, property taxes, utilities, and mortgage payments. If these went up over 3%, while rent increases were limited to 3%, the landlord could end up in bankruptcy. But a 3% profit rule would be an advantage to landlords whose costs went up, because he would be allowed to raise the rent accordingly. An additional advantage for tenants is that as costs for the landlord went down, he or she would have to down size the rents accordingly to stay within the 3% cap on profits. There would be no gift of a cost of living increase for the landlord who didn’t really need it.

While a 3% cap on rent increases is a rigid rule, a 3% cap on profits will be adaptable to changes in the economic environment. Another advantage for landlords is that Prop 21 section 6 allows them to raise rents on vacated apartments up to 15% over the prior rate.

Prop 21 offers a great incentive for builders to construct new residential buildings. For instance, section 5 states that landlords can charge whatever rental amounts they choose for 15 years after obtaining a certificate of occupancy, or permit for renting residences. On the other hand, that provision also means that each year, a formerly uncontrolled building slips into the scope of the rent control ordinance of the local government. This “Quinceañera Rule” will grow the number of units under rent control every year.

Local ordinances may also be able to provide that a landlord who tries to squeeze more than a 3% profit from his tenants can be challenged by any of his tenants in small claims court. If so, the court could determine the amount overpaid, and order it refunded.

Roll Backs and Claw Backs

As noted, a 3% cap on rent increases leaves rents where they are, even though they may be outrageously high. Setting a cap on profits, rather than on rent increases, would provide a standard by which to justify another democratic innovation in the landlord/tenant relationship, which Prop 21 makes possible.

A city or county may be able to exercise its “rent control” powers by using the standard of a “fair rate of return” as a measure, not just for capping rent increases, but by which to Roll Back currently excessive rents. An ordinance could order that current rents be brought into compliance with this new measure. A local ordinance could also empower renters to Claw Back the unjust profits a landlord has made, for example, over the past 5 or 10 years. These provisions would surely be challenged in California courts. But claw backs are well within a court’s equity powers, so they could be allowed under Prop 21’s “broad construction” mandate.

How would claw backs work? A tenant could sue a landlord in small claims court. If the tenant could show, after discovery, that his or her rent over the past 10 years caused him or her to overpay a fair amount by, say, $10,000, the court could order that amount refunded. With this precedent, other tenants could negotiate their own claw back agreements. While these actions are not specified in Prop 21, they are made possible if the measure passes.

Roll backs of rent, by the government, are lawful in California; indeed, when AB 1482 was enacted to put a cap on rent increases, it set the basic and fair rent at the rates in effect on March 15, 2019, although it was not signed into law until November 2019. Presumably, under AB 1482, overpayments could be ordered refunded in small claims court.

History

Our landlord/tenant relationship has roots in feudalism. Feudalism lasted for over 1000 years in Europe. For a large part of that time, serfs, although human beings, were deemed by law to be a part of their landlord’s estate. If he sold a portion of the estate, the serfs on it became part of the new landlord’s property.

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Many factors contributed to the demise of feudalism. Ironically, one of these was the Bubonic Plague, a pandemic which killed tens of thousands of serfs and landlords. Then, serfs without estates to live on, began migrating to towns to find work. They rented housing. Out of the mix of events came the idea that people who were formerly serfs were becoming “free agents,” who could enter into contracts, such as for employment and the rent of residencies. The role of “serfs” gave way to the modern notion of “free agency.”

But that idea was always a myth. Desperate migrants in towns were never agents with bargaining power equal to that of landlords or employers, any more than starving peasants were the equals of rural landlords who employed them and to whom they paid rent. In our time, when all the landlords raise rents in equal amounts, tenants are not, in reality, free to move to a more affordable place to live. There really is no “free agency” among tenants in California. Under current law, rental agreements in such unfair conditions are called “contracts of adhesion.” That is, contracts to which one side was not a free agent, but really had no choice but to accept. (In California, the Superior Court has the power to invalidate contracts of adhesion, and award just compensation to the injured parties. Perhaps a class action lawsuit is warranted. (Some extremists even blame the landlord’s victim by claiming the rents only go up because people pay them. But when all the rents are high people are forced to pay them if they are to have housing. The landlord is predator, not victim.)

Now comes Proposition 21. By moving the power to set rents to elected local governments, Prop 21would suddenly transfer enormous Power to the People. This would revolutionize the old landlord/tenant relationship. An activist people could use the power of their local government to compel landlords to be fair in their dealings with tenants. Tenant exploitation, still widespread, would be brought to an end.

Arguments against Prop 21

Maintenance

Opponents of Prop 21 argue that rent control will discourage landlords from keeping their buildings in good shape.

Not true. Landlords are required by law to make necessary repairs, or tenants can do them and deduct the cost from the rent. Also, as discussed above, the flexibility of a 3% cap on profits would let landlords recover their maintenance expenses.

New Construction

Opponents of Prop 21 argue that rent control will take away the incentive for developers to build more apartment buildings.

This is untrue. Prop 21 allows newly constructed residential buildings to be free of rent control for a full 15 years after they are built. That is ample time to recoup the costs of construction and make a hefty profit.

The Law of Supply and Demand

Some opponents of Prop 21 argue that rents are set by the so-called “law of supply and demand,” and that landlords are not responsible for rent increases. (Some extremists even blame the landlord’s victim by claiming the rents only go up because people pay them. But when all the rents are high people are forced to pay them if they are to have housing. The landlord is predator, not victim.)

This, of course, is a complete sham. Rental rates are always the result of the personal decisions of landlords to see what they can squeeze from tenants. As landlords see how much one of them is able to force from tenants, they will all declare “here’s the Market Rate!” Then they, too, will jack up their rents. When all the rents in an area are outrageous, tenants don’t have an option to move, they must pay or face eviction. The costs and life-disruption of moving, are not justified when the next landlord will surely be as grasping as the last.

The so-called “law of supply and demand” is never more than a cover for the selfish predators to use to duck moral responsibility for the choices they make.

Prop 21 presupposes that the landlord’s behavioral choice to be greedy must be restrained by the rules of a democratically responsive local government.

Prop 21 is the same thing as Prop 10, which was defeated by 60/40 in 2018

Not true. Prop 21 is NOT the same as the old Prop 10. Past mistakes have been corrected, as discussed in this essay.

Your own home could be put under rent control

Totally false. Prop 21 prohibits rent control on small landlords who just have one or two properties.

Rent Control Board

Prop 21 neither mentions, nor requires, instituting a Rent Control Board in a city or county. It lets the people in the locality decide that.

Campaign Strategy

1. Avoid our Past Mistakes

The campaign of 2018 emphasized the repeal of Costa-Hawkins. This was a mistake. Many in the voting public didn’t know what that was, and thus had no strong feelings about its repeal. When the purpose of a ballot measure seems confusing to the voters, they tend to vote no. Thus, Prop 10 lost to a 60% no vote. The good news is that the 40% yes vote shows a strong interest in supporting a clearly written rent control measure among California voters. Prop 21 is a clearly written measure – it empowers local governments to pull the reigns in on landlord greed.

The references to Costa-Hawkins that were in old Prop 10 have been removed from Prop 21.

Now, if we are to learn from our mistakes, there should be no references to Costa-Hawkins in the Yes on Prop 21 campaign.

The new campaign would do well to emphasize Prop 21’s democratizing of the landlord/tenant relationship so that the renters themselves, through their local governments, can compel fairness from landlords.

2. Prop 21 is about Empowerment not Charity

Prop 21 can help reduce homelessness by making rents more affordable. But actually helping to house the homeless is not its aim. Indeed, numerous laws to help house the homeless are currently being passed and acted upon at the state and local level in California. Over a billion dollars has been allocated to begin these efforts.

In the campaign for Prop 21, appeals to pity for the homeless misrepresent the purposes and possibilities of the measure. Rather than a gift to the poor, Prop 21 actually puts more responsibility on the people for the control of the rent they pay than they have ever had. Prop 21 is not a handout; indeed, it requires a lot of work at the local level if it is to succeed.

3. Show the future of rents without Prop 21

The YES campaign would do well to stress the rate of rental increases over the past 10 years, and project them over the next 10 years. The amounts are scary.

Conclusion

Prop 21 is an opportunity for Liberation Politics. Although on a smaller scale, Prop 21 is in the mode of Women’s Liberation, Black Liberation, and Gay Liberation. It has the potential to empower tenants to throw off the chains that landlords use to oppress, and to nearly enslave, them. Indeed, having to pay as much as 50% to 70%, or more of your monthly income to the landlord is close to enslavement; especially when there is no place affordable to which to move.

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Because Prop 21 gives more Power to the People, a YES vote on Prop 21 is a YES vote on DEMOCRACY!

William J. Kelleher, Ph.D.