California's Rent Control Initiative Goes Down in Flames

California voters roundly rejected rent control for the third time in six years tonight.

With 51 percent of the vote reported, Proposition 33—which would have repealed all state-level limitations on local rent control policies—is capturing the support of just 38 percent of voters. The New York Times is declaring the initiative done and dusted.

This is the third failed ballot initiative sponsored by the AIDS Healthcare Foundation (AHF) that would have loosened or repealed California’s state-level limits on rent control. Prop. 33 could also be the AHF’s last ballot initiative.

That’s thanks to the apparent (narrow, but not yet confirmed) victory for Proposition 34, which would effectively prevent AHF from spending money on political activism.

Prop. 34 requires beneficiaries of federal discount prescription drug programs to spend 98 percent of their revenue on direct patient care.

AHF benefits from just such a federal program that requires pharmaceutical companies to sell their drugs at discounted rates to hospitals and other organizations that primarily serve low-income patients. Those discount drug–buying organizations are then allowed to bill federal insurance programs like Medicare and Medicaid the standard reimbursement rates for those drugs.

The AHF has benefited handsomely from this program through its network of discount pharmacies serving AIDS patients. It has spent the proceeds on the heterodox pet causes of AHF President Michael Weinstein, which includes supporting rent control policies.

In 2018, 2020, and 2024, the AHF spent tens of millions of dollars running ballot initiatives that would have repealed state-level rent control limitations and given California municipalities a freer hand in regulating rents.

Prop. 33 was the organization’s most sweeping initiative of the trio. Its brief text says that “the state may not limit the right of any city, county, or city and county to maintain, enact or expand residential rent control.”

That seemingly simple language would have had far-reaching consequences if the initiative had passed.

Current California law forbids localities from imposing rent control on newer properties and most single-family homes. It also guarantees landlords’ right to raise rents to market rates when a new tenant moves into a vacant, rent-controlled unit—a policy known as “vacancy decontrol.”

These state-level guardrails have prevented localities from adopting the most destructive forms of rent control. By preventing localities from rent-controlling new construction, state law preserves developers’ incentive to build new units. By guaranteeing vacancy decontrol, state law ensures landlords can raise rents enough to cover renovations and property upkeep.

Academic research and recent history are crystal clear that municipal rent controls on new construction kill off new housing construction. Likewise, rent control without vacancy decontrol is a recipe for creating dilapidated properties and vacant, unrentable units.

Roughly thirty municipalities have adopted rent control subject to these state restrictions, including the major cities of San Francisco, San Jose, and Los Angeles.

Already, San Francisco and Los Angeles were chomping at the bit to enact more sweeping rent control policies if Prop. 33 passed. Its failure means that these cities will have to continue to regulate rents within state-established safeguards.

Prop. 33′s crushing defeat also safeguards state-level YIMBY (“yes in my backyard”) policies that require local governments to approve denser, more affordable housing types that wouldn’t otherwise be allowed by local zoning laws.

Had Prop. 33 passed, local governments could have prevented paper-legal YIMBY-approved developments in practice by attaching affordability mandates to them. State laws allowing apartments on commercial corridors wouldn’t matter one lick if local rent control policies required all those new apartments to be rented out at heavily discounted, below-market rates.

Some NIMBY (“not in my backyard”) local politicians who’ve opposed new housing at every turn had already said they’d adopt those ruinous rent controls to thwart housing construction legalized at the state level.

The defeat of Prop. 33 doesn’t solve California’s housing crisis. There’s still much deregulation to be done.

But it does mean that localities won’t have free rein to adopt the worst forms of rent control. Should Prop. 34 also pass, AHF’s pro–rent control machine will also be starved of the funds needed for a fourth ballot initiative.

The post California’s Rent Control Initiative Goes Down in Flames appeared first on Reason.com.

Source: https://reason.com/2024/11/06/californias-rent-control-initiative-goes-down-in-flames/