The Housing Protection Double Standard: Rent Control vs. Proposition 13

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At a minimum, landlords should have to choose: accept rent control in exchange for property tax control, or set rents at market rates and accept market value for tax purposes.

Let’s touch the third rail of Culver City politics and at least talk about rent control. That conversation will be more honest and productive if we dispense with the usual bogeyman: that policies to stabilize rents and protect tenants are some kind of deviant meddling with the otherwise pristine “free market.”

Here in California, there is a specific and galling hypocrisy invoking “the market” to justify runaway rents. That is because Proposition 13—whose main proponent, Howard Jarvis, was a lobbyist for landlords—specifically overrides the market when setting real estate values for property tax purposes. Instead, the law substitutes a fictional, government-mandated valuation: the price at purchase, even if that was forty years ago and a world away.

Culver City is no stranger to the housing crisis that is prompting calls for strong action across the state. I routinely hear about huge rent hikes year after year and neighbors who expect to soon be forced out of their homes and neighborhoods. Fear of rent hikes or retaliatory evictions leads tenants not to seek repairs or other action from their landlords.

Not only individual families, but the whole community suffers. Skyrocketing housing costs are threatening the racial and economic diversity Culver City rightly touts, and that makes our schools a place where I am proud to send my children. Uncertainty about the future strains the fabric of civic life as people hesitate to invest in a place they might soon have to leave.

Existing homeowners, however, are insulated from these pressures. Proposition 13 provides property tax control. This advances, for homeowners, goals similar to what rent control would provide to tenants. It enables residents to stay in their homes and maintain their communities in the face of rising property values rather than being forced out by rising taxes.

Renters, however, are denied similar protections. Instead, rising housing demand allows landlords to jack up rents or convert to condos. Not only does this damage families and the whole community, but it often delivers windfall profits to landlords. When housing prices are rising generally, either because of broader trends or the community’s own wise decisions and determined actions, landlords get to cash in on something others created.

Not only do landlords get to convert rising property values into rent increases, but their own property taxes stay artificially flat, ignoring the very thing that lines their pockets on renters’ backs. That happens because Prop 13 treats commercial real estate just like owner-occupied housing. Another windfall, thanks to the same kind of nonsense that animates Citizens United and the idea of corporate personhood elsewhere in law. These windfalls are even more troubling at a time when the recently-passed federal tax bill delivers tax breaks tailored to the real estate industry (and its President).

Landlords shouldn’t have it both ways: if the market is good enough to set rents, it’s good enough to set the tax base.

At a minimum, landlords should have to choose: accept rent control in exchange for property tax control, or set rents at market rates and accept market value for tax purposes. The first choice gives renters the same protections that homeowners get against being displaced by rising housing demand. The second choice at least forces landlords to share their profits with the community that created them by making it an increasingly attractive place to live. So when landlords object to rent control as interfering with the “free market,” they are trying to have it both ways. They want to charge their tenants rents set by market demand, but they want their own taxes to ignore the market value of their property as a whole. This is absurd.

A variety of state and local policies could level the playing field. One approach could be modeled on the deal the Affordable Care Act offered employers: either provide health insurance to your workers or pay into the public system. Similarly, landlords could choose between committing to stable rents or paying their Proposition 13 windfalls into a fund for programs that increase housing affordability and protect renters from displacement. An interesting variant on that idea nearly became law by ballot measure in San Francisco months after Proposition 13 passed statewide: Measure U would have required landlords to pass on their property tax savings to tenants. After landlords successfully campaigned against the measure, the city then adopted rent stabilization instead.

The state also could close the loopholes that allow landlords to evade rent control where it exists while still keeping their Proposition 13 benefits. For instance, “new construction” allows landlords to remove their property from rent control under the Costa-Hawkins Act, yet it does not trigger an updated property tax assessment. Similarly, the Ellis Act allows even rent-controlled units to be converted into condos or single-family homes while remaining sheltered from property tax updates.

Short of rent control, one way to correct these imbalances between landlord windfalls and tenant losses locally is through just-cause eviction protections. These policies are in place in many cities (such as Glendale). They protect tenants who are evicted for the landlord’s own economic gain—not because of any misconduct by the tenants. Such tenants have rights not only to appropriate advance notice of eviction but also to relocation payments that mitigate the financial costs of moving itself.

There are ample complexities to any policy in this area, but now is the time for creative and courageous solutions. One way or another, landlords shouldn’t have it both ways: if the market is good enough to set rents, it’s good enough to set the tax base. And Culver City homeowners should appreciate the fundamental unfairness, and “unneighborliness” of accepting Proposition 13’s protection for our housing stability while failing to insist that renters in our communities get equivalent protection.

 

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