BILL ANALYSIS
AB 1164
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REPLACE
( Without Reference to File)
CONCURRENCE IN SENATE AMENDMENTS
AB 1164 (Hawkins) - As Amended: July 20, 1995
ASSEMBLY VOTE: 74-0 (April 20, 1995) SENATE VOTE: 24-11 (July
24, 1995)
Original Committee Reference: H. & C. D.
DIGEST
Existing law:
1) Makes no statutory provision for, but does not prohibit, the
adoption of local rent control ordinances. Case law, Birkenfeld
v. City of Berkeley (1976) 17 Cal. 3d 129, held that rent control
is a proper exercise of a local government's police power if it is
reasonably calculated to eliminate excessive rents and at the same
time provide landlords with just and reasonable returns on their
properties.
2) Provides that the right to control rents on housing units
financed by the California Housing Finance Agency (CHFA) or the
Department of Housing and Community Development (HCD) resides with
CHFA or HCD and the units cannot be subject to rent control
imposed by any state or local agency.
3) Local ordinances, establish residential rent controls which may
be generally categorized as "strict" or "moderate." Strict
rent control is characterized by the continuing control of rent
when a unit becomes vacant, and prohibits a rent increase when
a new tenant occupies the unit - vacancy control. Moderate
rent control does not control the rent on a unit when it
becomes vacant and permits the rent to rise to the market rate
when a new tenant moves in. After this new rent is determined,
the rent is again controlled - vacancy decontrol.
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Vacancy control ordinances are in place in Berkeley, Santa
Monica, Cotati, East Palo Alto and West Hollywood.
4) Local ordinances, apply to single- and multi-family rental
housing with a variety of exemptions. Ordinances may exempt
from rent control single family residences, including
condominiums, owner-occupied duplexes or triplexes, or all
developments of four units or less. The City of Los Angeles,
for example, exempts luxury units, single-family detached homes
and second units from rent control, but not condominiums. Most
ordinances exempt new construction.
5) Provides for various housing programs, including the Senior
Citizen's Shared Housing Program, the Mobilehome Parks for
Senior Citizens Demonstration Project, the Low Income
Management Training, the Urban Homestead Program, the
Transitional Housing Rental Deposit Guarantee Program, Housing
for Prison Employees, and Second Unit Financing.
As passed by the Assembly, this bill stated legislative intent to
streamline and improve state housing policy by repealing obsolete,
outmoded, and inoperative programs and statutes, and repeals the
programs identified in #5 above.
The Senate amendments establish a comprehensive scheme to regulate
local residential rent control, which shall be known and may be
sited as the Costa-Hawkins Rental Housing Act, as follows:
1) Establishes vacancy decontrol for residential dwelling units
where the former tenant has voluntarily vacated, abandoned, or
been evicted pursuant to a three-day notice to pay or quit.
a) Specifies that the rental rate of a dwelling or unit whose
rental rate is controlled by ordinance or charter provision in
effect on January 1, 1995, shall until January 1, 1999, be
established as follows:
Upon a vacancy, as specified, an owner of residential real
property may, not more than twice, establish the initial rental
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rate for a dwelling or unit in an amount that is no greater
than 15% more than the rental rate in effect for the
immediately preceding tenancy or in an amount that is 70% of
the prevailing market rent for comparable units, whichever
amount is greater.
b) This provision would not apply if the rent control is
pursuant to an agreement between the local public entity and the
owner for a "direct financial contribution" or other specified
assistance from the locality. It would also not apply to impair
any obligation of contracts entered into prior to January 1, 1996.
2) Exempts from local controls, but provides a three-year
phase-in similar to that described above, for a single family
home, condominium, townhouse, specified community apartment
projects and stock cooperatives, and any dwelling unit which could
be sold or transferred separately. This "single-family"
exemption, however, provides that any tenant in place prior to
January 1, 1996 and who remains after the three-year phase-in
would remain covered by the local rent control ordinance.
3) Exempts from local controls any new construction which is
issued a certificate of occupancy after February 1, 1995, and
exempts from local controls any residential real property which is
already exempt from local controls as of February 1, 1995 pursuant
to a local exemption for newly-constructed units.
4) Provides that this bill would not affect any authority of a
public entity that otherwise exists to regulate the basis for
eviction (such as local just cause eviction ordinances).
5) Provides that an owner may increase the rent by any amount to a
sublessee or assignee where there is a rental agreement
prohibiting subletting or assignment and the original
occupant(s) who took possession no longer permanently reside
there.
6) Exempts from the bill any dwelling or unit which contains
serious health, safety, fire or building code violations, as
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specified.
7) Delete the repeal of the Senior Citizen's Shared Housing
Program and Second Unit Financing.
FISCAL EFFECT
No state effect. Minor local, non-reimbursable costs associated
with the application of different local standards; state-mandated
costs waiver because the bill would not result in any net costs to
local agencies.
COMMENTS
1) Fourteen cities impose rent control on residential units. This
bill applies to residential rent control, as follows:
a) Five vacancy control cities would be affected: Berkeley,
Cotati, East Palo Alto, Santa Monica and West Hollywood.
b) This bill exempts from rent control single-family
residences and other similar units upon the first vacancy after
January 1, 1996. The cities affected are: Berkeley, East Palo
Alto, Los Angeles, Oakland, San Francisco, Santa Monica and
West Hollywood.
c) The only rent control cities which do not exempt new
construction from rent control, and therefore, would be
affected by this bill are East Palo Alto, Cotati (partial
exemption) and Los Gatos (partial exemption).
d) According to information furnished by opponents of the
bill, this measure would affect (upon first vacancy) 52,000
single-family homes and similar units and 79,800 apartments
units.
SINGLE FAMILY HOMES APARTMENTS
AND CONDOMINIUMS
San Francisco 27,000 Santa Monica 34,500
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Los Angeles 10,900 Berkeley 25,200
Oakland 5,000 West Hollywood 17,300
Santa Monica 3,700 East Palo Alto 2,800
Berkeley 2,200
______________________________
West Hollywood 2,200
East Palo Alto 1,000 TOTAL APARTMENTS
79,800
____________________________
TOTAL SINGLE FAMILY
AND CONDOMINIUMS 52,000 TOTAL ALL UNITS
131,800
2) Proponents view this bill as a moderate approach to overturn
extreme vacancy control ordinances which unduly and unfairly
interfere into the free market. Strict vacancy control laws
deter construction of new rental housing and discourage new
private investments. Strict rent control laws encourage some
owners to take their units off the market or to sell the
property.
Further, vacancy control laws are extremely burdensome and
expensive to administer. For example, the Santa Monica Rent
Board has a budget of $4.7 million to regulate about 27,000
units. In contrast, the City of Los Angeles's Rent Board
budget is $7 million to regulate 500,000 units. Vacancy
control results in the availability of fewer affordable housing
units to tenants.
Proponents of this bill state that census data shows that
between 1980 and 1990, the total of renter-occupied housing
units decreased in Berkeley, Santa Monica and West Hollywood
while the number of rental units in the
surrounding counties increased.
Proponents contend that a statewide new construction exemption
is necessary to encourage construction of much needed housing
units, which is discouraged by strict local rent controls. In
support, the California Bankers Association (CBA) states that
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from a lender's perspective, extreme vacancy control ordinances
have a negative impact on the qualification of prospective
borrowers who wish to secure a loan with residential property
subject to the rent control law. The property owner/borrower
cannot adjust rents to meet market conditions and obtain a
sufficient revenue stream to properly maintain or improve the
property, which can adversely affect the borrower's ability to
repay the loan. CBA contends that under strict vacancy control
ordinances, there is no incentive for the construction of much
needed new multi-family residential housing.
3) Opponents argue that this bill is an inappropriate intrusion
into the right of local communities to enact housing policy to
meet local needs. Local officials and residents make
deliberate choices to address the unique needs of their own
communities.
It is pointed out that this bill affects four jurisdictions,
East Palo Alto, Berkeley, Santa Monica and West Hollywood, all
of which are built-out communities surrounded by higher-priced
housing markets. In such fully built-out communities there
will not be enough new construction to ensure affordable
housing.
Opponents also dispute assertions that rent controls have
caused massive reductions in the number of available rental
units in rent control jurisdictions, and contend instead that
reductions are due to factors such as property owners choosing
to sell their single family houses when prices
were extremely high, owners choosing to "go out of business"
under the Ellis Act or selling to the existing tenants as
"tenants-in-common" pursuant to local ordinances.
Finally, opponents assert that this bill would cause housing
prices to spiral, with the result that affordable housing would
be available to fewer households.
4) This measure also eliminates programs which are sunset, are
moribund due to a lack of funding for several years, or embody
ideas whose time never came.
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Analysis prepared by: Stephen Holloway / ahcd / 445-2320
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