Prop 10 and Los Angeles Real Estate (The Dummy's Guide)

At this point you’ve probably heard the term “Prop 10” come up many times, but what exactly is it and how does this affect anyone who lives in Los Angeles? Read on for the dummy’s guide to get a quick understanding.

Rent control in Los Angeles

The city of Los Angeles is one of 15 California cities that enforce rent control regulations, which includes laws that prevent exorbitant increases in rent by putting a cap on annual rent increases for eligible units. For example, renters in LA should only see their rents rise on average between 3-8% annually. This percentage is tied to the CPI (Consumer Price Index). Aside from putting caps on rent increases, the regulations also provide protections against wrongful eviction and in some cases financial resources if the renter is forced to move out.

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Costa–Hawkins Rental Housing Act (1995)

Costa Hawkins is a California state law that sets requirements for 15 cities in California with rent control.

The main 3 provisions include:

  1. Prohibits cities from establishing rent control over certain types of residential units: single family homes, condos and newly constructed apartment units.

  2. Prevents cities from establishing rent control on units constructed after Feb 1995.

  3. Protects the landlord’s right to raise the rent to market rate on a unit once the tenant moves out.

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What is Prop 10?

Prop 10 repeals state law that currently restricts the scope of rent control policies. Remember how rent control currently doesn’t apply to certain types of property such as single family homes? Voting YES for Prop 10 could potentially expand rent control to these other types of residential units.

Renters typically are in favor of Prop 10 because they believe rents are too high. They want cities to be able to pass laws limiting rent increases.

Homeowners and developers tend to be against Prop 10, arguing that it creates a new government bureaucracy by controlling what they can/cannot do to their own private residence. It could potentially make homes more expensive for future buyers and hurt families trying to purchase their first home.

Those against Prop 10 argue that rental regulations would only slow the construction of new housing units in California. California’s housing crisis is fueled by a shortage of at least 2 million units and the only solution is to build more affordable homes.

According to a source, the fight for stronger rent control in California seems to be headed for a “fiery demise.” According to the latest poll by the Public Policy Institute of California, 60% of likely voters will vote against Prop 10. 53% of renters are against it and 63% of homeowners are opposed.

To read more on arguments in favor of/against Prop 10, click here.


How does this affect LA property?

Existing homeowners who are landlords will likely sell their property to cash in on equity, especially if there are enforced caps on rental increases. Alternatively, landlords who are not presently under rent control will likely push more long term rental units into the more lucrative Airbnb market or simply take their properties off the market. This could in turn result in less properties available for rental, which would only exacerbate the lack of affordable housing on the market.

The current climate of LA’s property market

Overall there has been a recent slow down in price growth in the LA market, particularly in the luxury market. Homes are still increasing in value every year, but you will be seeing a lot less multiple offers on homes and more inventory available. Buyers in LA will have more access to listings and there will be a shift towards a buyers market. Regardless of whether Prop 10 passes or not, if you have the means to invest in real estate - it seems wise to do so now. Interest rates are on the rise, which will likely drive supply up and prices down to a more affordable level.