The Costa-Hawkins Rental Housing Act ("Costa-Hawkins") is a California state law, enacted in 1995, which places limits on municipal rent control ordinances. Costa-Hawkins preempts municipal rent control law in two major ways. First, it prohibits municipalities from establishing rent control over certain kinds of residential units (e.g., single family dwellings, and newly constructed units, which are both deemed exempt). Second, it prohibits municipal "vacancy control", also called "strict" rent control.
In vacancy control a city's ordinance works to deny or limit an owner's ability to increase the rental amount to new tenant(s), even in cases where the prior tenant(s) voluntarily vacated the unit or were evicted for cause (such as failing to pay rent). In other words Costa-Hawkins, in prohibiting vacancy control in the above circumstances, mandates that cities allow the apartment owner the right to rent it when vacant at any price (i.e., market price).
The Act also repeals or reforms various California state programs that subsidize qualified renters of residential dwellings. These provisions are mentioned below, but are not the focus here. The Act's 3-year phase-in for vacancy decontrol, and these reforms, complicate the language of the Act.
Video Costa-Hawkins Rental Housing Act
Factors causing 1970s rent control
The late 1970s saw the initial enactment of many rent control ordinances in California, and nationwide. Rising real estate values and surging interest rates made single family homes in California less affordable. Disappointed buyers often moved into apartments. A rental housing shortage appeared, rents went up. For chiefly non-housing reasons (e.g., land use), cities began restricting the building of new dwelling units. As prices rose for rental housing properties, return on investment and cash flow motivated new landlords with mortgages to raise rents. State and federal low-income housing assistance fell. Inflation was economy-wide, yet wages and salaries also fell. The consumer movement and Proposition 13 effects then stimulated tenant activism in municipal politics.
The issues involved in rent control are usually complex, multi-dimensional, and compelling, with discussions running the risk of corresponding overstatements. Some proponents may mention "rent gouging" while some opponents might say rent control creates slums. "The range of assertions by rent control combatants [can be] astonishing." In the worse case, the "debate becomes a hollow clash of extremes, and the results are an uninformed electorate, rash policy, and a divided community." In 'second generation rent control' the issues have become more articulated, yet still contested.
Maps Costa-Hawkins Rental Housing Act
The Costa-Hawkins legislation of 1995
Political events leading to the Act
In 1972 Berkeley became the first California city to adopt a post-war rent control ordinance. In 1976 Governor Jerry Brown, a Democrat, vetoed state legislation that would have preempted local rent control laws. It'd been supported by a mainstream real estate group, the California Housing Council (CHC). In response to the veto, the real estate industry eventually managed to get an initiative, Proposition 10, on the state ballot for 1980. It was soundly defeated, however, 65% to 35%.
In the meantime, in June 1978 Proposition 13 had been approved two to one by California voters. Before the election Howard Jarvis, the leader of the Prop. 13 'taxpayer revolt', as well as the California Apartment Association, had suggested that landlords might lower rents if Prop. 13 passed. Many voters were said to have thought that Prop. 13, by lowering landlord property taxes, meant lower rents. The CHC, fearful of a tenant backlash if landlords failed to follow through, decided to oppose Prop. 13. Despite post-election efforts by Gov. Brown and the CHC, few landlords lowered their rents.
Across California urban tenants suddenly felt their numbers, formed local groups, which quickly grew in strength and intensity. Soon activists were organizing political action directed at state and city government. Gov. Brown's new 'tenant hot line' was getting 12,000 calls a day. "In response to tenant pressure, rent strikes, and steady news coverage about rent increases and angry tenants, especially seniors, the Los Angeles City Council passed a six month rent freeze in August 1978." By 1988, fourteen cities had adopted full rent control, and sixty-four rent control for mobile home parks.
The strength of the tenants groups, however, eventually began to dissipate. Yet CHC attempts to partially preempt rent control were thwarted by Democrats, led by State Senator David Roberti, until term limits forced his retirement in 1995. On the other hand, Democrat Jim Costa in the Assembly had carried unsuccessful preemption bills since 1983 for the real estate industry. He was now in the Senate, where his 1995 bill passed the Judiciary Committee; absent Roberti, it drew Democratic votes. The bill then passed the Senate with one vote "more than the majority required."
The Act: sponsors, and opposition
The Costa-Hawkins Rental Housing Act became law in 1995, codified as Civil Code, §§ 1954.50 to 1954.535. The legislation's sponsors were Jim Costa, Senate - Fresno, Democrat, and Phil Hawkins, Assembly - Bellflower, Republican. Introduced first in the Senate, the text of the legislation became Assembly Bill 1164. After enduring several negotiated changes, it had passed in both chambers. The Republican Governor Pete Wilson then signed AB 1164 into law.
Although understood as limiting rent control, an agenda more favored by Republicans, some Democrats supported the Act. The pro-tenant Western Center on Law and Poverty (WCLP) had endorsed several features of the Bill that served tenant interests: the prohibition of rent increases "if serious health, safety, fire, or building code violations were discovered and not corrected for six months," and some claims by subtenants to lower rent under an existing tenancy.
WCLP especially sought to organize the opposition, to "piece together a coalition" of scattered local groups (tenants, senior citizens, religious affiliated), together with California cities with rent control. Accordingly Santa Monica, Berkeley, and West Hollywood contributed funds to hire a lobbyist. A concession obtained was the 3-year phase-in of vacancy decontrol. Yet the capitol consensus was that Costa-Hawkins was a "done deal" and the opposition a "last gasp". With defeat and what they viewed as a rollback of some tenant advantages, rent control advocates became uneasy at the challenge to their victories of the 1970s and 1980s.
The Act's provisions as codified
The Costa-Hawkins legislation is found in the California Civil Code, sections 1954.50 to 1954.535.
The Act exempts single family dwellings, and new construction. It prohibits local government "vacancy control" in most situations. For the five cities with "vacancy control" the Act is phased-in. It situates government contracts with owners about rent charged, and the effects of a notice of violation, e.g., about health or safety. Costa-Hawkins also addresses subtenancies, and other issues.
2002 Amendment to the Act
The Act was amended in 2002 to close a loophole related to condominium conversion. It prevented owners of apartment buildings, who obtained a certificate for conversion, to avail themselves of the Act's exemption to rent control law, without actually selling any of such apartments as condominiums.
Rent control in California
Legal context
Declared purposes
Rent control is usually a city-made law (municipal ordinance) aimed at mitigating the disruptive effect, on neighborhoods and on individual renters, of escalating or fluctuating prices in the residential rental market. It may also seek to promote the maintenance of safe and habitable dwelling units during housing shortages.
An example of such city intent is San Francisco's Residential Rent Stabilization and Arbitration Ordinance (SFRO), enacted in 1979 as an emergency ordinance amending the San Francisco Administrative Code. It found that, in the face of tight markets and significant rental increases prior to rent control, "some tenants attempt to pay requested rent increases, but as a consequence must expend less on other necessities of life. This situation has had a detrimental effect on substantial numbers of renters in the City, especially creating hardships on senior citizens, persons on fixed incomes and low and moderate income households".
Constitutional limits
For the California State Assembly its analyst Stephen Holloway commented on the constitutional and legal context of rent control, specifically between the state and local governments (e.g., cities). When Costa-Hawkins was enacted, existing
California law made "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."
In the 1997 Kavanau case, a property owner challenged Santa Monica's rent control as a form of "taking" or inverse condemnation prohibited by the federal Constitution. The Supreme Court affirmed the rulings by lower state courts in favor of the City. In 2005 the Court of Appeal in the Berger Foundation case upheld an ordinance which provided that the city council sitting as a rent board would determine what was fair, just, and reasonable regarding an owner's comparable return on investment. The ordinance did not establish a specific formula or procedure to apply when faced with a requested rent increase, but instead stated eleven factors to consider. Here the board had then relied on an expert's opinion.
Usual provisions
Rental amount
Often the chief provision regulates the dollar amount charged the tenant each month. A primary intent of rent control is usually to limit an owner's ability to raise the rent.
Percentage. A maximum permitted price increase may be expressed as a percentage of the existing rent. For example, Alameda 5%, Hayward 5%, Los Angeles 3%, Los Gatos 5%. In 2016 San Jose lowered the allowable annual rent increase from 8% to 5% of existing rent. In 2017 in Beverly Hills by an emergency ordinance the rent raise maximum plunged from 10% to 3%.
CPI. Or rent raise limits may be directly keyed to changes in the cost of living, as measured by the Consumer Price Index (CPI). Since 1980 in California the CPI has generally been lower than 5%. Examples of rent control ordinances using CPI as an index: Oakland, Mountain View, Richmond. In San Francisco the SFRO limits annual increases to the lesser of 60% of the CPI or 7% of existing rent. Similarly, the Berkeley Rent Board allows an annual increase of 65% of CPI.
Vacancy control, in which the amount of rent charged for a rental is strictly regulated by local government, is discussed below in "Initial effects of Costa-Hawkins".
Other elements
Among the issues a municipal rent control ordinance might address:
- additional exclusions,
- rent mediation boards,
- condition of premises,
- rent registries,
- no-cause terminations,
- relocation allowance.
No-cause terminations. A no-cause (or no-fault) rental termination by the owner is one that does not state a "just cause" (such as non-payment of rent, or a tenant-created nuisance). A city may require some form of "just cause" for an owner to terminate. No "just cause" is required of evictions under state law. Other justifications may constitute "just cause": (a) pursuant to government order; (b) to allow the owner's family to occupy the unit.
Relocation allowance. A city ordinance may require the owner to pay the departing tenant an allowance for moving and similar expenses, e.g., in event of no-fault termination. Each city has its own specifics. The tenant will not receive such an allowance in the event of "just cause" terminations, where the tenant is at fault (such as non-payment of rent, or creating a nuisance). An owner's decision to end an existing tenancy (whether simply by notice or by eviction) without the tenant being at fault, might trigger his duty to pay the allowance. Withdrawal of a unit from the residential rental market is governed by the Ellis Act.
Vacancy control. Discussed below at "Initial effects of Costa-Hawkins".
Opposition to rent control
Generally economists find fault with how rent control works over time: it reduces the supply of housing. In making the opposition argument, such general principles have been applied to California.
Original rent control efforts sought to provide the public with affordable housing, but caused a fall in the number of new units being built, thus aggravating the housing shortage. Subsequent rent control laws exempted new construction. Yet such regulation also removes incentives to improve, or even maintain, older housing stock. It encourages owners to convert rentals to condos for sale or to other uses. Rent control laws provide short-term benefits without distinction: what is relief to low-income citizens, is windfall to wealthy renters. In dwelling units where municipal controls have set the rent below market, tenants stay longer, reducing the number of rentals available. Then market rents charged to new tenants go higher: (a) as owners counterbalance their rent-control losses, or (b) as builders of new units price the market demand versus supply.
Economic conclusions are subject to interpretation by the public. Rent control for some can translate into higher rent for others. Is it to be deemed good that the added benefits to the favored people in rent controlled units are almost cancelled by the program's combined detriment to the welfare of the whole community of renters? Is there an alternative? The authors of a recent 'Stanford paper' state, "If society desires to provide social insurance against rent increases, it would be more desirable to offer this subsidy in the form of a government subsidy or tax credit."
List of California cities
Over the last fifty years, out of a total of 482 California cities, perhaps two-dozen have enacted rent control ordinances, or lesser laws. A city may later discontinue its rent control, e.g., Santa Rosa recently voted to repeal its new rent control law.
With rent control ordinances
Fifteen cities are currently listed as rent controlled by the State of California: Yet three of theses cities are not listed here, but further below: Campbell (does not have rent control per se, but offers a mediation service), Fremont (rejected rent control in 2017), and Thousand Oaks (has limited rent control-only for mobile home parks).
The remaining twelve: Berkeley, Beverly Hills, East Palo Alto, Hayward, Los Angeles, Los Gatos, Oakland, Palm Springs, San Francisco, San Jose, Santa Monica, West Hollywood.
In addition, three cities not listed above have rent control: Alameda, Mountain View, Richmond.
With elements of rent control
Some cities have element(s) of rent control, including these six (two control only for mobile homes, and four offer a mediation service): Campbell, Cotati, Gardena, San Leandro, Thousand Oaks, Union City.
Which refused rent control
Recently, three cities have either voted to repeal a rent control ordinance, or otherwise declined it: Fremont, Glendale, Santa Rosa. During the years 1977 to 1983, the "voters of 22 cities [rejected] 27 proposed rent control initiatives." Among cities avoiding rent control: Pasadena (1977), Santa Barbara (1978), Santa Cruz (1979), Long Beach (1980), and San Diego (1980).
Initial effects of Costa-Hawkins
The major purposes of the Act were: to eliminate vacancy control and thereby reestablish an intermittent role for market forces (supply and demand) in setting the rental price; and, to exempt certain categories of rental units from rent control, e.g., new construction, and single family dwellings and condominiums. The exemption for new units sought to encourage housing supply.
Vacancy control prior to the Act
Most rent control ordinances (deemed moderate) limit an owner's ability to increase the rent to an existing tenant. Yet some strict rent control regimes also limited the rent a landlord could charge on the open market, that is, after the apartment became vacant by the voluntarily exit of the prior tenant, or vacant by a just cause eviction. Hence, strict was also called vacancy control. The controlled rental amount thus became specific not only to a particular tenancy, but also to a specific rental unit.
Under such a "strict" regime, market forces are excluded from price determination (except for exempt categories, such as newly built units). Prior to the enactment of Costa-Hawkins, such strict vacancy control had existed in five cities: Berkeley, Santa Monica, Cotati, East Palo Alto and West Hollywood.
Rent control elements denied to cities
Costa-Hawkins preempted local laws to allow 'vacancy decontrol', i.e., to permit landlords to "establish the initial rental rate for a dwelling or unit" following voluntary departure by the prior tenants. This preemption (abolishment of "vacancy control") was phased-in over three years. Accordingly, on January 1, 1999, it went into full effect.
The Act additionally exempted from municipal rent control certain kinds of dwelling units, namely, "separately alienable" units, i.e., single family houses and condominiums. The Act also exempted new construction, i.e., dwelling units with a certificate of occupancy issued after February 1, 1995.
Rent control elements retained by cities
The power to determine most of the elements of rent control (mentioned above) were left to the cities by the Act. Cities remain in control of determining any changes to the rental amount of a tenancy, under constitutional limits. Cities possess a substantive jurisdiction to regulate evictions, and an owner's ability to otherwise end a tenancy. Accordingly, cities could prohibit an owner from terminating a tenant without "just cause". Also in terminations, the city by ordinance may place costs on an owner, and grant rights to a tenant, e.g., the relocation allowance.
Court interpretations of Costa-Hawkins
In the two decades the Act has been on the books, a number of lawsuits have been filed citing it. Of those appealed, some became written case law. The 2009 Palmer case 'unexpectedly' upset local laws for inclusionary zoning per rental units. A few other cases are also discussed here. There remain questions about how to apply the Costa-Hawkins statute within the larger legal framework, e.g., its possible interaction with various, adjacent state statutes, and with varieties of municipal rent control and other ordinances.
Palmer (2009): rentals in inclusionary housing
'New construction' exemption applies
In Palmer/Sixth Street Properties LP v. City of Los Angeles (2009), the issue involved how to apply Costa-Hawkins to an inclusionary housing ordinance of the City of Los Angeles. Inclusionary housing laws (also called inclusionary zoning) apply to the construction of new multi-unit developments and seek to mandate the inclusion of some affordable units with price controls, along with a larger number of units to be sold on the free market. About one-third of California cities and counties have inclusionary zoning ordinances. Such laws might require, beside affordable units for sale, units for rent. In this case, a Los Angeles housing ordinance in effect mandated that sixty rentals for low-income tenants be included in Geoff Palmer's 350-unit development west of downtown.
The appellate court held, however, that the exemption from rent control of new construction under Costa-Hawkins applied to the particular facts of this case. Thus the city could not enforce its housing mandate against the real estate developer.
2013 attempt to partially repeal Act
The Palmer case thus removed rentals from the usual formula of inclusionary housing. Critics claimed, however, that the appellate court's opinion was "widely viewed as a misapplication of the Costa-Hawkins Act to a situation it was never meant to address." It sparked a political response in 2013. The California legislature passed Assembly Bill 1229 "to re-establish the legitimacy of affordable housing requirements for rentals."
Governor Brown's veto message
In October 2013 Governor Jerry Brown vetoed the bill. He explained:
"As Mayor of Oakland I saw how difficult it can be to attract developments to low and middle income communities. Requirements to developers to include below-market units in their projects can exacerbate these challenges, even while not meaningfully increasing the amount of affordable housing in a given community."
Advocates of affordable housing felt stymied. Yet then available were alternatives that avoided the exemption for new construction under Costa-Hawkins: "the builder receives either financial assistance" or other valuable consideration such as a density bonus, and "agrees by contract with the city to restrict rents."
Certificate of occupancy
In 2014 the California Court of Appeals first clarified the provision concerning a rent-control exemption based on a "certificate of occupancy issued after February 1, 1995." It actually means the "first" certificate of occupancy authorizing the "first" residential use. Burien, LCC v. James A. Wiley holds that Costa-Hawkins does not apply to a building converted from apartments to condominiums, with a new certificate issued for the latter use. The statute's exemption is meant to promote development, not to promote token reclassification without a positive net effect on the residential housing supply.
Mosser rule: children per 'vacancy control'
In January 2015, the First District Court of Appeals decided that, while Costa-Hawkins allows a landlord to establish a new rental rate where the "original occupants" on the lease no longer permanently reside at the premises, this decontrol was not available to the landlord where a minor child, who moved in with his parents at the commencement of the lease, remained there after they had vacated. In Mosser Companies v. San Francisco Rent Stabilization and Arbitration Board, the appellate court affirmed the trial court's judgment. Commentary on the case states that Costa-Hawkins, "as written, does not permit vacancy decontrol until all lawful occupants vacate the premises." This, despite the landlord's argument that this constituted an intergenerational tenancy of a rent-controlled premises.
The Mosser rule was then expanded in July 2015 by the First District Court of Appeals, in T & A Drolapas v. San Francisco Residential Rent Stabilization and Arb. Bd.. This decision dealt with similar facts (a landlord attempting to raise the rent of the son of original lessees who had moved out). The court first found that, as the family had moved in prior to the enactment of Costa-Hawkins, even if the son was merely a subtenant, he would have been grandfathered in. Such a "subtenant" could be an "original occupant". The court, however, went on to find that he was also an original occupant under the Mosser rule, even though, unlike in Mosser, there was no evidence that the landlord knew about the son when the tenancy commenced.
Termination notice and 'vacancy control'
In the September 2015 case Jason Mak v. City of Berkeley Rent Stabilization Board, the First District Court of Appeals interpreted Costa-Hawkins in the context of an evidentiary presumption in Berkeley's rent ordinance that presumes that, where a tenant has moved out after a termination notice, the tenant moved out because of the notice. One accepted way for a landlord to take possession of a rental unit is to use an "owner move-in" eviction, which is recognized as "just cause" to terminate a rent-controlled tenancy. Of course, the landlords are then required to move in and make the rental unit their residence for some minimum period (e.g., 36 continuous months). The Costa-Hawkins Act will generally decontrol a vacant unit, i.e., allow it to be rented at market rate. But such decontrol is usually limited to the prior tenant's voluntary move-out, or to a "just cause" termination. Usually the owner cannot, therefore, initiate the termination of a rent-controlled tenancy without "just cause", then rent it at market rate to a new tenant.
The landlord in Mak served the tenant a notice of termination for an 'owner move-in'. But the landlord rescinded the notice, then entered into an move-out agreement with the tenant, in which the tenant recited that he was not moving out because of the prior notice. The landlord did not move-in, of course, but instead rented the premises to a new tenant. The Berkeley ordinance in question, when applied to these facts, raised the presumption that the tenant moved out because of the owner move-in notice. The landlords were not able to rebut this presumption when their new tenants challenged the validity of their market rate rent. Accordingly, the vacant unit was still linked to the amount of the previous controlled rent, a situation to which the new tenants were entitled.
Recent events in California
Shortage of affordable housing, & HAA
The housing cycle that began with the crisis of the 1970s and 1980s has apparently come full circle. A new housing shortage has apparently reached a crisis stage. In a 2014 California treatise on real estate development, the authors opined:
"[C]ommunities across California continue to confront the challenge posed by a scarcity of housing, particularly of affordable housing. In the last several decades, housing production in the state has lagged behind population and job growth, resulting in a housing deficit. ... While all citizens feel the impact of this housing shortage at some level, those with incomes at the lowest end of the economic spectrum of often bear the brunt of the shortage."
Regarding the shortage in California, the Housing Accountability Act (HAA) was recently strengthened by amendments. Its 2016 version states: "(a) The legislature finds and declares all of the following: ¶(1) The lack of housing, including emergency shelters, is a critical problem that threatens the economic, environmental, and social quality of life in California. ¶(2) California housing has become the most expensive in the nation. ... ."
Here the legislature, seeking to overcome the shortage by increasing the supply, imposed detailed limits on local government's power to restrict new housing construction. The recent HAA amendments, signed by Gov. Brown, were sponsored by three Democrats: Nancy Skinner, Senate - East Bay, Raul Bocanegra, Assembly - Pacoima, and Tom Daly, Assembly - Santa Ana.
2017 efforts to repeal Costa Hawkins
On February 17, 2017, in the California Assembly, Democratic members Richard Bloom, Rob Bonta, amd David Chiu introduced AB 1506, a bill that if passed would simply repeal wholesale the Costa-Hawkins Rental Housing Act of 1995. Given the preemptive nature and the exclusions included in Costa-Hawkins, a repeal would leave much of the regulation of residential rental pricing and other rental issues to local governments. By April the bill was facing stiff opposition and bleak prospects in the legislature. It was then "parked in committee" until next year.
On October 23, 2017, the Alliance of Californians for Community Empowerment (ACCE) filed papers with the state Attorney General for a ballot measure which would also repeal wholesale the 1995 Costa-Hawkins Act. The current rents across California ACCE describes as too high, as out of control. The proposed initiative has yet to receive an official name. To qualify for a November 2018 vote by the public, 365,880 signatures are apparently required.
Bibliography
- W. Dennis Keating, Rent Control in California. Responding to the Crisis (Institute of Governmental Studies, University of California, Berkeley 1983), 24 pages. Accessed 2017-10-17.
- Allan David Heskin, Tenants and the American Dream. Ideology and the tenant movement (New York: Paeger 1983), re Santa Monica.
- Paul L. Niebanck, editor, The Rent Control Debate (University of North Carolina 1985), the editor was a UCSC professor.
- Peter Dreier, "Rent Deregulation in California and Massachusetts: Politics, Policy, and Impacts - Part I" (1997), "Part II" (1997), at International and Public Policy Center, Occidental College, Los Angeles. Accessed 2017-11-6.
- Cecily Talbert Barclay & Matthew S. Gray, Curtin's California Land Use and Planning Law" (Point Arena: Solano Press 34th ed., 2014).
- West's California Jurisprudence 3d, v. 42: Landlord & Tenant (Toronto: Thomson & Reuters 2016, update 2017).
- Nils Rosenquest, David Brown, & Janet Portman, The California Landlord's Law Book (Berkeley: Nolo Press 2017).
- Nancy C. Lenvin & Myron Moskovitz, "Practicing under Rent and Eviction Control Laws," Chapter 7 in California Landlord-Tenant Practice (Oakland: California Continuing Education of the Bar: updated 2017).
References
External links
- Dailycal.org
Source of the article : Wikipedia
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