Last year’s expensive battle over a California ballot measure that would have allowed cities to expand rent controls should be a wake-up call for the real estate industry, National Multifamily Housing Council vice president Jim Lapides said during ULI’s Housing Opportunity 2019 conference in Newport Beach, California.
California voters soundly defeated Proposition 10, but it was one of the costliest ballot initiatives in U.S. history, with groups spending more than $100 million to either support or defeat the initiative.
“We cannot keep having these fights,” Lapides said. “It behooves us to come to the table with real workable solutions that are palatable to policymakers and their constituents.”
Lapides moderated a panel focused on the new reality of the polarizing rent-control debate. With rental rates skyrocketing in cities around the country, more states are exploring ways to protect tenants and address the mounting issues of affordable housing, without wading into the controversial morass of rent control.
The movement is gaining steam, said David Garcia, policy director at the Terner Center for Housing Innovation at the University of California, Berkeley.
“Despite the outcome of Proposition 10, the topic and issue of tenant protections is still on top of everyone’s mind, not just in California, but a lot of places,” he said.
There are ways to “thread the needle” without raising cost or suppressing construction, Garcia said. “There is a potential for policies that provide protections but don’t hinder the supply” of new housing, he said.
The Terner Center studied the issues in California last year, testing different options with stakeholders, and settled on two recommendations, Garcia told the audience. One was statewide antigouging legislation to “stave off the most egregious form of rent increases,” he said. The second was a focus on incentives to create more affordable housing in market-rate projects.
Tax incentives have been effective in helping create more supply in places like Seattle, where 7,600 below-market-rate units have been developed since 2008, he said. “We found this could be a potentially powerful tool to increase supply,” Garcia said. “Our position is that while talk is about tenant protection, the long-term solution is to increase the supply, at all levels.”
The city of Minneapolis is focusing much of its efforts on preserving the existing stock of affordable housing, particularly unsubsidized “naturally occurring” affordable housing, said Andrea Brennan, housing policy and development director for the city. The effort started with identifying the different types of affordable housing throughout the city.
“The key is getting really good data,” she said.
The city established a preservation fund for Naturally Occurring Affordable Housing Preservation (NOAH), backed by $4.5 million to help acquisition of property. The city also formed a partnership with a nonprofit land bank that can acquire smaller properties to create portfolios of affordable housing that might be more attractive acquisitions for larger nonprofit or community groups.
More recently, the city began experimenting with offering a property tax break to property owners in exchange for restricting rents on 20 percent of the rental units for the next 10 years. Since rolling out the program in December, the city has received applications covering more than 700 units, Brennan said.
The city is also trying to bring more focus to tenant protections. Traditionally, Minnesota has been a staunch “anti–rent control” state with a high number of evictions, Brennan said.
“There is a lot of attention currently on strategizing to reduce and mitigate evictions in the city,” Brennan says.
Simply placing restrictions on affordable housing is not enough, said Stephanie Reyes, state and local policy manager for Grounded Solutions Network, the affordable housing group formed in 2016 by the merger of the National Community Land Trust Network and Cornerstone Partnership. The real issue is that most homes are built without any lasting affordability requirements attached to them, she said.
“Even if you look at subsidized housing stock, much of [it] has relatively short affordability terms, 15 to 30 years,” she said. Restrictions on close to 1 million units will expire in next decade, and many will leave the affordable housing market, she said. Ultimately, it is “so much easier to preserve affordability of an existing unit than build a new one,” Reyes said.
Her group is focused on three solutions: inclusionary housing policies, which typically have affordability terms of 30 years or more; community land trusts, which can provide “perpetual affordability”; and lasting affordable audits. Cities like Pittsburgh are rewarding landlords who commit to longer affordability terms, she said. In Seattle, the city’s Housing Levy program includes funds for operation and maintenance of affordable housing units in the program, “which I consider an excellent best practice,” Reyes said.
As a “cautionary tale,” Reyes pointed to Montgomery County, Maryland, which created 12,000 affordable housing units with a program that started in 1973, but initially restricted rents on the units for only five to 10 years. Although the county eventually changed its policies, by 2005 there were only 3,000 of the affordable units left.
“The moral of the story is, don’t be like Montgomery County of 1973,” Reyes said.
The panelists agreed that new approaches are necessary. Funding programs through property tax increases only makes homes less affordable, Brennan noted. It is essential that investment and revenue to fund affordable home program comes from sources other than property tax, she said. “It shouldn’t be only real estate that carries the burden,” as other sectors recognize the importance of affordable housing, Brennan said.
Any new ballot initiatives will need to recognize the scars from recent battles, Garcia said. Stakeholders will need assurances they’re “not going to have another Prop. 10 battle” in a few years, he said.