And the winner is … real estate: Cali’s industry cleaned up on Election Day

How property owners staved off rent control and, it appears, a commercial property tax increase

Los Angeles /
Nov.November 05, 2020 02:20 PM
(iStock)
(iStock)

After a year struggling to collect rent, show homes and get loans, the California real estate industry won big on Election Day.

Voters defeated a ballot initiative that would have let cities and counties impose residential rent control. The margin of victory, 60 percent to 40 percent with nearly three-quarters of ballots counted as of noon Thursday, was decisive.

Another measure, which sought to raise commercial property taxes, seemed headed for defeat with “no” votes leading “yes” 51.7 percent to 48.3 percent.

And a ballot question financed by the California Association of Realtors to encourage home sales looks likely to pass. The current tally on Proposition 19 is 51.5 percent “yes” and 48.5 percent “no.”

With the votes not all counted, industry observers expressed more relief than triumph.

“I’m waiting for the next shoe to drop,” said Daniel Yukelson, executive director of the Apartment Association of Los Angeles, one of many landlord groups and property owners who financed the opposition to the rent-control question.

Proponents of rent control and higher property taxes, meanwhile, are searching for answers.

What’s next on rent control

“Housing affordability is the most important issue facing Californians,” said Mahdi Manji, a public policy advocate at Inner City Law Center, a legal nonprofit in Los Angeles.

So why did Prop 21, the referendum to largely repeal the 1995 Costa-Hawkins law barring local rent control, fail?

“It was going to be difficult fighting against landlords and big corporations,” Manji said. “And it goes without saying that it was an odd year.”

Throughout the pandemic, residential landlords have groused about being stuck in the middle between tenants not paying rent (and protected in California by an eviction moratorium) and lenders nonetheless demanding mortgage payments.

But the industry managed to scrounge up $96 million to campaign against the measure. Prop 21 supporters, with financing almost entirely from the AIDS Healthcare Foundation, raised $40 million.

“The number one reason Prop 21 lost is the money that went into defeating it,” said Eric Sussman, a finance professor at UCLA.

That money went to ads that sowed confusion about what the proposition would do, argued Casey Maddren, executive director at United Neighborhoods for Los Angeles.

“And the measure actually was confusing,” Maddren said, arguing that Prop 21 supporters made a tactical mistake by not proposing a clean Costa-Hawkins repeal.

Instead, Prop 21 imposed exceptions to the rent control measures that cities and counties can pass. “I looked through this, and was not sure how it would be rolled out,” Maddren said.

The AIDS Healthcare Foundation, run by executive director Michael Weinstein, opted against a straight undoing of Costa-Hawkins because such a ballot measure failed in 2018 by a nearly identical margin (59 percent to 41 percent).

The organization said Wednesday that it will “continue the fight for housing justice for California’s 17 million renters.”

It is not clear what the next stage of that fight will look like, though observers predicted state and local legislation that follows the Transit Oriented Communities initiative, which provides density bonuses for projects that include affordable housing.

Yukelson relished the idea that Prop 21’s defeat could shift tenants’ focus to development. “I would be happy to join Michael Weinstein at a ribbon-cutting one day,” Yukelson said.

An ownership society

One simple explanation of why Prop 21 failed is that two-thirds of voters were property owners, not renters, according to a pre-election survey by the California Public Policy Institute,.

Renters vote less, Maddren noted, and many who do vote see themselves as future owners.

The property owner mentality looks like it will prevail on Prop 15 as well, a landmark effort to repeal part of 1978’s Prop 13, the third rail of California politics.

The measure proposed to reassess most commercial property for tax purposes each year instead of just when a parcel is purchased.

Prop 15 would only apply to non-agricultural commercial properties taxed at least $4 million a year, but opponents ran a series of ads arguing it would devastate small business owners.

“I do think it could raise taxes on small businesses, and so the measure was ill-timed, especially when businesses are leaving California,” Sussman said.

Indeed, days before the election, brokerage giant CBRE fled its L.A. headquarters for Dallas.

Prop 19 was the brainchild of the state’s real estate agent lobby. The measure lets any property owner over 55 move into a new home while paying property taxes based on their old home’s assessment.

Prop 19 also proposed re-assessing homes passed on to children if the home is not the family member’s primary residence.

The campaign around Prop 19, though, was based on something else: wildfires. A provision in the ballot initiative would give the same tax breaks to owners of any age whose home was destroyed in a wildfire.

Critics say the advertising campaign was misdirection by the Realtors group, which is really looking to boost home sales. Sussman credited the lobby with making their interests “politically palatable.”


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