Do not mess with the Costa-Hawkins Act in California.
That’s the message voters delivered on Nov. 5, when they sided with landlords — for the third time since 2018 — in rejecting Prop. 33 by a comfortable margin of 61.4 percent to 38.6 percent, according to election results updated Friday morning.
The measure would have repealed the 1995 legislation that acts as a bulwark against proliferating local rent control ordinances in California, enshrining into law certain protections that landlords have come to rely on, including vacancy decontrol and exemptions for newly constructed buildings and single-family homes.
The idea of unraveling Costa-Hawkins first reared its head nearly a decade ago, when AIDS Healthcare Foundation CEO Michael Weinstein — previously known for dreaming up iconoclastic safe sex billboard ads and opposing high-rise housing development in Hollywood — decided to take up a new cause.
The nonprofit health network funded two previous ballot proposition campaigns in 2018 and 2020. They both failed.
‘Absolute miracle’
But this year’s campaign with $50 million in funding to pass Prop. 33 was the biggest effort yet, and it struck fear into the hearts of multifamily owners while also sewing division among housing advocates who came out for and against it.
“It’s an absolute miracle,” said Henry Manoucheri, CEO of Universe Holdings in Los Angeles, which owns 52 multifamily properties. “This has been casting a dark cloud on the industry. We banded together and fought back.”
The campaign to oppose Prop. 33 raised about $124 million, according to Cal Matters.
Manoucheri launched Universe in Southern California 30 years ago, just before state lawmakers passed Costa-Hawkins. Freed from the threat of what Manoucheri called “anti-business” price controls, his operation grew quickly. The company’s portfolio features 7,000 rental units nationally, with most of it concentrated in Los Angeles and neighboring counties.
But that started to change recently. As the housing debate grew more rancorous on his home turf, Manoucheri began investing in other markets as a hedge against California.
“We’ve been buying out of state more than ever in the past two years,” Manoucheri said. “These left lunatic radical policies have been an ongoing threat.
“We brought some sanity to this insanity,” he said, referring to the regulatory environment in the state.
Some form of rent regulation is on the books in U.S. cities across seven states and the District of Columbia, including the nation’s biggest housing market, New York City. There are also more than three dozen cities in California with rent control ordinances that can’t be fully enforced under Costa-Hawkins. Twenty-three of them were passed in the last five years, according to an analysis by the California Apartment Association.
But these local ordinances actually have a counterproductive effect on housing affordability, according to Jared Barton, professor of economics at California State University Channel Islands in Camarillo.
“You can find records of price controls in imperial Rome, so this goes back,” Barton said. “People have studied rent control. It reduces rents in the buildings where you put it, and then causes a housing shortage and lowers the quality of those buildings.”
He pointed to restrictive zoning laws and the lack of new housing development as the real culprit behind rising rents in the Golden State.
It’s a sophisticated argument to make to California voters. But Barton — who voted against Prop. 33 — said he thought the campaign to defeat the measure was “pretty good at giving a rundown of the literature.”
The Prop. 33 campaign had a formidable ground operation and advertising budget, with 30-second slots urging voters to “vote yes on rent control.” One ad featured a familiar tune, “California Dreamin’,” but transformed it into a power ballad with the lyrics, “all the homes are gone and the rent’s too damn high.”
Industry fundraising
Property owners, for their part, dug deep to defeat Prop. 33, raising some $113 million in the campaign to oppose it, according to TRD’s review of campaign filings through Oct. 19.
Among the biggest contributors were real estate investment trust Essex Property Trust, which donated $28.8 million via the California Apartment Association’s political action issues committee, and Equity Residential, which gave $20.5 million to the same committee.
The campaigns for and against Prop. 33 raked in $163 million in total as of Oct. 19. It ranked as the second-most expensive ballot measure across the country this year, behind Florida’s failed marijuana legalization measure.
For the industry, the investment seems to have paid off.
What’s more, election results show voters are likely to pass Prop. 34 to disarm the industry’s chief nemesis, AIDS Healthcare Foundation. If the measure passes, the foundation, which reported a $1.9 billion annual budget in its most recent tax filing, won’t be able to use its prescription drug revenues for political campaigns.
One person who is pleased with that prospect is Dan Yukelson, director of the Apartment Association of Greater Los Angeles, a landlord advocacy group.
“Sweet victory, that’s all I can tell you,” Yukelson said. “Thank God it’s over — and I hope Mr. Weinstein pours his next $50 million into building some more affordable housing. We have a desperate need for more housing.”