The November ballot initiative, deceptively named the “Justice for Renters Act,” aims to revoke the Costa-Hawkins Rental Housing Act’s safeguards for rental property owners by extensively broadening local rent control ordinances. This initiative has been designated as “Proposition 33.”

Abolition of Vacancy De-Control

This proposition would abolish the right to increase rent-to-market levels upon a voluntary tenant’s departure. Presently, landlords can elevate rent-to-market prices when a tenant leaves, a practice known as “vacancy de-control.” Proposition 33 would permit local governments to set caps on rent hikes for new tenants, a practice called “vacancy control.”

Expand Rent Control

Proposition 33 intends to broaden rent control to encompass single-family houses, condominiums, and newly built rental properties. This would greatly expand the range of properties subjected to rent control regulations.

Financial Effects on Rental Earnings

The measure would diminish rental revenue, complicating property owners’ ability to manage escalating maintenance and operational expenses. This financial strain could lead to reduced investment in property upkeep and improvements, adversely affecting the quality of rental housing.

Depreciation in Property Values

Corresponding regulations in New York have resulted in a decrease in rental property values of up to 40%. Proposition 33 could similarly impact property values in California, undermining property owners’ financial stability and potentially leading to a downturn in the housing market.

Financial Illustration of the Impact

To grasp the potential financial repercussions of eliminating vacancy de-control, consider this scenario:

Current Situation with Vacancy De-Control

A property owner can raise the rent-to-market rates when a tenant moves out, allowing the property to generate maximum rental income based on current market conditions.

Scenario under Proposition 33

With vacancy control in effect, the property owner is restricted from raising the rent-to-market rates for new tenants. This restriction significantly reduces the rental income potential, as rents remain artificially low despite rising market rates and operational costs.

This reduction in rental income could make it difficult for property owners to cover rising expenses, leading to a deterioration in property maintenance and an overall decrease in the quality of rental housing.

Navigating the complexities of property value metrics can be overwhelming, but it doesn’t have to be. If you’re concerned about the potential impact of Proposition 33 on your multifamily investment property, we’re here to help. Reach out for a broker’s opinion of value, and we’ll simplify the process, ensuring you stay informed about your property’s value in this changing landscape.

Contact us today—Let us guide you through these shifts, so you can maintain a clear and confident understanding of your property’s worth.

Source: AAGLA