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October 12, 2020

Election Talks: Breaking Down CA Prop 21

In Parnership with USC Price Talks

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Larry Mantle
Larry Mantle | Host, Airtalk, Filmweek, KPCC
Gary Painter
Gary Painter | Director, Sol Price Center for Social Innovation
Richard Green
Richard Green | Director, USC Lusk Center for Real Estate

Radio host and fourth-generation Angeleno Larry Mantle and policy experts Gary Painter and Richard Green provide an overview of CA Proposition 21 followed by a discussion on their opposing views of supporting or opposing the initiative for local rent control. If approved, it allows local governments to establish rent control on residential properties that have been occupied for over 15 years. Additionally, it allows landlords who own no more than two homes to exempt themselves from such policies. Relevant to the discussion is the 1995 Costa–Hawkins Rental Housing Act, which Prop 21 would repeal some of the provisions in the act.

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Please note this automated transcription may contain errors.

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Very good afternoon to you.
It's a real pleasure for me to be

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a part of this election talk
series from the price School of

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Public Policy at the University of
Southern California. We're going

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to be talking about proposition
21 not in a formal debate format but

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Instead of very conversational one.
It's such a pleasure to be joined by

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the chair of the Department of Public
Policy Gary painter who also directs

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The salt price Center for Social
Innovation and director of the

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homelessness risk Policy Research
Institute as well. Gary painter.

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Thank you, and also my
thanks to Richard green who's

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director and chair of the USC
Lusk center for real estate.

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And also a chair of the department of
real estate development. So gentlemen,

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let's get right into proposition 21
which would allow local governments.

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To extend rent control
to many more properties

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than they can
currently currently single

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family homes and
housing completed sincerely

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1995 are exempt from
rent control and landlords

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Can raise the rent
significantly when new people

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move into the units. Let's
start Gary by asking you

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about how this differs from
the rent control initiative

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of a couple of years
ago, which was defeated.

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Yes. First of all, thank
you, Larry for moderating our

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conversation today and
joining us at the price school

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You kind of hinted at, where
we're at today, which is with

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the passage of Kosta Hawkins.
What it did is it prevented

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local jurisdictions from
deciding whether they wanted

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to enact a rent controller
info stabilization measure

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Two years ago prop
10 was put on the ballot,

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which would repeal
Kosta Hopkins. And I

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think there's two key
provisions that make

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prop 21 different than
10 in my mind anyway.

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One of them is that it it formerly
exempt single family homes and duplexes

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from rent control. So, it maintains
those provisions of Costa Hawkins.

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So in that sense, you know, again,
limiting the number of properties that

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even if you gave the right to
jurisdictions to decide for themselves.

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That still remains limited
and then the second

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feature that I think
is important is that it

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keeps the ability of
landlords to raise rents

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once a person moves
out of a rent controlled unit.

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In Illinois, it creates the limits on
how quickly you could raise those.

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So currently, for those properties
like in the city of Los Angeles.

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That are under rent
control if a tenant moves

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out you're able to
mark to market actually

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choose choose a new rate that is equivalent
to the market if someone else moves in

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Prop 21 will only allow landlords to
increase rents by 15% over a three

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year period. If someone moves
out. So those are the key differences.

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And Richard green
as you look at those

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differences. What are
your concerns about this

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measure. And do you
have a different view of

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this than the one we
voted on two years ago.

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Well, it is. I mean,
one of the big

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differences is the carve
out for single family

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and condos, which I think was very wise
politically on the part of the people who

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Want something like this
to go through, because

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I'm sure there were
homeowners two years ago who

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didn't want to vote for
something that could

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lead to rent control being
placed on themselves.

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But it doesn't alleviate a couple of
my big concerns on the largest one,

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which is that rent control rent
stabilization is not a targeted policy.

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And in fact, if you
look at the income

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distribution of people
who are in rent stabilized

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units in Los Angeles
and compare that to the

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income distribution of
the people who are not

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On there the same, so it is sort
of a lottery impact of this policy.

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It doesn't depend on do you need
rental assistance or not. It's just,

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do you happen to be in a property
that has rental assistance or not.

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And, and that is something that I
worry about in on the other side.

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About 60% of landlords in the US and
unfortunately I only have data for the US.

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On only one rental property.
And if you look at their net

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worth. It's not very high fuel
certificates for my finances.

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So we have a transfer program
that makes a transfer from a group of

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people who some of whom are
doubtlessly very, very, very wealthy.

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But many people who aren't to a
group of people, doubtless, many

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of whom really need assistance,
but many of whom don't and I

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prefer seeing policy that better
targets we distribution from

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those who can afford to pay it
to those who really need to help

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But don't the supporters
of proposition, didn't they

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anticipate somewhat what
you're talking about, because

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There is the carve out for
someone who has just one

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rental property that's,
you know, paying for their

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retirement of up to $3
million in value. So doesn't that

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protect a bit against that
concern that you had about

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It affecting smaller
folks who own property.

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Yeah, that helps. But up. What
I'm curious about is how you actually

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implement something like that
because keeping track of people's

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property holdings is very difficult
because people often put PROPERTIES

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INTO LLC selling it is true
that, yes, if you are a person who

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owns one property and
is say eight unit in Los

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Angeles, the chances are
you would be exempt from this

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Carve out. But what I'm
curious about is how do you

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demonstrate that that's true in
order to get the exemption. So

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one of the other issues
with rank well for me is it isn't

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administrative Lee burdensome
thing to put into place.

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and Richard, let me just
correct myself the $3 million exemption is

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actually in the split roll proposition 15
not in Proposition 21 so sorry about that.

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actually in the split roll proposition 15
not in Proposition 21 so sorry about that.

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That's okay but but prop 21 does give exemptions
for up to two units that people own so it

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would not affect people who say, want to rent out a
condo they happen to own somewhere else in the state.

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Yeah, and and so Gary
painter. What about Richard

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greens point that this
really isn't targeted.

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To people most in need,
essentially what I'm hearing you say

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it's like winning the lottery.
If you're lucky enough to be

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in a rent controlled unit
essentially in perpetuity. Good

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for you. But if it doesn't move
the needle on housing overall

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I don't dispute the data
as it exists for people

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who are currently residing
in rent control units.

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However, I don't think that
is completely relevant for

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deciding whether you want
to support prop 21 or not.

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Because you might that it really
speaks to the fact that a city or

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or jurisdiction that has rent
control to be quite careful about it.

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Actually lasting in
perpetuity or not. And so

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I don't know if now's
a good time to kind of

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share perhaps why I
actually support prop 21

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as a concept and and
I think there's a lot of

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You know, kind of, I
would say not a tidal wave

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in the profession of
economics and public policy,

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but you're seeing people
reconsider measures like

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minimum wages living
wages and rent control were

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Early on in our econ studies,
we were told that it's just a

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bad idea and competitive
markets is going to reduce supply

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Um, what I see as prop 21.
Number one is that it basically

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allows localities to decide on
their own. What they want to do.

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If you're a proponent of local control
then full swap your support prop 21

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But I think most of us are
part of this conversation

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today, not because of
that, but because we actually

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want to know, can rent
control being effective targeting

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tool, getting to your
question and Richard's point

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To help people who are
low and moderate income

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actually maintain or
improve housing stability.

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And so to that point. I
think it's really important

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not to simply debate
theory around rent control.

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And I wrote an op ed
on Prop 10 two years ago

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in the LA Times. It
talks a little bit about

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why there should be
a debate on the theory,

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but instead to look at
the empirical evidence

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And I think there's been a series
of rent control changes across the

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country, one in New Jersey, one in
Massachusetts and one in San Francisco.

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Over the last 25 years that have
given us some helpful evidence about

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what's going on. And it's actually
in my reading pretty consistent.

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What we saw, and I'm
just going to highlight

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the San Francisco cities
because San Francisco

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may be most relevant
for Los Angeles and the

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rest of California, or
at least coastal cities.

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What we see there is that in
part the targeting provisions, when

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the, the, the, the measure was an
act that actually were pretty good.

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They did see that an
improved housing stability for

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people who are in units
that were with rent control.

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And secondly, those
people who received that

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benefit were more
likely to be a member of a

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racial or ethnic minority.
So in that sense,

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you could start to feel
good about rent control.

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At the same time, it's not
all good news. In particular,

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what they found is that
a lot of that affordable

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housing stock or what
sometimes people call Noah,

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the naturally occurring
affordable housing stock.

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Was actually moved to condos. So there was
a Conversion of units up to 15% actually

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That in some sense, then we were
losing naturally occurring affordable

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housing and instead shifted it
didn't change the number of units

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in the metro area, but it did change
the number that were affordable

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and then finally they saw that
there was actually some incentive to

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Take down low density projects and then
increase density in those places. So on net

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what I saw in that kind of like that that
study, which is a really important study

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Is that overall housing supply went
up a bit, then the number of units

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that were, you know, kind of,
subject to rent control actually fell a bit

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But the initial targeting was pretty good
in terms of who rent control could benefit.

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However Richard's point
is really important, which is

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10 years down the road 15
down 15 years down the road,

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the ability of that targeting
provision to remain

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effective gets weaker and
weaker and weaker over time.

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Well, and let's talk about the issue
of whether in it inhibits development

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because in San Francisco, of course,
a case, it's a very dense city already

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So perhaps the opportunities
for additional density aren't as

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great as in the city of Los Angeles
where you've got a lot of units

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that could be add additive
people accepted higher density

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neighbors of those areas but
economically, is that really going to

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pan out for developers.
If you have this kind of

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rent control that's in
place. Are they going to

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invest in the sort of
higher density units that

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would really make more
affordable housing available.

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My view is that because prop 21 is only
able to be applicable to buildings that

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are 15 years or older.
And that have similar

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provisions to the
San Francisco case.

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And given their evidence that actually
suggest the possibility and actually

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the evidence doesn't in terms of all
the other studies as well is somewhat

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Uneven in terms of how
much supply was either hurt

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or help I would actually
suggest that new supply

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Could be encouraged not affordable
supply but market rate supply because of

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something like rent control as as as
a written about in prop 21 so you have

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In some sense, the overall number
of units might be encouraged because

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market rate units are not
subjected to it for their first 15 years

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But in terms of the
naturally occurring affordable

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stock those buildings 15
years or older, that might be

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rented out at at median
rents are below we wouldn't

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expect to see more of those
units built because of prop 21

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Richard green, given
the cost of construction

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these days is 15
years long enough for

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developers to get
the return if if rent

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control kicks in after
that decade and a half.

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So I, I want to answer that question,
but also another release to me. Gary

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said, which was, I think it is possible
that you get new support supply

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Supposing that the community
that imposes the rent control allows

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And one of the things
that's striking to me is if

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you look at three communities
in Los Angeles County

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that have rent control Santa
Monica West Hollywood

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in Beverly Hills that are
arguably amongst the most

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Desirable communities to
live in Southern California,

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the populations of all
three of those cities are

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the same as what they
were in 1970 which was the

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last census before
effective rent control came in.

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And so, that to me
reflection and willingness to

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sort of allow this possible
slack take place in this

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jurisdiction where the
rent control half. It's so

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I think that's an important
thing to keep in mind.

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As for the 15 years. I
do think it's problematic

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right now. So, you know,
the return on everything at

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the moment is quite low,
because the baseline is

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what the Federal Reserve
sets the interest rate on

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And currently current
returns on new construction

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are in the neighborhood
of four and a half

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00:14:01.040 --> 00:14:03.876
to 5% when you sell
a brand new apartment

220
00:14:03.876 --> 00:14:07.313
building that tends to
be the price, which itself.

221
00:14:07.780 --> 00:14:10.382
Okay, so if you don't
allow for any appreciation

222
00:14:10.416 --> 00:14:12.718
and rent and we don't
know what these rent

223
00:14:12.751 --> 00:14:15.020
control ordinances
would look like because

224
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local governments would
have to implement them.

225
00:14:18.023 --> 00:14:21.927
But if you had, let's say, San
Francisco style rent control

226
00:14:21.927 --> 00:14:25.798
which is less than CPI less
than the Consumer Price Index,

227
00:14:25.798 --> 00:14:29.435
it would take somewhere in
the neighborhood of 20 years

228
00:14:29.435 --> 00:14:33.272
to recover just the initial
cost of building. The building

229
00:14:34.406 --> 00:14:36.876
Let alone. Make a
return on it. And that's an

230
00:14:36.876 --> 00:14:39.778
unappealing proposition
for anyone looking at selling

231
00:14:39.812 --> 00:14:42.481
stuff. So that's why the
15 year horizon actually

232
00:14:42.481 --> 00:14:45.317
seems pretty short to me
in the current environment.

233
00:14:45.951 --> 00:14:48.921
Gary theater hear your
thoughts on Richards analysis.

234
00:14:50.389 --> 00:14:53.759
Well, I just wanted to clarify.
I'm with Richard and maybe you

235
00:14:53.759 --> 00:14:57.429
could as well. But the first 15
years with this proposition, you can

236
00:14:57.930 --> 00:15:00.699
rent out the units that
you've constructed at any

237
00:15:00.733 --> 00:15:03.402
rate that you want. The
issue is post 15 years,

238
00:15:03.435 --> 00:15:06.171
then you know that that
building, whether you own

239
00:15:06.205 --> 00:15:08.908
or you sold it to someone
else could be covered.

240
00:15:09.675 --> 00:15:12.544
And so I think what this
so it does affect returns.

241
00:15:12.578 --> 00:15:15.147
But I, but I actually
think that 15 years out

242
00:15:15.147 --> 00:15:17.750
may or may not influence.
This is an empirical

243
00:15:17.783 --> 00:15:20.452
question and the only
evidence we have to date.

244
00:15:20.786 --> 00:15:24.056
Related in California is the
San Francisco study where

245
00:15:24.056 --> 00:15:27.026
we actually saw on net
new supply into the market.

246
00:15:27.593 --> 00:15:31.864
So in that sense. Richards, right,
we should be cautious about rent

247
00:15:31.897 --> 00:15:36.068
control stabilization measures
as the tool for affordable housing.

248
00:15:36.435 --> 00:15:40.706
But we shouldn't necessarily rule it
out. And I think that's where we, you know,

249
00:15:40.739 --> 00:15:44.710
the conversation should end up settling.
I don't think Richard or I at all.

250
00:15:45.144 --> 00:15:49.281
Think that isn't. It's that rent
control could be that tool. In

251
00:15:49.281 --> 00:15:53.552
fact, there are many, many other
tools that are desperately needed

252
00:15:53.886 --> 00:15:56.221
To ensure that we can
have sufficient supply

253
00:15:56.221 --> 00:15:58.357
in our markets so
that we can target him

254
00:15:58.390 --> 00:16:02.761
support families who are low and moderate
income to improve their housing stability.

255
00:16:03.362 --> 00:16:08.167
I think for me the reason I support
prop 21 is number one local control as a

256
00:16:08.167 --> 00:16:13.172
principal is something that I generally
believe in unless there is bad behavior.

257
00:16:14.707 --> 00:16:18.644
And number two, I think we can
decide when is it appropriate for

258
00:16:18.644 --> 00:16:22.414
rent control to be enacted in
one's community. And I actually

259
00:16:22.448 --> 00:16:25.918
don't see lots of scenarios
and lots of communities where

260
00:16:25.951 --> 00:16:29.621
rent control would be, and
the best tool to deploy, however.

261
00:16:30.022 --> 00:16:35.361
In some places in some circumstances, for
instance, all the investment in Inglewood

262
00:16:35.794 --> 00:16:39.398
has generated a lot of pricing
pressures in the short run.

263
00:16:39.398 --> 00:16:43.102
I can see it's quite possible
for community like that to say

264
00:16:43.369 --> 00:16:46.972
We would like to enact
rent control in the short run in

265
00:16:46.972 --> 00:16:50.542
order to make sure that our
families who live here now

266
00:16:50.542 --> 00:16:54.079
are not displaced while we
figure out ways to increase

267
00:16:54.079 --> 00:16:57.883
housing supply in the long
run through other policy tools.

268
00:16:59.418 --> 00:17:03.022
All right, I just want to remind
our participants that if you have

269
00:17:03.055 --> 00:17:06.425
a question you want to bring
up to ask either were both of our

270
00:17:06.992 --> 00:17:11.463
Professors, you can do that on
the Q AMP. A icon. Just put your

271
00:17:11.497 --> 00:17:16.402
question right in on the Q AMP. A
and I'll be glad to pass those along

272
00:17:16.935 --> 00:17:20.205
as time allows. On this
conversation election

273
00:17:20.239 --> 00:17:23.475
talks about proposition
21 which would allow

274
00:17:23.475 --> 00:17:26.612
local governments to
extend rent control to

275
00:17:26.612 --> 00:17:29.815
many more properties
than they can currently

276
00:17:30.082 --> 00:17:35.287
Under know what's known as the
cost of Hawkins build. It's been an effect

277
00:17:35.320 --> 00:17:40.192
since 1995 again the Q AMP a
button, you can put your question there.

278
00:17:41.326 --> 00:17:45.864
Is a Richard green. What do you
think of the San Francisco example of

279
00:17:45.898 --> 00:17:50.636
the measure similar to this one. Is
that a good like for like comparison.

280
00:17:50.836 --> 00:17:53.038
Well, I think there's
an important distinction

281
00:17:53.038 --> 00:17:55.140
which is a few built
in San Francisco. After

282
00:17:55.174 --> 00:17:57.476
1978 then you were
basically promised that there

283
00:17:57.476 --> 00:17:59.678
would never be rent
control. So you would have

284
00:18:00.112 --> 00:18:05.384
Basically, the freedom to a set
your rent to market through the life

285
00:18:05.384 --> 00:18:10.656
of the building. Now we're talking
about yes and 15 years is a while.

286
00:18:11.824 --> 00:18:14.460
But the way I
look at this as I run

287
00:18:14.460 --> 00:18:17.830
performers and generally
speaking, you expect

288
00:18:17.863 --> 00:18:23.635
to get half the value of your building
out of your first 10 years of cash flow.

289
00:18:25.304 --> 00:18:28.273
That that's actually a rule of
thumb that works remarkably

290
00:18:28.307 --> 00:18:30.976
consistently. Well, regardless
of market conditions.

291
00:18:31.443 --> 00:18:35.481
And so at 10 years we've
gotten halfway there to getting just,

292
00:18:35.481 --> 00:18:39.451
again, the value of what you
invested back in a present value

293
00:18:39.985 --> 00:18:43.922
sense. So that's why I think
that 15 year horizon is short.

294
00:18:43.922 --> 00:18:47.993
Whereas if you go back to San
Francisco. Yes, it actually was

295
00:18:49.328 --> 00:18:51.830
A good opportunity,
um, because you weren't

296
00:18:51.830 --> 00:18:54.833
competing with any of
the old stuff. And in a sense

297
00:18:54.833 --> 00:18:57.402
to make an investment
thinking that it would

298
00:18:57.402 --> 00:19:00.139
not be regulated over
the life of the property.

299
00:19:01.673 --> 00:19:07.613
Well, let's take a question from one
of our participants. Is there one city in

300
00:19:07.646 --> 00:19:13.385
which went rent control is actually
worked to reduce rents in the long term.

301
00:19:14.520 --> 00:19:15.521
Gary painter.

302
00:19:17.122 --> 00:19:19.491
I don't know of any.
I think, again, there's

303
00:19:19.525 --> 00:19:21.894
the three studies that
we have are probably

304
00:19:21.894 --> 00:19:24.229
the best evidence. And
so, and again in New

305
00:19:24.263 --> 00:19:26.632
Jersey and Massachusetts
in here and I think

306
00:19:27.132 --> 00:19:30.502
What we see is that particular
segments of the market

307
00:19:30.536 --> 00:19:33.839
does provide reduced
rents and stable rents, but as,

308
00:19:33.872 --> 00:19:37.176
as Richard pointed out,
if rent control just kind of

309
00:19:37.176 --> 00:19:40.612
persistent perpetuity 10
years 20 years down the road.

310
00:19:41.847 --> 00:19:45.150
Or even 30 years down
the road, it may actually

311
00:19:45.517 --> 00:19:49.054
Be effective anymore because the people
who are living there are not necessarily

312
00:19:49.087 --> 00:19:52.791
the people who are low and moderate income
anymore. So I don't have an example where

313
00:19:53.058 --> 00:19:57.563
If you, if your time horizon is 15 years
or more down the road where rents

314
00:19:57.596 --> 00:20:01.967
actually have fallen because of
rent control. And again, that's the key.

315
00:20:02.601 --> 00:20:07.306
Rent control is not the only policy,
nor should it be the only policy for

316
00:20:07.339 --> 00:20:12.010
affordable housing. So you need to
actually address those issues as well.

317
00:20:12.744 --> 00:20:15.147
And Richard green.
Is there, is there any

318
00:20:15.180 --> 00:20:17.816
form of rent control
just generally you would

319
00:20:17.849 --> 00:20:20.285
support is your, is
your problem with this

320
00:20:20.285 --> 00:20:22.921
particular proposition,
or the concept. Yeah.

321
00:20:22.955 --> 00:20:25.224
So, so I guess, first
of all, I think if you're

322
00:20:25.257 --> 00:20:27.726
going to do something.
Do it statewide. Don't do it.

323
00:20:28.460 --> 00:20:32.264
Because I see it as a way that localities
compete with each other to keep housing out

324
00:20:32.864 --> 00:20:37.569
And maybe I'm a little cynical about that,
but I have some views for that cynicism and

325
00:20:37.603 --> 00:20:39.571
things like what
Oregon did and what

326
00:20:39.605 --> 00:20:42.140
California hit with it
statewide read control.

327
00:20:42.574 --> 00:20:47.579
Ordinances done, which is, I believe, CPI
plus 5% sort of anti gouging provisions,

328
00:20:47.613 --> 00:20:49.881
make a certain
amount of sense to me,

329
00:20:49.881 --> 00:20:52.851
particularly when there's
a shortage of housing.

330
00:20:53.285 --> 00:20:56.521
So, you know, a scholar that
Gary and I both admire very

331
00:20:56.555 --> 00:20:59.891
much a guy named Richard
are not points out that there are

332
00:20:59.925 --> 00:21:03.028
times when because of
market failures, some of which I

333
00:21:03.061 --> 00:21:06.465
think have been induced by
regulatory policy, I should say.

334
00:21:07.232 --> 00:21:12.104
Mean that some sort of soft rent
control is appropriate and for that matter.

335
00:21:13.272 --> 00:21:16.642
The reasons Gary said I think
San Francisco's rent control

336
00:21:16.675 --> 00:21:19.711
isn't some some spend
less harmful than it otherwise

337
00:21:19.745 --> 00:21:22.648
would be because of the
safety valves that the new

338
00:21:22.648 --> 00:21:25.851
stuff doesn't isn't subject
to it and vacancy decontrol

339
00:21:26.585 --> 00:21:31.223
Is an important safety valve as
well. So yeah, I have no doubt that

340
00:21:31.223 --> 00:21:35.627
the competitive market doesn't
lead to an ideal outcome, either.

341
00:21:36.094 --> 00:21:39.564
But I think what prop 21
could allow is draconian

342
00:21:39.564 --> 00:21:42.501
rent control that local
governments could

343
00:21:42.534 --> 00:21:45.604
use to in fact on
reduce the desirability of

344
00:21:45.637 --> 00:21:49.074
putting houses in places
where we've really aided

345
00:21:50.175 --> 00:21:54.012
Karen painter quick response to that. And
then I want to bring another question in

346
00:21:55.080 --> 00:21:58.550
Oh, I appreciate Richard cynicism
about local governments behaving

347
00:21:58.583 --> 00:22:01.853
badly, and certainly we have
evidence of that at the same time

348
00:22:01.887 --> 00:22:05.123
I would hope and I you know I
hear from many local governments

349
00:22:05.157 --> 00:22:08.660
that are actively trying to do
what they can for their communities.

350
00:22:09.127 --> 00:22:12.264
And so if they would actually
seek advice from Richard

351
00:22:12.264 --> 00:22:15.434
about how they ought to
construct their ordinance, then

352
00:22:15.734 --> 00:22:19.538
Actually, I think there could be
moments when it would be helpful

353
00:22:19.571 --> 00:22:23.508
again prop 21 doesn't force
draconian rent control actually doesn't

354
00:22:23.508 --> 00:22:27.312
even force localities who
inactive. So it's they still could been

355
00:22:27.346 --> 00:22:31.083
pretty good deliberative process
decide doesn't even make sense.

356
00:22:32.050 --> 00:22:34.119
We have question from a participant.

357
00:22:36.154 --> 00:22:40.225
If this ends up being
passive prop 21 becomes law.

358
00:22:40.225 --> 00:22:44.162
What would the effect
be on multi family housing

359
00:22:44.996 --> 00:22:49.167
in California. Could this
end up driving investment

360
00:22:49.167 --> 00:22:53.004
into other sunbelt states
away from California.

361
00:22:55.607 --> 00:22:56.608
Gary painter.

362
00:22:56.775 --> 00:23:00.312
Yeah, my short answer is
that there's there's already

363
00:23:00.345 --> 00:23:03.682
a very difficult ecosystem
to build in California.

364
00:23:04.816 --> 00:23:07.652
And that work has to
be done on that. So the

365
00:23:07.652 --> 00:23:10.689
kind of regulatory
infrastructure, the planning

366
00:23:10.722 --> 00:23:13.492
processes and while
work is happening. It's

367
00:23:13.492 --> 00:23:16.395
also going quite slow.
I actually don't view.

368
00:23:16.795 --> 00:23:22.768
A form of prop 21 style rent control being
a major driver. It's a minor driver and

369
00:23:22.801 --> 00:23:28.573
the evidence suggests, at most, it has
really small impacts on housing supply so

370
00:23:28.940 --> 00:23:33.011
I hear the advocates and the development
community screaming. We are going to

371
00:23:33.044 --> 00:23:37.249
leave. But the reality in terms of the
evidence is it doesn't have a big impact.

372
00:23:37.582 --> 00:23:38.917
Richard green. What do you think

373
00:23:39.050 --> 00:23:42.020
Yeah, I agree with Gary
that the environment for

374
00:23:42.020 --> 00:23:44.790
building housing is
so bad in California that

375
00:23:44.823 --> 00:23:47.826
and we can see it. If we
look at new construction

376
00:23:47.826 --> 00:23:50.762
in Phoenix and Las Vegas
and even up in Seattle.

377
00:23:51.797 --> 00:23:55.767
There's so much more of it in
these places than here, relative to the

378
00:23:55.767 --> 00:23:59.604
size of the states relative to job
growth and so on. Um, you know,

379
00:23:59.604 --> 00:24:03.675
I think the impact of this would
be marginal, but it's just yet another

380
00:24:03.708 --> 00:24:07.379
thing that makes it unattractive
to build housing in California.

381
00:24:09.381 --> 00:24:13.351
Let's see if we don't pass proposition
21 can individual jurisdictions

382
00:24:13.351 --> 00:24:17.355
still implement this, or would cost a
Hawkins prevented Richard green,

383
00:24:20.325 --> 00:24:24.396
as I understand that's really what
this would do is Bypass Cost on but

384
00:24:24.429 --> 00:24:28.333
with cost Dawkins in place you
you can't go beyond that limit right

385
00:24:31.403 --> 00:24:35.073
That that's, I mean, again, I'm not
a lawyer or a legislative scholar. So

386
00:24:35.106 --> 00:24:38.810
I always want to be careful. But that
is my understanding. That's correct.

387
00:24:39.444 --> 00:24:44.683
All right. And then we have a listers
kind of our stars. Sorry. Participant

388
00:24:44.716 --> 00:24:49.154
my radio, what language getting
stuck in my head participant who

389
00:24:50.121 --> 00:24:54.025
wonders if this would
remove the incentive if

390
00:24:54.025 --> 00:24:58.096
prop 21 passes to try
and push tenants out. And

391
00:24:59.097 --> 00:25:03.268
would this proposition
incentivize better landlord

392
00:25:03.301 --> 00:25:07.072
tenant relationships,
Gary, what do you think

393
00:25:08.907 --> 00:25:13.478
So I think this is in part one of the
important features of the vacancy

394
00:25:13.478 --> 00:25:18.250
control, which is that landlords aren't
able to just simply mark to market.

395
00:25:18.884 --> 00:25:22.153
A unit that would have been
covered under control, but

396
00:25:22.187 --> 00:25:25.557
instead can only increase
rents by 15% over three years.

397
00:25:26.057 --> 00:25:29.027
My concern and I wrote
about it in prop 10 is

398
00:25:29.027 --> 00:25:32.230
that there's becoming
more and more market power

399
00:25:32.230 --> 00:25:35.267
within rental markets,
which suggests that you

400
00:25:35.267 --> 00:25:38.370
know because of tight
vacancies and a few large

401
00:25:39.070 --> 00:25:41.940
Large developer landlords
with many, many, many

402
00:25:41.940 --> 00:25:45.110
small followers that the
tenants are in a precarious

403
00:25:45.143 --> 00:25:48.380
position. And so if you
slap one kind of constraint on

404
00:25:48.413 --> 00:25:51.716
landlords, they're going to
then try to push people out

405
00:25:52.551 --> 00:25:55.720
And we heard about that
when the, the, the California

406
00:25:55.720 --> 00:25:58.957
provision around anti
gouging that Richard referred to

407
00:25:58.990 --> 00:26:02.327
actually was happening. And
so I am hopeful that because

408
00:26:02.327 --> 00:26:05.430
this particular measure
of vacancy control is there.

409
00:26:05.764 --> 00:26:08.700
That would actually
prevent kind of trying to

410
00:26:08.733 --> 00:26:11.603
tenants out in the same
rate as they may now.

411
00:26:12.571 --> 00:26:17.542
Gary, can you answer this question,
what with the current rent control

412
00:26:17.542 --> 00:26:22.314
on the city of Los Angeles, how
would that change if prop 21 passes.

413
00:26:23.715 --> 00:26:23.949
So,

414
00:26:23.982 --> 00:26:26.117
My understanding is, again, that prop.

415
00:26:27.085 --> 00:26:30.055
Allows cities to do something
different than they're

416
00:26:30.088 --> 00:26:32.824
doing now, since they
can't use rent control but

417
00:26:32.857 --> 00:26:35.527
it wouldn't necessarily
change at all. What has

418
00:26:35.527 --> 00:26:38.496
been grandfathered in prior
to coast Costa Hakeem so

419
00:26:38.730 --> 00:26:42.033
In that sense, those
properties prior to 1980 that

420
00:26:42.067 --> 00:26:45.370
are still covered can
remain covered, but the city

421
00:26:45.403 --> 00:26:48.840
could change their mind if
with 21 they could decide

422
00:26:48.840 --> 00:26:52.143
to change what's happening,
but they don't have to

423
00:26:52.611 --> 00:26:56.648
Richard you have crystal
ball if this passes. Do you think

424
00:26:56.681 --> 00:27:00.619
Los Angeles city would would
embrace this wholeheartedly.

425
00:27:01.453 --> 00:27:04.255
Oh wow, that's a
political forecast Larry and

426
00:27:04.289 --> 00:27:07.192
I'm really bad at
political forecasts, but it's

427
00:27:07.892 --> 00:27:09.461
Harder than real estate forecast.

428
00:27:09.494 --> 00:27:14.599
Yeah, yeah. I mean, let me just put it
this way. The LA City Council seems

429
00:27:14.633 --> 00:27:19.771
predisposed to imposing something
in the event that this passes. All right.

430
00:27:20.205 --> 00:27:24.209
I'm in Los Angeles. There's
upwards of $100,000 or more per

431
00:27:24.242 --> 00:27:28.213
unit for development related
to soft costs, can you please

432
00:27:28.747 --> 00:27:32.851
speak more to this, it seems
to be a major reason that market

433
00:27:32.851 --> 00:27:36.755
rate units are significantly
less affordable Richard green

434
00:27:38.056 --> 00:27:40.759
Yeah, they are. And there
are a couple of reasons

435
00:27:40.759 --> 00:27:43.094
for that. So just so
the, so when we build

436
00:27:43.128 --> 00:27:45.697
things. There are two
kinds of costs hard costs

437
00:27:45.730 --> 00:27:48.166
and soft costs so hard
costs as I think what

438
00:27:48.566 --> 00:27:51.970
Most people think about when
they think about the cost of

439
00:27:51.970 --> 00:27:55.306
construction. It's the gypsum,
it's the wood, the nails.

440
00:27:55.340 --> 00:27:58.877
It's the labor, it's stuff that
you can identify as directly

441
00:27:58.877 --> 00:28:02.013
contributing to a part of
the building as it goes up.

442
00:28:02.847 --> 00:28:05.684
Soft costs are all the other
stuff you need in order to

443
00:28:05.684 --> 00:28:08.787
build a building and they
include things like architect fees.

444
00:28:09.587 --> 00:28:14.459
Consulting fees. Okay, now in LA,
you need to hire consultants in order

445
00:28:14.459 --> 00:28:19.097
to get entitlements in a way
that's not true in most of the country.

446
00:28:19.497 --> 00:28:24.235
So to contrast this with admittedly a
small city Madison, Wisconsin where I live

447
00:28:24.235 --> 00:28:29.040
for many years. Most of the time you build
an apartment. If it conforms to zoning.

448
00:28:29.541 --> 00:28:32.177
You take your plans into
the planning department

449
00:28:32.210 --> 00:28:34.546
they see that your
plans conform to zoning

450
00:28:34.546 --> 00:28:36.881
and it's what's called
ministerial and you

451
00:28:36.881 --> 00:28:39.417
get your, your building
permit and off you go.

452
00:28:39.851 --> 00:28:44.289
Whereas in Los Angeles, because
of a whole series of laws, both at the

453
00:28:44.289 --> 00:28:48.927
state and local level, it's more
complicated than that. And so it can take

454
00:28:49.327 --> 00:28:53.264
Some time you're paying
consultants. But the other thing time

455
00:28:53.264 --> 00:28:57.335
by itself is expensive because
you have equity partners that go

456
00:28:57.535 --> 00:29:01.606
into a deal, who need to be
repaid for going into that deal and

457
00:29:01.639 --> 00:29:05.543
if it takes if they want to
return of say 8% on their money.

458
00:29:06.678 --> 00:29:11.082
If it takes three or four years
to build something that's a 24

459
00:29:11.116 --> 00:29:15.620
to 32% add on. I'm not doing
compounding right now as opposed to

460
00:29:15.954 --> 00:29:19.657
In that case, in Madison, where
it might take a year and so you're

461
00:29:19.657 --> 00:29:23.194
adding 8% to that. So you layer,
all these costs on top of each

462
00:29:23.228 --> 00:29:26.798
other. Beyond the bricks and
sticks. It's just more expensive to

463
00:29:26.798 --> 00:29:30.702
build here in LA than it is in the
vast majority of the United States.

464
00:29:31.202 --> 00:29:35.573
We're just about out of time on
this half hour conversation about

465
00:29:35.573 --> 00:29:39.644
proposition 21 rent control measure
on our CALIFORNIA BALLOT.

466
00:29:39.944 --> 00:29:43.982
And I know it's not a formal debate,
but I do want each of you to sort of

467
00:29:43.982 --> 00:29:47.952
leave us thinking about this
proposition. From your perspective, and as

468
00:29:48.953 --> 00:29:52.957
someone who's going to vote no on
it. Professor Green. Let me start with

469
00:29:52.957 --> 00:29:56.928
you, since you're going to be know
to share your final thought on this.

470
00:29:58.596 --> 00:30:03.301
Yeah, is to me, the only way we solve the
housing problem in California is vacancy.

471
00:30:03.968 --> 00:30:08.106
And we're seeing that demonstrated very
clearly right now in San Francisco for the

472
00:30:08.139 --> 00:30:12.310
first time in memory rents are plummeting.
They're down about 20% in the last year.

473
00:30:12.811 --> 00:30:14.746
And that's, you know,
for a bad reason is

474
00:30:14.746 --> 00:30:16.848
people are leaving the
city of San Francisco,

475
00:30:16.881 --> 00:30:18.750
but it's increased
vacancy dramatically.

476
00:30:18.750 --> 00:30:20.852
We're seeing the same
thing in New York City.

477
00:30:21.286 --> 00:30:25.723
They could see is very powerful.
Okay. This does nothing to improve that

478
00:30:25.757 --> 00:30:30.528
situation and people the ability to said
they've done something to approve it.

479
00:30:31.196 --> 00:30:35.700
And you're a painter. It's someone
supports this quickly, your case for that.

480
00:30:36.734 --> 00:30:39.571
Yeah, I agree that vacancies.
The key. We don't want to

481
00:30:39.604 --> 00:30:42.607
recession to cause vacancy.
What we want is housing supply

482
00:30:42.640 --> 00:30:45.677
to cause it. And unfortunately,
it's going to take a number

483
00:30:45.677 --> 00:30:48.413
of years before we have
the housing supply necessary.

484
00:30:48.780 --> 00:30:52.617
THAT WOULD SUPPORT LOW AND
MODERATE INCOME FAMILIES. And so at the end

485
00:30:52.617 --> 00:30:56.454
of the day, I support this provision,
because it gives localities whose

486
00:30:57.589 --> 00:30:58.590
Streets.

487
00:30:59.123 --> 00:31:03.228
Option to do something to help
their communities in the short run.

488
00:31:03.261 --> 00:31:04.262
And. All right.

489
00:31:04.562 --> 00:31:08.933
That they will ask for advice on how
to construct such measures if they do.

490
00:31:09.667 --> 00:31:14.639
All right, I want to thank you so much.
That's Professor painter Professor Green.

491
00:31:14.672 --> 00:31:17.375
Thank you. And if you
appreciate it, today's

492
00:31:17.375 --> 00:31:19.878
conversation. Be
sure to check out more.

493
00:31:20.111 --> 00:31:25.083
Of the election talk series that can be
found on the USC price school's website

494
00:31:25.116 --> 00:31:29.921
keep a lookout for an upcoming talk
that I'll be heading up on Proposition 15

495
00:31:30.288 --> 00:31:32.891
It'll be released online
can be found on the

496
00:31:32.891 --> 00:31:35.393
Lusk perspectives
website links to the two

497
00:31:35.393 --> 00:31:40.231
sites have been shared in the chat feature
below. Thanks so much and have a great day.

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