Election Talks: Breaking Down CA Prop 21

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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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to 5% when you sell
a brand new apartment

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building that tends to
be the price, which itself.

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Okay, so if you don't
allow for any appreciation

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and rent and we don't
know what these rent

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control ordinances
would look like because

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local governments would
have to implement them.

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But if you had, let's say, San
Francisco style rent control

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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

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

231
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stuff. So that's why the
15 year horizon actually

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

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Gary theater hear your
thoughts on Richards analysis.

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

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could as well. But the first 15
years with this proposition, you can

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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
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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

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

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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

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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,

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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
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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

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

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All right, I just want to remind
our participants that if you have

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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

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

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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

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since 1995 again the Q AMP a
button, you can put your question there.

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

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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.