CALIFORNIA PROPOSITION 33: RENT CONTROL
Ballot decision carries risks for apartment renters. For the third time in seven years, California voters will decide if cities and counties can impose rent control on all apartments and single-family homes. If approved, Proposition 33 would dissolve the Costa-Hawkins Rental Housing Act and potentially impact more than 600,000 units statewide — or 20 percent of California’s rental stock — that are currently exempt from any form of rent control. While the proposition is likely motivated by California’s relatively high average effective rent, which exceeded the national mark by roughly $900 per month in mid-2024, recent growth in California has been muted. Across the state’s eight major markets, the average rent rose just 2.7 percent since June 2022. The U.S. mean increased 5.1 percent in that time. Approximately 20 cities in the Bay Area or Los Angeles County have some form of in-place rent control, a factor that may be contributing to this moderate two-year gain. Further rent regulations, while managing rate increases in the near term, could also create other unintended consequences that harm renters. Chief among these could be the impact to development, which would only serve to underscore the shortage of housing in the state.
Development could decline. High interest rates, a challenging environment for construction financing and the rising costs of labor and materials are making it more difficult for builders to underwrite ground-up developments across California. The potential enactment of statewide rent control on all multifamily units represents another hurdle that could adversely impact the long-term supply of apartments, as rent control would alter developers’ projected returns on newly built properties. The state is already struggling to keep up with building activity in other markets. The combined number of apartments added from 2019- 2024 across California’s eight major markets notably trailed other U.S. regions such as Texas, where 185,000 more rentals were delivered.
Passage may prevent recovery in sales activity. Fixed rental increases across cities and counties plus the potential utilization of vacancy control would reduce the expected rental income of a dwelling. This could, in turn, make some of these assets less appealing to prospective buyers, translating to a decline in deal flow and average pricing. These dynamics are already at play without Proposition 33. Across the state’s eight major markets, collective multifamily deal flow was down by nearly 30 percent over the 12-month period ending in March 2024. During this same interval, the average price paid for a multifamily property dropped by nearly 6 percent per unit.
* California region encompasses data for the state’s eight major metros Source: Marcus & Millichap Research Services; CoStar Group, Inc.; RealPage, Inc.