By Hannah Albarazi

Law360, San Francisco (November 4, 2020, 3:59 AM EST) -- California voters rejected a ballot measure Tuesday that would have provided local governments the authority to extend rent control to housing that's over 15 years old, an initiative that opponents warned would have discouraged residential development and pushed California further into a housing crisis but that supporters argued would help reduce homelessness.

Voters rejected the Rental Affordability Act, listed on the ballot as Proposition 21, according to the Associated Press. The proposition sought to repeal much of the 1995 Costa-Hawkins Rental Housing Act, which has restricted municipal rent control ordinances across the state for the past 25 years.

As of early Wednesday, the proposition was rejected 60% to 40% with 78.5% of the votes reported, according to the California secretary of state's office. 

Its passage would have expanded the existing statewide rent control law to allow — but not require — local governments to limit annual rent increases. It would have allowed cities to limit rent increases during tenant turnover to 15%, instead of resetting to market rate each time a new tenant moves in. The law would have applied only to landlords who own more than two units.

In total, the campaigns for and against the measure spent well over $100 million, with the "No on 21" campaign outspending the "Yes on 21" campaign by almost $30 million, according to the secretary of state.

Opponents of the measure said there's a high cost to rent control and that the initiative wouldn't have begun to fix California's housing crisis. They warned that the measure was likely to make it worse.

Led by the California Apartment Association, Proposition 21 opponents argued that higher rents encourage developers to invest in building rental housing and that artificially capping rents discourages such investments.

Real estate developers and affordable housing advocacy groups alike voiced fierce opposition to the initiative, saying it's not a solution to the housing shortage.

Ray Pearl, executive director of the California Housing Consortium, which advocates on behalf of entities in the development, financial and public sectors seeking to increase the production and preservation of affordable housing, said the proposition would have made it harder for Californians to access housing.

"This measure is a distraction from the real solutions needed to address our state's housing crisis, including permanent funding for affordable housing and regulatory reforms that make it easier to build the affordable housing our state's lowest-income residents desperately need," Pearl said.

Adam DeSanctis, a spokesperson for the Mortgage Bankers Association, told Law360 that Proposition 21 would "[worsen] the state's affordability crisis by making lenders more hesitant to finance multi-housing projects."

Housing Is A Human Right, the housing advocacy division of the AIDS Healthcare Foundation and a main funder of the campaign supporting Proposition 21, however, argued that the measure would have helped stave off evictions of at-risk Californians amid the coronavirus pandemic.

Despite millions of California renters facing unemployment or underemployment and housing insecurity as a result of the pandemic, the measure failed to gather the needed votes. California voters rejected a similar rent control measure in 2018.

"Housing is a basic need and a human right, and should not be subject to the whims of market speculation," Elena I. Popp, executive director of the Eviction Defense Network and a prominent supporter of Proposition 21, told Law360.

She said California rents have skyrocketed, causing displacement and increased homelessness.

"The rising cost is not based on the actual cost of maintaining housing," Popp said. "Rents go up because they can. They can go up due to weak local rent control laws and the lack of vacancy control."

Popp said opponents of the measure placed a high priority on maintaining landlords' ability to raise rent to market rate when a tenant leaves.

Both sides maintained that if the other side won, low-income people of color would be the hardest hit.

Zenei Cortez, a registered nurse and president of National Nurses United, said housing instability negatively impacts public health and that rent control could help ease the burden many Californians — especially people of color — find themselves bearing.

"Evictions and homelessness disproportionately affect Black and brown people, and COVID-19 has only exacerbated this problem by creating more layoffs, which leads to financial and housing instability," Cortez said in a statement endorsing the measure.

Cortez said communities of color "are more likely because of various structural racist policies to have a low-wage job that cannot be performed at home. Proposition 21 is critical to ensuring that these communities are provided the rent affordability that they and their families so desperately deserve."

Steve Maviglio, a Sacramento Democratic political strategist and a landlord who opposed the ballot initiative, argued that people of color would have also been disproportionately impacted if the housing shortage were to deepen.

"Apartments and single-family-home rentals will become scarcer under Prop 21, making affordable housing more difficult to find. That makes it particularly tough for people of color," Maviglio said. He said its passage would not only have resulted in fewer rental units on the market, but also would have lowered property values and led to less revenue for schools and other community services.

The lead-up to the vote was contentious, with each side accusing the other of running afoul of political spending rules.

Maviglio slammed the "Yes on 21" campaign's deep pockets, telling Law360 the AIDS Healthcare Foundation was single-handedly propping up the ballot measure and suggesting that the nonprofit was being used as an "unlimited political slush fund."

The AIDS Healthcare Foundation filed suit in September against the "No on 21" political committee, alleging it unlawfully concealed the identities of its donors.

Real estate developers, local chambers of commerce, and dozens of labor unions representing electricians, metal workers, carpenters and others in the construction industries said the measure would have damaged the ability to finance and construct much-needed affordable housing projects in California. Gov. Gavin Newsom was among the opponents of Proposition 21.

U.S. Sen. Bernie Sanders and U.S. Reps. Karen Bass, Maxine Waters and Barbara Lee were among the congressional leaders who endorsed the measure, saying it would be a life raft for renters during particularly lean times. Other supporters included the California Democratic Party, the American Civil Liberties Union Foundation, the California Nurses Association and Service Employees International Union California.

--Editing by Aaron Pelc.

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