BILL ANALYSIS                                                                                                                                                                                                    



                                                                    
   AB 1164
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 REPLACE

( Without Reference to File)

                 CONCURRENCE IN SENATE AMENDMENTS

          AB 1164 (Hawkins) - As Amended:  July 20, 1995

 ASSEMBLY VOTE:  74-0  (April 20, 1995) SENATE VOTE:  24-11   (July  
24, 1995)

Original Committee Reference:    H. & C. D. 

 DIGEST

 Existing law:

1)  Makes no statutory provision for, but does not prohibit, the  
adoption of local rent control ordinances.  Case law,  Birkenfeld  
v. City of Berkeley (1976) 17 Cal. 3d 129, held that rent control  
is a proper exercise of a local government's police power if it is  
reasonably calculated to eliminate excessive rents and at the same  
time provide landlords with just and reasonable returns on their  
properties.  
 
2)  Provides that the right to control rents on housing units  
financed by the California Housing Finance Agency (CHFA) or the  
Department of Housing and Community Development (HCD) resides with  
CHFA or HCD and the units cannot be subject to rent control  
imposed by any state or local agency. 

3) Local ordinances, establish residential rent controls which may  
   be generally categorized as "strict" or "moderate."  Strict  
   rent control is characterized by the continuing control of rent  
   when a unit becomes vacant, and prohibits a rent increase when  
   a new tenant occupies the unit - vacancy control.  Moderate  
   rent control does not control the rent on a unit when it  
   becomes vacant and permits the rent to rise to the market rate  
   when a new tenant moves in.  After this new rent is determined,  
   the rent is again controlled - vacancy decontrol. 











                                                                    
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   Vacancy control ordinances are in place in Berkeley, Santa  
   Monica, Cotati, East Palo Alto and West Hollywood. 
 
4) Local ordinances, apply to single- and multi-family rental  
   housing with a variety of exemptions.  Ordinances may exempt  
   from rent control single family residences, including  
   condominiums, owner-occupied duplexes or triplexes, or all  
   developments of four units or less.  The City of Los Angeles,  
   for example, exempts luxury units, single-family detached homes  
   and second units from rent control, but not condominiums.  Most  
   ordinances exempt new construction.

5) Provides for various housing programs, including the Senior  
   Citizen's Shared Housing Program, the Mobilehome Parks for  
   Senior Citizens Demonstration Project, the Low Income  
   Management Training, the Urban Homestead Program, the  
   Transitional Housing Rental Deposit Guarantee Program, Housing  
   for Prison Employees, and Second Unit Financing. 

 As passed by the Assembly, this bill stated legislative intent to  
streamline and improve state housing policy by repealing obsolete,  
outmoded, and inoperative programs and statutes, and repeals the  
programs identified in #5 above. 

 The Senate amendments establish a comprehensive scheme to regulate  
local residential rent control, which shall be known and may be  
sited as the Costa-Hawkins Rental Housing Act, as follows:

1) Establishes vacancy decontrol for residential dwelling units  
   where the former tenant has voluntarily vacated, abandoned, or  
   been evicted pursuant to a three-day notice to pay or quit. 

   a)  Specifies that the rental rate of a dwelling or unit whose  
   rental rate is controlled by ordinance or charter provision in  
   effect on January 1, 1995, shall until January 1, 1999, be  
   established as follows: 
 
       Upon a vacancy, as specified, an owner of residential real  
   property may, not more than twice, establish the initial rental  











                                                                    
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   rate for a dwelling or unit in an amount that is no greater  
   than 15% more than the rental rate in effect for the  
   immediately preceding tenancy or in an amount that is 70% of  
   the prevailing market rent for comparable units, whichever  
   amount is greater. 
 
    b)  This provision would not apply if the rent control is  
pursuant to an agreement between the local public entity and the  
owner for a "direct financial contribution" or other specified  
assistance from the locality.  It would also not apply to impair  
any obligation of contracts entered into prior to January 1, 1996.  

 
2)  Exempts from local controls, but provides a three-year  
phase-in similar to that described above, for a single family  
home, condominium, townhouse, specified community apartment  
projects and stock cooperatives, and any dwelling unit which could  
be sold or transferred separately.  This "single-family"  
exemption, however, provides that any tenant in place prior to  
January 1, 1996 and who remains after the three-year phase-in  
would remain covered by the local rent control ordinance.

3)  Exempts from local controls any new construction which is  
issued a certificate of occupancy after February 1, 1995, and  
exempts from local controls any residential real property which is  
already exempt from local controls as of February 1, 1995 pursuant  
to a local exemption for newly-constructed units. 
 
4) Provides that this bill would not affect any authority of a  
   public entity that otherwise exists to regulate the basis for  
   eviction (such as local just cause eviction ordinances). 

5) Provides that an owner may increase the rent by any amount to a  
   sublessee or assignee where there is a rental agreement  
   prohibiting subletting or assignment and the original  
   occupant(s) who took possession no longer permanently reside  
   there.  

6) Exempts from the bill any dwelling or unit which contains   
   serious health, safety, fire or building code violations, as  











                                                                    
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   specified.

7)  Delete the repeal of the Senior Citizen's Shared Housing  
Program and Second Unit Financing.

 FISCAL EFFECT

No state effect.  Minor local, non-reimbursable costs associated  
with the application of different local standards; state-mandated  
costs waiver because the bill would not result in any net costs to  
local agencies.

 COMMENTS

1) Fourteen cities impose rent control on residential units.  This  
   bill applies to residential rent control, as follows: 

   a)  Five vacancy control cities would be affected: Berkeley,  
   Cotati, East Palo Alto, Santa Monica and West Hollywood.

   b)  This bill exempts from rent control single-family  
   residences and other similar units upon the first vacancy after  
   January 1, 1996.  The cities affected are:  Berkeley, East Palo  
   Alto, Los Angeles, Oakland, San Francisco, Santa Monica and  
   West Hollywood.

    c)  The only rent control cities which do not exempt new  
       construction from rent control, and therefore, would be  
       affected by this bill are East Palo Alto, Cotati (partial  
       exemption) and Los Gatos (partial exemption). 
   
   d)  According to information furnished by opponents of the  
   bill, this measure would affect (upon first vacancy) 52,000  
   single-family homes and similar units and 79,800 apartments  
   units. 

       SINGLE FAMILY HOMES             APARTMENTS
        AND CONDOMINIUMS   

       San Francisco     27,000       Santa Monica       34,500











                                                                    
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       Los Angeles       10,900       Berkeley           25,200
       Oakland            5,000       West Hollywood     17,300
       Santa Monica       3,700       East Palo Alto      2,800
       Berkeley           2,200        
______________________________
       West Hollywood     2,200
       East Palo Alto     1,000       TOTAL APARTMENTS        
79,800
       ____________________________

       TOTAL SINGLE FAMILY 
       AND CONDOMINIUMS  52,000        TOTAL ALL UNITS        
131,800
 
2) Proponents view this bill as a moderate approach to overturn  
   extreme vacancy control ordinances which unduly and unfairly  
   interfere into the free market.  Strict vacancy control laws  
   deter construction of new rental housing and discourage new  
   private investments.  Strict rent control laws encourage some  
   owners to take their units off the market or to sell the  
   property. 

   Further, vacancy control laws are extremely burdensome and  
   expensive to administer.  For example, the Santa Monica Rent  
   Board has a budget of $4.7 million to regulate about 27,000  
   units.  In contrast, the City of Los Angeles's Rent Board  
   budget is $7 million to regulate 500,000 units.  Vacancy  
   control results in the availability of fewer affordable housing  
   units to tenants. 
 
   Proponents of this bill state that census data shows that  
   between 1980 and 1990, the total of renter-occupied housing  
   units decreased in Berkeley, Santa Monica and West Hollywood  
   while the number of rental units in the 
   surrounding counties increased.
 
   Proponents contend that a statewide new construction exemption  
   is necessary to encourage construction of much needed housing  
   units, which is discouraged by strict local rent controls.  In  
   support, the California Bankers Association (CBA) states that  











                                                                    
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   from a lender's perspective, extreme vacancy control ordinances  
   have a negative impact on the qualification of prospective  
   borrowers who wish to secure a loan with residential property  
   subject to the rent control law.  The property owner/borrower  
   cannot adjust rents to meet market conditions and obtain a  
   sufficient revenue stream to properly maintain or improve the  
   property, which can adversely affect the borrower's ability to  
   repay the loan.  CBA contends that under strict vacancy control  
   ordinances, there is no incentive for the construction of much  
   needed new multi-family residential housing. 
  
3) Opponents argue that this bill is an inappropriate intrusion  
   into the right of local communities to enact housing policy to  
   meet local needs.  Local officials and residents make  
   deliberate choices to address the unique needs of their own  
   communities.

   It is pointed out that this bill affects four jurisdictions,  
   East Palo Alto, Berkeley, Santa Monica and West Hollywood, all  
   of which are built-out communities surrounded by higher-priced  
   housing markets.  In such fully built-out communities there  
   will not be enough new construction to ensure affordable  
   housing. 
 
   Opponents also dispute assertions that rent controls have  
   caused massive reductions in the number of available rental  
   units in rent control jurisdictions, and contend instead that  
   reductions are due to factors such as property owners choosing  
   to sell their single family houses when prices 
   were extremely high, owners choosing to "go out of business"  
   under the Ellis Act or selling to the existing tenants as  
   "tenants-in-common" pursuant to local ordinances. 
 
   Finally, opponents assert that this bill would cause housing  
   prices to spiral, with the result that affordable housing would  
   be available to fewer households.

4) This measure also eliminates programs which are sunset, are  
   moribund due to a lack of funding for several years, or embody  
   ideas whose time never came.











                                                                    
   AB 1164
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 Analysis prepared by:  Stephen Holloway / ahcd / 445-2320

                                                                    
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