Prop 33 is intended to help alleviate the financial strain on renters, but only addresses part of the growing problems facing the housing market across the state.
It’s election season, which means that nearly every person who even glances up during a commercial break, opens a video streaming platform, or pulls up social media sees a barrage of advertisements for and against a litany of propositions, candidates, and measures they can vote on this November. In California, Proposition 33 is one of the highest-funded campaigns in the state— the pro-Prop 33 campaign has raised at least $29.4 million, while the anti-Prop 33 campaign has raised at least $52.4 million.
On its face, Prop 33 is relatively straightforward. A ‘Yes’ vote would repeal the Costa-Hawkins Rental Housing Act of 1995, while a ‘No’ vote would leave the current law unchanged. Costa-Hawkins prohibits rent control on single-family homes, on any housing built after February 1, 1995, and on new tenants, restricting rent control to increases for existing renters only.
If Prop 33 passes, nothing will change immediately. Instead, it would allow local governments to take action to implement rent control laws in their jurisdictions. This is the third time this repeal of Costa–Hawkins has been proposed. It failed to be repealed in both 2018 and 2020.
Does Prop 33 Address the Rising Cost of Living in California?
At face value, Prop 33 is intended to address the housing crisis in California. Rent prices have surged over the past several years. Reducing the monthly rent burden for individuals and families is certainly appealing to renters, but what impact does it have as a long-term solution to the issue of rising housing costs?
Unfortunately, enacting rent control only addresses a fraction of the greater issue driving housing costs up and up and up and up. Imagine if you’re driving down the road and hit a massive pothole that ruptures your tire, breaks your car’s axle, and destroys its suspension. In order to get your car back in proper working order, it needs a heavy amount of work to be safe to take out on the road again and prevent compounding issues and damage — not to mention that the pothole itself needs to be fixed to prevent future accidents and damage.
Implementing rent control is like replacing the tire and calling it a day. It doesn’t address the laundry list of factors that have fueled the rapid increase in the cost of living in California, including the COVID-19 pandemic, short-term rental properties, rising costs of building materials, and more. One of, if not the single largest factor behind the rising cost of living is the staggering increase in insurance premiums over the past few years.
“Across the MRK portfolio, we’ve seen our insurance costs increase more than 2x since 2021,” said Meredith Esarey, Chief Revenue Officer at MRK Partners. “We understand and support affordable rents for tenants AND we also believe we’re only addressing the obvious solution — holding rents stagnate — and avoiding the root cause which is lack of supply. We’re tackling only the tip of the iceberg.”
Insurance premiums on affordable housing properties have shot through the roof over the past few years. According to data from Marsh, the cost of property insurance increased by 26.4% on average over the past year, with some properties reporting a 120% increase in a single annual renewal. This increase is fueled in part by deductible increases, coverage limitations, and even a simple lack of viable insurance options in certain areas across the country.
Just like with the rising costs of housing, there are a number of factors fueling this sharp spike in insurance premiums, including liability laws in certain states that make it easier to sue insurers and an increase in the frequency and severity of storms, fires, and other environment-related disasters.
Access to affordable housing is vital for everyone. Addressing these underlying issues plaguing the housing market is important, which is one of the reasons why MRK is part of the Affordable Housing Tax Credit Coalition (AHTCC), a trade organization of housing professionals advocating in support of the Low-Income Housing Tax Credit (LIHTC) program. This program gives the equivalent of approximately $10 billion in annual budget authority to issue tax credits for the acquisition, rehabilitation, or new construction of rental housing targeted to lower-income households.
Low-income housing, like the properties MRK develops, faces additional issues — a staggering number of insurers refuse to offer coverage for low-income properties at all. “MRK’s ability to access appropriate coverage at a reasonable rate is becoming less and less feasible,” said Esarey. “Many general liability carriers point to ‘crime score’ and other factors that disproportionately impact Low-Income Housing Tax Credit (LIHTC) projects as a reason not to offer any options for coverage, leaving us far fewer options to obtain affordable coverage. This is a government-funded program, so eventually, there might be a role for them to play in getting the underside of the iceberg sorted out.”
Earlier this year, AHTCC joined members of the Housing Affordability Coalition, which includes groups representing housing providers, lenders, and residents, in signing a letter to Congress and the Biden Administration highlighting the impact of these skyrocketing insurance costs on affordable housing and outlining bipartisan policy recommendations aimed at mitigating the causes of these increased insurance premiums. For more information, you can read the full letter and policy recommendations here.
It’s hard to project exactly what effect Prop 33 will have on the housing market in California. What is clear is that rent prices are only one piece of the puzzle. Ensuring that people across the country have access to quality, affordable housing is important and will require an ongoing push to achieve on a grander scale.
