Saturday, May 10, 2008

Some Misconceptions About Prop 98

So I have been looking through the comments that I have gotten on my posts about Prop 98. I figured I would take this moment to answer them.

Now, the first comment, left by an anonymous poster, deals more with my view of the referendum process in California. I think we allow our legislature here in California get away with too much by having a referendum system that can be used too often. Sure, Propositions 215, 59, and 13 may be much loved. However, for every one of those which might be "much loved", we have had Prop 22 (which changed the California constitution to prevent same-sex marriages), Prop 164 (imposition of terms, giving us the muscial chairs of elected officials), Prop 64 (which has diminished consumer protections by limiting the use of the Unfair Business Practices Act, rushed onto the ballot by the pro-business lobby seizing upon the acts of a small group of unethical people), Prop 71 (the stem cell initiative which passed but as of yet has managed to accomplish....?), Prop 83 (increasing penalties against sex offenders, and possibly tossing away the 8th Amendment, Cal Const. Art. 1 Sec. 17, in the process).

Then again, we have also already, as voters, consider the issue of emminent domain reform in the 2006 election with Proposition 90. And with almost the same language to boot. So hurray, we Californians get to foot the bill to vote, again, on virtually the same ballot initiative.

So, now, to the second comment left by an anonymous poster. (Which by the way annoys me. My favorite scene in the West Wing deals with anonymous letters and how Sam Seborn deals with them.) And in it, this person writes that Prop 98 only outlaws new rent control, but otherwise, it just "only outlaws transfer from one private individual to an other."

First, localities in California (i.e. your local city or town) has been prohibited from enacting new rent control schemes since February 1, 1995 when the Costa Hawkins Act (Civil Code section 1954.50 et seq., and specifically Civil Code 1954.52) went into effect. So, the idea that Proposition 98 will prevent the invidious spread of rent control in California is just plainly wrong. The jurisdictions which have it now are the only ones who are able to have it.

Now, the second misconception is that Prop 98 only outlaws the state of California transferring private property from one individual to another. That is what the proposition's backers would have people believe. However, lets take a look at the actual proposed language in the initiative. It reads,

Sect 19(a) Private property may be taken or damaged only for a stated public use and when just compensation, ascertained by a jury unless waived, has first been paid to, or into court for, the owner. The Legislature may provide for possession by the condemnor following commencement of eminent domain proceedings upon deposit in court and prompt release to owner of moeny determined by the court to be the probable amount of just compensation. Private property may not be taken or damaged for private use.

(Instead of underlines, I am using italics to show where the proposition would amend the state constitution)

Now, that is to be expected. The real changes, as they often happen in legal documents, occur in the definitions. There, the changes read, in part,

(b) For purposes of this section:

(1) "Taken" includes transferring the ownership, occupancy, or use of property from a private owner to a public agency or to any person or entity other than a public agency, or limiting the price a private owner may charge another person to purchase, occupy or use his or her real property.
The classic view of eminent domain, at least as I remember it being taught to me back in junior high and high school is that the government uses the power to force the owner to sell property to the government. However, under this iteration, a taking would include "limiting the price a private owner may charge another person to purchase, occupy, or use" their real property. Rent control limits a private owner's ability to raise rents of their tenants. Therefore, if Prop 98 were to pass, rent control would be history as soon as it went into effect.

However, the "taken" definition could also be applied in other ways. Because the revisions to the California Constitution would now define ordinances which limit the price that a private property owner can charge to sell, it would render unconstitutional a number of environmental laws which limit the use of property. For instance, the California Coastal Commission would find it difficult to protect, conserve, and restore the coastlines, unless every single property owner agreed to be bound by it.

But forget the controversial things like environmental protection. Basically, Proposition 98 would prevent localities, counties, and the State from placing limitations on properties. Think thats just the AngryBell overreacting? Well, read on in the proposition's language and you will note that it says, when defining private use,

(iii) regulation of ownership, occupancy or use of privately owned real property or associated property rights in order to transfer an economic benefit to one or more private persons at the expense of the property owner.
Now, take private use's definition, and read it with the portion which reads, " Private property may not be taken or damaged for private use." This creates an overly expansive definition of the concept of private use. City zoning ordinances could be invalidated because they promulgate rules which limit how a private person uses his or her real property. As the Planning and Conservation League wrote,

Proposition 98 is full of ambiguous language that is open to wide interpretation by the courts. Almost all restrictions on developments and land use provide economic benefits to someone whether through increased property values or benefits to local retail stores who profit from restrictions on locations of “big box” retail giants.

I can think of a number of unintended consequences of the passage of Proposition 98, you could end up with the adult bookstore right next door to the primary school. Big box retailers would be able to put up whatever monstrosities they wanted, where they wanted, how they wanted, as long as they could buy the land.

Now, I like free markets, and a minimum of government regulation. However, in the modern economic landscape, there needs to be some breaks on what people do with their property. Prop 98 has the potential to eliminate all limitations on the State and localities ability to regulate property owners.

Things in favor of Prop 98: Prevent's Kelo-type takings (i.e. condemning private property and transferring it to another private entity).

Things against Prop 99: Elimination of rent control; elimination of environmental laws; elimination of local zoning ordinances.

From my perspective, as a once and future property owner, this is just a bad law. It goes beyond the needs of the people of the State of California. It will impede the ability of the people of this state to enact reforms which are necessary to protect the environment, zoning, and eliminates rent control. There's more than one reason to vote against this law.

Of course, if you want exempt all private real property from virtually any regulation, making it impossible for the state to have any police powers in that regard, then vote for it. But if you are interested in real eminent domain reform, then Vote No on 98.


J.O. said...

Prop 98 does not terminate rent control for anyone currently benefiting from it, it simply does not allow new people to benefit from it. This is especially true in mobilehome parks where homes that are worth 15,000 are selling for 250,000 because the rent controlled space rent is so far below market and where there is no vacancy decontrol and where new rent control laws are constantly being introduced.

J.O. said...

Prop. 98 is desperatly needed in the mobilehome arena where 15,000 homes are selling for 250,000 because the lot rent isd so low and where there is no vacancy decontrol. Prop 98 does not end rent control for people currently covered by rent control it just does not extend it to people who are not covered by it now. It will take years to undo the mess caused by rent control in CA and this is the least painful and most equitable way to do it as nobody will be hurt who is currently covered by rent control.

AngryBell said...

Now, J.O. has made two points. First, J.O. claims that Prop 98 will not end rent control. Second, J.O. claims that there is vacancy decontrol in California rent laws, and specifically in those which cover mobile home parks.

As to the first question, Please look up in the post. The drafters of Prop 98 clearly intend for all rent-control to end as soon as Prop 98 passes. Rent control, by definition, operates as a government limitation on what a private property owner can charge for the occupation of their real property. Therefore, if Prop 98 were to pass, the cities and counties which adopted rent control procedures before 1995 would have to repeal them or see the courts order them terminated.

As I pointed out in my post, Costa-Hawkins has placed limits on the type of rent control which is permissible in California. The only type which is permissible is known as Vacancy decontrol. Based on my research, and I have not seen anything to the contrary, this is applicable to mobile home parks as well. The passage of Costa-Hawkins in 1995 ended the ability of localities to enact new rent-control ordinances. Only those which were in effect as of February 1, 1995, were allowed to remain. Those that are in effect are free to alter the rules to fit the current needs, but no new ones may be created absent a change in policy by the legislature.

Now, as to the cost of mobile homes and whether eliminating rent control will make them cheaper, I have to say I am skeptical of that. First, it would be fallacious to say that rent control is the sole force which is keeping property prices high in California mobile home parks. As a rules, all property in California is ridiculously expensive, at least in areas where people want to migrate to. Terminating rent controls will only serve to drive down the price of the mobile home unit. It will allow the owners of the mobile home parks to raise the fees they charge for placing the units there. Given the space crunch in the areas where rent controls generally exist, I think it is more probably than not that those fees will skyrocket. So while the actual unit might become cheaper, the cost overall will remain the same.

Think of it this way, land space, at least those in areas where people are moving into the most is going to be at a premium. Given that, why would a landowner ever charge less than they possibly could for a piece of property?

Freed of rent control, the mobile home and other types of landlords are going to take advantage of the situation. Which leads me to wonder where everyone who is not bringing in more than $100K year going to live and still be able to get to work?

Is rent control unfair? To an extent, it is. It does deny landowners the ability to maximize their profits. However, allowing an unregulated rental market creates a greater burden. People need to be able to do more than simply pay rent. If all they are doing is paying rent, given the lessons learned from the Cambridge experience, how will they be able to build up any capital to do anything else?

In my opinion, the way rent control works now minimizes the harm done to the landlord who is prudent in their investments. Eliminating it would cause a serious upheaval in the areas where it exists. It would also cause surrounding, non-regulated rental markets to surge up as well. In the end, the only ones who will benefit from it will be the few who own the rental units.

But here is the bottom line. Don't be fooled by the proponents of Prop 98. It will end all rent control in California.

Please, on June 3, 2008, vote NO on Prop 98 (and vote YES on Prop 99).

prop reader said...

Bell, what would you say the impact on existing rent control is given the language in Section 6 "Effective Date" in the Prop 98?

AngryBell said...

That the effective date will put an end to rent control. Everyone who rents after that date will not be subject to rent control or the protections contained within the rent control ordinances. The effective date does not save the ordinances, it just slows the effect (i.e. to end rent control).

What it will do is spur on litigation to drive out tenants. The landlords will start litigation against long-term tenants trying to show that they are not "original tenants".

utopia said...

Thanks Wandering Bell for good blog, and THANK GOD PROP 98 WENT DOWN! Point of info: The Costa-Hawkins Act exempts mobilehomes or nobody would be paying the prices they are for them. If mobilehome owners who rent space lost this exemption, they would lose their investments. Low-income people have virtually bought rent control, not the mobile home on the rented space. Without the exemption, if they need to move, they end up with what they can get for salvage. No buyer will reimburse the purchase price of a mobilehome in a park space that is not rent controlled. There are other factors, but they are minor. At DeAnza MHP in Santa Cruz, space rents in the park have gone from $500/month to $5,000/month. A mobilehome purchased there at $200,000 won’t bring $20,000 today, because the city couldn’t or wouldn’t defend the Costa Hawkins exemption against a wealthy national franchise determined on vacancy decontrol. Any overturn of Costa Hawkins in MH parks MUST reimburse MH investors if equity is the purpose. Why should a rich park owner, who bought under market value because it was assumed the land would be in rent control for perpetuity, suddenly get market value rents at the expense of the mostly low-income MH investors?