Costa Hawkins Act – What is it?

Updated 10/21/24

The Costa Hawkins Act is a significant piece of legislation in California’s housing policy that affects both landlords and tenants, particularly in the context of rent control. Passed in 1995, the act sets limits on the types of rent control measures cities can implement, and it continues to shape the rental market in California. This article will provide an overview of the Costa Hawkins Act, its history, its impact on landlords and tenants, as well as the pros and cons of this important law.

History and Purpose of the Costa Hawkins Act

The Costa Hawkins Act was enacted in 1995 in response to the growing adoption of rent control policies in several Californian cities, such as Los Angeles, Berkeley, and San Francisco. During the 1970s and 1980s, rent control became increasingly popular as a way to combat skyrocketing housing costs, particularly in urban areas. However, these regulations led to concerns from property owners about their ability to maintain profitability, invest in property improvements, or even stay afloat in a highly regulated environment.

To address these concerns, the Costa Hawkins Act was introduced by State Senator Jim Costa and Assemblymember Phil Hawkins. The act placed significant restrictions on local rent control laws, giving landlords greater flexibility in setting rental prices under specific circumstances. The law created a compromise between maintaining some level of rent regulation and ensuring that property owners retained some degree of control over their rental units.

Key Provisions of the Costa Hawkins Act

There are three major provisions within the Costa Hawkins Act that are particularly important for landlords and tenants to understand:

1. Vacancy Decontrol: This is one of the most crucial elements of the Costa Hawkins Act. Vacancy decontrol allows landlords to set the rent to market rates when a tenant voluntarily moves out or is legally evicted. Once a new tenant occupies the unit, the rent control restrictions may be reinstated, but only at the new, higher rent level. For landlords, this provides a key opportunity to adjust rents in line with market conditions after a tenant leaves.
2. Exemption for Single-Family Homes and Condominiums: The Costa Hawkins Act exempts single-family homes and condominiums from rent control. This means that landlords of these types of properties can raise the rent without restriction, even if the property is located in a city with rent control regulations. However, for multi-unit buildings, rent control laws can still apply, subject to the other provisions of the Costa Hawkins Act.
3. Restrictions on Rent Control for New Construction: Another significant aspect of the Costa Hawkins Act is that it prohibits rent control on residential properties built after February 1, 1995. This provision is intended to encourage the development of new housing by ensuring that newly constructed units are not subject to restrictive rent control measures. Cities with existing rent control ordinances are not allowed to expand those rules to cover buildings constructed after this date.

The Impact of the Costa Hawkins Act on Landlords and Tenants

The Costa Hawkins Act has had a profound impact on California’s rental housing market, influencing both landlords and tenants in several ways.

For landlords, the act offers some protection against the financial challenges posed by strict rent control policies. The ability to raise rents to market levels when a tenant vacates a unit (vacancy decontrol) ensures that landlords can continue to generate adequate income to cover rising maintenance costs, taxes, and other expenses. Moreover, the exemption for single-family homes and new construction provides landlords with flexibility, allowing them to attract new tenants at competitive rates without being constrained by local rent control laws.

For tenants, the Costa Hawkins Act has been a source of frustration, particularly in high-demand rental markets. While existing tenants in rent-controlled units benefit from stable rents, new tenants moving into vacated units often face significantly higher prices due to vacancy decontrol. Additionally, tenants renting single-family homes or newly constructed buildings are not protected by rent control, leaving them vulnerable to rapid rent increases. This has contributed to the ongoing housing affordability crisis in cities like Los Angeles and San Francisco, where rents have continued to rise faster than wages.

Pros and Cons of the Costa Hawkins Act

Like any piece of legislation, the Costa Hawkins Act has its supporters and detractors. Here are some of the key arguments on both sides:

Pros of the Costa Hawkins Act

1. Encourages New Housing Development: By exempting new construction from rent control, the Costa Hawkins Act incentivizes developers to build more housing, helping to increase the overall supply of rental units. Without this exemption, many developers might hesitate to invest in new projects due to concerns about profitability.
2. Protects Property Rights for Landlords: The act ensures that landlords have the ability to adjust rents based on market conditions when tenants move out, allowing them to maintain a sustainable income stream. It also shields single-family homeowners from rent control, making property investment more attractive.
3. Prevents Overreach of Local Rent Control Laws: The law establishes a statewide framework for rent control, preventing cities from imposing overly restrictive measures that could discourage investment in rental properties. This provides a level of consistency across the state, benefiting landlords who own properties in multiple jurisdictions.

Cons of the Costa Hawkins Act

1. Contributes to Housing Affordability Crisis: Critics argue that vacancy decontrol allows rents to rise too quickly, pricing many tenants out of the market, especially in high-demand areas. With no restrictions on rent increases between tenants, landlords can raise rents to levels that are unaffordable for many renters, exacerbating the state’s housing affordability crisis.
2. Limits Local Control: The act prevents cities from fully implementing rent control policies tailored to their local housing markets. In cities with extreme housing shortages, local governments may feel hamstrung by the restrictions imposed by Costa Hawkins, unable to protect tenants as they see fit.
3. Disproportionately Affects Vulnerable Tenants: Tenants in newer buildings and single-family homes are excluded from rent control protections under the Costa Hawkins Act. This means that these renters, who may already be struggling with affordability, are more likely to face sudden and significant rent hikes.

The Ongoing Debate and Potential Changes to Costa Hawkins

The Costa Hawkins Act has been the subject of several efforts to reform or repeal it in recent years. Most notably, Proposition 10 in 2018 and Proposition 21 in 2020 sought to repeal or amend the act, but both measures were rejected by California voters. Proponents of repeal argue that loosening the restrictions of Costa Hawkins would allow cities to better address the housing affordability crisis by expanding rent control protections.

Opponents of repeal contend that doing so would stifle new housing development, reduce the supply of rental units, and ultimately make the housing crisis worse. The debate around the Costa Hawkins Act is likely to continue as California grapples with its housing challenges.

The Costa Hawkins Act remains a pivotal law in California’s housing policy, balancing the interests of landlords and tenants. While it has helped protect property owners’ rights and encouraged housing development, it has also contributed to the state’s ongoing housing affordability issues. Understanding the provisions and implications of the Costa Hawkins Act is essential for both landlords and tenants navigating the complex rental market in California.