Traditionally, California was a state of homeowners, but as its population and housing prices soared, its home ownership rate dipped to the nation's second lowest.
As the ranks of renters increased in the 1980s, especially in coastal urban areas, rent control became a burning political issue, and as city after city adopted rent control ordinances, landlords appealed to the Legislature for relief, sparking years of bitter Capitol infighting.
Seemingly, it was resolved in 1995 when a Republican governor, Pete Wilson, a GOP-controlled state Assembly, and a coalition of Republicans and conservative Democrats in the Senate enacted legislation to sharply restrict the scope of local rent control ordinances. Among other things, the Costa-Hawkins Act says cities cannot control rents when units fall vacant, or those of newly constructed housing unless projects receive public subsidies.
The restriction has been litigated extensively, of course, but has survived the court tests. And now, in a newly published decision, a Southern California appellate court has declared that Costa-Hawkins not only inhibits rent control, but prohibits cities from requiring rental housing developers to set aside units for low- and moderate-income tenants or pay in-lieu fees into local housing programs.
The case arose in Los Angeles, after the city told developer Geoff Palmer he couldn't build a 350-unit apartment house on a parking lot just west of downtown unless he complied with its set-aside policy or pay as much as $100,000 per unit into a city housing fund. The city contended that the set-aside was justified because the property had once contained a low-income hotel.
Palmer sued and won a Superior Court judgment that the city's set-aside rule violated the Costa-Hawkins Act by limiting rents on new units. The city and low-income housing advocates appealed and the 2nd District Court of Appeal, in a unanimous three-judge decision issued last month, ruled for Palmer.
"Forcing Palmer to provide affordable housing units at regulated rents in order to obtain project approval is clearly hostile to the right afforded under the Costa-Hawkins Act to establish the initial rental rate for a dwelling or unit," Justice Steve Suzukawa wrote.
The decision has created great angst among low-income housing advocates, and great uncertainty among cities with low-income set-aside policies and may have the effect of stalling pending projects to which those policies had been applied.
It's also possible that landlords who had been compelled to set aside units for low- and moderate-income tenants or had paid into local housing funds could now raise rents or seek refunds of housing fees.
If the appellate court decision stands, it marks a major victory for housing developers and a major setback for low-income housing advocates.
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