Effective as of January 1, 2020, the Tenant Protection Act of 2019, signed by Gov. Gavin Newsom in the fall of 2019, provides certain new protections for residential tenants in the State of California. In response to what the statute refers to as “the unique circumstances of the current housing crisis,” the new legislation prohibits residential landlords from terminating leases without just cause for tenants who have occupied the rented premises for 12 months or more, and restricts the amount by which landlords may increase rent, as summarized in more detail below. California’s adoption of this new legislation makes it the third state in the country to implement statewide rent restrictions, a trend that will likely continue to grow in the face of rising rental prices nationwide.
As 2019 winds down, the Affordable Housing Credit Improvement Act of 2019 is gaining momentum in Congress. The Act, which is aimed at expanding and strengthening the low-income housing tax credit, was originally introduced in 2016. The Consolidated Appropriations Act of 2018 adopted two key provisions of the original bill—a 12.5% increase to the housing credit ceiling for years 2018-2021 and the “income averaging” minimum set-aside election. The 2019 bill reintroduces many key provisions from the original bill, along with new provisions to further bolster the housing credit. As of the end of October, more than one-third of the House and one-fourth of the Senate have signed on to co-sponsor the bill. In summary, the key proposals in the 2019 legislation would:
Developers in California know that getting approval to build new housing projects can be extremely difficult, time-consuming, and expensive. But a new policy is finally coming into full effect which could help developers cut through those barriers. SB 35, enacted in 2017, streamlines the approval process for housing developments in areas with inadequate housing supply, so long as the developments meet certain criteria.
In September 2017, the California legislature and Gov. Jerry Brown enacted Senate Bill 35 (SB 35) to streamline housing development in cities that are not meeting their housing needs. SB 35 is aimed at easing California’s severe housing shortage and affordability crisis but was highly controversial due to concerns about loss of local control over housing development. In the year since SB 35 was enacted, several development projects in the San Francisco Bay Area have invoked SB 35 to bypass local opposition or cumbersome permitting timelines.
This update follows an earlier post discussing Proposition 10’s potential impacts and pre-election prospects, available here.
What happened on Election Day
Despite California’s sky-high rents, voters just rejected a ballot measure that would have allowed cities to expand rent control. With 100% of precincts reporting, 61.7% of voters opposed Prop 10, while 38.3% voted to approve the measure. The ballot measure only achieved a majority in one of California’s fifty-eight counties, San Francisco. In Los Angeles County, 47.2% of voters supported the proposition. However, the ballot measure fared substantially worse in Sacramento, San Diego, Fresno and Orange counties. These results highlight the measure’s widespread unpopularity.
In less than two weeks, California voters will decide whether to pass Proposition 10, which would allow cities and counties across the state to expand rent control.
Supporters of the measure say it will protect tenants during a time of unprecedented housing affordability problems in California. Opponents argue that the measure will stall housing construction—the levels are already low—and further increase costs.
Today, our colleagues Tom Morton and Emily Bias published their Client Alert titled Impacts of the Omnibus Spending Plan on the Affordable Housing Industry, Trump’s Omnibus Spending Plan adopts two key provisions from the proposed Affordable Housing Credit Improvement Act that will strengthen and expand low-income housing credit. Takeaways include
- 2018 spending plan increases housing credit ceiling by 12.5% for next 4 years and incorporates a new “Average Income Test” to qualify for low-income housing tax credits; and
- The Average Income Test offers potential benefits to taxpayers, but open issues include whether States will adopt this option, the mechanics of application, and difficulties in monitoring compliance.
As noted in a prior post, the affordable housing industry is struggling to make ends meet after equity pricing took a dive in response to the decreased corporate tax rate under President Trump’s tax reform plan. While some reprieve was granted by the increases in tax credit allocations and appropriations for affordable housing programs under the 2018 federal spending plan, developers are still struggling to fill funding gaps. One city is proposing a creative way to funnel more money toward affordable housing: On April 16, Denver Mayor Michael Hancock proposed a 2% increase in the special tax on recreational marijuana, with the additional revenue generated to be earmarked for the City’s affordable housing fund.
On March 23, President Trump signed into law the Consolidated Appropriations Act, 2018, a $1.3 trillion spending package that includes a 12.5% increase in low-income housing tax credit allocations over the next four years, along with funding increases for several affordable housing programs. This is welcome news to affordable housing developers who have been facing funding gaps as a result of reductions in the corporate tax rate under the Tax Cuts and Jobs Act enacted in late 2017, which led to reduced pricing from equity investors.