[REN #738] Breaking News: Scary Rent Control Legislation in CA

Picture of people talking for Real Estate News for Investors Podcast Episode #738

California lawmakers are about to vote on a bill that would create a scary kind of rent control. It would give tenants who’ve organized into an association the right to “boycott” their rent if they have a grievance, or go on strike. That includes a rent increase that’s raised more than the rate of inflation. The legislation is called SB 529, and it’s up for a vote by the California Senate on Thursday, May 16th.

The Los Angeles South Real Estate Investors Association issued a “red alert” about the vote. The Association is asking its members and opponents of the bill to call their representatives, and urge them to vote against it. The notice describes the bill as one that would allow tenants to strong-arm their landlords by withholding their rent. (1)

The bill’s title makes it sound like it would simply give tenants the right to organize into tenant associations, but California tenants already have that right. What this bill actually does is give organized tenants the right to withhold their rent for as much as 37 days if they have a valid grievance. That includes a rent increase above the rate of inflation — turning this into statewide rent control in disguise. It would set the rent for apartment buildings with five or more units at the rate of inflation. (2)

Here’s the way the LA South REIA describes the bill:

“SB 529 is a one-stop shop for decimating rental property owner rights. Guised as giving tenants the right to form a tenant association… SB 529 grants members of a tenant association the following: just cause protections and the right to stop paying rent for up to 37 days for almost any reason whatsoever.”

State Senator, Maria Elena Durazo, of Los Angeles authored the bill. According to the LA South REIA, she described it to her colleagues as a bill that gives tenants the power to force property owners and managers to lower the rent.

The red alert by the realtor’s association warns California landlords that the “bill goes beyond rent caps. If signed into law, tenants can force owners to choose between lowering the rent below sustainable amounts or risk the withholding of rent for up to 37 days for almost every grievance filed.” It says that tenant associations will be allowed to “raise multiple legal challenges concurrently, using the threat of months without rent as leverage to unfairly bargain new rights, expectations, and below-market rent.”

Rent control advocates vowed to continue their battle after Proposition 10 failed at the ballot box last year. That measure would have repealed the Costa-Hawkins Rental Housing Act which places limits on rent control in California, including a complete ban on rent control for single-family homes. State democrats have introduced several new measures designed to protect tenants, including one that’s similar to Proposition 10.

It’s not clear to what extent Governor Gavin Newson supports any of these proposals, including SB 529. He said during his State of the State address, “We need new rules to stabilize neighborhoods and prevent evictions without putting small landlords out of business.” He continued, “I want the best ideas from everyone in this chamber. Here is my promise to you, get me a good package on rent stability this year and I will sign it.”

As landlords and real estate investors, you know that rent control will backfire over the long-term. We need to increase the rental housing supply in order to lower rents — not force landlords to accept rent that doesn’t pay them enough to stay in business. Rent control discourages landlords from owning rental property.

As the California Globe points out, “Rent control is such a failed policy that most cities which had rent control policies at one time have done away with them. However, and despite the facts, America’s largest and most expensive cities, ironically have strict rent control policies in place, causing extreme housing shortages.” (3)

The Globe posted part of an analysis by the Senate judiciary. This is what happens when a tenant association issues a grievance to the landlord:

“Within seven days after receiving the notice, the landlord would have to respond to the tenants’ demands with an explanation of the landlord’s actions or inaction. Within 14 days of receiving the notice, the landlord would be required to meet and confer in good faith with the tenant association regarding possible resolution of the tenants’ grievances. Finally, after meeting with the tenants, but within 21 days after receiving the initial notice about the strike, the landlord would have to tell the tenant association what steps the landlord does or does not plan to take to address the grievances expressed.”

The bill has a LONG list of supporters so if you are opposed to what this bill would accomplish, you might want to call your state representatives to express your opinion, and hopefully sway this vote.

Links:

(1) LA South REIA: Red Alert

(2) SB 529

(3) California Globe Article

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