[REN #727] California Rent Control Battle is Back

Picuture of tie with CA state flag for Real Estate News for Investors Podcast Episode #727

The California rent control battle is heating up once again. Rent control advocates just launched a signature drive to get another statewide initiative on the 2020 ballot. But even before that comes into play, there are two bills under review in Sacramento that would also allow statewide rent control including some single-family rentals.

Statewide Rent-Control Ballot Initiative

This is round two for a rent control ballot initiative sponsored by the AIDS Healthcare Foundation. The new measure would allow local governments across the state to impose rent control on units that were first occupied more than 15 years ago. It would also allow rent control on single-family homes and condominiums which are currently protected under the Costa Hawkins Rental Housing Act. Property owners with one or two residential units would be exempt from the rules.

This is an updated version of Proposition 10, which voters rejected in 2018. LA Curbed, says the new initiative focuses less on dismantling the Costa Hawkins Act and more on rent control and affordability. (1) AIDS Foundation president, Michael Weinstein, says, the new version will be less confusing to voters who were unsure what their “yes” vote meant last time. He says, it also makes it clear that rent control won’t apply to new construction.

The last battle was fierce with supporters raising about $96 million to get it passed and opponents raising about three times that much to defeat it. The opponents won and we’re now looking at a new campaign for a similar measure. The battle will probably be just as fierce as “round one” although there’s another more pressing rent control issue happening right now in Sacramento.

Statewide Rent-Control Legislation

Two rent control bills were getting their first hearing by members of the Assembly Housing and Community Development Committee at the time this podcast was written. One is called AB 36, introduced by Assemblyman Richard Bloom of Santa Monica. (2) It would allow rent control on single-family homes and condominiums but only for landlords who own three or more residential units. Mom-and-pop landlords who own one or two units would be exempt. New housing would also be exempt but only for the first ten years. Rentals that are older than 10 years would be subject to rent control.

The other piece of legislation is AB 1482 introduced by Assemblyman David Chiu of San Francisco. That one focuses on rent caps and vacancy controls. It’s similar to the one Oregon passed just weeks ago to prevent exorbitant rent increases. Under this bill, rents would be capped at a certain point after inflation is factored in. Those levels haven’t been determined yet. In Oregon, the new law caps yearly rent increases at 7% in addition to a cost-of-living increase. AB 1482 also includes a “just cause eviction” requirement. Under that rule, landlords would have to prove “just cause” to remove a tenant from a unit — such as failure to pay rent or violating the lease. (3)

Call to Action

The Los Angeles South Real Estate Investors Association issued a “red alert” about these bills. The Association is describing the measures as “extreme” and would like members to call their representatives to express opposition. The California Apartment Association is also warning landlords about the potential impact of these bills. The Association’s Tom Bannon says, “Applying rent control statewide and allowing rent caps on single-family homes and newer construction would only worsen our housing shortfall. We need to encourage new housing, not create policies that stifle its creation.”

Rent control is a reaction to the current affordability crisis, and there’s no doubt that we have a big crisis in California. But rent control doesn’t work in the long run, because it will chase landlords out of the rental business, reduce the number of available rents, and push rents higher in non-rent-controlled housing.

SF Curbed cites a 2018 study by Stanford economists. Their conclusions were mixed in terms of the benefits and drawbacks of rent control. Of course, tenants with rent control are less likely to move away, which provides stability for a city, but the economists also found that rent control measures increased the overall cost of housing. They say, landlords with rent-controlled homes were more likely to convert them to other kinds of properties and the loss of that housing drove rents higher in other areas.

If you are a California landlord, brace yourself. The headwinds are kicking up once again.

(1) LA Curbed Article

(2) AB 36 Details

(3) AB 1482 Details

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