California could become the second state in the nation, after Oregon, to adopt statewide rent caps. The State Assembly passed AB 1482 on May 31st, after concessions were made to the California Association of Realtors. State lawmakers have been debating several rent control measures. This is the only one that survived, although just one rent control measure can be too much for a healthy rental market.
The California Association of Realtors put out a Red Alert this last week. (1) They sent a Dear Realtor letter to members, asking them to call their representatives to express their concerns about rent control. CAR says, it was able to “successfully negotiate” a deal with lawmakers and withdraw its opposition.
The AB 1482 Compromise Bill
Here’s what the bill will do:
- It will limit annual rent increases to 7% plus the cost of living with a 10% total maximum per year. The bill had originally proposed a 5% cap plus inflation, but CAR pushed for a higher limit.
- The bill also preserves vacancy decontrol, thanks in part to CAR and its membership. That makes it possible to raise the rent to a market level once tenants move out.
- The bill applies to “all” rental housing units including single-family homes. Due to CAR negotiations, small property owners with 10 or fewer detached single-family homes are exempt, as are developments built within the last 10 years.
- CAR also negotiated for a sooner “sunset” date of 2023. The rules were originally set to expire in 2030.
The final version is a partial victory for both sides. It was also the only tenant protection bill among several to make it before last Friday’s voting deadline for California lawmakers. One of the bills that didn’t make it was a companion bill for “just cause” evictions. (2)
AB 1481 Companion Bill Fails
If AB 1481 had passed, landlords could only evict tenants for “just cause” if they’ve been tenants for more than a year. That might include non-payment of rent, a lease violation, sale of the property, or an owner move-in. If the reason given for eviction is not the tenant’s fault, landlords would also need to provide relocation assistance for evicted tenants. Currently, landlords can issue a 30-day notice to vacate for tenants living in a unit for less than a year, and a 60-day notice for longer-term tenants.
Some tenant advocates say, AB 1482 isn’t much good without AB 1481 because landlords could potentially bypass the rent cap by evicting tenants and raising the rent past the rent cap amount. AB 1482 does have a “just cause” provision, but according to the Los Angeles Times, it isn’t as strong as the wording in AB 1481. At this point, AB 1481 is dead for the year, but the LA Times says that some members of the Assembly may attempt to amend the one that’s in the Senate, to include a stronger “just cause” policy.
Takes Bite Out of Costa Hawkins
The rent cap bill takes a bite out of the Costa Hawkins Rental Housing Act. Costa Hawkins was passed in 1995 and protects “all” single-family homes and apartments built after 1995 from rent control measures. While the new rent cap bill doesn’t change the Costa Hawkins Act, it would supersede some of its provisions by allowing for rent control on some single-family homes, and by decreasing the number of years that newer developments are exempt.
Some rental housing advocates believe the rent cap will backfire, because landlords will be more inclined to raise the rent every year by as much as they are allowed. Attorney Ethan Blevins, of the Pacific Legal Foundation, posted a well-written opinion piece in The Hill about the danger of rent control in response to this legislation. Among his comments, “Almost everyone knows that rent control has never worked. All economists know it. And it seems most Californians know it, given that the state’s voters thoroughly trounced an initiative last November that would have repealed a 1995 law that limits local jurisdictions’ ability to impose rent control.” That’s a reference to the Costa Hawkins Rental Housing Act. (3)
He goes on to say, “Landlords will either bow out of the market, always max out on the rent increases available to them, or ratchet up the rent immediately when a new lease begins. Meanwhile, inflated prices will spill out into the uncontrolled market, worsening the crunch.”
His blog is a good read for anyone looking to improve their explanations as to why rent control just doesn’t work. The only solution is to build more housing, and to do that, local governments need to loosen up on zoning requirements.
The Answer to High Rents: More Housing
Federal Housing Finance Agency Director, Mark Calabria, just announced his support for reducing the red tape. He said just a few days ago, “One of the biggest factors driving prices up and dragging supply down is the accumulation of burdensome government mandates and fees, zoning and land-use restrictions, environmental regulations, building codes, and permitting requirements.” He says, “This is a problem that homebuilders deal with every single day.”
AB 1482 is now in the hands of the Senate. Contacting your representative could help defeat the measure. But, even if it passes, it is only in place for about 3 years. The battle over more restrictive rent control rules will likely continue until we get more housing on the market to help balance supply and demand.
(2) AB 1482
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