With California Rent Cap In Sight, A Tenants Rights Movement Grows
Want to get a jump-start on upcoming deals? Meet the major Los Angeles players at one of our upcoming events!
California's governor is slated to sign a measure that would limit the amount landlords could hike rent — and you can expect the rent debate to come to a state near you soon.
This week the California Senate and Assembly passed Assembly Bill 1482, a new "rent cap" measure that would benefit the millions of renters of apartments and rental homes by capping annual increases of rent in the state to no more than 5% plus inflation. After its passage Wednesday, Gov. Gavin Newsom has indicated he will sign the bill.
Newsom's expected move to cap rent in California follows efforts by other states to curb escalating rent prices. Earlier this year, Oregon became the first state to impose a statewide rent control policy, capping annual multifamily rent hikes to no more than 7% plus inflation. In June, New York City passed a host of new rent control laws, including repealing a vacancy bonus that allowed landlords to raise rent when a tenant moved out of a unit, and capping rent to a lower percentage when a landlord renovates a rent-regulated apartment.
Fueled by a severe housing crisis, an affordable housing shortage and rising rent that advocates say is leading to more homelessness, state politicians nationwide are taking the matter into their own hands by proposing or passing rent control or similar measures.
“It’s a done deal [in California],” Universe Holdings founder and CEO Henry Manoucheri said. Universe Holdings has a portfolio of 3,000 multifamily units in Southern California, half of which are already subject to rent control. “It certainly is a step in the wrong direction. I’ve been saying this for a long time. It’s inevitable that this is going to happen.”
Multifamily experts say implementing rent control — or in the case of California, a rent cap — will only worsen the housing crisis occurring in some states by discouraging developers from building apartment units.
“We're disappointed ... Thirty to 40 years of research has shown that rent control does not work,” National Apartment Association Senior Vice President of Government Affairs Greg Brown said. “Everyone has to be concerned that this is the direction we are going in … This is going to set a bad example.”
Proponents of rent control say California's rent cap measure doesn't go far enough.
"It's a good start but AB 1482 is not rent control," Housing Is A Human Right Director René Christian Moya said. Housing Is A Human Right is the housing advocacy division of the AIDS Healthcare Foundation.
"What it basically does is cap the egregious rent increases that happen every year but it does nothing really for the very low, low or middle income people whose wages are stagnant or declining," Moya added. "For those folks, an increase of 5% to 8% a year is still far more than they can afford when their wages aren't keeping up."
If Newsom signs AB 1482, it comes a year after the defeat of Prop. 10, a measure that would have expanded local governments' authority over rent control in California. Nearly 60% of voters voted against Prop. 10. But rather than stop or slow down the hotly contentious issue, Prop. 10’s defeat further fueled the rent control debate and action in the state.
A few months after Prop. 10’s defeat, Housing Is A Human Right mobilized and has so far gathered 413,000 signatures for a new rent control ballot initiative for the 2020 election.
The Rental Affordability Act would expand local governments' rent control policies; allow local governments to limit the rent increase for a new tenant who moves into a vacated unit; and cap the amount of rent a landlord can raise to no more than 15% over the next three years, according to Moya. Moya said the group is "ahead of schedule," and two-thirds of the way there to the initiative qualifying for the next election.
Local governments in the state have also implemented their own emergency rent control measures. Glendale, Culver City and Inglewood have passed temporary rent control measures that cap the amount landlords can raise rent and/or provide relocation assistance for renters.
Earlier this week, the Los Angeles County Board of Supervisors became the latest locality to vote — unanimously — for rent control. More than 43,000 multifamily units built on or before Feb. 1, 1995, in unincorporated areas of Los Angeles will be subject to rent control under the new measure. The annual rent can only be increased to the rate of inflation and can't go beyond 8%.
The new law will benefit roughly 100,000 renters who live in unincorporated areas of Los Angeles County, including Rowland Heights, East Los Angeles, Ladera Heights, Marina Del Rey and Universal City, proponents say. The county will join other cities such as Beverly Hills, Los Angeles, Santa Monica, San Francisco, Oakland and San Jose, which already had some form of rent control before the passage of the Costa-Hawkins Rental Housing Act in 1995.
Under AB 1482, landlords are limited to rent hikes of 5% plus inflation or a maximum of 10% a year. Landlords will also need “just cause” to evict a tenant. Landlords will need a specific reason why they want a tenant out, such as not paying rent or dealing drugs. The bill applies to rental houses, condominiums, duplexes and all apartments that are at least 15 years old.
“These anti-gouging and eviction protections will help families afford to keep a roof over their heads, and they will provide California with important new tools to combat our state’s broader housing and affordability crisis," Newsom said in a statement Wednesday after the state Assembly passed the bill.
Though Moya doesn't totally agree with AB 1482, he said the rent control movement happening in Inglewood, Culver City, LA County, Oakland, New York City and other places are "inspiring and great stories."
The rent control movement is a sign that Californians need relief from excessive rent, he said.
“The housing affordability crisis hasn’t gone anywhere. It hasn’t improved,” Moya said. “It’s gotten worse. There are more homeless across the state.”
Moya credited the tenant rights movement for being proactive and demanding rent control from their local government.
“It was a grave mistake by the opposition to assume that they would spend $80M and that this issue would be dead,” Moya said. “The tenants rights movement is growing across the state and nationally."
Manoucheri of Universe Holdings said the new rent cap and local rent control laws will only hurt the state and make the housing crisis much more severe. It is expensive to build and renovate in Los Angeles, Manoucheri said, and if there is no value to building new ground-ups or renovating older properties, the housing crisis will worsen.
A recent RENTCafé report, using data from Yardi Matrix, a data company that tracks the multifamily, office, industrial and self-storage industries, found that Southern California is expected to add 14,160 new apartment units this year, down 16% from the previous year. In Metro Los Angeles, the number of apartment units is down 23% from 12,600 units in 2018 to 9,770 in 2019.
"High construction costs and a narrow pool of skilled labor are just a few of the factors hindering the development of new apartment units," according to the report.
"There's going to be more shortage of housing," Manoucheri said of the rent control and rent cap measures. "There’s going to be a drop in quality of housing and a significant cut-down in new developments. Whoever has newer assets 15 years old or younger are much more immune to what’s happened but eventually, it's going to be subject to rent control or a rent cap."
Sabal Capital Partners CEO Pat Jackson predicts there are going to be some long-term negative effects, with affordable housing and workforce housing in the state impacted the most. With the high cost of building in California, this will make it harder to develop those types of projects, Jackson said.
"The passing of AB 1482 was expected, but the long-term impact of statewide rent control on the critical need for housing for working Californians remains to be seen," Jackson said.
"The impact may be the opposite of the desired outcome, as landlords and property investors are going to be more likely to capture rental rate increases every year instead of ebbing and flowing with the market," he said. "The heart of AB 1482 is in the right place, but this alone will not address the bigger issue regarding a shortage of affordable housing."