Rent-cap bill clears both houses of California Legislature

by Kimberly Greene16 Sep 2019

Rent control is now law in the most populous state in the nation.

This week, lawmakers in California advanced a state-wide rent cap bill, limiting rent increases in The Golden State for 10 years. The bill will apply “just cause” evection policies to qualified housing, setting the bar higher for evicting a tenant, and it also allows landlords to raise rents by 5% each year on top of inflation, which would currently land about 8%. The state Senate passed the bill with a vote of 25-10.

“This bill strikes a balance between protecting tenants from egregious rent increases and predatory evictions, while allowing the rental industry a fair rate of return,” said Assemblymember David Chiu, who introduced the rent-cap bill.

This measure is one of many that California legislators have attempted to push through this year in order to curb the prohibitively high home prices and rents—the majority of which have failed.

In his gubernatorial race, California Governor Gavin Newsom campaigned on a platform of affordable housing, including a promise to build 3.5 million more homes in the state. So while many California residents and renters are generally open to government intervention on some level to help stem the tide of runaway rents, Governor Newsom has made it a priority to pass of rent control in one way or another.

“CA just passed the strongest rent control package in America. The rent is too damn high -- so we’re damn sure doing something about it,” Newsom tweeted on Thursday.

The bill garnered support from the California Business Roundtable, various tenants’ groups, and renters. While they may be celebrating, there are some groups that aren’t as overjoyed.

The California Association of Realtors supported an earlier version of the bill but has said that the current legislation “discourages new rental housing.” The California Apartment Association (CAA), which represents owners, investors, developers, managers and suppliers of rental homes and apartment communities, secured a series of amendments for the bill. CAA CEO Tom Bannon told Bloomberg that the bill was “workable” but the organization is officially staying neutral in response to the news of the bill’s advancement.

Even if the bill is signed into law—which Governor Newsom has vowed to do—there are some limitations. Landlords can increase rents once a tenant voluntarily leaves a unit, and it provides a carve-out for single-family rental homes that aren’t owned by corporations. Housing built in the past 15 years is excluded from the caps.

The legislation would apply to 2.4 million apartments in California in addition to some single-family rentals, according to an analysis by the Terner Center for Housing Innovation at the University of California, Berkeley. Slower rent gains, however, limit the impact of the new bill. An analysis from Zillow Group Inc. indicated that only about 5% of apartments listed in California in 2019 experienced rate increases that exceeded the caps set by the new legislation, which is down from 16% in 2016.

Another key bill that California legislators recently passed involves speeding up the permitting process and limiting cities’ abilities to slow or block new development, in an attempt to try and boost new construction. There are also measures on the table that would specifically support affordable housing and make it easier to build backyard cottages.

This new legislation comes nearly 15 years after the passage of the Costa-Hawkins Rental Housing Act, a California state law that exempts certain types of residential rental units from rent control ordinances and allows landlords to reset the rental rate on rent controlled units when they become vacant, or when the last rent-controlled tenant no longer permanently resides at the unit, leaving subletters behind. At the time, various rent control ordinances existed, but were ultimately deemed to “unduly and unfairly interfere with the free market”.

California housing is in rough shape, and homebuyers and renters alike are stuck. Home prices are more than twice the national median, and have doubled since 2012, to more than $600,000. Costs of construction and zoning issues have caused a lack of construction resulting in inventory shortages, and while landlords (particularly corporate owners) have benefitted from these high home prices and inventory shortages because would-be buyers are forced to remain renting, rents have also increased, and homelessness has become increasingly pervasive in various cities.

Dozens of municipalities across the country have rent control measures on the books, but California is the latest government to act on rent control measures on a state level, following in the footsteps of Oregon, which was the first state to enact state-wide rent control earlier this year.