The housing shortage in California that was originally seen in the 1970s and 1980s has resurfaced. It is estimated that the shortage is currently 20-30% of California’s current rental housing resulting in increased rents and driving up the price for both buyers and renters. Rent control was established as a result of these continuously increasing rental rates with the intention of providing a balance between protecting tenants from excessive rent increases while still allowing landlords to receive a return on their investments. It is significant to note that even though the rental rates have climbed, the rental market had the lowest vacancy rate the state has ever seen at 3.6% in 2016.
Individual cities write and adopt their own versions of rent control. Currently, there are fifteen cities in the State of California who have enabled some form of a rent control ordinance. While the ordinances can vary by city, most implement a ceiling on rent increases and restrictions on evictions.
Rent control advocates believe it helps struggling tenants by keeping them in their homes. Economic research suggests that rent control can help limit the displacement of tenants by giving them a guarantee against excessive rent increases. Because people do not want to lose their rent control, they may rent long term when they otherwise would have moved. The stability it provides can also support people to continue renting. In addition, researchers have found that excessive rent hikes generate enormous stress that can be devastating to human physical and mental health.
By keeping the rents affordable and not increasing more than the annual cost of living, rent control can also potentially help reduce the growing number of homeless individuals. Many people on fixed incomes (retirees, disabled, veterans, etc.) are often displaced when rents increase beyond their limits. Rent control helps to keep rent increases reasonable and allow fixed incomes the ability to continue to afford housing.
While rent control is cited as being a good way to prevent homelessness and displacement in general, others argue it poses some challenges for landlords. Because of the cap in rent that landlords can collect, many have had to become creative in how to recoup that loss in income. Some landlords have converted their apartments to condominiums in order to avoid rent control. Others have elected to limit the types of maintenance done on their buildings because of the decrease in revenue. Opponents of rent control argue that buildings may not be maintained as they once were, and only necessary/mandatory repairs will be completed. Furthermore, some landlords choose to sell their rentals altogether, which further aggravates the rental housing shortage. In essence, many economists say that rent control reduces the quantity and quality of rental housing.
If you are a homeowner, you may think you are exempt from the outcomes of rent control. However, allowing or denying rent control can affect new construction production and supply and demand within the housing market. The lack or reduction of maintenance on rentals can cause negative effects on a neighborhood and home values. Many also believe that when rent control is in effect, there is less incentive for new home building so fewer houses are produced. In turn, this drives up home prices due to the shortage in housing.
In response to rent control, the Costa-Hawkins Rental Housing Act enacted in 1995 (CA Civil Code §1954.50 to 1954.535) prohibits cities from establishing rent control, vacancy control, and strict rent control. Vacancy control is a city ordinance that denies or limits an owners’ ability to increase rent to a new tenant, regardless of how the tenant vacated. By prohibiting vacancy control, it allows an apartment owner the right to rent it at any price when vacant. This gives owners the ability to increase rents to match market rents when turning over their rentals.
Costa-Hawkins created three main limitations for cities who already had rent control in place: 1) it cannot apply to single-family housing, 2) it cannot apply to any newly built housing (completed on or after February 1, 1995) and 3) it cannot mandate what landlords can charge to a new renter. The exemption of new construction was sought to encourage new house building rather than limit it. More housing means more supply, therefore decreasing rental demands, and would help aid increases from soaring above market rates.
Currently there is no maximum limit for rent increases in California; however, tenants are required to receive advanced notice based on the type of lease agreement they have. Landlords have been accused of “price gouging” – increasing the cost of rents that exceed what is considered fair or reasonable. U.S. census data from UC Berkeley Haas Institute show that 9.5 million California renters spend more than 30% of their income on household costs.
Efforts to repeal Costa-Hawkins have been introduced previously but have always failed to pass in the legislature. In April 2018, the required number of signatures were received to qualify for a ballot measure to be voted on by the public. Proposition 10, “Affordable Housing Act,” which appeared on the November 2018 ballot. The proposition would have expanded the local government’s authority to enact rent control on residential properties by repealing the Costa-Hawkins Rental Housing Act. This Act would not have required cities to impose rent control ordinances but would give them the option to at their discretion. Prop 10 would have also allowed rent control on single-family homes and condominiums, which has previously been exempt by the State of California. It would not have changed any current rental control laws.
Whichever side of rent control you are on, there is a consensus that the current housing crisis must be a priority for Californians. There is no perfect solution and if Prop 10 would have passed, its effects wouldn’t have been determined until later based on how many municipalities choose to enact rent control and how strict those laws would be. Regardless of the outcome, the conversation of rent control will not likely end here. Rather, this is just the beginning of negotiations to find a solution that will be effective and agreeable for all parties in order to repair California’s housing market.
Author: Erin Himelright is a 1L law student who resides in Northern California and is currently in property management. Check her professional profile out on LinkedIn.