Ouch! Rent Control in California will Hurt More Than You Think

rent control and other rental housing legislation

Ouch! Rent Control in California will Hurt More Than You Think

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This November, Californians will vote on whether or not to repeal the Costa-Hawkins Act, allowing cities to enact rent control ordinances down the line. Meanwhile tenant activists are also urgently working to secure their own city-wide rent control initiatives on this year’s ballot. It’s an understatement to say that reinstating rent control would not only be disastrous to the rental housing industry, but to California’s affordable housing supply. To put it bluntly: this is why you and your renters should vote ‘no’ on rent control.

California has had an affordable housing crisis for a long time now, and as a millennial renter who’s moved 5 times in the past 4 years, I understand far too well the frustration of raising rents and the fear of unstable housing that’s pushing this bill. That being said, we all know property owners aren’t to blame. A growing rental housing demand, coupled with a low supply of housing (in addition to regulations, construction barriers, and land costs that stunt development) ultimately boils down to higher rents. While affordability is a huge issue within the state, reinstating rent control would simply temporarily treat the symptoms of the rental housing shortage, not cure it.

Rent Control’s Impact to Property Owners

It goes without saying that if this state-wide rent control initiative passes, it’s likely that your city will place a cap on how much you can raise the rent… but by how much? Unless your city already has a rent control ordinance in place, or a rent control measure has successfully made it to your city’s 2018 ballot, you’ll have to wait and see. However, keep in mind that this current initiative will make rent cap regulations vary city by city. Be aware that some City Councils have also tried to tack on additional tenant protections like “just cause” evictions within their rent control measure. With this rent control measure in place, future legislation aiming to regulate vacancies is also a possibility.

No one likes being told what to do – and your rental property is no exception. With rent control, investing in new developments in California will significantly stall, as many within the industry will choose to invest their capital into something with a higher ROI. Even though rent control hasn’t been passed yet, many property owners have already decided to liquidate their assets. The Wall Street Journal reported in May that the number of multifamily properties on the market in Santa Monica was at the highest in 20 years, and this number will definitely increase if the Costa-Hawkins Act is repealed.

On the bright side, a working paper by the National Bureau of Economic Research shows that rent control in San Francisco has increased renters’ probability of residing at their addresses by nearly 20%, meaning higher retention rates and lower yearly vacancy marketing costs. Rent control also doesn’t mean you can’t raise the rent at all either – as long as you’re within your city’s rent cap it’s perfectly legal to raise the rent after an annual lease is up.

Rent Control’s Impact to Renters

It’s a common misconception that rent control will actually lead to cheaper, affordable rents – and one that you should be actively disproving amongst your tenants. While the NBER’s working paper showed that with rent control the probability of renters residing at their current units rose by nearly 20%, it also indicated that a 15% reduction in the rental housing supply and a 5.1% city-wide rent increase followed. A 2017 study from the University of Stanford backs up this hypothesis: with rent control it’s going to be even harder for renters to find a place to rent, and a lot more expensive too.

Over time rent control could also limit renter mobility. With a small housing supply (due to tenants staying in their rent controlled units) and an increasing city-wide rental rate, renters who choose to stay in the same rental home for years will find it especially financially difficult to move. Add the cost of moving itself (Zillow estimates movers for a 2-bedroom apartment can cost an average of $400-700) and you’ll find that renters will choose stay in their grandfathered, rent controlled unit, even if they’ve outgrown the space. Although we’ve seen renters move farther from major metros and into more affordable rental markets for some time now, the number of renters moving into smaller Californian cities (and possibly even out of state) could also increase.

The Status of City-Wide Californian Rent Control Initiatives

As you know, the fate of the Costa-Hawkins Act is in the hands of California voters this November, and it’s crucial that this ballot measure fails in order to combat additional future city-specific rent control ordinances from passing. It’s important that you be vocal – not just to your tenants but to your affiliates, friends, and family members. If your property’s city is being targeted, subscribe to stay up to date on current and future rent control initiatives.

Below is the current status of city-wide rent control initiatives. Keep in mind that while several initiatives failed to meet the signature requirements to get on the 2018 ballot, many of these tenant activist groups have set their eyes on the March 2020 election and are either currently collecting signatures or will resume closer to the election.

  • Cities with Rent Control on the November 2018 Ballot: National City and Santa Cruz.
  • Cities with Rent Control Measure (with signatures) Filed: Santa Rosa.
  • Cities with Activists Still Collecting Rent Control Signatures or with FAILED Rent Control Measures: Glendale, Inglewood, Long Beach, Pasadena, Pomona, Sacramento, and Santa Ana.

Although rent control has been designed to stunt the growth of rental rates, it does nothing to encourage new rental housing developments – something California has needed for a very long time. With small a rental housing supply and a rising demand from a growing renter population, repealing the Costa-Hawkins Act would throw the rental housing market into a frenzy, leading to even less affordable housing availability and higher city-wide rents. Encourage your voting friends, colleagues, and tenants to back local legislation that encourages building new rental housing. There are no shortcuts to affordable rent.

Is Your City Being Targeted? Have You Considered Leaving the Industry Because of Rent Control?
Let us know in the comment section below.

 

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ApplyConnect marks used herein are trademarks or registered trademarks of applyconnect.com. Other product and company names mentioned herein are the property of their respective owners.