Rent control in California

Studies consistently demonstrate that price controls cripple the commodity they regulate. This appraisal holds true in the California communities that enforce price ceilings on rents.

When rent control is in place, developers have fewer incentives to build apartments, exacerbating housing shortfalls. Likewise, owners of rent controlled units have scant motivation to maintain their units, let alone make upgrades. Even as communities fall into disrepair, prices across the market rise because new housing isn’t getting built.

Meanwhile, rent controlled frequently aren’t occupied by the people they are intended to help. Often, middle-  to high-income professionals secure rent controlled units, and once they’re in place, remain entrenched for years, if not decades.

Lower-income workers and their families are relegated to higher-priced housing, far from jobs and schools.

Cities with rent control

Although communities across the country have removed old heavy-handed rent control policies, more than a dozen California cities continue to enforce rent control on multifamily housing:

California cities enforcing rent control on apartments:

Beverly Hills
East Palo Alto
Los Angeles
Los Gatos
Mountain View
Palm Springs
San Francisco
San Jose
Santa Monica
West Hollywood

* Thousand Oaks (program being phased out)

Beacon Economics study criticizes rent control

Evidence that rent control is the wrong approach to solving California’s housing crisis continued to mount in 2016.

A Beacon Economics report found that low-income tenants in cities with rent control are not likely to benefit from the policy as intended.

Moreover, California’s nonpartisan Legislative Analyst’s Office published a study that points to flaws with rent control.

The Beacon Economics report found that rent control helps a select few — those lucky enough to live in a rent-controlled unit when the law takes effect. Once benefiting from rent control, however, many individuals stay put to keep reaping the benefits — even if they don’t need the assistance.

“The data suggests that this is particularly true of higher-income households who have a propensity to move less frequently,” the study says. “In cities like Santa Monica or San Francisco, where rents are very high, this means that wealthier individuals, who might otherwise move to more expensive housing, stay in their lower-cost apartments.”

Christopher Thornberg, a founding partner of Beacon Economics, said this restricts the available supply of local affordable housing.

“You encourage middle-income households to stay in older stock, which typically is made available for low-income families in normal markets, and by doing that, you end up reducing the supply available for low-income families,” Thornberg said at Outlook. “So not only is this policy not effective — it actually hurts the people we’re trying to help.”

The Legislative Analyst’s Office also cited problems with tenants living for extended periods in rent-controlled housing — a problem termed the “lock-in effect.”

“Households residing in affordable housing (built via subsidized construction or inclusionary housing) or rent–controlled housing typically pay rents well below market rates,” the study says. “Because of this, households may be discouraged from moving from their existing unit to market–rate housing even when it may otherwise benefit them — for example, if the market–rate housing would be closer to a new job. This lock–in effect can cause households to stay longer in a particular location than is otherwise optimal for them.”

The Beacon report cites rent control’s chilling effect on multifamily construction. This stifles supply and drives up prices for all those living in unregulated rentals, including a community’s most disadvantaged residents.

In its analysis, Beacon used demographic and housing data from the 2000 U.S. Census and the 2013 American Community Survey.

New bill would restrict landlords’ ability to exit rental housing business

For the third consecutive year, bills have surfaced to modify California’s Ellis Act, the 1985 law that protects a property owner’s right to leave the rental housing business, an important safety valve for property owners in rent controlled jurisdictions.

One of the proposals, AB 982, would expand the number of tenants who are entitled to receive a year’s notice from the landlord before the landlord closes the building as allowed under the Ellis Act.

At this point, tenants who have lived in the building for at least one year and who are at least 62 years of age or are disabled are entitled to a year’s notice from the landlord before the building is closed. Other tenants are entitled to a 120-day notice.

This bill, authored by Assemblyman Richard Bloom, D-Santa Monica, would extend the one-year notice requirement to all tenants of one year or more, regardless of age or disability.

Another bill addressing the Ellis Act, AB 423, would exempt residential hotels in Oakland from the Ellis Act, prohibiting them from closing their buildings. Already exempted are San Francisco, Los Angeles and San Diego. This bill was authored by Assemblyman Rob Bonta, D-Oakland.

Efforts to weaken the Ellis Act in the state Legislature are nothing new. In 2015 and 2016, Sen. Mark Leno, D-San Francisco, proposed bills that would have forced many rental property owners in San Francisco to wait at least five years before removing their units from the market under the Ellis Act, even if losing money month after month. Leno’s bills failed both years.

Before the Ellis Act, rent-controlled cities — Santa Monica in particular — were forcing landlords to stay in business, even if they were losing money or experiencing other hardships.

Besides trying to change the Ellis Act, Assemblymen Bloom and Bonta are among four lawmakers who’ve authored legislation to repeal the Costa-Hawkins Rental Housing Act. The other authors of this proposal, AB 1506, include Assemblyman David Chiu, D-San Francisco, and Sen. Ben Allen, D-Santa Monica, who is listed as a co-author.

Costa-Hawkins prevents rent control from applying to single-family homes and multifamily housing built after 1995. It also requires vacancy decontrol, meaning that once rent controlled apartment voluntarily changes hands, rents can return to market rate.

Another bill related to Costa-Hawkins – and from Bloom – is AB 1505, which would allow a local government to mandate that a percentage of new development be affordable to low-income individuals and families. It proposes to overturn the Appellate Court decision in Palmer vs. City of Los Angeles. The court ruled that Los Angeles’ multifamily rental inclusionary-zoning ordinance violated Costa-Hawkins, which prohibits rental price controls on new multifamily construction.

AB 1505 mirrors a bill introduced last year that CAA successfully opposed.