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.

Proposed repeal of Costa-Hawkins Act on hold for 2017

For the remainder of 2017, lawmakers have shelved a bill that would repeal the Costa-Hawkins Rental Housing Act, landmark legislation that’s protected California from extreme forms of rent control for more than 20 years.

Amid strong opposition from the California Apartment Association, legislators this week decided to make AB 1506 a two-year bill, meaning the Legislature won’t consider a repeal of Costa-Hawkins this year but could take it up again in 2018.  The author will instead host a series of public hearings to determine what can be done on this topic.

Under the Costa-Hawkins Act, apartments built after 1995 are exempted from local rent control laws, as are single-family homes. Costa-Hawkins also allows a property owner to set the rent at the market rate once a tenant moves out and a new tenant moves in – known as vacancy decontrol.

Applying rent control to new construction and vacant units would have brought construction of rental housing in California to a halt, exacerbating the state’s existing housing shortage.

“We certainly appreciate the fact to move the bill and make it a two-year bill,” said Debra Carlton, senior vice president of public affairs at CAA, said in this Los Angeles Times story. “Rent control builds no new housing and that has to be our focus in the Legislature.”

AB 1506 was introduced Friday, Feb. 17, the last day to propose bills in the California Legislature for 2017. Assemblymen Richard Bloom, D-Santa Monica; Rob Bonta, D-Oakland; and David Chiu, D-San Francisco, authored the proposal with Sen. Ben Allen, D-Santa Monica, as a co-author.

“Looking at the entirety of the legislative process, the right thing is to step back and do additional work with various constituencies,” Bloom told the Los Angeles Times.

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:

Alameda
Berkeley
Beverly Hills
East Palo Alto
Hayward
Los Angeles
Los Gatos
Mountain View
Oakland
Palm Springs
Richmond
San Francisco
San Jose
Santa Monica
West Hollywood

* Thousand Oaks (program being phased out)

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.