California just passed a new bill through the Senate, and it’s a big one for landlords if the new bill becomes law. AB1482 allows for rent control statewide at a cap rate of 5% annually. This new bill is the states attempt to thwart the homelessness issue that is densely populating Los Angeles and San Francisco. “Caps on rent increases, like the one proposed in California or the one recently passed in Oregon, are part of a new generation of rent-regulation policies that are trying to thread the needle by offering some form of protection against egregious rent hikes for vulnerable renters without stymieing much-needed new housing construction,” said Elizabeth Kneebone, research director at the Terner Center for Housing Innovation at the University of California.” (New York Times)
Because AB1482 caps increases at only 5%/year, there is still room for landlords and investors to make a profit in most regions of California. The biggest hit to landlords and investors will be in Northern California region in San Francisco, the Bay Area, and Sacramento where average rents come in at $4,500/month. (CNBC)
The bill puts new regulations in place that ensure landlords are more accountable to their tenants and makes it more difficult for a tenant to be evicted. There are also a few amendments in the bill that would still benefit a “mom & pop” landlord in certain situations. For instance, if you live on your investment property and its a duplex or split unit, single family homes (unless owned by a corporation), or if the property was purchased in the last 15 years, you are exempt from the cap.
Lastly, the bill would only be in place for 10 years. It’s intent is to prevent egregious price hikes rather than limit free trade among investors and landlords.
AB1482 has a big flaw that is bothering those against the idea of a rent cap. While this bill may help in the short term to protect renters from price hikes, it does not alleviate the problem for the need of more housing in California. Bills like this may scare developers and investors away from California and slow down the production of new housing, which California is in great need. New construction helps keep the cost of housing lower. This bill could in affect, cause housing prices to increase rather than artificially keep prices low.
Another concern is that rent control can potentially create “slumlords”, whereby quality landlords cannot properly maintain their buildings due to the caps.
Read the complete text for Bill AB1482 here.
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