Breaking: Sacramento Inches Toward Statewide Rent Control

California leaders announced an agreement to enact strong tenant protections, says a release trumpeting Governor Gavin Newsom’s support for capped rent increases and just-cause eviction only. But we have been here before only to be disappointed by our Sacramento lawmakers. Because it is a rocky road from good intentions to signed legislation. Let’s look at what’s on offer.

Update:The Tenant Protection Act of 2019 was signed by Governor Newsom took effect on January 1, 2020. The law limits how much rents can be increased for tenants in covered units not subject to local rent stabilization and also specifies lawful reasons for evicting tenants. The Act covers all multifamily housing in California as well as single-family homes and condos which are owned by corporations, including Real Estate Investment Trusts, as well as limited liability companies if they are controlled by a corporation. Single family homes and condos owned by individuals and family trusts are exempt so long as proper notice was provided to tenants. Read the fact sheet.

It is too early to pop the champaign cork but the bare outline of a stronger statewide rent control law appears to be taking shape. The tentative agreement could pave the way for legislation to enact these protections:

  • Limiting rent increases to 5% plus CPI or a maximum of 10% in any 12-month period
  • Protection against no-just-cause eviction;
  • Application to apartment tenancies not already rent-controlled with current controls not preempted;
  • Exemption for properties built fewer than 15 years ago (a rolling cutoff date) instead of 1995 under the Costa Hawkins Rental Housing Act;
  • Exemption for single-family homes unless they are owned en masse by a corporate owner; and,
  • The law is in effect for the next ten years to 2030.

This is a compromise agreement on a current bill, AB 1482, authored by Bay Area Democrat David Chiu. The new agreement improves upon the original bill in several key areas:

  • AB 1482 had first proposed a 5% + CPI cap on rent increases but that was increased to 7% + CPI as the bill moved forward. This new agreement restores the 5% + CPI cap however would allow rents to be raised a maximum of 10% in any 12-month period.
  • AB 1482 had proposed the law be only reviewed in 2033. However the period was dramatically abbreviated and the bill was amended to sunset in 2023. This new agreement would sunset the bill in 2030.
  • AB 1482 when introduced would target single-family homes too. But as amended there was a big carve-out; it would not apply to owners with ten or fewer single-family homes. The new agreement would apply the law only to single-family homes when they are corporate-owned in a number above some unspecified threshold.
  • AB 1482 did not specify that termination was allowable for only just-cause reasons. As amended the bill did add that provision. The new agreement retains that provision.

The deal came via a back-room talks between Governor Newsom and top Sacramento Democrats. That promises to ease the bill’s passage through a Democrat-dominated legislature (though one not historically friendly to tenant protections). Newsom’s support puts momentum behind AB 1482 principally by signaling that the state’s leaders acknowledge that the housing crisis requires not only a supply-side solution but also a sustainable tenancy solution.

Why This Agreement is Not Sufficient

I have several concerns with the agreed upon bill.

First, the allowed maximum rent increase at 5% + CPI would still be much too high. Rent control often indexes the allowed annual rent increase to the federal change in consumer prices for the region (called CPI). The principle is that CPI recognizes that the price of housing inputs may increase year-to-year, and by allowing a rent increase at the change in consumer costs the landlord can cover his increased cost of providing the housing. (Read more in our explainer, Fundamental Concept: Maximum Allowed Annual Rent Increase.)

But even an allowed increase at CPI is more than enough to cover the changing cost of providing housing (as I argue in another explainer, Why a Rent Increase Pegged to 100% of CPI Favors Landlords). That’s because the landlord enjoys other forms of return too, including ancillary fees, vacancy decontrol, and, not least, asset appreciation. Our neighboring cities of West Hollywood and Santa Monica see the CPI percentage as too generous and allow only a percentage that is about 25% lower (about 2.3% today).

This compromise bill adds another five percentage points on top of CPI. At current CPI, for example, this bill would allow rents to rise 8.1% at any one time; and it would allow more than one increase in a year up to a limit of 10% in any 12-month period. That is four times what is allowed in West Hollywood.

I would argue that the agreed bill is no rent control at all. Consider that 10% is generally recognized as an excessive rent increase: Long Beach recently mandated a relocation fee for any tenant who vacates after receiving a 10% rent increase; and Beverly Hills long capped Chapter 6 rent increases at 10% because any more was considered excessive. Ten percent is too much.

Yet the agreed bill was described by the San Francisco Chronicle as a “bill to end rent gouging in state.” We should keep in mind that Penal Code §396 prohibits a 10% increase in the cost of housing after an emergency declaration precisely because it is considered price gouging. That Penal Code section was adopted in 1872!

An allowed increase at 5% + CPI to a maximum of 10% per year is nothing but a giveaway to landlords. Perhaps that’s why the California Apartment Association is taking no position on the new bill.

Second, this bill does nothing to mandate landlord accountability which is the great virtue of local rent control. Every city that control rents is obligated to keep a record (or registry) of certified rents: the lawful rent for each unit. The registry necessarily tracks certain aspects of tenancy. As I said in an explainer, Rental Unit Registration is the Foundation of Rent Stabilization, the registry is how we hold landlords accountable to our laws. The agreed bill is silent on requiring any locality (much less the state) to track tenancies.

And third the bill is silent on relocation fees. We have seen localities in our region turn to relocation fees as a means of cushioning the departure of tenants for just-cause. (That means any one of the more than ten reasons that a tenancy may be lawfully terminated under state law, not including for-cause when the tenant is at fault.) Glendale, Pasadena, Long Beach and Inglewood have all mandated a relocation fee in various circumstances. The bill compromise is as yet silent on a required fee.

There is a reason why tenant advocates are not on board: the compromise bill is too much of a compromise. The Housing Is A Human Right effort to qualify for the 2020 ballot the Rental Affordability Act would go farther by limiting vacancy decontrol and extending tenant protections to many who rent single-family homes. That effort may yet encourage a legislative compromise even better than what’s on offer here.

Next Step: Getting the Legislature on Board

As yet details are somewhat scarce as we don’t yet have an amended bill text to review. The governor’s office teased the deal with a terse press release:

The high cost of housing and rising rents are preventing California families from getting ahead. These steep housing costs drive inequality and threaten to erode California’s economic growth. That’s why we are pleased to announce we have come to an agreement on a series of amendments to AB 1482 that would create strong renter protections. The bill will protect millions of renters from rent-gouging and evictions and build on the Legislature’s work this year to address our broader housing crisis.

The details of the bill may change between now and September 13th, which is the deadline for action by the legislature. As we know, there is a rocky road between the best intentions of our lawmakers and legislation that can be signed by the governor. Too often good ideas get sidetracked by ruts and potholes in the state senate or assembly. We may yet see more changes in the bill.

One sign of trouble is that  the realtors are reportedly in opposition. Your friendly neighborhood realtors — the one with their smiling pictures in the local newspaper — are part of a statehouse lobbying juggernaut that rivals any industry and they don’t like pro-tenant legislation. So stay tuned!