Critics Say Rent Increase Caps Could Have Unintended Consequences for California

Critics Say Rent Increase Caps Could Have Unintended Consequences for California
A "For Rent" sign is posted in front of a house in Richmond, Calif. in June 2012. (Justin Sullivan/Getty Images)
Ian Henderson

While falling short of implementing full-fledged rent control across the state, a new California law places major restrictions on annual rent increases and further restricts landlords’ ability to evict tenants. However, critics say the law may not necessarily have the desired effect of increasing overall quality of life.

Peggy Huang, City Councilmember from Yorba Linda and siting member of the Regional Council for Southern California Agencies of Governments (SCAG), told The Epoch Times that in her experience, rent control policies can be taken advantage of by tenants, creating unintended consequences.

“Renters avoid increases in rent by subleasing to other people. Or, a lessee will take someone in as a ‘roommate’ for a few months, have the lease amended to include the new person, and then the original lessee will move out. The ‘roommate’ locked in the rent that the lessee had enjoyed through the years. After the original lessee moves out, the ‘roommate’ has the lease amended so that he/she will be sole lessee on the lease, but never pay any increases in rent,” said Huang.

Huang has experience living in the city of Berkeley, which has enacted rent control policies for decades, and said such policies can harm small property owners and empower large real estate businesses.

“This type of game, which plays on for decades, prevents the landlord from accumulating reserve to pay maintenance or improvements. Often, small proprietors will sell to large real estate companies, because they cannot manage the building on a small income long term. Rent control policies lead to slums,” she said.

In March, Oregon became the first state to pass a statewide rent control measure, limiting annual rent increases to inflation plus 7 percent.

The California bill, AB-1482, introduced by Assemblyman David Chiu (D-San Francisco) limits annual rent increases to 5 percent plus the rate of inflation (which is typically around 2 to 3 percent), making it tougher than Oregon’s law. It further mandates that landlords provide a “just cause” for evicting tenants, and in some cases requires the landlord to pay the tenant to move.

Modern rent control first came into effect nationwide during the Second World War due to a shortage of affordable housing. After the war, the rent control policy was removed. Currently, 37 states prohibit or regulate rent control, while five states, including California, allow localities to enforce residential rent control.

Those that argue against rent control often cite the rights of property owners, saying that these policies limit what they can do with their property. Rent control opponents also argue that rent control reduces the investment return on a building, thus reducing the present value of the building. This is viewed by many as expropriation of private property.

On the other hand, tenants’ rights activists argue that rent control reduces the amount of human suffering in times of housing shortages and prevents people from getting evicted and becoming homeless after not being able to afford rent increases.

Governor Gavin Newsom has said it protects the most vulnerable in society from being forced to live on the streets.

“These anti-gouging and eviction protections will help families afford to keep a roof over their heads, and they will provide California with important new tools to combat our state’s broader housing and affordability crisis,” Gov. Newsom said in a public statement.

Co-sponsors of the bill have made it clear that this isn’t a rent control bill, but an “anti-rent gouging bill,” as it allows property owners to raise rent after a tenant leaves in a provision called “vacancy control.”

A major portion of the bill that has property owners concerned is restricting landlords’ ability to evict. Currently in most parts of the state, landlords can evict tenants without stating a specific reason. The new bill would mandate that landlords list one of several reasons why they want a tenant out, such as dealing drugs from the apartment or failing to pay rent on time.

Furthermore, if landlords plan on converting an occupied unit into a condo or move a family member into the property, they will have to give the displaced tenant one month’s rent as a form of relocation assistance.

Huang says that state landlord-tenant laws are already some of the strictest in the nation, and this new provision will only empower troublesome tenants at the expense of the landlord.

“Our current landlord-tenant law favors tenants, and it is nearly impossible to evict someone. Often, cases end up in court because landlords cannot evict tenants. Although current law does not necessarily state ‘just cause,’ that is how it is applied and every jurist has a different opinion on what ‘just cause’ means. AB-1482 will exacerbate the problem and not help. The inability to evict will only contribute to the lack of vacancy, especially in affordable units,” she said.

AB-1482 was signed into law by the Governor on Oct. 8.