This article examines whether or not California’s rent control policies work to keep low-income renters in place, and efforts to change these policies.
Rent control in California
Rent control is meant to keep rents on certain units from rising beyond the financial abilities of long-term tenants. This is especially important here in California, where rent increases regularly exceed changes in income. In theory, rent control creates more stable neighborhoods since tenants won’t be forced out due to rising rents, especially in neighborhoods where gentrification is occurring.
Rent control laws are broadly set at the state level and adapted through local rent control ordinances by individual cities.
Here in California, the following cities have their own rent control laws:
- Beverly Hills;
- East Palo Alto;
- Los Angeles;
- Los Gatos;
- Palm Springs;
- San Francisco;
- San Jose;
- Santa Monica;
- Thousand Oaks; and
- West Hollywood.
Specific rent control laws vary by city. Some cities only limit increases in rent (usually to about the rate of inflation) and others also restrict the reasons for which a tenant may be evicted. However, there are some prevailing controls over how rent control laws are set.
For example, to be valid, rent control ordinances need to be reasonably related to the prevention of excessive rents and maintaining the availability of existing housing. No case has yet found an ordinance lacking in this purpose, regardless of its inability to attain, much less come close to, its stated purposes. [Santa Monica Beach, Ltd. v. Superior Court (1999) 19 C4th 952]
Another controlling precedent, known as Costa Hawkins, allows rent-controlled apartments to be reset to market rent whenever a tenant moves out.
Costa Hawkins is a 1995 law which removed vacancy controls. Due to this removal, rent-controlled units are able to be reset to market rent when a tenant moves out. Costa Hawkins also limits the types of units local governments can set rent control laws on, including single family residences (SFRs), condominiums and new construction. [Calif. Civil Code §1950 et seq.]
Results of rent control
Rent control is a quick fix to a complex issue. Like most quick fixes, it does not hold up in the long run and usually does more harm than good.
Perhaps most apparent, landlords of rent-controlled apartments have no reason to maintain or improve their properties. Their only duty is to maintain habitable living conditions, and beyond that, any improvements made won’t provide the landlord any return. This leads to decaying rent-controlled units, blighting neighborhoods and making life hard for tenants.
A Stanford study looked into the impact of rent control on San Francisco’s rental housing market and found rent control did help low-income renters remain in their homes. But this was achieved at the cost of a:
- 20% decrease in mobility for renters of rent-controlled units; and
- 15% decrease in rental housing stock in the city.
Decreased mobility means renters of rent-controlled units may at times wish to move, due to a job change, a growing family, shifting needs or simply a decaying unit. But they cannot give up their rent-controlled apartment since to do so would mean finding a replacement at a prohibitively high rate. This harms individuals and the broader economy.
The decrease in rental inventory is closely related to landlords rejecting the demands of rent control. Instead of continuing to accept low rents, landlords choose to “go out of business” by selling or demolishing the rent-controlled unit in favor of building an SFR or condos.
With the reduction in rental inventory, the supply-and-demand imbalance grows, causing rents to jump more quickly than incomes can handle. It’s this low rental inventory that has caused San Francisco’s astronomical market rents. At the same time, low-income residents, financially exhausted by years of depleting their savings to pay ever higher rents, are increasingly winding up on the streets and the city’s homeless crisis has reached inhumane levels.
This story is not unique to San Francisco. Rapidly rising rents and homelessness are being seen throughout the state.
Recent law changes
In September 2019, California’s governor signed into law Assembly Bill 1482, which has been described as instituting “statewide rent control.”
The new law caps annual rent increases at 5% plus an inflation factor through January 1, 2030. It will not supersede local rent increase caps when they provide more tenant protection than the 5% cap.
This rent cap law applies to all residential rental property except:
- SFRs or condo units owned by individuals (mom and pop owners rather than corporate landlords);
- housing issued a certificate of occupancy within the last 15 years;
- housing available at nonprofit hospitals, religious facilities, extended care facilities and adult residential facilities;
- school dorms; and
- when the owner occupying their home as their principal residence rents out a portion of their home as:
- room(s) for rent;
- accessory dwelling units (ADUs) on the property; or
- the other dwelling of a two-unit duplex.
Separately, the law requires landlords to show just cause for evicting a tenant when the renter has occupied the unit for 12 months. For a no-fault just cause eviction — for example, when the owner evicts the tenant so they themselves can move in — the owner needs to provide the tenant with relocation assistance equivalent to one month’s rent, in addition to waiving the final month’s rent.
Passage of AB 1482 was generally lauded by tenants’ rights groups as a victory for renters. But, as shown in the Stanford study, there will be long-term drawbacks.
The rent control alternative
What’s better than rent control? More rental housing!
The goal is to help low-income renters continue to afford their rent and avoid being pushed out of their long-term neighborhoods. Instituting rent control to meet this goal is like pulling weeds — it’s painful for everyone involved and the same problems crop up over and over again. As the old adage goes, it’s easier to plant seeds than pull weeds.
Planting seeds, in this case, can be achieved by simply building more rental housing.
Rent control got its start in the U.S. during World War II, when building materials were scarce. Residential construction was not feasible, so governments made sure residents were still able to afford to live even as vacancies declined. They understood it to be a necessary but temporary measure.
So, what’s the excuse holding residential construction back in 2019 and causing so many residents to rely on rent control?
Building incentives and re-zoning for denser housing is an easy legislative fix. But while efforts to encourage more construction are often supported by legislators, they end up being derailed by vocal not-in-my-backyard (NIMBY) advocates.
Fortunately, California’s housing crisis has brought the oversized influence of NIMBYs into focus for state lawmakers. Recent legislative efforts have begun to work around local opposition, prioritizing housing over maintaining neighborhood character.
The ideal solution will be a marriage between local interests and statewide need. One thing is certain: the current approach is not working for California renters. Plans to increase rent controls also lack promise.
The key is building more rentals. It’s time for legislators to shift their gaze from the short-term fix provided by rent control and get serious about constructing more low-tier rental housing.