Rent Control in California: Good Idea?
By Neil Cadman, Principal, Urban Advisors
“Rent Control.” What was your first reaction? Go ahead, say it out loud; probably nobody will hear you!
Are you a renter? Are you a landlord? Are you a homeowner?
Rent Control is the single most polarizing topic in tenant/landlord relations and perhaps even in the annals of City Halls and the State Capital.
Nobody wants to see a low income senior moving out of their home of 30 years due to massive rent rates, nor the family of four moving into a smaller place, priced out of their modest apartment. “Rent Control” must be the answer, right?
In reality, the answer’s a bit more complicated and nuanced than it would originally seem.
On April 2, 2019, the Long Beach City Council heard a staff report that recommended the installation of “rent control” in the City of Long Beach. The new ordinance would place a maximum 10% per-year cap on rent increases, give possible relocation fees for displaced tenants, and the elimination of “no fault” eviction, meaning the termination of tenancies, without cause, for month to month tenants. The council chambers were overflowing with people from the Long Beach community. 96 people spoke up regarding the new ordinance – 50 “for” it, 46 “against.” The city council voted in favor 6-3. On May 21, 2019 City Council adopted a “first reading” propelling the measure to move forward in June.
Long Beach is not the only California city affected or to-be affected. Rent-control laws and ordinances are sweeping across the state, regardless of their recent defeats at the ballot box.
Although there is no time table for the Long Beach ordinance to take effect, if it stands this could have a negative impact not just on landlords, but on the people rent control would purport to help.
Here’s four reasons why:
1. The Wealthier Win Out
In major cities -- like New York, for example -- with rent control, there have been cases where a more-wealthy applicant gets a residence over an applicant with lesser, albeit reasonable means. Why? Simple. The former has more money and is more likely to pay their rent on time in the eyes of the landlord.
There are cases where millionaires are paying lower rent because “rent control” has nothing in place to stop landlords from leasing these properties over those who really need them.
2. Illegal Sub-Letting
Say you make a good salary, have a house in the suburbs. If you wanted to, you could take a rent-controlled apartment in the city and pay, for argument’s sake, $1000/month. You can then illegally sub-let that apartment to someone else for more than that amount and pocket the profit.
3. Repairing Units and Creating New Ones
With regulated rent, landlords tend to let their buildings fall into disrepair. Why fix up the place when low rent equals minimal or no profit for the landlord? This decreases property values and lessens the tax base.
For the same reason, why build more units if they won’t turn out to be profitable in the long run? Rent control doesn’t help with supply and demand. Landlords miss out making money and tenants miss out on more apartments being built.
Developers may even decide to construct more housing in non-rent-controlled areas, in order to maximize their investment.
4. “No Fault” Eviction
If “no fault” eviction were to be a thing of the past, if a tenant is in violation of the terms of the lease and action warrants termination of their tenancy, courts have made it very difficult to prove such violations without other tenants, neighbors, law enforcement, etc. testifying in court.
“No fault” eviction has always been used more of a way to eliminate trouble makers than to displace good tenants due to rent levels, but that’s only true on a month-to-month tenancy. While many tenant advocates may disagree with this theory, as a landlord with 30 years of experience, I will use this to get rid of those people who make life miserable for other tenants. In reality, if people are on a month-to-month agreement, your landlord could just raise your rent to get you to move, but it’s just not that simple.
An unintended consequence of this… landlords will at times work with tenants who have displayed responsible rent payment habits, but now face a life instance that requires a rent payment to be made late or in installments. With cessation of “no fault” evictions, landlords may now have to enforce rent with no leniency for lateness. Ever.
Such eviction action will be “at fault” due to non-payment of rent. It is the only way they may, in future, get “market rent.”
As these proposed laws continue sweeping across the state of California, we should consider whether they are actually working in theory when it comes to tackling the ongoing issue of affordable housing. Allowing the government to regulate rent keeps landlords from fixing the problem of affordable housing on their own and keeps them from building new residences to lessen the housing shortage. Rent control is not the golden ticket it intends to be.