Legislature Again Pursues Rent Control

Timothy L. Coyle
Consultant specializing in housing issues

It seems that California legislators can’t help themselves.  After a year that saw every one of their rent-restricting efforts in the Legislature fail ignition – and after an election in which voters decisively rejected a statewide ballot measure to repeal a law protecting landlords – in Sacramento lawmakers are as determined as ever to put rent control on the state’s front public-policy burner.  As usual, the current muscle behind this price-arresting effort comes solely from Democrats.

Several bills recently introduced reveal that despite last year legislators still haven’t learned their lesson.  AB 36 by Santa Monica Assembly Member Richard Bloom would change state law to allow rents to be capped on properties ten years or older.  Existing law currently prohibits government-imposed controls on properties built after February, 1995. AB 1481 by Oakland’s Rob Bonta would prohibit a landlord from evicting a resident without a demonstration of cause, whereas now non-payment of rent is enough to end a tenancy.  With AB 1482 Assembly Housing Committee Chairman David Chiu would create a statewide limit for rent increases – right now pegged at the Consumer Price Index (CPI).

These are just a few of the measures making up the left-leaning Legislature’s “package” of bills designed to ease California’s housing crisis.  State lawmakers believe the more government strictures and controls imposed on housing markets the better. It should be little surprise, then, that rent control – favored by many legislators and policy makers – is the centerpiece of the “package”.

Bloom’s bill makes no practical sense at all.  It moves forward by 15 years the cutoff date for prohibiting rent control with no rhyme or reason as to why.  And, like the other elements of the “package” the bill adds no new housing stock to the state’s meager supply.  In fact, by adding to the ledger more rent-controlled housing units, Bloom almost assures supply-watchers he’ll hurt the state’s overall inventory – in two ways.  One, under his bill owners of properties with new limits on their rents – including, for the first time, owners of single-family homes – will believe their real estate assets are worth more as non-rental housing and will convert them, thereby shrinking the supply of rental housing.  Two, the legislation sends a powerful signal to housing investors: BEWARE – real estate price controls in California. That signal will surely discourage investors.

The Bonta legislation simply means tenants are virtually free from paying rent – for at least six months.  That’s the time it typically takes for a property owner to gather evidence for a “just cause” eviction and to get a judge to evaluate and rule on that evidence.  (A minimum of six months is virtually guaranteed now that jury trials are available in certain California cities for handling landlord/tenant disputes.) Meanwhile, residents are fine with not paying rent during that time since rarely, when the final judgment is handed down, are the defendants (residents) required to make good on their rental commitments.  The long and the short of the Bonta bill is that it adds to the notorious landlord/tenant regulations in California and helps to steer housing investors clear of the state.

Rounding out the Legislature’s reform “package” is Chiu’s AB 1482, a bill to establish a new statewide rent-control policy – transforming relatively free housing markets into ones controlled by government.  Chiu’s office reports that the current CPI rent adjustment in the bill is merely a place holder – probably meaning something more restrictive and arbitrary is coming. Heralded as an “anti-gouging” measure, the bill was introduced to combat the “unreasonable rent increases” of 50 percent or more.  Of course, those types of rent hikes are rare but the bill’s author doesn’t like anything more than three or four percent.

The rhetoric surrounding AB 1482 and other measures in the “package” would lead an uninformed observer to believe its contents are necessary to cure  the ills of an under-regulated market in California. Indeed, bill authors have likely concluded that their legislation will quell spikes in rents, end landlord/tenant conflicts and cure homelessness.  

In fact, however, these and similar bills will just make matters worse, for reasons that have been presented in this space time and again.  As economists from both sides of the aisle have said rent control does not enhance but limits housing supply. At their base, the arguments of these economists is that with government control of rents – instead of a relatively free market – investors are unable to calculate a fair return on their housing ventures and, therefore, will stay away.  Moreover, existing rental property owners are likely to convert their current real estate holdings into something more profitable.

About the latest doings at the Capitol, it seems that all one can say is “God forbid; they’re at it again.”  Let’s just hope as in past years a majority of legislators have the good sense to send these ideas to deep graves, where in peace they can rest for a long time.

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