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Because of the immense demand for housing in California, rental prices are spiking, and access to affordable housing across the state is limited. According to California’s Legislative Analyst’s Office, the average California renter pays 50% more for housing than renters in other states.
Currently, one-fifth of all California renters live in cities with varying forms of rent control that is allowed under the Costa Hawkins Rental Housing Act of 1995. This act, also known as the “anti-rent control law,” instituted three main restrictions to rent control in California: It allows landlords to raise rent on rent-controlled apartments to market rates each time a new tenant moves in, it restricts cities from applying rent control to units that were built after February 1995 (and in some cities, such as LA and Santa Monica, even earlier), and it exempts single-family homes and condos from being placed under rent control.
In 2019, Governor Gavin Newsom passed a rent restriction law that expanded rent control throughout the state. This law limited rent increases, stating that rent in all rent-controlled units can only be increased by 5% annually plus inflation, or increased by 10% — whichever is less — until 2030. This was the product of the strongly-disliked Proposition 10 announced in 2018 by Gov. Newsom, which intended to overturn the Costa Hawkins Act while expanding rent control.
Now, leading up to the November 3 elections, residents will be able to vote on whether or not to pass Prop 21, a new law hoping to further expand affordable housing and rent control in California.
What Is California Prop 21?
The main point of the California Prop 21 law is to modify the Costa Hawkins Rental Housing Act of 1995 in order to expand rent control across the state, thus superseding all local rent control laws. If passed, the measure will uphold two main changes to the current state of rent control:
First, the measure will allow local governments to impose limits on rent increases for new renters, thus inhibiting the aspect of the Costa Hawkins Act that allows landlords to raise the rent on a rent-controlled unit to market value once the current renter moves out.
That being said, individual governments will still have to allow for landlords to increase rent by up to 15% during the first three years after a new renter moves in. This is because every landlord in California has a legal right to a Fair Rate of Return, which allows them to increase rent just enough for them to be making some annual profits from their rentals.
Second, the measure will allow cities and counties to institute rent-control regulations on properties that are more than 15 years old, with an exception for single-family homes owned by someone with two or fewer properties. This means that, under Proposition 21 and barring said exception, properties built before 2005 will be eligible for rent control.
This proposal will be included on California’s November 3, 2020 ballot. Though the measure would go into effect in 2021, it does not state when it would expire if enacted.
Who Is Impacted by California Prop 21?
The California Prop 21 law will most likely affect landlords the most. Because many more properties would become eligible for rent control, some landlords would most likely experience a decrease in their rental incomes due to the limitations placed on the price of rent.
Some landlords would also not be able to raise the rent on a rent-controlled property to market value once the renter moves out, though a landlord’s Fair Rate of Return is still required under the new proposal.
Like most rent control laws, the main objective is to provide more affordable housing for California’s renters. As a result, some renters will be given many more rental options to choose from that are within their price range, with the hope that fewer renters will move due to rent increases.
How Will Proposition 21 Affect the California Rental Market?
If Proposition 21 is enacted, there are a few expected reactions that could affect the state’s economy and local sources of revenue. First, the state mentions that there’s a possibility that more landlords will sell their properties because of the rent control regulations. It’s also expected that the value of rental housing might decline, as landlords will not want to pay as much to acquire a property if they will be making less in rental income.
In terms of local and state revenue under Proposition 21, there is an understanding that both would likely be reduced over time, with property taxes being affected the most. This is because landlords would pay less property taxes due to the decrease in property value over time. However, more extensive rent control laws would also result in an increase in sales taxes caused by renters who have more buying power after paying rent.
Prop 21 Pros and Cons
Like many rent control bills, Proposition 21 comes with its share of disagreement surrounding whether or not it should be passed and how to approach the growing need for more affordable housing in California.
Those in favor of the measure voice that expanding rent control measures is the best way to provide more affordable housing to California renters. Not only this, but they state that it’s an effective way to lessen the homeless population in many of the state’s cities, an issue paid for by taxpayers to tackle. Proponents also argue that the measure will help with housing crises faced by veterans, senior citizens, and families.
Those against the measure state that the proposition, as well as expanding rent control legislation, will harm both renters and landlords. They argue that capping rent prices, and thus creating more affordable options, will disincentivize private developers from adding affordable housing units to their buildings. Landlords paying for the cost of their properties with a smaller rent income are concerned about the measure as well. Those who disagree with the proposition also cite an MIT study that found home values in areas with extreme rent control laws can see a decrease in home values of up to 20% — another point of concern for homeowners in the state.
The push for more rent control laws also bring into question the effectiveness of rent control as a way to create more affordable housing opportunities and help renters.
According to a study conducted by Brookings in 2018, rent control measures are actually found to do more harm than good in the long term. While renters find financial relief for a short period under rent control laws, these measures can lead to gentrification and a decrease in housing affordability overall. Still, the study notes that the ways that renters benefit from rent control, such as a decrease in displacements due to rent increases, should not be ignored.
Learn more about the pros and cons of rent control as a whole through Avail coverage on the topic, and stay up to date with all changing California rental laws to be better informed as a renter, landlord, and voter.
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Rent-controlled apartments are few and far between, with only six of the 50 states allowing them in the U.S. Because of their rarity, and the difficulties in renting one, many renters find rent-stabilized apartments instead, which have similar benefits and drawbacks as rent-controlled ones.
Though rent-controlled and rent-stabilized apartments are often confused for one another, understanding the differences between these two types of rental regulations will help inform a renter looking for a practical, yet affordable, rental in their area.
What Is Rent Control?
Rent control is when a state decides to cap the amount of rent that can be charged by a landlord at a certain amount. In other words, if a renter in California pays $1,000 a month for rent in a rent-controlled apartment, it would be illegal for their landlord to charge them any more than that amount.
Because rent-controlled apartments will not always have a capped monthly rent, states that allow rent-controlled apartments will have different conditions in order to maintain this status. For example, in New York, an apartment that was once rent-controlled can only continue to be that as long as it is being rented by family members.
Some other regulations, such as the date of construction, will determine whether or not the rental in question can continue to be rent-controlled. If a state’s rent control rules are not met, then the unit can be listed at market value.
The Benefits and Drawbacks of Rent Control
There are several benefits and disadvantages to rent-controlled apartments for renters, the most prominent benefit being a cheaper monthly rent compared to the typical, non-rent controlled units in the area.
The biggest disadvantage for renters seeking a rent-controlled apartment is that landlords are more reluctant to renovate the space or make other upgrades, such as new stainless steel appliances, because they will not be able to charge more for these changes in the future.
Rent control can also mean that current renters will stay put, making it harder for new renters to find a home in a certain area.
Rent Control vs. Rent Stabilization
Unlike rent control, rent-stabilized properties are much more common. Rent stabilization means that the given cost of rent for a property only increases by a small amount each year. This allows for certain areas to avoid being hit as hard by rapidly increasing property costs. However, depending on an individual state’s laws, there could be building requirements and lease term minimums that are necessary in order to consider a unit rent-stabilized.
Some of the benefits of rent-stabilized properties are that they provide an affordable option in most metropolitan areas and renters have the right to renew their leases to continue their rent-stabilized agreement. The disadvantages are similar to rent-controlled apartments in terms of less common renovations and upgrades.
How to Find a Rent-Controlled Apartment
The most popular cities that permit rent-controlled apartments are New York City, San Francisco, Los Angeles, and Washington D.C. Other cities in Oregon, New Jersey, Maryland, New York, and California also have rent-controlled apartments, though the regulations that maintain their status may change from location to location. Many of these same cities, such as Los Angeles and New York City, are home to many rent-stabilized apartments as well.
Being able to rent a rent-controlled apartment depends on state and city laws. in New York City, the only way to get one is to inherit it from a family member who moved out or died. In those cases, a renter would then be able to claim the lease and continue to pay the capped monthly rent. In San Francisco, however, all one needs to do is find an apartment built before 1979.
Because of this, rent-stabilized units are more common for renters. If the state allows for rent-stabilized apartments, then there will be information on state-specific databases and lists of where and what units are available.
Though rent-controlled and rent-stabilized apartments are sometimes harder to find than other rentals due to the lack of states that allow them, they can offer a more affordable alternative to market-price rentals. Being able to better understand the difference between these two types of regulations will better help a renter understand their options.
As you’re trying to decide between apartment types and what you can afford, make sure to determine how much you should budget for rent each month before you make any final decisions.
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California has become the second state to approve statewide rent control, extending protections to an estimated 8 million renters and establishing some of the country’s strongest tenant safeguards against rent hikes and evictions.
In an effort to address the state’s affordable-housing crisis — with some of the highest housing prices in the nation and a fast-growing homeless population — tenant groups and California’s biggest landlord advocacy group supported the bill.
Things to Know:
- Annual rent increases are limited to 5% after inflation over the next 10 years.
- Landlords must provide a “just cause” for evicting tenants.
- Single-family homes or duplexes that are owner-occupied are exempt.
- California cities that already have rent control laws in place are exempt.
- The new laws are proposed to start January 1, 2020 and expire in 2030.
How Much Can a Landlord Raise the Rent in California?
Under the new legislation, landlords will only be able to raise the rent by 5% (plus the local rate of inflation) for any existing tenant. It’s important to note that this only applies to apartments built before 2004; single-family homes or duplexes that are owner-occupied are exempt.
While the new laws will affect the entire state, cities that already have rent control policies in place, like Los Angeles and San Francisco, will keep those rent control laws — they won’t be superseded by the new statewide legislation. The bill will instead extend protections to apartments and homes not already covered by rent control laws.
According to Zillow, only about 7% of California properties saw rent hikes larger than the 5% increase that new statewide legislation allows. In San Francisco, rent in rent-controlled apartments can only be raised at a rate of 2.6% every 12 months, and in LA, the city’s rent control policy caps rent increases at a raise between 3% and 8% annually.
What Does the Bill Mean for Landlords?
Along with the rent cap, the bill extended eviction protections to tenants across the state. While many cities in California have allowed landlords to evict a tenant without explicitly stating a reason, under the new legislation, landlords will have to provide a tenant with a specific legal reason for eviction. If a landlord wants to evict a tenant due to renovations, they’ll also have to pay the tenant a relocation fee equivalent to one month’s rent.
While the new bill doesn’t prevent landlords from raising the rent when a tenant moves out, heightened eviction protections and a cap on rent increases could decrease profitability and lower tenant turnover, limiting more substantial rent increases.
In California and across the U.S., rent control can also increase property tax burdens for landlords and can remove the incentive to keep rental units up to date or to renovate them.
What Other States Have Rent Control?
California is the second state to pass statewide rent control after Oregon passed their own statewide rent control legislation in February 2019 (without the 10-year expiration date that the California legislation has). New York has strengthened rent regulations across the state, and Maryland, New Jersey, and the District of Columbia have rent control in some places.
A handful of other states — including Washington, Colorado, and Nevada — have proposed legislation to expand rent control policies.
Stay up-to-date on the details of California’s landlord-tenant laws as legislation changes across the state. If you live in a state with rent control policies or want to tell us about your experience as a landlord in a state with rent control, share your knowledge and answer questions in our community forum.
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Research by the Harvard Joint Center for Housing Studies (JCHS) found that although 6.7 million housing units were added to the market between 2005 and 2015, the vast majority of those homes were designed to accommodate only the smallest and wealthiest portion of the rental population. Units renting for less than $800 a month declined by 2%, while units renting for $2,000 or more a month increased by a whopping 97%.
There’s no question that affordable rental housing is in short supply relative to demand. How to answer that demand is less clear-cut, which is making rent control a key issue in cities across the U.S.
Rent control policies take different forms in different states, but here are the general pros and cons of such legislation that landlords should keep in mind when considering the potential impact of these measures on their business.
Benefits of Rent Control for Landlords
1. Lower Tenant Turnover
A recent study by Stanford University on the effects of rent control in San Francisco found that rent control policies limited renters’ mobility by 20% and decreased population displacement from the city. A stable population of renewing, responsible renters is a good thing for landlords, who then save on the costs of reletting units and avoid the risks that come with adding new, unknown tenants to the building.
That said, the policies also had unintended adverse effects: faced with limits on profit potential, many of the city’s landlords opted to convert their units to condos, sell to owner-occupants, or redevelop their buildings, thus reducing the city’s rental housing stock by 15%.
2. Lowered Financial Burdens Help Tenants Meet Expectations
In a perfect world for a DIY landlord, rent payments would arrive on time and in full every month. When nearly half of the nation’s renters are already allocating 30% or more of their household income to rent — and more than half of those are allocating 50% or more of their income to rent — the financial burden of housing makes it difficult for families to afford other necessities such as food, clothing, transportation, and medical care.
Keeping rental rates predictable and in check makes it easier for tenants to budget successfully and pay on schedule. Without rent control, landlords could increase rent by a more substantial margin, but in so doing they could also jeopardize their income by pricing good tenants out of a home.
3. Less Development Means Less Competition
Rent control has been shown to be a disincentive for development companies to build new units in the area. With less development, the demand for existing units goes up, meaning lower vacancy rates and a larger pool of potential tenants.
It also means it’s less likely that a shiny new complex with upgraded finishes and features will lure existing renters away.
Read more about raising your rent under rent control.
Disadvantages of Rent Control for Landlords
1. Rent Control Puts a Ceiling on Profitability
Because rent control imposes limits on how, when, and by how much landlords can raise the rent, it puts a cap on their profit potential, even in a hot market.
However, by incentivizing tenants to stay put for the long term, the lower profit can be offset by the reduced time and hard costs for landlords when it comes to turning a unit over between renters.
2. Bad Tenants Stay Put
Just as good tenants are incentivized to renew their leases in rent-controlled cities, not-so-good tenants are as well. Rent control policies frequently include provisions that make it more difficult to evict tenants, which can be problematic if a legitimate need for eviction arises.
3. Rent Control Policies Sometimes Forget the Impact of Property Taxes
In an episode of the Freakonomics podcast focused on rent control, Vicki Been, a former commissioner of the New York City Department of Housing Preservation and Development and current professor at New York University School of Law, says rent control policies don’t always take into account how changes in property taxes can burden landlords with rent-controlled units.
“In New York City, for example, a very high percentage of rent goes for property taxes,” Been says. “So we can’t be saying to landlords, ‘Hey, keep prices down — but by the way, your property tax just went up by 10%.’”
Been says for cities considering overhauls of existing rent control laws, or implementing new policies, the impact of property taxes on rents has to be a consideration.
“We as a taxpaying body have an obligation to understand the effect that those increases may have on rents,” she says. “And we can’t just turn around and say to the landlord, ‘You absorb them,’ right? ‘Don’t pass them onto the tenant.’ Because that’s an unsustainable system.”
Stay Up to Date on Rent Control Policies Across the U.S
Rent control policies are designed to keep housing within reach for middle- and lower-income families, but those policies fall short when they neglect to consider the interests of landlords and property owners who maintain such homes.
Learn more about your state’s rent control laws through our landlord-tenant law directory, and stay updated on rent control legislation and various measures that impact rent control across the country by joining our newsletter.
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As a landlord, you’re probably wondering when you should raise your rent price. On one hand, you want to bring in as much rental income as possible. On the other, you need a price that attracts tenants so you avoid a rental vacancy.
In this article, we’ll cover raising rent and rent control, as well as situations where your tenant may get a break on rent, such as a rental discount or a rental subsidy.
The Basics to Raising Rent
Landlords often have quite a few questions about when and how to raise their rent. Here are the most common questions and their answers:
When Can You Justify Increasing Your Rent Price?
There are a few instances in which raising the rent price is justifiable. Here are the main three:
- If similar units in your location are raising their prices
- If it’s peak rental season and demand for rentals is high
- If you update your unit or make it more valuable (new flooring, appliances, etc.)
However, you have the option to raise rent once an existing lease ends. So even if you’re not in those three scenarios, it’s okay to increase the rent price as long as its fair.
How Often Can Landlords Raise Rent?
Landlords cannot raise rent whenever they feel like it. If your rental property is currently being leased by a tenant, you have to wait until the lease expires before you can increase rent. In most cases, this means up to twelve months before adjusting your rent price.
The only time you can raise rent during a lease is if your tenant’s agreement is month-to-month. You’ll need to provide written notice of the change ahead of time, and provide a Rent Increase Notice to your tenants with the new rent price.
If you’re updating your rent price between tenants, then you can go ahead and advertise the new rent price on your rental listing. Keep in mind that many cities and states have specific laws regarding how much a landlord can raise the rent, so make sure you find out how your local laws will dictate your updated rent price.
What Are the Benefits and Drawbacks of Raising Rent?
The main benefit to raising rent is increased income, which can be taken as profit or reinvested into your rental business. However, there are drawbacks to raising your rent as well. For example, it may become harder to find interested tenants if your property is out of their budget. And, raising rent before renewing a lease can lead to turnover, which will affect your income.
What is Rent Control?
Rent control is a price limit on the amount you can charge tenants for renting your property. It acts as a price ceiling, preventing rent prices from being charged above a certain level or from increasing at a rate higher than a predetermined percentage. For instance, some cities may limit the rent price to a certain dollar limit. Other cities may say you cannot increase your rent price by more than 3% each year.
The purpose of rent control is to regulate how much individuals and businesses have to spend on real estate. It is designed to make renting affordable for renters while remaining fair to owners.
If your property is in a rent-controlled city, keep in mind that not all properties in a rent-controlled city are subject to rent control. Two common exceptions are if the building is new and if the building is owner-occupied. Most rent-control ordinances include a way for rent to increase yearly or whenever a new tenant moves in.
What Impact Does Rent Control Have on the Rental Market?
Rent control creates an artificial supply or demand issue. This typically happens if tenants never want to move out because of the low rent price. When there is reduced tenant turnover, the supply of available rental properties goes down, making it hard for new tenants to find places to move into. On the flip side, when supply is artificially low, landlords tend to have a much easier time finding tenants.
Find Out About Rent Control In Your Location
Here are three resources to consider:
- Your city may have a Rent Control Board.
- You can reach out to your state or local Apartment Owners’ Association.
- You can contact a local attorney who specializes in landlord-tenant laws.
What Are Rental Discounts?
Rental discounts are something you can offer your tenants as an incentive and a helpful way to encourage your tenants to pay rent on time.
These are some circumstances when a landlord could offer a rent discount:
- If your tenant pays rent on time for a certain number of consecutive months
- If your tenant completes maintenance or handy work on their own
- If your tenant acts as an on-site manager to help with other units on the property
- If you want to incentivize your tenant to sign a lease renewal
What Are Rental Subsidies?
Rental subsidies are rent payments covered by the government or a non-profit agency. Most cities have rental subsidy programs, which will allocate rent payments to tenants who need assistance. If your tenant is having financial troubles, you can refer your tenant to your city’s rental subsidy program. Doing so can help avoid late or partial rent payments, while also preventing turnover.
Avoid Rent Disputes with Avail
Regardless of your rent price, you can use Avail to avoid rent disputes. Landlords can access lawyer-reviewed lease templates to clearly communicate rent prices, and you can receive payments through the Avail platform.
Log in or sign up and get started today!
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