Monday, November 11th, 2019
California Governor Gavin Newsom recently signed a statewide rent control law that not only limits rent increases but is also creating a lot of buzz from strong proponents to die-hard detractors and everyone in between. There are plenty of opinions on both sides of the issue and questions swirling about as to what the law really means and who it will ultimately serve. For instance;
This new law is the latest in a surge of initiatives springing up nationwide that are supposed to address the affordable-housing crunch. It was pitched, not so much as the end-all solution, but as a step in the right direction. Advocates hope it will stop sudden and steep rent increases, as well as no-fault evictions that, in some cases, were being used to empty entire buildings so that owners / landlords could re-rent to higher-income households.
To get some perspective on this new law, I’ve peeled back the layers to answer some of the most pertinent questions, particularly what this means for multifamily investors/owner.
If you take rent control at its core, investors /owners of multifamily as well as many economists oppose it at face value. Investors / owners see rent control as having the ability to diminish the value of their properties, particularly when the market conditions support rising rental prices. Economists argue that the message of rising rental prices is to build more housing rather than control rent increases. In fact, rent control can have a negative impact on renters.
The new law might serve as a call to action. It could serve as a catalyst for owners / landlords to take some overdue actions as it relates to problem tenants or below market rental prices.
Additionally, the new law has some limitations that may be viewed as positive for investors / owners.
On the negative side;
Conclusion: There are plenty of stories of unscrupulous landlords raising rents and evicting without cause just as there are stories of deadbeat tenants. Like most things in life, we should seek to strike a balance between tenant rights and owner/investor opportunity. If the rental market is going up, investors and landlords should not have their hands tied when it comes to maximizing the value of their property or their profits. The scariest part of this whole thing is that it was passed into.