It's Official: California Governor Signs Bill, Capping Rent Across The State

In what is being considered one of the strongest laws that protect renters in the nation, California Gov. Gavin Newsom has signed legislation that will cap how much a landlord can raise rent across the state. 

Under AB 1482, starting in January, landlords and owners of multifamily buildings not built within the last 15 years, as well as big corporations and institutional investors that own condominiums and single-family homes, won’t be allowed to increase rent by more than 5% plus inflation a year.

Landlords will also need to provide “just cause” to evict tenants. The rent cap law will expire in 10 years.

“About a third of California renters pay more than half of their income to rent and are one emergency away from losing their housing,” Newsom said Tuesday at an event in Oakland. “One essential tool to combating this crisis is protecting renters from price-gouging and evictions.”

The other renter protection bills Newsom signed include prohibiting landlords from discriminating against tenants and military veterans who use Section 8, Veterans Affairs Supportive Housing or other housing assistance vouchers, and landlords have to give 90 days’ notice to a tenant before imposing rent increases of more than 10%.

"The bills signed into law today are among the strongest in the nation to protect tenants and support working families," Newsom said.

The signing comes a year after residents voted against Prop. 10, which would have repealed the Costa-Hawkins Rental Housing Act that limits rent control, and during a time when the state is experiencing a severe housing crisis, alleviated the high cost of living and rising rents.

California joins Oregon and New York in passing some sort of rent control measure to limit the amount landlords can hike rent. This is part of a much larger tenants rights' movement happening worldwide. 

Rent control advocates say a combination of low wages and lack of affordable housing in big cities across California is forcing many people to be evicted and is leading to the state’s homeless crisis.

“Until everyone has a roof over their head, until everyone has a place they can go home, we are going to continue this fight for our renters, for our tenants, in California,” Assembly member David Chiu (D-San Francisco) said on Twitter. 

Since taking office in 2018, Newsom has made it a goal to have builders create more than 3.5 million homes statewide by 2025. Newsom is also cracking down on cities that are not producing their share of affordable housing. 

However, opponents of rent control or California's "rent cap" say placing any kind of limit on rent will only exacerbate the housing problems in the state. 

"The governor has stated his goal of building 3.5 million housing units — this is not the way to do it," National Apartment Association President and CEO Robert Pinnegar said. "California is growing. This disincentivizes investors. Our concern is how this could help build new housing stock and help [upgrade] the existing stock."

Pinnegar said many of the large institutional investment companies, REITs and independent owners are going to have to fundamentally shift their business. Lenders are tightening their criteria and this kind of legislation could drive investments away from California, he said.

“I'm not sure if capital will take this risk.”

Southern California Rental Housing Association Executive Director Alan Pentico said the rent cap bill could have several unintended consequences. 

Pentico said the law could actually lead to more rent increases because it sets up a "use it or lose it" framework for landlords and owners. 

“Under this new law, [landlords] will be forced to raise rents by the maximum allowed by law, or otherwise miss out on the opportunity to align their rents with the market,” Pentico said.

From Pentico's experience, he believes the rent cap will disrupt the multifamily market. He has already seen investors leave the state or avoid it.

Last year, when Prop. 10 was on the ballot, for-sale multifamily properties in National City in San Diego shot up 80%, Pentico said.  

“A lot of people were selling off their properties and taking their investments elsewhere,” Pentico said. “I think people need to understand that 65% of apartment owners are independent operators. They want long-term tenants. They don't want to push rents. This is their retirement investment.”

Pentico said many of his members are worried not just about the rent cap but also the just cause eviction.

He said to get rid of a bad tenant using just cause, a good neighbor will have to testify in court to remove that tenant. That poses safety issues.

“Right now, there are a lot of questions to be answered,” Pentico said, adding that his organization has hosted a few classes on AB 1482 and many of them have sold out.“Stay tuned. I believe there is going to be more pain ahead.”

Pinnegar said he worries now that California has passed a rent cap measure, other states will follow.

“There’s going to be a lot of pressure with other states,” Pinnegar said. “This is not the end of the rent control conversation.”