What Should Be the State’s Role in Rent Control? State-Level Tenant Protections Can Be One of the Tools to Address California’s Housing Affordability Crisis

California’s renters are particularly hard-hit by the state’s housing affordability crisis. Addressing this crisis requires a mix of policies that tackle the problem in different ways — including policies that address the needs of renters who are struggling to afford housing costs right now. Last fall, California voters considered Proposition 10, a ballot initiative that would have expanded the authority of cities and other local jurisdictions to limit allowed rent increases in private rental housing through local rent control (or rent stabilization) policies. Prop. 10 did not pass, yet a majority of California likely voters say they support the idea of rent control, and Governor Newsom encouraged the Legislature to develop proposals this year to address rent stabilization. Legislators have responded with multiple bills — including Assembly Bills 36 (Bloom),1482 (Chiu), and 1481 (Bonta) — that would expand or modify the state-level role in protecting tenants and setting limits on rent increases. This blog post examines these proposals and how they aim to address the housing affordability challenges of California renters.

A Key Problem: Rents Are Outpacing Incomes

As noted in a recent Budget Center issue brief, more than half (53.9%) of California renter households have an unaffordable housing cost burden, paying more than 30% of income toward housing, and more than 1 in 4 (28.4%) have a severe housing cost burden, with housing costs consuming more than half of their income. California’s unaffordable housing costs are a problem not simply because housing costs are high, but because they have been growing quickly relative to incomes. From 2006 to 2017, median annual earnings for full-time workers in California increased by just 2.1%, adjusted for inflation, but median household rents increased by 16.1% (see Figure 1). With earnings outpaced by living costs, families and individuals struggle to cover the basic costs of housing, food, child care, and other needs.

Figure 1

Rent stabilization policies aim to address housing affordability for renters by providing renters with a guarantee of modest, predictable rent increases as long as they remain in the same home, protecting them from large or repeated jumps in rent that may outpace any increase in their incomes. This protection from rapidly rising rents is particularly valuable for lower-income households because wages and earnings for low- and midwage workers have experienced only sluggish growth in recent years, even as the economy overall has been improving.

As noted in an earlier Budget Center analysis of Prop. 10, rent stabilization can have significant benefits for low- and moderate-income Californians, but also potential drawbacks. Rent control in its current forms in California can offer strong benefits for current renters who want to remain in their current homes. It is not as helpful for renters entering the rental market for the first time or for those who need or want to move into new homes. Moreover, rent control does not increase the supply of rental housing, which is a root cause of the housing affordability crisis — if anything, it can incentivize some landlords to convert rental homes to ownership properties — so to address housing affordability effectively, rent control needs to be combined with other policies that are designed to increase housing supply.

That said, rent stabilization policies can be structured at the state and local level in ways that minimize undesired consequences for housing markets and lower-income renters. The overwhelming majority of California renters live in private market-based housing, and rent control specifically addresses affordability within housing provided by the private market. Moreover, rent control is one of the few financially feasible, scalable policies available to address the needs of renters who are struggling now to afford California’s high housing costs. For these reasons, rent stabilization and related tenant protection policies are worth considering as part of the comprehensive set of policy tools available to address the state’s housing affordability crisis.

The Current State Role in Rent Stabilization: The Costa-Hawkins Rental Housing Act

Historically, rent control policies in California have been developed and implemented at the local level. About a quarter of the state’s renter households live in the 15 cities that currently have rent control policies in place for apartments (see Table 1). The current state-level role with respect to rent control is to restrict the permitted scope of rent control policies implemented by local jurisdictions. These state restrictions are defined by the Costa-Hawkins Rental Housing Act (or Costa-Hawkins), adopted in 1995, which imposed three limits on local rent control laws. First, single-family homes were exempted from rent control. Secondly, rent control could not apply to any newly built housing starting February 1, 1995. For cities that already had some form of rent control, Costa-Hawkins back-dated this second restriction on rent controls on new housing to the date of the local ordinance. (For example, since Los Angeles instituted rent control in 1978, housing built after 1978 in Los Angeles was required to be exempt from rent control.) Finally, Costa-Hawkins required that landlords of rent-controlled buildings be allowed to charge market-rate rent to new tenants moving into a unit that had been vacated (known as “vacancy de-control”).

Table 1

Legislative Proposals Would Modify Some Limits on Local Rent Control Policies and Establish Some Statewide Tenant Protections

Three bills proposed in the Assembly this year would modify some of these state-imposed restrictions on local rent control laws and would establish some new protections for tenants that would apply statewide.

The first bill, AB 36 (Bloom), would modify Costa-Hawkins in two ways. First, it would allow local jurisdictions to choose to apply rent control policies to housing units built more recently than the year currently designated by Costa-Hawkins, which is 1995 in most parts of the state but can be as far back as 1978 in some cities with long-standing rent control policies (see Table 1). Specifically, AB 36 would replace the restriction of local rent controls on housing built since the fixed dates of construction specified in Costa-Hawkins with a rolling date that applies to all jurisdictions statewide, so that local rent control policies could not apply to housing built within the most recent 20 years.  Exempting recently constructed units from rent control is a reasonable approach to maintain a strong incentive for housing developers to build new rental housing, as developers then know that they will have a set period of time in which to maximize rental profits and recoup the costs of development. Excluding new construction based on a single rolling date statewide represents a better policy design to achieve this objective than the current structure of Costa-Hawkins, where different dates apply in different locations and housing built as long as 40 years ago (which is hardly new construction) is excluded in a few cities. A statewide exemption period of 20 years could allow cities to choose to apply rent control to a substantial number of additional housing units. If the four largest cities that currently have rent control policies in place — Los Angeles, San Francisco, San Jose, and Oakland — could choose to extend rent control to apartments built more than 20 years ago (built in 1999 or earlier), for example, instead of before the year currently allowed by Costa-Hawkins, nearly 200,000 additional apartments could be covered by their rent stabilization policies.

The other change proposed by AB 36 would be to remove the Costa-Hawkins restriction that prohibits cities from applying rent control policies to single-family homes that are used as rental housing. Statewide, more than one-third (35.5%) of renter households — or 2.06 million households — lived in single-family homes as of 2016, and this share has increased by about 10% since 2006, when 32.4% of renter households lived in single-family homes. AB 36 proposes to allow cities to choose to apply rent control policies to single-family home rentals, but only for homes rented out by landlords that own more than 10 homes within the local jurisdiction, so that small-scale “mom-and-pop” landlords would not be affected. Given that single-family homes make up a substantial share of the current rental market, it is reasonable to treat them similarly to apartment homes with respect to the local authority to choose to limit rent increases.

The second bill, AB 1482 (Chiu), can be viewed as an anti-rent gouging measure, intended to protect renters from excessively large rent increases by establishing a statewide cap on the maximum allowed annual increase in rents in a 12-month period. The bill proposes a cap set at the regional rate of inflation plus an additional 5%, but no more than 10%. Policy stakeholders may have different opinions about the appropriate percentage for a statewide cap. Generally, however, adopting a cap that applies statewide to protect tenants from egregiously large increases in rents could be a reasonable state-level policy approach, with local jurisdictions maintaining the authority to design local rent stabilization policies that may apply a lower cap.

The third bill, AB 1481 (Bonta), would require that landlords who want to evict a tenant must identify a “just cause” for eviction (e.g., nonpayment of rent). If a landlord wanted to evict a tenant without just cause (e.g., in order to remove the property from the rental market), then the landlord would be required to make a payment to the evicted tenant to assist them with relocation. No payment would be required if the landlord wanted to occupy the rental unit themselves (unless the tenant was 60 or older or disabled or extremely ill), and no payment would be required if the rental was part of the housing unit where the landlord lived. Many local jurisdictions in California already have local “just cause” ordinances, and AB 1481 would extend this requirement statewide. Adopting “just cause” in combination with rent caps or rent stabilization policies helps ensure that landlords do not simply evict tenants in order to raise rents above the specified caps, so AB 1481 is a logical companion to the statewide rent cap proposed in AB 1482.

Conclusion: A State-Level Role in Tenant Protection Is Worth Consideration

Rent control should not be the only tool used to address California’s housing affordability crisis, but it is reasonable to consider rent stabilization in some form as one of multiple tools to deploy to address the housing crisis. Policies that aim to increase the supply of housing — particularly the supply of rental housing for the lowest-income households — are also urgently needed to address the root cause of rising housing prices. However, housing supply interventions take time to produce results, and cannot address the needs of renters who are struggling with affordability now. These three bills that propose to modify or expand the state’s role in rent stabilization and tenant protections generally represent a reasonable approach to setting a basic state-level framework for renter protections, with most policy decisions related to rent stabilization still largely left to local officials and local voters. Given the scale of California’s housing crisis, and the fact that renters are particularly likely to struggle to afford their housing, these proposals are worth consideration by state policymakers.

— Sara Kimberlin