California Governor Gavin Newsom signed AB 1482 into law, a powerful rent-control bill that caps increases at 5% plus inflation while also providing eviction protection for tenants. Now if a landlord wants to evict a tenant the landlord will have to cite a government approved reason for doing so. The bill attracted both praise and criticism from various groups.
What is Rent Control?
Rent control puts a cap on how much rent can increase in a given time period and under what conditions rent increases can occur.
What is the Purpose of Rent Control?
The purpose of rent control is to keep housing affordable for tenants.
What Other States Currently Use Rent Control?
In 2019, Oregon passed statewide rent control. Rent increases can be no greater than 7% plus inflation during any 12 month period. The rent increase cap will be set on a yearly basis by state economists. For the rest of 2019, the cap will be 10.3% for any buildings that are more than 15-years-old, excluding government-subsidized housing. Other tenant protections were passed as well.
Since 2017, nearly a dozen states have attempted to expand rent control. This has included Washington, Colorado, and Nevada. Most recently, New York state passed a bill that further empowered rent control in New York City and grants other cities within the state the ability to craft their own rent legislation.
Why is Rent Control Good?
By keeping prices affordable, rent control also provides socioeconomic diversity for a given area because many different types of people are able to live in the neighborhood in question. This diversity is expressed within the community by virtue of creating both a supply and demand for businesses that cater to various socioeconomic groups. This can include ethnic cuisine; artisanal shops; traditional brick and mortar stores like laundromats and grocery stores; and office space.
Why is Rent Control Bad?
Some argue that rent control is bad because it discourages construction of new housing and encourages existing landlords to either neglect their properties or convert their properties into condos. It is also believed that while rent control may make housing affordable it fails to address the systemic causes of poverty and depressed wages, and also fails to address housing shortages.
Is Rent Control Good or Bad?
The merits of rent control are the subject of debate. Rent controls often lack income thresholds and, as a result, risk benefiting high-income tenants. Conversely, rent-controls can protect tenants from eviction and unexpected rent increases, which is particularly important for at-risk populations such as the elderly and those living pay-check to paycheck. The hope is a middle way that protects tenants without discouraging the construction of new homes.
Where Should I Invest to Avoid Rent Control?
Given the limited number of states that offer rent control, it’s easier to say where you should invest if you don’t want to avoid rent control. California and Oregon offer statewide rent control; while parts of Maryland, New York, New Jersey and Washington DC do as well.
The rest of the nation is on the table!
Although, given that California is often thought of as America’s test kitchen for new laws, rent-control legislation may continue to expand to other states.
The Bottom Line
Given the abundance of people renting and the growing number of young people who don’t envision home ownership, rent control may continue to expand into other states. This doesn’t mean, however, that investing in real estate is on the outs. There are still many forms of real estate investment outside of housing, and even within the confines of rent control it’s possible to make a profit.