National Rent Reform: What Real Estate Property Investors Need to Know

2019 is seeing a lot of changes in rent control legislation. New rules in Oregon, California, and New York may inspire other states to follow suit. So, taking a look at this trio may provide invaluable insight into what lies ahead.

Rent reform tends to pivot mainly around rent increases and eviction protections for renters. Rent increase limits tend to be tethered to economic growth. This discussion often includes talk of how much a landlord can increase rent after a vacancy. Meanwhile, eviction is becoming more difficult thanks to laws that are meant to protect occupants from getting the heave-ho just because the landlord wants to up the rent.

Let’s take a closer look at what went down in 2019.

Oregon sets a precedent

Oregon led the pack by being the first in the nation by passing statewide rent control in 2019. Rent increases are now capped at 7% plus inflation during any 12 month period, and the rent increase cap will be set yearly by state economists. For the remainder of 2019, the cap will be 10.3% for buildings greater than 15 years in age (excluding government-subsidized housing).

If the tenants don’t renew after the first year or if they get evicted without cause, then the rent cap stays in place. Usually, landlords can raise rent if tenants leave by their own volition or if the units are empty. Meanwhile, when it comes to evictions, if a tenant has lived in a unit for over a year with a month-to-month lease, then the landlord must provide a 60-day notice. If the tenant has lived in the unit for under a year, a 30-day notice is necessary. Portland is the exception to this rule; there a 90-day notice is always required.

Failure to pay rent or other legitimate violations mean that the landlord is allowed to evict the tenant. With 90-day notice, the landlord can evict a renter. If a family member is moving into the space or remodeling is necessary, then the landlord is permitted to evict at any moment. If the property is sold, then the landlord owes the tenant one month’s rent as a contribution toward moving costs. Landlords who split a duplex with a tenant, however, are exempt.

New York: rent control and rent stabilization

New York City has both rent control and rent stabilization. Rent control puts a cap on how much a unit can cost, while rent stabilization limits the amount by which the rent can go up. Together, both practices were a way for people to afford to live in NYC.

Rent control only applies to buildings that were built before 1947. To qualify, occupants or the family members of occupants had to have claimed the unit as their home since July 1971. The units can be passed from one family member to another, but if no family member wants to rent the space then it can fall out of the system! In NYC the number of rent-controlled apartments has fallen from over two million to 22,000.

Rent stabilization, meanwhile, primarily affects apartments in buildings that have a minimum of six units constructed between 1947 and 1974. Condos and co-ops don’t count, and one unit being rent stabilized does not guarantee that the rest of the building will also be rent stabilized.

The NYC Rent Guidelines Board sets the criteria that a unit must meet to get rent stabilization. These rules are based on what the rent is and when the occupant moved in Every year, the Board dictates the percentage by which rent can go up for rent stabilized apartments. From Oct 2019 to Sep2020, the increase was set at 1.5% for a one-year lease and 2.5% for a two-year lease.

The Rent Guidelines Board will still determine the rent increases under the new laws. One of the changes removes the vacancy decontrol contingency, which means rent-stabilized apartments no longer go back to market-rate rent during vacancies. Before, landlords could increase rent by upwards of 20% after tenants moved out. Not anymore thanks to the new laws! Landlords can now also only raise rent by 2% tops if they do renovations that benefit every occupant. That number used to be7%! Rent increases for improvement for individual units have also been capped.

Deregulation for high-income tenants and multiple exemptions for owner usage are no more! And protections that cover all apartments have been added. Now security deposits can no longer exceed one month’s rent. Tenant also have greater protection from evictions, which translates to landlords needing more time and going through more steps to make an eviction happen. As can be expected, landlords and real estate groups were against the changes, arguing that rent stabilization will eliminate incentives that previously motivated landlords to invest in their buildings, which will hurt renters in the long run.

California: new rules exclude single-family rentals

California passed Assembly Bill 1482. This legislation excludes cities that have rent ordinances already in place, which includes San Francisco and Los Angeles. Now it’s much harder to evict someone who’s been a tenant for 12 months. It’s only if the occupant fails to pay rent, breaches the lease in some way, commits a crime on the property, or is a public nuisance that they can get kicked out. The landlord can, however, force the occupant out if the landlord’s immediate family is going to move in or if the building is going to become a condominium. If either of these occurs the landlord will have to cover the cost of the tenant’s relocation.

No California city is allowed to impose a rent control cap that’s less than 5% plus inflation. Single-family homes and condos, however, can’t be rent controlled, The bill was protested by the California Apartment Association, but the California Association of Realtors argued that not enough was done to increase the amount of affordable rental housing.

What landlords need to keep in mind

As a real estate investor, it’s important to take the pulse of the community when it comes to issues like rent control. This can be done by monitoring local news and even attending town meetings. When putting together a budget and figuring out how much rent to charge, keep in mind that the city or even the state may set regulations that’ll limit your rent now or in the future. As 2019’s legislation shows, knowing the size and age of your building is important since these are often the determining factors when it comes to the application of legislation.

Eviction laws tend to favor tenants, so if you’re a landlord you’ll need a thorough understanding of the laws in order to make use of them. You’ll need to document why you want to evict someone and keep as many records as possible. Given how difficult eviction is, make sure to make the screening process as rigorous as possible! And, remember, real estate investors have a say in the process, so pay attention to what’s going on so that both you and your tenants get the best treatment possible!

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