Rent Control is not a Solution to a Housing Shortage
Recently, local proponents of rent control have been gaining traction in attempting to bring rent control to the City of Sacramento. What is missed is that rents are driven by supply and demand economics and currently there is a well recognized shortage of available housing in the Sacramento metro area.
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Written by: D. Keith B. Dunnagan, Esq.
In 1995, the Costa-Hawkins Rental Housing Act was enacted in California to constrain the rent control ordinances major cities like Los Angeles and San Francisco were implementing. Within this Act, single-family homes, condominiums, and duplexes are largely exempt from the rent control policies. Costa-Hawkins also covers any buildings constructed after 1995. This means that as soon as a tenant moves out of exempted property, the landlord may raise the price to current market value; these exemptions were intended to promote small property owners to continue renting out their properties without losing potential profit that supplemented their income. However, opponents to Costa-Hawkins have stated that this has caused an artificial inflation of rent prices. The claim is that small landlords are not in fact the majority; rather, the exempted properties are being bought up by large corporations that continuously raise the prices for higher profit margins.
The Sacramento region felt major impacts stemming from the housing crisis. From 2016-2017, there was roughly a 10% increase in rent costs and it is estimated that this year will end in another 10% increase from 2017. Due to the pressure of the housing crisis at hand, Sacramento has been considering implementing various rent regulations as a tactic to combat the rising rental prices. Mayor Steinberg is considering several options, such as requiring landlords to give increased notice when they are raising the rent above a certain percentage and raising the local sales tax to fund more affordable housing and infrastructure.
However, these rent regulations do not fully model the rent control ordinances that cities like San Francisco and Los Angeles have. Rent control, when not barred by Costa-Hawkins, restricts landlords from raising prices on current and incoming tenants. Typically, these ordinances include a cap of raising rent 1-5% per year and have built in tenant rights, such as preventing eviction except under certain circumstances like failure to pay rent. The current initiative buzzing around Sacramento would be a rent cap of 5% and tenant “just cause” protections, which limit the landlord’s abilities to evict tenants.
Despite the theory behind rent control regulations, when implemented the policies actually stifle the market and scare the owners of single-family rentals away. Mayor Steinberg, homeowners, and developers believe that the real solution to the housing crisis Sacramento is facing is to build more infrastructure and housing to support the growing population. This is nothing more than a simple supply and demand solution: a larger supple will have the effect of reducing competitive demand. It will open up the market to more opportunities for home ownership and bring competitive balance to the rental market. California is currently the worst state in terms of housing; currently, 3.4 million units need to be built in the state to keep up with the current population demand.
Economists across all political spectrums agree that rent control regulations may help in the short term but the damage caused by these regulations in the long run far outweigh any menial decrease in rent that would occur. For example, the two most expensive rental areas in the state, the Bay Area and Los Angeles region, also happen to house every city that has enacted rent control policies and economists agree that this is not a coincidence.
The attorneys of BPE Law Group, PC. have been advising our clients on real estate, business and estate planning issues for over 20 years and have assisted numerous clients in business and real estate matters and have represented clients in hundreds of matters involving residential leasing. If you have questions concerning legal matters, give us a call at (916) 966-2260 or e-mail Keith at firstname.lastname@example.org. Our flat fee consult for new clients may get you the answers you need for the questions you have.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.