Rent Control Across the Country

A Point in Time Assessment of States’ Rent Control Laws and How It Might Impact California

Stories of rent being increased tenfold are becoming the traditional narrative, even though rental owners know these
stories are the exception to the rule.”

Every day a new article seems to be published detailing the extreme challenges for Californians in this current housing climate.

Stories of rent being increased tenfold are becoming the traditional narrative, even though rental owners know these stories are the exception to the rule. Unfortunately, as we always say, narratives matter and tenant advocacy groups have done a tremendous job inciting their base and organizing support. The result has been over 200 bills introduced by California legislators, but other states are also dealing with these issues, and California legislators are watching closely.1 Why?

Because states model states. Legislators will feel emboldened as other state legislatures continue to make substantial reformations to their own housing policies. With a few months left in the first year of a two-year legislative session, amendments are being discussed daily and the efforts of other states illuminates what is coming next for Californians. To truly understand, we should look at how New York and Oregon are tackling the issues in their respective states.

A City in Chaos

In 1974, facing a housing crisis the New York state legislature implemented an emergency housing rent control law that continues to be in effect to this day.2

Amended a few times over the years, the law was set to expire this year. Obviously, the law was never going to actually sunset. Anything that starts as an emergency and lasts over four decades is just pretending to be temporary, and no one is fooled. So, when the time came to renew the provisions, housing advocates utilized the opportunity to make the provisions far more punitive on rental owners. Legitimate exemptions relating to vacancy decontrol were completely removed, and the ability for rental owners to raise rent has become near impossible.3 The new provisions are comprehensive; and, at a minimum, substantially limit the ability to raise rents beyond 7.5 percent while removing any income requirements. They are also punitive, turning illegal evictions into misdemeanors punishable by up to 10K per violation.4

The “Housing Stability and Tenant Protection Act of 2019” makes the 1974 policy permanent while also substantially limiting the ability for a rental owner to ever raise the rent. New York will no longer permit a rent increase above 7.5 percent or average of last five years, whichever is lower. This number does not include allowances for inflation and increases could be below 7.5 percent if the rental board has only been allowing two percent increases every year (common in New York). Furthermore, the bill limits local rent control boards from approving any vacancy bonuses or maintenance pass-throughs that are not in compliance with the state’s requirements. Those pass-through requirements only allow a two percent rent increase for all major capital improvements, and it expires after set amount of time.5 The new law eliminates vacancy decontrol and severely limits personal use exceptions. For example, one of the more egregious provisions is removing the vacancy decontrol exception for high earners (consecutive years earning over 200K).6 Previously, rent caps could be removed for tenants making 200K or more for consecutive years in order to prevent wealthy tenants from abusing the affordable housing provisions. Now, high-earning tenants can abuse the system at the detriment of property owners and low- and middle-class tenants.7

As groups like the Stanford Business School have suggested that rent control can lead to gentrification, it will be interesting to see how many advocates respond to high-earning tenants getting another opportunity to consolidate their wealth.8 The bill also removes vacancy decontrol provisions that allowed owners an automatic 20 percent rental increase bonus when the tenant moves out. Regarding personal use exceptions, it is common in California to allow a rental owner to evict a tenant so the owner or a family member can occupy the property. In New York, the law will require property owners to show the unit will become the owner’s primary residence and also requires the owner demonstrate a “compelling and necessary reason.”9 It is unknown how one would define property rights when owning appears to be no longer relevant.

The new provisions also create a plethora of ways for tenants to stall or delay being evicted. Before an eviction occurs, the owner is mandated to provide a 14-day notice demanding the rent (on top of additional notices already required to be provided to the tenant). Once the eviction proceeding begins, the judge may provide the tenant with a one-year stay on eviction if the tenant cannot find similar rent in the same area or would face hardships. How a low income tenant is to find affordable housing when tenants making over $200,000 a year have equal access is unknown, and New York state legislative staff did not address this point during their analysis of the bill.10 The judge’s discretion has received ample news coverage, as many in and out of New York are concerned about how this will be implemented.11 Aside from the judicial empowerment, the tenant is permitted an automatic 14-day adjournment of the eviction to help them find a new home. The tenant can also cure all of this by paying the undue amount on the day of the hearing; forcing rental owners to pay legal fees for what amounts to a delay in paying rent. Finally, the eviction warrant must also come with a 14-day notice (even though the court proceedings and all eviction efforts prior would have appeared to create ample notice to the tenants).

The Band-Aid State

Last year, Oregon passed a first-in-nation rent control law that applied across the state. Part of that law prohibited rental unit increases of 10.3 percent plus CPI. For context, in California, legislators are considering 7.5 percent + CPI with a hard cap at 10 percent (see AB 1482).12 In other words, California is proposing an even more stringent cap than Oregon. Unfortunately, Oregon is already beginning to feel the squeeze. A report by a local news group in Oregon noted that owners are only allowed to raise rent once a year, preventing them from a phased-in approach that would benefit the ten ants.13

Instead of addressing the need for less regulations, the state decided to add another band aid to the problem. Specifically, “…overhauling local zoning codes to allow for the production of less expensive housing options like duplexes, triplexes and townhomes. The measure lifts local bans on these denser housing options, paving the way for possible future development.”14 The bill will be law, as the Governor has been supportive of affordable housing and faces pressure from groups that helped her get elected. Known as House Bill 2001, the legislation eliminates single-family zoning in large Oregon cities.15 As some have noted, “the bulk of the provisions wouldn’t take effect until 2020, with the extra time intended to allow city planners to revise their zoning code.”16

HB 2001 would require cities with 25,000 or more residents to permit the development of all middle housing types and adds townhomes to the definition of middle housing. Previously, townhomes were excluded from Oregon’s definition due to the difference in how property for townhomes are shared. The states take a more nuisance approach for smaller cities. Specifically, cities with 10,000 or less are still provided the authority to deny permits for duplexes and above. This may seem like a minimal change, but this would be akin to California telling the City of Long Beach they could no longer deny requests for multi-family units, regardless of the specific justifications for said denial. While all cities in Oregon currently permit these types of homes, the underlying implication is that local governments are no longer about to create single family zoned areas.17 The increase in production could be good for the housing stock, but the market value of single-family homes in these impacted areas are likely to drop significantly.

The response by local governments has been mixed with most not pleased with the new ordinance laws. Lisa Batey, Milwaukie City Councilmember, noted, “The state can’t know what your local infrastructure issues are… One city might have parking and infrastructure issues and one might not. Those things are not solved in the two year time line they give you to implement this law.”18 Other local government officials have expressed appreciation for the allowance and cap of low rise dwellings to no more than four units.19 The mix in responses validates Ms. Batey’s assessment that housing is a regional issue and a one-size fits all is nonsensical.

Snapshots in the Moment In a state lauded for being too liberal, California is at least taking a more measured approach to the process. As noted above, 200 housing bills were introduced this cycle yet many have already been shelved or removed from discussion.20 Even bills that appeared to have the votes to make it to the Governor, such as Senate Bill 50 (Senator Weiner), have been turned into two-year bills to allow for more discussion. SB 50 would have taken some of the local planning authority from cities and counties in an effort to increase multi-family housing development. The bill raised too many concerns from both sides; environmentalists were concerned about the streamlining of CEQA requirements and developers realized a 10-story home in a previously single-family zone would destroy the market value for property owners.21 The end result of the bill stalling in Senate Appropriations is that the remaining bills (about two dozen), no matter how controversial, are being seen as the only chance for resolution.

The likely outcome for California is about a dozen bills that take incremental steps and maybe one or two very comprehensive bills. AB 1482 by Assembly Member David Chiu is one of the most likely bills to cross the finishing line given the amount of work that has gone into the bill’s components. Legislators who voted in support of the hard rental increase of cap of 10 percent felt the bill was preventing gouging, noting that average rental increases are typically two to five percent. Even without the allowance of capital improvements or owner protections on problematic tenants, legislators felt the bill was a reasonable compromise to the solution; had the bill not been amended in the Senate it likely would be law by the end of August. The problem for housing advocates is that they may have bitten off more than they can chew; recent amendments now include just cause protections and relocation assistance for qualified tenants (basically the language of AB 1481).22 Assembly Members supported AB 1482 but never voted on AB 1481, a classic implication that the just cause bill would have died on the Assembly Floor. By Chiu taking a “failed bill” and putting it into his housing vehicle, some Assembly Members will take it as a slap in the face. Whether that aggressive approach will cost housing advocates their “reason able” package remains to be seen.

Reading the Tea Leaves The old adage “When people are free to do as they please, they usually imitate each other” is especially true for the crafting of legislation. A typical housing bill can take months, if not years, for the elements to be debated and vetted; justifying why many state legislatures choose to copy language from another state. Reinventing the wheel makes no sense when other states have already researched the issue and helped identify the political challenges the bill is likely to face during the process.

Which is why the outcomes in New York and Oregon are instructive to those watching California. Media is no longer central to one’s state and knowing that national sentiment is in favor of a certain housing solution weighs heavily on California legislators. New York’s law is infinitely more restrictive than California’s proposed solutions, but that merely means California legislators will feel emboldened to push their compromise. For many advocates and stake holders, the thought is “if New York can abolish vacancy decontrol completely, then surely California can place a statewide rent cap on all multi-family properties.” This is likely why Assembly Member Chiu chose to add the language from AB 1481; believing that this bill compared to the solution approved by other states is still a shot across the bow and not the direct attack on rental owners. He may be right, but it will be up to rental owners to demonstrate why the housing situation in California is unique to this state. Based on the efforts of the Governor, it’s a hill rental owners may need to be prepared to die on.

1 https://sf.curbed.com/2019/6/25/18677757/housing-crisis-california-bills-legislatation-may-massacre-wiener
2 https://www.nytimes.com/2019/06/12/nyregion/rentregulation-laws-new-york.html
3 https://www.nysenate.gov/legislation/bills/2017/a8281
4 NY column by Azi Pavbarah on June 17 “6 ways rent laws will affect New Yorkers”
5 Id.
6 https://ny.curbed.com/2019/6/12/18661872/nyc-rentstabilization-reform-legislation-universal-rent-control
7 Id. New York bill Page 2
8 https://www.gsb.stanford.edu/insights/rent-controlswinners-losers
9 Id. NY Bill
10 https://www.nysenate.gov/legislation/bills/2017/a8281
Legislative Analysis
11 https://www.bloomberg.com/news/articles/2019-06-12/nyc-tenants-get-a-rent-law-blessing-that-landlords-see-as-curse
12 AB 1482 legislative citation
13 https://kval.com/news/local/rising-costs-felt-by-renters-inoregon-following-passed-rent-control-bill
14 https://www.cbsnews.com/news/oregon-senate-stalledagain-after-democrats-try-to-ban-republican-who-threatened-police/
15 https://www.oregonlive.com/politics/2019/06/bill-to-eliminate-single-family-zoning-in-oregon-neighborhoods-passes-final-legislative-hurdle.html
16 Id. Oregon bill
17 Id.
18 https://www.statesmanjournal.com/story/news/2019/06/12/advocates-lawmakers-push-affordable-housingbills-oregon-legislature-ending/1431359001/
19 ID. HB 2001 bill
20 Id. Curbed article on 200 bills
21 Sen Governance and Finance Analysis
22 Id. AB 1482 legislation

 

 

Ron can be reached at ron@calstrategic.com