31
May

Is Rent Control Going to Get a Whole Lot Worse For Landlords?

Activists are trying to repeal the Costa Hawkins Act

You may have heard about the efforts to repeal the Costa Hawkins Rental Housing Act enacted in 1995. The Costa Hawkins act limits rent control ordinances that cities or counties can place on rental properties. The act prohibits rent control on Single Family Homes, condos, and newly constructed apartment units. It also prohibits vacancy control, which means a landlord could not raise rents to market value even when a tenant vacates a unit and a new tenant moves in. Under the Costa Hawkins Act a landlord is allowed to raise the rent to market value for a new tenant.

Could you imagine not being able to raise your rents to market rates if a tenant voluntarily moved out of your unit? Especially if the tenant was paying below market? That’s one of the possible scenarios if the Costa Hawkins Act is repealed.

Tenant rights groups and other activist’s types do not like the Costa Hawkins Act. They want every residential property to be under rent control. They do not want landlords to be able to raise rents to market value if a tenant leaves. They want to restrict your rights as a rental property owner.

Some California lawmakers also do not like the Costa Hawkins Act. In 2017 Assemblyman David Chiu introduced Bill AB 1506 that would repeal the Costa Hawkins Act. The bill failed in committee and the Costa Hawkins Act remained the law of the land.

However, in October 2017 new tenant groups started a ballot initiative to real the Costa Hawkins Act. It is called the California Local Rent Control Initiative 2018 (#17-0041). It would allow local governments to adopt ordinances or regulations on how much landlords could charge for rent. It would also repeal the Costa Hawkins Act.

If the Act is repealed, keep in mind that local cities or municipalities are free to decide how they want to structure their own rent control ordinances. Cities like Los Angeles, West Hollywood, or Santa Monica may decide to keep their current rent control laws as-is and not make any changes. Or they may decide that a single house or newly constructed apartments may be subject to rent control. Or worse case scenario, they would restrict the right of a landlord to raise rents to market rates even if a tenant moves voluntarily. Who knows what they will do but I think they will be under pressure to make their rent control laws more tenant friendly and that is not a good thing for apartment owners.

From my research it appears that several groups are pushing the initiative: The Aids Healthcare Foundation, The Alliance of Californians for Community Empowerment (ACCE) Action, and the Coalition for Affordable Housing who according to Ballotpedia is the ballot measure committee for the initiative. The attorneys who submitted the request for preparation and summary are Fred Woocher and Beverly Grossman of Strumwasser & Woocher LLP a Los Angeles Law firm.

The support committee reported more than 565,000 signatures were submitted in April 2018 to the state. It appears that they will have the needed 365,000 valid signatures to make it on the November 2018 ballot. According to Ballotpedia as of May 27 2018, the initiative has not yet been certified for the ballot but they are still in the process of verifying the signatures.

Whatever happens, this issue is not going to go away. If they fail this time you can be sure the initiative will be on the ballot in 2020. Rent control, skyrocketing rents, the difficulty of building new apartments, tenant rights activists, liberal politicos, immigration, AirBnB, and other factors all contribute to tensions between renters and landlords. And don’t forget politicians know that there are more renters than landlords so politicians go where the votes are. LA Mayor Eric Garcetti is on record saying he “would absolutely consider applying rent control to new housing should the repeal measure pass” (LA Times).

And for those landlords in non rent control cities, tenants rights groups are gunning for your buildings too. There are several tenant groups pushing to put rent control on the ballot in cities like Glendale, Pasadena, Long Beach, and Inglewood.

Groups that oppose the repeal of The Costa Hawkins Bill include the California Apartment Association, Apartment Owner’s Association of California, and of course every rental property owner in California. I know renters think that we apartment owners are just swimming in money but they forget that repairs, maintenance, taxes, mold lawsuits, evictions, attorney fees, and much more are but some of the things that landlords have to pay for. It’s not all sunshine and lollipops folks!

What should rental property owners do now in anticipation of the repeal of the Costa Hawkins Act? Well if you are in a rent control city, make sure you legally raise rents every year. Don’t get stuck in the mindset that you do not want to raise your rents because you have good tenants and don’t want to rock the boat. If you have a tenant that is not paying or is breaking the lease, consult an attorney and remove the tenant if you have the legal right to do so. If you own a building with several tenants at way below market, you are vulnerable if the Act is repealed because the city may decide to not let you re-rent a unit at market value if they leave. This could affect the market value of the building. I also think that the repeal of the Act could affect overall property values because buyers are not going to want to be stuck with low paying tenants if the rents can not be raised to market if they leave.

If you have questions about the repeal of the Costa Hawkins act and how it might impact you personally, feel free to give me a call at (310)308-3174 or send me an email at derrick.ruiz@eXpRealty.com about your situation. I am sure I will have some great advice for you. Thank you.

Some web links for you that I referenced in the blog post.

Copy of the Repeal Initiative – https://bit.ly/2kFa2Yl

The Aids Healthcare Foundation – www.aidshealth.org

Alliance of Californians for Community Empowerment www.acceaction.org

The Coalition for Affordable Housing – www.affordablehousingact.org

Strumwasser & Woocher LLP – www.strumwooch.com

Ballotpedia – www.ballotpedia.org

Apartment Owner’s Association of California – https://www.aoausa.com/

California Apartment Association – https://caanet.org/

https://stoptheaffordablehousingfreeze.org/