Stricter Rent Control Laws This November?

Come this November politicians won’t be the only nervous ones. California landlords will also be ballot watching here in the Golden State. Specifically, property owners will be watching the results of Proposition 10.

So what does Prop 10 entail?

A yes vote for Prop 10 supports allowing local governments to adopt rent control, repealing the Costa-Hawkins Rental Housing Act.

That strengthening of rent control could have a major impact in many cities across the state. According to the Department of Consumer Affairs, at least 15 California cities currently have some sort of rent control including Berkeley, Campbell, East Palo Alto, Fremont, Hayward, Los Gatos, Oakland, San Francisco and San Jose.

Any investor or property owner who owns properties in these cities or anywhere else in California may be affected by the new law in terms of how much rent they can collect and how much they can increase it.

Property owners here in the Bay Area with cities that already have rent control may ask what the importance is. This new proposition would allow local governments to revamp their own rent control laws. For example, in San Francisco single-family homes, condos and homes built after June 13, 1979 currently fall outside of rent control laws. However if this new proposition passes those properties could be subject to rent control under the new law.

The Costa-Hawkins Rental Housing Act is a state statute that limits the use of rent control in California. Costa-Hawkins provides that:

·       Cities cannot enact rent control on housing first occupied after February 1, 1995, and housing units where the title is separate from connected units (such as free-standing houses, condominiums, and townhouses).

·       Housing exempted from a local rent control ordinance before February 1, 1995, must remain exempt.

·       Landlords have a right to increase rent prices to market rates when a tenant moves out (a policy known as vacancy decontrol).

Prior to the enactment of Costa-Hawkins, local governments were permitted to enact rent control, provided that landlords would receive just and reasonable returns on their rental properties.

If this law passes it will certainly affect the value of all rental properties some more than others. Rental property owners might consider their options sooner than later. Perhaps it would be wise to sell or do a 1031 exchange into a commercial property? (The new law affects residential property). Or maybe the proposition might not pass. Either way, it’s wise to keep up to date about options and updates in the ever-changing real estate market.