Coming to a Property Near You
If you are not familiar with Assembly Bill 1482 (AB 1482), there is no time like the present to get up to speed. Because if things progress as we expect, the California legislature will pass it this November and you may feel the pain.
What is AB 1482?
The bill would make it illegal for landlords and property owners to raise rents more than 7 percent, plus the Consumer Price Index, in one year. In other words, it is rent control. For over 40 years, the city of LA has had a rent control law in place. AB 1482 would increase the number of properties impacted by this law. One caveat is that AB 1482 covers units built in LA between 1978 and 2009. These units are not rent-controlled. This does not apply, however, to properties built in the past decade. Homes built in the past 10 years would be exempt and the law would expire in 2023. Another exception are landlords who own 10 or fewer single-family detached homes.
What is Driving This Bill?
We all know that California has a major housing shortage. A 2016 McKinsey Global Institute Report ranks California 49th out of all 50 States for per capita housing construction. California’s housing market has been under built for years, which is one of the reasons rents are so high. 2018 California Department of Housing and Community Development Report states production averaged less than 80,000 new homes each year over the last 10 years, and current production remains to fall far below the projected need of 180,000 new homes annually.
Supporters for the bill believe rent control will protect tenants from eviction because of their failure to pay rent hikes driven by demand for housing. The bill would also require landlords to dismiss a lease with just cause such as failure to pay rent. At the same time, they believe that owners will still be able to make a fair profit.
Others, like us at Beach Front, disagree. We believe that rent controls can directly impact supply. Owners may take units out of stock due to their inability to make a reasonable return on their investment, or they lack the capital to renovate older buildings. This could also decrease the property values of units that have not kept up with market rates.
Thinly capitalized or highly leveraged properties could lead to foreclosure, further limiting supply. Another issue is apartments that turn over because owners will not be able to raise rent beyond the specified threshold.
Prepare Now for Rent Control
A Ratio Utility Billing System, or RUBS, is a system that enables property owners to proportionately share utility costs in a fair and reasonable manner with the people who use those services—the residents. This is relevant because rent control does not limit utility price increases. This means that property owners would have to absorb these costs without offsetting them by raising rents.