The start of 2020 has undoubtably set the stage for dynamic changes in the real estate market, specifically in the greater Los Angeles area. One of the biggest changes will come from Assembly Bill 1482, which Governor Gavin Newsom signed late 2019 and has taken effect January 1st 2020. California is the third state to adopt a statewide rent control legislation of this kind, right behind New York and Oregon.
Distilled down, the bill will allow California to begin regulating how much rent can increase within the state, capping it at five percent (in addition to the local rate of inflation). It also implements “just cause” eviction rules created to combat rent gouging and landlords who force tenants to vacate in order to raise the rent on a unit. Unless voted to extend, the measure will be in effect for the next twenty years.
With a rising housing crisis in California and pressure on government to take action, this bill has left tenants and owners across the board asking how exactly the new bill will affect them and changes they can anticipate. The overall consensus is that Assembly Bill 1482 will protect tenants from having to endure extreme rent increases in what is already a high-priced market and prevent rent gouging by landlords.
That being said, the lengthy bill comes with a whole host of additional rules and details that both landlords and tenants should be mindful off. Primarily, under AB 1482, landlords must limit annual rent increase on apartment buildings that are 15 years or older to no more than five percent, plus local inflation (CPI), as previously stated. This 15-year period is a rolling period – so for example buildings built in 2006 won’t be covered until 2021, and so on. Keeping in mind that inflation is typically between 1.5 percent and 3.5 percent, the overall inflation rate never exceed 10 percent. In the case of landlords who attempted to increase rent prior to the January 1st date, the law will stand retroactive to March 15, 2019, offering further protections to tenants from any last-minute hikes.
When it comes to the topic of tenant relocation, landlords will now be required to pay a relocation assistance fee to tenants evicted from regulated units. This applies both to conversions or renovations of units. Of course, if tenants meet the “just cause” criteria, including a breach of a lease or failure to pay rent, the rules will not apply in these certain cases.
The bill does preclude some properties, however; condominiums and single-family homes are exempt from the bill, unless they are owned by a corporation or real estate investment trust. Additional exemptions include duplexes where the owner lives in one of the units.
In regard to communities in the greater Los Angeles area that already have rent control laws in effect, AB 1482 will not override existing laws. It will however apply to properties not already covered by local regulations. Los Angeles County communities that have local rent control laws include Santa Monica, West Hollywood, Beverly Hills, Culver City, Inglewood, the City of Los Angeles, and unincorporated neighborhoods of Los Angeles.
It is worth noting that on the other side, economist and other policy experts have criticized rent control for reducing supply and quality of rental housing in the long-run. Many argue that landlords will convert apartments to into condo units, which are exempt as noted above. Additionally, more owners are considering selling their properties now that these mandatory caps have been placed on their revenue sources. Critics say that this is not a long-term solution and certainly not the one to solve the housing crisis in the greater Los Angeles area. Additionally, it de-incentives landlords to make the updates and repairs at the same rate they would in a more competitive market, leaving them more likely to do the minimum adjustments for tenants due to less financial motivation. While many landlords are already complaining about the bill, there is a sense that there will be more supply in 2020 due to the new regulations.
As we move in to 2020 many apartment building owners will start to realize the effect of AB1482. Lenders and experience brokers will make some adjustment in underwriting apartment buildings especially for those buildings which were considered “no rent control” just a couple of weeks ago.
Cody Cannon (Managing Director, Greater Los Angeles Region), James Malone (Senior Managing Director, Greater Los Angeles Region) and Caitlin Matteson (Research Director) are with Colliers International.Learn more at colliers.com.
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