The Ripple Effect of California’s Rent Control Laws

New regulations could have unintended consequences for both the largest state and the entire country, contends Mark Ventre of Stepp Commercial.

Earlier this month, California Governor Gavin Newsom signed legislation that will limit the amount of annual rent increases a landlord may charge residents living in apartment buildings throughout the state. The new cap of 5 percent plus inflation (CPI) will take effect on Jan. 1, 2020, and will impact all buildings that are 15 years and older. Its rolling mechanism will cause a new batch of buildings to fall under rent control each subsequent year. The good news is that the 5 percent + CPI is still a fairly aggressive increase, considering the average yearly rent growth in a mature market like Los Angeles is less than 2 percent.

The law will offer renters the ability to budget accordingly with predictable maximum allowable increases. Just as important, it will offer renters solace. Unless they are in breach of the lease, they will not be forced to leave, since landlords will now be required to show just cause to evict.

While this may seem like a big win for renters, one of the unintended consequences will be the almost certain yearly rent increase. Previously, landlords would have the option of not raising rents knowing that he or she is free to raise the rent in the future to whatever the market may bear at that time.