CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1482

Author:(Chiu, et al.)

As Amended Ver:September 5, 2019

Majority vote

SUMMARY:

This bill limits rent-gouging in California by placing an upper limit on annual rent increases: 5% plus inflation. To prevent landlords from engaging in rent-gouging by evicting tenants, this bill also requires that a landlord have and state a just cause, as specified, in order to evict tenants who have occupied the premises for a year. Both the rent cap and the just cause provisions are subject to exemptions including, among others: housing built in the past 15 years, single family residences unless owned by a real estate trust or a corporation. This bill sunsets after ten years and does not preempt any local rent control or just cause ordinances.

The Senate Amendments:

1. Incorporate provisions requiring property owners to have a just cause to evict a tenant, as follows:
   1. Specify that these provisions are effective after 12 months of tenancy, or up to 24 months in a circumstance where there is a change in the adult tenant;
   2. Specify the specific kind of causes that are grounds for eviction, including "no-fault" and "at-fault" evictions;
   3. Require one month's rent relocation payment or rent waiver in the case of a no-fault just cause eviction, such as owner move-in or capital improvements;
   4. Specify that these provisions do not supersede any local just cause ordinance enacted before September 1, 2019; and,
   5. Specify that these provisions expire after 10 years.
2. Specify the units which are exempted from the rent cap and just cause provisions of this bill, including:
   1. All single family homes not owned by a corporation or real estate investment trust;
   2. All duplexes in which the owner occupies one of the units; and,
   3. All units for 15 years after receiving their first certificate of occupancy.

COMMENTS:

By many estimations, California is in a housing crisis. Over half of California's 17 million renters, including 80% of low-income renters, are rent-burdened, meaning they pay over 30% of their income towards rent. This leaves less money for families to spend on other necessities like food, healthcare, transportation, and education. Less than 20% of renters live in rent-controlled units, leaving the vast majority of renters with no certainty about the size of their next rent increase. This uncertainty creates tremendous psychological and economic burdens. With no way to know what the rent will be, renters cannot plan for their own housing stability. This increased stress can lead to negative mental and physical health outcomes for family members of all ages.

Additionally, only about a quarter of the states renters have protection against arbitrary evictions. That means, at the end of their lease, they could be evicted for any reason. In California's tight rental market, after an eviction it is often extremely difficult to relocate in the same city, or even the same region. This displacement has negative impacts on a family's employment opportunities, their children's education, and their social support structure.

Evictions and large rent increases are a major cause of our homelessness epidemic. Research by Zillow from 2018 found that some areas with a high percentage of rent-burdened households experienced a rapid increase in homelessness, and areas where high rents are combined with high poverty experienced triple the homelessness rate of the average community. A 2017 survey in Santa Cruz County, found that 14% of its homeless population cited eviction as a primary cause of their homelessness.

This bill will provide eight million Californians in nearly three million households price stability and certainty and protection against discriminatory and retaliatory evictions. This bill would do so by capping annual rent increases at 5% plus the change in the cost of living, as measured by the Consumer Price Index (CPI), and requiring that a landlord list a cause in their written notice to terminate a tenancy. These restrictions would not apply to units subject to existing rent control or just cause eviction protections, deed-restricted affordable housing, or dormitories. They would not apply to single-family homes, except those owned by the corporate landlords, or duplexes where owner lives in one of the units. Also, they would not apply to new construction for 15 years, in an effort to ensure that the rent cap would not discourage new construction.

A rent cap of CPI + 5% still enables a favorable return for a property owner compared to other business investments. Bureau of Labor Statistics data shows that CPI + 5% is, on average, 100% higher than the actual median annual rent increase in our state's largest regions. Over the last decade, an annual rent increase of CPI + 5% would have cumulatively increased rent four times faster than the actual regional median rent in California.

The bill strikes a reasonable balance for landlords in cases where they must evict a tenant. The provisions of the bill would not become operative until a tenant has occupied a rental unit for at least 12 months, and up to 24 months when there are changes in roommates, providing a landlord with ample time to evaluate their tenants. Landlords could still evict tenants for a number of reasons, including failure to pay rent, breach of the lease, and creating a nuisance. Landlords could also evict tenants for a number of reasons that are not the fault of the tenant, such as when the owner or their family intend to occupy the property, if they want to withdraw the property from the rental market, or if they intend to substantially remodel the property.

The bill protects existing just cause ordinances while allowing local governments in the future to adopt new ordinances that are more protective of tenants than this bill. This means that in a jurisdiction that has a just cause ordinance adopted prior to Sept. 1, 2019 that local ordinance and not this bill applies to units covered by the local ordinance. In addition, any jurisdiction may adopt a new just cause ordinance or amend an existing one provided that at a minimum it provides the same level of protection from eviction that this bill does. With new or amended ordinances, jurisdictions can go further than this bill by limiting causes, providing greater relocation assistance, or adding stronger tenant protections. However, they cannot enforce a new or amended ordinance that is weaker. In that case, this bill would apply.

This bill would sunset after ten years, helping lock this provision in place for a limited time and giving it a chance to protect tenants while new units are built to help relieve the overall pressure on rents.

According to the Author:

"AB 1482 provides eight million California renters with two critical tenant protections: a prohibition on exorbitant rent increases and protections against discriminatory and retaliatory evictions. It does so without diminishing property owners' ability to make a fair return on their investment or placing an undue burden on their ability to manage their property. Renters shouldn't have to choose between keeping a roof over their heads and feeding their families. AB 1482 takes the choice off the table and makes it easier for renters to stay in the communities they call home."

Arguments in Support:

According to the Silicon Valley Leadership Group, "The Leadership Group is deeply committed to advocating and supporting policies that reduce the rental burden on our region's workforce. We recognize the need for production of new, high quality homes, but also note that it is vital we protect residents now. AB 1482 would provide the necessary protections to ease the housing crisis and prevent displacement for the large portion of rent-burdened California tenants. In the past 10 years, the median rent has increased by more than a third, while the median income has remained flat, and has decreased for many low income Californians."

Arguments in Opposition:

According to the California Association of Realtors, "Recent amendments most noticeably reduce the rent cap from the agreed to 7% plus regional CPI to 5% plus regional CPI, and radically extend the agreed-upon sunset date from 3 to 10 years. Other amendments, which are mostly technical and clarifying in nature, do not C.A.R.'s concerns. AB 1482 will, among other things, impose onerous standards upon small property owners and, in turn, exacerbate the state's housing crisis."

FISCAL COMMENTS:

1. This measure would have varying impacts on state and local revenues, specifically property tax, sales tax, and income tax revenues, depending on the actions of landlords and renters.
2. Workload to the Legislative Analyst's Office (LAO) to study and report on the effectiveness of the rent increase limits imposed by this bill would displace existing workload for the office.

VOTES:

ASM HOUSING AND COMMUNITY DEVELOPMENT: 6-1-1

YES: Chiu, Gabriel, Gloria, Limón, Maienschein, Quirk-Silva

NO: Kiley

ABS, ABST OR NV: Diep

ASM APPROPRIATIONS: 12-4-2

YES: Gonzalez, Bloom, Bonta, Calderon, Carrillo, Chau, Eggman, Gabriel, Eduardo Garcia, Maienschein, Quirk, Robert Rivas

NO: Bigelow, Brough, Fong, Obernolte

ABS, ABST OR NV: Diep, Petrie-Norris

ASSEMBLY FLOOR: 43-31-6

YES: Aguiar-Curry, Arambula, Berman, Bloom, Bonta, Burke, Calderon, Carrillo, Chau, Chiu, Chu, Eggman, Friedman, Gabriel, Gipson, Gloria, Gonzalez, Grayson, Holden, Irwin, Jones‑Sawyer, Kalra, Kamlager-Dove, Levine, Limón, Maienschein, McCarty, Medina, Mullin, Muratsuchi, Nazarian, Quirk, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Santiago, Mark Stone, Ting, Weber, Wicks, Wood, Rendon

NO: Bigelow, Boerner Horvath, Brough, Cervantes, Chen, Choi, Cooper, Cunningham, Dahle, Daly, Flora, Fong, Frazier, Gallagher, Gray, Kiley, Lackey, Low, Mathis, Mayes, Melendez, Obernolte, Patterson, Petrie-Norris, Quirk-Silva, Ramos, Blanca Rubio, Salas, Smith, Voepel, Waldron

ABS, ABST OR NV: Bauer-Kahan, Cooley, Diep, Cristina Garcia, Eduardo Garcia, O'Donnell

SENATE FLOOR: 25-10-5

YES: Allen, Atkins, Beall, Bradford, Caballero, Dodd, Durazo, Glazer, Lena Gonzalez, Hertzberg, Hill, Hueso, Jackson, Leyva, McGuire, Mitchell, Monning, Pan, Portantino, Roth, Rubio, Skinner, Stern, Wieckowski, Wiener

NO: Bates, Borgeas, Chang, Dahle, Grove, Jones, Morrell, Nielsen, Stone, Wilk

ABS, ABST OR NV: Archuleta, Galgiani, Hurtado, Moorlach, Umberg

UPDATED:

VERSION: September 5, 2019

CONSULTANT: Steve Wertheim / H. & C.D. / (916) 319-2085 FN: 0002372

 THIRD READING  

Bill No: AB 1482

Author: Chiu (D), Bloom (D), Bonta (D), Grayson (D) and Wicks (D), et al.

Amended: 9/5/19 in Senate

Vote: 21

SENATE JUDICIARY COMMITTEE: 6-1, 7/9/19

AYES: Jackson, Durazo, Lena Gonzalez, Monning, Stern, Wieckowski

NOES: Jones

NO VOTE RECORDED: Borgeas, Umberg

SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/30/19

AYES: Portantino, Bradford, Durazo, Hill, Wieckowski

NOES: Bates, Jones

ASSEMBLY FLOOR: 43-31, 5/29/19 - See last page for vote

SUBJECT: Tenancy: rent caps

SOURCE: Alliance of Californians for Community Empowerment

California Rural Legal Assistance Foundation

PICO California

Public Advocates

Western Center on Law and Poverty

DIGEST:

This bill limits rent-gouging in California by placing an upper limit on annual rent increases: 5 percent plus inflation. To prevent landlords from engaging in rent-gouging by evicting tenants, this bill also requires that a landlord have and state a just cause, as specified, in order to evict tenants who have occupied the premises for a year. Both the rent cap and the just cause provisions are subject to exemptions including, among others: housing built in the past 15 years, single family residences unless owned by a real estate trust or a corporation. This bill sunsets after ten years and does not preempt any local rent control ordinances.

ANALYSIS:

Existing law:

1. Provides that upon the declaration of a state of emergency by the President of the United States or the Governor, or upon the declaration of a local emergency by the executive officer of any county, city, or city and county, and for a period of 30 days following that declaration, it is unlawful for a person, contractor, business, or other entity to sell or offer to sell specified goods and services, including housing, for a price of more than 10 percent above the price charged by that person for those goods or services immediately prior to the proclamation of emergency. (Pen. Code § 396(b).)
2. Allows landlords, in the absence of a local rent control ordinance or a fixed-term lease, to raise rents whenever they want and as much as they want subject only to the following advance notice requirements:
3. at least 30 days’ notice for rent increases of up to 10 percent, cumulatively, per year; or
4. at least 60 days’ notice for rent increases of 10 percent or more, cumulatively, per year. (Civ. Code § 827(b).)
5. Allows landlords, in the absence of a local eviction control ordinance or a fixed-term lease, to terminate a tenancy unilaterally without stating a reason, subject only to the following advance notice requirements:
6. at least 30 days’ notice for tenants who have occupied the premises for less than a year; or
7. at least 60 days’ notice for tenants who have occupied the premises for a year or more. (Civ. Code § 1946.1.)

This bill:

1. Prohibits specified landlords from raising rents on current tenants by more than five percent plus the percentage change in the regional consumer price index, as defined, up to an absolute maximum of 10 percent each year.
2. Applies to all rent increases occurring on or after March 15, 2019. Specifies that if a landlord has raised the rent beyond the permissible amount between March 15, 2019 and January 1, 2020, the rent on January 1, 2020 shall be the rent as of March 15, 2019 plus the maximum increase permissible under the bill.
3. Exempts the following types of rentals from the rent increase limitation:
4. deed-restricted affordable housing for persons and families of very low, low, or moderate income, as defined;
5. dormitories constructed and maintained in connection with any higher education institution within the state for use and occupancy by students in attendance at the institution;
6. housing subject to any form of rent or price control through a public entity’s valid exercise of its police power that restricts annual increases in the rental rate to an amount less than that provided in (1), above.
7. housing that has been issued a certificate of occupancy within the previous 15 years;
8. a duplex in which the owner occupies one of the units; and
9. residential real property that is alienable separate from the title to any other dwelling unit (primarily single-family residences and condominiums), provided that specified notice of the exemption is given to the tenants and the owner is not a:
   1. real estate investment trust;
   2. corporation; or
   3. limited liability company in which at least one member is a corporation.

1. Provides that, upon meeting specified criteria, the owner of deed-restricted affordable housing is not subject to the rent increase limitations contained in this bill for purposes of setting the initial, post-restriction rental rate.
2. Provides that, once a tenant has occupied residential real property for 12 months, the landlord shall not terminate the tenancy without just cause, which shall be stated in the written notice terminating the tenancy. Additional time may apply, as specified, if an additional adult occupant moves in.
3. Divides just cause into two categories: at-fault and no-fault.
4. Provides that the following are at-fault just causes for terminating a tenancy:
5. default in the payment of rent;
6. breach of a material term of the lease, as specified. If the violation is curable, the tenant must be given three days opportunity to cure the violation, after which a three day notice terminating the tenancy with no further opportunity to cure may be given;
7. maintaining, committing, or permitting the maintenance or commission of a nuisance, as defined;
8. committing waste, as defined;
9. refusal to execute a written extension or renewal of the lease for an additional term of similar duration with similar provisions;
10. criminal activity by the tenant on real property, including any common areas, or any criminal activity or threat, as defined, directed at any owner or agent of the owner of the premises;
11. assigning or subletting the premises in violation of the tenant’s lease;
12. refusal to allow the landlord to enter the dwelling pursuant to a lawful request;
13. using the premises for an unlawful purpose, as defined;
14. failure of a landlord’s employee, agent, or licensee to vacate after being fired; or
15. failure of the tenant to vacating after giving formal notice of intent to vacate.
16. Provides that the following are no-fault just causes for terminating a tenancy:
17. intent to occupy the residential real property by the owner or their spouse, children, grandchildren, parents, or grandparents, if the tenant agrees to the termination or the lease agreement allows for unilateral termination in such a scenario;
18. withdrawal of the residential property from the rental market;
19. the landlord’s compliance with a government order or local ordinance that requires vacating the residence; or
20. intent to demolish or to substantially remodel, as defined.
21. Requires a landlord who terminates the tenancy based on a no-fault cause to provide relocation assistance to the displaced tenant in an amount equal to one month’s rent, unless a court or government agency determines that the tenant caused the condition requiring the vacancy. The owner and tenant may also agree, in lieu of direct payment, to waive the payment of rent for the month after the notice of termination of tenancy is given. The relocation assistance is recoverable as damages in an eviction lawsuit if the tenant fails to vacate after expiration of the notice terminating the tenancy.
22. Exempts the following types of residential real properties or residential circumstances from the just cause requirement for terminating a tenancy:
23. transient and tourist hotel occupancy, as defined;
24. housing accommodations in a nonprofit hospital, religious facility, or extended care facility, as defined;
25. dormitories owned and operated by an institution of higher education or a kindergarten and grades 1 to 12, inclusive, school;
26. housing accommodations in which the tenant shares bathroom or kitchen facilities with the owner who maintains their principal residence at the residential real property;
27. single-family owner-occupied residences, including a residence in which the owner-occupant rents or leases two units or bedrooms, including, but not limited to, an accessory dwelling unit or a junior accessory dwelling unit;
28. a duplex in which the owner occupies one of the units;
29. housing that has been issued a certificate of occupancy within the previous 15 years;
30. residential real property that is alienable separate from the title to any other dwelling unit (primarily single-family residences and condominiums), provided that specified notice of the exemption is given to the tenants and the owner is not a:
    1. real estate investment trust;
    2. corporation; or
    3. limited liability company in which at least one member is a corporation.
31. Requires landlords to provide to notify tenants of the bill’s limitations on rent increases and its requirement of just cause for eviction, as specified.
32. Does not preempt any local laws limiting rent increases or the grounds on which a landlord may terminate a tenancy, except that any local just cause for eviction ordinance enacted after September 1, 2019 must be at least as protective, as defined, as this bill.
33. Directs the Legislative Analyst’s Office to report to the Legislature regarding the effectiveness of the bill on or before January 1, 2023, including the impact of the rental rate cap on the housing market within the state.
34. Sunsets on January 1, 2030.

Comments

Executive Summary

The phrase “price gouging” refers to businesses taking advantage of an emergency in order to charge prices well beyond what the market would ordinarily bear. Existing California law prohibits price gouging. During officially-declared states of emergency, it is a crime to increase prices on consumer goods by more than 10 percent. California is in the midst of a housing crisis. There are reports that some landlords are taking advantage of this crisis to engage in “rent-gouging,” dramatically increasing their tenants’ rent with the knowledge that, due to the present crisis, tenants are unlikely to have affordable alternatives. Dramatic rent increases like these can act as the final straw, pushing people into homelessness. This bill prohibits large landlords from engaging in rent-gouging. Specifically, while still permitting significant annual rent increases, the bill prevents landlords of covered properties from raising the rent more than 5 percent plus inflation each year, up to a hard cap of 10 percent. To ensure that landlords cannot engage in the prohibited rent-gouging by replacing current tenants with new tenants at rent-gouging rates, the bill also requires landlords to have and to state a just cause for any eviction. The bill would not apply to recent construction, would sunset after ten years, and would not preempt local rent control or just cause ordinances so long as such ordinances are at least as protective of tenants as the bill.

Rent increases in California: how it works now

California state law regarding rent increases is generally quite simple. In the absence of a long-term lease with a fixed rental rate or a local rent control ordinance, a landlord may raise the rent at any time and by any amount that the landlord chooses. The only limitation has to do with how much notice must be given. As long as the rent increase is, cumulatively, less than 10 percent in a single year, only 30 days’ notice is required. (Civ. Code § 827(b)(2).) For rent increases of more than 10 percent, the landlord must give 60 days’ notice. (Civ. Code § 827(b)(3).) A California tenant’s only remedy for dealing with a rent increase that is too large to afford, or that the tenant is unwilling to pay, is to try to move elsewhere.

Necessity of provisions requiring just cause for eviction

Unless the relationship is governed by a fixed-term rental agreement (usually a year-long lease), existing law in California permits landlords to evict tenants for any lawful cause or for no reason at all. Such a system is incompatible with any limitation on rent increases, because it creates an easy way for landlords to evade the cap. Simply by evicting the current tenants without cause, the landlord can replace them with new tenants. Whatever amount the landlord elects to charge the new tenants will be part of a new lease, not a rent increase, and therefore not subject to the rent increase limitation. For this reason, for any limitation on rent increases to be effective, it must be paired with eviction controls: provisions that prevent landlords from removing tenants in order to evade the limitation on rent increases.

This bill includes the necessary eviction controls to make its anti-rent gouging provisions work. Specifically, under the bill, a landlord would have to have, and would have to state, a legally-valid cause in order to evict a tenant.

Because there is sometimes confusion about what happens under a just cause for eviction requirement, it is important to clarify that just cause requirements do not inhibit a landlord from removing tenants who fail to pay the rent, who breach their leases, who cause disturbances, who damage the property, or who otherwise behave in inappropriate ways. Under a just cause for eviction requirement such as the one contained in this bill, a landlord may still evict such tenants in much the same fashion that they do under existing law. The principal difference is that, if a landlord intends to terminate the tenancy using a 30- or 60-day notice, the landlord must provide the tenant with a valid reason why. Having to state the reason for terminating the tenancy makes it more difficult for the landlord to simply kick out the current tenants in order to raise rents, because the landlord must justify terminating the tenancy with a just cause and, if the landlord’s reason is false or mere pretext, the tenant may be able to challenge it in court. So long as the landlord is not trying to game the system however, a just cause requirement should not ordinarily make it more difficult for a landlord to remove a bad tenant.

Arguments over impact of the bill on investments in housing supply

A common argument against limiting rent increases is that developers and property owners will be less willing to spend on constructing or upgrading housing if their potential return on investment is diminished. There is some variation, but most studies of the effects of rent control seem to bear this theory out.^[1] Some stakeholders have raised this point in opposition to this bill. According to this line of thinking, enacting limitations on rent increases is precisely the wrong response to California’s housing affordability crisis, because only a massive increase in supply can bring down prices in the long-run, and restrictions on rent increases will diminish the incentive to build. Proponents of rent control – that is, much stronger limitation on rent increases than that proposed by this bill – tend to downplay the impact on supply. In addition, proponents of limitations on rent increase point out that existing California law places no limitations on rent increases and yet the state still faces an extreme shortage in housing supply. Even if unrestricted rent increases help incentivize housing construction, these rent control enthusiasts argue, it takes years to bring new housing online. In the meantime, people are being displaced from their homes.

This bill cuts something of a middle ground on all of these issues. In response to the concern that the bill could otherwise discourage new housing development, the author has exempted new construction – buildings up to 15 years old – from the bill. In response to the argument that strict rent control could dissuade landlords from investing in maintenance and upgrades to their property, the bill steers clear of the sort of rent control model that cities like Oakland, Los Angeles, San Francisco, and Santa Monica have long had. The bill deploys, instead, something more accurately described as anti-rent gouging: a far more landlord-friendly model that permits significant rent annual rent increases but outlaws major rent spikes of over 10 percent. Finally, anticipating that promised expansions in housing supply will eventually come to fruition, the bill sunsets after ten years, providing short-term relief for tenants who are being hit hard right now, while allowing for the possibility that increased supply will eventually stabilize the market and thereby eliminate the need for any legal restrictions on rent increases.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

According to the Senate Appropriations Committee:

• This measure would have varying impacts on state and local revenues, specifically property tax, sales tax, and income tax revenues, depending on the actions of landlords and renters.
• Workload to the Legislative Analyst’s Office (LAO) to study and report on the effectiveness of the rent increase limits imposed by this bill would displace existing workload for the office.

SUPPORT: (Verified 9/6/19)

Alliance of Californians for Community Empowerment Action (co-source)

PICO California (co-source)

Public Advocates (co-source)

Western Center on Law and Poverty (co-source)

9to5 California, National Association of Working Women

Aapis for Civic Empowerment Education Fund

Abundant Housing Los Angeles

Alameda County Board of Supervisors

Alliance for Community Transit - Los Angeles

American Civil Liberties Union of California

American Federation of State, County and Municipal Employees, Local 3299

American G.I. Forum of California

American Legion, Department of California

Amvets, Department of California

Asian Americans Advancing Justice - California

Asian Pacific Environmental Network

Association of Bay Area Governments

Bay Area Legal Aid

Bay Area Regional Health Inequities Initiative

Bend the Arc: Jewish Action

Bricklayers & Allied Craftworkers

California Alliance for Retired Americans

California Business Roundtable

California Calls Action Fund

California Coalition for Rural Housing

California Community Builders

California Conference Board of the Amalgamated Transit Union

California Conference of Machinists

California Council for Affordable Housing

California Hispanic Chambers of Commerce

California Labor Federation, AFL-CIO

California Renters Legal Advocacy and Education Fund

California Rural Legal Assistance Foundation

California State Conference NAACP

California State Council of Laborers

California Teachers Association

California Teamsters Public Affairs Council

California YIMBY

Carpenters & Joiners of America

Central Coast Alliance United for a Sustainable Economy

Central Valley Empowerment Alliance

Chan Zuckerberg Initiative

Chico 350

City of Alameda

City of Berkeley

City of East Palo Alto

City of Santa Monica

City of West Hollywood

Climateplan

Coalition for Humane Immigrant Rights

Community Legal Services in East Palo Alto

Congregations Organized for Prophetic Engagement

Corporation for Supportive Housing

Courage Campaign

Disability Rights California

Drug Policy Alliance

Eah Housing

East Bay Community Law Center

East Bay for Every One

East Bay Housing Organizations

Eden Housing

Engineers and Scientists of California Local 20, IFTPE AFL-CIO & CLC

Enterprise Community Partners

Environmental Health Coalition

Eric Garcetti, Mayor, City of Los Angeles

Esperanza Community Housing Corp

Faith in Action Bay Area

Faith in the Valley

Gamaliel of California

Greenlining Institute

Hamilton Families

Heat & Frost Insulators & Allied Workers

House Sacramento

Housing California

Hunger Action Los Angeles

Indivisible: Hillcrest

Indivisible: San Francisco

Indivisible: San Diego Central

Inlandboatman's Union of the Pacific, Marine Division of the International

Inner City Law Center

International Brotherhood of Boilermakers

International Brotherhood of Electrical Workers

Iron Workers

Kiwa

Korean Resource Center

LA Forward

La Raza Community Resource Center

LA Voice

Latino Coalition for a Healthy California

Latinos United for a New America

Law Foundation of Silicon Valley

Leadership Counsel for Justice and Accountability

League of Women Voters of California

Legal Services for Prisoners with Children

Longshore & Warehouse Union

Los Angeles County Board of Supervisors

Los Angeles Homeless Services Authority

Mercy Housing

Metropolitan Transportation Commission

Midpen Housing Corporation

Mission Neighborhood Centers, INC.

Mission Neighborhood Health Center

Monterey County Board of Supervisors

Monument Impact

National Association of Social Workers, California Chapter

National Union of Healthcare Workers

Non-Profit Housing Association of Northern California

North Bay Organizing Project

Oakland Tenants Union

Operating Engineers

Operative Plasterers & Cement Masons

Orange County Civic Engagement Table

Orange County Congregation Community Organization

Painters & Allied Trades

Peace and Freedom Party of California

Planning and Conservation League

Policylink

Postmates

Power

Power California

Professional & Technical Engineers, Local 21, IFTPE, AFL-CIO

Public Counsel

Public Law Center

Related California

Roofers, Waterrproofers & Allied Workers

Sacramento Filipinx LGBTQIA

Sacred Heart Community Service

San Francisco Foundation

Santa Cruz Tenants Association

Santa Monica Rent Control Board

Service Employees International Union California

Sheet Metal Workers

Sierra Club

Silicon Valley Community Foundation

Silicon Valley Leadership Group

Somos Mayfair

Southern California Association of Nonprofit Housing

State Building & Construction Trades Council of California

State Building and Construction Trades Council

Strategic Actions for a Just Economy

Techequity Collaborative

Tenderloin Neighborhood Development Corporation

Thai Community Development Center

The Kennedy Commission

The Public Interest Law Project

The Two Hundred

Transform

Unite Here International Union, AFL-CIO

Unite Here, Local 19

United Association

United Auto Workers, Local 2865

United Food and Commercial Workers, Local 648 San Francisco

United Food and Commercial Workers, Western States Council

United Latinos Vote

United Teachers Los Angeles-Pace

University of California, Davis Bulosan Center for Filipino Studies

University of California Student Association

Utility Workers Union of America, Local 132

Venice Community Housing Corporation

Viet Vote San Diego

Working Partnerships USA

YIMBY Action

216 individuals

OPPOSITION: (Verified 9/6/19)

Aids Healthcare Foundation

California Association of Realtors

California Business Properties Association

California Chamber of Commerce

California Mortgage Bankers Association

California Rental Housing Association

City of Fullerton

City of Huntington Beach

Essex Property Trust

Long Beach Chamber of Commerce

National Association of Home Builders

National Rental Home Council

Orange County Business Council

Prometheus Real Estate Group

San Gabriel Valley Economic Partnership

Small Property Owners of San Francisco

Southern California Rental Housing Association

Southwest California Legislative Council

TMG Partners

5 individuals

ARGUMENTS IN SUPPORT: According to the author:

AB 1482 will protect nearly three million rental households in California by creating price stability and certainty, enabling renters and families to be better able to plan for their future by removing the risk of large and unexpected rent increases. […]

Renters shouldn’t have to choose between paying rent and keeping a roof over their heads or feeding their families. AB 1482 takes the choice off the table and makes it easier for renters to stay in their neighborhoods.

As sponsors of the bill, the Alliance of Californians for Community Empowerment Action, Public Advocates, and Western Center on Law & Poverty write:

As our state seeks to address the housing crisis, we must ensure the solutions include measures to protect renters from drastic rent increases which predictably displace families from their homes and drive them into homelessness.

ARGUMENTS IN OPPOSITION: The California Association of Realtors writes: “AB 1482 will, among other things, impose onerous standards upon small property owners and, in turn, exacerbate the state’s housing crisis.”

ASSEMBLY FLOOR: 43-31, 5/29/19

AYES: Aguiar-Curry, Arambula, Berman, Bloom, Bonta, Burke, Calderon, Carrillo, Chau, Chiu, Chu, Eggman, Friedman, Gabriel, Gipson, Gloria, Gonzalez, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Levine, Limón, Maienschein, McCarty, Medina, Mullin, Muratsuchi, Nazarian, Quirk, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Santiago, Mark Stone, Ting, Weber, Wicks, Wood, Rendon

NOES: Bigelow, Boerner Horvath, Brough, Cervantes, Chen, Choi, Cooper, Cunningham, Dahle, Daly, Flora, Fong, Frazier, Gallagher, Gray, Kiley, Lackey, Low, Mathis, Mayes, Melendez, Obernolte, Patterson, Petrie-Norris, Quirk-Silva, Ramos, Blanca Rubio, Salas, Smith, Voepel, Waldron

NO VOTE RECORDED: Bauer-Kahan, Cooley, Diep, Cristina Garcia, Eduardo Garcia, O'Donnell

Prepared by: Timothy Griffiths / JUD. / (916) 651-4113

9/9/19 18:08:06

**** END ****

1. See, Taylor, Letter to Attorney General Becerra Reviewing the Proposed Statutory Initiative

   Pertaining to Rent Control (Dec. 12, 2017) California Legislative Analyst’s Office https://sjud.senate.ca.gov/sites/sjud.senate.ca.gov/files/ctools/lao_-_fiscal-impact-estimate-report17-0041.pdf (as of Jun. 25, 2019). ↑

SENATE COMMITTEE ON

Senator Anthony Portantino, Chair

2019 - 2020 Regular Session

AB 1482 (Chiu) - Tenancy: rent caps

Bill Summary:

AB 1482, among other things, would require just cause, as defined, by residential landlords to terminate a lease in specified circumstances and would impose caps, with exceptions, on increases in residential property rent, as specified.

Fiscal Impact:

• This measure would have varying impacts on state and local revenues, specifically property tax, sales tax, and income tax revenues, depending on the actions of landlords and renters. (See Staff Comments.)
• Workload to the Legislative Analyst’s Office (LAO) to study and report on the effectiveness of the rent increase limits imposed by this bill would displace existing workload for the office.

Background:

A landlord in California may terminate a month-to-month or other periodic tenancy without cause on 30 days’ notice during the first year that the tenant resides in the dwelling or on 60 days’ notice after that. Local ordinances in some jurisdictions—Los Angeles, San Francisco, Berkeley, and Oakland, among others—instead require a landlord to have and state a cause for termination of a tenancy as a precondition for obtaining a judge’s order. Existing law prohibits a landlord from removing a tenant’s personal property, locking the tenant out, or using threats, violence, force, repeated visits to the property, or menacing conduct to influence a tenant to vacate or that interferes with the tenant’s quiet enjoyment of the premises and that would create an apprehension of harm in a reasonable person. Rather, a judge may order the eviction of a tenant when a landlord has shown it is more likely than not that the tenant remains in possession of the rented premises without the landlord’s permission:

• After the expiration of the lease term;
• More than three business days after service of a notice requiring payment of the past due rent, unless the tenant cures the default within the three days;
• More than three days after service of a notice indicating that the tenant has breached or failed to perform a covenant of the lease, unless the tenant cures the breach or performs the lease covenant within the three days; or
• After the tenant has:
  • Breached a covenant of the lease prohibiting subletting, assignment, or waste;
  • Committed or permitted a nuisance on the premises; or
  • Used the premises for an unlawful purpose.

With respect to restrictions on rent increases in California, according to the analysis of this bill by the Senate Committee on Judiciary:

California state law regarding rent increases is generally quite simple. In the absence of a long-term lease with a fixed rental rate or a local rent control ordinance, a landlord may raise the rent at any time and by any amount that the landlord chooses. The only limitation has to do with how much notice must be given. As long as the rent increase is, cumulatively, less than 10 percent in a single year, only 30 days’ notice is required. (Civ. Code § 827(b)(2).) For rent increases of more than 10 percent, the landlord must give 60 days’ notice. (Civ. Code § 827(b)(3).) A California tenant’s only remedy for dealing with a rent increase that is too large to afford, or that the tenant is unwilling to pay, is to try to move elsewhere.

On the local level, however, there are some jurisdictions—Los Angeles, San Francisco, and San Jose, among others—that have placed limits on how much landlords may increase residential housing rents from one year to the next. Generally, the courts have held that rent control laws are permissible so long as landlords receive a “fair rate of return.” (Fisher v. City of Berkeley (1984) 37 Cal.3d 644, aff’d (1986) 475 US 260.) The California Supreme Court has stated that “a rent control law that merely allows a landlord to recoup the bare cost of a necessary capital improvement runs the risk of being confiscatory and thereby violating the landlord’s right to due process of law.” (Kavanau v. Santa Monica Rent Control Bd. (1997) 16 Cal.4th 761, 773.)

Proposed Law:

This bill, with respect to the just-case provisions, would:

• Prohibit, with certain exceptions, an owner, as defined, of residential property from terminating the lease of a tenant who has occupied the property for at least 12 months without just cause, as defined.
• Specify two categories of “just cause” for the purpose of these provisions:
  • At-fault just cause, which includes default of the rent payment and assigning or subletting the premises in violation of the tenant’s lease.
  • No-fault just cause, which includes the intent to occupy the property by the owner or specified relatives of the owner and withdrawal of the property from the rental market.
• Require, for certain just-cause terminations that are curable, the owner give a notice of violation and an opportunity to cure the violation prior to issuing the notice of termination.
• Require, for no-fault just-cause terminations, as specified, the owner assist certain tenants to relocate, regardless of the tenant’s income, by providing a direct payment of one month’s rent to the tenant, as specified. If the owner does not provide relocation assistance, the notice of termination would be void.
• Except certain properties and circumstances from the application of its provisions.
• Require an owner of residential property to provide notice to a tenant of the tenant’s rights under these provisions at the beginning of the tenancy by providing an addendum to the lease that must be signed by the tenant when the lease is signed. The owner would be required to translate the notice into the language that was used to negotiate the lease, if applicable.
• Allow local rules or ordinances that provide a higher level of tenant protections, as specified.
• Void any waiver of the rights provided by the provisions.

With respect to the rent increase limit provisions, this bill would:

• Prohibit an owner of residential real property from increasing the rental rate for that property more than once annually.
• Prohibit the owner from increasing the rental rate in an amount that is more than the lower of either:
  • 7 percent plus the percentage change in the cost of living, as defined, or
  • 10 percent

The amount would be calculated based on the lowest rental rate charged for the immediately-preceding 12 months, subject to specified conditions.

• Exempt all of the following from these provisions:
  • Deed-restricted affordable housing.
  • Specified dormitories.
  • Housing that has been issued a certificate of occupancy within the previous 10 years.
  • Housing subject to a local ordinance that imposes a more restrictive rent increase cap than these provisions.
  • Specified single-family housing.
• Require the LAO to submit a report, by January 1, 2023, to the Legislature regarding the effectiveness of these provisions.
• Void any waiver of the rights provided by the provisions.
• Provide that these provisions apply to all rent increases occurring on or after March 15, 2019.
• Provide that in the event that an owner increased the rent by more than the amount specified above between March 15, 2019, and January 1, 2020, the applicable rent on January 1, 2020 shall be the rent as of March 15, 2019, plus the maximum permissible increase. The owner would not be liable to the tenant for any corresponding rent overpayment.
• Allow an owner of an assisted housing development, who demonstrates under penalty of perjury compliance with specified provisions related to the expiration of rental restrictions, to establish the initial unassisted rental rate for units without regard to the cap on rent increases imposed by this bill. The owner would be required to comply, however, with the rent cap provisions for subsequent rent increases in the development.

All provisions of the bill would sunset on January 1, 2023.

Related Legislation:

AB 36 (Bloom, 2019) would allow local jurisdictions to apply rent control to units more than 10 years old and/or single-family homes owned by a person who owns up to two units in the jurisdiction. AB 36 is pending referral in the Assembly Committee on Rules.

AB 1110 (Friedman, 2019) would extend the notice period required for a landlord to impose a large rent increase on a tenant in a periodic tenancy. AB 1110 is pending on the Senate floor.

AB 1481 (Bonta, 2019) would require a landlord to have and to state a just cause when terminating a tenancy and to pay relocation assistance for terminated leases. AB 1481 was ordered to the Assembly inactive file, but its contents were amended into this bill.

AB 1697 (Grayson, 2019) would prohibit evictions without just cause for tenants with at least 12 months occupancy and require relocation assistance for terminated leases. AB 1697 was ordered to the Assembly inactive file, but its contents were amended into this bill.

Staff Comments:

As stated in the author’s statement to the Senate Committee on Judiciary, “California is in a housing crisis.” Simply put, rent is high in the state, because there is not enough housing for the number of people who want to live here. A shortage in stock leads to competition for available units, which, in turn, leads to increases in rent. California has 17 million renters, but only about 20 percent of people live in jurisdictions with rent control. This measure would, in part, place an upper limit on the yearly increase of rent landlords may charge for much of the rental housing units across the entire state. A statewide cap in rent increases could lead to some landlords of housing units that would be subject to the cap to sell their units to individuals who would live in the units, thereby removing housing stock from the market. Additionally, it is likely that the value of rental housing would decline if potential purchasers who intend to continue to maintain the units for rental purposes would not want to pay as much for the properties given the potentially-lower revenue generated from the investment because of restrictions imposed by AB 1482. A decline in rental property values, over years, would lead to a decrease in property tax payments made by owners of those properties. Reductions in local property tax revenues, in turn, would increase General Fund Proposition 98 spending. (The exact amount would depend on the specific amount of the annual Proposition 98 guarantee, which depends upon a variety of economic, demographic, and budgetary factors.) Furthermore, this measure could result in some landlords receiving less rental income, which, in turn, would reduce their income tax payments to the state. Relatedly, however, if the cost to purchase rental properties decreases over time, there would be reduced expenses that landlords could claim on their income tax returns (such as mortgage interest, property taxes, and depreciation) that would lead to increases in state income tax revenue.

According to the author, over 50 percent of renters and 80 percent of low-income renters pay more than 30 percent of their income towards rent. As AB 1482 could lead to some renters moving less often (because of the just cause termination requirement and the rent increase cap) and paying less in increased rents (because of the rent increase cap), this bill could result in renters using more of their income to consume more taxable goods, leading to an increase in state and local sales tax revenue.

The provisions of this bill would sunset on January 1, 2023. The long-term effects on state and local revenues of imposing the just-cause termination and rent increase caps for three years is unclear. The sunset could be extended beyond the date proposed in the measure, but AB 1482 includes legislative intent language that the rent increase cap provisions are “intended to respond to the unique circumstances of the current housing crisis, and to only apply for a limited time.” (Proposed Civil Code, § 1947.12, subd. (j).)

Proposed Author Amendments:

The author has proposed amendments that, among other things, would define “substantially remodel;” require that relocation assistance provided pursuant to the bill be recoverable as damages in an action to recover possession if the tenant fails to vacate after the notice to terminate the tenancy expires; and exempt from the provisions of this bill (i) housing that has been issued a certificate of occupancy within the previous 15 years and (ii) residential real property that is not owned by (a) a real estate investment trust, as defined, (b) a corporation, or (c) a limited liability company in which at least one member is a corporation.

-- END --

SENATE JUDICIARY COMMITTEE

Senator Hannah-Beth Jackson, Chair

2019-2020 Regular Session

Bill No: AB 1482 (Author:Chiu)

Version: June 28, 2019

Hearing Date: July 9, 2019

Fiscal: Yes

Urgency: No

Consultant: TSG

SUBJECT

Tenancy: rent caps

DIGEST

This bill limits rent-gouging in California by placing an upper limit on annual rent increases: 7 percent plus inflation, up to a maximum of 10 percent, for specified housing that is over 10 years old. To prevent landlords from engaging in rent-gouging by evicting tenants, the bill also requires that a landlord have and state a just cause, as specified, for any eviction. Landlords with 10 or fewer rental properties are exempt. The bill sunsets after three years and does not preempt any local rent control ordinances.

EXECUTIVE SUMMARY

The phrase “price gouging” refers to businesses taking advantage of an emergency in order to charge prices well beyond what the market would ordinarily bear. Existing California law prohibits price gouging. During officially-declared states of emergency, it is a crime to increase prices on consumer goods by more than 10 percent. California is in the midst of a housing crisis. There are reports that some landlords are taking advantage of this crisis to engage in “rent-gouging,” dramatically increasing their tenants’ rent with the knowledge that, due to the present crisis, tenants are unlikely to have affordable alternatives. Dramatic rent increases like these can act as the final straw, pushing people into homelessness. This bill prohibits large landlords from engaging in rent-gouging. Specifically, while still permitting significant annual rent increases, the bill prevents landlords with more than 10 rental properties from raising the rent more than 7 percent plus inflation each year, up to a hard cap of 10 percent. To ensure that landlords could not engage in the prohibited rent-gouging by replacing current tenants with new tenants at rent-gouging rates, the bill also requires landlords to have and to state a just cause for any eviction. The bill would not apply to recent construction, would sunset after three years, and would not preempt local rent control ordinances.

The bill is sponsored by the Alliance of Californians for Community Empowerment, California Rural Legal Assistance Foundation, PICO California, Public Advocates, and Western Center on Law and Poverty. Support is from tenant advocates and anti-poverty organizations. Opposition comes from landlords, who contend that imposition of rent caps interferes with their property rights and will hinder resolution of the housing crisis by reducing the financial incentive to build rental housing.

PROPOSED CHANGES TO THE LAW

Existing state law:

1. Provides that upon the declaration of a state of emergency by the President of the United States or the Governor, or upon the declaration of a local emergency by the executive officer of any county, city, or city and county, and for a period of 30 days following that declaration, it is unlawful for a person, contractor, business, or other entity to sell or offer to sell specified goods and services, including housing, for a price of more than 10 percent above the price charged by that person for those goods or services immediately prior to the proclamation of emergency. (Pen. Code § 396(b).)
2. Allows landlords, in the absence of a local rent control ordinance or a fixed-term lease, to raise rents whenever they want and as much as they want subject only to the following advance notice requirements:
3. at least 30 days’ notice for rent increases of up to 10 percent, cumulatively, per year; or
4. at least 60 days’ notice for rent increases of 10 percent or more, cumulatively, per year. (Civ. Code § 827(b).)
5. Allows landlords, in the absence of a local eviction control ordinance or a fixed-term lease, to terminate a tenancy unilaterally without stating a reason, subject only to the following advance notice requirements:
6. at least 30 days’ notice for tenants who have occupied the premises for less than a year; or
7. at least 60 days’ notice for tenants who have occupied the premises for a year or more. (Civ. Code § 1946.1.)

This bill:

1. Prohibits specified landlords from raising rents on current tenants by more than seven percent plus the percentage change in the cost of living, as defined, up to an absolute maximum of 10 percent each year. Limits landlords to one rent increase per year.
2. Applies to all rent increases occurring on or after March 15, 2019.
3. Exempts the following types of rentals from the rent increase limitation:
4. deed-restricted affordable housing for persons and families of very low, low, or moderate income, as defined;
5. dormitories constructed and maintained in connection with any higher education institution within the state for use and occupancy by students in attendance at the institution;
6. housing subject to any form of rent or price control through a public entity’s valid exercise of its police power that restricts annual increases in the rental rate to an amount less than that provided in (1), above.
7. housing that has been issued a certificate of occupancy within the previous 10 years;
8. housing that is a detached single-family residential dwelling unit that meets both of the following requirements:
   1. the owner is a natural person who owns and leases no more than 10 units and does not lease any other residential property through any other entity; and
   2. the dwelling has a written lease that includes a provision certifying that the owner meets the provisions of (i), above, and notifying the tenant that the dwelling is not subject to the rent increase limitation in this bill.
9. Specifies that, upon expiration of an affordable housing deed restriction, a landlord is not subject to the rent increase limitations contained in this bill for purposes of setting the initial, post-restriction rental rate.
10. Provides that, once a tenant has occupied residential real property for 12 months or more, the landlord shall not terminate the lease without just cause, which shall be stated in the written notice to terminate tenancy.
11. Divides just cause into two categories: at-fault and no-fault.
12. Provides that the following are at-fault just causes for terminating a tenancy:
13. default in the payment of rent;
14. breach of a material term of the lease, as specified;
15. maintaining, committing, or permitting the maintenance or commission of a nuisance, as defined;
16. committing waste, as defined;
17. refusal to execute a written extension or renewal of the lease for an additional term of similar duration with similar provisions;
18. criminal activity by the tenant on the premises, including any common areas, or any criminal threat, as defined, directed at any owner or agent of the owner of the premises;
19. assigning or subletting the premises in violation of the tenant’s lease;
20. refusal to allow the landlord to enter the dwelling pursuant to a lawful request;
21. using the premises for an unlawful purpose, as defined.
22. Provides that the following are no-fault just causes for terminating a tenancy:
23. intent to occupy the residential real property by the owner or their spouse, children, grandchildren, parents, or grandparents, if the tenant agrees to the termination or the lease agreement allows for unilateral termination in such a scenario;
24. withdrawal of the residential property from the rental market.
25. unsafe habitation, as determined by a government agency that has issued an order to vacate, order to comply, or other order that necessitates vacating the residential property; or
26. intent to demolish or to substantially remodel.
27. Requires a landlord who terminates the tenancy based on a no-fault just cause provide relocation assistance to the displaced tenant in an amount equal to one month’s rent. The owner and tenant may also agree, in lieu of direct payment, to waive the payment of rent for the month after the notice of termination of tenancy is given.
28. Exempts the following types of residential real properties or residential circumstances from the just cause requirement for terminating a tenancy:
29. transient and tourist hotel occupancy, as defined;
30. housing accommodations in a nonprofit hospital, religious facility, or extended care facility;
31. dormitories owned and operated by an institution of higher education or a kindergarten and grades 1 to 12, inclusive, school;
32. housing accommodations in which the tenant shares bathroom or kitchen facilities with the owner who maintains their principal residence at the residential real property;
33. single-family owner-occupied residences, including a residence in which the owner-occupant rents or leases two units or bedrooms, including, but not limited to, an accessory dwelling unit or a junior accessory dwelling unit;
34. housing that has been issued a certificate of occupancy within the previous 10 years;
35. housing that is a detached single-family residential dwelling unit that meets both of the following requirements:
36. the owner is a natural person who owns and leases no more than 10 units and does not have an ownership interest in any other rental residential real property through any other entity; and
37. there is a written lease for the dwelling that includes a provision certifying that the owner meets the provisions of (i), above, and notifying the tenant that the dwelling is not subject to this section.
38. Does not preempt any local laws limiting rent increases or the grounds on which a landlord may terminate a tenancy.
39. Directs the Legislative Analyst’s Office to report to the Legislature regarding the effectiveness of the bill on or before January 1, 2023, including the impact of the rental rate cap on the housing market within the state.
40. Sunsets on January 1, 2023.

COMMENTS

1. Data documenting the extent of the rental housing affordability crisis in California

Statistical evidence amply supports the widespread impression that California is experiencing a rental housing affordability crisis. Rents throughout California have been increasing at astronomical rates throughout much of this decade. According to media reports, the average annual rent increase in Oakland, San Francisco, and San Jose was over 10 percent in 2014.^[1] Southern California has not fared much better. Average rent increases in Los Angeles County between 2011 and 2018 were 34 percent.^[2] As a result, a majority of California tenant households qualify as “rent-burdened,” meaning that 30 percent or more of their income goes to the rent. Over a quarter of California tenant households are “severely rent-burdened” meaning that they spend over half their income on rent alone.^[3] There is no indication that this will abate any time soon. The cost of rent continues to rise dramatically. Average incomes, meanwhile, have not kept pace.^[4]

2. Rent increases in California: how it works now

California state law regarding rent increases is generally quite simple. In the absence of a long-term lease with a fixed rental rate or a local rent control ordinance, a landlord may raise the rent at any time and by any amount that the landlord chooses. The only limitation has to do with how much notice must be given. As long as the rent increase is, cumulatively, less than 10 percent in a single year, only 30 days’ notice is required. (Civ. Code § 827(b)(2).) For rent increases of more than 10 percent, the landlord must give 60 days’ notice. (Civ. Code § 827(b)(3).) A California tenant’s only remedy for dealing with a rent increase that is too large to afford, or that the tenant is unwilling to pay, is to try to move elsewhere. In that case, the tenant must try to find something equally affordable that is available, safe, clean, and within reasonable commuting distance of the tenant’s job and, if the tenant has them, the tenant’s partner’s job, and the tenant’s children’s school.

1. Distinguishing this bill from rent control

Many local jurisdictions in California have rent control. This bill would not preempt or otherwise alter how those local rent control ordinances work. Like this bill, rent control ordinances generally cap how much a landlord can increase the rent each year. Unlike this bill, however, rent control laws typically limit the permissible rent increases to inflation, or something close to it. They thus “control” the rent in the sense that tenants under rent control can be reasonably confident that they will retain the original benefit of the contractual bargain they made with the landlord upon moving in. The rent may go up, but relative to incomes and the cost of other goods, it should generally stay about the same.

This bill, by contrast, does not control rents. Under the bill, landlords would still be able to raise rents quite significantly beyond inflation. Since any annual increase in the expenses associated with doing business as a landlord will generally be reflected in inflation, this means that, under this bill, landlords will still be able to increase their revenues and investment returns well beyond whatever was built into the initial lease agreement that they or the their predecessor in interest negotiated with the tenant. Moreover, because the percentage of permissible increase under the bill will compound year over year, landlords will still be able to raise rents quite dramatically over time. For example, an apartment renting at $2000 initially, could, under this bill, cost the tenant $3,221 within just five years.

In essence, then, this bill does not prevent large rent increases over time. What the bill really prevents is sudden rent spikes, while still giving landlords quite broad authority to raise rents over the longer-term.

1. Retroactivity

If passed by the Legislature and signed by the Governor, the bill would go into effect on January 1, 2020. This prospect creates a policy hazard. Aware that they will soon be restricted from doing so by this bill, some landlords may dramatically increase rents before January 1, 2020. It is possible that some have already done so.

The bill anticipates the problem and tries to avoid it through a provision that makes the limitation on rent increases retroactive to March 15, 2019, roughly the day on which the bill was introduced. While this provision addressing the problem of landlords spiking rents in anticipation of the bill, it raises some possible concerns along the way, both practical and constitutional.

Practically, the question is how would this provision of the bill be enforced? Would landlords have to pay their tenants back for the overcharges from the invalidated rent increase? Would tenants receive a rent credit going forward? What would happen if a tenant had already moved out?

Constitutionally, applying the limitation on rent increases retroactively raises potential due process and impairment of contract issues. Neither is prohibitive. Retroactive legislation can be justified when it could be reasonably be believed necessary to serve the public welfare. (Bouley v. Long Beach Memorial Medical Center (2005) 127 Cal.App.4th 601, 611.) Similarly, the state can impair existing contracts if the impairment is not substantial (General Motors Corp. v. Romein (1992) 503 U.S. 181, 186), or where the state has a significant and legitimate public purpose behind the regulation and the adjustment of the rights of the contracting parties is appropriate to that public purpose. (Rue-Ell Enterprises, Inc. v. City of Berkeley (1983) 147 Cal.App.3d 81.) The purpose behind this bill – to mitigate displacement, homelessness, and economic hardship for tenants – would seem to qualify as just such a public welfare purpose.

Regardless, the author proposes a solution that avoids both the practical and constitutional challenges. The author intends to amend the bill in Committee to clarify that the restriction on rent increases will date back to March 15, 2019, but will only apply prospectively. In other words, any rent increase made between March 15, 2019 and December 1, 2019 will stand, but if that increase would have been impermissible under the bill, then, as of January 1, 2020, the applicable rent going forward will be whatever the rent was on March 15, 2019 plus the maximum permissible increase under the bill.

1. Necessity of provisions requiring just cause for eviction

Unless the relationship is governed by a fixed-term rental agreement (usually a year-long lease), existing law in California permits landlords to evict tenants for any lawful cause or for no reason at all. Such a system is incompatible with any limitation on rent increases, because it creates an easy way for landlords to evade the cap. Simply by evicting the current tenants without cause, the landlord can replace them with new tenants. Whatever amount the landlord elects to charge the new tenants will be part of a new lease, not a rent increase, and therefore not subject to the rent increase limitation. For this reason, for any limitation on rent increases to be effective, it must be paired with eviction controls: provisions that prevent landlords from removing tenants in order to evade the limitation on rent increases.

This bill includes the necessary eviction controls to make its anti-rent gouging provisions work. Specifically, under the bill, a landlord would have to have, and would have to state, a legally-valid cause in order to evict a tenant.

Because there is sometimes confusion about what happens under a just cause for eviction requirement, it is important to clarify that just cause requirements do not inhibit a landlord from removing tenants who fail to pay the rent, who breach their leases, who cause disturbances, who damage the property, or who otherwise behave in inappropriate ways. Under a just cause for eviction requirement such as the one contained in this bill, a landlord may still evict such tenants in exactly the same fashion that they do under existing law: after three days’ opportunity to cure a failure to pay rent; after three days’ opportunity to cure a material breach of the lease; or after three days’ period if the tenant has committed waste or nuisance at the property. (Code Civ. Proc. § 1161.) The only difference is that, if a landlord intends to terminate the tenancy using a 30- or 60-day notice, the landlord must provide the tenant with a valid reason why. Having to state the reason for terminating the tenancy makes it more difficult for the landlord to simply kick out the current tenants in order to raise rents, because the landlord must justify terminating the tenancy with a just cause and, if the landlord’s reason is false or mere pretext, the tenant may be able to challenge it in court. So long as the landlord is not trying to game the system, however, a just cause requirement should not ordinarily make it any more difficult for a landlord to remove a bad tenant.

1. Additional policy impacts related to the just cause for eviction requirement

In addition to being essential for this bill’s anti-rent gouging provisions to work, the just cause for eviction requirements in the bill would have other public policy benefits. Existing California law prohibits landlords from evicting tenants for retaliatory or discriminatory reasons. (Civ. Code § 1942.5; Gov. Code § 12955.) Thus, a landlord is not supposed to evict a tenant because the tenant complained that the heater was not working in winter, that the roof is leaking, or that there is no hot water. Similarly, a landlord is not supposed to kick out a tenant because the tenant is Black, gay, disabled, or on account of the tenant’s membership in any other protected category. However, because existing California law permits landlords to terminate tenancies without saying why, landlords can easily accomplish the same retaliatory or discriminatory purposes that would be illegal if stated openly, simply by serving a notice of termination of tenancy with no cause stated at all. For the same reason that this bill’s just cause for eviction requirement would make it difficult for landlords to kick out current tenants in order to engage in rent-gouging surreptitiously, it would also make it more difficult for landlords to hide retaliatory or discriminatory motivations for evicting tenants as well. Requiring landlords to state the reason for termination of a tenancy forces them to articulate a valid reason for their actions and makes it possible for tenants to challenge bogus or pretextual reasons in court, if necessary. The just cause for evictions in this bill can therefore be expected to fortify California’s existing laws against housing discrimination and retaliation.

On the other hand, some landlords contend that the ability to evict tenants without saying why can occasionally serve a useful purpose. Their contention is that stating the cause for an eviction could anger tenants and might provoke volatile tenants to retaliate by damaging property or otherwise harming the landlord. Alternatively, landlords fear that if a volatile tenant questions the just cause provided by the landlord and proceeds to challenge the basis for that cause in court, it may be difficult to obtain witnesses willing to testify against the volatile tenant. Acknowledging that such fears about the aggressive or volatile tenants are legitimate, however, it may be worth asking how much difference just cause makes in such a situation. The fact that a volatile tenant is losing their housing at all is presumably the primary thing likely to trigger that volatility. It is even possible that having an explanation for the decision would help some volatile tenants to understand and accept why they are losing their home.

7. The dual purpose of relocation assistance in the bill

The bill divides the just causes that can be used to terminate tenancies into two categories: at-fault and no-fault. The at-fault eviction are mostly the same as the existing legal grounds for terminating a tenancy on relatively short notice: failure to pay rent; breach of the lease; unauthorized subletting; creating a nuisance; or causing waste. In fact, the bill explicitly cross-references the existing statute, Code of Civil Procedure 1161, that already governs evictions under these scenarios. In addition, the bill makes it clear that criminal activity or refusing the landlord reasonable access to the property are also just causes that would support terminating a tenancy.

The bill’s no-fault just causes for eviction are different. Among the no-fault causes that would justify terminating a tenancy under the bill are moving-in a family member, undertaking significant remodeling, or removing the property from the rental market altogether. Whatever the no-fault justification for terminating the tenancy, the bill requires that the landlord provide the tenant with relocation assistance in the form of one month’s worth of rent. The landlord may pay this amount to the tenant directly, or the landlord and tenant may agree that the tenant can forgo paying the rent that month.

The obvious purposes behind this provision are to provide tenants with some financial assistance with their impending move as well as to offer them some compensation for losing their protection against exorbitant rent increases. There is a more subtle purpose to the relocation assistance as well, however. If there were no cost whatsoever to doing no-fault tenancy terminations, landlords might be tempted to use them as a way to get around the rent caps. A landlord could terminate the tenancy by announcing plans for a major remodel, drop the remodel plan the moment the tenant was out, and proceed to rent to a new tenant at a rental rate beyond what would have been permissible to charge the former tenant. The relocation assistance requirements acts as at least a partial deterrent to this type of maneuver. A landlord could still try to use a no-fault termination to make an end run around the anti-rent gouging caps, but the landlord would have to pay the relocation assistance money to do so.

8. Constitutional analysis regarding the right to fair return

California has never before had a statewide restriction on the ability of landlords to raise rents. Local rent control ordinances, however, have been a frequent topic of litigation. Such ordinances have frequently been challenged on constitutional grounds. In general, the California courts have upheld laws limiting rent increases as valid under the exercise of police powers. (Birkenfeld v. Berkeley (1976) 17 Cal.3d. 129, 140.) However, the courts have found some limitations on rent increases to be unconstitutional if they did not follow certain dictates. In particular, the courts have ruled that laws limiting rent increases must still enable landlords to obtain a fair return on their investment and they must not create such significant procedural hurdles that the landlord is effectively prevented from obtaining a fair return on their investment. (Fisher v. City of Berkeley (1984) 37 Cal.3d 644, aff’d (1986) 475 US 260.) As this bill does not create any procedural hurdles to obtaining a rent increase beyond those in existing law (provision of advance notice pursuant to Civil Code Section 827), the only question is whether the bill might ever prevent landlords from obtaining a fair return on their investment.

As an initial matter, it is worth noting that the courts have repeatedly upheld local rent control laws with far stricter limitations on permissible rent increases than those proposed by the bill. Additionally, according to the author, the proposed rent ceiling of 7 percent plus inflation enables a quite favorable return for a property owner. The author cites Bureau of Labor Statistics data showing that 7 percent plus inflation is, on average, 150 percent higher than the actual median annual rent increase in our state’s largest regions. In other words, the bill does not come close to preventing landlords from getting back the return they could rationally expect the rental market to bear.

The courts have not articulated a precise test for what constitutes a fair return on investment in the context of residential rent. In fact, the courts have resisted requiring any particular formula for permissible limitations on rent control. (Fisher, supra, 37 Cal.3d 644 at 680.) Any method for calculating permissible rent increases is valid so long as it does not lead to confiscatory results. (Ibid.) This does not mean that limitations on rent increases are constitutionally problematic merely because they reduce appreciation or actual property value. (Id. at 685-6.) Rather, the cases generally find that a limitation on rent increase only goes too far if it forces the landlord into a net operating loss by preventing the landlord from adjusting rent for inflation or other costs of doing business. (TB Oceanside, LP v. City of Oceanside (2007) 156 Cal.App. 4th 1355.)

This bill would allow annual rent increases of 7 percent plus inflation up to a hard cap at 10 percent. Since that formula directly adjusts for inflation, it allows for the possibility of a fair return unless inflation were to rise dramatically above what it has been for the past several decades. Similarly, the permissible rent increases under the bill are high enough that, in almost every imaginable circumstance, they permit a landlord to maintain a steady net operating income. The opponents raise scenarios in which the landlord must make a large investment; replacing a roof, for example. Even in a fairly extreme scenario, however, a landlord should be able to obtain a fair return relatively quickly between amortizing the cost of the repair and raising rents as permitted by the bill. In short, the bill does not appear to deprive landlords of the ability to obtain a fair return.

9. Differing viewpoints on what the annual limit on rent increases should be

There are essentially three different viewpoints regarding the maximum annual rent increases allowed under this bill. The first viewpoint comes predominantly from landlords who oppose the bill on the ground that a 10 percent upper cap on annual rent increases is too restrictive. From this perspective, almost any upper limit on rent increases would be objectionable as an infringement on property rights and the operation of the free market. The second viewpoint is that of proponents of the bill, who either believe that the 10 percent cap proposed by the bill is reasonable or that it is too high, but better than no cap at all. The third viewpoint is that of opponents of the bill who believe that rent caps are needed, but that limits proposed by this bill are so high that they do little to help the vast majority of tenants and may in fact hurt tenants by providing an implicit stamp of legislative approval on annual rent hikes of as much as 10 percent.

10. Arguments about the potential impact of the bill on investments in housing supply

A common argument against limiting rent increases is that developers and property owners will be less willing to spend on constructing or upgrading housing if their potential return on investment is diminished. There is some variation, but most studies of the effects of rent control seem to bear this theory out.^[5] Some stakeholders have raised this point in opposition to this bill. According to this line of thinking, enacting limitations on rent increases is precisely the wrong response to California’s housing affordability crisis, because only a massive increase in supply can bring down prices in the long-run, and restrictions on rent increases will diminish the incentive to build. Proponents of rent control – that is, much stronger limitation on rent increases than that proposed by this bill – tend to downplay the impact on supply. In addition, proponents of limitations on rent increase point out that existing California law places no limitations on rent increases and yet the state still faces an extreme shortage in housing supply. Even if unrestricted rent increases help incentivize housing construction, these rent control enthusiasts argue, it takes years to bring new housing online. In the meantime, people are being displaced from their homes.

This bill cuts something of a middle ground on all of these issues. In response to the concern that the bill could otherwise discourage new housing development, the author has exempted new construction – buildings up to 10 years old – from the bill. In response to the argument that strict rent control could dissuade landlords from investing in maintenance and upgrades to their property, the bill steers clear of the sort of rent control model that cities like Oakland, Los Angeles, San Francisco, and Santa Monica have long had. The bill deploys, instead, something more accurately described as anti-rent gouging: a far more landlord-friendly model that permits significant rent annual rent increases but outlaws major rent spikes of over 10 percent. Finally, anticipating that promised expansions in housing supply will eventually come to fruition, the bill sunsets after three years, providing short-term relief for tenants who are being hit hard right now, while allowing for the possibility that increased supply will eventually stabilize the market and thereby eliminate the need for any legal restrictions on rent increases.

11. Proposed amendments

In order to address the issues set forth in the Comments, above, among other things, the author proposes to incorporate amendments into the bill that would:

• specify that the meaning of the term “owner” in the bill is meant to be consistent with existing definitions of that term in the Civil Code;
• clarify that if, between March 15, 2019 and January 1, 2020, a landlord has raised or does raise the rent beyond what would be permissible under the bill, then the applicable rent on January 1, 2020 will be the rental rate as of March 15, 2019 plus the maximum permissible rent increase under the bill. Further clarifies that the landlord shall not be liable to the tenant for the higher rental amount paid prior to January 1, 2020;
• require the relevant notices about tenants’ rights under the bill to be provided in the language in which the lease is negotiated;
• specify when the landlord must make relocation assistance payments; and
• provide that a landlord’s failure to strictly comply with the relocation assistance payment provisions renders the notice of termination of tenancy void.

A mock-up of the amendments in context is attached to this analysis.

12. Arguments in support of the bill

According to the author:

California is in a housing crisis. Most of California’s 17 million renters do not have safe, secure, and affordable housing. Over half of renters and 80 percent of low-income renters are rent-burdened, meaning they pay over 30 percent of their income towards rent. This leaves less money for families to spend on other necessities like food, healthcare, transportation, and education. Less than 20 percent of renters live in rent-controlled units, leaving the vast majority of renters with no certainty about the size of their next rent increase, or protections against frivolous evictions.

This uncertainty creates a tremendous psychological and economic burden. Having no way of knowing when or how much their next rent increase will be, or whether they will be able to keep their home, renters cannot plan for their own housing stability. This increased stress can lead to negative mental and physical health outcomes for family members of all ages. Increasingly, it is also leading to homelessness. In Los Angeles, the 2019 homelessness count revealed that 23% of the unsheltered people experiencing homelessness—more than 9,200 people—were homeless for the first time last year. The majority (53%) cited economic hardship as the cause.

AB 1482 will protect nearly three million rental households in California by creating price stability and certainty, enabling renters and families to be better able to plan for their future by removing the risk of large and unexpected rent increases. […]

Renters shouldn’t have to choose between paying rent and keeping a roof over their heads or feeding their families. AB 1482 takes the choice off the table and makes it easier for renters to stay in their neighborhoods.

As sponsors of the bill, the Alliance of Californians for Community Empowerment Action, Public Advocates, and Western Center on Law & Poverty write:

As our state seeks to address the housing crisis, we must ensure the solutions include measures to protect renters from drastic rent increases which predictably displace families from their homes and drive them into homelessness. In recent months, each of our organizations has heard from renters who have received massive rent increases, sometimes doubling or even tripling their rent, on very short notice. These rent increases are not absorbable for working families, no matter how much notice is given, and only serve to drive renters from their homes and exacerbate the housing crisis. […]

The bill does not impose rent control, but simply guards against the most drastic and disruptive rent increases in places where tenants have no other protections.

In support, the Partnership for Working Families writes:

Currently, the majority of Californians who rent live under the constant threat of landlords imposing unlimited rent increases that can push them out of their homes or leave them unable to pay their other bills. Rooted in communities across the state who are calling for a modicum of protection, we urge an “aye” vote on this reasonable and vitally important bill.

Astronomical rent increases are striking every region that we represent. In Santa Maria, landlords have raised the average monthly rent 28% in the last four years alone. In San Jose, there 1 is no neighborhood where two minimum wage earners can afford to live. In Concord, landlords have raised the median monthly rent for two-bedroom apartments by 61% in the last seven years. With renters pitted against each other in a housing shortage, landlords are free to increase rents unchecked by the State – hiking prices not because they are providing better housing but simply because they can. […]

Spiking rents combine with no-cause evictions to turbocharge displacement across the state; for this reason, we also supported AB 1481 (Grayson and Bonta - just cause eviction protections) and believe that these protections must go hand in hand.

13. Arguments in opposition to the bill

In opposition to the bill, the California Apartment Association, the California Business Properties Association, the California Chamber of Commerce, and the California Mortgage Bankers Association write:

Study after study has demonstrated that price controls end up crippling the commodity that is controlled, including housing. There may be a short-term reduction in the price of rent-controlled units, but over the mid to long run, controlling rental prices decreases inventory as property owners remove units from the market, and construction of new rental housing slows. As rental units dwindle in a city or region, working-class families, seniors, and others in need experience the most harm.

AB 1482 would further complicate California’s ongoing housing crisis and would have very serious and harmful consequences to our economy. Governor Newsom has called for the construction of 3.5 million new housing units by 2025, or an average of 500,000 a year. Considering that California has built an average of 80,000 new homes per year over the past decade, AB 1482 will certainly get in the way of this goal.

In further opposition to the bill, the AIDS Healthcare Foundation writes:

AB 1482 is the appropriate policy response to a rental crisis in which some unscrupulous landlords have jacked up rent by very high percentages, in a few high profile cases 300% or more. We agree such rent increases are contributing massively to the shortage in rental housing and the debilitating rent burden on many tenants.

Unfortunately, the bill in its current form addresses the 300% aberration but fails to correct the far more ubiquitous problem, which is landlords who raise rents beyond getting a fair return on their investment; they may not be raising eyebrows, but they are pricing more and more low-income tenants out of their homes.

Even worse, the bill creates a new floor for landlords who will now have the state’s permission to increase rents by 8% to 10% every year for the next three years.

SUPPORT

Alliance of Californians for Community Empowerment Action (sponsor)

PICO California (sponsor)

Public Advocates (sponsor)

Western Center on Law and Poverty (sponsor)

Abundant Housing Los Angeles

City of Alameda

Alliance for Community Transit - Los Angeles

American Civil Liberties Union of California

American Federation of State, County and Municipal Employees, AFL–CIO, Local 3299

Asian Americans Advancing Justice - California

Asian Americans and Pacific Islanders for Civic Empowerment Education Fund

Asian Pacific Environmental Network

Association of Bay Area Governments

Bay Area Legal Aid

Bay Area Regional Health Inequities Initiative

Bend the Arc: Jewish Action Southern California

Bricklayers & Allied Craftworkers

Bulosan Center for Filipino Studies, at University of California, Davis

California Alliance for Retired Americans

California Calls

California Coalition for Rural Housing

California Community Builders

California Conference Board of the Amalgamated Transit Union

California Conference of Machinists

California Labor Federation, AFL-CIO

California Renters Legal Advocacy and Education Fund

California Rural Legal Assistance Foundation

California State Council of Laborers

California Teachers Association

California Teamsters Public Affairs Council

California YIMBY

Carpenters & Joiners of America

Center on Policy Initiatives San Diego

Central Coast Alliance United for a Sustainable Economy

Central Valley Empowerment Alliance

Chan Zuckerberg Initiative

City of Los Angeles

Climateplan

Coalition for Humane Immigrant Rights

Congregations Organized for Prophetic Engagement

Corporation for Supportive Housing

Courage Campaign

Disability Rights California

Drug Policy Alliance

EAH Housing

East Bay Community Law Center

East Bay for Every One

Eden Housing

Engineers and Scientists of California, Local 20, IFPTE, AFLI-CIO & CLC

Enterprise Community Partners, Inc.

Environmental Health Coalition

Faith in Action Bay Area

Faith in the Valley

Gamaliel of California

Eric Garcetti, Mayor, City of Los Angeles

Alan Haffa, Councilmember, City of Monterey

Hamilton Families

Heat & Frost Insulators & Allied Workers

Hillcrest Indivisible

House Sacramento

Hunger Action Los Angeles, Inc.

IBEW

Indivisible: San Diego Central

Inlandboatman’s Union of the Pacific

International Brotherhood of Boilermakers

Iron Workers

The Kennedy Commission

Korean Resource Center

Koreatown Immigrant Workers Alliance

LA Forward

La Raza Community Resource Center

LA Voice

Latino Coalition for a Healthy California

Latinos United for a New America

Law Foundation of Silicon Valley

Leadership Counsel for Justice and Accountability

League of Women Voters of California

Legal Services for Prisoners with Children

Los Angeles County Board of Supervisors

Los Angeles Homeless Services Authority

Metropolitan Transportation Commission

Midpen Housing Corporation

Mission Neighborhood Centers, Inc.

Mission Neighborhood Health Center

Monument Impact

National Association of Social Workers, California Chapter

National Union of Healthcare Workers

Neighborhood Legal Services of Los Angeles

Non-Profit Housing Association of Northern California

North Bay Organizing Project

Oakland Tenants Union

Operating Engineers

Operative Plasterers & Cement Masons

Orange County Civic Engagement Table

Orange County Communities Organized for Responsible Development

Orange County Congregation Community Organization

Painters & Allied Trades

Partnership for Working Families

Peace and Freedom Party of California

People Organized for Westside Renewal

Planning and Conservation League

Policylink

Postmates

Power California

Professional & Technical Engineers, Local 21, IFPTE, AFL-CIO

Public Counsel

Public Interest Law Project

Public Law Center

Related California

Roofers, Waterproofers & Allied Workers

Sacramento Filipinx LGTBTQIA

Sacred Heart Community Service

San Francisco Foundation

City of Santa Monica

Santa Monica Rent Control Board

Service Employees International Union California

Sheet Metal Workers

Silicon Valley Community Foundation

SOMOS Mayfair

Southern California Association of Nonprofit Housing

State Building & Construction Trades Council of California

Strategic Actions for a Just Economy

TechEquity Collaborative

TransForm

UNITE-HERE, AFL-CIO

UNITE-HERE, Local 19

United Association

United Auto Workers, Local 2865

United Food and Commercial Workers, Local 648 San Francisco

United Food and Commercial Workers, Western States Council

United Teachers Los Angeles

Utility Workers Union of America

Venice Community Housing Corporation

Viet Vote San Diego

Warehouse Worker Resource Center

WesteCity of West Hollywood

Working Partnerships USA

YIMBY Action

216 individuals

OPPOSITION

Aids Healthcare Foundation

American G.I. Forum

American Legion

AMVETS, Department of California

Apartment Association, California Southern Cities

Apartment Association of Greater Los Angeles

Apartment Association of Orange County

Bay Area Council

Building Industry Association of the Bay Area

California Apartment Association

California Association of Realtors

California Business Properties Association

California Business Roundtable

California Chamber of Commerce

California Council for Affordable Housing

California Mortgage Bankers Association

California Rental Housing Association

California Taxpayer Association

Community Legal Services in East Palo Alto

East Bay Rental Housing Association

Essex Property Trust

Housing for All Burlingame

Long Beach Area Chamber of Commerce

National Rental Home Council

North Valley Property Owners Association

Nor Cal Rental Property Association

Oakland Metropolitan Chamber of Commerce

One San Mateo

Orange County Business Council

Prometheus Real Estate Group

Related California

San Diego County Apartment Association

San Gabriel Valley Economic Partnership

Small Property Owners of San Francisco Institute

Southern California Rental Housing Association

San Francisco Bay Area Planning and Urban Research Association

TMG Partners

Youth United For Community Action

5 individuals

RELATED LEGISLATION

Pending Legislation:

AB 1110 (Friedman, 2019) extends the notice period required for a landlord to impose a large rent increase on a tenant in a periodic tenancy, which are almost always month-to-month tenancies. Specifically, a landlord would have to give 90 days’ notice to a tenant before imposing rent increases of between 10 and 15 percent, and 120 days’ notice for any increase above 15 percent. AB 1110 is currently pending consideration on the Senate Floor.

AB 36 (Bloom, 2019) authorizes local jurisdictions to apply rent control to units more than ten years old and/or single-family homes owned by a person who owns up to two units in the jurisdiction. AB 36 is currently pending referral in the Assembly Rules Committee.

AB 1481 (Bonta, 2019) requires a landlord to have and to state a just cause when terminating a tenancy. The bill also requires a landlord to pay relocation assistance for terminated leases. The content of AB 1481 was combined into this bill.

AB 1697 (Grayson) (2019): Prohibits evictions without just cause for tenants with at least twelve months occupancy, and requires relocation assistance for terminated leases. The content of this bill was combined into AB 1481.

Prior Legislation:

AB 2925 (Bonta, 2018) would have. AB 2925 failed passage on the Assembly Floor.

AB 1506 (Bloom, 2018) would have repealed the Costa-Hawkins Rental Housing Act, thus authorizing local jurisdiction to impose limits on rent increases for newer construction and single-family homes, should they elect to do so. AB 1506 failed passage in the Assembly Committee on Housing and Community Development.

AB 2925 (Bonta, 2018) would have required landlord to have and to state a just cause in order to terminate a tenancy. AB 2925 was defeated on the Assembly Floor.

PRIOR VOTES:

Assembly Floor (Ayes 43, Noes 31)

Assembly Appropriations Committee (Ayes 12, Noes 4)

Assembly Housing and Community Development Committee (Ayes 6, Noes 1)

**************

Amended Mock-up for 2019-2020 AB-1482 (Chiu (A))

Mock-up based on Version Number 95 - Amended Senate 6/28/19

Submitted by: Griffiths, SJUD

The people of the State of California do enact as follows:

SECTION 1. Section 1946.2 is added to the Civil Code, to read:

1946.2. (a) Notwithstanding any other law, an owner of residential real property, in which the tenant has occupied the residential real property for 12 months or more, with or without a written lease, shall not terminate the lease without just cause, which shall be stated in the written notice to terminate tenancy set forth in Section 1946.1.

(b) For purposes of this section, “just cause” includes either of the following:

(1) At-fault just cause, which is any of the following:

(A) Default in the payment of rent.

(B) A breach of a material term of the lease, as described in paragraph (3) of Section 1161 of the Code of Civil Procedure, including, but not limited to, violation of a provision of the lease after being issued a written notice to correct the violation.

(C) Maintaining, committing, or permitting the maintenance or commission of a nuisance as described in paragraph (4) of Section 1161 of the Code of Civil Procedure.

(D) Committing waste as described in paragraph (4) of Section 1161 of the Code of Civil Procedure.

(E) The tenant had a written lease that terminated on or after January 1, 2020, and after a written request or demand from the owner, the tenant has refused to execute a written extension or renewal of the lease for an additional term of similar duration with similar provisions, provided that those terms do not violate this section or any other provision of law.

(F) Criminal activity by the tenant on the premises, including any common areas, or any criminal threat, as defined in subdivision (a) of Section 422 of the Penal Code, directed at any owner or agent of the owner of the premises.

(G) Assigning or subletting the premises in violation of the tenant’s lease.

(H) The tenant’s refusal to allow the owner to enter the dwelling pursuant to a request consistent with Section 1954 of the Civil Code.

(I) Using the premises for an unlawful purpose as described in paragraph (4) of Section 1161 of the Code of Civil Procedure.

(2) No-fault just cause, which includes any of the following:

(A) (i) Intent to occupy the residential real property by the owner or their spouse, children, grandchildren, parents, or grandparents.

(ii) For leases entered into on or after January 1, 2020, clause (i) shall apply only if the tenant agrees, in writing, to the termination, or if a provision of the lease allows the owner to terminate the lease if the owner, or their spouse, children, grandchildren, parents, or grandparents, unilaterally decides to occupy the residential property.

(B) Withdrawal of the residential property from the rental market.

(C) Unsafe habitation, as determined by a government agency that has issued an order to vacate, order to comply, or other order that necessitates vacating the residential property.

(D) Intent to demolish or to substantially remodel.

(c) Before an owner of residential real property issues a tenant a notice to terminate tenancy for just cause that is a curable lease violation, the owner shall first give notice of the violation to the tenant with an opportunity to cure the violation pursuant to paragraph (3) of Section 1161 of the Code of Civil Procedure.

(d) (1) If an owner of residential real property issues a no-fault just cause notice to terminate a tenancy to a tenant who has resided on the residential real property for 12 months or more, the owner shall assist the tenant, regardless of the tenant’s income, to relocate by providing a direct payment to the tenant as described in paragraph (3).

(2) If an owner issues a notice to terminate tenancy for no-fault just cause, the owner shall notify the tenant of the tenant’s right to relocation assistance pursuant to this section.

(3) The amount of relocation assistance shall be equal to one month of the tenant’s rent that was in effect when the owner issued the notice to terminate the tenancy and shall be provided within five calendar days of service of the notice. The owner and tenant may also agree, in lieu of direct payment, to waive the payment of rent for the month after the notice is given.

(4) An owner’s failure to strictly comply with this subdivision shall render the notice of termination void.

(e) This section shall not apply to the following types of residential real properties or residential circumstances:

(1) Transient and tourist hotel occupancy as defined in subdivision (b) of Section 1940.

(2) Housing accommodations in a nonprofit hospital, religious facility, or extended care facility.

(3) Dormitories owned and operated by an institution of higher education or a kindergarten and grades 1 to 12, inclusive, school.

(4) Housing accommodations in which the tenant shares bathroom or kitchen facilities with the owner who maintains their principal residence at the residential real property.

(5) Single-family owner-occupied residences, including a residence in which the owner-occupant rents or leases no more than two units or bedrooms, including, but not limited to, an accessory dwelling unit or a junior accessory dwelling unit.

(6) Housing that has been issued a certificate of occupancy within the previous 10 years.

(7) Housing that is a detached single-family residential dwelling unit that meets both of the following requirements:

(A) The owner is a natural person who owns and leases no more than 10 units and does not have an ownership interest in any other rental residential real property through any other entity.

(B) There is a written lease for the dwelling that includes a provision certifying that the owner meets the provisions of subparagraph (A) and notifying the tenant that the dwelling is not subject to this section.

(f) An owner of residential real property subject to this section shall provide notice to a tenant of the tenant’s rights under this section at the beginning of the tenancy by providing an addendum to the lease which shall be signed by the tenant when the lease is signed. Provision of the notice shall be subject to section 1632.

(g) This section does not prevent the enforcement of an existing local rule or ordinance, or the adoption of a local rule or ordinance that is consistent with Chapter 2.7 (commencing with Section 1954.50), that requires just cause for termination of a residential tenancy that further limits or specifies the allowable reasons for eviction, requires longer notice or additional procedures for evicting tenants, provides for higher relocation assistance amounts, or is determined to provide a higher level of tenant protections than this section.

(h) Any waiver of the rights under this section shall be void as contrary to public policy.

(i) This section shall remain in effect only until January 1, 2023, and as of that date is repealed.

(j) For the purposes of this section, “owner” shall mean the same as defined in Section 1954.51.

SEC. 2. Section 1947.12 is added to the Civil Code, to read:

1947.12. (a) Subject to the provisions of subdivision (b), an owner of residential real property shall not increase the rental rate for that property more than once annually. The annual increase shall not exceed 7 percent plus the percentage change in the cost of living, or 10 percent, whichever is lower, of the lowest rental amount charged for that property at any time during the 12 months prior to the effective date of the increase.

(b) (1) Subdivision (a) shall apply to partial changes in tenancy of a residential rental property where one or more of the tenants remains an occupant in lawful possession of the property.

(2) Subdivision (a) shall not apply to new tenancies where no tenants from the prior lease remain an occupant in lawful possession of the residential real property.

(c) This section shall not apply to the following residential rental properties:

(1) Deed-restricted affordable housing for persons and families of very low, low, or moderate income, as defined in Section 50093 of the Health and Safety Code.

(2) Dormitories constructed and maintained in connection with any higher education institution within the state for use and occupancy by students in attendance at the institution.

(3) Housing subject to any form of rent or price control through a public entity’s valid exercise of its police power that restricts annual increases in the rental rate to an amount less than that provided in subdivision (a).

(4) Housing that has been issued a certificate of occupancy within the previous 10 years.

(5) Housing that is a detached single-family residential dwelling unit that meets both of the following requirements:

(A) The owner is a natural person who owns and leases no more than 10 units and does not lease any other residential property through any other entity.

(B) The dwelling has a written lease, compliant with section 1632that includes a provision certifying that the owner meets the provisions of subparagraph (A) and notifying the tenant that the dwelling is not subject to this section.

(d) An owner shall provide notice of any increase in the rental rate, pursuant to subdivision (a), to each tenant in accordance with Section 827.

(e) (1) On or before January 1, 2023, the Legislative Analyst’s Office shall report to the Legislature regarding the effectiveness of this section and Section 1947.13. The report shall include, but not be limited to, the impact of the rental rate cap pursuant to subdivision (a) on the housing market within the state.

(2) The report required by paragraph (1) shall be submitted in compliance with Section 9795 of the Government Code.

(f) For the purposes of this section, the following definitions shall apply:

(1) “Owner” shall mean the same as defined in Section 1954.51.

(2) “Percentage change in the cost of living” means the percentage change from April 1 of the prior year to April 1 of the current year in the regional Consumer Price Index for the region where the residential real property is located, as published by the United States Bureau of Labor Statistics. If a regional index is not available, the California Consumer Price Index for All Urban Consumers for all items, as determined by the Department of Industrial Relations, shall apply.

(3) “Residential real property” means any dwelling or unit that is intended for human habitation.

(4) “Tenancy” means the lawful occupation of residential real property and includes a lease or sublease.

(g) (1) This section shall apply to all rent increases subject to subdivision (a) occurring on or after March 15, 2019. This section shall become operative January 1, 2020.

(2) In the event that an owner has increased the rent by more than the amount permissible under subdivision (a) between March 15, 2019 and January 1, 2020, then the following shall apply:

(A) The applicable rent on January 1, 2020 shall be the rent as of March 15, 2019 plus the maximum permissible increase under subdivision (a).

(B) An owner shall not be liable to the tenant for any corresponding rent overpayment.

(h) Any waiver of the rights under this section shall be void as contrary to public policy.

(i) This section shall remain in effect until January 1, 2023, and as of that date is repealed.

(j) It is the intent of the Legislature that this section is intended to respond to the unique circumstances of the current housing crisis, and to only apply for a limited time, as described in subdivision (i).

SEC. 3. Section 1947.13 is added to the Civil Code, to read:

1947.13. (a) Notwithstanding Section 1947.12, upon the expiration of rental restrictions, the owner of an assisted housing development who demonstrates under penalty of perjury, compliance with all applicable provisions of Sections 65863.10, 65863.11, and 65863.13 of the Government Code, and any other applicable law or regulation intended to promote the preservation of assisted housing may establish the initial unassisted rental rate for units in the applicable housing development. Any subsequent rent increase in the development shall be subject to Section 1947.12.

(b) For purposes of this section:

(1) “Assisted housing development” has the same meaning as defined in paragraph (3) of subdivision (a) of Section 65863.10 of the Government Code.

(2) “Expiration of rental restrictions” has the same meaning as defined in paragraph (5) of subdivision (a) of Section 65863.10 of the Government Code.

(c) This section shall remain in effect until January 1, 2023, and as of that date is repealed.

(d) Any waiver of the rights under this section shall be void as contrary to public policy.

SEC. 4. No reimbursement is required by this act pursuant to Section 6 of Article XIII B of the California Constitution because the only costs that may be incurred by a local agency or school district will be incurred because this act creates a new crime or infraction, eliminates a crime or infraction, or changes the penalty for a crime or infraction, within the meaning of Section 17556 of the Government Code, or changes the definition of a crime within the meaning of Section 6 of Article XIII B of the California Constitution.

1. Pender, After Lull, Bay Area Rents Are Rising Again, But Not Like Before (Jan. 12, 2019) San Francisco Chronicle https://www.sfchronicle.com/business/networth/article/After-lull-Bay-Area-rents-are-rising-again-but-13528213.php (as of Jun. 8, 2019). ↑

2. Snibbe and Collins, California Rents Have Risen to Some of the Nation’s Highest (Feb. 15, 2018) Los Angeles Daily News https://www.dailynews.com/2018/02/15/california-rent-rates-have-risen-to-some-of-the-nations-highest-heres-how-that-impacts-residents/ (as of Jun. 8, 2019). ↑

3. Kimberlin, California’s Housing Affordability Crisis Hits Renters and Households With the Lowest Incomes the Hardest (Apr. 2019) California Budget & Policy Center https://calbudgetcenter.org/resources/californias-housing-affordability-crisis-hits-renters-and-households-with-the-lowest-incomes-the-hardest/ (as of Jun. 8, 2019). ↑

4. Income, Department of Finance, State of California http://www.dof.ca.gov/Forecasting/Economics/Indicators/Income/ (as of Jun. 25, 2019). ↑

5. See, Taylor, Letter to Attorney General Becerra Reviewing the Proposed Statutory Initiative

   Pertaining to Rent Control (Dec. 12, 2017) California Legislative Analyst’s Office https://sjud.senate.ca.gov/sites/sjud.senate.ca.gov/files/ctools/lao_-_fiscal-impact-estimate-report17-0041.pdf (as of Jun. 25, 2019). ↑

ASSEMBLY THIRD READING

ATR Bill Id:AB 1482

Author:(Chiu)

As Amended Ver:May 20, 2019

Majority vote

SUMMARY:

Prohibits an owner of a residential real property from increasing the rental rate on a property that has been in effect for the preceding 12 months in an amount that is greater than the Consumer Price Index (CPI) plus 5%, not to exceed 10%.

Major Provisions

1. Defines the "percentage change in the cost of living" to mean the percentage change from April 1 of the prior year to April 1 of the current year in the regional CPI for the region where the real property is located, as published by the United States Bureau of Labor Statistics. If a regional index is not available, the CPI for All Urban Consumers for all items, as determined by the Department of Industrial Relations, will apply.
2. Applies to partial changes in tenancy of a residential rental property where one or more of the tenants remains an occupant in lawful possession of the property.
3. Does not apply to new tenancies where no tenants from the prior lease remain an occupant in lawful possession of the property.
4. Does not apply to the following residential rental properties:
   1. Deed-restricted affordable housing for persons and families of very-low, low-, or moderate-income, as defined in Health and Safety Code Section 50093;
   2. Dormitories constructed and maintained in connection with any higher education institution within the state for use and occupancy by students in attendance at the institution;
   3. Housing subject to a local ordinance that imposes a maximum rental rate increase that is more restrictive than 5% plus CPI; and
   4. Housing that has been issued a certificate of occupancy within the past ten years.
5. Applies to all rent increases occurring on or after March 15, 2019.
6. Includes a sunset date of January 1, 2030.
7. Authorizes the owner of assisted housing development, upon the expiration of rental restrictions, to establish the initial unassisted rental rate for units, after which the rent cap would apply.
8. Requires an owner to provide notice of any increase in the rental rate to each tenant in accordance with existing law.
9. Establishes that a landlord may not terminate a tenancy for the purposes of increasing the rent in an amount greater than that authorized by this section.
10. Creates a rebuttable presumption that, in the absence of a written statement from the landlord to the tenant showing cause for the termination of a tenancy, the termination is for the purposes of avoiding this section.
11. Requires that, on or before January 1, 2030, the Department of Housing and Community Development (HCD) must report to the Legislature regarding the effectiveness of this program. The report shall include, but not be limited to, the impact of the rental rate cap established in this bill on the housing market within the state.

COMMENTS:

The cost of housing in California is the highest of any state in the nation. Additionally, the pace of the change in the cost of housing has far outstripped that in other parts of the county. In 1970 housing costs in California were 30% more expensive than the United States average; now housing costs are 250% more expensive. Only 28% of households can buy the median priced home. In the past 10 years, the median rent in California has increased by over a third, while the median income has remained flat, and has decreased for many low income Californians. Over half of renters and 80% of low-income renters are rent-burdened, meaning they pay over 30% of their income towards rent.

This bill would create a cap on the potential annual rent increase a property owner can charge a tenant. The cap would be 5% of the lowest rent from the previous year plus the percentage change in the cost of living, as measured by CPI. Over the past 25 years the CPI in California has averaged approximately 2.5%. However, CPI fluctuates year-to-year and region-to-region, based on macro- and local economic conditions. This bill specifies that the cap could never exceed 10%, which is the standard for price gouging for housing and other goods established by the State in 1872 in Penal Code Section 396.

This bill would apply to nearly all of the 5 million units, containing 14.7 million people, not subject to rent control. The bill would exclude dormitories and deed-restricted affordable units, as well as units that have been issued a certificate of occupancy within the past ten years. It would enable the owner of assisted housing developments once rental restrictions expire to establish the initial unassisted rental rate for units, after which the rent cap would apply. It would only apply to units with existing tenants. The requirements of the bill would sunset after 10 years.

The idea for anti-rent gouging came to the fore through the Terner Center's May 2018 policy brief "Finding Common Ground on Rent Control." According to that report, "this policy is intended to protect all California renters against the most egregious rent increases regardless of the unit that they rent, and regardless of whether their city has a rent control ordinance." In February of 2019, Oregon passed the nation's first statewide anti-rent gouging statute SB 608(Burdick), Chapter 1. The Oregon law establishes the rent cap at CPI+7%. Importantly, the Oregon law provides "just cause" eviction protection for all renters after one year of tenancy. Previous to the passage of this statute, setting maximum rent increases was illegal in Oregon.

Analysis of Bureau of Labor Statistics (BLS) data provides a projection of the impact of the proposed rent cap on property owners. This analysis considered the San Diego-Carlsbad metropolitan area, where no jurisdictions have rent control. In the period between 2007-2017, the median increase in contract rent in that region was 2.9%, including a low in 2010 of -0.02% and a high in 2017 of 5.41%. During that period, the average allowable annual rent increase under a rent cap of CPI+5% was 7.1%. As such, on average the allowable rent increase with the proposed cap was 145% higher than the actual increase. In 2017, when the regional median increase in contract rent was at its highest, the proposed rent cap (at 8.01%) exceeded the actual median increase by 48%.

The analysis also looked at the cumulative implication of the proposed rent cap. Adjusting to 2017, the median contract rent in the San Diego-Carlsbad metropolitan area in 2007 was $1,297 per month. In 2017 it was $1,506 per month, an increase of 16.1%. A property where the rent had been increased by CPI+5% each year between 2007 and 2017 would have been priced at $2,132 per month, an increase of 64.4%. An analysis across all of California showed similar results: an increase in actual rents of 15.6% between 2007 and 2017, but a potential increase of 68.2% utilizing the maximum allowed under the proposed rent cap.

According to the Author:

AB 1482 would protect nearly 15 million Californians from large unforeseen rent increases without diminishing property owners' ability to make a fair return on their investment. Renters shouldn't have to choose between paying rent and keeping a roof over their heads or feeding their families. AB 1482 takes the choice off the table and makes it easier for renters to stay in their neighborhoods.

Arguments in Support:

According to Service Employees International Union (SEIU), "A majority of California renters do not live in jurisdictions with local rent control laws, and state law currently allows landlords to implement unlimited rent increases with very short notice to tenants. Increasingly, and predictably, this is causing renters to lose their homes and is driving our state's unprecedented homelessness."

Arguments in Opposition:

According to the California Apartment Association and California Chamber of Commerce, "AB 1482, along with a dozen other bills that target the rental housing industry, would create a huge disincentive to invest in rental housing at a time when California so desperately needs more homes." They note that specifically, this bill would make property financing more difficult, stop new housing construction, cost taxpayers more, benefit the wealthiest residents, create a slippery slope, and impose rent control.

FISCAL COMMENTS:

According to the Assembly Appropriations Committee, minor and absorbable cost to HCD.

VOTES:

ASM HOUSING AND COMMUNITY DEVELOPMENT: 6-1-1

YES: Chiu, Gabriel, Gloria, Limón, Maienschein, Quirk-Silva

NO: Kiley

ABS, ABST OR NV: Diep

ASM APPROPRIATIONS: 12-4-2

YES: Gonzalez, Bloom, Bonta, Calderon, Carrillo, Chau, Eggman, Gabriel, Eduardo Garcia, Maienschein, Quirk, Robert Rivas

NO: Bigelow, Brough, Fong, Obernolte

ABS, ABST OR NV: Diep, Petrie-Norris

UPDATED:

VERSION: May 20, 2019

CONSULTANT: Steve Wertheim / H. & C.D. / (916) 319-2085 FN: 0000946

ASSEMBLY THIRD READING

ATR Bill Id:AB 1482

Author:(Chiu)

As Amended Ver:April 22, 2019

Majority vote

SUMMARY:

Prohibits an owner of a residential real property from increasing the rental rate on a property that has been in effect for the preceding 12 months in an amount that is greater than the Consumer Price Index (CPI) plus five percent, not to exceed 10%.

Major Provisions

1. Defines the "percentage change in the cost of living" to mean the percentage change from April 1 of the prior year to April 1 of the current year in the regional Consumer Price Index (CPI) for the region where the real property is located, as published by the United States Bureau of Labor Statistics. If a regional index is not available, the CPI for All Urban Consumers for all items, as determined by the Department of Industrial Relations, will apply.
2. Applies to partial changes in tenancy of a residential rental property where one or more of the tenants remains an occupant in lawful possession of the property.
3. Does not apply to new tenancies where no tenants from the prior lease remain an occupant in lawful possession of the property.
4. Does not apply to the following residential rental properties:
   1. Deed-restricted affordable housing for persons and families of very-low, low-, or moderate-income, as defined in Section 50093 of the Health and Safety Code;
   2. Dormitories constructed and maintained in connection with any higher education institution within the state for use and occupancy by students in attendance at the institution; and,
   3. Housing subject to a local ordinance that imposes a maximum rental rate increase that is more restrictive than five percent plus CPI.
5. Applies to all rent increases occurring on or after March 15, 2019.
6. Requires an owner to provide notice of any increase in the rental rate to each tenant in accordance with existing law.
7. Establishes that a landlord may not terminate a tenancy for the purposes of increasing the rent in an amount greater than that authorized by this section.
8. Creates a rebuttable presumption that, in the absence of a written statement from the landlord to the tenant showing cause for the termination of a tenancy, the termination is for the purposes of avoiding this section.
9. Requires that, on or before January 1, 2033, the Department of Housing and Community Development (HCD) must report to the Legislature regarding the effectiveness of this program. The report shall include, but not be limited to, the impact of the rental rate cap established in this bill on the housing market within the state.

COMMENTS:

The cost of housing in California is the highest of any state in the nation. Additionally, the pace of the change in the cost of housing has far outstripped that in other parts of the county. In 1970 housing costs in California were 30% more expensive than the U.S. average; now housing costs are 250% more expensive. Only 28% of households can buy the median priced home. In the past 10 years, the median rent in California has increased by over a third, while the median income has remained flat, and has decreased for many low income Californians. Over half of renters and 80% of low-income renters are rent-burdened, meaning they pay over 30% of their income towards rent.

This bill would create a cap on the potential annual rent increase a property owner can charge a tenant. The cap would be five percent of the lowest rent from the previous year plus the percentage change in the cost of living, as measured by CPI. Over the past 25 years the CPI in California has averaged approximately 2.5%. However, CPI fluctuates year-to-year and region-to-region, based on macro- and local economic conditions. This bill specifies that the cap could never exceed 10%, which is the standard for price gouging for housing and other goods established by the State in 1872 in Penal Code Section 396.

This bill would apply to nearly all of the 5 million units, containing 14.7 million people, not subject to rent control. The bill would exclude dormitories and deed-restricted affordable units. It would only apply to units with existing tenants.

The idea for anti-rent gouging came to the fore through the Terner Center's May 2018 policy brief "Finding Common Ground on Rent Control." According to that report, "this policy is intended to protect all California renters against the most egregious rent increases regardless of the unit that they rent, and regardless of whether their city has a rent control ordinance." In February of 2019, Oregon passed the nation's first statewide anti-rent gouging statute SB 608(Burdick), Chapter 1. The Oregon law establishes the rent cap at CPI+7%. Importantly, the Oregon law provides "just cause" eviction protection for all renters after one year of tenancy. Previous to the passage of this statute, setting maximum rent increases was illegal in Oregon.

Analysis of Bureau of Labor Statistics (BLS) data provides a projection of the impact of the proposed rent cap on property owners. This analysis considered the San Diego-Carlsbad metropolitan area, where no jurisdictions have rent control. In the period between 2007-2017, the median increase in contract rent in that region was 2.9%, including a low in 2010 of -0.02% and a high in 2017 of 5.41%. During that period, the average allowable annual rent increase under a rent cap of CPI+5% was 7.1%. As such, on average the allowable rent increase with the proposed cap was 145% higher than the actual increase. In 2017, when the regional median increase in contract rent was at its highest, the proposed rent cap (at 8.01%) exceeded the actual median increase by 48%.

The analysis also looked at the cumulative implication of the proposed rent cap. Adjusting to 2017, the median contract rent in the San Diego-Carlsbad metropolitan area in 2007 was $1,297 per month. In 2017 it was $1,506 per month, an increase of 16.1%. A property where the rent had been increased by CPI+5% each year between 2007 and 2017 would have been priced at $2,132 per month, an increase of 64.4%. An analysis across all of California showed similar results: an increase in actual rents of 15.6% between 2007 and 2017, but a potential increase of 68.2% utilizing the maximum allowed under the proposed rent cap.

According to the Author:

According to the author, "AB 1482 would protect nearly 15 million Californians from large unforeseen rent increases without diminishing property owners' ability to make a fair return on their investment. Renters shouldn't have to choose between paying rent and keeping a roof over their heads or feeding their families. AB 1482 takes the choice off the table and makes it easier for renters to stay in their neighborhoods."

Arguments in Support:

According to Service Employees International Union (SEIU), "A majority of California renters do not live in jurisdictions with local rent control laws, and state law currently allows landlords to implement unlimited rent increases with very short notice to tenants. Increasingly, and predictably, this is causing renters to lose their homes and is driving our state's unprecedented homelessness."

Arguments in Opposition:

According to the California Apartment Association and California Chamber of Commerce, "AB 1482, along with a dozen other bills that target the rental housing industry, would create a huge disincentive to invest in rental housing at a time when California so desperately needs more homes." They note that specifically, this bill would make property financing more difficult, stop new housing construction, cost taxpayers more, benefit the wealthiest residents, create a slippery slope, and impose rent control.

FISCAL COMMENTS:

According to the Assembly Appropriations Committee, minor and absorbable cost to HCD.

VOTES:

ASM HOUSING AND COMMUNITY DEVELOPMENT: 6-1-1

YES: Chiu, Gabriel, Gloria, Limón, Maienschein, Quirk-Silva

NO: Kiley

ABS, ABST OR NV: Diep

ASM APPROPRIATIONS: 12-4-2

YES: Gonzalez, Bloom, Bonta, Calderon, Carrillo, Chau, Eggman, Gabriel, Eduardo Garcia, Maienschein, Quirk, Robert Rivas

NO: Bigelow, Brough, Fong, Obernolte

ABS, ABST OR NV: Diep, Petrie-Norris

UPDATED:

VERSION: April 22, 2019

CONSULTANT: Steve Wertheim / H. & C.D. / (916) 319-2085 FN: 0000449

Date of Hearing: May 8, 2019

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 1482

Author:(Chiu) – As Amended Ver:April 22, 2019

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill establishes a maximum allowable rent increase for housing. Among the bill’s provisions:

1. Prohibits an owner of residential real property, for rent increases occurring on or after March 15, 2019, from increasing the rental rate for that property by more than 5% above the lowest rental rate in effect for the immediately preceding 12 months plus the regional percentage change in cost of living.
2. Prohibits the total rental rate increase from exceeding 10% within any 12-month period.
3. Prohibits a landlord from terminating a tenancy for the purposes of increasing the rent in an amount greater than authorized by this bill and creates a rebuttable presumption that, in the absence of a written statement from the landlord to the tenant showing cause for the termination of a tenancy, the termination is for the purposes of avoiding the provisions of this bill.
4. Requires, on or before January 1, 2033, the Department of Housing and Community Development (HCD) to report to the Legislature regarding the effectiveness of this program. The report must include the impact of the rental rate cap established in this bill on the housing market within the state.

FISCAL EFFECT:

Minor and absorbable costs to HCD.

COMMENTS:

1. Purpose. This bill seeks to protect renters from unreasonable and unexpected rent increases by creating a cap on the annual rent increase a property owner can charge a tenant. According to the author:

[This bill] would protect nearly 15 million Californians from large unforeseen rent increases without diminishing property owners’ ability to make a fair return on their investment. Renters shouldn’t have to choose between paying rent and keeping a roof over their heads or feeding their families. AB 1482 takes the choice off the table and makes it easier for renters to stay in their neighborhoods.

1. Background. The cost of housing in California is among the highest in the nation. Only 28% of households can buy the median priced home. Over half of renters and 80% of low-income renters are rent-burdened, meaning they pay over 30% of their income towards rent. Research by Zillow from 2018 found that some areas with a high percentage of rent-burdened households experienced a rapid increase in homelessness, and areas where high rents are combined with high poverty experienced triple the homelessness rate of the average community. According to the Terner Center for Housing Innovation at UC Berkeley, California has approximately 16.6 million renters living in about 5.7 million rental units. Of those, 1.9 million renters live in the states’ approximately 700,000 rent-controlled units. The remaining 14.7 million renters live in the five million housing units not subject to any controls.

The Consumer Price Index (CPI) is a measure of the average change in consumer prices over time. It is measured monthly by the U.S. Bureau of Labor Statistics (BLS). Over the past 25 years, the CPI in California has averaged approximately 2.5%. However, CPI fluctuates year-to-year and region-to-region, based on macro and local economic conditions.

1. Arguments in Support. Supporters, primarily affordable housing advocates and workers, argue most renters do not live in rent-controlled dwellings and suffer from unlimited rent increases with very short notice, which causes them to lose their homes and contributes to the state’s increasing homelessness. Supporters believe this bill balances the needs of renters with those of property owners, not by imposing rent control, but by guarding against drastic rent increases.
2. Arguments in Opposition. Opposition, primarily property owners and business groups, argues this bill creates a disincentive to invest in rental housing at a time when the state needs more housing. Over time, they believe, controlling rental prices will decrease inventory as owners remove their property from the market and construction slows.
3. Related Legislation.

AB 36 (Bloom), of this legislative session, enables local jurisdictions to apply rent control to units more than ten years old and certain single-family homes. That bill is pending hearing in the Assembly Housing and Community Development Committee.

AB 1481(Bonta), of this legislative session, prohibits evictions without just cause stated and requires relocation assistance for terminated leases. That bill is pending hearing in the Assembly Committee on Judiciary.

AB 1697 (Grayson), of this legislative session, prohibits evictions without just cause for tenants with at least 12 months occupancy and requires relocation assistance for terminated leases. That bill is pending hearing in the Assembly Committee on Judiciary.

1. Prior Legislation. AB 1506 (Bloom), of the 2017-18 Legislative Session, would have repealed the Costa-Hawkins Rental Housing Act. That bill was held in the Assembly Committee on Housing and Community Development.

Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081

Date of Hearing: April 25, 2019

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

David Chiu, Chair

ABPCA Bill Id:AB 1482 (

Author:Chiu) – As Amended Ver:April 22, 2019

SUBJECT: Tenancy: rent caps

SUMMARY: Establishes a maximum allowable rent increase for housing. Specifically, this bill:

1. Establishes that an owner of residential real property in the state may not increase the rental rate for that property in an amount that is greater than 5 percent plus percentage change in cost of living more than the rental rate in effect for the immediately preceding 12 months, subject to the following:
   1. The “percentage change in the cost of living” is defined to mean the percentage change from April 1 of the prior year to April 1 of the current year in the regional Consumer Price Index (CPI) for the region where the real property is located, as published by the United States Bureau of Labor Statistics. If a regional index is not available, the CPI for All Urban Consumers for all items, as determined by the Department of Industrial Relations, will apply.
   2. Applies to partial changes in tenancy of a residential rental property where one or more of the tenants remains an occupant in lawful possession of the property;
   3. Does not apply to new tenancies where no tenants from the prior lease remain an occupant in lawful possession of the property; and
   4. Does not apply to the following residential rental properties:
      1. Deed-restricted affordable housing for persons and families of very-low, low-, or moderate-income, as defined in Section 50093 of the Health and Safety Code;
      2. Dormitories constructed and maintained in connection with any higher education institution within the state for use and occupancy by students in attendance at the institution; and,
      3. Housing subject to a local ordinance that imposes a maximum rental rate increase that is more restrictive than 5 percent plus CPI.
2. Applies to all rent increases occurring on or after March 15, 2019.
3. Requires an owner to provide notice of any increase in the rental rate to each tenant in accordance with existing law.
4. Establishes that a landlord may not terminate a tenancy for the purposes of increasing the rent in an amount greater than that authorized by this section.
5. Creates a rebuttable presumption that, in the absence of a written statement from the landlord to the tenant showing cause for the termination of a tenancy, the termination is for the purposes of avoiding this section.
6. Requires that, on or before January 1, 2033, the Department of Housing and Community Development (HCD) must report to the Legislature regarding the effectiveness of this program. The report shall include, but not be limited to, the impact of the rental rate cap established in this bill on the housing market within the state.

EXISTING LAW:

1. Establishes rules and processes regarding the hiring of real property, including hiring of a dwelling unit for purposes of tenancy (Civil Code Sections 1940-1954.5).
2. Establishes the Costa-Hawkins Rental Housing Act, which authorizes an owner of residential real property to establish the initial and all subsequent rental rates for a dwelling or a unit if any of the following is true, as well as other specified reasons:
   1. There has been a complete change in the tenancy;
   2. It has a certificate of occupancy issued after February 1, 1995;
   3. It is a condominium dwelling or unit that has not been sold separately by the subdivider to a bona fide purchaser for value, as specified;
   4. It is a single-family home;

(Civil Code Sections Civil Code Sections 1954.50 to 1954.535 1940-1954.05)

1. Provides that upon the declaration of a state of emergency resulting from an earthquake, flood, fire, riot, storm, or natural or manmade disaster declared by the President of the United States or the Governor, or upon the declaration of a local emergency resulting from an earthquake, flood, fire, riot, storm, or natural or manmade disaster by the executive officer of any county, city, or city and county, and for a period of 30 days following that declaration, it is unlawful for a person, contractor, business, or other entity to sell or offer to sell any consumer food items or goods, goods or services used for emergency cleanup, emergency supplies, medical supplies, home heating oil, building materials, housing, transportation, freight, and storage services, or gasoline or other motor fuels for a price of more than 10 percent above the price charged by that person for those goods or services immediately prior to the proclamation of emergency (Penal Code Section 396(b)).

FISCAL EFFECT: Unknown

COMMENTS:

Purpose of the Bill: According to the author, “AB 1482 would protect nearly 15 million Californians from large unforeseen rent increases without diminishing property owners’ ability to make a fair return on their investment. Renters shouldn’t have to choose between paying rent and keeping a roof over their heads or feeding their families. AB 1482 takes the choice off the table and makes it easier for renters to stay in their neighborhoods.”

Background: The cost of housing in California is the highest of any state in the nation. Additionally, the pace of the change in the cost of housing has far outstripped that in other parts of the county. In 1970 housing costs in California were 30 percent more expensive than the U.S. average; now housing costs are 250 percent more expensive. While incomes have increased over that period, they have done so at a much slower pace than housing cost. Only 28 percent of households can buy the median priced home. Over half of renters and 80 percent of low-income renters are rent-burdened, meaning they pay over 30 percent of their income towards rent. Research by Zillow from 2018 found that some areas with a high percentage of rent-burdened households experienced a rapid increase in homelessness, and areas where high rents are combined with high poverty experienced triple the homelessness rate of the average community.

According to the Terner Center for Housing Innovation at UC Berkeley, California has approximately 16.6 million renters living in about 5.7 million rental units. Of those, 1.9 million renters live in the states approximately 700,000 rent-controlled units. The other 14.7 million Californians do not live in the five million housing units that are not subject to any controls regarding the amount of rent increases sought upon the completion of a lease.

About the Consumer Price Index (CPI): CPI is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. It is measured monthly by the U.S. Bureau of Labor Statistics (BLS). CPI is available for the state of California, as well as for several of the state’s metropolitan regions, including Los Angeles-Long Beach-Anaheim, San Francisco-Oakland-Hayward, San Diego-Carlsbad, and as of 2017, Riverside-San Bernardino.

Over the past 25 years the CPI in California have averaged approximately 2.5 percent. However, CPI fluctuates year-to-year and region-to-region, based on macro- and local economic conditions.

Controls on Price-Gouging: This bill would create a cap on the potential annual rent increase a property owner can charge a tenant. The cap would be five percent of the lowest rent from the previous year plus the percentage change in the cost of living, as measured by CPI. The bill specifies that the cap could never exceed ten percent, which is the standard for price gouging for housing and other goods established by the State in 1872 in Penal Code Section 1872. This bill would apply to nearly all of the five million units not subject to rent control, excluding dormitories and deed-restricted affordable units. It would only apply to units with existing tenants.

The idea for anti-rent gouging came to the fore through the Terner Center’s May 2018 policy brief “Finding Common Ground on Rent Control”. According to that report, “this policy is intended to protect all California renters against the most egregious rent increases regardless of the unit that they rent, and regardless of whether their city has a rent control ordinance.” Many of the measures in the proposed bill reflect what was included in the Terner Center policy brief, including the CPI+5 percent cap.

In February of 2019, Oregon passed the nation’s first statewide anti-rent gouging statute (Senate Bill 608). The Oregon law establishes the rent cap at CPI+7%. Importantly, the Oregon law provides “just cause” eviction protection for all renters after one year of tenancy. Previous to the passage of this statute, setting maximum rent increases was illegal in Oregon.

Financial Implications for Property Owners: Analysis of BLS data provides a projection of the impact of the proposed rent cap on property owners. This analysis considered the San Diego-Carlsbad metropolitan area, where no jurisdictions have rent control. In the period between 2007-2017, the median increase in contract rent in that region was 2.9 percent, including a low in 2010 of -0.02 percent and a high in 2017 of 5.41 percent. During that period, the average allowable annual rent increase under a rent cap of CPI+5 percent was 7.1 percent. As such, on average the allowable rent increase with the proposed cap was 145 percent higher than the actual increase. In 2017, when the regional median increase in contract rent was at its highest, the proposed rent cap (at 8.01 percent) exceeded the actual median increase by 48 percent.

The analysis also looked at the cumulative implication of the proposed rent cap. Adjusting to 2017, the median contract rent in the San Diego-Carlsbad metropolitan area in 2007 was $1,297 per month. In 2017 it was $1,506 per month, an increase of 16.1 percent. A property where the rent had been increased by CPI+5 percent each year between 2007 and 2017 would have been priced at $2,132 per month, an increase of 64.4 percent. An analysis across all of California showed similar results: an increase in actual rents of 15.6 percent between 2007 and 2017, but a potential increase of 68.2 percent utilizing the maximum allowed under the proposed rent cap.

Arguments in Support: According to SEIU, “A majority of California renters do not live in jurisdictions with local rent control laws, and state law currently allows landlords to implement unlimited rent increases with very short notice to tenants. Increasingly, and predictably, this is causing renters to lose their homes and is driving our state’s unprecedented homelessness.”

According to California YIMBY, “AB 1482 does not impose rent control, but simply guards against the most drastic and disruptive rent increases in places where tenants have no other protections.” According to the State Building and Construction Trades Council, “The bill seeks to balance the needs of renters with those of property owners by enabling a fair return similar to other business investments.”

Arguments in Opposition: According to the California Apartment Association and California Chamber of Commerce, “AB 1482, along with a dozen other bills that target the rental housing industry, would create a huge disincentive to invest in rental housing at a time when California so desperately needs more homes. Study after study has demonstrated that price controls end up crippling the commodity that is controlled, including housing. There may be a short-term reduction in the price of rent-controlled units, but over the mid to long run, controlling rental prices decreases inventory as property owners remove units from the market, and construction of new rental housing slows. As rental units dwindle in a city or region, working-class families, seniors, and others in need experience the most harm.” They note that specifically, this bill would make property financing more difficult, stop new housing construction, cost taxpayers more, benefit the wealthiest residents, create a slippery slope, and impose rent control.

Related Legislation:

AB 36 (Bloom) (2019): Enables local jurisdictions to apply rent control to units more than ten years old and/or single-family homes owned by a person who owns up to two units in the jurisdiction. This bill is pending hearing in this committee.

AB 1481(Bonta) (2019): Prohibits evictions without just cause stated and requires relocation assistance for terminated leases. This bill is pending hearing in the Assembly Committee on Judiciary.

AB 1697 (Grayson) (2019): Prohibits evictions without just cause for tenants with at least twelve months occupancy, and requires relocation assistance for terminated leases. This bill is pending hearing in the Assembly Committee on Judiciary.

Previous Legislation:

AB 1506 (Bloom et al.) (2018): Would have repealed the Costa-Hawkins Rental Housing Act. This bill died in this committee.

REGISTERED SUPPORT / OPPOSITION:

Support

Alliance of Californians for Community Empowerment (co-sponsor)

California Rural Legal assistance Foundation (co-sponsor)

PICO California (co-sponsor)

Public Advocates (co-sponsor)

Western Center on Law and Poverty (co-sponsor)

Abundant Housing LA

AFSCME Local 3299

Alliance for Community Transit - Los Angeles

American Civil Liberties Union of California

Asian Americans Advancing Justice - California

Asian Americans and Pacific Islanders for Civic Empowerment Education Fund

Asian Pacific Environmental Network

Bay Area Legal Aid

Bend the Arc: Jewish Action Southern California

California Alliance for Retired Americans

California Calls

California Conference Board of the Amalgamated Transit Union

California Conference of Machinists

California Labor Federation

California Renters Legal Advocacy and Education Fund

California Rural Legal Assistance Foundation

California Teamsters Public Affairs council

California YIMBY

Central Coast Alliance United for a Sustainable Economy

Central Valley Empowerment Alliance

Chan Zuckerberg Initiative

Coalition for Humane Immigrant Rights

Congregations Organized for Prophetic Engagement

Corporation for Supportive Housing

Courage Campaign

Drug Policy Alliance

EAH Housing

East Bay for Every One

East Bay Housing Organization

Engineers and Scientists of CA, IFPTE Local 20, AFL-CIO

Enterprise Community Partners

Esperanza Community Housing Corporation

Faith in Action Bay Area

Faith in the Valley, Stanislaus

Gamaliel of California

Hamilton Families

Hillcrest Indivisible

House Sacramento

Housing California

Hunger Action Los Angeles

Indivisible SF

Indivisible: San Diego Central

Inlandboatmen’s Union of the Pacific

KIWA

Korean Resource Center

LA Forward

LA Voice

Latino Coalition for a Healthy California

Latinos United for a New America

Law Foundation of Silicon Valley

Leadership Counsel for Justice and Accountability

Legal Services for Prisoners with Children

Mayor Eric Garcetti

Mission Neighborhood Centers

Monument Impact

National Association of Social Workers, California Chapter

National Union of Healthcare Workers

Non-Profit Housing Association of Northern California

Oakland Tenants Union

Orange County Civic Engagement Table

Orange County Congregation Community Organization

Planning and Conservation League

PolicyLink

POWER

Power California

Professional and Technical Engineers, IFPTE Local 21, AFL-CIO

Public Counsel

Public Law Center

Sacramento Filipinx LGBTQIA

Sacred Heart Community Service

San Francisco Foundation

SEIU California

SOMOS Mayfair

Southern California Association of Non Profit Housing

State Building and Construction Trades Council

Strategic Actions for a Just Economy

TechEquity

Tenderloin Neighborhood Development

Thai Community Development Center

The Kennedy Commission

The Public Interest Law Project

Transform

UAW Local 2865

UC Davis Bulosan Center for Filipino Studies

UNITE HERE, Local 19

United Food and Commercial Workers, Western States Council

United Teachers Los Angeles

Unite-Here, AFL-CIO

Utility Workers of America

Venice Community Housing Corporation

Viet Vote SD

Working Partnerships USA

YIMBY Action

Support If Amended

Bay Area Council

Building Industry Association of the Bay Area

Community Legal Services in East Palo Alto

Housing for All Burlingame

Oakland Chamber of Commerce

One San Mateo

Related California

SPUR

Youth United For Community Action

Opposition

AMVETS

California Apartment Association

California Association of Realtors

California Business Properties Association

California Business Roundtable

California Chamber of Commerce

California Council for Affordable Housing

California Mortgage Bankers association

California Rental Housing Association

Prometheus

Southern California Rental Housing Association

Analysis Prepared by: Steve Wertheim / H. & C.D. / (916) 319-2085