The Problems are the Path: "Justice for Renters Act" Threatens Housing Market Balance

The potential of the passing of this act will have the following implications:

1.  The act could control properties presently exempt; such as, single family homes and new construction

2. More cities could expand rent control with the passage of this act.

3.  Removing Costa-Hawkins could lead to Vacancy Control in cities with rent control, limiting landlords ability to raise rents.

4.  The Act represents a broader shift of the California Legislature towards stricter housing regulations; thereby, creating uncertainty in real estate  investment analysis.

5.  Uncertainty could upset housing market balance with unfortunate circumstances.

"The “Justice for Renters Act,” seeks to repeal Costa-Hawkins entirely, allowing for strict rent control on all types of housing, including single-family homes and newer apartments. It would also eliminate the ban on vacancy control, significantly impacting landlords’ ability to adjust rents when a tenant moves out and a new renter moves in. Compounding these concerns is the fact that several cities in California have already put triggers in their local rent control laws that would automatically adopt stricter policies if Costa-Hawkins were repealed. This means the repeal could instantly activate more severe rent control regulations in various jurisdictions. For rental property owners, the implications are severe. The potential for strict rent control across all housing types would deter investment in new housing construction, exacerbating California’s already dire housing shortage. This concern is heightened by the fact that about 25 local governments in California have adopted rent control ordinances, several over the past decade, and more potential targets for local rent control in the pipeline. Without Costa-Hawkins, tenant activists would be further motivated to bring more stringent rent control to more jurisdictions." (Mike Nemeth CAA Marketing Director)



This is just another nail in the coffin of single family rental landlords investment property in California.  Add to the the prior enactments of the California Legislature in this housing sector has caused an exodus out of single family rentals to investment real estate outside California, or a migration to Triple Net Leasing Properties within the State of California.



To summarize here are the Five Reasons to be Worried: (Nemeth and McKae comments)



1. Currently exempt properties, such as single-family homes and recent construction, could fall under rent control if the act passes, significantly altering the business expectations for many who believed their investments were safeguarded.



2. Tenant activists have brought rent control to several California cities in recent years. The act’s passage would further motivate them to pursue rent control in cities that currently have none. This would lead to new rent control measures in areas previously unaffected.



3. In cities with existing rent control, the removal of Costa-Hawkins would invite returns to vacancy control. This means that rents would be capped even when a tenant moves out and a new tenant moves in, leaving the owner unable to move rents to market. This would dramatically reduce the flexibility to adjust rents between tenancies. Imagine never being able to bring your rents to market rates.



4. The act would mark a broader shift toward more stringent housing regulations, bringing uncertainty to the rental housing market and affecting long-term investment decisions.



5. The act would lower property values and discourage new housing development, aggravating the housing shortage and leading to a stagnant rental market.



McKae Summary:



The most difficult job for investors and their advisors to comprehend is the slow change will make the value of their properties depreciate.  A good example is the action of East Palo Alto in the past 5+ years.  With the action of Tennant Activists  capped by the Pandemic, halting rent payments, landlords began a mass movement selling their properties at depreciated values to the Fix and Flipper.  The resultant outcome was even higher priced homes in an area that was once considered affordable for the "Blue Collar" workers, immigrants and hotel/motel and fast food worker group. 



The overall impact of this Act will create more unaffordable homes than increase the ability to create affordable housing in California!







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