Calif. Gov. Gavin Newsom signed into law this week a measure that would cap rents throughout the state, a move that the real estate industry has warned could have dire long-term consequences.
The law limits annual rent increases that landlords can enact on tenants in the state to 5% after inflation. The new limit will take effect in January.
Lawmakers said the rent cap was driven by skyrocketing affordability in the state. Fifty-five percent of renters in California paid 30% or more of their income for housing in 2017 compared to 49.5% of renters nationally, according to the latest data available from the U.S. Census Bureau.
Rent control measures have long been opposed by REALTORS®, who argue that such measures discourage investment and reduce supply. They also argue that rent control can ultimately hurt renters in the long run. The New York Times cites a study in San Francisco and other locations that showed price caps often prompted landlords to abandon the rental business and convert their units to owner-occupied homes.
The California Association of REALTORS® had advocated against the state’s rental cap measure. “Although we did not prevail, we remain steadfast in our commitment to overcome California’s historic housing supply and affordability crisis,” Jared Martin, CAR president, said in a statement following lawmakers’ approval of AB 1482. “Much more work remains ahead of us.”
Only a few states—California, Maryland, New Jersey, and New York—and the District of Columbia have some form of rent control protections. Tenant groups have been trying to expand efforts nationwide. About a dozen states reportedly are looking to add a ballot measure as well, such as Washington, Colorado, and Nevada.