Weinstein’s Group Move to Make RAA Law

In 2018, voter’s rejected Proposition 10, which was a measure to dismantle the Costa-Hawkins Rental Act and would have made instituting rent control ordinances feasible for local municipalities. It was my contention that AIDS Foundation Chairman, Michael Weinstein, who was behind the push to get Proposition 10 on ballot, would pursue a new rent control initiative in the future.

I was not surprised when a new initiative, The Rental Affordability Act, was adopted by the Weinstein’s group. The new measure would exempt new buildings for 15 years, and vacancy control would be limited to an increase of 15%. Single family residences and dwellings in Common Interest Developments would be exempt as long as the landlords are not corporations or hold title under an LLC.

Governor Gavin Newsom signed AB 1482 into law last year, which is a statewide regulation capping rents at 5% plus inflation on properties built in the last 15 years. The state law also exempts single family homes and units in HOA’s, but the Rental Affordability Act would only exempt owners with up to two residences. This new measure has some of the same components as the state law as rent restrictions would not be imposed on new construction or properties 15 years old.

I tend to agree with the many rental property experts who believe these laws will ultimately hurt tenants and investors as standards of high-quality property enhancement and improvement would be negatively impacted due to deceased investment returns. This measure does not support increasing the housing supply.

Although the state law accounts for inflation, local ordinance such as the Rent Stabilization Ordinance within the boundaries of the City of Los Angeles does not; therefore, voting the Rental Affordability Act into law would give cities not currently under such an ordinance latitude to adopt ordinances similar to that currently enforced in Los Angeles. This would mean annual increase caps of 3-4 % with owner expenses increasing to diminish returns.

One of the important aspects of strategic planning for rental property owner’s investments is ‘upside potential’ which simply put means the ability to increase value or desirability by bringing revenue figures up to market standards.  Rents are an indicator of value and positive cash flow is the major objective of some investors. The combination of COVID-19, AB 1482, as well as AB 828 and the Rental Affordability Act possibly becoming law have landlords deeply concerned about the prospects of continuing in the rental business.

 

By M.A. Williams