'Agreement' Reached At California Capitol On Proposal To Cap Rent Hikes

California would limit annual rent increases to 5 percent on top of inflation — with a maximum of 10 percent — under a rent cap deal announced Friday night by Gov. Gavin Newsom and Democratic legislative leaders.

Under the agreement, landlords could raise rents 5 percent plus the cost of inflation during any 12-month period, as calculated under a set of regional consumer price indexes. Landlords would also need to show “just cause” in order to evict tenants after their first year — a key provision contained in a separate bill that stalled earlier this year.

The agreement involves “a series of amendments” to AB 1482 by Asm. David Chiu (D-San Francisco) that would “create strong renter protections,” according to a statement issued by Newsom, Assembly Speaker Anthony Rendon (D-Lakewood), Senate President pro Tem Toni Atkins (D-San Diego) and Chiu.

“The bill will protect millions of renters from rent-gouging and evictions and build on the Legislature’s work this year to address our broader housing crisis,” the statement reads.

Tenant, landlord and business groups have been quietly negotiating for weeks with the governor’s office and Senate Majority Leader Bob Hertzberg (D-Van Nuys). 

Business and landlord groups — including the California Business Roundtable and California Apartment Association — have said they need stability and certainty so they can obtain financing to build new construction.

But it’s not yet clear if the agreement has enough votes to pass the Senate and Assembly.

The agreement contains several exemptions, including a rolling 15-year break for new construction. That means apartments constructed in the future would not fall under the rent cap until 15 years after they’re built. 

Landlords who rent a small number of single-family homes would also be exempt. But the rent cap would apply to those with a large portfolio of single-family home rentals, such as real estate trusts, corporations and limited liability companies.

The agreement would take effect on January 1, 2020, and expire after 10 years. 

The agreement, if enacted, would be the first major change to California rental policy since the 1995 Costa-Hawkins Rental Housing Act, which banned local governments from imposing rent control on units built after that year.

But the amendments would render the bill effectively silent on Costa-Hawkins. The deal would leave existing city rent control ordinances on pre-1995 units in place. And because Costa-Hawkins remains on the books, local governments would still be prohibited from imposing rent control, which is stricter than rent caps, on post-1995 apartments.

Last November, California voters rejected Proposition 10, a ballot measure that would have repealed the law and given cities and counties the authority to expand rent control.

The measure was defeated 59 percent to 40 percent after landlords and many economists argued rent control creates the perverse, unintended consequence of making rental housing scarcer and increasing rents for all but a select few.

Proposition 10’s proponent, Michael Weinstein, has also been working on a similar initiative for the November 2020 ballot.

The deal comes as the state continues to grapple with an affordable housing crisis, which has included large and often unpredictable rent increases for tenants across the state in recent years. 

The share of income renters pay has been steadily increasing for decades. From 1960 to 2013, the percentage of family income needed for rent in California nearly doubled from about 20 percent to 37 percent, according to the Legislative Analyst’s Office. The cost was even higher for young renters, age 18 to 30, who paid 44 percent of their income.