How Much Can a Landlord Raise Rent in California in 2024?

The key to understanding Rent Control Laws

A San Francisco neighborhood. A row of duplex style homes line the street across from a vibrant green lawn. In the far distance sits the city skyline.

What is Rent Control?

Rent control is a government policy that regulates the rental market by placing limitations on how much landlords can charge for rent in certain properties. The primary aim of rent control is to ensure housing affordability for low-income residents and prevent rapid rent increases that could displace existing tenants.

However, these regulations can vary greatly depending on the jurisdiction. They might involve:

  1. Rent increase caps: These limit the annual percentage a landlord can raise rent.
  2. Eviction restrictions: Landlords must demonstrate a specific and justified reason to evict a tenant.
  3. Just cause evictions: Landlords must have a legitimate justification for eviction proceedings.

The effectiveness of rent control is a subject of ongoing debate. Proponents argue that it stabilizes communities and protects vulnerable renters. Opponents suggest it disincentivizes landlords from maintaining properties and can lead to a shortage of available rental housing.

‍Types of Rent Regulation:

Rent control policies can be categorized into two main approaches:

  1. Eviction control: These regulations establish specific criteria a landlord must meet before evicting a tenant. This protects tenants from arbitrary eviction and helps ensure stability.
  2. Price control: These regulations limit the amount a landlord can charge for rent. This approach aims to make housing more affordable. Price controls may consider factors like inflation or existing rent rates to determine allowable increases.

Enforcing eviction control can be complex due to the dynamic nature of housing markets. Therefore, a more common strategy is price control with limitations on rent increases.

Rent control is typically implemented in areas with a high demand for housing, where market forces might drive prices beyond the reach of many residents. However, it's important to note that rent control is not implemented nationwide in the United States. The National Multifamily Housing Council's website can provide more information on specific locations with rent control laws.

For example, some states have neither rent control nor eviction control, including the following: Alaska, Delaware, Hawaii, Maine, Montana, Nebraska, Nevada, Ohio, Pennsylvania, Virginia, West Virginia, and Wyoming.

How much can rent increase in California?

California's Tenant Protection Act (AB 1482) restricts how landlords can raise rent for their rental properties.

This California law sets a statewide rent cap to prevent excessive rent hikes. This cap limits annual rent increases to either 5% of the current rent plus the local inflation rate or 10% of the current rent, whichever is lower.

Calculating the rent increase (CPI) 

Many states with rent control regulations use the Consumer Price Index (CPI) to determine allowable annual rent increases. The CPI, published by the Bureau of Labor Statistics, measures inflation and helps ensure rent adjustments reflect economic changes while following state guidelines.

Calculating the Increase:

The process is fairly straightforward. Landlords multiply the published CPI percentage increase by the current monthly rent.

For example, imagine you own a property with a current rent of $2,000, and the relevant CPI for your area increased by 3%. Here's how to calculate the allowable increase:

  1. Multiply current rent by CPI increase: $2,000 * 3% = $60 
  2. Add the increase to the current rent: $2,000 + $60 = $2,060 

Following this example, you could legally raise the rent by up to $60, bringing the new monthly rent to $2,060.

Important Note:

Always check your specific state and local regulations for details. In some areas, like California, under the Tenant Protection Act, landlords must use the CPI data from the previous April for their specific market area when calculating allowable rent increases.

Overview of percent increases nationwide 

Rent increase regulations can vary greatly depending on location. California, for instance, has established a comprehensive framework governing rent hikes and tenant rights. In contrast, other states might have different laws or lack statewide rent control.

Places like Texas allow landlords more freedom in setting rent increases, while some cities and municipalities have local ordinances that offer additional protections for tenants. Understanding these regulations is critical for both landlords and tenants. By knowing the specific rules in their area, they can ensure they're acting by the law.

What is AB 1482?

California's Tenant Protection Act of 2019, also known as AB 1482, restricts annual rent increases for municipalities throughout the state. Landlords can raise rent by a maximum of 5% plus the annual Consumer Price Index (CPI) increase, capped at 10% in any 12-month period.

Previously, the CPI increase in many California areas hovered between 3% and 4.5%. However, the policy was adjusted after August 1st, 2022 due to rising inflation. Now, the maximum allowable CPI increase is set at 5%.

As a result, many areas that previously had rent increases between 7% and 9.5% are now subject to the full 10% allowable increase under AB 1482.

Who is exempt from AB 1482?

California's AB 1482 rent control law doesn't apply to all residential properties. Here's a breakdown of some common exemptions:

  1. New Construction: Buildings with a certificate of occupancy issued within the last 15 years are generally exempt. 
  2. Single-Family Homes & Condos (Owner-Occupied): Properties not owned by large corporations or LLCs and where the owner doesn't live in one duplex unit are exempt. 
  3. Certain Affordable Housing: Units with existing affordability restrictions set by government programs are exempt. 
  4. Student Housing: Dorms and housing affiliated with universities or colleges are exempt. 
  5. Short-Term Rentals (14 Days or Less): Properties listed on platforms like Airbnb for short stays are exempt. 
  6. Government-Subsidized Housing: Properties with rent limits imposed by government agencies are exempt. 
  7. Employee Housing: Housing provided as a condition of employment is exempt.

Landlords whose properties are exempt from AB 1482 must provide their tenants with a notice of exemption. If you are unsure whether or not your property falls under an exemption category, you can:

  1. Consult with your real estate attorney to draft a notice of exemption
  2. Meet with a professional organization like the California Apartment Association or California Association of Realtors for up-to-date forms and information.

What's new for 2024

Here's what you should know about the changes coming to California this year.

Security deposits

Recently, California Governor Gavin Newsom signed Assembly Bill 12 into law. This new legislation limits security deposits to one month's rent, effectively addressing the prior practice of some landlords charging exorbitant deposits of two or even three times the monthly rent.

Assemblymember Matt Haney, who introduced the bill, highlighted how excessive security deposits create a significant hurdle for renters seeking affordable housing. This new law, taking effect on July 1, 2024, positions California as the twelfth state to enact a one-month security deposit cap.

The legislation includes an exemption for smaller landlords who own a maximum of two properties with four units or less. For most California renters, this move represents a significant step towards improving housing affordability.

Screening fee receipts

Assembly Bill 1764, signed by Governor Newsom, allows landlords to deliver screening fee receipts electronically, with the consent of both the landlord and applicant. This adds email as a valid option alongside the existing methods of providing a paper receipt in person or by mail.

This change aims to modernize the application process by reducing unnecessary paperwork. It's important to note that this new option doesn't impact the existing law, which limits screening fees to the landlord's actual costs associated with processing the application.

What Types of Properties are Included in California Rent Control?

California's rent control regulations primarily apply to traditional rentals like apartments. However, there are several categories of housing exempt from these rules.

The Costa-Hawkins Rental Housing Act of 1995 exempts single-family homes, condominiums, and any units built after February 1, 1995, from local rent control. This act also allows for "vacancy decontrol," meaning landlords can raise rents to market rate when a tenant in a rent-controlled unit leaves voluntarily or due to eviction for non-payment of rent.

Depending on local laws, other California rent control exceptions include owner-occupied buildings with three or four units, short-term rentals like Airbnb, government-subsidized housing, or detached "granny units" that cannot be sold separately from the main house.

There are a few other exceptions for this bill, including the following:

  1. Properties constructed in the last 15 years
  2. Mobile homes
  3. College dormitories
  4. Single-family homes unless they are owned by a real estate trust, corporation, or an LLC.  
  5. Properties that are already subject to local rent control regulations. 
  6. Duplexes where the owner resides in one of the units.  
  7. Housing is restricted by a deed, regulatory limitations, or other recorded document that limits affordability to low- or modest-income households.  

The Tenant Protection Act: What Happens to the California Eviction Process?

One key aspect of AB 1482, similar to many rent control laws, is the concept of "just cause" eviction. This means landlords must have a legitimate reason to evict tenants who have lived in the unit for a certain period.

The "just cause" protections apply in the following tenancy durations:

  1. All tenants have lived there for 12 months or more.
  2. Some tenants have lived there for less than 12 months, but at least one tenant has been there for 24 months or more.

These protections prevent landlords from evicting tenants simply to raise rent with a new tenant. However, the law allows market-rate rent to be set for vacant units. In essence, AB 1482 discourages displacement of established tenants by requiring landlords to demonstrate a valid justification for eviction.

The statute establishes two distinct ‘just cause' criteria:

‍At-Fault Just Cause: A landlord can terminate a tenancy for ‘at-fault just cause' in the event that the tenant:

  1. fails to pay rent  
  2. engages in criminal activity or uses the rental unit for an unlawful purpose  
  3. breaches a material term in the lease  
  4. refuses to execute a written renewal or extension of the lease after receiving a landlord's written request

If the breach is curable (e.g., overdue rent payment), as required by California Code of Civil Procedure § 1161, the landlord must give the tenant a reasonable opportunity to mend it.

‍No-Fault Just Cause: A landlord can terminate a tenancy for ‘no-fault just cause,' which includes, but is not limited to, the following situations:

  1. The landlord intends to demolish or substantially renovate the property.
  2. The landlord or a member of the landlord's family wants to move into the unit.  
  3. The landlord must comply with a local ordinance or order issued by a government entity.

If the landlord wants to terminate a tenancy for “no-fault just cause, they must pay the tenant with one month's worth of relocation assistance.

The Effects of Rent Control on Landlords

Rent control offers undeniable advantages for tenants. It promotes financial stability by limiting rent increases, allowing families to stay in their homes, and preventing displacement of working-class residents from their communities.

However, the impact of rent control on the housing market is complex. Landlords may benefit from reduced tenant turnover, leading to less frequent repairs and vacancies. Stable occupancy also eliminates income gaps caused by vacancies.

On the other hand, some studies suggest that rent control may have unintended consequences. For example, a study in San Francisco found that while rent control helped prevent tenant displacement initially, it discouraged landlords from investing in their properties or maintaining existing stock. Additionally, some landlords exited the rental market altogether, selling their properties or converting them to condominiums to avoid rent control limitations.

This decrease in rental supply and converting existing units to condos can lead to a long-term reduction in affordable housing options. The study suggests that rent control may inadvertently contribute to rising rents due to a shrinking pool of available rentals.

While AB 1482 offers protections for tenants, it's important to consider potential effects on the housing market. Here are some areas where potential drawbacks might arise:

  1. Reduced Incentive for Investment: Rent control can disincentivize landlords from investing in property improvements or upgrades. Since potential rent increases are capped, some landlords might choose to forgo renovations or maintenance that would benefit tenants.
  2. Increased Administrative Burden: Implementing and enforcing rent control regulations often requires a complex administrative system. Landlords might face challenges navigating legal requirements, registering properties, and complying with reporting obligations.
  3. Market Distortions: Rent control can create a two-tiered rental market. Rent-controlled units might have significantly lower rents than newer, non-controlled units. This discrepancy can lead to distortions in pricing, potentially making it harder for some renters to find affordable housing outside of rent control.

It's important to note that the long-term effects of AB 1482 are still being observed. While some studies suggest potential drawbacks, as mentioned above, others highlight benefits like increased tenant stability and reduced displacement.

Further research and analysis are needed to fully understand the legislation's impact on California's housing market.

In Summary

California's rent control laws aim to balance tenant affordability and property owners' rights. These regulations typically involve:

  1. Rent Increase Caps: Landlords can only raise rent by a specific percentage each year (currently capped at 5% + CPI increase, up to a maximum of 10%). 
  2. Eviction Protections: Landlords must have a legal justification to evict tenants. 

While these provisions offer stability for tenants, they can also present challenges for landlords. Rent control limits their ability to adjust rents to keep pace with rising costs like property taxes, maintenance, insurance, and mortgages.

The long-term effects of rent control are a subject of ongoing debate. While some argue it protects tenants from unreasonable rent hikes, others suggest it may discourage investment in property upkeep and reduce the overall available rental housing stock.

This post is for informational purposes only and does not serve as legal, financial, or tax advice. Consult your legal, financial, or tax advisor for matters mentioned here.

Created on: 06/20/24

Author: CreditLink Secure Blog Team

Tags: tenant protection act , consumer price index , evictions , rent increase , rent control,

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