California Governor Gavin Newsom last week signed into law new legislation that will place caps on rents throughout the state. The move that was warmly welcomed by tenant groups but others in the real estate industry say it could have negative long-term consequences.
Under the new law, which takes effect in January, landlords will be limited to raising rents each year by a maximum of just 5% after inflation.
Californian lawmakers say the law is necessary to ensure that rental housing in the state remains affordable for the millions of citizens who don’t own their own homes. Before the law was introduced, rents in the state were skyrocketing, to the point that 55% of its population were paying 30% or more of their income on housing in 2017, compared to just 49.5% of renters nationwide.
But industry groups including the National Association of Realtors argued against the law, saying that it would discourage investment and ultimately reduce the supply of available rental homes. Their reasoning is that rent control will push many landlords to abandon the rental market altogether, and instead convert their properties to owner-occupied homes.
The California Association of Realtors was also opposed to the bill. “Although we did not prevail, we remain steadfast in our commitment to overcome California’s historic housing supply and affordability crisis,” said Jared Martin, President of the CAR, in a statement. “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.