Economy

AB 1482 Will Damage the Housing Market Further While Increasing Rent Costs

Housing has continually surfaced as a concern for many lower and middle-class Californians. It’s no surprise since the demand for housing is high, and cost has been going up to meet it.

New statewide legislation formulated to restrict rent increases recently passed the State Senate and Assembly. AB 1482, the brainchild of Assemblyman David Chiu, is awaiting Gov. Newsom’s signature. It seeks to enact a government-mandated annual rent increase limit in hopes of combating rare issues of “rental price gouging” that have recently made headlines in California.

It ought to be noted that price gouging isn’t plaguing California. The cases have made headlines, as all shocking news does, but don’t represent the vast majority of rent costs across the board. Most property owners set reasonable rents at market rates, prioritizing consistent long-term tenants over short term profits. Many don’t raise rents annually, despite an exhausted housing market. 

AB 1482 is on the road to changing that. It establishes one annual rent increase at five percent plus Consumer Price Index inflation, averaging out to a maximum 7.5% increase total. At worst, this is more than double the average rent increase we see today. It functionally gives renters an ultimatum: raise their prices or lose out on the ability to align rent costs with comparable properties.

Without annually raising their rent, owners risk losing the flexibility to align their costs with the competition. In short: you use it, or you lose it. 

Take, for example, the real estate market. When pricing your home to sell, you look at houses within your area offering similar features, and then you price your home to compete with those properties. Overpriced houses typically fail to sell, unlike well-priced houses. The market drives itself up and down, based on property availability and property demand.

In a nutshell, there’s little incentive to overprice and full incentive to price competitively—all without the government needing to lift a finger. The same logic can be applied to rental costs, with the current state of the rental market in regulating cost based on a market driven by the consumer.

The flexibility owners have now is absolutely essential to keeping rental costs down. It allows them to offset the costs of ownership and maintenance yearly, based on fluctuating factors such as the natural weathering and aging of the property, mortgage rates, insurance, and HOA fees.

Owners will have to face the facts: they’re charging rental rates that, under AB 1482, are vastly below market value. If worst comes to worst, they may never be able to catch up, driving the amount of available rentals down, the cost of available rentals up, and the market into ruin.

 

Photo by StellrWeb