This election year amassed tons of voters, and with that, a successful defense against the enstatement of Proposition 33. Given the fact that Rent Control is a popular topic this time of year, why don’t we go over what rent control is, and how it affects every landlord in Riverside, California.
What is Rent Control?
Before we get into how rent control affects Landlords, let’s talk about what rent control really is. Rent control refers to government-imposed regulations that limit how much landlords can increase the rent on residential properties. The goal is to protect tenants from excessive rent hikes and maintain housing affordability. In California, rent control laws are governed primarily by the Tenant Protection Act of 2019 (AB 1482), which caps annual rent increases for certain properties at 5% plus the local inflation rate, up to a maximum of 10%. However, the law applies only to buildings over 15 years old and excludes single-family homes not owned by corporations or LLCs.
Who is Exempt From Rent Control?
The Tenant Protection Act of 2019 (AB 1482) caps annual rent increases at 10%. Meaning, you can only increase the rent by 10% each year. However, there are some select few who are actually exempt from this ordinance.
According to the California Association of Realtors, the people exempt from the TPA are as follows:
“Housing that has been issued a certificate of occupancy within the previous 15 years (new housing);
A duplex (defined as a single structure divided into two dwelling units) in which the owner occupies one of the units at the commencement of and throughout the tenancy;
A single-family residential property (including condominiums) so long as: (1) The owner is not a corporation, not an LLC with at least one owner who is a corporation, and not a real estate investment trust (REIT) AND (2) The owner gives the tenant a legally required notice of this exemption. Ownership by individuals, partnerships, individual co-owners, trusts, and LLCs with no corporate owners, all qualify for the exemption. For most properties, this notice should be integrated into the lease”
How Does it Affect Riverside Landlords?
Rent control often cuts deeply into the profits of Rental Property Owners (RPOs). Consider this scenario: you purchase a property in Riverside’s desirable 92507 area with an estimated rental value of $3,500 per month. However, the property comes with a tenant paying just $2,000 a month. Under the Tenant Protection Act of 2019, your options are limited. You can increase the rent by up to 10% annually, but reaching the market rate could take years. Alternatively, you may decide to issue notice to the tenant, forcing them to vacate—a decision that feels neither morally nor ethically ideal for many landlords.
This is not a rare occurrence. Many landlords face similar challenges, and the outcome is often the same: they must ask long-term tenants to leave because maintaining such low rents is financially unviable, especially with rising mortgage rates. Ideally, landlords could maintain the existing rent, but economic realities make that nearly impossible in today’s market.
While the Tenant Protection Act aims to shield tenants from drastic rent hikes, it also inadvertently incentivizes landlords to terminate leases when rents are too low to be sustainable. This creates a paradox where the intended beneficiaries—tenants—may find themselves displaced.
However, one of the most significant challenges for landlords in Riverside is the time it takes to align rents with market values. Navigating this balance requires patience and strategy, often forcing landlords to rethink their long-term property management plans.
Rent control affects landlords by cutting deeply into their profits. The Tenant Protection Act of 2019 limits your options when it comes time to raise rent. If you are well below market value, you can only increase your rental rate by 10%, and you will basically bleed money for the next few years depending on how bad the situation is. The only way to fix this is by displacing the tenant all together, thus creating a lose-lose situation.
How to Navigate Rent Control:
To navigate Rent Control effectively, the first step is determining the exact market rate for your rental property. Without this critical information, it’s easy to lose sight of where your property stands in the Rent Control framework. Once you have established the market value, compare it to the current rent being charged.
If your property’s rent is below market value, gradually raise the price by the maximum allowed 10% annually under California’s rent control laws. This approach ensures compliance while minimizing tenant disruption. To maintain trust and transparency, communicate with your tenants about the reasons for these increases. Let them know your plan to stop raising the rent once it reaches market value. A clear, honest explanation can make this process smoother and foster goodwill.
By understanding your property’s market value and maintaining open communication, navigating Rent Control becomes far more manageable. This proactive strategy helps protect your investment while respecting tenant relationships.
A Professional’s Perspective on Rent Control:
I offer a different perspective on Rent Control compared to most of my other colleagues. While I believe that there are definitely some cons to Rent Control, I actually don’t think it should be seen as a bad thing for landlords.
Rent Control feels like a safety net for a lot of newer landlords who don’t really understand what they are doing quite yet. If it’s someone's first time being a landlord and they decided to raise rent by a crazy margin, they could lose thousands.
However, Rent Control is far from perfect. It often creates difficult, lose-lose situations where both landlords and tenants struggle to come out ahead. Although intended to ensure affordable housing, Rent Control primarily acts as a structured guideline for landlords to follow. While it limits flexibility, it can also bring stability and consistency to the rental market.
This duality—offering both benefits and drawbacks—means Rent Control shouldn't be seen as entirely bad for landlords. Instead, it's a tool that, when used wisely, can guide decision-making and reduce risks.
Final Thoughts:
I truly believe that with thorough research and a clear understanding of Rent Control regulations in California, landlords can navigate lease renewals and rent increases with confidence. While Rent Control was designed to ensure affordable housing, it also serves as a vital safeguard for both landlords and tenants. It provides structure and prevents impulsive decisions that could harm either party. By staying informed and prioritizing open communication with tenants, landlords can use Rent Control as a guide to maintain fair and sustainable rental practices.
