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California Landlords Sell Properties Ahead of Rent Control Vote

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In late April, efforts to place a measure on the ballot in November to repeal Costa Hawkins, state legislation that prevents cities and towns from imposing rent control on buildings appear to have received more than the requisite number of signatures. First passed in 1995, the Costa Hawkins Rental Housing Act, contains restrictions on rent controls within California. It prohibits many Californian cities from introducing rent control for properties constructed after 1995 and freezes previous local rent-control ordinances. The law also limits rent increases between tenants and prohibits rent control on single-family homes. Attempts to repeal Costa Hawkins earlier this year by California legislators failed.

A recent article published in the Wall Street Journal on May 15, 2018 cites long-time landlords who have reached a decision to sell their rental property holdings and reinvest out of state. The article quotes Tony Solomon, a first vice president at the commercial brokerage firm of Marcus Millichap as stating that the number of rental properties on the market in Southern California is at the highest level in 20 years with over 80 properties currently listed or about 80% higher than normal. Real Capital Analytics, a leading real estate data collection firm, show a 22% increase in multifamily sales to $4.5 billion in the first quarter of 2018 as compared with the same quarter a year earlier.

Many landlords fear that repeal of Costa Hawkins will negatively impact the value of their rental properties and are now taking steps to sell properties ahead of the vote sending a chill to what remains a robust seller’s market.
An article published in The Economist on May 10th states that “The renewed push for an expansion of rent control comes at a time of fierce debate over the future of California’s biggest cities, where housing is in short supply and rents have been rocketing. According to Trulia, a property-rental and sales platform, median rents in Oakland grew by 51% between 2012 and 2017; in San Francisco, they grew by 38% over the same period. Over half of California’s renters spend more than 30% of their income on shelter, according to the California Budget and Policy Centre, a research group.”
Despite the growing shortage of rental units in major urban markets, it appears likely that politicians will further restrict supply at a time when efforts to expand housing should be undertaken. A recent survey by the Institute of Governmental Studies at the University of California, Berkeley, of registered Californian voters in 2017 found that 60% of those polled supported rent control – and just 6% opposed it.

We urge you to be aware of this potential regulatory change and to consider steps to mitigate the impact of rent control on your California rental properties.

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