What capping rents would do to Bay Area cities

Today, Assemblymember David Chiu’s “anti-rent gouging bill” AB 1482, which would bar many California landlords from raising rents more than 10 percent annually, faces its first big hurdle in the California Senate.

The de facto rent control bill passed the Assembly in May. Since then, Chiu has significantly expanded its scope, and today’s Senate committee hearing subjects it to a new volley of critiques.

Earlier in July, UC Berkeley’s Terner Center For Housing Innovation published an analysis of what would happen in major California cities if the bill passes in its current form (which caps rent increases at seven percent plus inflation, which averages around 2.5 percent annually in most cities).

The assessment focuses on renters in ten specific regions: San Francisco’s Mission and Potrero Hill neighborhoods, West Oakland, Vallejo, San Rafael, South Stockton, West Sacramento, West Fresno, Long Beach, LA’s Boyle Heights, and Chula Vista.

While the Terner Center did not argue pro or con AB 1482, the tenor of the analysis is mostly positive. The analysis suggests that, among other things, concerns about whether a rent cap would spur rent increases are unfounded.

Among the paper’s conclusions:

• In its current form, the cap would affect millions of renters: The Terner Center analysis projects that about 4.6 million households would fall under the purview of the current cap. However, the report goes on to say, “[W]e cannot reliably estimate how many of those units are owned by landlords with no more than 10 properties, and thus would now also be exempt from the cap proposed in the revised bill.” However, even though it’s unclear exactly how many households the new law would effect, it would end up covering millions of people.
• That includes renters in cities like SF and Oakland: “A significant number of tenants [in cities with existing rent control laws] would acquire new protections if a rent cap were passed, given that the Costa-Hawkins Rental Housing Act exempts single-family homes from rent control and limits rent control to multifamily buildings built after 1995, or the year in which rent control was initially passed in that city.” In the Mission District, for example, AB 1482 would cap rents on 2,258 house and nearly 11,000 apartments not currently subject to SF’s rent control rules.
• Smaller inland cities need rent protections more than places like SF: In West Fresno, West Sacramento, and South Stockton, rents jumped by more than nine percent in two out of the last five years. “Vallejo, often considered a more affordable city within the Bay Area, has also seen escalating rent increases, reflected in the 18 percent increase in median rent from 2015 to 2016.” The majority of this increase has been driven by growth in rents for single-family homes.
• Most landlords wouldn’t be affected much anyway: Looking at five year-over-year changes in median rents across 10 areas, “the majority of aggregate rent increases did not exceed the proposed rent cap. In fact, half of the observations had median rent increases of less than five percent. [...] Most of the time the rent cap would not affect a landlord’s ability to charge market rents, but it would ensure that renters in areas facing the steepest price pressures aren’t confronted by 10 to 15 percent (or even higher) increases.”
• A rent cap would probably not spur rent increases, but there is some risk: “The importance of market dynamics in setting rents suggests that [allegations that] the imposition of what is meant to be a ceiling on rent increases would instead become the target for levying the maximum allowable increase—would be unlikely to materialize among landlords who risk higher vacancy rates if they raise rents at a pace that is out of step with the local market. [...] However, clearly there are markets that can support steep increases.” In short, the risk is minimal, but it also demands future study (and vigilance).

The methodology on the Terner Center analysis does come with one big caveat: reliable data on rents paid “is not readily available, making research on this topic difficult.”

Census data on rents lags roughly two years behind and “cannot tell us year-over-year increases for specific apartments or whether rent increases are the result of vacancy decontrol or rising rents for long-term tenants.”

Market rent data—like those from “proprietary sources or from sites such as Zillow and Craigslist”—are valuable, but they tend to focus “on one segment of the market (e.g., large multifamily, or units that owners list for rent),” which is not necessarily the best type of home to focus on in this debate.

Read the Terner Center analysis in its entirety here.