If California Pursues a Cap on Rent Increases, How Many Tenants Will it Actually Help?

What happened to all that talk about rent control?

Less than four months after an initiative to allow cities to expand rent control failed overwhelmingly at the ballot box, and less than four months after then-incoming Gov. Gavin Newsom talked about brokering a compromise between tenant and landlord groups, no new legislation from lawmakers or specific proposals from the Newsom administration have been introduced to cap how much rents can rise.

Legislators who have backed rent control expansions in the past say they’re working on proposals to help tenants stay in their homes. Newsom, in his State of the State address earlier this month, called on the Legislature to send him tenant protections he could sign into law, although he didn’t offer any specifics.

“Everything is on the table,” said Assemblyman David Chiu, Democrat from San Francisco, who co-authored a failed rent control bill last year. “”From topics like just cause eviction to Costa Hawkins and other protections, everything is being considered.”

One possible compromise: A bill to ban “rent gouging,” similar to one poised to take effect in Oregon.

That measure, expected to be signed by Gov. Kate Brown in the next few weeks, would make Oregon the nation’s first state to enact anti-gouging provisions covering the vast majority of rental properties within its borders. While often characterized as statewide “rent control,” in reality it focuses on the most flagrant rent hikes—typically 10 percent or more.

“It was surprising to see (Oregon) with that type of success. It was heartening,” said Chiu. “As California policymakers we like to think we’re leading, but in this instance, hats off to our Oregon counterparts.”

Chiu stresses that any rent-gouging bill would need to be part of more comprehensive tenant protections, and that other more stringent rent control measures are still a possibility.

A UC Berkeley housing think tank released an anti-gouging proposal last year after consulting with both landlord and tenant groups. A Bay Area regional housing plan popular with state legislators from the area offers a similar solution.

So what exactly would an anti-gouging law in California actually look like? And how many people would it actually help?

No one can say yet.

What’s the difference between a gouging cap and rent control?

Over a dozen California cities have some form of rent control, including major population centers such as Los Angeles, San Francisco and San Jose. In rent-controlled units in those cities, landlords can raise rents typically from 3 to 5 percent per year, depending on the city and factors such as inflation.

Anti-gouging proposals would give landlords a lot more wiggle room than traditional rent control. The Oregon plan would allow landlords to raise rents up to 7 percent annually plus inflation—had it been in effect last year, rent hikes would have been capped at about 10 percent. In Portland, that means the landlord charging the average rate of of $1,120 for a one-bedroom apartment could still increase the rent $100 a month.

“This policy is much different than rent control,” said Mike Wilkerson, an economist with ECONorthwest, an economic consulting firm that analyzed the Oregon plan. “This isn’t going to be reducing anyone’s rent immediately.”

The Oregon plan also would allow landlords to raise rent beyond the cap once a tenant decides to leave—a provision sacrosanct to landlords and known in wonkish circles as “vacancy decontrol.”

A key California question: What units would fall under a potential gouging cap?

A 1995 state law known colloquially in housing circles as “Costa-Hawkins” bans any form of rent control from being applied to units built after 1995, as well as to single- family home rentals.

Researchers at the UC Berkeley Terner Center for Housing Innovation recently estimated how many California rentals not currently covered by rent control could be covered by a gouging cap if freed from the constraints of Costa Hawkins. Their conclusion: an additional 4.9 million units—a huge chunk of the state’s rental stock. Nearly 40 percent would be single-family homes.

How many renters would a rent-gouging cap protect?

How did Oregon determine that around 10 percent was the “right” cap? And how many Oregonian renters stand to benefit when the plan takes effect?

“I don’t think the (Oregon rent cap law) was particularly rigorous in the sense of data-informed,” says Wilkerson. “My guess is in talks with the development community, I think they kind of tested the water, so to speak.”

Wilkerson’s analysis found that in the last 18 years, only in two of those years did more than 20 percent of one-bedroom units in Portland see rent increases over 10 percent.

The proposal UC Berkeley researchers issued last year suggested even tighter rent increase caps—5 percent plus regional inflation, which in California averaged out to about 8 percent last year.

But that proposal was based off a state law that prohibits increasing the price of any consumer good more than 10 percent after a natural disaster. It had nothing to do with how many renters would actually benefit from a rent-gouging cap.

“We need better data about rent levels,” said Hayley Raetz, a Terner Center researcher who is tapping private rental data to try to answer these questions. “And it’s hard to get that data.”

Researchers can’t rely on average rent increases in a neighborhood or city to tell how many people might benefit from a cap. Such averages mask the possibility that some units in a region are experiencing major rent hikes, while other units remain stable.

Wilkerson, who had access to a private database of Portland rentals, does point out one important insight—that before the new Oregon proposal, most of the largest rent increases were on lower-cost apartments rented by lower-income tenants.

That may not be good news for low-income renters now, but it does mean that any rent cap may benefit lower-income Californians more.

“Really what this is doing is protecting lower-rent units, where we’re consistently seeing rents going up,” said Wilkerson. “And the benefit is preserving more units to be naturally affordable.”

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