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Rent Control and the Importance of a Free Market

October 11, 2019 | John Salustri

The issue of rent control is a sensitive one, says Don Wilkerson, CPM®, and 2018-2019 IREM president. As he explains in his final column for the National Real Estate Investor, “It’s hard to make a stand for the importance of a free market undefined by governmental intrusion without sounding like a greedy landlord. But, there is a place in that market for fair accommodation of housing that’s reasonably priced for all concerned.”

His comments came immediately on the heels of California Governor Gavin Newsom signing into law legislation imposing statewide rent caps, making it the second state to do so. (Oregon passed similar statewide controls earlier this year.) The law takes effect January 1, but is retroactive to March 15 of this year.  

Here are the specifics of the newly hatched law, as laid out by Wilkerson: 

  • Most yearly rent increases over the next decade will be limited to 5% plus inflation or 10% (whichever is the lower of the gross rental rate). Concessions and discounts are excluded.
  • Rents may be set to market rate once a tenant leaves a unit.
  • Capital improvements may not be used to increase the rent beyond the cap for existing tenants.
  • Tenants will receive protections against being evicted without cause.
  • This law does not supersede any existing rent control laws/tenant protections.
  • The law does not change the rules for tenants already under rent control rules in Los Angeles, San Francisco, and other cities across the state.
  • The cap does not apply to apartments built within the last 15 years. In addition, single-family home rentals are exempt unless they’re owned by corporations or institutional investors.
  • A landlord who wants to convert a building to condominiums, or make substantial renovations to units, could evict tenants but would have to pay relocation assistance equal to one month’s rent.

Wilkerson makes IREM’s position on the issue clear, and it’s one of opposition to government control of rents. “It’s vital that property owners have the right to seek rents that encourage investment in new construction, as well as enhancements to existing properties,” says Wilkerson.

“At the same time, IREM is equally opposed to excessive rent increases,” he continues. “But, we firmly believe that a property should be allowed to produce sufficient income to accommodate the basic needs of its residents, including enhancements to maintain market competition.” Toward that end, he states that rent control is nothing less than “a blow to value creation.

“Of course, IREM supports the availability of affordable housing for all as a social responsibility,” he writes, “but we also defend the right of Americans to own property free of unreasonable controls. We believe Congress and the Administration could assist in discouraging further controls by imposing a cap on housing-fund allotments to municipalities that choose to implement rent controls.”

About the Author
John Salustri is editor-in-chief of Salustri Content Solutions, Inc., a consultancy focused on enhancing the web and print content of clients around the nation. He’s a regular contributor to JPM Magazine and a frequent blogger for IREM. Prior to launching SCS, John was a founding editor of GlobeSt.com.

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