Earlier this year, California Assembly Bill 1157, the “Affordable Rent Act” made the news. Although this bill was eventually withdrawn from consideration, this is a “two year bill” that can be brought back for the 2026 session. This bill’s goal is to impose even more severe rent controls upon all of California by lowering permissible rent increases from 2% plus CPI to a max of 5% annually (from 5%, 10% max) and apply rent control restrictions to single family homes, condominiums and ADUs (which currently enjoy exemptions from such laws). Under AB 1157 these restrictions would be permanent- as opposed to 2019’s Assembly Bill 1482, The California Tenant Protection Act, which expires in 2030. It is hard to believe this subject won’t come up again – or that more rent control is not in California’s future.

Contrary to The Wishes of Voters

Once again, as we saw with Assembly Bill 1482, these efforts by California conflict with the expressed wishes of voters. Back in 2018, California Proposition 10 would eliminate restrictions on rent control that exist due to the Costra-Hawkins act of 1995. This measure was soundly defeated by voters – with over 59% selecting “No.” California’s response to this defeat was to enact rent control on the entire state via an Assembly Bill.

Rent Control Proponents tried again last year with Proposition 33. Prop 33 essentially was the same as Prop 10: and it did even worse with voters! 60% of Californians said “No” to this new attempt at rent control. The response of California’s lawmakers, once again, was to attempt to pass legislation on their own that could circumvent the “pesky wants of voters.”

The Downside of Rent Control

Rent control is really like Communism – there is a huge amount of public evidence showing it is a bad idea, but proponents will claim “this time will be different.” The Economic laws of Supply and Demand really tell us all we need to know through some examples: If income potential for rental units is limited, will that lead to more or less units getting constructed? Will rising construction prices and declining values due to depressed rent growth lead to increased investment in apartments? If we have a housing shortage, do we want to encourage or discourage additional development?

Is More Rent Control in Our Future?

California’s government has shown us (repeatedly) that they don’t mind ignoring the expressed wishes of their voters. When repeated attempts fail, they find another way to “push it through.” As an apartment owner in California, do you think Rent Control will be on the ballot in the future? Do you think that one year something may pass? Do you think that the state will just keep trying to enact legislation to get around the wishes of voters? If you think so, perhaps it is time to start considering your own “Cal-Exit” by selling your California investment properties and completing tax-deferred 1031 Exchanges into properties in more business-friendly states. My office number is (877) 313-1868.

Written by Christopher Miller, MBA, Specialized Wealth Management

Christopher Miller is a Managing Director with Specialized Wealth Management and specializes in tax-advantaged investments including 1031 replacement properties. Chris’ real estate experience includes work in commercial appraisal, in institutional acquisitions for a national real estate syndicator and as an advisor helping clients through over five hundred twenty five 1031 Exchanges. Chris has been featured as an expert in several industry publications and on television and earned an undergraduate business degree and an MBA emphasizing Real Estate Finance from the University of Southern California. Chris began his real estate career in 1998. Call him toll-free at (877) 313 – 1868.

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