Gov. Gavin Newsom Signs Law Capping Rent Increases In California

(AP) — Gov. Gavin Newsom has signed a law that caps rent increases for some people over the next decade as the nation's most populous state grapples with a housing crisis.

The governor held a signing ceremony Tuesday in Oakland, an area where a report earlier this year documented a 43 percent increase in homelessness over two years.

Newsom called this moment “profoundly important” as California battles its housing affordability crisis. But he said the Legislature must do more next year to encourage new housing development.

“The fact that we are leading the nation in trying to meet this moment is a point of pride,” he said. “And it is a point of principle that we need to continue this kind of energy to focus on increasing that supply.”

The law would limit rent increases to 5 percent each year plus inflation until Jan. 1, 2030. It also bans landlords from evicting tenants for no reason, meaning they could not kick people out just to raise the rent.

And while the law won’t take effect until Jan. 1, it will apply to rent increases on or after March 15, 2019, to prevent landlords from raising rents just before the caps go into place.

California will join Oregon as the only places that cap rent increases statewide. Oregon capped rents at 7 percent plus inflation earlier this year.

The law reflects a compromise reached over the summer after Newsom and Democratic legislative leaders negotiated with tenant, landlord and business groups.

But one of the groups that opposed the deal slammed the bill signing.

“It is unfortunate that political expediency won over a comprehensive housing solution that will actually move the state closer to the governor’s goal of creating 3.5 million new housing units,” said Sid Lakireddy with the California Rental Housing Association.

The California Association of Realtors also opposed the deal. The California Business Roundtable and California Apartment Association, supported it.

California's rent cap is noteworthy because of its scale. The state has 17 million renters, and more than half of them spend at least 30 percent of their income on rent, according to a legislative analysis of the proposal.

Darla Williams, a 52-year-old Stockton renter who earns minimum wage as a restaurant cook, says she hopes she’ll now be able to afford her own place.

“I’ve been praying for the governor to put a cap on it,” she said Tuesday, hours before Newsom signed the bill. “Financially, it’s great to have roommates. But — I can’t speak for everyone else — me, I would love to have my own place and just come in to some peace and quiet.”

But California's new law has so many exceptions that it is estimated it will apply to 8 million of those 17 million renters, according to the office of the bill’s author, Asm. David Chiu (D-San Francisco).

For example, it won’t apply to housing built within the last 15 years, a provision advocates hope will encourage developers to build more in a state that desperately needs it. It does not apply to single family homes, except those owned by corporations or real estate investment trusts. It does not cover duplexes where the owner lives in one of the units.

And it does not cover the 2 million people in California who already have rent control, which is a more restrictive set of limitations for landlords. Most of the state's largest cities, including Los Angeles, Oakland, and San Francisco, have some form of rent control. But a state law passed in 1995 bans any new rent control policies since that year.

Last year, voters rejected a statewide ballot initiative that would have expanded rent control statewide. For most places in California, landlords can raise rent at any time and or any reason if they give notice in advance.

The law is aimed at combating California's housing crisis. The state has some of the most expensive homes prices in the country, driven in part by the high population and slow pace of construction. The state averaged 106,000 building permits for housing units in the first seven months of 2019, down from 127,000 a year ago.

The proposal faced strong opposition from real estate agents, who argued the 15-year exemption on new construction was still not enough to avoid discouraging developers from building new housing.

But advocates countered that restricting rent increases would also confront the state's homeless crisis. A 2018 study by Zillow found areas where more than 32 percent of the population were rent burdened "can expect a more rapid increase in homelessness."

CapRadio’s Ben Adler and Chris Nichols contributed to this report.