We sat down recently with Paul Getty, founder and CEO of First Guardian Group to hear his thoughts on California’s new Tenant Protection Act of 2019, known as California AB 1482, and how he believes the legislation will impact rental property owners, developers and tenants. Paul is a long-time veteran in real estate investing and has closely followed rent control legislation. This series of posts highlights his perspective on the topic.
Q. Paul, you have been a prominent voice in helping California investment property owners and landlords understand the requirements of the Tenant Protection Act of 2019, or California AB 1482. Can you provide a brief overview of what this legislation is and how it came about?
A. At a high level, we’ve seen a growing trend in California largely brought on by a belief among many people that we have a housing crisis in the state due to rising home values and rents, and that this has led to a situation where fewer and fewer people can afford to own or rent property.
I don’t believe anybody necessarily disagrees that we have affordability problems in California, but what the legislature has done by enacting AB 1482 is to start to focus on folks that own rental properties in the state and their belief is that by restricting the ability of these owners to raise rents on property they own, they can alleviate this housing crisis.
We work with a lot of landlords every day here at First Guardian Group and the concern that a lot of them have is that when people look at the history of rent control, not only in the United States, but around the world, rent control in the short term does appear to help people get into properties they otherwise wouldn’t be able to afford. But, in the long term, the developers who are building these rental properties begin to get disincentivized, which over time can reduce supply and exacerbate the housing problem.
Rent control can lead to housing shortages and that is one of the big concerns we have. Having said that, though, the politicians have been under so much pressure in the state of California, they have now enacted, for the first time, a state-wide rent control legislation with AB 1482. Until now, rent controls in California have been localized in a dozen or so communities and AB 1482 is the first step taken to apply rent control across the entire state.
Q. Have any other states adopted similar legislation and if so, what has been the impact?
A. Yes, the example we can look to is New York that has a history of implementing growing state-wide rent control measures in 2019. But, even prior to the new regulations, there are areas in Manhattan that have been under rent control measures for as long as twenty years or more.
An often cited consequence of rent control in New York City is that there are rent controls dating back to the 1940s and areas where rents have been frozen for years with very little opportunity for increases, people have been living in these properties for as little as $1000/month, when market conditions could warrant rental rates of $4000-$6000/month. This creates an environment where there are very few incentives for new development. This also creates a real challenge for owners of these properties because they’re unable to get the full value of their buildings when they sell them because rents are going to be artificially kept low. So, the concerns in California really mirror what history has shown to be true in New York.
In our next post, we’ll take a closer look at the key provision of AB 1482.
If you have any questions, please feel free to reach out to Paul directly at 866-398-1031 or schedule some time on Paul’s calendar here.