Legislative Bludgeoning of the Rental Housing Industry

2837… The number of bills that have been introduced to date, and unquestionably there will be more before the California Legislature completes its work for the year.

187… The number of bills that affect landlords and tenants for which AAOC is engaged.

Hopefully, we have gotten your attention, enough so that we can highlight some of the bills that perfectly illustrate why we need to stay in the game and communicate with members of the state legislature about the harmful impact of these bills on our livelihoods and day-to-day business operations.

One bill would have permitted state employees and private parties to secretly record conversations of landlords and managers to gather evidence of potentially discriminatory housing practices. Thankfully, the bill will not move forward this year, but will be heard by the Legislature in January 2024.

Another bill that is scheduled to be heard this month, SB 466 (Wahab), proposes to change the provisions of the Costa-Hawkins Rental Housing Act. It would authorize every city and county to impose the strictest form of rent controls on single-family residences, and condominiums and apartments, and regulate the amount of rent that new tenants may be charged.

AB 12 (Haney) would reduce the maximum-security deposit a rental property owner/operator can collect from an applicant. Today, the equivalent of two months’ rent can be collected for an unfurnished unit and up to three months’ rent for a furnished unit. This measure would reduce the amount to just one months’ rent, regardless of whether the rental unit is furnished. As a general rule, rental housing providers make decisions about renting to applicants with limited knowledge of the household. Thus, it makes it nearly impossible to know of past rental history without credit evaluation, including the applicant’s eviction history. Limiting an owner’s or operator’s ability to financially cover property damage or the non-payment of rent is unfair and unreasonable. More important, however, is that applicants with low credit scores or eviction histories are more likely, than not, to be turned down and unable to rent units due to the severe limitations under AB 12.

AB 1317 (Carrillo) would require rental property owners and operators to “unbundle” parking from rent. This would be remarkably challenging—if not impossible—to apply, particularly at developments subject to the provisions of AB 1482—the state’s Tenant Protection Act of 2019. The bill would require rental housing providers to reduce the rent for a renewed lease or rental agreement starting January 1, 2024, by the amount of the market rate cost of parking before increasing the rent. It goes without saying that many have never unbundled parking costs and consider parking part of the rent, along with such amenities as laundry facilities, swimming pools, and exercise rooms. In some cases, owners have been forced to bundle services which include parking. This is the case in the city of San Francisco. Separating parking from rent controlled properties is simply not plausible when it has been prohibited for years. And should the tenant receive a housing choice voucher (Section 8) the tenant cannot be separately charged for parking. In strict rent control cities, rent increases are capped as low as 60 percent of the CPI. If parking is “unbundled” the first year and the rent is reduced accordingly, it may be years before the owner is able to gain back rent in an amount equal to the initial rent reduction. The bill also poses other uncalculatable problems. There will be thousands of situations where housing providers will not be able to document the market rate for an individual parking space because it will not exist. And guess what? Tenants will be able to challenge the monthly rate at which a parking space may be rented. Now, there will be another element challenging an eviction for the nonpayment of rent and the non-payment of a parking space.

SB 267 (Eggman) would prohibit the use of an applicant’s credit history as part of the screening process for residential rental housing without offering the applicant the option of providing alternative (whatever that means) evidence of financial responsibility and ability to pay in instances in which there is a government subsidy. The rental housing provider would be required to consider that “alternative evidence“ in-lieu of the applicant’s credit history when determining whether to offer the unit to that applicant. The purpose of the bill is to allow the applicant to produce “alternative evidence” to demonstrate their ability to pay in the judgment of the applicant. It clearly sets a legal trap for owners who will face claims that the evidence was credible and that the rental housing provider should have relied on this evidence as proof that the applicant can meet their obligations under a lease. Our response: housing providers will have no reasonable way to verify the information and no realistic was to determine that the applicant can or cannot perform. At the first hearing, support for the bill claimed that housing providers were denying tenancy because they were looking at evictions and other credit history’s that were 10 and 15 years old. Unfortunately, we were not given the opportunity to rebut those claims. AAOC will continue to oppose the bill as it moves through the legislative process.

Finally, I bring this “good news” article to a close with AB 362 (Lee) This bill would require the California Department of Tax and Fee Administration to study (as a first step) the notion of replacing our current property tax system (Proposition 13) with a “land value tax.” A land value tax is a system in which the estimated current market value of land is taxed, and the buildings and other improvements are not. It would dismantle Proposition 13 protections that have provided tax certainty and revenue stability for local governments and property owners for 45 years. Polling has consistently shown that voters support property owners support Proposition 13, the landmark California constitutional amendment that caps property tax assessments at 1 percent of the value of real property and ensures that the tax doesn’t increase more than 2 percent per year. In a recent survey by the Public Policy

Institute of California, 57 percent of Californians believe that Proposition 13 turned out to be beneficial for residents receiving support from every age group and nearly every racial demographic. Want to know why there is support? Proponents of this massive revision of our property taxation laws claim that property taxes would decrease after the adoption of the new system. This is an unlikely result. In our opinion, it would likely result in property owners no longer being protected by the provisions of Proposition 13’s assessment limitations, tax rate, and annual assessed valuation increases, and Californians seeing their costs increase and job opportunities decrease. Be prepared for the hits to keep coming this year. I’m sure we’ll have more to share with you in the coming months. Stay tuned.