Rent Control Update by Scott Safadi of Cal Bay Property Management

Rent Control Update by Scott Safadi of Cal Bay Property Management:

Rent control measures were defeated in both San Mateo and Burlingame, but with widespread support, the rent control measure passed in Mountain View. Effective immediately, rents in Mountain View cannot be increased more than the current CPI index, with a floor of 2% and a ceiling of 5%. This means that we can expect rent increase maximums in Mountain View to hover between 2-3% indefinitely.

What does a strict rent control policy really mean for renters and landlords? For renters, it means stability. Renters will be able to count on their living expenses remaining fairly steady. For landlords, the horizon is considerably more bleak. The issues for landlords appear after a down cycle in the rental market. When rents fall dramatically, like they did in 2002 and again in 2009, the challenge is getting rents back up afterwards. Rents fell as much as 50-60% in 2009. So, if you were renting a 1BR in Sunnyvale for $1,500 in 2001, in 2003, you were getting $1,000. At 2%/year, your rents would have risen to $1,148 by the time the next downturn took place in 2009. With the natural economic cycle we experience in capitalist America, rents in rent controlled cities will forever be depressed following the first big drop in rents that takes place after the enaction of rent control. Landlords will not again have an incentive to modernize and upgrade their buildings. This will be especially damaging when considering that the bulk of apartment stock in the Bay Area was built in the 1960’s. Cities should be wanting landlords to be able to upgrade & modernize buildings. Landlords will have no incentive to do so under some of these new rent control policies.