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What you need to know about the “Tenant Welfare Act” of 2019, by Dennis Block.
California’s attempt at stabilizing the rental market with the passage of the Tenant Protection Act of 2019 will soon prove to be a failure of epic proportions. Proponents of this bill argue that rent control is needed to maintain some degree of affordability in high-price areas, but they couldn’t be more wrong. What California really needed was more housing. Nothing in the current bill addresses the stifling zoning laws that currently hinder construction throughout California and prevents developers from creating more housing.
The economic impact that this law will create is that many landlords will be encouraged to reduce supply by pulling units out of the rental market. California’s high rents are merely a symptom of a larger disease which is the lack of supply brought on by excessive regulations and bureaucratic red tape that hamper housing developments. By further reducing supply, the problem becomes more amplified. If the legislators had left well enough alone and let rents rise, builders would have chosen to create more rental housing, rehabilitating the old buildings and constructing new ones, and rents would have likely dropped on their own. It’s basic economics: higher supply equals lower demand, thus lower rents. Instead California legislators have created a colossal mess which is sure to be on full display in the next few months and years following the passage of the bill. Ultimately, the restriction of profit opportunities for developers and potential landlords will cause the total supply of housing to tighten which will have the opposite effect of what legislators had intended with the passage of state wide rent control.
The net effect of this Tenant Protection Act is that it will stop new housing from being built. Further, the new bill will cause potential landlords to get out of the business or avoid going into it for fear of losing their investment property to tenants who know how to exploit the rule of law and game the system. Sadly, this will result in landlords having no incentive to keep up their buildings in hopes that their current tenants will leave. This bill may benefit some current tenants in the short run, but this law will prove to be a step in the wrong direction due to the resulting housing shortage and rent increases that will inevitably occur. Once this bill becomes the law of the land, Californians will ultimately pay the price for their legislators’ poor and uneducated decisions. Below is a discussion of the key provisions in the bill that will affect landlords.
For more on the key provisions in the bill that will affect landlords, please click here.