Understanding what rent control means for Los Angeles investment property owners depends on who you talk to. Those who favor rent control will say that it makes housing more affordable for tenants who are priced out of buying a home but still too financially pinched to afford Los Angeles’s notoriously high rents. Those who oppose rent control will argue that if owners cannot raise the rent to meet their own expenses, they’ll stop providing housing altogether or the condition of those homes will deteriorate because they have no money to keep up with repairs and updates.
The truth is probably somewhere in the middle.
Los Angeles real estate investors are required to work within the statewide rent control laws that went into effect in January of 2020 as well as several city-specific rent caps that apply to Los Angeles County. Add to that falling rent prices due to the pandemic and it’s challenging to really analyze what rent control is doing to the market.
Here’s what our data tells us.
Rent Control and Older Los Angeles Rentals
New homes are largely exempt from state and local rent control laws. If you’re going to invest in Los Angeles rental property, look for newer buildings and single-family homes. When the Los Angeles City Council froze rent in the late 1970s, the existing Rent Stabilization Ordinance only applied to buildings that were occupied before that freeze was enacted. Rental homes constructed more recently are protected from rent caps, even with the new statewide rent control law.
New buildings are exempt from rent control until they are 15 years old, so currently, the statewide law applies to buildings constructed before 2005. This is meant to encourage developers to build new rental housing without their income being limited by rent control, and it’s also meant to encourage real estate investors to continue buying and renting out those properties.
Rent Control and Demand
Demand drives the price of rental property, even in a rent-controlled market. If the availability of rentals is lower, tenants will be more likely to pay higher rent prices. This is good news for investors who can charge more for their vacant property, but it’s bad news for tenants who may have a hard time finding a home they can afford. While rent control impacts how much you can raise the rent, it does not establish any maximum rent that you set when you’re renting out a vacant property.
Long-Term Impact on Your Los Angeles Investment Property
Real estate investors typically don’t like rent control because it affects their profitability. This may drive investors out of California markets and into other states where there are fewer restrictions on what they can charge and when they can evict or take back possession of their property. It’s possible investors will look to commercial properties rather than residential homes.
With challenges, there are opportunities. If you’re like most property owners worried about the financial impact of rent control on your investment property, remember that you still own a valuable asset in a competitive market. Los Angeles property values are not going to plummet anytime soon. When you have good tenants in place, even modest rent increases will contribute to your earnings and keep your property stable.
We can talk about what rent control means for your specific property because it really depends on its age, the type of homes you’re renting out, and the specific location you’re in. Contact us at EGL Properties to talk about rent control or anything pertaining to Los Angeles property management.