Impact Analysis of the “Justice for Renters Act” on California’s Rental Housing Market

Written By: M&M Properties - Sacramento Property Management

April 12, 2024

Introduction and Overview

In an enlightening piece on the CAA website, Mike Nemeth, CAA Marketing and Communications Director, addresses the potential upheaval in California’s rental housing market due to the proposed “Justice for Renters Act”. This article, titled “‘Justice for Renters Act’ threatens to upend California’s rental housing market,” provides a detailed analysis of the implications that could follow if the Costa-Hawkins Rental Housing Act is repealed. The original piece, published on April 5, 2024, offers a deep dive into how this change could impact property owners across California, extending rent control to previously exempt properties and potentially leading to significant market destabilization.

Key Insights from the Article

The article outlines several critical concerns for property owners:

  1. Expansion of Rent Control: The Act could extend rent control measures to properties currently exempt, such as single-family homes and newer constructions.
  2. Increased Rent Control Initiatives: More cities might adopt rent control, spurred by the Act’s passage, impacting areas previously unaffected.
  3. Vacancy Control Implications: Removing Costa-Hawkins could lead to vacancy control in rent-controlled cities, severely limiting landlords’ ability to adjust rents.
  4. Shift in Housing Market Dynamics: The Act represents a broader shift toward stricter housing regulations, which could introduce uncertainty and deter investment.
  5. Adverse Property Value Effects: Expected decreases in property values and the discouragement of new housing developments could exacerbate the housing shortage.

These insights are crucial for understanding the broad implications of the “Justice for Renters Act” not just for landlords, but for the overall health and sustainability of California’s housing market.

Full Article

Below is the original article written by Mike Nemeth, providing a comprehensive view of the potential effects of the “Justice for Renters Act”:

‘Justice for Renters Act’ threatens to upend California’s rental housing market

April 5, 2024

Mike Nemeth CAA Marketing and Communications Director

The most important law you’ve (probably) never heard of is in jeopardy.

In a matter of months, voters across California will decide the fate of the Costa-Hawkins Rental Housing Act, a little-known-but-crucial safeguard against extreme forms of rent control in the Golden State.

Costa-Hawkins, enacted in 1995, exempts specific properties from rent control, like single-family homes and construction completed after February 1995. In cities with pre-existing rent control when Costa-Hawkins was enacted, it grandfathers in earlier exemptions for new construction. Additionally, it safeguards vacancy decontrol, allowing landlords to adjust rents to market rates after a tenant vacates.

The adoption of Costa-Hawkins followed a time of radical rent control measures in several California cities, such as Santa Monica and Berkeley in the 1980s. These policies had led to a noticeable reduction in the availability and quality of rental housing and discouraged new housing investment. Costa-Hawkins, named after its authors, Jim Costa and Phil Hawkins, then members of the state Legislature, plays a crucial role in maintaining a balance in the housing market, preventing the stagnation and deterioration often seen in environments with extreme types of rent control.

The “Justice for Renters Act,” seeks to repeal Costa-Hawkins entirely, allowing for strict rent control on all types of housing, including single-

family homes and newer apartments. It would also eliminate the ban on vacancy control, significantly impacting landlords’ ability to adjust rents when a tenant moves out and a new renter moves in. Compounding these concerns is the fact that several cities in California have already put triggers in their local rent control laws that would automatically adopt stricter policies if Costa-Hawkins were repealed. This means the repeal could instantly activate more severe rent control regulations in various jurisdictions. For rental property owners, the implications are severe. The potential for strict rent control across all housing types would deter investment in new housing construction, exacerbating California’s already dire housing shortage. This concern is heightened by the fact that about 25 local governments in California have adopted rent control ordinances, several over the past decade, and more potential targets for local rent control in the pipeline. Without Costa-Hawkins, tenant activists would be further motivated to bring more stringent rent control to more jurisdictions.

With unbridled rent control, landlords would see a decrease in their properties’ values and, as a result, a reduction in the quality and availability of rental housing. This situation could drive many landlords out of the market, leading them to convert properties for other uses or sell them outright, ultimately diminishing the rental housing stock.

Furthermore, the “Justice for Renters Act” does not address the core issues of the housing crisis. It fails to increase funding for affordable housing, compel local governments to build more affordable housing, or provide immediate relief to those facing homelessness. Thus, it is a misguided solution that does not address the root problems and could make the housing situation in California worse.

In response to this threat, the California Apartment Association has reactivated Californians for Responsible Housing, which aims to educate voters about the negative consequences of repealing Costa-Hawkins and to protect the interests of rental property owners. CAA’s campaign against extreme rent control measures has a history of success, with voters rejecting similar initiatives in recent years, namely Propositions 10 and 21.

The rigidity of the “Justice for Renters Act” is particularly concerning. If passed, it can only be amended through another statewide initiative, cementing any damaging policies into California’s legislative landscape for years to come. This inflexibility poses a significant risk to the dynamic and equitable management of the state’s rental housing market.

California’s housing future stands at a crossroads, with the “Justice for Renters Act” representing a destabilizing force. It’s crucial for rental property owners, industry stakeholders, and voters to understand the far-reaching implications of this Act. Maintaining the Costa-Hawkins Rental Housing Act is not just about preserving the interests of property owners; it’s about ensuring a balanced, functional, and fair housing market in California. As this significant ballot measure approaches, the need for informed, engaged participation in the housing debate has never been more urgent.


Don’t think the Justice for Renters Act would affect you?

Perhaps you’re not worried about the “Justice for Renters Act” because the city where you own rental property doesn’t have rent control at present. Or perhaps you already are under rent control in San Francisco or L.A. and think things can’t get any worse. Or maybe you own a single-family rental or an apartment building constructed just three or four years ago and believe your housing will be forever exempt under state law. The “Justice for Renters Act” presents significant potential changes that could affect all rental property owners.

Five reasons to be worried:

1. Broadening of rent control to include exempt properties: Currently exempt properties, such as single-family homes and recent construction, could fall under rent control if the act passes, significantly altering the business expectations for many who believed their investments were safeguarded.

2. Increased drive for rent control in more areas: Tenant activists have brought rent control to several California cities in recent years. The act’s passage would further motivate them to pursue rent control in cities that

currently have none. This would lead to new rent control measures in areas previously unaffected.

3. Heightened impact in rent-controlled cities with vacancy control: In cities with existing rent control, the removal of Costa-Hawkins would invite returns to vacancy control. This means that rents would be capped even when a tenant moves out and a new tenant moves in, leaving the owner unable to move rents to market. This would dramatically reduce the flexibility to adjust rents between tenancies. Imagine never being able to bring your rents to market rates.

4. Policy shift and market instability: The act would mark a broader shift toward more stringent housing regulations, bringing uncertainty to the rental housing market and affecting long-term investment decisions.

5. Adverse effects on property values and market dynamics: The act would lower property values and discourage new housing development, aggravating the housing shortage and leading to a stagnant rental market.

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