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California lawmakers cap apartment rent increases

California legislators passed a bill that will cap annual rent increases for many properties at 5% plus inflation for the next decade, following a deal brokered by Gov. Gavin Newsom, the Los Angeles Times reported.

The cap does not affect local rent control laws or apply to apartments built in the last 15 years, and it only applies to single-family rental properties owned by corporations or institutional investors. The University of California Berkeley's Terner Center for Housing Innovation estimated that the change will limit rent increases on more than 2 million additional apartments, the Times reported.

The bill also restricts landlords' ability to evict tenants who have lived in their apartments for at least a year, unless the tenants have been documented violating their leases. Property owners can still evict tenants in order to convert buildings to condominiums or make substantial renovations, but only after paying relocation costs equal to one month's rent.

Multifamily real estate owners, represented by the California Apartment Association, had campaigned against the bill, but dropped their opposition after Newsom and other supporters loosened anti-eviction rules, the publication reported. The compromise solidified opposition from the California Association of Realtors, however, by shrinking the rent caps to 5% from 7%.

The bill followed the failure in November 2018 of a statewide ballot measure that would have removed impediments to stricter local rent control laws. California voted down that measure, known as Proposition 10, after a campaign in which major property owners, including Essex Property Trust Inc., Equity Residential, AvalonBay Communities Inc. and Blackstone Group Inc., spent heavily against it.

In June, New York legislators passed a series of new rent laws that opponents in the real estate industry said would hurt property values and real estate lending. After that vote, the CEO of Essex — the largest publicly traded real estate investment trust focusing on West Coast multifamily — sounded notes of cautious optimism about possible rent laws in California. In particular, the executive said legislators in the state appeared to be more attuned to what he described as California's need for new apartment construction.