Written by Luan Huynh, Public Benefits Staff Attorney at the Coalition of California Welfare Rights Organizations (CCWRO)
Americans and Californians Face Rental Hardship, Especially if They Are Poor, and Public Benefits Do Not Cover the Average Cost of Rent
According to The State of the Nation’s Housing 2024 report produced by the Joint Center for Housing Studies of Harvard University, half of all renters were cost-burdened (meaning they pay more than 30 percent of their household’s income on housing cost) per a 2022 measure. And 12 million American renters were severely rent burdened (meaning they pay more than 50 percent of their household’s income on housing cost), up from 1.5 million before the COVID-19 pandemic. Rents are up 26 percent nationwide since early 2020. The poorer Americans are, the more impacted they are by the rising cost of this necessity. Eighty-three percent of renter households earning less than $30,000 annually were cost-burdened in 2022, and 65 percent of households in that income bracket were severely cost-burdened. Renters in this income bracket have a median of just $310 per month to cover all non-housing expenses after paying rent. Those renters are more likely to be Black, Hispanic, or multiracial, though Whites, Asians, and Native Americans also face these problems in significant numbers as well.
The Public Policy Institute of California (PPIC) estimates that 44 percent of Californians are renters, only second to New York with its renter rate of 46 percent. ManageCasa, a Homeowners Association and rental management software company, estimates that 49 percent of Californians are renters. The Legislative Analyst’s Office (LAO) states that California renters typically pay about 50 percent more for housing than renters in other states; in some parts of the state, rent cost is more than double the national average.
According to Redfin, a real estate and rental property company, the average rent in California is approximately $2,500 per month (or $30,000 a year), higher than the national average of $1,645. Manage Casa, cited to Property Chomp, for information about the median rental price paid per month in California:
- a studio unit is $1,698
- a 1-bedroom is $2,395
- a 2-bedroom is $3,190
- a 3-bedroom is $4,378
- a 4-bedroom is $5,925.
In comparison, a Supplemental Security Income (SSI) recipient who is unable to work gets $1,144 a month in benefits from the government (for a total of $13,728 a year).
A low-income family of three people in a high-cost region on CalWORKs could get the maximum grant of $1,171 a month (a total of $14,052 a year) from the government. According to the California Department of Social Services’ CalWORKs Annual Summary for 2023, the average CalWORKs grant for fiscal year 2022-2023 was $962 a month ($11,544 a year). Based on data from July to September 2021, 51 percent of CalWORKs families had earnings, and the average earnings was $730 a month (or $8,740 a year). Disregarding the fact that earnings above $600 reduces an earner’s CalWORKs grant, for the purpose of this example, I take the average grant and average monthly earnings together to come up with monthly total income of $1,692 a month ($20,304 a year). Additionally, when families exit CalWORKs, on average, they only make about $2,080 a month ($24,968 a year).
An individual who was laid off and qualified for unemployment benefits may get up to $450 a week in benefits from California’s Employment Development Department if they meet the eligibility rules. This works out to a maximum of about $1,935 a month ($23,220 a year).
Simply put, individuals and families on public benefits that CCWRO specializes in helping are faced with great impossibilities: survival, keeping a roof over their heads, and affording other basic necessities of life. The math doesn’t add up for them.
Additional Information About California Renters and Those Who Become Homeless
According to the PPIC:
- 30 percent of Californians are severely rent burdened, meaning that more than half of their income goes to rent. The median household income of severely cost-burdened renters is $24,000.
- The median household income for renters in California is $65,000.
- One third of California renters now make more than $100,000 a year (compared to 18 percent in the rest of the country).
- Of the total population of California renters, 79 percent are in the 25-64 age range, 15 percent are aged 65 and over, and 6 percent are in the 18 to 24 age range. In contrast, 66 percent of homeowners are in the 25-64 age range, 34 percent are aged 65 and over, and 1 percent are in the 18 to 24 age range.
- 39 percent of California renters identified as Latino, 34 percent identified as White, 13 percent identified as Asian, and 9 percent identified as Black. In contrast, 50 percent of California’s homeowners identified as White, 26 percent identified as Latino, 17 percent identified as Asians, and 4 percent identified as Black.
- Renters are most common in dense urban cores of San Francisco and Los Angeles Counties, where a majority of individuals and families are renters.
According to a study by UC San Francisco’s Benioff Homeless and Housing Initiative:
- 48 percent of all unhoused single adults in the state are 50 or older.
- 41 percent of unhoused older adults became homeless for the first time after age 50.
According to ManageCasa:
- Of the 49 percent of renters that exist in California, only about a quarter live in big apartment complexes (those with 20 or more units).
- 2.1 million households live in smaller unit buildings with 2 to 19 units.
- 128,000 households live in mobile homes, recreational vehicles (RVs) and boats.
- About 2 million households live in single-family home rentals (34 percent of renters in the state).
The housing researchers at Havard note that renter stress is really about options, and higher-income residents have more of them. A high-income person who spends too much on rent can usually move to a lower-cost unit. Likewise, within California, middle-income people in an expensive place like the Bay Area can move out to the Central Valley – perhaps enduring a longer commute in exchange for lower rents. But lower-income people who lack the resources to move and are more likely to depend on transit to get to work have fewer choices. They must pay the elevated rents or share housing to reduce their costs – sometimes living in overcrowded units to do so. Some may ultimately end up homeless, and more would end up homeless without the help of government entities and non-profits doing homeless prevention work.
The Harvard study on housing did not speak to the number of people who could not pay their rent, and the amount of rent tenants may owe to their landlords, which could result in evictions, bad credit, and debt that impact people’s future. CalMatters speaks to those types of situations in the post-COVID pandemic landscape in this article. Additionally, the Los Angeles Housing Department for the city analyzed its eviction data from February through December 2023, and of the 77,049 eviction notices filed during that period, 96 percent were for non-payment of rent. Their data showed that 91 percent of the eviction notices had a 3-day deadline, and the average rent owed was $3,774.
The LAO, in its analysis of Proposition 33, asserts that rent is high in California because there is not enough housing for everyone and those who want to rent must compete with others for housing, thus driving up the rent cost.
Homeowners See Increase in Equity, but Homeownership is Increasingly Out of Reach for Americans, and it is Nearly Impossible for Low-Income Families to Buy or Maintain a Home
ManageCasa said that home prices in the U.S. remain high, and mortgage rates remain at above 6 percent, making the outlook for reduced rental cost dim – because the high cost and financial burden of buying a home keeps more households in the rental market. And while some people leave the state, thus freeing up housing, others arrive from other states and other nations, making the demand for housing high.
According to The State of the Nation’s Housing 2024 Report:
- Both homeowners and renters are struggling with high housing costs across the nation.
- Home prices remain at an all-time high in early 2024 after a brief decline in 2023. In 97 out of the 100 top markets, home prices increased. Those who owned a home with a mortgage saw an equity increase of $24,000 in 2023 and $119,900 over the last 4 years.
- While there are some single-family home constructions that are increasing the supply (and lowering rent growth), gains are also offset by development constraints such as restrictive zoning, regulatory policies, skilled labor shortages, financing limitations, and other challenges that increase housing costs.
- Millions of potential homeowners have been priced out of the market by high home prices and interest rates. Earlier this year, the 30-year mortgage interest rate was hovering around 7 percent, in comparison to the average residential interest rate of 4 percent for current homeowners. The differences in the interest rates incentivizes homeowners to not sell because the deal they are getting is better than the deal they could be getting in the market, and in essence, it reduces the supply of available homes for sale. Annual home sales dropped 19 percent to 4.1 million in 2023 in comparison to 2022.
- The total monthly payment for a low-down payment loan on a median-priced home in the U.S is now $3,096 (with the inclusion of taxes and insurance). A borrower would need to make at least $119,800 annually to qualify. Nationwide, only one in seven renters would qualify to buy a home in this scenario, portending a situation where more Americans will either remain or become renters should they lose or sell their houses. Separately, according to the LAO, in September 2024, the mortgage, taxes, and homeowner’s insurance was $3,404 on a bottom tiered home and $5,530 for mid-tiered home in California.
- Those who are already homeowners are cost burdened by growing taxes and insurance costs. Home insurance premiums grew 21 percent between May 2022 and May 2023 alone. Nationwide, homeowners who spend more than 30 percent of their household income on housing and utilities grew by 3 million to nearly 20 million between 2019 and 2022. Households earning less than $30,000 annually constituted over half of the growth in cost-burdened homeowners. Homeowners with incomes under $30,000 saw the amount of money left over each month after they pay housing and utilities decline to just $627, forcing them to face tough choices related to basic necessities.
The Situation for Landlords
California remains one of the top markets for rental real estate investors and small landlords, according to ManageCasa in February of this year. Armed with the right tools, landlords are well-positioned to continue to succeed in the state. Data shows that there are many small landlords in California and many have been in business for a long time. ManageCasa said that renters in California are facing the highest rents in the country, making living here a challenge, and that landlords have to carefully screen tenants. According to DoorLoop, rent increases have outpaced the country’s average annual wage inflation by 270 percent and rent inflation has exceeded wage inflation by at least 41 percent. ManageCasa said despite the challenges for landlords, such as rent control, tough regulations, high financing costs, and local governments that face debt burden (which in the long-term could lead to tax increases), investors in the state still prefer investing in California than elsewhere. This is because despite the high rent prices, the demand remains; California homeowners and business owners refuse to leave the homes they love.
DoorLoop said that Internal Revenue Service (IRS) data shows that nationally, only 7.1 percent of tax filers are landlords and 17.1 million properties generate income for their owners. DoorLoop said that a typical landlord has at least three properties registered under their name. A JP Morgan Chase report said that there are 50 million residential rental units in the U.S. and 41 percent of them belong to mom-and-pop landlords. Data from the U.S. government shows that 25.8 million rental units belong to businesses or associations and not individuals. The State Library’s California Research Bureau identified 220,000 parcels in California owned by institutional actors with 10 or more parcels.
Landlords typically earn $97,000 annually, and they earn an average of $10,000 or more annually per rental property. About 45 percent of landlords manage their own units, 44 percent hire a third party or a property management company, and 11 percent of landlords manage property they do not own. DoorLoop said that in instances where tenants need to be evicted, the cost of eviction can be high for landlords and can cost from $3,500 to $10,000.
Rent Control Policies and Their Impact
Rent control refers to policies that cap rental rates and annual rent increases in cities and states.
The U.S. does not have a federal rent control law that sets rent prices across the country, according to The Journalist’s Resource. Rent control emerged in the U.S. after the country entered World War II, when war efforts required relocation of labor, and created pressure on housing markets. Rent control was imposed to ensure affordable housing and prevent profiteering. There was a housing boom after WWII, and as such, rent control was no longer needed, aside from in New York City. However, rent control emerged again in the 1970s in cities like Los Angeles, San Francisco, Boston, and Washington, D.C.
The Costa-Hawkins Rental Housing Act (Costa-Hawkins), Assembly Bill 1164 (Hawkins, Chapter 331, Statutes of 1995), prohibits local ordinances in California from controlling rental rates for: 1) residential properties that were first occupied after February 1, 1995, 2) single family homes, and 3) condominiums. Additionally, Costa-Hawkins prohibits rent control when setting the rate for new tenants (aka vacancy decontrol).
According to the Legislative Counsel’s Digest from the Costa-Hawkins, “the rent for a hiring of real property is determined by contract of the parties in the absence of governmental regulation. Various local governmental entities within the state have enacted ordinances or other measures that establish maximum rents for the hiring of real property for residential use.” Costa-Hawkins thus had the effect of forcing some local jurisdictions to not impose rent control on certain types of units listed above, while de facto, permitting local jurisdictions to impose rent control on other types of units.
In local jurisdictions with rent control, the government bodies implement and administer the rent regulations through their own rent boards or commissions. The rules vary by cities. Often, landlords need approval from local rent boards before raising rents above certain amounts and rent increase letters are often required and must follow certain procedures before rent can be increased.
According to Tenants Together, a statewide coalition of local tenant organizations dedicated to advancing and defending the rights of tenants, 39 out of 482 cities in California have tenant protections. A list of the cities and links to some of the jurisdiction’s rent control policies can be found here. According to the LAO in their analysis of Proposition 33, approximately one-quarter of Californians live in communities that already have some form of local rent control.
Twenty-four years after Costa Hawkins was passed to limit the types of units that can be subject to rent control, the California Legislature passed the first statewide affirmative rent control bill in 2019. Under The California Tenant Protection Act of 2019 (AB 1482, Chiu, Chapter 597), a rent control law that is applicable throughout California, most landlords cannot increase rent by more than 5 percent (plus inflation – which is capped at 10 percent total) from year-to-year. This state rent control law is not applicable to jurisdictions that already have its own rent control policies, single-family homes (but only to the extent they are not owned by a real estate investment trust, a corporation, or a limited liability company), any type of housing built within 15 years of 2019, some affordable housing, and dormitories. In addition, AB 1482, maintains the vacancy decontrol rubric, thus also allowing rents to be increased to whatever a landlord desires when there is a new tenancy. AB 1482 is currently statutorily effective until 2030 when it will sunset.
According to Finding Common Ground on Rent Control published in 2018 by the Terner Center for Housing Innovation at University of California, Berkeley:
- One study in New York found that rent control does protect tenants to avoid displacements, particularly for lower-income tenants and renters of color.
- One study in San Francisco found that households living in rent controlled units were 20 percent more likely to stay in their homes, and benefited between $2,300 and $6,600 per person each year in rent savings.
- The literature suggests a repeal of Costa-Hawkins could constrain new housing supply, reduce investment in housing quality, and lead to removal of existing units from the market. In San Francisco, rent control reduced rental housing supply by 15 percent, causing a 5.1 percent city-wide increase.
- Rent control is not means-tested, so the benefits do not always go to those who need it most.
According to The Journalist’s Resource, economists have tended to focus on quantity, quality, and cost of housing when they study rent control. However, there are other benefits when people can stay in neighborhoods over longer periods of time. For example, stability could lead to stronger professional, personal, and educational relationships that help promote economic stability. It could lead to a greater sense of community. Other benefits that families get could be gathered through surveys and interviews, but qualitative studies are costly.
Proposition 33 Repeals Costa-Hawkins
Proposition 33 would repeal Costa-Hawkins. It will not repeal the California Tenant Protection Act of 2019.
According to the Secretary of State here and Proponents of Proposition 33 here, the rent is too high and rent control has worked to keep people in their homes since 1919. The Proponents assert that California renter’s need rental relief and by creating an environment that allows the expansion of rent control, homeowners and taxpayers benefit from stable communities. They acknowledged that: 1) the housing crisis is complex and that there is not one magic bullet to solve it, 2) more affordable units must be built, and 3) affordable units must be preserved. In the meantime, allowing local governments to enact and expand rent control to fit the needs of their community is moving in the right direction. Proponents of rent control further assert that the California Constitution guarantees mom and pop landlords a reasonable rate of return on their investment, but it is the corporate landlords that are calling the shots and causing skyrocketing rents.
Proponents of Proposition 33 include AIDS Healthcare Foundation, California Alliance for Retired Americans, California Nurses Association, Housing Is a Human Right, Tenants Together, Housing Now, ACCE, Social Security Works, Mental Health Advocacy, Veterans Voices, the California Democratic Party, Consumer Watchdog, UNITE HERE Local 11, American Federation of Teachers 1521 and 2121, etc.
Opponents of Proposition 33, assert that passage of Proposition 33 would freeze the construction of new housing and reverse dozens of new state housing laws. I note that I have not read any study that shows rent control “freezing” construction of new housing. The opponents said Proposition 33 will make it harder to become a homeowner or find a place to rent. It would allow the government to regulate single-family homeownership. That is true, but it should come with a qualifier: to the extent it involves renting out a house one owns. Per the IRS, most homeowners are not landlords. People who are not renting out their house do not have to worry about rent control as directly applied to them. Opponents said that Non-Partisan researchers at MIT estimate extreme rent control measures like this result in an average reduction of home value by 25 percent. I would note here that should the value of homes go down in California because of rent control or any other reasons, it also has the effect of allowing more people to afford to purchase homes should they go up on the housing market. That is, home value and affordability, are the flip side of the same coin.
Opponents of Proposition 33 include the California Chamber of Commerce, California Small Business Association, California Conference of Carpenters, Californians for Responsible Housing, California YIMBY, Marine Corps Veteran Association, etc.
According to the LAO, Proposition 33, if passed, would “probably” expand rent control in some communities, and if so – based on the degree of the rent control expansion – would have the following effects:
- Some renters living in rent control jurisdictions that expand rent control would spend less on rent. In contrast, some renters who live in properties not covered by rent control in the local jurisdiction would spend more on rent.
- Some renters would move less often (because of increased financial stability related to housing).
- More renters would buy homes and fewer homes would be available to rent (because some landlords would sell their properties to new owners instead of renting, and those new homeowners would reside in those properties rather than rent).
- The value of rental property would decline because potential landlords would not want to pay as much for the property (e.g. it becomes a less attractive investment).
- If passed, local jurisdictions may face property tax revenue declines for cities, counties, special districts, and schools at least in the tens of millions each year (or less than one-half of 1 percent of all property tax revenue).
With regards to the last point the LAO is making in the bullet above, it’s worth noting that the federal, state, and local government are spending billions of dollars to prevent homelessness because people cannot afford their rent. The challenge for all levels of government is that more people are becoming homeless faster than local jurisdictions can house them. The housing safety net is insufficient everywhere, and without an infusion of significantly more money, the need for housing will outstrip the capacity of any government body to solve the housing affordability and homelessness problem. This is because the government, in large part, sees housing as a private enterprise, to be left to capitalists and profiteers. Government then is left regulating on the fringes to keep housing costs down, if at all. But when the supply and demand do not work in fidelity, it is the government that is left holding the bag for its citizens; and it is taxpayers who fund government operations. Ultimately, it is the poor individuals and families, including those with children, seniors, the disabled, victims of domestic violence, LGBTQ youth, people with mental health challenges, and those with drug addiction, that must pay the highest price stemming from their economic limitations and all the downstream impact from their circumstances.
I note that the future of rent control and the repeal of Costa-Hawkins and its impact is hard to predict because the effect of Proposition 33 is to eliminate a prohibition, with affirmative action(s) yet to be determined. What happens next could vary greatly by jurisdictions and would likely be subject to votes from local governing bodies or their citizens. Additional state law could be enacted in the future that would change the housing landscape. That is, future state law could create stricter rent control than is currently in existence, but it could also loosen rent control at the state level; and state law could additionally preempt local rent control to broader categories. Those possibilities are contingent on the fluctuating political landscape.
However, should Costa-Hawkins be repealed, depending on where the 2 million single-family rental units are located, many more of them could then be subject to rent control, and local jurisdictions facing housing affordability challenges could reasonably move to include those types of units under rent control, especially if the housing affordability and homelessness problems in the state continues to worsen as it has for decades.
In so doing, political bodies or their electorate could carve in exemptions with rational basis and public policy interests in mind. This could include exemptions: for landlords that rent less than 4 single-family units, for landlords that rent some part of a unit they are living in, to permit rent increases above particular percentages for a reasonable rate of return on investments, and to permit capital improvement-based rent increases so that properties can be maintained.