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Regulating the Rental Market

To help solve the rental housing crisis in California and elsewhere in the country, municipalities need to create a rental housing inventory, requiring all landlords to register their rental units with the city. These units should then be assessed to determine their fair rental market value, much as housing values are assessed. This assessment would take into account the age of the unit, its size in square footage, the amenities it includes and their condition, any improvements made, and basic health and safety standards. For units that do not meet health and safety standards, landlords must make the required improvements in order to rent them out. Also, municipalities should encourage renters to report landlords renting illegal, unsafe, or substandard units. Much as housing is red-flagged for not complying to code, so should rental units be flagged in the register and be barred from being rented until improvements are made.

 

Based on assessment by the city, units would be categorized and priced as basic, market, or premium in quality. Basic units are studios, conversions, granny units, units of inferior quality and/or size, with on-site landlords, etc. that otherwise have all the necessary amenities, and are deemed safe and legal. Market rate units are standard units with the required amount of bedrooms for the typology in multifamily buildings. Premium units are standard units that are new or exceed the quality of market rate units in size, comfort, amenities, etc.

 

According to these classifications, and assuming single tenancy (which accounts for 28% of all American households today, up from 7% in 1950), basic one bedroom units could rent at a maximum of 25% of the net monthly household income ($340 a month), based on the current California minimum wage of $9 an hour, and assuming a 40-hour work week; market rate one bedroom units could rent at a maximum 25% of the median net monthly household income for the community ($860 a month), based, in this case, on a median annual income of $49,497 in Los Angeles (2010 U.S. Census); and premium one bedroom units could rent at a maximum of 25% of the mean net monthly household income of a community ($1,220 a month), based, hypothetically, on the 2014 U.S. Census report of a mean U.S. household income of $72,641.

 

Assessments would be made each year, and there would be no rent control, beyond the policy stated above. This would eliminate the incentive of landlords to drive out rent-controlled tenants through the use of legal loopholes, intimidation, or one-time cash payment. It would also create a rental market based on what people could be reasonably expected to pay according to their income. While some may argue that these hypothetical rents are too low, really they provide a clear picture of how out of touch current rents are with incomes in California. The rents listed here are what people can reasonably be expected to pay and still save money to pursue their own prosperity.

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