I am a CA landlord of a single house. Keeping track of “market rate” is an annoying exercise and I tend to just leave the rate unchanged for multiple years (3-5) then bring it up in one go. The last time I did this the rent increased ~12%.

Before, the tenant was happy because they got below market rent for 4 years, and I was happy because I could defer pricing work without long term penalty or risking a move-out during an already busy year. This new law will likely result in my tenant paying more, and me working more at times I don’t want to work.

It’s not the end of the world, it’s just one more annoying piece of red tape that doesn’t seem to help anyone.

Was the tenant happy when you increased it? Increasing rent 12% in one go effectively kicks out most tenants. A smaller annual increase will give them time to adjust to market conditions and choose over a longer period whether or not to move and to save up to do so.

You are doing no one any favors except short-term renters who never get an increase. In other words, your so-called benefit is actually a detriment to long-term renters.

I have done this twice with the same tenant without complaint or moveout. My tenant was presumably getting basic inflation based increases at work, which offset most of the delta.

Unclear on why doing it all at once is worse than doing it regularly and extracting more rent in the period in between. Is the theory that they will be unable to adjust their budget in 60 days?

It's beyond me why people would think this is worse for the tenant. Can I move to CA and be your tenant? You're basically giving your tenants free money.

Let's say the rent is $1000/month (for simplicity). That's $12000/yr in the first year. If you increase the rent by 12% ever 4 years they'll have 3 years of paying $1000/month, followed by a 4th year of $1120/month and so on.

If you instead raised it yearly by 2.87%, which give-or-take is the same as a 12% one-off increase we can calculate the net rent paid over the period in the two scenarios:

    $1000*12*3 = 36000

    r=1000;x=1.0287;
    (r*x^1*12)+(r*x^2*12)+(r*x^3*12) =~ $38106

The result is that by deferring rental increases you've given your tenant a benefit of $2106, and we can safely assume the rent is a lot higher than $1000/month. I.e. every month of the rent not keeping with market increases is more money for the piggy bank.

Not only that, the money saved in the short term (those 4 years without a rent increase) can be allocated however the tenant chooses. It can be frivolous spending, or the tenant can choose to turn it into long-term investments for compounding effect. I love being a tenant in these scenarios.

I think people that are arguing bigger rent increases that happen less often are bad are assuming tenants are stretching their housing budget to the max and won't be able to afford the large hikes. In which case they wouldn't have been able to afford it with smaller increases either.

Getting a surprise bill for 48 months of interest free credit is still a surprise bill. The landlord in question admits both to deferring out of disinterest in tracking market value (which as a trend is simply not hard work to determine) and to increasing the rent enough to recoup the rent lost by deferring the increase. During this time a tenant has no idea there is a claim on some undisclosed portion of their budget and has every incentive to set their operating budget accordingly.

It is well known that most people can not afford significant sudden expenses. I think the inability of some folks here to recognize how bad a 4 year rent hike can be have the privilege of not being in that group.

Renters generally understand that rent can be changed when the lease runs out and should be braced for the possibility that there will be a moderate increase. If the renter doesn't understand that, they probably haven't rented much before, and they'll learn it the first time their rent increases. If you are lucky enough to go multiple years without any adjustment, you should expect that the landlord will want to correct the differential at some point and budget accordingly.

Note this works both ways. If the market goes down, if no one wants to live there anymore, tenants have a lot of room to negotiate. Vacancies are expensive and the hassle of getting a new tenant is not something many people want to handle even in good conditions.

To clarify, when I increase, I bring it up to market rate, not over market rate. So my losses on missed rent are not recouped.

I also contend that not all markets make this easy. I rent a single family home in a town of 4,000. This is not a super liquid market. There are not a lot of good comps - my house is a block from the town’s best park, and walking distance to the small downtown. On the other side, it is a substantially smaller lot than the average house. There are essentially zero houses that are equivalent, and I have to do a lot of digging (including calling up other folks I know that are landlords) to figure it out.

My tenant is not on the verge of financial collapse. They’re a manager at a local business, they probably spend about 20% of their gross pay on rent. They have demonstrated an ability to absorb the bump without issue.

Could the tenant not save the amount of money the rent was not going up to be prepared for the day when rent did go up? The tenant could have saved 5%’s worth of increase, invested it in an index fund for the day that the rent eventually did rise. A 12% rise after 3-5 years would be no big deal since the tenant would have been prepared.

> Was the tenant happy when you increased it? Increasing rent 12% in one go effectively kicks out most tenants.

No, the market kicked out most tenants. The tenant should be expected to also monitor market prices for their rental and know automatically when they're getting a deal or when to expect an increase.

If I own a house or an apartment complex, my costs are relatively fixed -- that is, after all, the primary argument for owning rather than renting -- which means that if I am leasing that house or units in that complex to someone else, there is nothing requiring me to raise rents to keep up with "the market" rather than merely keeping up with my own actual costs. I can choose to make the same absolute amount of net income year after year. If "the market" is increasing faster than inflation and property tax, I can choose to take advantage of that.

"The market" is not an entity with its own volition, and speaking of it as if it were obscures the reality that it's comprised of individuals and collectives making individual or collective choices about what to charge and what to pay.

Sorry, didn't mean to ehumanize it. In the aggregate, it could be viewed as having its own volition.

Two viewpoints, one tree.

You can still do it that way. But instead of raising the rent 12% in one year, you can just raise it by 7% one year and then by 4% the next year.

The tenant still gets below market rent for 4 years, you and can defer pricing work for as long as you want without penalty or risking a move out during a busy year.

I think you might be overly worried for your situation. Your 12% example is an amortized difference of at most 1.5% compared to the new 7% cap (1.12yroot3 vs 1.07yroot5).

The point is, if you decline an increase now-- and costs increase unexpectedly, you have a hard cap on how much you can do to adjust. This incents landlords to be more aggressive with pricing, because a mispricing now can extend to be mispriced for many years.

It also may change the equilibrium behavior, because it upsets a social norm and affects landlords' estimations of what other landlords will do.

FWIW, this is still more bookkeeping for me (have to track when to raise, how much remaining to raise). I also personally feel like a dick every time I serve the rent notice - it’s a small town and everything feels a little personal.

It’s not a lot of work, but my FT job isn’t being a landlord, and we’re talking about a property that nets maybe $8k/year. It’s been a better rate of return than the stock market, but the alpha is small relative to my SWE salary.

I guess another possible outcome of this is pushing marginal small landlords out, or pushing them to use property management firms since the fees possibly start making more sense. Neither of these seem like good outcomes to me.

An increase by 7% followed by 4% is an increase of 11.28%, not 12%.

$1000 +7% = $1070, $1070 +4% = $1112.80

$1000 +12 = $1120.

Fine.

Increase by 7% followed by an increase of 4.67289719626168224299065420561‬%.

The point is that the 12% hike every 3 to 5 years can be accomplished over the same time frame because the max the law allows for is 22.5043‬% in 3 years and 40.25517307‬% in 5 years.

But the reality is that landlords aren't going to want to take the risk that they'll have to spend extra time at a below-market rate, and since there's no way to predict what the market is going to do, there's no guarantee that they'll only be missing 4% of that value for only one year. Landlords are thus incentivized to increase rent by the legal maximum each year to keep the risk minimized.

Your hypothetical also assumes that in the next year, the market value will stay the same, when in reality the expectation would be that it would increase another percentage point or two, meaning they'd have to come close to maxing that second year's increase to fully recapture the value.

It also creates an effect where now that there's a legal range, the landlord will still feel like a nice guy by increasing rent "only" 4% each year, for example, and that's worse for tenants overall. It strongly incentivizes small-time landlords to imitate commercial landlords and squeeze the tenant for more each year, which other posters have adequately demonstrated is a significant loss to the tenant over a simple periodic adjustment every 3-5 years.

These policies may be better justified in high-density areas like San Francisco (probably still net negative), but applying them state-wide is crazy. California is a very large state and they just made things substantially more complicated for both tenants and landlords throughout.