In Los Angeles’ high-end rental market, it’s long been common to find homes advertised for $10,000 a month or more.
But in the wake of this month’s devastating wildfires in Pacific Palisades and Altadena, new listings above that amount are effectively barred by state law, just as a crush of wealthy, displaced families are looking for places to go.
The price limit is keeping off the market homes that prospective landlords would otherwise offer to displaced families, say local real estate agents and brokers, tightening even further the vise people are facing in their search for housing. More than 11,000 homes have been confirmed destroyed in the fires and reports of widespread price gouging and bidding wars have followed as the little available rental inventory gets snapped up quickly.
Palisades residents looking for rental homes elsewhere in Los Angeles comparable to the ones they’ve lost would have been squeezed for options below the limit even before the fires. Last year, two dozen four-bedroom homes in an oceanfront Manhattan Beach neighborhood rented for a median price of $16,000 a month, according to data from the multiple listing service.
“These people are used to a certain quality of life,” said Tyler Morant, a Manhattan Beach real estate agent. “They’re going to markets that have that quality of life. But these laws are working to prevent a lot of this supply from coming online.”
At issue is California’s price-gouging law, which limits rent increases after natural disasters. For properties that had been leased or listed in the previous year, landlords are barred from hiking rents by more than 10%.
The law includes a separate restriction for properties that haven’t been on the market previously. Potential landlords cannot charge more than a certain percentage above a federal rent payment standard. While the amount varies by neighborhood and a unit’s number of bedrooms, the maximum allowable price in Los Angeles County for any newly listed property is $9,554 a month, according to a Times calculation of the federal data.
Nearly 1,400 homes and apartments in the county were listed on Zillow for rent Wednesday above that amount. If the units had been on the market within the past year and hadn’t raised prices by more than 10%, they’re likely allowed at that price under the law. If they’re new offerings, they may not be.
That’s the case even if the prices are higher for previously listed properties. In Tarzana, a landlord is asking $17,500 a month to rent a 3,000-square-foot home with a pool and a view of the Santa Monica Mountains, a 9.4% increase from the price at which it was offered in December, according to Zillow. Eleven miles away in Chatsworth, a 3,350-square-foot English Tudor-style house is on the market for the first time on Zillow for $11,900 a month.
Violators of the price-gouging law could face criminal penalties that include up to a year in county jail and civil fines of up to $2,500 per incident. California Atty. Gen. Rob Bonta announced Wednesday the first price-gouging charges related to the fires, accusing a La Cañada Flintridge real estate agent of raising the list price on a rental home by 38%. Amid bidding wars, the attorney general has warned landlords that accepting unsolicited offers to pay more than 10% over the asking price would qualify as price gouging.
Several clients and acquaintances of Morant, including empty nesters with other places to stay and property owners with empty vacation homes, told him in the past couple of weeks that they were considering putting their homes on the rental market. But he’s advising them against doing so because of the financial and legal risks.
“We’re telling them it’s not worth it,” Morant said.
Before 2018, there were no price limitations in state law for homes that hadn’t been on the rental market prior to a natural disaster.
After the Tubbs fire destroyed 5,000 homes in Sonoma County, the district attorney fielded complaints that she couldn’t do anything to reign in new rentals advertising sky-high prices. Lawmakers wanted to tackle the issue.
Interest groups involved in negotiating a price standard for new listings settled on 170% of the rent designated by the U.S. Department of Housing and Urban Development for a particular unit size and neighborhood, said Deb Carlton, an executive vice president with the California Apartment Assn., who was part of the discussions. The HUD figure, which is based on Census data for typical apartment rents in an area, is used to ensure landlords cannot overcharge low-income residents with housing choice vouchers. The revision to the law, which also tightened up pricing restrictions for properties already on the market, passed both houses of the Legislature with only a handful of votes against it.
“Nobody ever anticipated we’d have extremely wealthy people in need of large homes,” Carlton said.
When natural disasters occur and a surge in demand follows, the government should encourage the offering of housing previously used as vacation homes or Airbnbs or left vacant as long-term rentals, said Shane Phillips, manager of the Randall Lewis Housing Initiative at the UCLA Lewis Center for Regional Policy Studies.
He estimated that potential landlords could be holding back “in the high hundreds to the low thousands” of homes due to the price limitations on new listings. That amount is too small to affect L.A.’s overall rental market but does make it harder for displaced people to find houses, he said.
“Every home does count,” Phillips said. “It does matter. And no matter how fancy it is, someone from the Palisades can afford it.”
A spokesperson for Bonta said the attorney general’s office will continue to enforce the price-gouging law and deferred questions about policy implications to Gov. Gavin Newsom and state lawmakers.
“Broadly speaking, we continue to believe that, especially during a state of emergency, we should be doing everything in our power to house our fellow Californians,” the spokesperson said.