Wildfires Inspire Stricter Housing Price Gouging Laws… and More Multifamily Investment Woes

 

Featured image credit: CAL FIRE_Official

The rain has finally arrived in Southern California, but January’s historic wildfires continue to cause turmoil. But this time, the problems are legislative. Last week, Los Angeles city officials dismissed a proposed citywide rent freeze. The suggested changes follow allegations of price gouging that also inspired a slew of stricter price gouging laws. 

The Rejected Rent Freeze Ordinance

Photo credit: Envato

On Tuesday, February 4, the Los Angeles City Council passed new laws protecting fire victims from rent increases and, even in some cases, evictions. The action follows reports of landlords evicting tenants who housed unauthorized guests impacted by the fires. Some of these guests also brought along pets expressly forbidden by the rental terms. Clarifying the city’s position, councilmember Traci Park stated at the meeting, “During this emergency, acts of kindness and compassion should not be punished.” 

However, the city council also struck down a rent freeze proposal that would apply to the entire city. The proposal elicited widespread criticism as smaller multifamily investors and landlords continue to catch up in the wake of pandemic-era rent freezes. Following the February 4 meeting, landlords descended on City Hall. Many clutched signs clarifying that they provide housing to a city in desperate need. 

These same landlords weighed in with city officials, pointing out that blanket rent freezes weren’t a solution to the problems wrought by the wildfires. Instead, they floated the idea of direct city funding for qualifying residents. However, tenant advocacy groups countered that life moves faster than the speed of bureaucracy. By the time the funds reached the residents most at risk of eviction, it would already be too late. 

Stricter, Wider Reaching Price Gouging Laws

Photo credit: Envato

Following January’s wildfires, over 900 accusations of price gouging have been brought to the city’s attention according to Rafael Carbajal, director of LA County’s Department of Consumer and Business Affairs (DCBA) per Costar. However, officials have only pressed charges against three violations of the established price gouging laws so far. 

Still, the Los Angeles County Board of Supervisors has ordered a slew of stricter price gouging laws in response to the accusations. Most immediate among these laws: a fine increase to $50,000 per violation during the post-wildfire emergency period. As price gouging laws currently stand, violators are subject to up to a $10,000 per violation fine and/or a maximum of one year in county jail. 

But the board also wants to expand price gouging laws, establishing repercussions for landlords using rent pricing algorithms to circumvent the standing 10% maximum rent increase. At their meeting, the board demanded that the DCBA file an ordinance to heavily restrict such algorithms. Similar legal changes prohibiting price-setting algorithms beginning in San Francisco last autumn directly inspired the move. 

More Tribulation for Multifamily Investors

Photo credit: Envato

While these price gouging laws are poised to pass, other legal changes are on the horizon as officials discuss the best relief efforts for wildfire victims. An initiative that would prevent landlords from evicting tenants affected by wildfires, even for reasons of non-payment, seems like it has a strong chance of passing. It’s already cleared LA’s housing committee. This eviction freeze would last a year. It’s worth noting that a similar proposal with a citywide reach was already rejected for its broad scope. 

This all lends to a trend that we at JohnHart Commercial Real Estate have witnessed steadily growing. Multifamily investors are jumping commercial classes. Commercial investors want to shed multifamily properties from their portfolios for office space investment. The legal changes trailing heightened price gouging laws only serve to intensify landlord and investor frustrations.