If you've been listing, or looking for, rental housing since the tragic January wildfires in L.A. County, you're aware of the impact of the so-called "price gouging" regulations. The rules cap rental prices, sometimes forcing prices far below what the market would bear.
We've written on the topic extensively, and have put our words into practice by listing rental properties that were impacted by the rules. (We'll summarize those again below.)
The big question looming for months has been whether the governor would extend the "state of emergency" that activated the "price gouging" statute (Penal Code Sec. 396) past its current July 1, 2025, expiration date.
Now, Los Angeles County has stepped in to make that question almost moot.
On Tuesday, the county Board of Supervisors voted 4-0 to extend "price gouging" protections under the state law for 30 days, from July 1-July 31, 2025.
And don't assume July 31st is the end.
Supervisor Lindsey P. Horvath, one of two sponsors of the measure, said, according to the Daily Breeze, “The county has the authority to extend [the regulations] only for 30 days at a time. It is my intention to extend beyond 30 days.”
County Action As a Wildcard
Can they do that?
Yes, L.A. County can do that.
PC 396 leads off with an assumption that it's to be triggered by the U.S. president's or California governor's declaration of an emergency, but it also allows for "the declaration of a local emergency by an official, board, or other governing body vested with authority to make that declaration in any county, city, or city and county."
Tuesday's action by the Board of Supervisors mentions an "ongoing emergency" and argues that action is needed "to continue to protect residents from unscrupulous and excessive housing price increases."
(Armchair lawyers may want to quibble that the Board motion does not literally declare a local emergency, as envisioned by PC 396, but instead expresses the intent to directly extend price controls.)
PC 396 does seem to limit any local emergency declaration or extension to 30 days, meaning the county might make this a routine action for months, or years, to come.
What About the Governor?
We've checked the news, checked the governor's official website, and checked in with our industry lobbyists in Sacramento, and so far, there's no news at all about whether the governor will extend his own declared state of emergency coming out of the tragic wildfires past July 1.
We truly have expected some kind of extension. The history we've heard is that the last time PC 396 was used to regulate rental prices (and hotels, food, supplies, and more) after a Northern California fire, the state of emergency ran for 4 years, meaning prices were controlled for that long.
It's not July 1 yet. And the governor might have some other things on his mind. (Ya think?!) He might still extend.
In fact, now it might be very important for a subset of property owners for the governor to do so. See the second section below pertaining to "exemptions."
Recap: How the 'Price Gouging' Rules Work for Rentals
Let's recap the basic impact of PC 396 "price gouging" regs on local rental prices.
1) A property that has been rented can have its price raised by a maximum of 10% over the rate paid by an outgoing tenant if it becomes vacant and is re-rented.
2) If a property was advertised for rent within the year prior to January 7, 2025, although not rented since, the maximum price is 10% above the price last advertised.
3) If a property has no recent rental history, and was not advertised for rent for a year before January 7, 2025, certain calculations likely apply to set an allowable rental rate. This rule is complicated by a (mostly favorable) "exemption" created in a February executive order.
- 3A) Any property of 3BR or fewer must set a price no greater than 160% of the "fair market rent established by the United States Department of Housing and Urban Development," plus 10%. Furnished properties can add 5%. We'll explain below.
- 3B) Any property of 4BR or more that is not in an "exempted" ZIP code also must set a price no greater than 160% of the "fair market rent established by [HUD]," plus 10%. Furnished properties can add 5%.
- 3C) A property with 4BR or more that IS in an "exempted" ZIP code – Manhattan Beach is one – may set any market price whatsoever.
Properties under 3A or 3B are tied to the HUD "fair market rent" (FMR), which is broken down by ZIP code. It is significantly higher for Manhattan Beach 90266 than for many nearby communities, if still quite low. (See it here on the HUD site.) The FMR is ordinarily used to help determine how much the government will pay for housing assistance, such as Section 8 vouchers.
Using the "HUD base" rents, we calculated the amounts that a local owner may legally charge for 2BR-5BR units in Manhattan Beach with no rental history.
We've noted above that the maximum rate is 160% of the HUD figure plus 10%. This is the plainest reading of the statute and the one that we have been previously advised to follow. There was a brief time when some entities disagreed about the "extra" 10%. For this reason, you'll want to get your own legal advice in pricing a rental that is price-controlled.
The blue box around 4 and 5 bedroom units reflects an "exemption" discussed below.
Nerdy caveat: The HUD site does not list 5BR prices. We believe the 5BR calculation here is correct, although we first made it early this year following a procedure we would need to validate again.
4BR+ 'Exemptions' by ZIP Code Could Evaporate
In February, the governor issued an executive order that created the big exemption de-controlling prices of larger homes (4BR+) in a wide swath of higher-priced ZIP codes, including Manhattan Beach. Here they are:
(Here is the updated order as of March.)
In the South Bay, besides MB, you also see the Palos Verdes area noted (90274 & 90275) as exempted.
Hermosa Beach, Redondo Beach and Torrance are not mentioned, therefore not exempted.
The "exemption" is only for calculating rates on properties without an applicable rental history (those mentioned under 3C in our list above). If there is a recent rental history, the 10% maximum increase rule still applies in all ZIP codes.
Now, here's the issue.
The "exemption" of these ZIP codes only goes through July 1, just like the governor's current state of emergency.
There is a possible scenario – let's not fret too much, but discuss anyway – by which the governor's orders sunset and LA County's "emergency" takes over.
This scenario would appear to bring back the much more rigid price controls in the currently "exempt" ZIP codes, unless and until these exemptions might be re-created at the county level.
All of which is to say, if you don't want to see the exemptions evaporate, now you kinda want the governor to extend the emergency – and his ZIP code exemptions.
This would also be a really good time for the governor to add a few ZIP codes that he "forgot" the first time – like Hermosa. Really. We leased a Hermosa property this year for about 40% under market value due to the regulations and lack of an exemption for 90254. Not a fun conversation with the clients.
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More Deep Dives on Emergency Price Controls
Some of our can't-miss prior articles on this topic:
"How Emergency Rent Limits Impact Manhattan Beach" (Jan. 30)
"Two Huge Changes Affect Local Rental Rates" (Feb. 4)
