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Two Huge Changes Affect Local Rental Rates

The market for rentals in Manhattan Beach will change again in the immediate wake of a brand-new Executive Order signed today (Tues. Feb. 4) by Gov. Gavin Newsom. (Click here to see the full EO.)

The order addresses two major issues that had emerged as displaced families have been seeking rental housing in Manhattan Beach and the South Bay, and as many local homeowners were stepping up to provide it.

1) End to 160% Price Cap

As we discussed here at MBC in detail just 5 days ago, a portion of the Penal Code (Sec. 396) restricts rental prices under the current state of emergency.

One restriction caps price increases on existing rentals, or properties that have been advertised for rent, to no more than 10%.

The second, lesser-known restriction, capped prices for properties without any recent rental history at 160% of the "fair market rent" calculated by the U.S. Dept. of Housing and Urban Development (HUD). As we noted in our post, this cap put prices impossibly low for many Manhattan Beach properties (we made a chart!), leading to either a restriction of supply or some degree of risk – even law-breaking – by property owners and real estate agents.

That 160% price cap is now gone, for homes of 4BR or larger, at least through March 8, thanks to the governor's newest executive order.

Here's the relevant language from today's order:

Isn't it nice to see your ZIP code get a shout-out in a big, important executive order?

It's section (j)(11)(B) that contains the 160% restriction, which is now "suspended" as it applies to Manhattan Beach, the main Palos Verdes ZIP codes, and a number of others.

This means very simply that 4BR+ properties without a prior rental history may now be priced at any rate at all that the market will bear, which is basically a 180-degree turn. 

Note: March 8 is referenced in this order because that is the expiration date on the current state of emergency; if it is extended, it is to be hoped that these provisions also would be extended.

Importantly, no part of this executive order changes the 10% price increase cap for properties with a rental history.

And homes of 3BR or fewer are not exempt from the "160% of HUD" formula.

2) Closing the '366 Day' Loophole

While this order giveth, it also taketh away.

The "price gouging" statute, Penal Code 396, contained a pretty big loophole: On its face, the statute applies only to "rental housing with an initial lease term of no longer than one year." (Definition of "housing" in paragraph 10 of the section.)

Therefore, anyone who might want to price a property outside the constraints of the statute's price controls could, in theory, just advertise and sign a lease of more than 12 months.

But those days are over. The governor's executive order closes that loophole with this language:

This means that some rental properties are now price-controlled regardless of the length of the lease agreement.

If you go back to our prior post, we talked about three things that might happen if property owners found the price controls too restrictive. Option #3 was to "[f]ind a way around the rules entirely." This was the loophole of which we, and many others, have been aware, but we've had to be careful where and how to talk about it.

There was always a risk that someone would assert that longer leases still violated the statute somehow, or that legislators would step in to change the law. Turns out, the governor's action is equivalent to a legislative change.

Different Impacts for Prior Rentals, New Rentals

Today's executive order is great news for displaced families seeking shelter in Manhattan Beach and the other specified ZIP codes, and it's good news also for property owners who have been contemplating renting out their homes in light of the real need out there.

(It's also good news for realtors who have been helping to surface new housing options, but also potentially getting caught in the cross-hairs of prosecutors or licensing authorities if they ended up facilitating "overpriced" rentals. We put this in parentheses because we probably care more about that part than the average bear.)

Some people are going to be struck by a disparity: There are still price caps in place for properties that have a market history, and no price controls at all for properties coming to market for the first time – or at least the first time in more than a year.

Yep. That's how it is.

The alternative to outright price decontrol for new properties would be to come up with some new formula to replace the "160% of HUD" calculation that was failing to meet the moment.

We're going to offer a virtual "pat on the back" to the governor here for not trying to invent some new formula or means of calculating market rates. Governments aren't usually good at setting market prices.

Our greatest hopes in the wake of the governor's new order are that we will see more housing come to the open market, and that our colleagues and clients – and potential clients – can sleep a little better knowing that assisting people with finding housing won't be a crime.


Please see our blog disclaimer.

Listings presented above are supplied via the MLS and are brokered by a variety of agents and firms, not Dave Fratello or Edge Real Estate Agency, unless so stated with the listing. Images and links to properties above lead to a full MLS display of information, including home details, lot size, all photos, and listing broker and agent information and contact information.

Based on information from California Regional Multiple Listing Service, Inc. as of February 10th, 2025 at 6:41pm PST. This information is for your personal, non-commercial use and may not be used for any purpose other than to identify prospective properties you may be interested in purchasing. Display of MLS data is usually deemed reliable but is NOT guaranteed accurate by the MLS. Buyers are responsible for verifying the accuracy of all information and should investigate the data themselves or retain appropriate professionals. Information from sources other than the Listing Agent may have been included in the MLS data. Unless otherwise specified in writing, Broker/Agent has not and will not verify any information obtained from other sources. The Broker/Agent providing the information contained herein may or may not have been the Listing and/or Selling Agent.