Appraising Rent‑Controlled Apartment Properties in California
Rent control is one of the most important regulatory factors affecting the valuation of multifamily apartment properties in California. For appraisers, the presence of rent stabilization laws directly influences income modeling, allowable rent growth, tenant turnover assumptions, and long‑term cashflow projections. Because each municipality, and the State of California, imposes its own rules, a credible appraisal requires a clear understanding of which laws apply and how they restrict rent increases.
This article outlines the major rent‑controlled jurisdictions in California, summarizes their requirements, and explains how these laws affect appraisal methodology.
1. Why Rent Control Matters in Appraisal
For rent‑controlled assets, in‑place income is the most reliable indicator of future performance. Appraisers cannot assume market rent turnover because:
Tenant move‑outs are unpredictable
Vacancy decontrol rules vary by jurisdiction
Annual allowable increases are capped
Some cities prohibit rent increases during certain conditions (e.g., COVID‑era freezes)
Because we typically model Year‑1 income as the foundation of a discounted cashflow or direct capitalization analysis, we must know:
Whether the property is subject to rent control
The applicable annual increase limits
Whether vacancy decontrol is allowed
Whether banking of unused increases is permitted
Whether capital improvement passthroughs are allowed
Whether rent increases require registration or approval
Without this, the income approach becomes speculative and non‑defensible.
State of California Rent Control (AB 1482 – Tenant Protection Act)
California’s statewide rent control applies unless a property is exempt or located in a city with stricter rules.
Applicability
AB 1482 applies to:
Multifamily buildings 15+ years old
Corporate‑owned single‑family rentals
Non‑exempt duplexes
Exemptions
Single‑family homes owned by individuals or trusts
New construction (first 15 years)
Condominiums
Owner‑occupied duplexes
Annual Allowable Increase
5% + CPI, capped at 10% annually
CPI is region‑specific
Increases require 30‑day or 90‑day notice, depending on magnitude
Vacancy Decontrol
Allowed. Rents may be reset to market upon voluntary vacancy.
Appraisal Implications
Year‑1 income must reflect in‑place rents + allowable AB 1482 increase
Market rent adjustments apply only to vacant units
Long‑term cashflow modeling must use the statutory cap
City of Los Angeles Rent Stabilization Ordinance (RSO)
Los Angeles has one of the strictest rent control systems in the country.
Applicability
RSO applies to:
Multifamily buildings built on or before October 1, 1978
Some replacement units under Ellis Act or SB 330
Certain mobile homes
Annual Allowable Increase
Beginning 2026:
90% of CPI, with a 1% minimum and 4% maximum
Vacancy Decontrol
Allowed. Rents may reset to market when a tenant voluntarily vacates.
Registration Requirements
Annual rent registration required
Rent increases cannot be applied unless the unit is registered
Capital Improvement Passthroughs
Allowed with application and approval
Typically capped and time‑limited
Appraisal Implications
In‑place rents govern Year‑1
Rent increases must follow the CPI‑based formula
Turnover assumptions must reflect realistic tenant mobility
Expense modeling must include RSO compliance costs
4. Other Major Rent‑Controlled Cities in California
Below is a concise summary of the most common jurisdictions encountered in appraisal assignments.
Santa Monica Rent Control
Applicability
Multifamily units built before April 10, 1979
Annual Allowable Increase
CPI‑based, typically 2–3%, with strict caps
Vacancy Decontrol
Allowed under Costa‑Hawkins
Appraisal Notes
Santa Monica has some of the highest compliance costs
Registration and reporting are mandatory
West Hollywood Rent Stabilization
Applicability
Units built before July 1, 1979
Annual Allowable Increase
CPI‑based, historically 0–3%
Vacancy Decontrol
Allowed
Appraisal Notes
Strict enforcement; verify registration status
Beverly Hills Rent Stabilization
Applicability
Pre‑February 1, 1995 multifamily units
Annual Allowable Increase
CPI‑based, capped at 3–8% depending on category
Vacancy Decontrol
Allowed
Appraisal Notes
Two‑tier system (A and B units) affects allowable increases
San Francisco Rent Ordinance
Applicability
Units built before June 13, 1979
Annual Allowable Increase
CPI‑based, typically 1–2%
Vacancy Decontrol
Allowed
Appraisal Notes
Passthroughs for capital improvements and operating costs may apply
Oakland Rent Adjustment Program
Applicability
Units built before January 1, 1983
Annual Allowable Increase
CPI‑based, historically 2–3%
Vacancy Decontrol
Allowed
Appraisal Notes
Oakland allows banking of unused rent increases
5. Appraisal Methodology for Rent‑Controlled Assets
1. Start with In‑Place Income
This is the only defensible baseline. Market rent assumptions are irrelevant unless units are vacant.
2. Apply the Correct Annual Increase
Use the statutory formula for the jurisdiction. Do not assume future CPI beyond reasonable historical norms unless the assignment requires forecasting.
3. Model Turnover Conservatively
Tenant mobility varies widely. Over‑estimating turnover artificially inflates NOI.
4. Verify Registration and Compliance
Non‑registered units may not legally receive rent increases.
5. Adjust Cap Rates Appropriately
Rent‑controlled assets often trade at:
Lower yields
Higher price per unit
Lower risk premiums due to stable occupancy
6. Document Every Assumption
Rent control is a litigation‑sensitive topic. A defensible appraisal requires clear citations of municipal codes and statutory limits.
Conclusion
Rent control fundamentally shapes the valuation of multifamily properties in California. By understanding each jurisdiction’s rules, and grounding the income approach in in‑place rents and statutory increases, appraisers can produce credible, defensible results that withstand lender, attorney, Internal Revenue Service and assessor scrutiny.