Governor Gavin Newsom has just signed AB 12 into law, a legislation that limits the amount landlords can charge for security deposits to just one month's rent for unfurnished apartments. While the law aims to make housing more accessible, it raises several concerns for landlords and tenants alike.

The Intent Behind AB 12

The law is designed to alleviate the financial burden on tenants, especially those who are already struggling to make ends meet. By capping security deposits, the state government believes it can make housing more affordable and accessible. However, the law comes at a time when landlords are grappling with increasing operational costs, limited rent increases, and stalled evictions for tenants who owe back rent since March 2020.

The Impact on Landlords

For landlords, the new law adds another layer of financial risk. Security deposits serve as a safety net for property owners, providing some level of protection against potential damages or unpaid rent. With the new limitations, landlords lose a significant tool for mitigating risks associated with tenants who have poor rental history or low credit scores.

Moreover, landlords are already navigating a complex landscape of city, county, and state-level regulations. The new law adds to this complexity and could deter individual landlords from investing in property maintenance or new development projects. This could lead to a significant portion of housing stock falling into disrepair or being acquired by large investment entities, further reducing local ownership and community engagement.

Unintended Consequences for Tenants

While AB 12 aims to help tenants, it could inadvertently make it harder for them to secure housing. Landlords may become more stringent in their tenant screening processes, knowing they have less financial cushion to fall back on. This could result in higher application fees or stricter income requirements, making it even more challenging for low-income or high-risk tenants to find housing.

A Closer Look at the Timing

The timing of this legislation is also worth noting. Landlords are already facing increasing costs, including a surge in property insurance rates. With the added limitations on security deposits, landlords may find it increasingly difficult to maintain profitability, which could lead to reduced investment in property upkeep and fewer new housing projects.

The Bigger Picture

The law could set a precedent for other states to follow, but it's crucial to consider the broader implications. If landlords start to exit the market or shift their focus to more profitable ventures, both the economy and tenants will suffer. A balanced approach that considers the needs of both landlords and tenants is essential for a sustainable housing market. California's AB 12 law is a well-intentioned but potentially problematic piece of legislation. While it aims to make housing more affordable for tenants, it imposes additional burdens on landlords at a time when they are already facing numerous challenges. As we move forward, it's crucial for all stakeholders to engage in open dialogue to find a balanced solution that serves the interests of both landlords and tenants.