Disclaimer: This article is for informational purposes only and does not constitute legal advice. Consult a licensed real estate attorney for guidance specific to your property.
What Is Costa-Hawkins?
Passed in 1995, the Costa-Hawkins Rental Housing Act is the California state law that sets the outer limits on what cities and counties can do with local rent control. No matter how aggressive a local ordinance gets, it cannot go beyond what Costa-Hawkins allows.
It does two things every Bay Area investor needs to understand:
- It exempts certain property types from local rent control entirely
- It mandates vacancy decontrol statewide — giving owners the right to reset rents to market rate when a unit turns over
Which Properties Are Exempt
Costa-Hawkins prohibits cities from applying local rent control to:
- Single-family homes and condos — as long as the owner is an individual, not a corporation, REIT, or LLC with a corporate member
- New construction — any unit with a certificate of occupancy issued on or after February 1, 1995
One important nuance: exempt does not mean unregulated. Units exempt from local rent control may still fall under AB 1482's statewide rent cap if the building is more than 15 years old. The two laws operate on separate tracks and both need to be evaluated for any given property.
Vacancy Decontrol: Why This Is the Most Important Provision
Before Costa-Hawkins, some California cities enforced "vacancy control" — rent restrictions that stayed on a unit even after a tenant moved out. A new tenant could only be charged the prior tenant's controlled rent, no matter how far below market it had fallen.
Costa-Hawkins ended that. When a tenant voluntarily vacates or is lawfully evicted, the owner can reset rent to current market rates. No local ordinance can override this.
In Bay Area rent-controlled markets like Oakland, Berkeley, and San Jose, long-tenured tenants often pay rents well below market. The right to reset upon turnover is a major value driver — and it is directly reflected in how buyers price and underwrite these properties.
How the Three Layers Work Together
California's rent control framework operates on three levels:
- Costa-Hawkins — sets the statewide ceiling on local rent control authority
- Local ordinances — Oakland, Berkeley, San Jose, Hayward, and others set specific annual caps, just cause eviction rules, and relocation requirements within Costa-Hawkins limits
- AB 1482 — California's statewide rent cap (5% + regional CPI, max 10% annually) applies to most buildings over 15 years old not covered by local rent control. Currently set to expire January 1, 2030.
Where local and state law overlap, the stricter rule governs. The framework that applies to your property depends on when it was built, how it is owned, and where it is located.
Proposition 33 Failed — But This Issue Is Not Settled
California voters have now rejected repeal of Costa-Hawkins three times — in 2018, 2020, and again in November 2024, when Proposition 33 was defeated by roughly 62% of voters.
Prop 33 would have allowed cities to impose rent control on any housing type — including new construction and single-family homes — and would have reinstated vacancy control statewide.
Costa-Hawkins remains intact. But tenant advocates have made clear that legislative efforts to expand local rent control will continue. Investors should treat this as an ongoing issue, not a closed one.
Why This Matters When Buying or Selling
Sellers who understand their Costa-Hawkins exemption status — and the vacancy decontrol upside in below-market units — are better positioned to defend pricing and attract serious buyers.
Buyers who skip this analysis are underwriting blind. Whether a property is fully subject to local rent control, partially exempt, or entirely exempt determines the income ceiling and the trajectory of future rent growth.
The R&Z Group specializes in multifamily transactions across the Bay Area — from duplexes to 100+ unit apartment communities — and brings the local expertise and financial precision to help investors understand exactly what regulatory framework applies and what it means for value.
FAQ
What properties are exempt from local rent control under Costa-Hawkins?
Single-family homes and condos owned by individuals (not corporations or REITs), and units with a certificate of occupancy issued on or after February 1, 1995. Exempt properties may still be subject to AB 1482's statewide rent cap depending on building age.
What is vacancy decontrol?
The right to reset a unit's rent to market rate when a tenant voluntarily vacates or is lawfully evicted. It cannot be overridden by local ordinance and is one of the most significant value drivers in any rent-controlled multifamily property.
Did Proposition 33 repeal Costa-Hawkins?
No. It was defeated by approximately 62% of California voters in November 2024 — the third failed attempt at the ballot box. Costa-Hawkins remains in effect.
How does this affect multifamily property values?
Directly. A property's vacancy decontrol rights — the ability to bring below-market units to market rate upon turnover — is a key component buyers model into their underwriting. Sellers who understand this are in a stronger negotiating position.
If you're looking to sell a multifamily property in San Jose, Oakland, Redwood City, San Mateo, Burlingame, Daly City, Hayward, Palo Alto, Menlo Park, Santa Clara, Sunnyvale, Berkeley, or Concord — or anywhere across the Bay Area and beyond — The R&Z Group is the multifamily real estate broker built for investors who expect results. Whether it's a duplex or a 100-unit apartment complex, from maximizing your sale price to navigating a 1031 exchange into a stronger-performing asset, we bring local market expertise, financial precision, and a proven track record to every transaction. Contact us today to discuss your multifamily investment goals.
Contact The R&Z Group:
Ray Rodriguez | (650) 405-0743 | Lic# 01999734
Tony Zizzo | (650) 770-8356 | Lic# 01962093
