The nation’s largest owner of single-family rental homes will pay $3.7 million in civil penalties and restitution to resolve allegations that it violated California laws against rent gouging, the state attorney said. Gen. Rob Bonta announced Monday.
Between October 2019 and December 2022, Invitation Homes, which owns 12,000 properties in California, raised rents for 1,900 tenants above amounts allowed under state law, according to Bonta’s office. The laws limit annual rent increases to 5% plus a regionally adjusted inflation figure and no more than 10%.
Under a proposed settlement to be filed in Los Angeles County Superior Court on Monday, Invitation Homes will pay $2.04 million in fines. The company is spending an additional $1.68 million to refund or credit tenants for the amount it collected in excess of the state rent limit plus 5% interest, Bonta’s office said.
“California has laws to protect tenants from sudden, large rent increases, and landlords must be diligent in ensuring they follow those laws,” Bonta said in a statement. “The settlement announced today should serve as a reminder to California homeowners to familiarize themselves with the law and the protections put in place to keep housing affordable for Californians.”
An investigation by the attorney general’s office found that a small percentage of the rent increases Invitation Homes imposed from late 2019 through 2022 violated rent cap laws and that the company had identified some of the problems through its own reviews and provided remediation to affected tenants, Bonta said. the office said.
Kristi DesJarlais, a spokeswoman for Invitation Homes, emphasized in a statement that the company’s internal processes uncovered many of the issues before the company received any inquiries from the state.
“We are pleased to reach a quick and mutually favorable agreement on this matter with the California Department of Justice,” DesJarlais said. “We remain proud of our business overall and, in this case, our transparency, timely cooperation and active engagement with the department.”
Signed by Governor Gavin Newsom in 2019, California Rent Limit Law has been one of the highest-profile responses to the state’s housing affordability problems. The law, one of the strictest limits on rent increases in the country, applies to all multifamily rental housing except apartments built in the last 15 years. The law covers the rental of single-family homes operated by corporations or institutional investors like Invitation Homes, but exempts some other properties.
Currently, according to the law, Landlords can raise rents. at no more than 8.8% in Los Angeles and Orange counties, 9.2% in the Bay Area and varying numbers in other parts of California. It affects properties built before 2008.
Some California cities, such as Los Angeles and San Francisco, have local rent control policies that more strictly limit rent increases in older buildings.
Monday’s agreement with Invitation Homes is the largest enforcement action taken since the rent cap law went into effect four years ago. Tenant groups have criticized the law as being difficult to prosecute because tenants often need to report potential violations to local and state authorities.
In addition to the 2019 rent cap law, Bonta’s office alleged that Invitation Homes violated separate laws prohibiting annual rent increases greater than 10% during periods of local and state emergencies, such as during the COVID-19 pandemic.
Under the proposed agreement, which needs a judge’s approval, Invitation Homes will revamp its policies for managing rent increases in California, conduct quarterly audits and provide an annual compliance report to the attorney general’s office for the next five years.
In the wake of the subprime mortgage crisis 15 years ago, big Wall Street investment firms began entering the single-family rental market en masse. Some companies, including Dallas-based Invitation Homes, have faced criticism by high eviction rates and aggressive rent increases and by potentially displacing individual homebuyers. Advocates of single-family rentals argue that companies allow tenants to live in neighborhoods where they otherwise couldn’t afford to buy.
The percentage of single-family rentals owned by large institutional investors remains small, just over 3% of the total, according to a recent estimate by the Brookings Institutionbut these owners have a larger presence in some markets, especially in the Sun Belt.
Invitation Homes operates 85,000 properties nationwide. Its 12,000 units in California accounted for 17% of the company’s $614 million in rental revenue during the three months ended Sept. 30, according to its most recent report. quarterly financial report filed with the U.S. Securities and Exchange Commission.. The average monthly rent of $2,982 for Invitation Homes properties in Southern California is the highest in its portfolio nationally, according to the report.
Monday’s agreement comes at the start of what is expected to be another year of intense debate over rent control in California. The AIDS Healthcare Foundation, based in Los Angeles has qualified an initiative for the November state ballot that would expand the ability of California local governments to implement stricter limits on rent increases.
Ownership groups defeated similar foundation-backed initiatives in 2018 and 2020, spending their supporters more than 2 to 1 on campaigns that each exceeded 100 million dollars. Invitation Homes has been one of the main donors to campaigns against rent control.
