There’s an eviction moratorium operating in parts of California right now.  It applies to thousands of rental units.  It protects tenants who have stopped paying rent.  And it has been put in place without a single emergency declaration, without a legislative vote, and without any of the public scrutiny that formal policy is supposed to require.

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It is not only property owners who are bearing the cost of misguided housing policies.  It is the cities that enacted them.  It is the state that is looking the other way.  And it is the public revenues that fund schools, roads, and services, all draining away with each month of unpaid rent.

A System Built on One Assumption

California’s unlawful detainer framework rests on a foundational premise that is not complicated: When a renter fails to pay rent, the rental owner has a right to act.  Not immediately (the law requires a three-day notice to pay rent or quit), but promptly, and through a summary court process designed to resolve these disputes quickly.

That system is now being dismantled.  At the state level, any change would require a vote and invite scrutiny.  Instead, this is happening at the local level, through ordinances written in deliberately technical language, by city councils that understand exactly what they are doing and are counting on nobody noticing.

Artful Nullification

The playbook is worth understanding in detail.  It is sophisticated, intentional, and most importantly replicable.  Cities cannot directly override California’s unlawful detainer process.  That is state law, and the state has made clear that eviction procedure is its domain.  But pre-emption doctrine draws a distinction between procedure — how an eviction works — and also in substance, when an eviction is permissible.  The former is clearly controlled by the state.  The latter is where things get conveniently murky, and where local governments have learned to exploit the resulting ambiguity with precision.

A city cannot simply require rental owners to wait 60 days before filing for eviction.  That would read as procedural interference and invite a pre-emption challenge.  But a city can prohibit eviction for nonpayment until unpaid rent exceeds a specified threshold — say, one or more months of fair market rent for the particular unit size, in the metro area.  If it takes 60 days or more to reach that threshold, the practical result is identical.  The delay is achieved without ever touching procedure.

Just like that, you have an eviction moratorium, only without calling it one.

Who Loses

The financial damage from these policies is not limited to rental owners alone. It radiates far outward, touching nearly every layer of public finance.

The majority of California’s rental housing is owned not by institutional investors, but by small and mid-size property owners.  Many are individuals who have invested in one, two, or a handful of units, often as a retirement vehicle or a family legacy.  These are not entities with large balance sheets capable of absorbing months of nonpayment.  They carry mortgages, property tax bills, insurance premiums, and maintenance obligations that do not pause because a tenant has stopped paying.

For these owners, a single prolonged nonpayment event, the kind these ordinances specifically enable, can trigger a loan default.  For larger operators, the effects are slower to materialize but no less real: reduced income stream, declining asset valuations, higher financing costs that price in regulatory risk, and projects that no longer pencil out under the new uncertainty.  In Oakland, for example, several large, newly built apartment complexes have recently been lost through foreclosure.  In other instances, building owners have surrendered ownership back to the lenders.

The State of California: A Silent Tax Loser

When a rental owner collects rent, that income is reported to the Franchise Tax Board and taxed through a schedule E or business return.  It is a real economic transaction, part of the state’s taxable base.  But when a renter stops paying rent and a local ordinance shields that default from timely enforcement, the income simply falls off the grid.  The owner has nothing to report because nothing was received.  No rent was paid, no taxable income was realized, and the state collects nothing on money that ordinarily would have entered the tax system.

Unpaid or forgiven rent does not become a IRS Form 1099 event.  No imputed income is assigned to the renter.  No withholding occurs.  Yet, in practical terms, the renter receives the equivalent of thousands of dollars in untaxed income or housing value, while the state receives no corresponding tax revenue.  At scale, across multiple cities and thousands of units, this represents a very large number, hiding in plain sight.  It is a recurring tax loss embedded directly into local housing policy, growing steadily with every ordinance that delays enforcement and every month of legally mandated nonpayment.

The County Assessor: Eroding the Property Tax Base

Property values in California are assessed in part on income potential, particularly for income-producing residential and commercial properties.  When the regulatory environment degrades the enforceability of rental income, lenders and real estate appraisers re-price that risk into their valuations.  Properties in jurisdictions with aggressive anti-enforcement ordinances lose value relative to comparable properties where lease obligations can be enforced.

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Lower assessed values mean lower property tax revenue.  But the lost revenue doesn’t disappear; it falls on county budgets that fund schools, libraries, fire departments, and social services.  The cities that enact these ordinances are, in effect, passing a portion of their policy downstream to county governments and the state school funding formula.

Several California cities impose a gross receipts tax on rental income — a tax calculated not on profit, but on total rents received.  San Francisco, Los Angeles, Oakland and many others have used this mechanism to extract revenue from the rental market specifically.

But the fiscal irony here is rich.  These same cities, many of which are among the most aggressive adopters of anti-enforcement ordinances, are simultaneously taxing gross rental receipts while enacting policies that reduce the gross rental receipts available to tax.  Every month of legally protected rent nonpayment is a month of gross receipts that never materializes.  The tax base shrinks in direct proportion to the policy’s reach.

Nothing from Nothing Leaves Nothing

The City of Oakland provided a particularly clear example of this irony late last year.  In response to lower gross tax collections, the city passed an ordinance increasing penalties for nonpayment of these taxes.  Apparently, the ordinance was passed under the belief that the problem was insufficient enforcement rather than insufficient income.  But penalties do not create revenue; they only pursue it.  And when the income has not been received, there’s nothing to pursue.

Taxpayers are ultimately dragged into the quagmire.  By taxing gross rental receipts, while simultaneously suppressing those receipts, cities create a system that cannot sustain itself.  The predictable result is a turn to parcel taxes, shifting the burden to taxpayers to make up for revenue that policy choices have deliberately diminished.

None of this is happening in a legal vacuum.  The state of California created the present-day unlawful detainer system and still controls the procedural framework governing evictions.  With that authority comes a corresponding obligation to ensure that local governments cannot nullify that framework through clever substantive repackaging.

The state also has a direct fiscal stake in the outcome.  Every month of uncollected rent is a month of rent that is neither taxed nor reported.  Every downward appraisal of rental property in jurisdictions that have aggressive anti-enforcement policies weakens the property tax base that the state ultimately helps backstop through school funding.  The fiscal consequences of inaction are substantial and ongoing.  They accrue to the same budget that Sacramento is perpetually trying to balance.

The Legislature should act without delay on both legal and fiscal grounds, by enacting pre-emption language sufficiently broad to close this drafting loophole.  The language must extend not only to existing ordinances, but to the broader strategy itself — namely, the use of substantive repackaging to produce procedural delay and effectively override state law.

This action is necessary and no longer deferrable.  The artful nullification endures only in the loophole-sized void left open by the absence of state action on this matter.

Wayne Rowland is the president of the East Bay Rental Housing Association (EBRHA).  He has served on the EBRHA Board for nearly 20 years, during which time he has played a significant role in many of EBRHA’s political campaigns and has taken the lead on the association’s legal actions.  For more information, go to https://www.ebrha.com.

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