Blogging Bayport Alameda

February 10, 2016

The illusion of rent control, take two

Filed under: Alameda — Lauren Do @ 6:00 am

Because yesterday’s post got seriously derailed, I’m going to repost this particular portion because it’s important to the discussion about the rent ordinance and there’s only a few more days left until the City Council votes on the issue next Tuesday.  So this may look familiar to those who managed to get past the tweet of Frank Matarrese facing off a handful of sign wielding protesters.

Anyway, I wanted to start discussing the rental housing ordinance in pieces now that it is up for review on the City’s website.  I think the most important message is: this is not rent control.

This ordinance is not rent control.

I know people want to call it rent control because it simplifies the discussion, but this ordinance is no where near rent control, at best it is rent stabilization.

There is no rent cap. There is not a limitation on how much a landlord can raise the rent on any unit.  There is, however, a trigger to have a quasi-public airing of why you want to raise the rent more than 5%.  From the staff report:

Even though there is no cap on rent increases, if a housing provider seeks a rent increase above 5%, the housing provider must initiate a rent mediation process using the RRAC. If the rent increase is 5% or less, a tenant may initiate the RRAC process. If the rent increase is resolved prior to the RRAC hearing, the parties must inform staff of the terms of the resolution of the rent increase. This last step ensures transparency once a City process has been initiated and allows tracking of the agreed upon rent increases.

At the RRAC hearing, a person with an ownership interest in the rental property (or a person from the ownership entity who can legally bind the owner) must attend if the rent increase is above 5%. The property owner, or representative with the authority to agree to a mediated resolution, must attend the RRAC hearing for rent increases of 5% or less. Regardless of the amount of the rent increase being mediated, if a person with ownership interest (or a representative in some cases) does not attend the hearing, the rent increase is void and the housing provider is prohibited from noticing another rent increase for one year.

Of course if a landlord’s unit is exempt from Costa Hawkins (built after 1995, a single family home, or a condo) then the RRAC process is non binding.  So essentially one could go through the process, take the recommendation and just say “thanks but no thanks” and do whatever they want with regards to that unit.

For those units that are not exempt from Costa Hawkins this is when it becomes very important about the composition of the RRAC.  If the RRAC as a whole continues to decide that 10% is an acceptable percentage to raise annual rents then the tenant will be on the hook to appeal to the binding mediation process, which could also not go in the tenant’s favor.  The next step for the tenant would be to go to court for relief, but again it’s hard to predict if that would go in the tenant’s favor as well.

Units built after 1995, a single family home, or a condo would also be able to circumvent the relocation fee if they simply raise rents to a level that is just not affordable for the tenant, forcing the tenant to vacate as opposed to initiating an eviction.  The only negative would be the quasi-public RRAC process which may be a deterrent for some landlords.  I say “quasi-public” because barely anyone pays much attention to the RRAC.

As you can see this is only one part of the rent ordinance and there are already loopholes that exist.  However, given that only 29% of the rental housing units in Alameda would be exempt perhaps this loophole is one that won’t be exercised often.

And here’s new stuff!

This is probably the most important bit that might discourage landlords from evicting without cause, in addition to the relocation assistance, if a landlord evicts a tenant without cause there will be a cap on how much more the new tenant’s rent can be.  Specifically 5%.  From the staff report:

The housing provider shall not impose on the new tenant an increase in rent more than 5% of the rent in effect for   the tenant whose tenancy was terminated and provide documentation to that effect to the Program Administrator

At that point a landlord will need to make the decision if it is worthwhile between the relocation assistance and the cap on the next tenant’s rent if it will be advantageous to go ahead with the no cause eviction.  The math may work out better if the tenant is severely under the market rate rent, but if it’s only to get a few extra hundred it may not make sense in the long run.  Or course nothing in the ordinance changes the existing right of a landlord to evict “for cause” which would not incur the relocation assistance. So if a landlord truly has a terrible problem tenant the rights that exist now still would exist if the ordinance is passed.

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27 Comments

  1. I guess it depends on your reason for distinguishing between rent control and stabilization – rhetorical or legal. In California, for purposes of applying Costa Hawkins, there would not be a distinction between the “stabilization” that is being proposed here and other forms of rent “control”. Costa Hawkins would treat them all as rent control.

    I think Tony Daysog was onto something of a point at the Feb 2 meeting when he expressed concern about a double punishment for the landlord who does a no cause eviction and then is still subject to a cap based on the prior tenant’s rent. I don’t think he got the point across very well or coherently, but I think (I guess) he had in mind the situation where the landlord has cause to evict a tenant based on, e.g. disruptive behavior causing complaints, and would otherwise proceed by simply failing to renew the tenant’s lease rather than going through the process of suing for breach. Now the landlord pays relocation and is limited to the old rent cap.

    I’ll have to read the draft ordinance, but someone may know the process by which the landlord would go about establishing cause or breach of the lease (must she go to court or the RRAC?) to avoid the double whammy.

    Comment by MP — February 10, 2016 @ 7:13 am

  2. Language always comes with what is called “framing.” Every word is defined relative to a conceptual framework. If you have something like “control,” that implies a population that is being ruled forced to accept something that is imposed. That’s a frame.

    “Framing” is what drives many debates with each side trying to create a shortcut way of thinking about a complex issue with the goal of getting those who do not want to get involved in the details to accept the frame as the only issue. So “rent control” vs “rent stabilization” will be the two competing frames moving forward.

    Comment by Mike McMahon — February 10, 2016 @ 7:59 am

  3. I’ve been framed !!

    Comment by MP — February 10, 2016 @ 8:04 am

  4. I was going to write a separate post about “for cause” evictions but this document from Berkeley’s Rent Stabilization Board might be instructive for Tony Daysog’s example. It won’t be as easy to evict a nuisance tenant, but if cause is documented the landlord would not be on the hook to pay for relocation benefits and does not have a cap on the next tenant’s rent. It would be up to the landlord to weigh which method would be more financially beneficial.

    Comment by Lauren Do — February 10, 2016 @ 8:06 am

  5. 4 – thank you, I’ll take a look

    Comment by MP — February 10, 2016 @ 8:29 am

  6. The definition of “just cause” could be defined many ways, including the need of owner to occupy. In 1976 I lived in a house in West Berkeley owned by a local guy we knew well who had created a local empire. My roommate had lived there for several years with little rent increase, but got the notion to ask the owner if he would sell. We got an eviction notice within a month. There was no relocation stipend because of Berkeley rules; he was going to move his daughter and ex-wife in which did happen. But after the prescribed period of six months or so they had moved out, he remodeled and eventually did sell the place. This is an example of a disingenuous property owner working a system, but it took a lot of effort on his part. Because I know first hand of people in this town who really do need to move back in to their homes here as primary residence, I’m curious about this as an exception. I know there has been huge abuse of rules for occupation after purchase in SF, but still think it’s important to pursue this line of inquiry. We were given 90 days notice in 1976 and we needed it. If the choice were 90 days or relocation money I might chose the former.

    Comment by Mark Irons — February 10, 2016 @ 8:51 am

  7. 4. Berkeley still has the re-occupation rule on their books under # 9 !

    Comment by MI — February 10, 2016 @ 8:55 am

  8. MP, the distinction between a ‘for cause’ and ‘no cause’ eviction is crucial and makes all the difference – they cannot be casually interchanged. For cause means the landlord has a legal reason to evict for material breach of the lease, which the tenant can’t or won’t cure. Could be for vandalism, illegal activity, whatever. In any case, it’s something the tenant is doing wrong that gets them evicted. No one has ever proposed landlord can’t evict for cause and no one rightfully could make that argument.

    No cause, on the other hand, is when the landlord evicts for no reason and through no fault of the tenant. The landlord simply wants them out for whatever reason but has no legal reason (for cause) to kick them out. That’s when the landlord is on the hook for relocation costs because but for the landlord throwing them out, the tenant would not be leaving. It’s also why there’s a limit on what the landlord can charge subsequent tenants. Limiting future increases is a dis-incentive for landlords to evict simply to raise the rent. This provision doesn’t go nearly far enough because it does nothing to protect current in-place tenants, so it’s really not a tenant protection at all.

    What I also don’t like is that the ordinance still leaves it between the landlord and tenant to determine the final relocation expense. What could possibly go wrong??

    The relocation expense should be set by a rent board, or something, annually so there’s no disagreements about it. Of course, the landlord will want to low-ball the relocation expense. But, if a tenant has been in the unit for 10 years and paying below market rent, the tenant should receive a relocation cost based on a comparable unit in today’s market. Without this, it’s a double-whamy on tenants: get evicted for no reason and then can’t afford another apartment elsewhere. That’s not tenant protection.

    Comment by John K — February 10, 2016 @ 9:09 am

  9. I think owners of one house or condo seeking to convert the property back into their residence should be exempt from having to pay tenant relocation costs, or at least only be required to pay $1500. It’s clearly not a ploy to evict with an eye to getting more in rent when this is the case.

    Comment by Denise Shelton — February 10, 2016 @ 9:43 am

  10. Limiting future increases is a dis-incentive for landlords to evict simply to raise the rent. This provision doesn’t go nearly far enough because it does nothing to protect current in-place tenants, so it’s really not a tenant protection at all.

    ——————————————

    Non-sequitur. Such a dis-incentive is very much a protection for current tenants.

    Comment by dave — February 10, 2016 @ 9:44 am

  11. But, if a tenant has been in the unit for 10 years and paying below market rent, the tenant should receive a relocation cost based on a comparable unit in today’s market. Without this, it’s a double-whamy on tenants: get evicted for no reason and then can’t afford another apartment elsewhere. That’s not tenant protection.

    ————————

    The ability to live at below market rates for 10 years is not tenant protection?

    Comment by dave — February 10, 2016 @ 9:46 am

  12. #11 kidding, right? The tenant profited by living for the length of the tenancy below median rent for a comparable place. Seems to me they got a very good deal and should walk away quietly after banking the difference, not hit the LL up for relocation costs.

    Comment by Captain Obvious — February 10, 2016 @ 7:48 pm

  13. 11. The problem is that your calculus doesn’t seem to factor in the problem with the term “market rate” being so nebulous. Market rate rents may be quite inflated and well beyond what median incomes could support. “Whatever the market will bear” isn’t such a great way to establish “fair”. This is very murky territory. It’s not like rents below market are automatically comparable to some sort of welfare subsidy. There has to be middle ground. This is about trying not to break backs of the average renter in favor of rights of so called free market.

    Comment by MI — February 11, 2016 @ 9:51 am

  14. If people are freely choosing to pay up to live here, what about that isn’t fair?

    Comment by dave — February 11, 2016 @ 9:58 am

  15. 14: If you define fairness as being what the market dictates, there is, by definition, no problem. There are, however, social aspects to this. What kind of society do we want? I grew up in public housing in an area that gentrified around us. By having relative security of tenure, I was was able to stay in the same school, which really helped my education by providing stability. The kids who get dislocated from Alameda lose this. One can debate the best ways to deal with it, but it’s very simplistic–and perhaps a little cold-hearted–to dismiss the idea that there’s a problem solely on the basis that it’s a market outcome.

    Comment by BC — February 11, 2016 @ 12:46 pm

  16. While the market may seem a bit harsh, it is far and away the best solution. Prior to rent control in the bay area rents were quite stable and quite affordable. Our average rent was 450-500 at that time. Then Berkeley passed rent control followed by Oakland and San Francisco. This is when shortages developed and rents started to climb. Take a moment and consider the mobile home park industry. It is all but moribund because it was not included in Costa Hawkins. The free market works, and I haven’t seen anything else that does.

    Comment by Ed Hirshberg — February 11, 2016 @ 2:11 pm

  17. 16. Post hoc ergo propter hoc argument. Rents have gone up in other places without rent control. Mobile homes in the Bay Area are victims of rising incomes. And when you say the free market works, you need to define “works”.

    Comment by BC — February 11, 2016 @ 2:29 pm

  18. 16. mostly specious hand wringing.

    Comment by MI — February 11, 2016 @ 4:40 pm

  19. 16. The market is not free to respond to changes in price. As prices go up, property owners restrict the market from responding (for many reasons). One market distortion (slow growth policies, Measure A, zoning) leads to the demand for the other market distortion (rent control).

    Newton’s 3rd law.

    Comment by BMac — February 11, 2016 @ 4:56 pm

  20. OK, take a look at the alternative. Consider the one bedroom concrete apartments in the Soviet Union inhabited by several families. The tour guide explained that a lucky man lived in a building built in the time of Stalin when there were still craftsmen who knew how to build and unlucky man lived in a building built in the time of Kruschev when they had come up with such innovations as the seven foot ceiling. Or consider China where Mao drew a line across the map and declared that only people who lived North of the line would get heat. Or Vietnam where homeowners were dragged from their houses in the middle of the night and shot in the forest so that the new rulers could have their housing. Europe after WWII housing was rent controlled and rationed. If you wanted an apartment it was necessary that you be married and have a child. Even then it was a 1-2 year wait. How does the free market handle a disaster? Consider San Francisco after the 06 earthquake. Giannini handed out the cash and the contractors and speculators went to work. The city was rebuilt in short order. Laws protecting investors are key to investment. When I toured Peru it seemed that every run down house had a sign that said se vende (for sale) but not a single one had a sign saying se renta. And four million people were living in cardboard shacks outside Lima. Give me the free market anytime/everytime. Note: mobile home parks were not a victim of rising incomes. Probably just about every mobile home in the bay area is rented. Investors are not secure in their investment in these parks so they won’t build them and banks won’t finance them. But if a thousand of them were parked out on Alameda point I am sure they would fill up in a hurry. Even as a temporary solution to the housing shortage.

    Comment by Ed Hirshberg — February 11, 2016 @ 5:09 pm

  21. 20. You’re seriously binary in your thinking. Soviet Union or mythological free market USA. What, is this 1962? I realize you’re a real estate guy, not a political scientist, economist or historian. But seriously…? Have you ever been to Western Europe? Canada? Australia?

    Do you favor abolishing all laws except property rights? I’m trying to understand just how serious you are in your love of free markets.

    Comment by BC — February 11, 2016 @ 5:24 pm

  22. I do not consider my thinking binary. I am merely calling it as I see it. I have yet to see a workable alternative to the free market. I spent my 18th summer living in Western Europe and it is where I first encountered rent control. Because all housing was rent controlled except for summer houses everyone was investing in summerhouse and there was a severe shortage of year round housing and apartments. I am not opposed to law. Markets cannot flourish without the law, which I suspect was the problem in Peru. My opposition is to price control because it creates shortages. Just as we saw with the gas crisis in 1974. People were killing each other for a place in line to buy gas, and gas station operators decided that they were professionals and could work by appointment. Capping the price below market will create a shortage. Have a good weekend all.

    Comment by Ed Hirshberg — February 11, 2016 @ 5:49 pm

  23. 16, 20, 22: Ed Hirschberg, you do not address abuses of the market mechanism, which brought about a large part of the rent crisis in Alameda. When working people face rent increases of 20 to 35 per cent IN SUCCESSIVE YEARS and have to leave good jobs here to be able to afford rent, or when folks on fixed incomes get hit with rent increases of 5 to 10 per cent annually, the market is not working. What is your solution for abuses caused by greed that destabilize our schools, workplaces, and community? I am sitting here at 10:55 PM on Tuesday night in the historic Alameda Theatre and have yet to see any landlords propose a workable or just solution that treats renters decently.

    Comment by Jon Spangler — February 16, 2016 @ 10:52 pm

  24. Jon, capping the price of gas did not bring down the price. But the drill baby drill campaign helped bring oil from $140 per barrel to under $30 per barrel. So I suggest build baby build. I have 2 dwelling units underway, are you working on any?

    Comment by Ed Hirshberg — February 17, 2016 @ 6:10 pm

  25. 24. So, Ed, do you or do you not favor restrictions on a landowner’s ability to build whatever he wants on his own land? Or should he be free of the fetters of planning laws and restrictive land-use measures? Just how much Ayn Rand did you read in high school?

    Comment by BC — February 17, 2016 @ 8:10 pm

  26. It is generally agreed that some planning is a good idea. You don’t want a smelting factory next to your house, or a bar next to an elementary school. I have never read Ayn Rand. Should I?

    Comment by Ed Hirshberg — February 17, 2016 @ 9:39 pm

  27. I wouldn’t. Reading Ayn Rand is an awkward phase many teenagers go through. Alas, some never get beyond it.

    But it’s good to know you do believe in collective action at times. These choices do have differing impacts. Recently, they’ve hurt tenants. Markets are never really free, you see.

    Comment by BC — February 18, 2016 @ 8:04 am


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