In some Bay Area municipalities, the presidential election wasn’t the only heated item on November’s ballot. Within the coastal hub, voters approved three of six proposed rent control measures.
The cities of Oakland, Richmond and Mountain View passed new regulatory ordinances, while similar measures in Alameda, Burlingame and San Mateo tallied majority opposition. A breakdown of unofficial, preliminary election results reveals an interesting split of support, community to community.
In cities where measures passed, rent regulations will be based on cost-of-living metrics. To varying degrees, the Consumer Price Index is set to play the chief role in allowable rent increases. Class B and C apartment product stands to experience the greatest impact, as California’s Costa-Hawkins Rental Housing Act prohibits rent limitations on units built after Feb. 1, 1995.
Property owners in Mountain View and Richmond may also petition oversight committees to sanction rent increases above the cap, to allow for “fair” and “reasonable” rates of return on investment.
The ballot initiatives were a reaction to years of large rent hikes and perceived lack of affordable housing in the Bay Area. The Bay Area metros of San Francisco, San Jose and Oakland have ranked among the nation’s leaders for rent growth during the past five years. Over that time, the Bay Area region averaged annual rent hikes of 8.0%. In turn, monthly rents averaged $2,564 in 3rd quarter 2016.
However, the same metro areas boast some of the nation’s highest median household incomes. Additionally, economists question the effects of rent control measures, arguing such measures could drive up rents in market-rate apartments by limiting supply and lessening incentive among property owners to maintain or improve quality of existing buildings due to restricted income potential.
In cities where voters rejected rent control measures, critics cited increased costs to taxpayers for initial enforcement of the new regulations. Others reasoned that the measures could drive up demand for middle- and lower-tier product in areas where housing is already underserved.
MPF Research’s Oakland/Berkeley submarket, which encompasses of the city of Oakland, logged an annual rent change of 6.3% in 3rd quarter 2016. That figure sat above the Oakland metro average of 4.4%. Metro Oakland’s Northwest Contra Costa County submarket, in which Richmond is located, saw the same metric reach 2.7%. In contrast, the San Jose’s Mountain View/Palo Alto/Los Altos submarket experienced an annual rent decline of 0.5% in 3rd quarter 2016.
Mountain View/Palo Alto/Los Altos registered an annual occupancy change of -1.0 point, knocking occupancy down to 94.9% in 3rd quarter 2016. While the submarket encompasses cities other than Mountain View, a rise in area vacancies is noteworthy, as Mountain View’s measure permits the committee to suspend new rent control regulations if the average annual vacancy rate of affected units exceeds 5%.
Regulatory Bodies and Associated Costs
The passed ordinances introduce new rent boards or committees, or strengthen existing rent boards or committees, in each city. Responsibilities of the regulatory bodies vary, but power will generally manifest in the forms of petition hearings, initiated by either renters or owners and operators, and fee collections.
Owners and operators in all three cities are now open to associated costs that could fluctuate with a board’s operational expenses. In Oakland, an annual per-unit fee will be assessed, half of which can be passed to the tenant. An annual per-unit fee also applies to impacted properties in Mountain View. In an argument against the measure, Mountain View Mayor Pat Showalter said the fee is roughly estimated at more than $150 per unit. She alternatively supported Measure W, a failed ballot item that required a dispute resolution process between renter and operators, instead of formal hearings by oversight committees. Richmond’s annual Residential Rental Housing fee mirrors its counterparts. The amount is to be determined by the city council, following a board recommendation.
Alameda Confirms Previously Adopted Measure
While Alameda’s M1 charter amendment, a renters coalition initiative, did not garner adequate support, voters did narrowly confirm L1, a previously adopted city ordinance known as The Rent Stabilization Act. A comparison of the measures shows L1 does not cap annual rent increases, but requires mediation and review for increases above 5%. L1 does limit increases to once per year.
How Other Bay Area Cities Compare
With the exception of Oakland’s effective date of Feb. 1, 2017, new Bay Area rent control regulations are set to activate shortly after the official declaration of votes. Additionally, all three measures tighten tenant termination regulations.
For official, detailed ordinance and board information, please reference the following documentation: