"Rent control delivers major economic benefits to the rent stabilized tenants who have not moved since 1999 when vacancy decontrol went into effect and delivers modest benefits to later tenants, whose initial rent is set at market but whose subsequent rent increases are limited to 65% of the increase in the Consumer Price Index (CPI). As a result of vacancy decontrol, investors in rental housing receive approximately $100,000,000 a year more in rent than they would have if Berkeley had continued its strong rent control system and this amount increases as the remaining long-term rent controlled tenants move out. Rent stabilization has reduced rents for long-term tenants by $27,000,000 annually and for post-decontrol tenants by as much as $10,000,000" (page 4).
"The Bay Area housing market does not work the way markets are supposed to. Increases in rents fail to generate sufficient additional housing production to hold rents down to levels that are normal elsewhere in the U.S. As a result, Bay Area and Berkeley rents are based on scarcity and the limits of what tenants can afford, rather than on the actual cost of operating and maintaining the buildings. Rent stabilization protects tenants from rapid increases in rents while they remain in the same apartment, but vacancy decontrol ensures that overall rents are at levels that are far above the level necessary to actually operate and maintain rental housing. It remains an open question what can be done to reduce the rent burden of low-income tenants" (page 5).
"The simultaneous arrival in 1999 of vacancy decontrol and the dot.com boom created a particularly dramatic difference between the rents of tenants who moved in before and after January 1, 1999. When the dot-com boom collapsed, Bay Area rents stabilized for several years, and Berkeley rents have only recently risen above the 2001 level. As a result, when people discuss rent stabilization in Berkeley, they often refer to the units occupied by pre-1999 tenants as “rent-controlled units,” and describe more recent tenancies as “market rate units,” lumping units that have received a vacancy increase since 1999 with exempt units. This shorthand way of describing the Berkeley rental market obscures the more complex reality and the benefits that rent stabilization provides to more recent tenants" (page 18).
"The 2009 Tenant Survey found that about 43% of all tenancies began between 1999 and 2007, and most of these have directly benefited financially from rent stabilization to some degree. Tenancies that began in 1999 were shielded from rising rents and displacement caused by the dot-com bubble, and tenancies that began after the bubble collapsed have been shielded from subsequent increases. Only those who moved in at the top of the market in 2001 have as yet received no economic benefit from rent stabilization. The most recent tenants, the approximately 38% who moved in during 2008 and 2009, have not been in place long enough for rent stabilization to have a direct financial effect, but they benefit from good cause for eviction and the knowledge that their future rents will remain stable" (page 19).
" Tenants are protected against displacement by rapid rent increases and, as with homeowners, are rewarded economically for remaining in one place. The stability and security provided by the combination of rent stabilization and good cause for eviction is also very important to many tenants, but this is not something that is readily given a dollar value. For the community, residential stability is generally correlated with civic involvement, such as participation in neighborhood watch and disaster preparedness groups and voting. Encouraging such stability may be all the more important in a city with a large student population that results in unusually rapid turnover in many neighborhoods, but again such benefits are impossible to quantify with dollar values" (page 20).
"Table 6 shows the difference between the median 2009 vacancy rent for a one-bedroom apartment and the 2009 rent ceiling for a tenant who moved in under each year’s median vacancy rents from 1999 to 2008. The difference in monthly rent represents the potential savings that rent stabilization provides tenants. The difference ranges from 0% to 14% and averages 5% of the 2009 vacancy rent, an average of $800 annually. The difference for tenants in two-bedroom units ranges from 0% to 16% and averages 7% of the 2008 vacancy rent, an average of $1,400 annually. Applying the move-in dates reported from the 2009 tenant survey, we can project that the total economic benefit to them from rent stabilization is approximately $10.5 million a year even under vacancy decontrol. We cannot say that the entire tenure discount is created by rent stabilization, however. Even without rent regulation many landlords hold down increases for tenants who remain in place, since changing tenancies creates costs and uncertainties" (page 20).
"The cost of vacancy decontrol to tenants and its benefit to landlords is currently about $100 million annually and this amount increases each year, as more units receive vacancy increases and as rents increase faster than vacancy rent regulation would have allowed.
This estimate is based on a comparison of current rents with those that would have been allowed under a strong rent control system in which rents increased at the same rate as the increase in the consumer price index since 1978. In 1980 the Census reported the mean Berkeley contract rent was $245. Based on Figure 2 and the associated table in the appendix, we estimate that the 1978 rent was 5% lower. Indexing this rent to the CPI starting in 1978 the current mean rent would be $808. Comparing that to the current mean contract rent of $1,252 yields a differential of $444 monthly and $5,328 annually that applies to 19,000 registered rental units. This results in an estimate of $101 million in increased rent annually, with the current annual rent amounting to $285 million annually and the hypothetical annual rent under continued strong rent control amounting to $184 million...
...Some of the increased revenue from vacancy decontrol is clearly being spent on improved maintenance. However there are still a substantial number of properties where tenants report unresponsive owners or managers and units in poor condition, despite major rent increases" (page 21).
"In the 2009 tenant survey, 75% of respondents reported that there is a physical problem in their building. The most frequently listed were “doors or windows” at 38%, “plumbing” at 30% and “mold” at 26% and “heat” at 18%. In addition, 25% reported problems with “noise or other tenants”. This is a very substantial set of building problems. Nonetheless, it is slightly better than in 1998, when 83% reported having one or more problems in their building. In addition, the number of problems in each building has declined from an average of 3.5 per building with problems to 2.4 per building with problems...
...Since three-quarters of the respondents reported physical problems in their building, it is not surprising that 76% of tenants have complained to the landlord or building manager at some time during the previous year. Among those with complaints, 70% reported that the owner or manager responded quickly, 26% said that they responded after repeated complaints, and 12% reported that there was a complaint that the owner or manager did not respond to. Two-thirds (65%) reported getting a problem fixed in less than 30 days and another 12% got the problem fixed in more than 30 days. One third reported a problem either only partially fixed or not fixed, including 19% reporting a problem was not fixed. (These figures add up to more than 100% because respondents could pick more than one type of response and more than one type of outcome.) The proportion describing their unit as being in poor condition (8%) is not much changed from 9% in 1998 and 11% in 1988.
The substantial number of buildings with unresolved problems cannot be explained by the remaining pre-vacancy decontrol tenancies. The 2009 tenant survey did not find clear differences in reported unit conditions and building problems between pre- and post-vacancy decontrol tenants. Pre-vacancy decontrol tenants are somewhat more likely to describe their unit as being in “fair” rather than “good” condition, but they are somewhat less likely to report physical problems with their building. The only substantial difference between the two groups is that 30% of pre-vacancy decontrol tenants report problems with paint compared with 17% of post-vacancy decontrol tenants" (page 22).
"Rental property values are closely tied to rent levels. Since smaller multifamily properties with 2-4 units can also be in the homeownership market, we will focus on properties with five units or more. Figure 6 shows the trend in Berkeley’s rental property values for the 32 years from 1977 to 2009. The solid line shows the average sales price per unit, and the dotted line shows how the 1978 price would have increased if it went up with the consumer price index, meaning that the “real” inflation-adjusted price remained the same. There are two distinct periods, first the strong rent control period from 1980 to 1998 in which property values increased at roughly the same rate as the consumer price index, going from $16,150 to $52,950 per unit, and second, the postvacancy decontrol period from 1999 to 2009 in which values have increased more rapidly, from $52,950 to $162,500 per unit" (page 24).
"From 1998 to 2008 the CPI increased by 36% but property values tripled, reaching $230 a square foot and $166,500 per unit. Just under 30% of Berkeley’s pre-1980 rental properties with five units or more have sold since 1999, meaning that 70% of these properties remain under the same ownership and these owners have enjoyed extraordinary increases in property values.
The rapid increases in sales prices from 1999 to 2002 reflected investor expectations that there would be major future rent increases, since vacancy decontrol allowed rents to increase to market rate as tenants moved, and the dot-com bubble created unusually rapid increases in market rents. From 2003 to 2008, however, the property sales prices increases were greater than could be explained by either actual or reasonably anticipated future rent increases. Instead, they reflected declining interest rates and the unrealistic expectations of the housing bubble. The Federal Reserve lowered interest rates to keep the economy from falling into a recession when the stock market collapsed at the end of the dot-com bubble and these low interest rates helped create a housing price bubble. Lower mortgage interest rates lowered the cost of borrowing to purchase real estate and lower interest rates lowered the rate of return from bonds, which raised the value of alternative investments in rental property that promised a steady or increasing net operating income (NOI). Increases in property values resulting from the increased value to investors of each dollar of NOI are reflected in changes in the capitalization rate, which means the NOI divided by the sales price. Capitalization rates or “cap rates” measure the initial rate of return that the NOI provides an investor paying a given sales price to purchase the property" (page 26).
"Given the general tendency for trends in multifamily property values to follow trends in rents, we can estimate the effect of vacancy decontrol on property values. We compare current values with the expected values if Berkeley had a system of strong rent controls that indexed rents to the rate of inflation. If prices since 1998 had continued to follow the increase in the CPI, as they did from 1978 to 1998, then as shown in Figure 6, by 2009 they would have reached only $83,000 per unit rather than $162,500 and $111 a square foot rather than 2009’s $192.
We can produce a very conservative estimate of the total value of all 19,000 rent stabilized units by simply applying these average prices and ignoring the greater value of many 2 – 4 unit properties. On a per unit basis the total value of all of these units is approximately $3.1 billion, with $1.5 billion added by vacancy decontrol" (page 29).
"We have estimated a total annual rent roll of $285 million in registered units. Applying an average NOI of 60% and a capitalization rate of 6.6% results in an estimated total current value of $2.6 billion. The estimated rent roll for a hypothetical strong rent control system was $184 million. Applying an average NOI of 50% and a capitalization rate of 6.6% results in an estimated total value of $1.4 billion. This suggests that vacancy decontrol has increased property values by $1.2 billion, within the range of $1.1 to $1.5 billion in the previous estimates.
The increased rents and sales prices of property generate increased tax revenue for the City of Berkeley through the property tax, real property transfer tax and the business license tax and decreased revenue through the sales tax.
Real Property Transfer Tax Over the past eleven years since vacancy decontrol nearly 30% of Berkeley’s rental properties were sold, a rate just under 3% annually. Based on the 1.5% transfer tax rate and the estimate that rental property values have increased by from $1.2 billion, the increased annual tax revenue would currently average around $450,000.
Business License Tax on Gross Rent The tax rate is 1.08% so based on the estimated annual rent increase of $100 million, annual tax revenue should have increased by $1,080,000. (Assumes full compliance. The Auditor has been finding significant underpayment.)
Property Tax The basic property tax rate is 1%. If all properties were reassessed at new, higher values, that would increase overall County property tax by $12 million a year. However, so far about 30% of multi-family rental properties with five units or more have been sold since vacancy decontrol, and many of those were sold at prices below current market values. We estimate that so far County tax revenues have increased by $2,250,000, of which 32.5% or $730,000 goes to the City. The remainder goes to the Berkeley Unified School District, the Peralta Community College District, Alameda County and other special purpose districts.
Sales Tax Berkeley receives 1% of the sales tax collected here. All tenants live in Berkeley and many do not have cars and spend most of their money in Berkeley, so the maximum possible decrease in sales tax revenue would be $1 million. Not all money going to increased rent would be spent on taxable items in Berkeley however. In addition, while the majority of investors in rental property live outside of Berkeley a substantial minority live in Berkeley. A more plausible guestimate would be a $300,000 reduction in sales tax revenue. In addition, there is an unknown loss of business license tax from retail businesses due to the reduced sales.
Total Overall, vacancy decontrol has likely increased tax payments to local governments in Alameda County by about $3.5 million annually, including an increase in City of Berkeley revenues of nearly $2 million annually. This does not take into account costs that the City or County may incur due to increased financial hardship to tenants" (page 29, 30).
" Price, Leverage and Risk
The value of rental property, whether in Berkeley or anywhere else in the U.S., is based on its net operating income (NOI), which is the flow of income that an investment in that property provides the investor after paying the operating expenses. The average NOI reported for properties sold during the past 10 years in Berkeley is 62% and for Alameda County is 61%.
Typically there are two investors in a rental property, an owner and a mortgage lender. The mortgage holder receives payments from the NOI first and the loan is secured by the right to foreclose on the mortgage and take over ownership if these payments are not made. In return for this greater security, the mortgage lender accepts a limited return with either a fixed or variable interest rate. Owners can profit from an investment in rental property in four ways: The owners gain equity as the value of the property increases, they gain equity as any mortgage used to help purchase the property is amortized; the owners gain positive cash flow from the NOI (less investment costs such as mortgage repayment) and the depreciation allowance provides the owners with tax savings that increase their after-tax cash flow. All of these depend on NOI. Investors may use shortcuts such as a gross rent multiplier, but prudent investors will use such shortcuts only to screen properties for further investigation.
Investors have to choose how much of the purchase price they want to pay with their own money and how much they want to borrow. If the investor purchases the property using only his or her own money, then the investor receives the entirety of the NOI as positive cash flow as well as getting an equity gain to the extent that the property increases in value at the time of sale. The more the investor borrows, the greater the “leverage,” which means that the potential rate of return on investment is higher because the investor uses less of his or her own money and still gets all the equity gain from increased property values. In addition, capital gains from increased property values are generally taxed at a lower rate than corporate or personal income from positive cash flow.
Highly leveraged investments have higher risk for the investor. First, they put most of the NOI into repaying a mortgage. This reduces the investor’s cash flow and creates a risk of foreclosure if the investor is unable to keep up the payments due to an increase in expenses or a decline in rents. Second, more of the investor’s return on investment depends on increased property values, which depend not only on increased NOI but also on capitalization rates, which usually track interest rates and can change unpredictably from year to year. The present value of any particular property will vary depending on the current and expected future NOI and interest rates. The value of the property increases with the perceived likelihood that NOI will increase in the future. The value of the property also increases if the current and expected rates of return for alternative safe investments such as government bonds are expected to decrease or remain low.
As the property turns over, each buyer pays the seller the capitalized value of the NOI and possibly also of some of the future increases that the buyer expects will take place. Normal mortgage financing will use up to 80% of the NOI for mortgage payments and reduce the new owner’s cash flow to a modest level. Similarly, as longer-term investors refinance to take out accumulated equity they also take on mortgage obligations that reduce cash flow to a modest level. Many things may not go as the investor anticipated: increases in rents may not be as fast as expected; operating and maintenance costs may be higher than expected; interest rates may increase on a variable rate mortgage, among other possibilities. These further reduced cash flow and create an incentive for the owner to reduce maintenance in an effort to recapture their investment.
The market for investments is generally biased in favor of increased risk. When an investor in rental housing decides to sell, the property is sold to the highest bidder. That is another way of saying that the property is sold to the bidder who makes the most optimistic assumptions about future rents, operating, maintenance and renovation costs, net operating income and interest rates. It is not uncommon for buildings to be purchased for prices that are based on mistaken expectations about future rent increases rather than on current rents. The Federal and State tax systems reinforce this bias towards risk by taxing capital gains at lower rates than income. To the extent that investment in rental property is highly leveraged and based on expectations of substantial future increases in net operating income the investment becomes more speculative and carries serious risks for the community as well as for the investor.
There is excellent evidence for this phenomenon in a survey of landlords in Los Angeles, conducted in November 2007 through February 2008. During the 2000s, rents in Los Angeles rose at an exceptional pace by national standards. The median contract rent went from $612 in 2000 to $933 in 2008.38 Yet only 28% of apartment owners reported making a profit in the previous year. Fully one-third of respondents reported a loss in the previous year, another quarter reported that they only broke even and another 14% did not know how they did. The majority of Los Angeles landlords who purchased their properties prior to 2000, before the housing bubble, reported that their property was profitable, while the vast majority of those who purchased after 1999 reported that their property was not profitable. In the L.A. study 23% of landlords reported that they were postponing maintenance on major problems rather than handling them as quickly as possible, and an equal proportion reported that they were postponing maintenance on minor problems. So despite rent increases of over 50% in only a few years, many landlords in Los Angeles are running negative cash flows due to the size of the mortgages they have taken on in order to purchase the properties or in order to take out equity from their increased property values and now they are failing to properly maintain their properties.
How much the current owner profits from Berkeley’s increasing rents and property values depends on when they bought the property, how much they paid for it, how they financed the purchase, how long they hold it and whether rents and property values increase at the expected rate. Approximately 30% of Berkeley rental properties with five units or more were purchased since 1999, during the series of housing-related economic bubbles, and an unknown number have refinanced.
The revenue side of most investment in Berkeley’s rental property is not very risky as long as owners do not overestimate the rate of future increases. The presence of the University of California at Berkeley guarantees high demand for housing within walking and bicycling distance from Campus, an area encompassing the majority of Berkeley’s rental units, and the University’s investment in seismic reinforcement of its buildings ensures that even in the event of a major earthquake the University will be back in operation in a fairly short period of time. Competition to meet this demand is limited. The city’s relatively high densities mean that increases in supply in supply within the city can only be made in an already built-up area where the cost of constructing additional housing will be high. Overly high expectations for future increases, however, may have negative effects on building maintenance, especially if rents level off or even decline for a few years as a result of the current recession.
There are also risks in projecting future costs, especially with buildings that require seismic reinforcement or where major building systems are coming to the end of their useful life and need major renovations or where other requirements, such as energy efficiency, are strengthened" (page 31, 33).
"Fair Return in Berkeley
Rent control systems must provide for increases in the legal rent ceiling that allow sufficient increases in Net Operating Income (NOI) so that the owner receives a “fair return” on investment and the return is not gradually reduced by inflation. (The analysis of a fair return applies to a property as a whole, not to individual units within a property, and there can be considerable variation in allowable rents among different units as long as the property as a whole provides a fair return.) NOI increases may be set at less than a full inflation adjustment, because a normal amount of leveraging will still allow an owner to maintain their current level of profitability" (page 34).
"Berkeley’s rent stabilization system is required to ensure that owners receive a fair return on their investment. Properties subject to rent stabilization will be affected differently based on a combination of the rate of turnover among their tenants and the number of exempt units. Properties where all units either have turned over since 1998 or are rented to tenants in the Section 8 program will have rents that are at or close to current market levels and have received rent increases well above the U.S. average. Properties where all tenants have been in place continuously since prior to January 1, 1999 have received the Annual General Adjustments, which until 2005 were based on annual cost studies to ensure a fair return. Many properties have a mixture of both long-term and post-vacancy decontrol tenancies...
... Vacancy increases are not evenly spread out among all Berkeley rental properties. They are more frequent in the areas close to the UC Berkeley campus, where the student population is most concentrated. Larger properties generally have substantial turnover, partly because more of them are located near campus and partly because with more units each property is more likely to have an experience that reflects average turnover rates"(page 37).
"In buildings where there is little or no turnover the disparity will increase over time and may be problematic for some owners. This could lead to petitions for individual rent adjustments based on net operating income that would require an administratively burdensome level of analysis for the Rent Board as well as additional costs for the owner. The administrative costs to both the Rent Board and the owner could be reduced by creating an expedited Individual Rent Adjustment process that simply assumes the historical rate of cost increases and allows increases in the rent ceilings sufficient to increase the property’s total rent by the increase in the CPI since 2005" (page 39).
"...incomes have gone up since 1980 for median-income tenants, but increased rents have eaten up the entirety of the increase. The amount of income required for the median tenant to rent the median unit has increased from 20% in 1980 to 30% in 2008" (page 40).
"Overall, the situation in Berkeley is not very different from that in the Bay Area as a whole, but it is significantly better for long-term tenants. For pre-vacancy decontrol tenancies the median rent burden is 25%, with 58% paying no more than 30% of income for rent and utilities and 42% paying over 30%. One fifth (21%) pay over 50% of income in gross rent. There are approximately 3,500 pre-vacancy decontrol tenancies in Berkeley, so this indicates that approximately 1,500 households are overpaying for rent despite the benefits of continued strong rent controls, and about 750 are severely overpaying. The rent burden of these long-term nonstudent tenants remains basically the same as it was for all tenants in 1998 " (page 41).
"Opponents of rent control argue that rent controls are inherently destructive because any reduction in market rent will result in a corresponding decrease in the quality and quantity of rental housing. Yet we saw in Table 4 that rents are substantially lower in most U.S. metropolitan areas than they are in the Bay Area and these areas continue to produce and maintain decent quality rental housing. Portland is a thriving city and metropolitan area where the median rent is 61% of the median rent in the San Francisco Bay Area. How is it that landlords in Portland are able to profitably operate and maintain rental housing whose quality seems quite comparable to rental housing in the Bay Area while charging rents that are comparable to what Berkeley rents would have been under strong rent control?
The critics of rent control assume an ideal market. In a completely open and competitive market, competition among the producers of goods and services holds housing costs to the minimum feasible level and provides its own stringent price controls. Under ideal conditions, if demand increases, then the price will increase, but only for a short period of time. Higher prices result in higher profits that bring in additional investment in production of housing and this increases the supply. The increased supply increases competition among sellers and brings the price back down. In this ideal housing market all prices are either at the minimum necessary to provide a desired good or service or will be reduced to that minimum soon. If prices in this fully competitive market are reduced by regulation, then the reduction in profitability will lead to a reduced supply as producers shift their investments to other more profitable opportunities and the reduction in cost will result in inefficient allocation of units as consumers lucky enough to obtain housing at below market rate stay in apartments that they would otherwise leave and make available to other tenants. This is the standard economic critique of rent control.
In the real world, however, many markets have substantial and durable barriers to competition that allow businesses to raise prices and extract unearned “windfall” profits from consumers over a long period of time. This is why there is public regulation of the prices charged by private companies that distribute electricity, gas and water, for example, and it is one of the major reasons for rent regulation. Rental housing is not a “natural” monopoly, the way distribution of gas or electricity is, but even though there are many separate owners of residential rental property there are significant barriers to adequate competition in many rental housing markets. Production of new rental housing is a separate business from operation and maintenance of existing rental housing and rental housing production requires land that is suitably located and zoned for construction of multi-family housing.
In a fully competitive housing market production of housing can easily be increased because sites to build on are readily available and the cost of the land is minimal. In many successful urban areas, however, there are physical constraints resulting from the density of the built environment that make it more difficult to find suitable sites and more costly to build on those sites. Land use regulations also add to the difficulty of finding sites on which to build more housing, especially multi-family housing in the already developed areas. And much of the land near the central Bay Area is occupied by water or steep slopes that make it very difficult to build housing.
In addition, housing is a product that requires a major up-front investment, another similarity to utilities. Once the costs of construction are paid, usually over a significant period of time (the standard amortization period for tax purposes is 27.5 years) the cost of operating and maintaining the housing is greatly reduced. If an urban area has long-term stability in population and household formation this will likely result in an adequate supply of older housing that will be affordable to many renters with below-average incomes. However, where population and household formation increase faster than increases in multi-family housing production, then the scarcity of older housing drives up rents to levels closer to the cost of new rental housing. As a result of these two factors, scarcity of sites for development and mismatch between past rates of housing production and current need, housing in many economically successful urban areas has prices far greater than would be charged in a fully competitive market.
This revenue over and above the economically necessary costs of producing, operating and maintaining the housing plus a reasonable return on the investment is what economists call “economic rent”, meaning revenue that is over and above what is necessary to support production of a good or service. Economic rent is not earned through production but rather is unearned revenue from ownership of a needed commodity, such as places to live, in a setting where demand is higher than supply. This is typical of successful urban areas in coastal settings where the limited supply of additional developable land limits competition. Economic rent in the housing market is typically called land rent, because payments over and above those necessary to operate and maintain the building are attributed to the land or location.
The San Francisco Bay Area has high demand driven by a successful knowledge-based economy, major investments in education, transportation and other public services and the high quality of its regional environment and culture. It has extreme constraints on increased housing supply in its central core and due to the combination of geographical constraints from the ocean, the Bay and the hills, density constraints in its central core due to the high costs of in-fill development at higher densities, and regulatory constraints on development of multi-family housing, particularly in the outlying suburbs. For the past fifty years the amount of new rental housing built has fallen far short of the quantity necessary to hold down rents. As a result, Bay Area rents are far above the level necessary in order to operate and maintain rental property, which is what rents would be in a genuinely competitive market. The Bay Area median rent is 75% higher than that for all U.S. metropolitan areas and 65% higher than the Portland, Oregon area. About one-third of the aggregate rent paid in the Bay Area is over and above the necessary cost of operating and maintaining the buildings. (For a detailed analysis see Appendix 4: Estimating Land Rent in the Bay Area Rental Housing Market). Rents here are limited less by competition and more by the limits of what tenants can manage to pay.
The presence of land rent or economic rent has major implications for the economics of different housing policies. Prof. Lee Friedman, at the University of California’s Goldman School of Public Policy, has demonstrated that in the presence of substantial land rent, the economic models of the effects of rent controls become indeterminate and “perfect rent control could, in theory, affect only economic rents and cause no supply inefficiency even in the long run”. The Berkeley Rent Board’s definition of an “unwarranted” rent increase is basically an increase in “economic rent” or “land rent”, while allowing increases in rent that are necessary for the maintenance and operation of the building itself plus a reasonable profit on operating the building. Mayer and Olsen have argued that well-designed rent controls could improve maintenance and the Berkeley Rent Board’s regulations allowing increases for maintenance costs and decreases for reductions in service due to inadequate maintenance follow the pattern that they recommend.
If we measure a “fair rent” and a “fair return on investment” by the rents and rate of return that a housing market would provide under conditions of perfect competition, the evidence shows that prior to the imposition of vacancy decontrol by the State of California Berkeley’s rent control system had evolved, after lengthy court battles and often bitter political conflicts, into a system that for the most part provided fair rents to tenants and a fair return on investment to owners. Investors in rental property would have received a fair return on their investment in Berkeley even if strong rent control had continued to the present day because the controlled rent level would provide investors with the same rental income they would receive in a genuinely competitive rental housing market...
...Residential land in Berkeley is valuable in part due to major public investments such as the University of California, the East Bay Regional Park District, the freeways and BART and in part due to the efforts of all those who live and work in Berkeley and give the city its character as a center for learning and creativity. Berkeley is the home or workplace of many people who contribute greatly to the community even though they do not make much money and do not own their own homes. They work as attendants to people with disabilities, they work for small nonprofit service and advocacy organizations, they work in restaurants and stores, they do research and write books that don’t make the best seller list and they do many other things that make Berkeley a great place to be. Together the public at large and the Berkeley community make the city a desirable place to live and work, and the result of making it desirable is that land values in Berkeley increase and rents and home prices go up. For those who already own real estate this often works out well, but for those who don’t it creates a cruel irony. Their own contributions to this community make it harder for them to afford to live here...
...Limited vacancy increases such as those allowed during the three years prior to full vacancy decontrol provide one example.
However, restoration of vacancy control could not roll back current rent levels. Rent controls must take into account the legitimate investment expectations of investors in rental property, who in many cases have only recently purchased the property and paid much of the profit from increased land values to the previous owners. That is why rent controls must start with the current or a recent year as the base year, rather than rolling back rents to a previous level. It would take at least a generation for stronger rent controls to roll back land rents in any Bay Area city to a significant degree. Furthermore, tenants have no constitutionally protected rights to the benefits of rent control and strong rent controls are vulnerable to the political process. No strong rent control system other than New York City’s has survived over an extended period" (pages 42, 43, 44, 45).
I. The City should investigate measures to reduce the adverse impacts of the speculative element in investment in rental property in Berkeley.
Such measures could include requirements that take effect when a rental property is transferred or refinanced, such as: Mandatory code inspection prior to or no more than 30 days after the time of sale or refinance and all code violations cleared. Energy efficiency inspection prior to or within 30 days of the time of sale or refinance and must meet required standards (possibly as set by RECO, CECO). Soft story buildings fully retrofit to meet a life-safety standard within one year of transfer.
II. The Rent Board should provide an expedited Individual Rent Adjustment process that allows increases in the rent ceiling for properties where the aggregate AGAs for all units in the property have not provided a rent adjustment that matches the increase in the Bay Area CPI-All Items.
III. The Rent Board should sponsor or cosponsor an affordable housing workshop or conference to examine a range of approaches to improving maintenance, energy efficiency and seismic safety, and making housing more affordable to low-income tenants. This should include consideration of ways to generate additional funding for housing that is under alternative forms of ownership such as land trusts, limited-equity cooperatives and non-profit housing corporations" (page 47).
"The real estate industry frequently argues that a rental vacancy rate of four or five percent means that there is a 'balanced' housing market and that this means that rent and condominium conversion controls are unnecessary. This involves a fundamental misunderstanding of the role of vacancies in the rental housing market, particularly in high-rent areas such as the coastal regions of California. Vacancy rates are important to the housing market as a necessary precondition for adequate tenant mobility and as an indicator of the balance between supply and effective demand. However, vacancy rates often do not serve as a good indicator of the balance between supply and demand because they are affected by cyclical short-term economic changes as well as by the underlying balance between the supply and the need for housing. The fundamental indicator of “balance” in a housing market is rent levels and how the rents compare with other markets.
Vacancy rates go up and down with the state of the overall economy and they also go up and down with the rate of development of new housing in relation to population growth and household formation, so at any given time the vacancy rate reflects both of these factors. Vacancy rates typically increase during recessions, which reduce what consumers are able to pay for housing and thus reduce what economists call “effective demand” for housing. Such an increase in vacancies does not mean that the need for housing has decreased, nor does it mean that the utility of housing to consumers has decreased. Rather, it simply means that due to the recession consumers have less money with which to purchase housing and landlords have not reduced rents in step with reduced consumer ability to pay. Even if vacancies increase, landlords will be reluctant to lower rents for new tenants, since they may then be pressured to reduce rents for current tenants who moved in at higher rents. Within limits the loss of revenue from vacant units may be less than the loss of revenue from reducing rents for tenants already in place. Only if a recession is so severe that it leads to a decline in population does the actual need for housing also decline during such a short-term economic cycle.
The coastal areas of urban California have a long-term, underlying housing shortage, caused by the widely recognized shortfall of new housing development in relation to population growth. Despite this it is perfectly normal to also have short-term increases in the vacancy rate that result from5 a recession or economic slow-down. Then when the cycle changes, vacancies go down and rents start to increase again" (page 61).
"In summary, Bay Area vacancy rates are subject to short-term cycles varying with the state of the local economy; even though there is a long-term shortage of housing that is expected to last for the foreseeable future. An increase in the vacancy rate in the Bay Area does not mean that sufficient new housing has been constructed to balance the market, nor does it mean that there is a sufficient housing supply to stabilize market prices over the long run without public intervention. For this reason, it is important not to respond to short-term fluctuations in the vacancy rate with changes in public policies that will result in a long-term loss of rental units. Condominium conversion permanently removes the great majority of the converted units from the rental market.
Finally, even looking at long-term vacancy rates, there is no consensus on what vacancy rate is necessary to balance the market. Many ordinances use a five percent long-term vacancy rate as the measure of a healthy rental market, largely because ordinances tend to follow one another. The empirical evidence on appropriate vacancy rates is mixed. Gabriel and Nothaft support the five percent estimate, while Gilderbloom and Appelbaum review a number of studies and suggest that a vacancy rate of 9% or 10% is necessary. The U.S. Census Housing Vacancy Survey has reported national metropolitan area rental vacancy rates averaging over 7% since 1990 and in the 8-10% range since 2001, even as rents continued to rise, further evidence that the “normal” vacancy rate is generally higher than 5%. Eric Belsky argues that the equilibrium or “natural” vacancy rate varies from one local market to the next, and will also vary by size of building and property holdings, since small landlords tend to “minimize vacancies” while larger landlords tend to “maximize rents”.
The table below shows median contract rents and vacancy rates as reported for the twenty-six largest metropolitan areas by the Census Bureau’s 2006-2008 American Community Survey. It shows that lower-rent areas tend to have higher vacancy rates. The majority of the areas with rents in the bottom third have vacancy rates over 10%, most of the areas in the middle third have vacancy rates over 8%, and all of the areas in the top third have vacancy rates under 8%. Even so, there is a great deal of variation among regions with similar rents.
Vacancy rates are only one indicator of the state of the housing market. Prices are a much more fundamental indicator. If housing costs in an area are well above average and remain so over a long period of time, it means that there is an underlying housing shortage regardless of the current vacancy rate." (page 62).
"The people who live and work together in urban areas collectively generate economic, cultural and social benefits. This is partly done through government, the institution we use to provide public safety, transportation, education and other systems that sustain urban life. It is partly through the simple fact that urban areas generate dense networks of human interaction that advance knowledge and creativity in every field and endeavor, whether it is the arts, the sciences, business, government or ways of life. Locations within these areas with high concentrations of desirable human interactions, activities and services become valuable because available space is limited. More housing can be produced on the existing centrally located land only by building at higher densities, which increases the cost of producing the housing. More land to build on is available only on the outskirts of the area, away from the desirable activities.
do not own real estate. They contribute to making the city they live in a better and more interesting place and in so doing they increase land values, which increases the rent they have to pay to continue to live there. A well-known example of this is the common pattern in which artists who live in a low-rent neighborhood are then forced out by rising rents when it is “discovered” by higher-income people.
When people cannot afford to pay enough rent to cover the costs of operating and maintaining a decent apartment building they have an income problem. But when people have enough money to cover those costs and still can't find decent quality housing they can afford, then housing affordability is a problem of land rent" (page 64, 65)
"Land Rent in the San Francisco Bay Area Rental Housing Market
The San Francisco Bay Area has the highest rents of any major metropolitan area in the U.S. Figure 1 shows the 2008 median rents for the U.S. and the twenty-five largest metropolitan areas as reported in the U.S. Census Bureau’s American Community Survey for 2006-2008. The median rent in all U.S. metropolitan areas is 43% lower than the Bay Area rent. The median for all U.S. cities is near the lower end of this table because the U.S. average includes all the smaller metropolitan areas, which tend to have lower densities and housing prices. Even the 25th percentile rent in the Bay Area is $882, higher than the median rent in most other major metropolitan areas.
The sources of land rent in the Bay Area rental housing market are a combination of the factors that make the Bay Area a desirable place to live and the factors that severely constrain the availability of land that can be developed with multifamily housing. The Bay Area has a strong economy led by Silicon Valley and biotechnology firms; high-quality infrastructure created by public investment in world-class universities, highways, mass transit and parks; a beautiful environment featuring the Bay and the California coast; and an open, diverse regional culture that is highly attractive to creative people. At the same time, it features extraordinary barriers to housing development, including difficult geography, with a coast, a bay and hilly areas with steep slopes; highly developed local government land use regulations; and a central area that is already relatively dense by U.S. standards, which makes increases in density more costly because they often require redevelopment of sites already built on and more costly forms of high-rise construction.
There are excellent overviews of the role of land values in the single-family housing market. Davis and Palumbo used data on single-family home prices to separate out the value of buildings and land in the homeownership market in the 46 largest metropolitan areas of the United States. They found that in 1984 in the largest 46 metropolitan areas the land value averaged 32% of the value of a single-family home, a figure that ranged from 11% in the Midwest to 55% on the West Coast, with the value in land reaching 61% in the Oakland area and 75% in the San Francisco area. By 2004, near the high point of the 1998-2007 “housing bubble”, a nationwide average of 51% of the value of a single-family home in the 46 largest metropolitan areas could be attributed to the land and the proportion ranged from 36% of total value in the Midwest to 74% in the West Coast states. In the Oakland area 78% and in the San Francisco area 89% of the value of the average single-family home was in the land by 2004, the highest ratio among the major metropolitan areas. While the collapse of the housing bubble may return the U.S. to something closer to the 1984 price structure, land values clearly constitute a major component of ownership housing prices in many metropolitan areas, and are particularly high the San Francisco Bay Area.
Similar studies of rental housing are not available and far less data is available on rental housing, but there are readily available data sources to produce rough estimates of the magnitude of land rent in the Bay Area rental housing market.
There are, however, three possible alternative explanations for the Bay Area’s higher rents: higher housing quality, higher operating costs, higher construction costs. I will examine each of these possibilities in turn and provide estimates of the extent to which each of these may explain the Bay Area’s higher rents. The part that cannot be explained by differences in quality and cost is the land rent." (page 65, 66).
"The comparison between the Bay Area and the U.S. as a whole is a conservative way to estimate land rent. There is an element of land rent in virtually every local housing market, so any comparison of the Bay Area with other cities will simply show how much more land rent is to be found in the Bay Area rather than the total amount of land rent. For example, even in the Portland, Oregon area, with a much more balanced housing market and much lower rents, a study found that between 1992 to 2002 “increased population, coupled with an essentially fixed supply of land” caused real increases in apartment rents in the center and at major transportation nodes, and “resulted in a wealth transfer from renters to owners”. The comparison with Houston also suggests that U.S. rents already include significant land rent" (page 69).
"We can look at whether the Bay Area’s higher rents can be explained by higher operating and maintenance expenses by using data from the Institute for Real Estate Management (IREM). The Institute publishes an annual “Income/Expense Analysis” with data on operating expenses, rent collections and net operating income from a survey of its membership broken down by metropolitan areas so that we can make the necessary comparisons...
... Median rents for garden apartments in the central Bay Area, which includes the metropolitan areas of Oakland (Alameda and Contra Costa Counties), San Jose (Santa Clara County) and San Francisco (Marin, San Francisco and San Mateo Counties) are from 74% to 98% higher than the median rents nationwide. The variation in net operating income is substantially greater than the variation in operating expenses. The median operating expenses in the Bay Area are from 22% to 40% above the U.S. median, while the NOI in the Bay Area is from 104% to 158% higher than the U.S. median.
The higher expenses in the Bay Area average out to 9% of the average rent as do the higher expenses in the Los Angeles area...
...The higher NOI in the Bay Area means a typical rental property will have more than twice the value of similar rental properties in many other parts of the U.S. With higher property values, even with California’s property tax limitation, over half of the difference between average U.S. operating expenses and the Bay Area and L.A. area is the result of higher property taxes. (See Table 3) In effect, this is a small tax on land rent in the Bay Area and considering it as such reduces the adjustment for higher operating expenses to 4% of the Bay Area rent. If we include the public services paid for through real estate taxes as an essential aspect of housing, then the higher operating cost differential is the appropriate comparison. Higher operating expenses thus appear to explain from 4% to 9% of the 40% gap between Bay Area and U.S. rents" (page 70, 71).
"Alternative Explanation: Construction Costs
The San Francisco Bay Area has among the highest construction costs in the United States, but this has been true for quite a long time. In order to compare changes in Bay Area construction costs with other cities, we can refer to ENR, the former Engineering News Record, which maintains a general purpose building cost index based on the cost of a fixed quantity of skilled and unskilled labor and materials from 22 different urban areas.
Figure 5 shows the change in the ENR building cost index from 1948 to 2008 adjusted by the change in the CPI-Less Shelter. It shows that both U.S. and Bay Area building costs increased rapidly from 1948 to 1972 and then flattened out for a decade and have declined since 1979. Bay Area building costs increased faster than U.S. costs from 1962 to 1976, but have actually declined slightly more than U.S. costs since then. On average, since 1962 the Bay Area’s real costs have increased by 9.5% more than U.S. real costs. The 2008 American Community Survey indicates that 60% of Bay Area rental housing was built after 1960 and construction costs are paid for out of the net operating income. A 9.5% increase in NOI would increase rents by the proportion of NOI, which often reaches two-thirds of the rent in newly constructed buildings, for an increase in rent of 6.4% applied to the 60% of buildings built since 1962, which suggests that higher construction costs potentially added up to 3.8% to Bay Area rents...
... However, while housing is a good that requires a major initial capital investment, the subsequent cost of operation, maintenance and periodic renovations is much lower. Indeed, if newer construction is higher quality it may be less costly to operate and maintain over the life of the building, with lower utility costs due to better insulation for example. If there is sufficient continuing production of new housing, which is usually directed towards higher income tenants, then as it ages there will be a continuous stream of additional older housing that will compete for tenants with existing older housing and this competition will reduce rents to closer to the actual ongoing costs. Since construction costs are amortized over time, a reasonable argument can be made that the effects of higher construction costs should only apply to buildings still in their amortization period. The standard depreciation period of 27.5 years would take us back to 1980. The American Community Survey (2006-8) indicates that 27% of Bay Area rental housing was built since 1980, which would mean that higher construction costs are responsible for only 1.7% of Bay Area rents (page 72, 73).
"Estimate of Land Rent in the Bay Area
Drawing together this analysis of data on rents adjusted by quality, operating costs and construction costs, we arrive at the following rough estimate of the proportion of land rent in the Bay Area rental housing market.
Difference between Bay Area and U.S. median rent, 2008 43%
Quality adjusted gap between Bay Area and US rents: 41%
Based on change in CPI-R/CPI-LS, 1946/1955 to 2008
Correction for higher operating costs: -9%
Operating costs excepting real estate taxes: -4% Based on IREM 2007 data
Correction for higher construction costs: -2%
Based on ENR index, 1948-2008 Estimated land rent: 30% - 35%" (page 74).
"According to the Bureau of the Census American Community Survey for 2006-8 there were 1,064,000 tenant households in the eleven-county San Jose-San Francisco-Oakland Consolidated Metropolitan Statistical Area and together they paid an aggregate monthly contract rent of $1.3 billion, for a total of $15.6 billion annually. If the land rent is 30% to 35% of the current rent then it amounts to $4.5 to $5.5 billion annually in the Bay Area. In sum, Bay Area tenants are paying around $5 billion more annually than would actually be necessary in order to profitably operate and maintain the housing they live in. Partially as a result, one-third of Bay Area tenants (340,000 households) pay more than 40% of their income in gross rent and one-quarter (250,000 households) pay over half of their income. These tenants with high rent burdens are mostly verylow-income tenants with incomes below 50% of the area median. It seems clear that Bay Area rents are limited less by competition and more by the limits of what tenants can manage to pay" (page 74).
"Land Rent Is a Permanent Feature of the Bay Area Housing Market
The standard economists' response to high housing costs is to call for the elimination of regulatory barriers to new construction. It is certainly true that reduction of regulatory barriers to housing development at higher densities will increase supply and lower land values and land rents to some degree. However this is unlikely to greatly reduce land rent in the Bay Area. High rents and land values resulting from central urban locations were characteristic of successful cities long before the development of modern land use regulations.
Not only is much of the central Bay Area is already quite dense, but there are major environmental constraints on where housing can be built, most notably the bay itself. There was a serious proposal in the 1950s to fill in most of the San Francisco Bay for development. This would have added hundreds of square miles of new land in the heart of the Bay Area and further reduced the value of the surrounding land by removing the Bay as an aesthetic and recreational amenity. It was precisely this dystopian vision that lead in the 1960s to creation of the Save the Bay movement and then establishment of the Bay Conservation and Development Commission to protect the Bay and regulate shoreline development.
Moving farther out from the central area along the Bay, many suburban communities have extensive restrictions on development of multi-family housing even though such development would not have harmful effects on the regional environment. Indeed, a growth cap established by the City of Pleasanton was recently overturned by the courts on the grounds that it was contrary to state law requiring each city to provide for its “fair share” of projected growth. However, additional construction of rental housing in outlying areas would have limited effects on the urban core areas and even then only with a substantial delay. The effects of reductions in regulatory barriers have been marginal at best. As shown in Figure 2, real rents began to increase faster than those in the U.S. as a whole back in 1959, more than 50 years ago. Given the already high density of the central Bay Area and its environmental constraints, it is clear that land rent will be a major feature of the housing market for generations to come" (page 75).
"The Berkeley housing market is a small part of a much larger and very dysfunctional San Francisco Bay Area housing market characterized by a severe shortage of affordable housing. Over the past thirty years the Bay Area market has consistently failed to produce enough new housing to stabilize rents at levels that are normal in most other American cities. As a result, Bay Area tenants are at a competitive disadvantage, their rents increase faster than the overall rate of inflation and Bay Area rents, including Berkeley’s, are among the highest in the U.S.
Since 1980 Berkeley has tried to protect its tenants from unnecessary rent increases by regulating rents, but beginning in 1999 the State of California required Berkeley to allow “vacancy decontrol”, meaning that when tenants move out the landlord sets the initial rent for the new tenants without restrictions and only future increases on the same tenant are regulated.
The Berkeley Rent Board has recently conducted several studies that examine the effects of vacancy decontrol in Berkeley. Today the average decontrolled rent is up by over 50% after adjusting for inflation. Berkeley tenants now pay an additional $100 million annually in rent over and above the increases needed to provide owners with a fair return on their investment but only 10% of the increased rent is being reinvested in the community through building renovations and increased tax payments. The value of Berkeley’s 19,000 rent stabilized apartments has doubled, increasing by from $1.2 to $1.5 billion, yet two thousand apartments remain unsafe in the event of an earthquake and several thousand more have persistent maintenance problems.
The Rent Stabilization and Eviction for Good Cause Ordinance continues to provide stability and security to tenants after they move in by controlling future increases but its economic effects are limited. It remains a major public policy challenge to find measures that will protect low-income tenants and generate a greater degree of reinvestment in rental housing and in the community as a whole" (page 4).
"Operating expenses are the cost of normal operations, including management, taxes and insurance, maintenance and other recurring costs. Net Operating Income (NOI) is the revenue available to the investors after paying the normal operating expenses, so it is the best and most widely used measure of the profitability of the property. NOI is not entirely profit, however. New construction costs are typically repaid from NOI over the first twenty years of occupancy and over time, as it becomes necessary or desirable to carry out renovations and upgrades that go beyond normal maintenance, these are also paid for out of the NOI (page 7,8).
"Figure 2 compares operating expenses and NOI for the East Bay (Oakland Metropolitan Area) with the U.S. as a whole, with the Portland, Oregon area and the Sacramento area. As shown in Figure 2, most of the higher rent characteristic of the East Bay goes to increased net operating income and not to operating and maintenance expenses. East Bay rental properties generate much more income for investors than similar properties in most other areas of the U.S. Investors in rental property in the Portland and Sacramento areas deliver rental housing that is at least equal in quality to that in the Bay Area at far lower rents" (page 8).
"The Bay Area’s affordable housing shortage is the result of high demand and limited supply. The high demand for housing in Berkeley and the Bay Area is generated by:
beauty of the natural setting
diversity and creative culture of the people
strong regional economy (anchored in Berkeley by the University of California)
high quality public services (City, School District, County, parks districts, BART, etc.)
The residents of the Bay Area, homeowners and renters alike, contribute to making the Bay Area a desirable place to live through their taxes and their daily activities. Homeowners benefit when their positive contributions help raise property values, but tenants positive contributions raise the value of property owned by investors and have the perverse result that the tenants must pay more to rent or to buy a home.
High demand does not create long-term scarcity unless there are also constraints on supply. In a fully competitive rental housing market, increases in rents due to increased demand for apartments would soon lead to increases in supply that would then stabilize rents and bring them back down to the minimum level necessary to operate and maintain the housing. Instead, for the past 35 years Bay Area rents have risen faster than the rate of inflation due to severe constraints on apartment development that prevent addition of sufficient housing to stabilize the market and keep rents from rising" (page 8).
"There is extensive debate over their relative importance, but the major constraints are:
The geographical constraints on construction in a region where much of the area near employment centers is taken up by the Bay and the ocean or is on steep hillsides.
The cost constraints of redeveloping already urbanized land, where demolition of existing buildings, building to greater heights and construction on small sites all add to costs.
Land use regulations often prefer lower density development and single-family homes over apartment buildings. In most cities the majority of voters are homeowners who generally oppose higher densities in or near their own neighborhoods.
Regardless of which factors are more important, tenants are not responsible for creating the shortage of rental housing but they are made to pay the price. Scarcity generates rents far higher than what is normal for the U.S., far higher than what is normally needed to profitably operate and maintain rental housing and far higher than would characterize a properly functioning housing market. As we see in Figure 2, East Bay rents are far higher than rents in reasonably competitive markets such as Portland, Oregon or Sacramento, and most of this difference goes into net operating income. This results in a major transfer of income from tenants to real estate investors.
Standard economic theory tells us that in a fully competitive market, competition between suppliers will reduce the price of housing to the minimum necessary to profitably operate and maintain rental housing. Figures 1 and 2 demonstrate that the Bay Area rental housing market is generating rents far above what is necessary. This distinction between the necessary and unnecessary rent dates back to Adam Smith, whose book The Wealth of Nations, published in 1776, is generally considered the founding statement of market economics. Smith distinguished between the “building rent” and the “ground rent”. Building rent is the amount that would be paid in a fully competitive market and is necessary to operate and maintain rental housing and provide a normal rate of return on investment to its owners. Ground rent is the additional rent paid because there is a scarcity of housing available in a desired location. Smith further argued that the ground rent reflects the value of the services and protection provided by government and should be taxed to support those services. “Ground rent”, “land rent”, “locational rent” and other similar terms are all forms of what economists today call “economic rent”.
Economists use the technical term economic rent to describe excess business revenue that is above and beyond what is actually necessary to induce production of goods and services within a fully competitive market. Another way of characterizing economic rent is that it is business income that is “unearned” in the sense that it results from simple ownership of a scarce good rather than from activities that produce goods and services or improve their quality" (page 8, 9).
"Figure 3: “Income Remaining to a Median-Income Bay Area Tenant After Paying the Median Rent” is based on data from the Census Bureau and the Bureau of Labor Statistics. It shows that after adjusting for inflation the median income of a Bay Area renter had increased by 6%, while the median “real” (inflation-adjusted) rent had increased by 43%. As a result, the median income tenant has 4% less real income remaining after paying the median rent in 2010 than the median income tenant in 1980. Even though the median renters’ income had gone up from 1980 to 2010, rents had increased by so much that they took all the increase in income and more.
Figure 4 shows that the situation of a low-income renter with an income at the 25th percentile was far worse in 2010 than for the equivalent tenant in 1980. Not only had their real income declined by 17%, but they paid 34% more for a low-end apartment with a rent at the 25th percentile. As a result, the low-income tenant had 40% less income remaining after paying the rent for a low-rent apartment than the equivalent low-income tenant in 1980. The 2010 low-end 25th percentile rent of $916 monthly in the Bay Area is $203 higher than the median rent for all United States metropolitan areas, yet the lower-rent Bay Area apartments are often in poor condition because the tenants at the low end of the market have little bargaining power" (page 10, 11).
"However, even when a rental property is generating a high Net Operating Income (NOI) this does not guarantee that the landlord is the one making a profit on this investment. If the landlord fully owns the property and has not borrowed against it, then they are the sole investor and receive the full NOI. Most landlords borrow a significant part of the purchase price, forming a partnership with a lender.
The lender receives a steady income and repayment of the loan at relatively low risk while the owner receives the remaining cash flow and the chance to make a much higher rate of profit. The landlord pays the operating and maintenance expenses and from the net operating income they then pay any investment expenses, which include the mortgage and the expense of building renovations that go beyond normal maintenance (often this is handled by refinancing or taking on an additional mortgage) and, once the operating and investment expenses are paid they receive:
The cash flow, which is the remainder of the NOI.
The tax benefits of the depreciation allowance.
Increased equity in the property as the mortgage is paid off.
The capital gain from any increase in the value of the property.
It is always possible for a buyer to pay so much for a property that once the buyer becomes the current owner they make little or nothing on their investment. While lenders typically limit loans to amounts that leave a modest positive cash flow for the owner, it is not uncommon for landlords to purchase property with loan amounts that result in no cash flow or even a negative cash flow in the early years of ownership, often because the buyer underestimated the cost of maintenance and necessary repairs. A 2009 survey of landlords in Los Angeles found that a substantial proportion of those who purchased the property after 2000 were now delaying major maintenance, likely due to high mortgage payments. Buyers of investments such as rental property are vulnerable to what economists call “the winner’s curse”, the tendency for the winning bidder to have bid too high because they are the bidder with the most optimistic assumptions.
The distribution of net operating income between the owner and the lender is a choice made by the owner. When a buyer borrows a large percentage of the purchase price of the property and invests little of their own money they are choosing to “leverage” their investment, which greatly increases their risk, in the hope of gaining a greater return. After purchase, when the value of a property increases, the owner can choose to refinance and borrow additional money, increasing their risk in order to take out profits today. There is no rent level, no matter how high, that cannot be turned into a loss by over-paying, over-mortgaging or accepting loan conditions that result in higher loan costs in future years. This helps explain how it is that even when NOI is typically 60% to 65% of the rent, some landlords complain that they are not making any money.
Having taken on increased risk, when problems emerge the investor often refuses to recognize that they made overly optimistic assumptions and over-paid for a property or over-mortgaged it. Instead they blame rent controls and high local taxes and fees and often postpone necessary maintenance and renovations to maintain their cash flow. Overextended small investors frequently provide the sympathetic public face for more general efforts to weaken regulation of rental properties and lower taxes and fees.
The cost of borrowing money against the value of an investment property is not an “operating expense” because it is not a cost that is necessary for operation and maintenance of the building Instead, it is an “investment expense” and is under the control of the owner, who decides how much of their own money to invest and how much to borrow. Much of the public policy discussion about residential rental property fails to make this important distinction.
As we will see later in this report, with rare exceptions, Berkeley rental properties have net operating incomes sufficient to provide investors with far more than a “fair return” on their investment. When owners are not making a profit or else have a very low rate of return this is generally the result of their investment decisions rather than Berkeley’s rent regulations" (page 12, 13).
"Rent Stabilization before Vacancy Decontrol
Berkeley has had some form of rent regulation continuously since Berkeley voters passed a temporary measure requiring landlords to rebate 80% of the Proposition 13 property tax reduction to their tenants in November 1978. Berkeley’s current program began in June 1980, when Berkeley voters passed the City's Rent Stabilization and Eviction for Good Cause Ordinance. (Berkeley Municipal Code Chapter 13.76.) The Ordinance regulates most residential rents in Berkeley and provides tenants with protection against eviction without good cause. The Ordinance was intended to “protect tenants from unwarranted rent increases and arbitrary, discriminatory or retaliatory evictions” in order to maintain affordable housing and preserve community diversity.
An “unwarranted rent increase” is an increase in rent beyond what is necessary in order to pay for operation, maintenance and renovation of the property and to provide the owner with a “fair return” on their investment. In other words, an unwarranted rent increase is an increase that provides additional “unearned” business revenue (economic rent) to the investors that is not based on work they or their employees do to operate, maintain and improve the property but rather on the increasing rents tenants are willing to pay due to the scarcity of rental housing in Berkeley and the San Francisco Bay Area" (page 14).
"Figure 5 “Increase in Berkeley Median Rent Compared with CPI, 1979 - 2012” shows what rents would be if starting in 1980 they had tracked the change in the Consumer Price Index for the San Francisco Bay Area. It compares this with the change in Berkeley rents under strong rent controls (the AGA or Annual General Adjustment) and the change after vacancy decontrol...
...As Figure 5 shows, from 1978 to 2004 Berkeley’s rent stabilization ordinance allowed annual rent increases that roughly tracked the rate of inflation. These increases were sufficient to cover increases in the cost of operating and maintaining rental properties and provided an adjustment to maintain the value of the typical landlord’s cash flow. If this system had been allowed to continue, the average rent in Berkeley’s rent stabilized housing today would be about the same as the average rent in Portland, Oregon, a city with a better functioning housing market" (page 15, 16).
"In 1995 the State of California overrode the voters of Berkeley and changed the rules, creating a three-year transition period in which rents could increase an additional 15% when a tenant moved, followed in 1999 by full “vacancy decontrol”, which allows the landlord to increase the starting rent for all new tenants without any limits. Once the unit is re-rented, future increases are again controlled for the duration of the tenancy, starting with the new initial rent, in order to provide stability to the new tenant. The new system is most accurately described as “vacancy decontrol – recontrol”.
Since 1999 fully 85% of all rent stabilized apartments have turned over at least once and the rent has increased to the much higher levels typical of the Bay Area’s dysfunctional housing market. Figure 5 shows the increase in median rent beginning with the transition period in 1996, demonstrating that rents have increased much faster than the overall rate of inflation. Today about 3,000 apartments have never received a vacancy increase because they are occupied by long-term tenants who moved in before 1999. Approximately 16,000 apartments are occupied by tenants who moved in after full vacancy decontrol and are paying a rent much closer to the current market rate.
The Rent Board’s 2010 economic study found that overall rents had increased by slightly more than $100 million annually, over and above the increases necessary to provide an inflation adjustment to cover increased costs and maintain profitability. Total rent payments in the roughly 19,000 rent stabilized apartments are now approximately $300 million annually but would have been held to approximately $200 million annually if strong rent controls had continued.
Berkeley’s tenants cope with the increased rents in several different ways. The remaining longterm tenants with pre-vacancy decontrol rents hold on to their apartments, students double up and non-student tenant households pay a higher portion of their income for rent and self-select towards those with higher incomes.
There are 3,000 long-term tenant households who moved in before 1999 and still benefit from rents set before vacancy decontrol.
o Long-term tenants pay an average rent of $780 monthly, substantially lower than the market rate but still higher than the average rent in all U.S. metropolitan areas.
o Two-thirds of the long-term tenants are low-income and more than one-third are elderly or disabled.
o Eight percent of long-term tenants said that their landlord had tried to get them to move out, compared with only two percent of more recent tenants.
There are 16,000 rent stabilized apartments occupied by tenants who moved in after vacancy decontrol.
o Their average rent is $1,436 monthly (as of 6/30/2012).
o About one-third of these are rented to students and two-thirds to non-student households.
o Students tend to deal with the higher rent levels by doubling up, two or more to a bedroom.
o The 2009 incomes of the non-student tenants who moved in after vacancy decontrol are 11% higher on average than the inflation-adjusted incomes of nonstudent tenants surveyed in 1998 prior to vacancy decontrol.
o Despite their higher incomes the 2009 non-student tenants also pay a higher proportion of their income for rent.
53% pay more than 30% of their income for rent, up from 41% in 1998.
28% pay more than half of their income for rent, up from 20% in 1998" (page 17, 18).
"The Rent Board has also studied the extent to which the increased rental income is reinvested in renovation or improvements of buildings or paid back to the community through increased taxes. In 2012 the Rent Board studied a random sample of 68 properties containing 1,455 of the 9,700 registered apartments in properties with 10 units or more. Among the apartments in the sample 81% had received a vacancy increase and this increased the average rent per unit by $534 a month or $6,400 a year over and above the annual inflation increases that Berkeley’s former strong rent control system would have allowed.
The study then examined the number and value of building permits taken out in 1991 - 1995 before vacancy decontrol, in 1996 - 1998 during the transition period, and from 1999 – 2011 after full vacancy decontrol. On the positive side, under vacancy decontrol there was a 44% increase in the inflation-adjusted value of permits taken out. On the negative side, however, the value of the permits averaged only 2% of the increased rent resulting from vacancy decontrol. Even assuming that the value of renovation work is actually triple the reported permit value, that projects out to about 6% of the $100 million increase in annual rents and only 2% of the $300 million in annual rents. Owners also reinvest some of the increased rent in the community through increased tax payments, amounting to somewhat less than 4% of the $100 million increase. Over all, it appears that only 10% of the increased rent from vacancy decontrol is reinvested in building renovations or taxes paid to local government.
Over all then, about 90% of the increased rent is going to increased profits rather than being reinvested in building improvements or in the community through increased tax payments. The additional net operating income of $90 million annually adds from $1.2 to $1.5 billion to property values. Applying a “capitalization rate” (rate of return on invested capital) of 7% to an annual $90 million in additional income results in an increase in property value of $1.28 billion, while applying a capitalization rate of 6% results in an increase in property value of $1.5 billion. Rental property values in Berkeley have more than doubled since the on-set of vacancy decontrol, although this is also partly due to declining interest rates.
Property taxes have not increased to reflect this increase in value. Only about 30% of Berkeley rental properties have been sold since 1998, leaving 70% with older valuations. Many of these will not be reassessed for the foreseeable future, being passed down within families from generation to generation or held by limited liability partnerships and corporations that are sold in fractions, all of which are ways to avoid reassessment. If all of Berkeley’s residential rental properties were assessed at their current market value, they would pay an additional $9 million to $10 million annually in property taxes.
Routine maintenance has modestly improved after vacancy decontrol, but not to the extent that might have been expected in view of the magnitude of the rent increases. The 2009 tenant survey found that fully three quarters reported that there is currently at least one physical problem in their building, down slightly from 83% in 1998, although the number of problems per building was down from an average of 3.5 per building in 1998 to 2.4 in 2009. Virtually all tenants with building problems report that they have complained to the landlord or manager about the matter during the last year and one-third of them report that at least one complaint was either not fixed or only partially fixed. Projected out to all 19,000 rent stabilized apartments this indicates that over 4,500 tenants have problems that the manager or owner has not adequately responded to.
In addition to persistent maintenance issues, there are apartments in “soft-story” buildings that are a collapse hazard in the event of a major earthquake. So far only 30% of Berkeley’s softstory apartment buildings have been reinforced, leaving over 2,000 apartments still at risk.
As time passes, more properties change hands and this has potentially harmful effects on the reinforcement of soft-story buildings and the standard of maintenance. New buyers of rental properties often do not have the economic flexibility that long-term owners have because new buyers have generally taken out mortgages to the maximum extent that lenders will approve. Long-term owners have access to a larger proportion of the net operating income unless they have refinanced to take capital gains out of the property. Proponents of vacancy decontrol argued that it would result in an increased supply of housing available to low-income elderly, disabled and minority tenants, greatly improved buildings, a fair profit for landlords and higher local government tax receipts that could be used to mitigate the harm rising rents cause to low-income tenants" (page 18, 19).
"The recent Rent Board studies demonstrate that under vacancy decontrol:
Rents have increased by approximately $100 million annually over and above the inflation adjustment necessary to provide owners with a fair return on their investment.
Annual expenditures on renovation of rental properties amount to 6% or less of the increase in rent.
Additional taxes paid are less than 4% of the increase in rent.
In total, only10% of the increased rent has been reinvested in the community in the form of renovations or tax payments.
The value of Berkeley rental property has doubled, increasing by $1.2 to $1.5 billion based on the increased net operating income.
Owners of 70% of these rental properties have old assessed values that give the owners a tax break totaling approximately $10 million annually.
Two thousand apartments remain at-risk of collapse in the event of a major earthquake and thousands more have persistent maintenance problems.
In sum, the effect of vacancy decontrol in a high-demand market with limited increases in supply has been to generate dramatic increases in rents and rental property values without adequate reinvestment and without providing resources to mitigate the economic hardship created for lowincome tenants" (page 20).
"Affordability is provided mostly to the approximately 3,300 pre-1999 tenants whose apartments have never qualified for a vacancy decontrol increase. Berkeley’s Rent Stabilization Program continues to enforce rent ceilings for these apartments that are significantly below the current market rate. Approximately 2,200 of these tenants are low income, and 1,200 are elderly or disabled. Although the number of pre-1999 tenants continues to decline as tenants age and move out, “old rent control” remains one of the City’s largest affordable housing programs. The City’s other housing affordability resources assist a total of about 3,900 households in Berkeley" (page 20).
"Opponents of rent stabilization often suggest that all or part of the Rent Stabilization Program operating budget, which is $4,050,000 for FY2013, should be redirected to assist low-income tenants. Entirely aside from the needs that more recent low-income tenants may have for assistance, it is not hard to estimate the approximate cost of providing an equivalent subsidy to only the 2,200 low-income “old rent control” tenants in the absence of rent stabilization.
Section 8 vouchers or a local equivalent would cost approximately $20 million annually including administrative costs. Over a twenty year period this would amount to $400 million. In effect, Berkeley would need to be able to double the size of its Housing Authority. The cost of assisting all low or even all very-low income tenants in Berkeley, including those who have moved in since vacancy decontrol, would be substantially higher.
Alternatively, building or acquiring and rehabilitating permanently affordable housing through the Housing Trust Fund would require approximately $100,000 per unit, assuming other sources of Federal and State matching subsidy were available, for a total one-time capital investment of $220 million.
In either case, it is clear that the budget for administering the Rent Stabilization Program is not remotely close to what would be needed to meet the needs of low-income tenants in Berkeley. In addition, rent stabilization provides essential protections to more recent tenants" (page 21).
"Stability is provided to almost all Berkeley tenants under the Rent Stabilization and Eviction for Good Cause Ordinance. In addition to the 3,300 “old rent control” tenants, there are another 15,700 apartments, for a total of about 19,000, where rent stabilization limits future rent increases as long as the tenant remains in the apartment. In addition, if the apartment is poorly maintained, so that violations of the housing code are allowed to persist, then the tenant can petition for a reduction in rent to compensate for the violation. This strengthens the code enforcement process.
Rent stabilization combined with the requirement of good cause for eviction, provides these tenants with a stable and predictable occupancy as long as they meet their obligations as tenants. The importance of this has been shown during the financial crisis, when banks foreclosing on rental properties routinely tried to evict all of their tenants without good cause.
Yet another 2,000 tenants live in apartments that are temporarily exempt from registration because the tenant receives assistance through the Section 8 or Shelter Plus Care programs. These tenants are protected from demands by the landlord for rent beyond what the BHA or the City can help subsidize because demand for rent higher than the payment standard returns the apartment to the jurisdiction of the Rent Board and imposes the payment standard as the rent ceiling. They are also protected by the good cause for eviction requirements.
There are another approximately 6,000 rentals that are completely exempt from rent stabilization, either because they are apartments in buildings constructed after 1980 or because they are rented single-family homes or condominiums. These rentals are still subject to the requirement of good cause for eviction.
The only rental housing exempt from good cause is the small number of owner-occupied duplexes that were also owner-occupied in 1980 and cases where the tenant shares a kitchen or bathroom with the owner" (page 21, 22).
"Education and outreach are important capabilities for the Rent Board. The Rent Board’s registration requirements give it the ability to mail out information to both owners and tenants several times a year. In addition, the Board’s housing counselors answer over 10,000 inquiries annually from landlords, tenants and the general public" (page 22).
" Providing stable housing and lowering evictions is a human capital investment analogous to education or job training, one that has the potential to decrease poverty and homelessness and stabilize families, schools, and neighborhoods. Expanding access to stable, safe, and affordable housing would help more lowincome children to realize their full potential" (pg. 5),
"Housing security is within our grasp, but to realize it we need comprehensive institutional reform and improved policies whose aims are first and foremost to guarantee housing for all, not profit for some. Central to our approach...is achieving four specific goals:
1. Create new measures of affordability and housing security
2. Expand and preserve genuinely affordable housing
3. Protect the rights of renters
4. Regulate speculation in the rental market
Some of these goals are best addressed at the federal level, some at the state and local levels, and some at all levels simultaneously. Effective policy solutions at all levels must take a housing security approach. In the absence of a Housing Wage — the amount a person working full-time must earn to afford the fair-market rent on a two-bedroom unit without paying more than 30 percent of his or her income in rent — policy makers must address real reform of affordability measures and at the same time address accessibility, long-term stability and protection from displacement, health and housing quality, and community control"(pg. 28).
"Cities, counties and states should implement the following policies:
Pillar #1: Affordability
a. Set maximum annual rent increases and maximum rents relative to new measures of affordability.
b. Provide clear legal avenues for tenants to dispute rent increases.
c. Implement vacancy control measures to prohibit the raising of rent upon vacancy of rent-regulated units...
...JUST CAUSE EVICTION
Protect tenants within all residential properties in the city, county, and/or state. These ordinances should contain lists of “just causes” for eviction and legal rights of tenants who are faced with eviction, including a clear legal process for filing eviction petitions. Penalties for landlords who unjustly evict tenants must include fees and limited access to tax and other financial assistance" (pg. 34,35).
"There is much debate about the short-term and long-term consequences of rent control. While advocates argue that rent controls are necessary to keep rent increases in line with tenants' incomes, opponents counter that in the long run controls will contribute to the very crisis they seek to address. By lowering profits, it is argued, rent controls will ultimately lead to lowered investment in rental housing: new construction will cease, maintenance will decline, and even homelessness will result. Worse, it is argued, rent control does not even reach those lower-income tenants who need it most, primarily benefitting upper-income tenants. These arguments provide the principal rationale behind efforts to restrict the ability of localities to enact rent control -- to "pre-empt" local governments regulating rents.
There's much academic and political debate about these topics, most of which have been subject to empirical tests. Unfortunately, much of the debate around rent control is based on hypothetical arguments rather than empirical research that examines the experiences of communities that have enacted rent control programs. Thus, there are many myths about rent control that inhibit a healthy public discussion about its pros and cons. In fact, there has been considerable empirical research on the impact of rent control. Quite a few of these studies have been sponsored by various real estate industry organizations. Studies conducted by independent researchers, however, conclude that rent control does not have adverse consequences for new construction, maintenance, and other measures of the level of investment in rental housing. But these studies do not diffuse the controversies, since the various sides appear to be talking past each other. Indeed, both sides tend to view these studies as "ammunition" to use in their lobbying and public relations efforts. Not surprisingly, the real estate industry has greater resources to invest in academic studies, so most of these reports emphasize the negative consequences of rent control.
Some people may support rent control as a "last resort," but believe that providing needy people with rent subsidies is a more efficient way to help house people who really need it. Unfortunately, less than one-third of all households eligible for federal rent subsidies receive them. Providing rent subsidies to all low-income households who are currently paying over 30% of their income in rent (the accepted "affordable" housing guideline) would cost at least an additional $50 billion. One study of Boston in the late l980s found that providing subsidies to all low- and moderate-income households who were paying more than 30% of their income in rent would cost $150 million a year. Further, the real estate industry, the major opponents of rent control, have not been active supporters of efforts to increase federal housing subsidies for the poor. Moreover, rent control advocates argue that it is more cost-effective for taxpayers than providing direct subsidies. One recent study estimated that if Santa Monica, West Hollywood, and Berkeley abandoned their rent control program, it would cost the state's taxpayers about $160 million a year simply to maintain the existing levels of affordability provided by rent control.
Some people mistakenly believe that rent control freezes rents and makes it unprofitable to own rental housing. In fact, every rent control system provides for annual across-the-board rent increases tied to the cost of living or cost increases. They all also provide for individual rent adjustments to ensure landlords a "fair return" on their property, although definitions of "fair return" vary. These adjustments allow rents to keep pace with increasing costs and to allow landlords to make capital improvements. Landlords are assured of making a reasonable profit. Rent control, in this view, simply limits rent gouging and speculation.
Some argue that rent control leads landlords to defer maintenance. Experience reveals that it doesn't, because in order to receive a rent increase, local rent control laws require landlords to maintain their properties in accordance with health and safe code regulations. As a result, rent control actually encourages better maintenance. More of the tenants' rent goes toward building maintenance in cities with rent control than in cities without it.
Some argue that rent control lead landlords to abandon their buildings. Common sense and hard reality suggests otherwise. In California, for example, Santa Monica and West Hollywood have the strongest rent control laws in the state, but there are almost no abandoned apartment buildings in either city. Nor do these rent control cities have the blight of foreclosed apartment buildings owned by banks and federal government agencies (such as the FDIC and RTC) that is common in much of California. The same story was true in Cambridge and Brookline, Massachusetts, when these cities had very strong rent control regulations.
Real estate groups argue that rent control discourages builders and banks from investing in new rental housing. In fact, almost all rent control laws exempt new construction. No jurisdiction has suggested that it would ever reverse this commitment. Many cities with rent control have experienced an increase in apartment construction during the past decade. In Santa Monica alone, about 1,000 apartments were built between l987 and l993.
Rent control's critics claim that it mainly helps "yuppies" and other affluent tenants who "hoard" the apartments. As a result, they say, rent control hurts the elderly, the poor, and people of color, who really need rental housing but are "locked out" of the rental market because units are occupied by those who do not need below-market housing. Some have even gone so far as to argue that rent control causes homelessness for these reasons. The real estate industry can certainly point to a few upper-income people living in these apartments -- anecdotes they use to make their point. But these are the exceptions, not the rule. And to focus on these exceptions is ironic, if not hypocritical, because it is landlords decide who will rent their units. But, in fact, rent control encourages economic and social diversity. The vast majority of renters living in apartments covered by rent control laws are low- and moderate income and/or elderly households.
In the most recent analysis, Allan Heskin and his colleagues at UCLA carefully examined neighborhoods in East Palo Alto, Berkeley, Santa Monica, and West Hollywood (all cities with vacancy control) and compared them with comparable neighborhoods in adjacent cities without vacancy control. Their study demonstrates that in the four California cities with the strongest rent control laws, the mix of renters -- including the elderly, the poor, and people of color -- remained relatively constant between l980 and 1990. Without rent control, low-income tenants, and people on fixed incomes, would face constantly rising housing costs. Many would face displacement. The most important implication of the UCLA report is that rent control promotes community stability and an economically. racially, and socially diverse population mix.
The real estate industry complains that rent control is complex to administer and gets mired in bureaucracy.248 In fact, with proper compliance by landlords, rent control is very simple to administer. With the advent of computers, rent control is even simpler to implement. In Santa Monica, for example, costs have not varied by more than $2/unit per month in the last five years. Most of the expense is due to landlords refusing to comply with the law or mounting extensive administrative and legal challenges to its operation. Even so, in Santa Monica, tenants pay the full cost of rent control. In West Hollywood and Los Angeles, tenants and landlords split the cost. In Santa Monica, landlords who want a rent increase beyond the annual general adjustment simply have to submit an application listing their expenses and income. Even the cost to landlords of getting professional help is included in the rent increase. Full pass-throughs for earthquake-related improvements have been put on a simplified fast track (30-60 days) basis.
Some argue that rent control is not needed because housing prices and rents are no longer escalating as they did in the l980s. Indeed, during the early 1990s housing prices and rents in some housing markets actually declined and vacancy rates rose, making it easier for low-income renters to find affordable housing. In fact, the recession made things even worse. Lay-offs and unemployment make many families' housing situation even more precarious. Where rent levels declined, it was almost entirely at the high end of the rental market. Similarly, most vacant apartments were in the expensive units. Meanwhile, in the Boston, Los Angeles, and San Francisco are housing markets (even before the earthquakes that shook Los Angeles and the Bay Area), waiting lists for subsidized apartments were long and growing. Now, these waiting lists have expanded even more. One symptom of this shortage is the rise in homelessness, especially among families with children. Before the earthquake, an estimated 60,000 people were homeless in the Los Angeles area alone. Among Los Angeles' homeless population, an estimated 40% are families, as many as a third are employed, and over a third are veterans"(pg. 42-44).
"Health and housing are directly connected. People who live in healthy, affordable places live longer, healthier lives. In just 5 years, housing costs have increased nearly 70% in San Mateo County, making housing and community stability a growing concern. People who can’t afford the increases in housing costs are forced to move away – resulting in a loss of social supports and longer commutes. Others must accept overcrowded or substandard housing, and choose between paying rent or other expenses such as healthy foods or medical care.
Housing is a cornerstone of a healthy community. Housing enables people to build roots in a community – get to know their neighborhoods, build a social network of support and become civically engaged. When housing is not affordable and stable, people are forced to do one or more of the following:
Pay unaffordable housing costs – diverting wages away from other important household needs such as healthy food, medical care, transportation, and childcare.
Double or triple up families into crowded housing conditions, that can causes stress and speeds the spread of communicable diseases.
Accept unhealthy and/or unsafe housing conditions such as mold, lead, or exposed wires.
Become displaced from their communities, causing stress and disrupting social support systems, and job stability.
Find housing far away and travel long distances to work, damaging air quality, increasing congestion, asthma and other respiratory diseases.
Become homeless, exposing them to dramatic reductions in health.
The health impacts of housing instability are particularly intense for children—causing behavioral problems, depression, low birth weights, and other health conditions like asthma. Housing instability can also slow educational progress by disrupting instruction and cognitive development, and by making it difficult to find a quiet place to study. Studies have found that:
Children who move frequently had a one year academic delay, lower test scores, and a lower likelihood of finishing school.
Displaced children are far more likely to have excessive and frequent absences from school.
Children in crowded housing have lower math and reading achievement and behavioral problems.
As lower-income parents and children are displaced, those remaining are often marginalized in schools and school decision-making, further perpetuating educational segregation and marginalizing working-class families.
While low and middle-income households are most impacted by the health impacts of housing instability, all San Mateo County residents are affected:
More than 40 percent of San Mateo County households spend more than they can afford (30 percent or more of their income) on housing.
60% of workers in San Mateo County commute in from other counties. Every day San Mateo County drivers drive an average of 21 million miles. These patterns impact traffic congestion, crashes and related injuries/fatalities and contribute to expelling 62 tons of carbon monoxide and 1.3 tons of particulate matter into the air per day. Air pollution is linked to lower birth weights, cardiovascular and respiratory disease, asthma, bronchitis, emphysema, and possibly cancer.
Stable housing is essential for a vibrant, civically engaged community. Studies have found that displacement can lower voter turnout among long-term residents, and cause social isolation, disconnection, and loss of political voice "(pg. 1,2).
" We present the 5 P’s framework for addressing housing stability:
"The Bay Area is in the midst of an unprecedented period of economic growth, adding nearly 200,000 jobs in the past decade. Along with lagging housing production and renewed investment in central cities, this growth has fueled dramatic increases in housing costs, with rents rising almost 40% between 2010 and 2014. Yet, over 1 million jobs region-wide pay less than $18 per hour (or $36,000 a year for full time work), making it extremely difficult to afford housing. Indeed 89% of Bay Area renter households earning less than $35,000 a year are considered rent-burdened, meaning they spend more than 30% of their household budget on housing. With budgets stretched to the breaking point, households experience housing insecurity and are vulnerable to displacement from their homes and neighborhoods.
Households may be displaced for many reasons—rising rents, poor housing or neighborhood conditions, or (new) development to name a few—and all these types of displacement can have health impacts. Research indicates that nearly half of Bay Area census tracts are affected by gentrification, displacement and exclusion (21%) or at risk (26%) of these occurring...
...While every county and most cities are affected... displacement risk is concentrated among the approximately 350,000 low-income renter households within Priority Development Areas. In addition to being slated for significant transportation investments, many of these areas are the focus of our health department’s resources, as we work to ensure that residents have access to safe environments, good jobs and schools, parks, reliable and affordable transportation and other amenities that help people live healthy lives and improve a child’s chances of success later in life. Displacement can mean that communities with poor health outcomes fail to benefit from public investments in their former neighborhoods.
At the same time, some outer suburban areas of the Bay Area have seen dramatic increases in low-income households, and people of color. As the suburbanization of poverty has progressed, fewer low-income people live near transit, which can provide an essential lifeline to jobs, schools and medical appointments. It has also strained city budgets, the social safety net, philanthropic giving and public health departments—making it difficult to keep people healthy " (pg. 1).
"Unhealthy Tradeoffs: When housing costs are high, working families have to make difficult choices.
• Households may accept older or poorly maintained housing that contains mold or pests which can trigger asthma, or which have dangerous appliances, fixtures and chemicals that can lead to falls, burns and exposure to toxins such as lead.
• Low-income households that can comfortably afford their housing are able to spend almost five times as much on healthcare and a third more on food than their severely cost burdened peers. They’re also more likely to go to medical appointments and take needed medication.
Mental Health Impacts: The emotional toll of displacement and living with the threat of displacement is significant, affecting mental wellbeing, sense of belonging and community cohesion.
• People experiencing housing insecurity are almost three times more likely to be in frequent mental distress than those who have secure housing.
• Research shows emotional strain from physical environments directly influence the onset and severity of diseases such as asthma.
Effects on Children and Families: The health impacts of housing instability are particularly intense for children, causing behavioral problems, educational delays, depression, low birth weights, and other health conditions such as asthma.
• Children who move frequently had a one year academic delay, lower test scores, and a lower likelihood of finishing school, displaced children are far more likely to have frequent absences from school, and children in crowded housing have lower math and reading achievement and behavioral problems.
Long Commutes, Air Quality, Congestion and Health: Without adequate housing near job centers, many low- and moderateincome Bay Area employees must commute long distances to work, worsening congestion and air quality for Bay Area communities.
• Long commuting distance is associated with lower rates of physical activity, lower cardio-respiratory fitness, and higher Body Mass Index, stress and blood pressure.
• Residents who have been displaced often must commute long distances and pay higher transportation costs; the benefit of lower-cost housing can be greatly diminished if households must pay for longer commutes. For every dollar decrease in housing costs, households see a 77 cent increase in transportation costs" (pg. 2).
"Rent control began in Los Angeles in 1978. The current law limits annual rent increases for continuing tenants to 7 percent (additional rent increases allowed for landlords who pay gas or electricity bills raise the average limit to 7.6 percent), but it provides no limits for new tenants. The law is scheduled to remain in effect through May 1982. At that time, the Los Angeles city council will have to decide whether to end rent control, phase it out gradually, or extend it. This note examines the effects of rent control has had on rental housing in Los Angeles and the possible future effects of various alternative rent control strategies...
... The research uses economic theory to identify the potential effects of rent control, then calibrate the theory with empirical evidence" (preface, v).
"Rent control limits the amount by which rents can increase. As a consequence, rents of controlled dwellings are less than they would be in the absence of rent control. We call this difference the "rent reduction" caused by rent control. We estimate that under the present law, rents will be 4 percent lower in May 1982 than they would have been without controls. If the law is extended to 1990, we estimate that the rent reduction will be 3.5 percent.
Landlords can respond to these rent reductions in three ways. First, they can operate their properties the same as they would without controls. In that case, tenants will continue to receive the same "quantity of housing services" (a summary measure of shelter, amenities and convenience provided by a dwelling". Since they will pay less rent for the same quantity of housing services, the "price" of those services is reduced. Second, landlords can reduce maintenance to offset, at least in part, their revenue losses. As a result of the lowered maintenance, dwellings deteriorate, causing a drop in the quantity of housing services they provide. We call this the "quantity loss due to deterioration". Finally, landlords can remove their dwellings from the rental market by abandoning them or converting them to other uses, such as condominiums. We call this the "quantity loss due to removals and conversions". In fact, all three responses occur: some of the rent reduction benefits tenants as price reductions; some results in cuts in the quantity of housing services available in the rental housing market" (preface, v, vi).
"Rent control confers its benefits early and extracts its costs late. Initially, rent reductions are exclusively price reductions; but as time passes, landlords adjust the level of housing services they produce to agree with rent they are allowed to charge. We estimate that until the expiration of the existing law in 1982, the major effects of rent control will be rent relief for tenants; decreases in the quantity of housing services will be small. However, we predict that extending the law until 1990 will reduce the benefits to renters while increasing reductions in supply. Tightening the law would accelerate those reductions but would not provide proportionate increases in benefits to renters." (preface, vii).
" In addition to considering the effects of rent control on the price and quantity of housing services, this research also examined secondary effects: reductions in the city's property tax revenue, changes in the demand for city services, and changes in energy consumption. Under all rent control alternatives, we estimate those effects would be minor" (preface, vii, viii).
"...this study also offers two summary measures for assessing the effects of rent control. One measure looks at how well rent control transfers money from landlords to tenants. The other indicates how well rent control works as a housing program for low-income households.
The first summary measure considers the efficiency with which each law transfers money from landlords to tenants. Rent control benefits tenants by permitting them to rent housing for less than would be the case without rent control; the tenant gains are borne as losses by the landlords. Since housing that would be kept in the absence of rent control is allowed to deteriorate or is converted to other uses, landlords incur additional costs. Yet another cost of rent control is the administrative expense which, in Los Angeles, is shared by landlords and tenants" (preface viii).
"The amounts gained by tenants and lost by landlords vary considerably across the alternatives. Ending the law in 1982 would cut by more than half the gains and losses estimated to result from extending the current law, whereas extending and tightening the law would more than double them.
On the other had, the efficiency with which transfers between landlords and tenants take place varies relatively slightly across the alternatives. The average for all three is about the same as the ratio for extending control--0.84, meaning that tenants will get 84 cents out of every dollar landlords lose in reduced rent. The other 16 cents corresponds to the net loss caused by rent control. It results partly from the administrative costs of rent control and partly from converting rental housing to other uses, but primarily from undermaintaining rent controlled housing. What variations exists suggest that the tighter the law and the longer the control, the lower the transfer efficiency" (preface viii, ix).
"The second summary measure provides a way of evaluating rent control as a low-income housing program. Below, the benefits (per program dollar) provided to low-income households by rent control programs are compared with other low-income housing programs -- public housing, housing allowances, and unrestricted cash grants...Rent control gives poor housing results because it shrinks the supply of housing services; however, because it provides more income to be spent on items other than housing, it increases nonhousing consumption more than the other programs do. If housing and nonhousing consumption are considered together, rent control provides more benefits to low-income families than public housing programs do; but those benefits are less than would be realized from housing allowances or unrestricted cash grants" (preface ix, x).
"Although the assessment of rent control's effects in Los Angeles cannot be generalized to other locations, the method used in the analysis could be applied to other communities. The results in each case might be very different because of differing environments. Cities with large temporary surges in demand, or chronic housing shortages, or still higher inflation rates would all experience larger effects than Los Angeles does under its law. Furthermore, if the specific provisions of rent control are different in other cities, the effects of those laws would also be different" (preface, xi).
"The Los Angeles law was precipitated by tenant concern that landlords were not passing their savings from the 1978 California constitutional amendment that reduced property taxes ("Proposition 13"). As worded, however, the city's rent control ordinance does not explicitly relate rent reductions to property tax savings. Rather, it cites a rental housing shortage of "crisis level", then states the usual rent control objectives of preventing "excessive" rent increases to tenants while allowing landlords a "just and reasonable" return on their investment in rental housing" (page 1).
"Historically, rent control has been used to limit rent increases caused by temporary surges in rental housing demand. Its three most notable applications in this country have occurred during the two world wars and while the Alaskan oil pipeline was being constructed. During the wars, diversion of resources from housing construction to war production caused a temporary housing shortage; rent control prevented the rent increases that could have resulted. During construction of the pipeline, workers flooded Alaskan towns, again causing a temporary housing shortage; and again, control prevented the rent increases that would have caused hardship to permanent residents" (page 1).
"The subject of our report concerns the primary and secondary impacts of the Los Angeles rent control law on the city's housing market. The primary impacts we investigate include the following:
Rent reductions caused by rent control (where we define rent reduction as the difference between the rent that would have been charged without control and that allowed under control).
Reduction in the quantity of housing services due to deterioration of rent-controlled housing, caused by landlords undermaintaining their property in response to rent reductions.
Reduction in the quantity of housing services due to loss of rent-controlled dwellings caused by removals and conversions to condominiums: landlords find other uses of their property more profitable than its continued operation as controlled rental housing.
Possible secondary impacts include:
Reduction in the city's property tax revenue caused by rent-control-induced declined in property value.
Changes in the demand for city services caused by rent control's effect on the composition of the city's population.
Changes in energy consumption caused by rent control's effect on property maintenance on residential commuting patterns" (page 2).
"Two standard arguments are advanced on the question whether rent control reduces housing services supply. #1 Rent- control advocates note the lack of iron-clad evidence (with full scientific controls and statistical estimates) that rent control leads to undermaintenance, housing deterioration, and housing removal. They then argue that until there is flawless evidence to the contrary, we should assume that rent control has no such effects. Their arguments rarely mention, let alone use, theories of how landlords behave.
Those against rent control appeal to microeconomic models of landlord behavior, which show that by disinvesting in housing, landlords reduce their losses from rent control; the conclusion is landlords will behave in such a way as to reduce housing services. Advocates of this argument rarely estimate the size of the reduction. Rather, they tend to discuss New York City and Paris, where severe rent control laws have caused extensive reductions in housing services. What they disregard is that those cities with less stringent laws, especially short-lived ones.
The problem with the pro-rent-control argument lies in its inappropriate (often implicit) conclusion that all nonzero effects are important. Economic theory shows only that landlords will reduce the supply of housing services under rent control. It does not say whether the reductions will be small enough that the benefits of rent control will clearly outweigh the costs, or whether they will be large enough to support the argument's conclusion" (page 3, 4).
"Our analysis avoid, we hope, both problems. We use economic theory to tell us the type of impacts caused by rent controls (thereby avoiding the problem of the inappropriate null hypothesis); and we calibrate the theory using empirical evidence, sometimes, finding that nonzero effects are trivially small (thereby avoiding the problem of assuming all such impacts are important).
Sometimes neither theory nor existing data permit a clear choice of parameters for our models. Because our purpose is to identify possible severe market effects of rent control, we have in such cases taken the more conservative choice: that is, we have consistently made choices that would tend to overstate the impact of rent control. Hence, the estimates we report are the largest we expect rent control's effects to be. Note also that what we estimate are the average effects of rent control in Los Angeles; it is unlikely that any one landlord or tenant would experience exactly those effects" (page 4).
"We doubt that the decline in new constructions in 1979 and 1980 was due primarily to rent control; rather, we believe it was a response to the economic slowdown in 1978-1979. Corroborating evidence comes from other findings that moderate rent control has no effect on multiple-unit construction -- and that there is, in fact, no statistical difference in the number of multiple-unit housing "starts" between rent-controlled and non-rent-controlled cities (Gilderbloom, 1981).
"Although it is not greatly important for the present study, the measure of all moves made by all households in a give year supports the finding that mobility declined between 1977 and 1980 (this mobility rate counts multiple move-ins). Proposition 13 may have contributed to the general decrease in mobility because of the property tax advantages it gives non-mobile homeowners.
To determine if rent control was a contributing factor to the decline of renter mobility, we compared trends in renter mobility rates for selected cities having rent control with trends in non-rent-controlled cities (the mobility rate we used measures all moves by all households). Table 2.15 shows that the average renter mobility rate for cities without rent control increased between 1970 and 1977. Based on a much smaller sample, the average mobility rate for rent-controlled cities dipped in 1974, then increased to the 1970 level. Had mobility rates in the rent-controlled cities changed over time in the same proportion as those in non-rent-controlled cities, the mobility rates in the former would have been higher than observed. However, because of the limited sample (in both categories of city), we can say only that the evidence suggests a relationship between decreased renter mobility and rent control" (page 27).
Further evidence for California as a whole also indicates that rent control is at least not the primary cause of the droop in new construction -- the state experienced the same cyclical expansions and contractions in housing starts as did Los Angeles (see Table 2.16). The main difference between new construction in Los Angeles and that for the whole state is that the latter has shifted sharply toward single-unit housing, with multiple units accounting for only about 40 percent of all new residential units (compared with more than 50 percent over the four years before 1974). In Los Angeles, however, multiple units accounted for over 80 percent of all new construction during nearly all the past decade -- although not all the new multiple-unit structures were rental, given the shift toward homeonwership (primarily toward condominiums). Nevertheless, the trend away from construction of rental units holds in areas not covered by rent control; moreover, it predates rent control by several years" (page 31, 32).
"Two types of housing are usually exempted from the law: (1) newly constructed dwellings (to forestall adverse effects on the supply of new housing), and (2) single-unit homes (because of the ease with which they can move from the rental market to the ownership market). If tenure changes are easily accomplished, it makes little sense to attempt to control rents. Any law that actually achieves rent reductions for sinle-unit homes will also fores most, if not all, of those homes into the ownership market.
Some rent control laws also exclude luxury dwellings, reckoning that people who can afford to live in them do not need protection from escalating costs. In addition, most laws exempt federally subsidized dwellings because of agreements between local housing authorities and the federal government. Also excluded are short-term rentals such as hotels and rooming houses; but such units rarely compose an important fraction of the rental housing stock.
The amount by which landlords can increase rents for dwellings that have continuing tenants and for those that are vacated obviously affects the size of rent reduction realized under rent control. For a given inflation rate, lower allowed increases imply larger rent reductions. The way increases are limited varies greatly among the jurisdictions that have rent control. Some limit increases for dwellings with continuing tenants by specifying an annual rate of increase (e.g., New York City's is 5 percent a year) or fractions of the CPI. Others specify increases as needed. Limits on increases for dwellings that have acquired a new tenant usually take the form of a certain percent; some cities, however, allow rents to rise only to the highest rent for a similar dwelling in the same complex.
There are two reasons a rent control law permits dwellings to leave the controlled stock. The first is the aim of making the law self-attenuating. For example, some rent control laws, such as that implemented by New York City during the late 1960s or the current law in Boston, permit dwellings to leave the controlled stock when they are vacated. Since all dwellings will eventually experience a vacancy, the fraction of the stock subject to rent control will eventually dwindle to zero. The second reason for permitting units to leave the controlled stock is to encourage suppliers to upgrade their dwellings or increase the number of housing units. Hence, some laws permit substantially rehabilitated dwellings to escape control, and others exempt new construction altogether" (pages 42, 43).
"Rent control limits how much landlords can raise rents. As a consequence, rents are lower under rent control than they would other-wise be. We term the percentage differences between what rents are under rent control and what they would be in the absence of control as the "rent reduction" caused by rent control. The rent reduction provided the key to additional effects of rent control -- deterioration and loss in rental housing. The larger the rent reduction, the greater the incentive for landlords to allow their properties to deteriorate, and the greater the probability that landlords will find alternate uses for their property" (page 48).
"Our analysis assumes that without rent control, the average rent in Los Angeles would rise at the same rate as the CPI, which we take be 12 percent annually from 1978 to 1982 and 10 percent annually from 1983 to 1990. If anything, those increases are too large, which makes our estimates of rent control's effects too large. But for an environmental impact report, we judge it appropriate to avoid underestimating the impacts.
It is widely known that most rent control laws (for example, the Los Angeles law) treat units keeping the same tenants differently from units gaining new tenants during a year. What is not so widely known, however, is that the uncontrolled housing market also treats the two types of units differently: landlords set first rents higher than the market average, and raise later rents by less than the growth in average rent (refer to Table 2.10). #1 That pattern of rent payment does not have much effect on tenants, who on the average pay the same rent they would if landlords set first rents at the market average and afterwards raised them by the growth in average rent. However, the pattern affects the rent reduction caused by rent control; limits on rent increases for units keeping the same tenants cause less rent reduction than they would if uncontrolled rent increases were the same for all units...
...During the four years of 12 percent average inflation, rents for units that keep the same tenant would increase by only 9.7 percent, while rents for units that acquire a new tenant would increase by only 16.6 percent. During the eight years of 10 percent average rent inflation, rents for units keeping the same tenant increase by only 8.2 percent, while rents of those obtaining a new tenant would increase by 14.3 percent" (pages 48. 49).
"Rent control offers landlords an incentive to allow their properties to deteriorate. When the rent reduction caused by rent control is 4 percent, landlords can charge the market price for only 96 percent of the housing services hey produce. In the long run, landlords will allow the portion of their output that yields no revenue to disappear through deterioration. #6 That is generally recognized as occurring when revenue drop because of shrinking demand (for example, if neighborhood undergoes transition to a lower income population), but often not when the loss of revenue is due to rent control.
However, knowing that in the long run landlords will allow their properties to deteriorate in proportion to the size of the rent reduction tells us little about deterioration in the short or intermediate run. Rent control usually lasts for only a brief part of the life of a housing structure. If the pace at which housing deteriorates is slow enough, the effect of rent control on housing quality will be negligible. By the time housing starts to seriously deteriorate, rent control will be gone, taking with it the incentive for landlords to undermaintain.
Hence the question is not whether rent control induces deterioration or by how much, but rather how rapidly it does so...We estimate that whereas four years of rent control will have caused only a slight amount of deterioration, twelve years would cause much more" (pages 55, 59).
"Regardless of the cause -- declining demand or rent control -- rent reductions motivate landlords to consider alternate uses for their property. Some remove the property from the housing stock (by either demolishing it or converting it to nonresidential use); others convert their apartments to condominiums. Only a small fraction, however, make such changes in any one year, even in the face of large rent reductions. So, as in the case of deterioration, the question of rental housing losses caused by rent control becomes a question of the pace at which change occurs" (page 60).
"Removals and condominium conversions cause approximately the same loss in housing services as deterioration does, making the total loss approximately double the losses from deterioration. The relationship is especially clear from the estimates of the average losses that would be caused by the alternative rent control laws...
...We believe rent control in Laws Angeles increases new construction; losses in rent-controlled housing create an excess demand for housing services that is equivalent to the excess demand in a tight housing market which normally inspires new construction (and the law exempts new construction from control)" (page 64).
"If rent control were to bring sharp reduction in city revenues or induce large increases in the demand for social services, the city might find it necessary to curtail maintenance of its existing physical resources or reduce its investmentn new capital.
If rent control were to induce large rent decreases, households might forgo moves and accept longer commuting distances, thereby increasing gasoline consumption and adding to the city's air pollution. Also, if existing structures were undermaintained because of rent control, they might use energy less efficeintly.
Precise estimates of any of these secondary effects of rent control are not available, but we can show that under the current law, they are small. And even under the most severe of the alternative rent control laws we consider, the secondary impacts are not likely to be large" (page 69).
"If rent control depresses the value of rental dwellings, lower sales prices will bring lower assessed valuations of rental properties; and city revenues will fall. Since Proposition 13 was passed, a direct link between property taxes and the sale price of a property has been established. Under the provisions of Proposition 13, the assessed value of a property changes only when it is actually sold. To ascertain the effect of lower property values on tax revenue, we must therefore determine how quickly stock of rental housing changes ownership...
...the proportion of single and multiple housing units that were sold each year from 1975 to 1980...[had] a sharp drop in sales of each type [following] the passage of Proposition 13; however, it is possible that the high interest rates of recent years were responsible for the decline as were the increased property taxes attendant on a sale. In any case, the similar patterns for both single - and multiple-unit dwellings indicate that rent control has not been the cause of the reduction in the sales of multiple-unit properties" (page 69, 70).
"The losses decrease over time for all the laws considered. First, since all the laws are assumed to end in 1990, as time passes some of the losses are past history; that is, the losses to be suffered from 1978 to 1990. Second, as time passes, more households move that had long tenure under rent control, permitting landlords to raise rents and reduce their loss burden. And third, landlords can over time adjust their maintenance expenditure so as to reduce the costs they bear under the law" (page 72).
"The average annual losses under the current law are less than 0.7 percent of the city's 1979-1980 property tax revenues; and even under the most stringent law we consider, the average annual losses would be less than 2.5 percent of the city's 1979-1980 property tax revenues (Reiner, 1979). Indeed, since property tax revenues are less than 12 percent of all revenues (Reiner, 1979, p. 18), the property tax losses caused by rent control will not have any substantial effect on the city's ability to maintain and enlarge its capital infrastructure (roads, sewers, and the like)" (page 76).
"If rent control markedly altered the composition of the city's population, the city face new demands for service expenditures that could reduce the funds it had for capital expenses. However, changes in the city's population due to rent control are unlikely to be substantial" (page 76).
"According to the latest Berkeley IGS Poll, 48% of the state’s registered voters describe the problem of housing affordability as an “extremely serious” problem in the area where they live, and another 36% say it is somewhat serious. The problem is leading many voters (56%) to consider moving, with one in four (25%) saying that if they did decide to move, they would most likely relocate out of state.
The poll also finds early backing for a multi-billion-dollar statewide bond that has been proposed for the November 2018 general election ballot to help finance the construction of more low-income housing in California. When asked how they would vote if such a bond were to appear on next year’s ballot, 51% say they would favor the bond, while 27% would be opposed. Another 22% were undecided.
The seriousness with which voters view the problem of housing affordability is also demonstrated when Californians are asked their opinions about rent control. According to the poll, a 60% majority of voters support giving local governments the ability to set limits on how much rents can be increased as a way to help low- and middle-income people remain in their communities. Support for local rent control ordinances includes 76% of Democrats, 55% of non-partisans and 34% of Republicans.
These results come from a Berkeley IGS Poll conducted online by YouGov in English and Spanish among 1,200 registered voters in late August and early September" (page 1).
"The seriousness with which voters view the cost of housing is also demonstrated when they are asked their opinions about rent control. Six in ten voters (60%) support local laws that would set limits on how much rents could be increased as a way to help more low- and middle-income people remain in their communities. Just 26% side with an opposing view that such laws lead to fewer rentals being built, making the problem worse.
Support for local rent control laws is strongest among Democrats (76%), renters (65%), and voters in Los Angeles County (68%) and the San Francisco Bay Area (63%)" (page 4).