" And it is not just the minimum-wage earner who is scrambling to survive here. More teachers, police officers, firefighters, commissioned salespeople -- all people who make more than $50,000 a year and would be comfortably middle-class in many other places -- are seeking the services of area homeless shelters...
'we have seen a sharp increase in the number of families and working poor who become homeless almost exclusively due to outrageous cost of housing in Silicon Valley,' said Jan Bernstein, a spokeswoman for InnVision, a nonprofit group here that provides 300 shelter beds and serves 850 meals a day to the needy...
At the richest time in the richest region the in the richest nation in the world, less than 30 percent of the households here can afford to buy a house...Renting is increasingly out of range for the average worker as well. Two of five valley residents cannot afford to rent the average two-bedroom apartment, which is about $1,700...
With waiting time for subsidized housing up to several years, the situation will only get worse, housing officials say. Indeed, the housing burden is the main reason why more people are leaving Silicon Valley these days than arriving, according to the state's Department of Finance...
For the people who are not rich in Silicon Valley, getting sick or laid off or losing a second income means catastrophe".
"Older Bay Area voters who have lived here the longest and own their home are far less likely to support building new housing compared with millennials (18-39), those who rent, and those who have lived here the shortest time and are feeling the worst pain from the region’s housing shortage and affordability crisis, according to Bay Area Council Poll results released today.
The poll found that 70 percent of millennials support building new housing in their neighborhood, compared with 57 percent of respondents aged 40-64 and a similar number aged 65 years and older. And while 76 percent of respondents who have lived in the Bay Area for five years or less and 75 percent who have lived here between six and ten years support building new housing in their neighborhoods, a much lower 55 percent of those who have called the region home for 20 years or more are willing to accept building more housing near them...
Millennials are less satisfied with their current housing situation than older generations. The poll found that while 70 percent of respondents aged 40-64 and 78 percent of those 65 years and older are content with their current housing situation, just 56 percent of millennials are happy with their housing situation.
The poll found 40 percent of respondents say they are likely to move out of the Bay Area in the next few years, an increase from 34 percent in 2016. More than double that, or 86 percent, harbor concerns that their friends or family will not be able to find affordable housing in the Bay Area. Another 58 percent say they are concerned about being able to find an affordable place to live themselves. Millennials are the most likely to leave, with 46 percent eyeing the exits, compared to only 30 percent of those 65 and older who are considering bolting.
Meanwhile, older respondents and those who have lived here the longest appear to be enjoying more financial benefits from the rise in home prices than those who have arrived more recently.
The poll found 84 percent of those here for five years or less and 73 percent of those here six to ten years said they haven’t benefitted from the shortage-fueled run-up in prices. Among those who have lived here 20 years or more, a much smaller 59 percent say they haven’t benefitted. Those findings are not necessarily surprising given that home values and equity build over time, but in a similar question almost twice as many newcomers (62%) as old-timers (34%) said the housing shortage has hurt them personally.
The differences are a bit starker along generational lines, with 14 percent of millennials saying they have benefitted from the surge in home prices and 41 percent of respondents aged 65 and older saying high housing prices have been a financial boon...
Almost across the board, the numbers paint a dark picture: 84 percent expect housing costs will continue to increase over the next two years, 78 percent say they know someone forced out of the Bay Area in the past two years by high housing costs, 66 percent don’t see themselves buying a home in the Bay Area in the near future, consistent with declining home ownership numbers statewide.
The poll found that 76 percent think the region’s housing shortage is threatening the Bay Area’s economy, which has led the state and nation in creating jobs and generating major revenue for public coffers".
"Despite being one of the nation's wealthiest regions, over 500,000 Bay Area residents, or about 10% of the population, live in poverty. But poverty is more prevalent than the strict federal guidelines would indicate. A more complete metric, the Self-Sufficiency Standard, suggests an income need of up to four times the federal guidelines. As many as 1.45 million, of 29.2% Bay Area residents are not self-sufficient.
Racial minorities account for over half of those in poverty in the Bay Area, with many speaking non-English languages in the home.
General government statistics hide the full picture of those living in poverty, yet these are the only calculations used to decide where funding will be concentrated" (pg. 3).
"People with mid-range wages sometimes can't generate enough cash flow to cough up the money needed for mortgages or monthly rents, let alone for a down payment on a typical Bay Area residence.
Those with mid-range wages, however, also make too much money to qualify for an array of government subsidies, programs and benefits that have been crafted to ease the poverty pinch, experts say...
What's more, federal officials may tend to not allocate sufficient resources to the Bay Area, whose job market is growing at roughly double the national employment market and is outpacing California.
'There is a perverse disconnect in the federal funding formula for workforce development that punishes the Bay Area due to low unemployment and poverty rates,' said Kris Stadelman, executive director of Sunnyvale-based NOVA Workforce Development...
The official poverty-level benchmark is $24,000 for a household of four people. But the study determined that the actual wage levels for living in the Bay Area are much higher, depending on where the family is located.
The necessary household family annual income to be self-sufficient, however, is $78,000 for Alameda County, $84,000 for San Francisco, $86,000 for Santa Cara Count and $89,000 for San Mateo County, the JobTrain study estimated".
"Eviction is increasingly a reality for many San Mateo County families and has deep and long lasting health consequences that continue to affect families’ health long after they are evicted. Eviction leads to a range of serious consequences, from physical and mental health impacts to economic challenges that have lasting effects on those evicted as well as the community at large.
When families experience eviction, they report worse health for themselves and their children. After eviction, families often experience homelessness, putting them at risk for violence, stress, communicable disease, malnutrition and harmful weather exposure, and making it difficult to treat common conditions such as high blood pressure, diabetes and asthma. A survey of San Mateo County tenants who defended evictions in court proceedings in 2014 found that 17.6% percent of these households were homeless at the time of the survey in spring 2015.
In other cases, families desperate to secure housing often accept unsafe or unhealthy housing conditions such as overcrowding, increased noise, and mold or pest exposure, increasing the chances of contracting communicable diseases, asthma, and respiratory illness, and increasing mental distress. The stress and uncertainty associated with eviction can lead to debilitating mental health impacts for years following the event. Tragically, rising rates of eviction have also been correlated with an increased rate of suicide" (pg 1).
Who and why are people evicted in San Mateo?
Where are people evicted in San Mateo?
In an article for the Institute of Governmental Studies, University of California, Berkeley, researchers, Justine Marcus and Miriam Zuk, surveyed 100 tenants that received services from Community Legal Services in East Palo Alto (CLESPA) to review the impact of displacement in San Mateo County, CA. The article, Displacement in San Mateo County, California: Consequences for Housing, Neighborhoods, Quality of Life, and Health, highlights the following:
"1. Tenants report that, aside from being formally evicted, they were harassed out by landlords, priced out by market forces, and pushed out by poor housing conditions.
2. After being displaced, survey respondents were forced to make difficult and precarious tradeoffs when searching for housing (e.g., substandard housing conditions, crowding, moving far away, etc.), limited by both market forces and exclusionary practices.
3. Approximately one in three displaced households reported some period of homelessness or marginal housing in the two years following their displacement. Several of these households remained homeless even months after they were displaced.
4. After being displaced, only 20 percent of households reported staying in the same neighborhood (within one mile of their previous home). Thirty-three percent of households left San Mateo County, generally moving to the Central Valley or eastern communities in the East Bay.
5. After being displaced, households moved to neighborhoods with fewer job opportunities on average, leading to longer, more costly commutes for households who left the county. These new neighborhoods also had more environmental and safety concerns as well as fewer healthcare resources.
6. Displacement was a significant disruption and trauma for respondents and their children. Two out of three children in displaced households had to change schools" (pg. 2).
"The San Francisco Bay Area housing crisis continues to grow, characterized by skyrocketing rents, a constrained housing supply, a severe mismatch between housing costs and incomes, and the displacement of low-income communities and communities of color.
San Mateo County, located about halfway between San Francisco and San Jose in the heart of Silicon Valley, is no exception, despite having one of the highest median household incomes in California ($101,272). Between 2000 and 2015, San Mateo County lost 44 percent of its “naturally occurring” (nonsubsidized) affordable housing for low-income households. The California Housing Partnership Corporation estimates that in 2015 San Mateo County had a shortfall of 25,882 affordable rental homes.
A recent study of evictions cases in San Mateo County found that between 2012 and 2015 there was a 59 percent increase in the number of evictions for people unable to pay rent on time and a 300 percent increase in the number of “no-cause” evictions. These evictions disproportionately affected Latinx and African-American households and are enabled by the fact that none of the cities in San Mateo County, apart from East Palo Alto, have significant rent control or just-cause for evictions protections"(pg. 3).
"...in the Bay Area, are facing constrained, expensive housing markets paired with rising income inequality. For low-wage workers, incomes are simply not keeping up with housing prices. Without limits on annual rent in creases, many tenants find themselves unable to pay rising housing costs. In the midst of this housing squeeze, middle and high-income households are seeking more affordable housing in neighborhoods with traditionally lower rents and proximity to jobs and transportation. These forces often result in even greater housing demand, higher rents, and incentives for landlords to bring new, higher paying tenants into their properties" (pg. 3,4).
According to the Case Study on Gentrification and Displacement Pressures in Redwood City, CA -- part of a larger report, Case Studies on Gentrification and Displacement in the San Francisco Bay Area by Miriam Zuk and Karen Chapple of UC Berkeley -- the report finds that,
"The downtown area has seen an especially severe decline in income, which poises it for reinvestment. While the census tract that encompasses Redwood City’s downtown has historically housed few residents there are plans to substantially increase the housing supply through market rate development. This raises questions about how residents in surrounding low-income census tracts will fare as the economy shifts to keep pace with the surrounding boom.
Adopted in 2011, the Downtown Precise Plan (DTPP) is the guiding framework for the economic revitalization of Redwood City. It introduces a number of incentives intended to jumpstart activity by reducing restrictions on development...
Local officials hope that an influx of investment dollars will make Redwood City desirable to the high-tech sector in Silicon Valley. The strong transportation connectivity via Caltrain, the Dumbarton Bridge, and El Camino Real makes it an especially ripe location." (pg. 84).
"The DTPP is centered on bolstering commercial life downtown and bringing restaurants, shops, and housing that supports the lifestyle of these workers, common characteristics of transit-oriented development (TOD). This strategy will be enhanced by Redwood City’s history as the oldest city on the Peninsula, which has endowed it with art deco theaters and other pieces of historic architecture. If the DTPP is successful, more people will be able to live and work in the area and more families will want to take trips downtown" (pg. 85).
"A lack of affordable housing in the context of Redwood City’s current growth trajectory will contribute to displacement pressures. However, even now there is a shortage of housing to accommodate downtown workers. The short supply will put pressure on the prices of existing units downtown, which is likely to create spillover demand in adjacent neighborhoods and push rent upwards. The neighborhoods adjacent to downtown are currently accessible to low-income earners, but this will change as rents rise. While affordable housing is frequently cited as a key concern in the City’s general plan, there are no policies explicitly driving its construction. Furthermore, the DTPP makes no provision to include affordable housing, and there are no mechanisms in place to extract revenue for affordable housing from profitable ventures in the downtown core" (pg. 85-86).
"An increase in restaurants, shops, and entertainment venues will bring many low-wage jobs. Without an adequate housing supply for those who will hold these jobs, the New Urbanism principles of walkability, diversity, and sustainability that are guiding development downtown will be negated as more workers commute by car. Likewise, the carbon emissions that are saved by transit-oriented development will be offset by any increased traffic on the roadways" (pg. 87)
" Forty-four percent of all jobs projected downtown will be low-income" (pg. 89).
"Should the city succeed in its economic development goals, there will be a mismatch between housing supply and job growth that goes against the core of sustainable development. As our analysis has shown, there are no mechanisms in the DTPP to mitigate this imbalance. Despite a stated commitment to developing an affordable city, these sentiments lack substantiation in action. Stronger legal provisions are needed to make these commitments enforceable.
Affordable housing provisions elsewhere in the city are not sufficient to protect low-income residents against displacement pressures, or to ensure that new lowwage workers are able to reside close to their place of employment. An increasingly unaffordable downtown commercial center will not serve the needs of lower income community members, and continue to exclude these residents from the benefits of economic growth. On its current path, Redwood City runs the risk of becoming increasingly segregated and inaccessible to the workers who will form that foundation of its new economy.
While affordable housing is critical, the jobs/housing analysis that we present also highlights the need to address low wages. In the wealthy Peninsula, weak earnings among workers who provide essential services occupations challenge their ability to meet basic needs. Along with housing policies, city governments in the region should consider adopting other policies such as living wage or other asset building strategies to ensure that all inhabitants share in the region’s prosperity" (page 90).
"...since 2011 the region has added 531,000 jobs while creating just 124,000 new housing units".
"California’s Home Prices and Rents Higher Than Just About Anywhere Else. Housing in California has long been more expensive than most of the rest of the country. Beginning in about 1970, however, the gap between California’s home prices and those in the rest country started to widen. Between 1970 and 1980, California home prices went from 30 percent above U.S. levels to more than 80 percent higher. This trend has continued. Today, an average California home costs $440,000, about two-and-a-half times the average national home price ($180,000). Also, California’s average monthly rent is about $1,240, 50 percent higher than the rest of the country ($840 per month).
Building Less Housing Than People Demand Drives High Housing Costs. California is a desirable place to live. Yet not enough housing exists in the state’s major coastal communities to accommodate all of the households that want to live there. In these areas, community resistance to housing, environmental policies, lack of fiscal incentives for local governments to approve housing, and limited land constrains new housing construction. A shortage of housing along California’s coast means households wishing to live there compete for limited housing. This competition bids up home prices and rents. Some people who find California’s coast unaffordable turn instead to California’s inland communities, causing prices there to rise as well. In addition to a shortage of housing, high land and construction costs also play some role in high housing prices.
High Housing Costs Problematic for Households and the State’s Economy. Amid high housing costs, many households make serious trade-offs to afford living here. Households with low incomes, in particular, spend much more of their income on housing. High home prices here also push homeownership out of reach for many. Faced with expensive housing options, workers in California’s coastal communities commute 10 percent further each day than commuters elsewhere, largely because limited housing options exist near major job centers. Californians are also four times more likely to live in crowded housing. And, finally, the state’s high housing costs make California a less attractive place to call home, making it more difficult for companies to hire and retain qualified employees, likely preventing the state’s economy from meeting its full potential.
Recognize Targeted Role of Affordable Housing Programs. In recent decades, the state has approached the problem of housing affordability for low-income Californians and those with unmet housing needs primarily by subsidizing the construction of affordable housing through bond funds, tax credits, and other resources. Because these programs have historically accounted for only a small share of all new housing built each year, they alone could not meet the housing needs we identify in this report. For this reason, we advise the Legislature to consider how targeted programs that assist those with limited access to market rate housing could supplement broader changes that facilitate more private housing construction.
More Private Housing Construction in Coastal Urban Areas. We advise the Legislature to change policies to facilitate significantly more private home and apartment building in California’s coastal urban areas. Though the exact number of new housing units California needs to build is uncertain, the general magnitude is enormous. On top of the 100,000 to 140,000 housing units California is expected to build each year, the state probably would have to build as many as 100,000 additional units annually—almost exclusively in its coastal communities—to seriously mitigate its problems with housing affordability. Facilitating additional housing of this magnitude will be extremely difficult. It could place strains on the state’s infrastructure and natural resources and alter the prized character of California’s coastal communities. It also would require the state to make changes to a broad range of policies that affect housing supply directly or indirectly— including policies that have been fundamental tenets of California government for many years" (pg. 3,4).
"Nationwide, rents in the suburbs rose at a faster pace year-over-year than rents in urban areas. Suburban rents are rising fastest in Seattle, Portland, Oregon, and Los Angeles. In San Francisco, the price of an urban rental dropped 0.4 percent, while suburban rental prices climbed 2.6 percent...
The trend is more pronounced in booming markets where rent affordability is an issue - places like San Francisco, where people earning the median income pay almost 44 percent of their rent for a median-priced rental...
Deteriorating affordability for those looking to buy a home also keeps the pressure on rents themselves. If renters, especially low-income renters, can't afford to transition into homeownersip, rental demand will stay high and prices will keep rising. That's true everywhere, and especially in the suburbs, for a couple reasons: 1. Monthly rent is generally less expensive in suburban communities (even as rents there grow more quickly), and therefore suburbs are currently an increasingly attractive option for budget-conscious renters. 2. Suburbs also have a higher concentration of single-family homes, which as noted are increasingly popular for renters seeking their additional space and other advantages, but unable or unwilling to purchase a single-family home.
At the end of 2012 in San Francisco, for example, a potential low-income buyer looking to buy an entry-level home could have expected to pay 43.4 percent of their income on a mortgage payment - a stretch, yes, but probably doable. By the second quarter of 2015, that same buyer looking to purchase the same level of home should have expected to pay 68.8 percent of their income on a mortgage".
"In California, the Fair Market Rent (FMR) for a two-bedroom apartment is $1,608. In order to afford this level of rent and utilities - without paying more than 30% of income and housing - a household must earn $5,359 monthly or $64,311 annually. Assuming a 40- hour work week, 52 weeks per year, this level of income translates into an hourly wage of: $30.92 per hour...
"Cuts in federal and state funding, including elimination of State Redevelopment, have reduced investment in affordable housing production and preservation in San Mateo County by nearly $33 million annually since 2008, an 83% reduction.
" ...economic recovery after the Great Recession has been uneven and the reality is that many in our region have not enjoyed the fruits of this prosperity. In fact, for many workers, stagnant wages and steep increases in rent and home prices have created a severe housing affordability crisis. Moreover, this crisis has been particularly hard on low-income families, seniors and people with disabilities.
Housing production has not kept pace with the significant job growth being experienced by the region. In 2015 alone, the nine-county Bay Area added 89,000 new jobs while building only 15,832 new homes – almost six new jobs for every single home created! City after city has failed to build enough homes for the largest growing segment of the workforce – those earning between $24,800 and $98,500 per year. This bifurcated pattern of growth – lots of commercial and office development but relatively few new homes – and even fewer affordable homes reinforces and exacerbates the existing imbalance between jobs and housing already present in our communities.
Adequately housing the entire workforce is critical to our region’s ability to maintain a competitive advantage, but there are other advantages as well. An adequate supply of quality affordable homes for the full range of incomes and needs advances equity and opportunity; reduces our carbon footprint and curtails the amount we each drive; assists critical efforts to reduce health care costs; increases academic achievement among our students; and maintains diverse communities and a stable workforce at all income levels and for all sectors of the economy" (pg. 2).
"At last measure in 2013, over one in four renters, or 11.2 million renter households, were severely burdened by rents that took up over half their incomes. This total represented a slight reduction from the record level of 11.3 million set in 2011, but remains dramatically higher than the start of the last decade, having risen by more than 3 million since 2000. With substantial growth in renter households expected over the next decade and little sign of a turnaround in the income and rent trends that produced these record levels of cost burdens, there is little prospect for substantial improvement in these conditions over the coming decade"(pg. 4).
"The need for affordable housing is already overwhelming the capacity of federal, state and local governments to supply assistance. At last measure, 11.2 million extremely low-income households competed for 7.3 million units affordable to them – a 3.9 million unit shortfall. And with 7.7 million unassisted very low-income renters with worst case housing needs in 2013 as defined by U.S. Department of Housing and Urban Development (HUD), only just over a quarter (26 percent) of eligible very low-income households received rental assistance. Meanwhile, the private sector is unable to supply new units at rents low enough to reach low-income renters. Indeed, as of 2013, the median rent of a newly constructed unit of $1,290 was equal to about half the median renter’s monthly household income, underscoring the urgent need for policy makers to consider enhanced levels of support for rental housing particularly for lowest income households but across a range of income levels"(pg. 5).
"However, while a large majority of lowest-income renters are cost burdened in markets across the country, high-cost markets are marked by more significant cost burden challenges among moderate income renters. In high-cost metro areas, two-thirds of renters earning $30,000–45,000 and just under half of those earning $45,000–75,000 had disproportionately high housing costs...
According to the Center for Housing Policy’s Housing Landscape 2015, working households that are headed by non-white individuals have a significantly higher rate of severe housing cost burden than white-headed households. According to this analysis, one-quarter of both African-American and Hispanic households were severely housing-cost burdened in 2013, compared to less than 20 percent of white households.
Millennials are also expected to continue experiencing rent burdens as they age. Having entered the labor market during and following the Great Recession, those in the millennial generation have received lower wages and experienced higher rates of unemployment and underemployment than their older counterparts at this point in their lives.10 As a result, millennials have less wealth accumulated, have delayed forming new households, and are less likely to become owners at the age that older generations had previously. In combination, we are likely to see additional household formation by millennials over the next decade and expect a relatively higher share to remain renters during that period.
However, more than any other generation or racial group, the greatest growth will be among older people. According to the U.S. Census’s 2014 National Population Projections, the population aged 65 and older is expected to jump to 74 million by 2030, an increase of 33 million in just two decades. Today, 30 percent of elderly renters are paying more than half their incomes on housing. While all older adults face challenges as they age, those who are low-income renters face the greatest difficulties, as they often have little wealth or savings when they retire. The typical homeowner aged 65 and over has enough wealth to cover nursing home costs for 42 months and enough non-housing wealth to last 15 months. Alternatively, the median older renter cannot afford even one month in a nursing home. As the population of older people grows, so will the number of rent-burdened older households, including many in need of housing with supportive services.
We should also not overlook the Gen Xers and younger baby boomers who were deeply impacted by the Great Recession. While millennials may have delayed household formation and home purchasing, they still have many years to potentially make up for their late start or early setbacks. Not so with these two age groups who had already established their households when the recession and its job losses hit. They were likely to have been homeowners who may have gone through foreclosure and have fewer working years to get back on track. Overall, they haven’t benefited as much from the recovery; households 45–64 saw median incomes drop by 7 percent between 2010 and 2013, according to the Federal Reserve Board’s most recent Survey of Consumer Finances" (pg. 8-9).
" ...future housing affordability will largely be driven by gains or losses in household incomes relative to rental costs. Since 1982, with the exception of a five-year period in the late 1990s, rent growth has consistently outpaced inflation. As noted above, the gap between inflation and rents grew wider in the years following the Great Recession, which contributed to significant renter burdens. If inflation rates continue at today’s rates, renter cost burdens will only continue to rise. Over the 30-year period 1982–2012, rent increases outpaced inflation (as measured by the consumer price index for all urban consumers) at an average annual rate of 0.5 percent. More recently, between 2002 and 2012, rent outpaced inflation at a more moderate 0.22 percent annually, with sharp increases during the first half of the period offset by nearly flat growth in the second half.
In order to make up for the substantial ground lost on rental affordability since 2000 and to counter the demographic forces that will expand the ranks of renters most likely to face affordability challenges, the next decade will need to be marked by substantial gains in incomes relative to rents. Whether such a scenario is likely to unfold is difficult to predict. With the unemployment rate having fallen below 6 percent, there may be growing pressure on wages that could help boost household incomes in coming years. The growing movement for increase in the minimum wage may also raise incomes for lower-skilled workers. But even if these gains do materialize, there is still the question of whether they will outpace growth in rents" (pg. 9).
"Overall, our analysis projects a fairly bleak picture of severe renter burdens across the U.S. for the coming decade. Under nearly all of the scenarios performed, we found that the renter affordability crisis will continue to worsen without intervention.
According to our projections, annual income growth would need to exceed annual rent growth by 1 percent in order to reduce the number of severely burdened renters in 10 years. Importantly, that decline would have a net impact on fewer than 200,000 households, only because continued increases in burdens among minorities would be offset by declines among whites. Under the more likely scenario that rents will continue to outpace incomes, the number of severely rent-burdened households would increase by a range of 1.7 – 3 million, depending on the magnitude.
Given these findings, it is critical for policymakers at all levels of government to prioritize the preservation and development of affordable rental housing. Even if the economy continues its slow recovery and income growth improves, there are simply not enough quality, affordable rental units to house the millions of households paying over half their income in rental costs" (pg. 16).
"As of the first quarter of 2016, the average rent in the region stood at $2,482 per month – an increase of 7.1 percent from the prior year ($2,317)...In order to afford even the lowest of these average rents (Solano County at $1,499 per month), a family would need an annual household income of almost $54,000, the equivalent of an hourly wage of $25.96. The Economic Prosperity Strategy, a joint research effort conducted by SPUR, the Center for Continuing Study of the California Economy (CCSCE), the San Mateo County Union Community Alliance (SMCUCA), and Working Partnerships USA, found that 36 percent of the region’s 3.4 million jobs pay less than $18 per hour.
"According to the California Department of Housing and Community Development (HCD), between 2014 and 2022, the Bay Area region is expected to grow by an additional 187,990 households. The Association of Bay Area Governments (ABAG) is tasked with allocating future housing growth across cities and counties in our region, broken out by income groups...This allocation is called the Regional Housing Needs Allocation (RHNA) " (pg. 4).
"According to permit data collected by ABAG, during the period between 2007 and 2014 (RHNA Cycle 4),...the region met 99 percent of its market-rate housing need, only 29% of the allocated low-income homes were built..." (pg. 5).
RHNA 4 Performance. The City issued a total of 2,702 residential building permits between 2007 and 2014 – 146 percent of the 1,856 housing allocation – broken down as follows:
• VLI Households: 82 permits (19 percent of allocation)
• LI Households: 84 permits (28 percent)
• Mod Households: 94 permits (26 percent)
• AMod Households: 2,442 permits (316 percent)
RHNA 5 Allocation. The City is expected to accommodate an additional 2,789 new homes between 2014 and 2022 broken down as follows:
• VLI Households: 706 homes
• LI Households: 429 homes
• Mod Households: 502 homes
• AMod Households: 1,152 homes
• The median income for a four-person household in the City was $111,420 in 2014.169
• 45 percent of the City’s households earned less than 80 percent of the median income in 2014.70
• As of June 2016, the median rent for a two-bedroom apartment was $4,220.71
• In January 2016, the City vacancy rate was 2.6 percent.
Jobs and Housing. Households within the City numbered 27,618 in 2011 and are expected to expand to 34,037 by 2030 – a growth of 23 percent. Jobs within the City numbered 58,080 in 2010 and are expected to expand to 77,480 by 2040 – a growth of 33 percent. The City has an existing jobs-to-employed resident (J/ER) ratio of 1.95 and a current jobs-and-housing-fit ratio of 7.68" (pg. 26).
"The percentage of poor renting households dedicating less than 30 percent of their income to housing fell from 27 percent to 19 percent between 1991 and 2013. Meanwhile, the percentage dedicating at least half of their income to housing rose from 42 percent to 52 percent. Today, the majority of poor renting families spend at least half of their income on housing costs. And almost a quarter—representing over a million families—dedicate over 70 percent of their income to pay rent and keep the lights on.
"In 2013, 1 percent of poor renters lived in rent-controlled units; 15 percent lived in public housing; and 17 percent received a government subsidy, mainly in the form of a rent-reducing voucher. The remaining 67 percent received nothing" (pg. 2).
"Eviction is a leading cause of homelessness, especially for families with children. It also is directly linked to high rates of residential mobility among low-income households—so much so, in fact, that after accounting for forced moves, poor renters do not exhibit higher mobility rates than other renters. Residential instability often brings about other forms of instability—in families, schools, communities— compromising the life chances of adults and children. An effective way to decrease residential instability among poor families would be to lower the incidence of eviction.
Additionally, involuntary displacement is linked to substandard housing conditions...
...Another study found that even after conditioning on a host of important factors, experiencing an eviction is associated with over a third of a standard deviation increase in neighborhood poverty and crime rates, relative to voluntary moves. Families involuntarily displaced from their homes often end up in worse neighborhoods. Tenants evicted through the court system carry the judgment on their record. Owing to open record laws, in many states this information is easily accessible and free online. An eviction judgment makes it difficult to secure decent housing in a safe neighborhood, as many landlords reject anyone with a recent eviction." (pg. 4).
"Many people think that job loss leads to eviction, but eviction can also lead to job loss. An eviction not only can consume renters’ time, causing them to miss work, it also can consume their thoughts and cause them to make mistakes on the job, and also result in their relocating farther away from their worksite, increasing their likelihood of tardiness and absenteeism" (pg. 4,5).
"Eviction is also negatively associated with mental health. Drawing on the Fragile Families and Child Wellbeing Study—a national, longitudinal survey that follows a birth cohort of about 4,900 new parents and their children living in 20 large cities—one study found that the year following an eviction, mothers are 20 percent more likely to report depression than their peers. Moreover, at least two years after their eviction, mothers still experienced significantly higher rates of depression than their peers.
The same study also documented a large and robust relationship between a recent eviction and increased material hardship. Mothers who experienced an eviction in the last year report around one standard deviation higher rates of material hardship than mothers who were matched along many other characteristics but had not experienced eviction. As with depression, mothers’ material hardship may also be affected in the long-term, as significant differences were detected at least two years after the event. If material hardship is a measure of the lived experience of scarcity— assessing, say, hunger or sickness because food or medical care was financially out of reach—then these findings suggest that eviction is a driver of poverty" (pg. 5).
"Housing is an anchor for a stable, prosperous, and just society. Congress realized as much when, in the Housing Act of 1949, it linked the general welfare of the nation to decent housing and a suitable living environment. As such, the provision of housing represents the best investment a society can make for achieving long-term stability and broad-based prosperity. For low-income populations, secure housing is the most important factor in providing access to employment, healthcare, and social services. Housing insecurity, on the other hand, is linked to a wide range of negative outcomes, including deteriorated physical and emotional health, family instability, poor school performance, and long-term poverty" (pg. 6).
"Excessive housing costs force low income families to spend less, when at all, on other needs. A recent Consumer Expenditure Survey found that,
[S]everely burdened families... spend a third less on food, half as much on pensions and retirement, half as much on clothes, and three-quarters less on healthcare as families paying affordable shares of their incomes for housing'" (pg. 7).
"In the recent wave of foreclosures, homeownership rates fell for all groups, but they fell just 2.7 percent among whites, compared with 5.8 percentage points for Blacks and 3.3 percent for Hispanics. While the Hispanic-white homeownership gap has widened, the Black-white gap has reached historic proportions" (pg. 10).
"There is good reason to believe that this trend will continue. In fact, rates of homeownership may drop even further as stagnant or declining wages — and structural inequality more generally — make it is less likely that younger generations will fully replace older generations of homeowners, as they have in the past. Adults between the ages of 24 and 35, for example, are experiencing greater poverty than previous generations and are more likely today to languish for years in low-wage work and be saddled with debt. Senior citizens are also facing increased housing insecurity. Older homeowners who were seriously delinquent in paying their mortgage increased dramatically between 2007 and 2011, and the foreclosure rate for people between the ages of 65 and 74 jumped from .25 percent to 2.55 percent over the same period" (pg. 11).
" ...the large number of homeowners who lost their homes through foreclosure or unemployment has added substantially to competition in the rental market. Between 2009 and 2011, for example, new renters absorbed the net increase in units over that period and also occupied 140,000 previously vacant units that were too expensive for low-income renters" (pg. 11).
"Median renter income, peaked in 2000 at $37,000 and has since fallen steadily, hitting $32,500 in 2012. Almost half of renters (46 percent) earn below $30,000, including 22 percent whose annual income is below $15,000 (roughly equivalent to working year-round at the minimum wage)...
...The national vacancy rate for rentals dropped from 11 percent in 2009 to 8.2 percent in 2013. In metro areas, the rate was even lower, at 7.9 percent, while in the Northeast and West they dropped to 6.7 and 6.3 percent, respectively. As mentioned earlier, the Urban Institute found that there are only 29 affordable units for every 100 extremely low-income households — a significant decline from 2000, when the ratio was 37:100. A recent New York Times report, based on a study it commissioned, found 90 metro regions where rent (excluding utilities) was out of reach for even middle-income households.
Although 186,000 new rental units were constructed nationally in 2012, the typical rent per unit is $1,185, requiring an annual income of over $47,000 if rent is not to exceed 30 percent of income.28 The average median income for renters in 2012 was $32,500. Further, “between 2001 to 2011, 650,000 units renting for under $400 (affordable to persons earning a fulltime minimum wage) were permanently lost. As a result, some 12.8 percent of the 2001 low-cost rental inventory disappeared within the decade...
...Despite the severe and growing burden on renters, federal policy and resources continue to favor private homeownership. In 2009, according to the Congressional Budget Office, $60 billion in budgetary support was provided to improve rental affordability. In comparison, budgetary resources to support homeownership that same year amounted to $230 billion, almost four times what was allocated for renters.
Most of the assistance to homeowners was geared toward stabilizing the homeownership market through providing financial relief for owners through tax breaks ($96 billion in mortgage interest and property tax deductions) and loan modifications ($75 billion for the Making Home Affordable program, for example). Most of this spending is for higherincome groups concentrated in the top fifth of households by income. In fact, more than half of federal spending for housing goes to households with incomes above $100,000 — and almost a third goes to families with incomes above $200,000. A recent study found that mortgage tax breaks not only benefit wealthier families living in suburbs, but also underwrite these families’ buying bigger houses: In the most affluent regions, the tax break is linked to increases in home size of up to 18 percent.
In contrast, for the population of renters, where housing insecurity is clearly concentrated, spending is far below what is needed. The single largest expenditure supporting renters, for example, is the Housing Voucher Program, which allows low-income families to rent in the private rental market. The program costs approximately $16 billion annually and is only able to serve one of four eligible families. At the same time, other programs intended to support extremely low-income households — including public housing, the HOME program, and the Community Development Block Grant programs — have steadily lost funding in recent years” (pg. 13).
"The combination of rising rents, insufficient affordable housing and stagnant wages has led to a sharp increase in burdened households...The burden of renting also falls disproportionately on women...Rent burdens also disproportionately impact children of color. In 2009, 54.5 percent of all renters with children were paying more than 30 percent of their income in rent. The rate was over 65 percent for Black children and 62.2 percent for Hispanic children, compared with 48.6 percent for white children. Children of immigrants were also more likely to live in a burdened household, at 62.4 percent compared with 55.8 percent for children with native-born parents" (pg. 14).
"Housing insecurity for renters extends well beyond the housing market crash in 2006. Though only now recently receiving widespread attention, the story of gentrification and displacement stretches back almost three decades. Beginning in the late 1970s, urban land markets in previously neglected communities began to revive as urban economies shifted from manufacturing to services. Investment capital began to return to the city, seeking higher returns during a period of economic stagnation.
The result was the urban “revitalization” period of the 1990s to the present, which has produced severe socio-economic inequality across metropolitan regions. The financialization of land and housing, combined with an anemic federal housing policy, generated intense pressure on low-income communities of color. Rents went up, and many long-term residents were driven out. When the recession came, the hardest hit communities were already reeling from years of neglect and sometimes even hostility on the part of city governments and more affluent populations.
The vulnerability of these communities is directly linked to the steady erosion of protections for renters and the decline of the tenants’ rights movement, both of which occurred just as financial capital was busy discovering urban land as a source of profit. As land values began to climb, property owners and their allies in city governments attacked these protections, usually successfully, and took advantage of their victories to extract maximum value from their investments. In Boston, Brookline, and Cambridge, Massachusetts, for example, after rent control was abolished across the state in 1994, rents in gentrifying neighborhoods increased by 50 to 150 percent, displacing thousands of local residents. A spokesperson for Boston’s mayor at the time stated that the rent for a twobedroom apartment had increased over 75 percent, and a study by a Cambridge landlord found that rents for previously rent-controlled units had doubled" (pg. 16).
"Changes to housing policy and practice in the mid- to late 1990s added to the structural problem of rental housing affordability. During this period, the 20-year contracts the Department of Housing and Urban Development had signed with landlords across the country for Section 8 housing began to expire. Landlords saw the profits that could be made in opting out of the affordable housing program. HUD noted in 1999 that two-thirds of all project-based Section 8 housing contracts were set to expire by 2004, and that in 1998 the number of units pulled out of the program had tripled compared with the previous year. Combined with the onset of public housing demolition ushered in by HOPE VI, the decade preceding the housing market crash represented a perfect storm in creating severe housing insecurity for low-income communities of color: Demand for affordable rentals increased sharply, and available units declined, as a direct result of government action and inaction.
HUD summed up the emerging crisis in 1999 but also revealed a fundamental misunderstanding of the relationship between the market economy and housing:
'Ironically, the strong economy is a key factor pushing rent levels to new record highs. Rather than benefiting from the surging economy, low-income renters are left to compete for the dwindling supply of affordable rental housing available on the private market. Many of the most vulnerable low-income renters spend years waiting in vain to obtain needed rental housing assistance'.
In fact, it would have been ironic if this didn’t happen. As countless research studies in the intervening years have demonstrated, the “surge” was little more than the hyperconcentration of wealth at the top of the income ladder and stagnant or declining wages for almost everyone else. That this structural distortion of the economy led to a dwindling of affordable rental housing in the market was entirely predictable.
The housing market recovery making headlines shows how far we still are from a sober assessment of the crisis of affordable housing. This is not a recovery from the reality of chronic housing insecurity, which the evidence reveals to be worsening, but a recovery for financial markets and the financial actors that fueled housing speculation in the first place" (pg. 17).
"The issue most often associated with secure housing is affordability. Affordable housing is defined by the federal Department of Housing and Urban Development as housing that costs 30 percent or less of a household’s pre-tax income. This definition of housing cost, which includes rent and utilities, is also used widely by housing policy centers, researchers, and local policy makers. Unfortunately, this definition of affordability is a major source of continued housing insecurity and impedes advances that would align policy with the lived reality of low-income households. There are many problems with this use of the 30 percent level; we will address the two primary ones here.
First, the 30 percent threshold ignores variations in household income and size. Take two hypothetical examples: For a household with four people and a total household income of $10,000 a year whose annual home costs are $3,000, such is defined as “affordable.” But such a housing expenditure would, before government assistance, leave this household with $7,000 per year to pay for food, health, clothing, transportation, leisure, and any emergencies — $1,750 per household member. That amounts to $4.80 per day per person. Second, take a household of two people with total household income of $1 million a year. Their home costs $350,000 (per year), and thus is defined as “unaffordable.” But such a housing expenditure would still leave this household with $650,000 per year to pay for all other expenses, or $325,000 per person. Each person in this household would thus have $900 per day to spend but be considered to be living in unaffordable housing.
These are extreme examples, but they highlight the extent to which households vary a great deal in their capacity to pay for housing. Variation in capacity is a function of income but it is also a function of a misunderstanding of affordability. According to Michael Stone, one of the preeminent authorities on housing affordability, “affordability is not a characteristic of housing — it is a relationship between housing and people. For some people, all housing is affordable, no matter how expensive; for others, no housing is affordable unless it is free.” Stone has developed his critique over the past few decades around the concept of “shelter poverty,” a rival to the mainstream notion of affordable housing. Shelter poverty is based on a sliding scale of how much households could afford to pay and still have enough left over to meet their other needs as a household.
The second major problem with the standard meaning of affordable housing is that when it is translated into policy, affordability becomes tied to the concept of Area Median Income. AMI is the median income (exact middle income among all incomes) for a metropolitan area or county. The AMI is used as the benchmark that affordable housing programs or providers use to target their programs, and it is common in housing circles to talk about an “affordable housing” development with such phrases as “80 percent of AMI” or “50 percent of AMI.” What this means is that the housing that is developed will have a cost that is “affordable” (that is, 30 percent of household income) for households up to that percent of AMI. The different programs have different income targets and different levels of subsidies. For instance, projectbased Section 8 housing is open to residents with incomes up to 80 percent of AMI, while other programs reach as low as 30 percent of AMI or as high as 120 percent of AMI.
Metropolitan areas contain a wide range of income levels, and increasing inequality means that incomes cluster toward the ends of the income scale and away from the middle. This means that programs designed to provide housing for low-income people can easily benefit middle-class households. In New York City, for instance, the currently applicable AMI is $85,900 for a family of four, while the median household income for the city itself (not including the wealthy northern suburbs) is only $51,270. Thus, policies or programs based on AMI can further restrict available affordable housing for low-income households. The result of these misleading measures is that low- and very low-income households are marginalized by the very policies that are, ostensibly, meant to assist them" (pg. 19, 20).
"Even if housing is affordable for tenants, housing stability can still be a source of day-to-day and longer-term insecurity. For too many low-income tenants, being renters means living in constant fear of eviction or gentrification-induced displacement, even if their home is affordable at any given moment. In California, for example, the Ellis Act allows landlords to evict residents without reason, as long as the owner intends to remove the units from the rental market. Often, this is done so that the property can be converted to condominiums or tenancies in common.
In San Francisco, Ellis Act evictions spiked during the property boom of the early 2000s, peaking at 384 in 2000. Ellis evictions declined during the recession but are on the rise again. Between March 2012 and February 2013, Ellis evictions almost doubled, increasing from 64 to 116 — part of 1,700 evictions in the city overall during this period. Over 70 of the Ellis evictions were in the rapidly gentrifying Mission district.
Even as it fails to truly provide affordable housing to lowincome residents, federal affordable housing policy also contributes to the shrinking supply of housing for millions of people. Instead of anchoring long-term stability, affordable housing created through market-based federal policies too often comes with an expiration date. With project-based Section 8 housing built in the 1970s and early 1980s, for example, when the 20-year contracts (mentioned earlier) expired, landlords could choose — and have chosen — to convert to market-rate housing. Housing built with lowincome housing tax credits have 30-year affordability limits placed upon them, after which landlords can decide whether to keep the housing affordable by federal standards or convert to market" (pg. 21).
"Housing policy should be driven by housing needs, not investor profit. Yet, time and again, we see housing policies shaped by a stubborn faith in the private market. A particularly alarming extension of this logic in the wake of the housing market collapse is the swift and aggressive entry of private equity groups into the rental market. Blackstone Group and other firms, financed by a group of well-known banks (Deutsche Bank, JPMorgan Chase & Co., Goldman Sachs and Wells Fargo) see in the housing crisis a golden opportunity to translate foreclosures, the rise of the renter class, and widespread housing insecurity generally into profit.
The entry of these financial institutions into the rental market represents a major impediment to long-term housing security. Control over land use and housing policy needs to be democratized, not concentrated in the hands of the very same opaque and irresponsible financial bureaucracies that contributed to the economic collapse. Continued faith by policy makers in market-based solutions has created an “opportunity” for equity firms to profit from the availability of distressed homes across the country and increasing demand for housing that their own actions helped to create.
Several factors have motivated institutional investors to enter the single-family rental market, but the overriding motive is the emerging profit opportunity the rising rental demand represents. The conversion of single-family homes from owneroccupied to rental tenure has ramped up in recent years, with more than 2 million such conversions from 2007 to 2011.
The growth of the rental demand has created a favorable environment for landlords, as millions of new renters enter the market. Low home prices and continued low interest rates mean that potential yields in the single-family rental market exceed those of 10-year Treasury bonds and other investments. With large amounts of inventory under bank and government ownership, the foreclosure crisis has created the opportunity to consolidate the single-family rental housing market under the control of massive financial institutions.
Thus far, these private investors have undertaken an approach that entails descending on selected markets to undertake fastpaced, high-volume purchases that pick the market clean. The entry of industry leaders such as Blackstone and Colony Capital into a market can create a herd-like movement of other firms also eager to invest. In Phoenix, the share of purchases of Real Estate Owned (REO) properties by large private investors rose from 16 percent in 2011 to 26 percent in 2012, while in Miami they were responsible for 30 percent of 2012 REO purchases. The rising share of institutional investment in cities including Atlanta, Las Vegas, Phoenix, Riverside-San Bernardino and Sacramento was responsible for the price of distressed (REO) properties increasing by double digits in 2012, as well as large declines in REO stock in those areas. In markets with high demand from institutional investors, rising REO prices have also started to impact the broader market, with lower-end homes increasing 15 percent in value in 2012 compared to only 6 percent in markets without rising shares of institutional investors.
The entry of institutional investors poses a number of threats to housing security. Their ability to quickly penetrate and establish a large inventory in local markets means they may be able to corner the market and raise overall rents. Moreover, if shifting REOs to rental isn’t viable as an income generator (rising acquisition prices cut into profits), the pressure for investors to flip property will grow, potentially creating another speculative cycle that could end in a bust, subjecting communities to yet another round of destabilization. The bottom line is that the involvement of these investors is a major contributor to systematic housing instability" (pg. 22, 23).
"Housing for low-income people is disproportionately dangerous and unhealthy, due to aging and chronic underinvestment. For low-rent units nationally, 13.7 percent fail to meet the criteria for adequacy as defined by the American Housing Survey, compared with 9.8 percent of all rentals. Approximately 560,000 of the affordable units where extremely low-income households reside are structurally inadequate.78 Research has shown that exposure to cockroach allergens, dust mites, and mice contribute to asthma among low-income inner city children, resulting not only in poor health, but also decreased school attendance.
Because of high housing costs and racial segregation, lowincome communities of color are also much more likely to be located in areas with high levels of pollution due to the proximity of industry, truck routes, freeways, and other sources of air pollution. Exposure to certain common airborne toxins known to be hazardous tends to be highest for Hispanics and Blacks, when compared to whites" (pg. 24).
"Housing accessibility is a major concern for LGBTQ populations. LGBTQ youth are more likely to be homeless than the general youth population and, once homeless, are at higher risk for victimization and mental health problems. Homeless LGBTQ youth are also more likely to be poor and to be people of color. A national study of discrimination against transgender and gender non-conforming people, for example, found evidence of major barriers to safe and secure housing. Only 32 percent of respondents were homeowners, half the rate of the general population, and 42 percent reported being renters. Renters were concentrated in income groups between $10,000 and $50,000 annually. Nineteen percent of respondents in the study reported being denied a home or apartment because they were transgender or gender non-conforming, and 11 percent reported being evicted for this reason. Nineteen percent also reported becoming homeless at some point, and of those who attempted to access a homeless shelter, 29 percent were turned away, 42 percent were forced to stay in facilities designated for the wrong gender, and 55 percent reported being harassed.
Immigration status (real and perceived) and national origin are also contributing factors to increased housing insecurity. A study by the National Council of La Raza and the Equal Rights Center found cases of housing discrimination in 42 percent of the Latino test subjects they sent to answer ads for rental housing, including housing agents being less willing or receptive to schedule an appointment with Hispanic testers than they were with their matched white testers and agents quoting higher fees, costs, and/or more extensive application requirements to Hispanic testers than to their matched white testers. These findings were confirmed by a recent HUD study as well, which also found discrimination against Asians and African Americans.
Researchers at the Southern Poverty Law Center report that Latino respondents in the South, 75 percent of whom are renters, experienced discrimination based on race, national origin and perceived legal status. Respondents reported landlords refusing to make repairs and imposing illegal rent and utility increases, threatening to call Immigration and Customs Enforcement if tenants complained. One respondent told the Center, “As soon as we show our face (to a landlord), they start asking for documents.” According to the Center, tenant laws are weak in much of the South, and there is little advocacy on behalf of immigrants related to Fair Housing Act issues. Housing advocates also note that undocumented immigrants are reluctant to complain because they are concerned their immigrant status will not be kept confidential.
More systematic attempts to deny undocumented people housing have also become common, through local antiimmigrant ordinances. Citizens of Fremont, Nebraska, voted in February 2014 to require proof of citizenship from anyone renting housing in the town. The original ordinance was passed in 2010 but put on hold while it underwent legal review. The Eighth Circuit Court of Appeals upheld the ordinance, which will likely end up at the U.S. Supreme Court. While efforts such as these have had difficulty surviving court challenge, they indicate that on a day-to-day basis, Latinos of all statuses contend with barriers to accessing housing.
A criminal record represents a major impediment to housing accessibility for many individuals in low-income communities. The disproportionate use of the criminal justice system against low-income people of color — and against Black people in particular — has created the conditions for long-term housing insecurity across broad sectors of the low-income population. Studies confirm that a criminal record adds to the already burdensome challenges that low-income people of color face in accessing housing. In addition to difficulties in finding employment and paying rent, formerly incarcerated individuals have high rates of health, mental health, and substance use problems, and treatment for these conditions is more easily accessible for those who have housing.
An early example inscribed in federal legislation is the “one strike” law introduced during the Clinton administration through the Housing Opportunity Program Extension Act of 1996. Aimed at public housing residents, the law gave public housing authorities the ability to evict a tenant if they, a family member, or even a guest were convicted of criminal activity. The law also made families evicted ineligible for public housing for three years regardless of their role in or knowledge of the crime that led to their eviction. Although some jurisdictions have allowed leeway in implementation of the law, HUD has consistently upheld the most punitive interpretation. Within six months of the law’s passage, drug-related evictions from public housing increased 40 percent nationally.
Other barriers to access also exist. In one recent survey by Consumer Action of community-based organizations from around the country, disability emerged as the most cited reason for why people had been discriminated against in their search for housing, followed by family status (having children), and race" (pg. 25,26).
"Housing also needs to facilitate access to work, transportation, schools, and services. Housing for low-income communities is often underserved by affordable and efficient transportation, located far from places of work and social services, and isolated from other communities. The history of housing segregation in the United States is a history of isolating very poor communities. The return of investment and more affluent populations to urban centers over the past two decades has not brought relief. Low-income communities either do not benefit from the redevelopment that happens all around them, or they are displaced into increasingly poor and far-flung suburban areas.
Segregation of poor communities from places of work contributes to substantial hardships related to commuting. A Brookings Institute study found that after rent, transportation is often the second largest expense for working poor families, and that these families devote a higher portion of their household budgets to commuting than higher-income families. In many of the largest metropolitan regions, including Boston, Miami, New York, Washington D.C. and Los Angeles, the burden of commuting is greater than the national median.
Low-income populations also have difficulty accessing social services, which often require long and costly commutes. Residents of low-income communities are less able to access these services than residents of more affluent areas. In his study of Chicago, Washington D.C. and Los Angeles, Scott Allard found that when compared to higher poverty areas, lower poverty areas had access to about 70 percent more employment service opportunities, about twice as many outpatient mental health services, and 25 percent greater access to basic needs services" (pg. 26).
"Earlier in the summer of 1978, a cantankerous former small-town newspaper publisher named Howard Jarvis led a “taxpayer revolt” as property prices were soaring, threatening to throw home owners out of their homes because of rising tax bills. Jarvis’ idea was to cap property taxes at 1 percent of their assessed value and to prevent them from rising by more than 2 percent each year until the property was sold again and its taxes were reset at a new market value.
One argument that Jarvis used to rally tenant support for Proposition 13, was that he promised that landlords would pass on their tax savings to renters.
They didn’t. They pocketed the savings for themselves.
Tenants were furious, and rent control movements erupted in at least a dozen cities throughout California, from Berkeley to Santa Monica.
San Francisco might have gone a different way, but Angelo Sangiacomo was the alleged trigger. The Italian-American landlord, who was born and raised in the Richmond District, demanded across-the-board rent increases of 25 to 65 percent in seventeen hundred apartments in March of 1979...
...Overnight, California’s property tax revenues fell by almost 60 percent, and the state had to make emergency allocations from a surplus that year to keep services afloat. Because the state’s K-12 schools are financed largely by property taxes, California’s spending per student fell from 5th in the nation in the mid-1960s to 50th in this decade.
Without the ability to rely as heavily on property taxes, city governments throughout the state had to favor office and retail development over housing in order to boost sales taxes. It may have even accelerated the homogeny of suburbs as smaller city governments had to cut deals to attract “big box” retailers to boost sales tax revenue, crowding out independently-run stores.
It also created a lock-in effect as California property values soared, creating a bigger gap in property taxes on newly-sold properties and ones that homeowners had held onto for a long time. That rigidity further enhanced the political power that NIMBY-ist homeowners accumulated in suburban city councils throughout the state".
"In 1994, Massachusetts passed legislation restricting localities from enacting rent control. California followed suit in 1995. Both states limited localities to enacting vacancy decontrol, which allows apartment owners to raise rents to market levels when a tenant leaves. Vacancy decontrol is, in effect, a method of gradually eliminating rent control as tenant turnover eventually allows owners to increase rents to market levels. The Massachusetts law eliminates even vacancy decontrol after two years. In both cases, only a few cities were directly impacted. In Massachusetts, only Boston, Cambridge, and Brookline had any form of rent control; Boston and Brookline had already watered-down their laws to versions of vacancy decontrol. In California, only five cities -- Santa Monica, West Hollywood, Berkeley, East Palo Alto, and Cotati -- had rent control; nine others, including San Francisco, San Jose, Oakland, and Los Angeles, already had vacancy decontrol" (pg. 1).
"One of the most important but often overlooked concepts for understanding the battle over rent control is the role of federalism -- the way responsibility for public policy is divided between federal, state, county, and local governments. Responsibility for implementing these policies is diffuse. Housing policy in the United States is made by a complex mosaic of federal, state, county, and municipal government. Government is quite involved in housing matters, including zoning, enforcing building code standards and health and safety standards, regulating rents and evictions, monitoring racial discrimination, insuring the banking system, operating a secondary mortgage market to promote homeownership, and providing tax and subsidy incentives for investors, owners, and consumers
In the case of rent control, most (though not all) states require localities to seek permission (or "home rule" authority) to regulate rents and evictions. As a result, there is a wide disparity in terms of whether and how localities choose (or are allowed to) regulate rental housing. There are no federal mandates or requirements. States can pre-empt localities from regulating rental housing, but they cannot require it. Even the federal government plays a role, not only in terms of whether it allows localities to regulate housing that have federal subsidies, but also whether it seeks to reward, punish, or remain neutral toward cities that adopt rent regulations. Political interest groups that are adept at maneuvering within the federalist system -- in other words, that can mobilize its resources at different levels of government (often simultaneously) to gain the most leverage -- will have an advantage in influencing public policy.
In simple terms, the battle between tenants and landlords can be viewed as a contest between organized people and organized money. Although a democracy is supposed to operate on the principle of "one person, one vote," it is obvious that the political playing field is far from level. The distribution of wealth and income in the United States is highly unequal. The disparity in financial resources gives some groups disproportionate influence in getting their voices heard and gaining access to political decision-makers. This does not guarantee that they will get everything they seek, but it does mean that they have an advantage. The political system is generally skewed toward those with economic wealth.
In general, tenants significantly outnumber landlords. If sheer numbers alone accounted for political influence, renters would be a powerful political force. For a variety of reasons, explored in detail below, renters have generally not been able to take meaningful advantage of their numerical edge. In part this is because tenants are disproportionately poor, which is generally associated with low levels of political participation. It is also because tenants are typically not very well-organized while their opponents (at least on the issue of rent control and other regulations), the real estate industry, are very well-organized. Concentrated among the poor, tenant organizing has inherent limitations. They generally move a lot (often because of eviction for non-payment of rent), vote infrequently, live from crisis to crisis, and lack the disposable income to pay steady dues to a tenants' organization" (pg. 2).
"Sociologists have coined the phrase "resource mobilization" to explain how social injustice or even widespread discontent, on their own, do not inevitably lead to social protest or to changes in public policy. From this perspective, the key factor in explaining effective protest is not simply the level of discontent or the motivation to organize, but how well discontented groups create opportunities to change their situation. In other words, it is important to examine both the internal dynamics of self-help efforts by disadvantaged constituencies and the external environment and resources that these constituencies can draw upon to effect change in public policy. The resource mobilization perspective focuses particular attention on how groups marshall organizational resources. It looks at such issues as leadership, strategic thinking, recruitment of new members, raising money, and influencing the media. Success depends not only on mobilizing the "base" but also on building coalitions with allies and converting neutral "third parties" into allies or sympathizers. When the discontent is among people with few material resources of their own, they have to enlist external resources from "third parties" who help pressure the targets of protest to negotiate and/or make concessions to the protesters.
Disadvantaged groups have at least three strategic approaches or channels available to them... in their order of acceptability, are: electoral, lobbying, and protest.
Groups can endorse candidates, recruit people to work in election campaigns, and mobilize people to vote as a "bloc" in elections, hoping that their numbers are adequate to be considered a key constituency by officeholders. Whether or not they participate in elections, they can lobby for legislation by attending and testifying at public hearings, meeting with office holders, writing articles and letters to newspapers, appearing on TV and radio shows, and trying to generate publicity and pressure for their cause. Finally, they can engage in a variety of protest tactics -- from rallies, to rent strikes, to civil disobedience. To be effective, however, protest must be seen as legitimate and "moral." Riots and spontaneous rebellions rarely elicit widescale public sympathy. But organized protest, including civil disobedience, can often invoke sympathy if participants are viewed as protesting for a "just" cause, particularly if the public thinks they have exhausted other means to have their voices heard.
Finally, all debates over public policy occur within an ideological climate. This climate sets the boundaries of public debate and discussion. Academics and journalists discuss this in terms of the public's "mood" about particular issues or about broader concerns such as the proper role of government in society. Public opinion plays an important role in some, though not all, public policy battles. If public opinion is indifferent or ambivalent about an issue, then the public policy battle will be fought out primarily by the groups directly affected by the policy.
The news media play a key role in shaping the ideological climate. The media helps set the agenda of public debate. It may not influence what people think, but it influences what people think about. In other words, it helps determine whether an issue is "hot," and therefore worthy of scrutiny and analysis. In some cases, however, the media does influence how people view an issue. While the media may not sway people with strong beliefs to change their views, they may influence the views of people who were indifferent or ambivalent to take sides.
Equally important is how the media "frame" an issue in terms of what is considered "fair" and "reasonable" versus what is considered "extreme" or "radical." If protest demands appear foolish, trivial, or extreme when they are voiced, they are unlikely to be taken seriously by decision-makers. In other words, the media can influence whether a group's concerns are considered legitimate"(pg. 3,4).
"The ability to set the public agenda is not always visible to observers of the political scene. It often comes in the form of "non-decision making." This occurs when individuals or groups have the power to keep certain issues from emerging as public controversies -- to keep some matters off the agenda -- thus preventing challenges to the dominant values or interests. Non-decision making is a way to suffocate demands for change before they are even voiced. From this perspective, "doing nothing" is actually a form of political behavior with real consequences. Some political scientists argue that the entire political system is skewed to protect dominant interests, so that challenges to existing power arrangements are viewed as illegitimate or "extreme." This is sometimes called the "mobilization of bias" within the system, "a set of predominant values, beliefs, rituals, and institutional procedures...that operate systematically and consistently to the benefit of others." In other words, some groups can maintain their privileged position in society without having to exert themselves. Only when disadvantaged groups disrupt "business as usual" and inject their concerns onto the agenda do powerful groups have to utilize their resources in the political arena to protect their position.
Political scientists have devoted substantial analysis to the ways that powerful groups exercise influence informally, through parallel institutions (sometimes called "shadow governments") and social networks. These include participation in the governance and funding of universities, think tanks, policy-planning organizations, foundations, journals, and other institutions that can help shape the public agenda. If one side has access to research and the capacity to circulate ideas through the media, and the other side does not (or not to the same extent), this represents a political advantage in shaping the agenda, the ideological climate, and the outcome of public policy" (pg. 4).
"Americans have long cherished home ownership as a key element of the “American dream.” Being a propertyless tenant has never been part of that dream. In the United States, housing is symbolized by the freestanding single-family home. Furthermore, a deeply rooted national belief in the sanctity of the “unfettered marketplace” has an especially strong claim in the housing sector which, perhaps more than any other economic arena, is seen as embodying individual choice unrestrained by the hand of government. In theory (though not in reality), the government enters the picture only as a last resort.
Renters, unable to afford their own home, face many problems: the threat of eviction, unaffordable and rising rents, and poorly-maintained buildings. As a result, the struggle between tenant and landlord has been a persistent one in American history. But only occasionally has this conflict taken organized or political form -- from struggles to extend the franchise, to land seizures and protests over evictions, to campaigns for code enforcement and rent controls" (pg. 4).
"The percentage of tenants in the population dropped from 56% in 1940, to 45% in 1950, to 38% in 1960. During this period of rising affluence, American homes got bigger and bigger, with more and more appliances, more patios and porches, more garden and lawn space. This upsurge in homeownership created a strong belief that all except the very poor would soon realize the dream. As a result, working class and middle class tenants had little stake in their roles as tenants. For the most part, they saw themselves as soon-to-be homeowners, so there was little incentive to organize around rent hikes or building problems. The tenants left behind in the cities during the postwar boom were disproportionately the poor and the minorities, but the nation showed little concern for the plight of these groups.
The 1960s saw another wave of tenant consciousness and activism. This period differed from previous ones in that it was not a period of economic crisis or of a severe housing shortage. It was a spill-over from the civil rights and poor people's movements, all of which developed in the context of “rising expectations.” It was also a spillover of the student movement. Tenant organizations and rent strikes emerged in such college towns as Berkeley, Madison, Ann Arbor, and Cambridge, and in nearby cities (such as Boston and San Francisco) where student activists mixed with a low-income population. It was not until 1964 that the civil rights movement turned north and began to address problems like housing discrimination and slum conditions. It was no accident that the revitalized tenant movement began with the Harlem rent strikes of l964-1965. According to some accounts, the strikes involved more than 500 buildings and 15,000 tenants, led by charismatic Jesse Grey. They received nationwide attention and helped inspire tenant activism in other cities, primarily among low-income blacks...The activism of the 1960s focused on a number of issues: opposition to bulldozerstyle urban renewal; code enforcement; and expanding tenants' rights law, such as state "warrant of habitability" law and protection against arbitrary evictions. Tenants in both private and government-subsidized housing mobilized to defend and expand their rights "(pg. 5,6).
"The 1968 report of the Kerner Commission found that housing problems among low-income tenants was the primary grievance behind the mid-1960s ghetto rebellions. Riots in most major cities led Washington to enact an anti-poverty program that included funds for organizers and legal services lawyers, housing rehabilitation and rent subsidies. These funds provided significant resources for tenant groups and helped fuel tenant activism. But the tenant activism of the 1960s failed to build on its successes. It developed few stable tenant organizations with active members. Concentrated among the poor, the tenants movement had inherent limitations. They moved a lot (often because of eviction for non-payment of rent), they voted infrequently, they lived from crisis to crisis, and they lacked the disposable income to pay steady dues to a tenants' organization. Resources from government and liberal foundations lasted only as long as tenants protested and disrupted business as usual.
The 1960s wave of tenant activism indicates some of the strengths and weaknesses of the tenants' movement. It also shows some of the ways that well-organized tenants can influence government. The tenants' movement then was primarily a protest movement among the poor, especially African-Americans. As in early periods, they were aided by middle-class reformers, primarily students and radical lawyers. Suspicious of direct involvement in electoral politics (such as running candidates and registering voters) the movement primarily engaged in public protest demonstrations and rent strikes. Despite this aversion to electoral politics, tenants played a role in the emergence of a growing number of black local officials, including mayors, during the late l960s and early l970s. To win office, they had to appeal to the problems facing the black poor, which included housing conditions"(pg. 6).
"Rent control was a key part of the tenant movement's agenda. By the l970s and early 1980s, about 200 cities -— in New York State (including New York City), Massachusetts (including Boston), California (including Los Angeles and San Francisco), New Jersey (about 100 communities), Maryland, and Washington, D.C. -— had adopted some form of rent control. By the early 1980s, about 10 percent of the nation's renters were covered by rent regulations, but they were concentrated in a few locations. New York City alone had 39% of all rent controlled units; Los Angeles had another 17%.
During those years, tenant activists and real estate groups fought brushfire battles at the local level. Landlords and their allies poured millions of dollars to pass referenda, or enact legislation, to stem the tide of municipally-sanctioned rent limits, but the battle ended in a stalemate. During the l980s, tenant activists were unable to add many new cities to the localities that had already adopted rent control, but real estate groups couldn't beat back any of the existing laws either. In some big cities, progressive candidates like Ray Flynn in Boston, Art Agnos in San Francisco, and Anthony Cucci in Jersey City vaulted into the mayor's office as champions of tenants' rights and rent control. In smaller cities, such as Santa Monica, Berkeley, and Cambridge, pro-rent control electoral forces won majorities in city government and shaped the direction of broad public policy.
Tenant activism developed steadily, although unevenly, during the 1970s and 1980s. By the end of the 1970s, building-level tenant groups existed in every city and many suburbs. Citywide tenant organizations could be found in most localities with a significant renter population. In 1975, tenant leaders founded Shelterforce magazine, to report on and encourage tenant activism and to give the movement a sense of identity and coordination. By the early 1980s, statewide tenant organizations existed in New York, New Jersey, Massachusetts, Michigan, Illinois, and California... The l970s and l980s also saw an increase in organizing among senior citizens. Many activist senior-citizen organizations (such as the Gray Panthers, Massachusetts Senior Action, and others) made tenant problems one of their priorities, reflecting the worsening housing situation among older Americans on fixed incomes.
Tenant activism through the late l970s focused primarily on renters in privatelyowned apartment complexes. The issues primarily involved rent increases, condo conversion, and building conditions. During those years, many metropolitan areas had experienced some level of "condomania" -- the conversion of apartments to condominiums, leading to widespread displacement. Many tenants, unable to afford the price of condos, but with difficulty finding other housing in a tight rental market, mobilized to support laws to delay evictions by requiring a year or more notice, prohibit evictions or conversions altogether, or require tenant approval before conversions could proceed. By the early l980s, some form of tenant protection against condo conversion had been passed in 24 states and the District of Columbia(pg. 6,7,8)".
"During this period, landlords also developed greater cohesiveness and coordination to stem the tide (or the threat) of rent control and condominium conversion control laws around the country. Homebuilders, mortgage bankers and real estate agents have long been influential in local, state and national politics. But apartment developers and owners had been more fragmented. Not surprisingly, landlords have been particularly well organized in New York City (where rent control existed for decades) and have sought to weaken or abolish rent regulation. Where tenants have been most active, landlords have banded together, often under the aegis of the local Chamber of Commerce or Real Estate Board.
Increasingly, however, landlords developed their own networks and organizations. Real estate groups are among the largest contributors to both the national political campaigns. In 1978, the National Rental Housing Council was formed to provide local landlord groups with advice on media campaigns, legal tactics, and research and arguments against rent control and pro-tenant demands, as well as to lobby in Washington. In 1980, the NRHC changed its name to the National Multi-Housing Council (NMHC), reflecting the growing number of condominium developers and converters among the landlords' ranks. Although it has been the large apartment owners that have played the most important role, they have sought to broaden their appeal as defending property rights from government and tenant interference.
Unable to roll back rent control at the local level, landlords, led by the NMHC, tried to defeat rent control by looking to the federal and state governments for help. By l993, 28 states (none of which already had any rent control laws) had passed legislation pre-empting local governments from enacting rent control. In contrast, housing activists in California, New York, and Massachusetts had thwarted several referenda, initiatives, and legislative efforts, bankrolled by apartment owners and real estate groups, to pre-empt local rent control laws"(pg. 8).
"The Massachusetts tenants' movement of the late l960s and early 1970s was a spillover of the student movement, the civil rights movements, and resistance to urban renewal. Community-based struggles to stop institutional expansion of hospitals and universities into residential neighborhoods, to stop a proposed federally-funded highway through residential areas, and to stop the urban renewal bulldozer had created an organizational infrastructure and a cadre of organizers and activists who took up the cause of tenants' rights and the empowerment of low-income and working class neighborhoods. Tenant organizations emerged and tactics like rent strikes increased. In Boston as well as in other nearby cities such as Lynn, Somerville, Cambridge, and Brockton, activists built tenant organizations in private and FHA-subsidized housing and helped enact rent control in Boston, Cambridge, Lynn, and Somerville in the early 1970s. Tenant activists formed "tenant unions" in apartment buildings or among tenants in buildings owned by the same landlord. They formed neighborhood-based and citywide tenant organizations. They engaged in various forms of protest, mass rallies, and civil disobedience, including "eviction blocking." They pushed local government officials to strengthen building code enforcement. They negotiated with landlords over maintenance and other matters. They lobbied government officials, registered voters, and campaigned for pro-tenant candidates. Once rent control was passed, they provided legal and political support for tenants before rent control boards and housing courts.
Since the late 1960s, major political battlegrounds in Boston, Cambridge, and Brookline have been the regulation of rents, evictions and condo conversions. It has become the litmus test for identifying political candidates as "conservative" or "liberal." In all three cities, rent control ordinances regulated rents (by limiting rent increases to the cost of increased expenses), evictions (by requiring "good cause" and by requiring hearings before landlords could go to court), and removals of units from the rental stock (by requiring permits before units could be demolished or converted to condominiums). The condominium conversion issue emerged in the late l970s. By the time the three cities enacted laws to address this issue, and fought the legal battles in court to protect their authority do to so, a substantial portion of the rental inventory in these cities was lost, undermining some of the political base for tenants' rights and rent control' (pg. 9).
"Cambridge tenant groups initially tried to enact rent control through a citywide referendum. When that failed, they had more success enacting legislation through the City Council in 1970, the same route followed by the other cities. Cambridge's law did not allow for vacancy decontrol...
...In Boston, Kevin White was elected mayor in l968 as a pro-rent control candidate. One of his slogans was: "When landlords raise rents, Kevin White raises hell." Boston adopted rent control in 1970. Within a few years, however, Mayor White began cultivating the support of the real estate industry and changed his views. Rent control became a convenient scapegoat for housing abandonment and high property taxes on homeowners -- problems more accurately linked to the city's overall economic problems, the busing controversy, and its fiscal crisis. In 1975, Mayor White and the City Council adopted vacancy decontrol, which permanently removed an apartment from regulation after a tenant left, as of January 1976. As a result, once-regulated apartments were gradually exempted from rent control, declining from over 100,000 units to under 25,000 units by 1983. Only those tenants who had lived in their apartments since l976 were protected by rent control...
...In the late l970s a huge wave of condominium conversions fueled tenant protest. In l979, Ray Flynn (then a City Councilor) proposed a ban on condo conversions, a policy that had little support among his colleagues. A compromise was reached that provided tenants with advance notice before they could be evicted for condo conversion, along with some relocation expenses. The Massachusetts Tenants Organization was formed in 1981 to help coordinate and expand these local efforts, primarily around rent increases and condominium conversions. In that fall's City Council elections, an MTO affiliate, the Boston Tenants Campaign Organization, composed of neighborhood tenant groups, sent questionnaires to and interviewed all candidates. BTCO endorsed a "Tenant Ticket," distributed flyers in apartment buildings, registered tenant voters, organized a get-out-thevote drive, and handed out "Tenant Ticket" poll cards on election day. Two of BTCO's candidates won, including incumbent Flynn, who -- thanks in part to the tenant vote -- topped the ticket. Two years later, MTO's endorsement and organizing efforts played a key 10 role in electing Flynn as Boston's mayor. A cornerstone of Flynn's platform was an overhaul of the tenant protection laws, a return to full rent control, and either a ban on evictions for condo conversion or a ban on conversion itself. During its ten years in office (l984-93), the Flynn administration brought tenant and housing activists into government, adopted stronger tenants' rights laws and provided funds to encourage tenant organizing.
In October 1984 the City Council rejected Flynn's plan to restore full rent control. In its place, the Council substituted a rent grievance system in the decontrolled units, banned condo evictions for low-income and elderly tenants, extended (up to three years) the notice period for other tenants facing condo conversion, and increased moving expenses (from $750 to $1000) for tenants displaced by conversion. The compromise measure accurately reflected the balance of political forces at the time, particularly the Greater Boston Real Estate Board's (GBREB) influence on the majority of Council members. Flynn continued to push for stronger tenant protections. In mid-l985 -- with the housing crisis worsening and condo conversions escalating (even outside the downtown neighborhoods) -- the City Council gave the rent board the authority to regulate condo conversions by requiring landlords to obtain a permit before a conversion could take place. The GBREB successfully challenged the policy in court but the city then got the state legislature to give it the authority to implement the law"(pg. 10,11).
"Massachusetts landlords organized a campaign for a statewide initiative (Question 9) to repeal rent control, by pre-empting localities' authority, that appeared on the ballot in November 1994. It passed with 51% of the vote. The three cities with rent control -- Boston, Cambridge, and Brookline -- voted "no." Implementation began January 1, 1995. Landlords had been unhappy about rent control for the 25 years of its existence.
They had succeeded in repealing it in Lynn and Somerville, and watering it down in Boston and Brookline. Cambridge, like Santa Monica and Berkeley on the West Coast, was viewed as having an "extreme" or "radical" form of rent control. Cambridge's system would prove to be the battering ram which landlords used to attack rent control at the state level.
Tenant organizing in Cambridge had atrophied by the mid-1980s.29 A core of tenant activists continued to appear at City Council meetings and to advocate before the rent control board. This same core managed to regroup the fragile coalition of tenants, senior citizens and other constituencies at each election cycle. But the energy and organizational capacity of the tenant constituency had severely dwindled. This vacuum was filled by a new organization, the Small Property Owners Association (SPOA). SPOA was composed of homeowners and small landlords, but it quickly hitched its political wagon to more powerful real estate industry forces under the banner of the Massachusetts Homeowners Coalition (MHC). SPOA served, in effect, as the public face of the anti-rent control effort, while the money and strategies were controlled by the real estate industry trade associations and their hired campaign consultants.
SPOA's goal was the complete elimination of rent control. To the extent that its membership was composed of relatively small property owners -- homeowners and smallscale apartment owners -- they linked their personal and their property interests much more intimately than large developers and landlords. According to Cantor, they believed that "rent control violated their fundamental personal rights."
Moreover, SPOA engaged in somewhat militant tactics, more akin to groups like ACT-UP (gay rights) or Operation Rescue (anti-abortion) than to traditional real estate industry approaches. For example, they picketed and spoke out fervently at Cambridge City Council meetings. They projected an imagine of small property owners being abused by unresponsive government, the "People's Republic of Cambridge." They told "horror stories" of condo owners who were forbidden by the rent control law (or board decisions) from living in their own units, or being unable to convert room housings into single family homes where they wanted to live, of being unable to evict tenants who failed to pay rent, and of long delays in getting rent increases. MHC members held up signs at university graduations. They wrote letters to the editors of local papers. They frequently appeared on radio talk shows and found reporters and columnists who wrote sympathetic stories about their "plight." (Importantly, the radio shows and daily newspapers that covered Cambridge were part of the larger Boston media market, so this anti-rent control message extended beyond Cambridge). They argued that rent control forces landlords to subsidize tenants. "Providing affordable housing should be society's problem," MHC president Denise Jillson told the Boston Globe, "not the problem of the individual property owners." They compared the struggle of small property owners to overturn the "tyranny" of local rent control to the civil rights movement's efforts to get the federal government to overturn local segregation laws.
SPOA was not only well-organized, but also politically savvy. It made a point of showcasing only "small" property owners, even though much of their financial support came from large real estate interests. It focused attention on minority, immigrant, and senior citizen members. It highlighted examples of affluent tenants paying below-market rents in buildings owned by purportedly financially-strapped landlords. This reinforced the image they sought to project -- that rent control did not primarily help the poor. SPOA succeeded in persuading the Cambridge City Council to commission a study by a private consulting firm of who lived in rent controlled housing.
SPOA lost its first major political battle during the 1989 local elections. Three longtime rent control supporters on the City Council declined to run for re-election, making the City Council races a referendum on rent control. Also, landlords (primarily large property owners concerned about local restrictions on condo conversion) collected enough signatures to get "Proposition 1-2-3" on the local ballot and financed an expensive and sophisticated campaign to reach voters. It would have allowed landlords to convert apartments to condos if the tenants wanted to buy them, undermining the city's law which linked condo conversion to housing market indicators. If successful, Proposition 1-2-3 would have eliminated rental units and undermined the political base of support for rent control. However on election day, voters defeated the proposition by a two-to-one margin and elected an unprecedented 6-3 pro-rent control majority on the City Council.
Although angered by this defeat, SPOA viewed the l989 elections as one battle in a longer war. Equally important, although real estate forces lost the local elections, they had helped set in motion a changing political climate by chipping away at the image of rent control as a policy that protected the most vulnerable people. They had begun to set the stage for a full-scale attack on rent control several years later. Over the next few years, SPOA spearheaded a constant media attack on rent control. It did a good job of identifying a few high-profile "undeserving tenants" -- primarily professionals with good incomes, including Cambridge's mayor and a state court judge -- who were used as the symbols of rent control's inequities.
During the summer of 1993, SPOA began preparing for a statewide initiative campaign to ban rent control. A majority of residents in Boston, Cambridge, and Brookline were renters. Statewide, however, owner-occupied units outnumbered rental units by 1.35 million to 980,000. Moreover, homeowners had higher levels of voter registration and turnout than tenants. Amidst much controversy, the state Attorney General in September 1993 ruled that the measure could appropriately be put before the state's voters, even though it only applied to a few localities. The Greater Boston Real Estate Board and its Rental Housing Association, which represented the big landlords, developers, and management firms, did not agree with this strategy. Its leaders were "frightened" of putting the issue before the voters. "What if the reverse happened and we lost?" They felt on safer ground working through city councils and the state legislature, where they had skilled lobbyists and political clout. But the GBREB recognized that the SPOA was going to move forward anyway, so it soon joined forces with the small property owners to push Question 9.
Soon after the Attorney General approved the ballot measure, Ed Shanahan, director of GBREB's Rental Housing Association, "got a frantic phone call from Denise Jillson," the head of SPOA, asking for RHA's help. "We put together a coalition called the Massachusetts Homeowners Coalition (MHC)," Shanahan explained. The steering committee included Jillson (representing SPOA), Shanahan, Ed Zuker (a major Boston area landlord), Doug Thayer (a Cambridge landlord), and a representative of the Massachusetts Realtors Association. It was this group that spearheaded the Question 9 effort, although they sought to identify the public face of the campaign with small property owners like Jillson who was, "the perfect poster girl" for their cause. The campaign for and against Question 9 began in the summer of 1994 until election day, November 8. Using local realtors and paid canvassers, MHC began soliciting signatures to place the measure on the ballot in November 1994.
SPOA helped to chip away at support for rent control among people not directly affected by the policy -- third parties such as the media, homeowners, and others. Media accounts about rent control were generally unsympathetic. One Boston Globe reporter, writing about his experience selling his condominium, wrote about his "nightmare" dealing with the Cambridge Rent Control board. Three out of four Globe columnists supported Question 9; two of the opponents wrote several columns on the topic during the campaign, repeating SPOA's views about rent control "horror stories." Columnist David Nyhan called rent control a "yuppie subsidy, a middle-class loophole hurting small-time property owners." Columnist Jeff Jacoby claimed that "like socialists the world over, the rent radicals of Boston, Brookline and Cambridge operate on the principle that whatever they win is permanent and whenever they lose it's negotiable." Columnist Bella English claimed the big losers if rent control was abolished would be the "politicians, professors, judges, doctors, lawyers, Harvard students and businessmen, who have enjoyed cheap digs for years."45 The reporters, columnists and editorial writers at the Boston Herald, the region's other major daily paper, consistently supported Question 9.
The Massachusetts Tenants Organization led the charge against Question 9. It formed an umbrella organization, Save Our Communities Coalition (SOCC), composed primarily of tenant activists in Boston, Cambridge, and Brookline, the three communities that would be directly affected. SOCC focused its measure on the harmful impact Question 9 would have on the elderly. It showcased elderly renters who would be hurt if rents were deregulated. In posters and bumper stickers, it advertised its slogan: "Bad for Elderly -- Bad for You." SOCC's rallies and protests, all in the Boston area, received minimal media attention. For example, no reporters showed up at a SOCC-sponsored October 12 rally on the steps of the State House. Various unions, the AARP, Boston Mayor Tom Menino, and a variety of community organizations and public interest groups endorsed the "No on 9" campaign. In contrast to much of its reporting and several of its columnists, the Boston Globe editorialized against Question 9 on the grounds that it interfered with the "home rule" authority of localities. Indeed, throughout the Question 9 campaign and the subsequent legislative fight, rent control proponents emphasized the home rule principal as much, or even more, than the benefits of rent control.
Rent control's supporters were clearly on the defensive. Even the director of the Massachusetts Tenants Organization acknowledged to the Boston Globe that "it's not a perfect system," arguing that only a handful of tenants in rent-controlled apartments are rich.
The SOCC-led effort was completely outmaneuvered by the pro-Question 9 campaign. This was a classic example of the impact of money on elections. The campaign used rent control as an example of the undue influence of big government. Its logo showed a house with the words "Get Gov't Out" across it. Its TV and radio ads focused on rent control's "unfairness," primarily using examples from Cambridge, which had the strongest law among the three cities and which, despite its large low-income and minority population, was known outside the Boston area primarily as the home of Harvard, MIT, and its student/intellectual culture. The real estate forces hired several consultants to conduct studies which, not surprisingly, alleged to show that rent control in Cambridge disproportionately helped the non-poor.
During the campaign, the media reported tenants' fears of huge rent increases as well as landlords' promises that rent increases would be fair and reasonable. The Globe quoted one large property management company official's prediction that it would not make "an immediate hike that would force people out." Another landlord said that "It should take a year to find out the market, and at that point we'll negotiate a new rent. In most cases, even if the rent should be $1,200, we'll agree to less to have a tenant stay rather than have a vacancy."
The pro-Question 9 forces outspent their opponents by at least a seven-to-one ratio -- $1.06 million vs. $158,248. The proponents used this financial advantage to hire professional consultants to manage the campaign, to do polling, and to buy TV and radio advertisements. Proponents spent over $200,000 on paid TV ads. The "Yes" campaign received most of its money in $500-or-more contributions, many of them from out-of-state. Nineteen real estate firms contributed $510,022, more than half (53.9%) of the "Yes" campaign's funds. The list of contributors reads like a "who's who" of the Boston area's major realtors, landlords, developers, and property management firms. The Greater Boston Real Estate Board alone contributed $168,878 to the "Yes" campaign, $118,878 in gifts and in-kind services plus a loan of $50,000. The next biggest source of funds for the "Yes" campaign came from the National Association of Realtors and the Institute of Real Estate Management, based in Chicago. They funneled their combined $75,000 contribution to BMC Strategies, a political consulting firm, to be used for TV ads. The "No" forces had one paid staff person. They had no money for TV ads. Only 11% of the $158,249 it raised came from $500+ contributions.
A Globe poll a week before the election found 34% of likely voters supported Question 9, 37% opposed it, and 29% were undecided. The Question 9 campaign's financial resources helped sway enough undecided voters to bring victory. Question 9 won by a narrow margin: $51.3% (1,034,594) to $48.7% (980,723). An analysis of the vote reveals that voters in Boston, Cambridge, and Brookline -- where Question 9 would have direct impact -- voted substantially against the measure, although not by margins large enough to make a difference in the statewide outcome. In most cities and towns outside the Boston metropolitan area -- for example, in Springfield, Fall River, New Bedford, Lawrence, Holyoke, Fitchburg, on Cape Cod and in the Berkshires -- a majority of voters voted "no." Question 9's small margin of victory came from the Boston area suburbs, where the real estate industry's campaign concentrated its media efforts. One cannot also discount the sentiment toward rent control that had accumulated over the previous few years aided by articles in the Boston area media market. The Question 9 campaign simply reinforced these views.
After the November elections, tenant activists in Boston, Brookline, and Cambridge pushed their city governments to file home rule petitions in the state legislature to reinstate a version of rent control. These local battles in each city were highly contentious, involving controversial public hearings and protests. The Cambridge version called for phasing out rent control over five years. The Boston and Brookline versions called for weaker versions of their vacancy decontrol systems. They had to get a bill through the lame-duck legislature before the session ended on January 3, 1995, since Question 9 would go into effect on January 1 and many landlords had announced that they were planning substantial rent hikes. The tenants and sympathetic local public officials knew, however, that whatever bill they could get through the two houses, both with a majority of Democrats, would be vetoed by Republican Governor William Weld, a Cambridge resident who had just won an overwhelming re-election victory and was strongly opposed to rent control. They didn't have sufficient support to override Weld's veto. SPOA lobbied the legislators to reject any home rule petition that continued any form of rent control. Weld announced that he would only approve a petition that SPOA could live with. "If they are satisfied, I am satisfied," Weld said disingenuously, "I am almost a spectator here."
At this point, the years-long drumbeat of criticism about rent control bore fruit. Even rent control advocates realized that their only hope for protecting any form of regulation would require some kind of means-test. Mayor Menino pushed a home rule petition through the Boston City Council that would protect elderly, disabled and low- and moderate-income renters. But after lobbying legislators and Gov. Weld, Menino realized he'd have to water down the city's proposal. Real estate interests were able to win the argument, among legislators and the media, that even elderly and disabled tenants should be subject to a means test. Rep. Thomas Finneran, a Democratic from Boston and chairman of the powerful Ways and Means Committee, argued in favor of the "narrowest version possible," including vacancy decontrol, and a means test limited to the elderly and disabled. Weighing in on the subject, the Globe encouraged the legislature and Governor to approve home rule petitions that incorporate vacancy decontrol and a means test protecting only low-income renters, which it labeled a "decent compromise" and a "sensible compromise."
In late November and early December, the House approved the three home rule petitions, but lacked the two-thirds majority necessary to override Weld's veto,...According to several sources, many Democratic legislators cast their vote in favor of the home rule petitions knowing that they lacked the votes to override a veto -- a safe way to tell voters they supported rent control without alienating the real estate industry...
...Weld said he would veto the bill unless it was changed to incorporate amendments drafted by the Massachusetts Association of Realtors, which would extend rent control for two years, but only for low-income renters already living in rent controlled apartments. Even elderly and handicapped renters should be subject to a low-income means test...
...The new law, as one legislator put it, allowed rent control to "die with dignity."67 The law immediately decontrolled all units which were not occupied by a tenant who met the new income eligibility guidelines. Eligible tenants were defined as those with incomes of 60% or less than the median income for the Boston SMSA (at that time, $21,500 for a single person). An exception was granted for elderly tenants (62 years or more) and disabled tenants; for them, the eligibility limit was set at 80% of median income ($27,950). The incomes of all residents of a unit (household income) was to be counted. Full-time students were not to be considered eligible for protection. Rent control for income-eligible tenants in buildings with up to 12 units would end on December 31, 1995, while those in larger buildings would no longer be protected at December 31, 1996. The law specified that for income-eligible tenants, landlords could raise rents in these rent controlled units by 5% a year, or up to 30% of the tenants income. Local rent control boards lost the authority to regulate evictions.
Interestingly, media coverage of the rent control issue expanded dramatically after Question 9 has passed. Most of the reporting focused on the personalities and maneuverings engaged in the home rule legislative battle, on the political maneuverings of Governor Weld, legislative leaders, and Boston Mayor Tom Menino over whether the legislature and Governor would approve local home rule petitions and, in effect, override the Question 9 vote. Yet at no time during the legislative phase of this issue did the media analyze the influence of the real estate lobby, including its campaign contributions, in the legislature. It covered the home rule debate as a matter of ideology and political in-fighting. Immediately after the Question 9 vote, a few stories focused on the fears of tenants worried about dramatic rent increases and the delight of landlords freed from regulatory abuse. These articles increased in 1995 and 1996 when the new law took effect, particularly as the phasein period was coming to an end.
Several news accounts noted that the small property owners, led by the SPOA, were angered by the compromise that allowed the two-year phase-out of rent control. As the inside game within the legislature played itself out, Gov. Weld and the legislatures negotiated with the Greater Boston Real Estate Board and the Massachusetts Association of Realtors, and shut the SPOA out of the negotiations. They felt "sold out" by the big landlords. SPOA had laid the groundwork, served as the media spokespersons, and framed the ideological debate, but were viewed as too uncompromising when it came time for the endgame. In doing so, they helped the major real estate lobby groups appear to be moderates rather than the "heavies." The political center of gravity had shifted so far in the industry's favor that the bill to entirely phase-out 25 years of rent control was called a 'compromise.'" (pg. 11-16).
"In the 1970s, California seemed an unlikely place for a broad movement for tenants' rights. As Heskin notes, "Aspiring tenant organizers considered the California tenant to be too individualistic and too mobile to be organized" and "the densities of renters too low for mass collective action." But a California tenants movement exploded in l978 following passage of Proposition 13, the tax-cutting amendment. California had an upsurge of tenant activism in the late l970s and early 1980s, and then -- with a few local exceptions -- experienced a lapse starting in the mid-l980s which continued into the 1990s.
During much of the l960s, apartment vacancy rates in the state's urban areas were high; some landlords even complained of an "apartment glut." This began to change in the l970s, as rental apartment construction fell, vacancy rates fell, and rents increased faster than inflation. Moreover, skyrocketing housing prices shut out many middle-class households from homebuying. Except in Berkeley, however, there was little tenant activism in response to these changing market forces. In 1972, Berkeley voters passed a rent control charter amendment through the initiative process. The city began to implement the law, but landlords successfully challenged the amendment in court. In Birkenfeld v. Berkeley, the Alameda County Superior Court (in 1973) and the state Court of Appeal (in June 1995) held that the Berkeley law was unconstitutional on procedural grounds, but it found that cities had the right to adopt rent control without further state legislation.
In 1975, Senator David Roberti filed a rent control bill that died "quickly and quietly" in the Senate Judiciary Committee, a reflection of the weak political constituency at the time. In the mid-1970s, even before the upsurge of tenant activism, California's real estate industry recognized the potential for a wave of tenant protest and demands for rent regulations, especially in light of Birkenfeld v Berkeley. In 1976, the California Housing Council, a new coalition of the state's major apartment developers, owners, and managers, along with their allies among realtors and smaller landlords, pushed a bill (AB 3788) through both houses of the state legislature pre-empting localities from adopting rent control. A fledgling California Renters Coalition was too weak to effectively oppose the bill in the legislature or the media. But on the advice of his liberal housing department director, Arnold Sternberg, and with the support of his liberal constituency, particularly Jack Henning, the head of the state AFL-CIO, Gov. Jerry Brown vetoed the bill, angering the real estate community.
Sensing that a battle was brewing, a handful of tenant organizers and legal aid attorneys recognized that they needed to be better organized and in l977 250 activists met in Los Angeles to form the California Housing and Information Network (CHAIN) to serve as the umbrella coalition for tenants' rights. A few local groups, such as the Coalition for Economic Survival (CES) in Los Angeles, began to organize tenants around rent increases, evictions, and maintenance issues. In 1977, CES and the Gray Panthers, a radical senior citizens group, began pushing the Los Angeles City Council to adopt rent control, initially promoting ordinances against "rent gouging." Simultaneously, tenants in Santa Monica launched an effort to place a rent control initiative on the June 1978 ballot. These groups were able to mobilize hundreds of tenants for public hearings and rallies. Smaller efforts were underway in Santa Barbara, Santa Cruz, Long Beach, and San Diego, while tenants continued to push for rent control in Berkeley.
Gov. Brown's veto of the CHC's pre-emption bill proved fateful, because demand for rent control exploded across the state in the aftermath of Proposition 13. Proposition 13 was spearheaded by ultra-conservative political forces. The leader of the tax revolt was Howard Jarvis, chief executive of the Apartment Association of Los Angeles County, who sent a mailing to landlords urging them to "convince your tenants that lower property taxes mean lower rents." A month before election day, the California Apartment Association announced that landlords would pass property tax savings onto tenants if Proposition 13 passed. Recognizing the dangers of a tenant backlash if landlords failed to fulfill their promises, the CHC opposed Proposition 13.
On the same day that Proposition 13 won by a two-to-one margin statewide, rent control initiatives were defeated in Santa Monica (56-44%) and Santa Barbara (by roughly the same margin), even though tenants represented a majority in both communities. Real estate interests poured huge sums of money to defeat these referenda. An analysis of voting results revealed that precincts that favored Proposition 13 voted against rent control, often by a similar margin. Throughout the state, in fact, voters who opposed rent control thought that property taxes were the cause of high rents. They expected Proposition 13 to hold down rents.
The California Housing Council was the only major real estate industry group to oppose Proposition 13. After Prop 13 passed, the CHC sent a letter to its members across the state urging them to reduce rents. But the anticipated windfall of rent rollbacks did not materialize. In fact, many of California's 3.5 million tenants received notices of rent increases shortly after Proposition 13 passed. This set the stage for a significant tenant backlash. Throughout the state, tenants who had been hit by rent increases organized meetings to demand that landlords share their property tax savings. Newspapers were filled with stories of outraged renters, embarrassed landlords, and politicians jumping onto the bandwagon. For example, Los Angeles Mayor Tom Bradley, who had earlier lent his name to the anti-rent control campaign in nearby Santa Monica, called for a citywide rent freeze ordinance. As public clamor mounted, some landlords agreed to voluntarily reduce rents in order to avoid mandatory rollbacks and freezes.
Tenant pressure did not subside. Governor Brown established a renter "hotline" which, at one point, was receiving 12,000 phone calls a day to register complaints about rent hikes. When heavy real estate industry lobbying defeated a statewide bill requiring landlords to pass on Proposition 13 savings to tenants, the battle shifted to the local level. Groups like CES, the Gray Panthers, CHAIN, and Tom Hayden's statewide Campaign for Economic Democracy (which grew out of his unsuccessful bid for U.S. Senate in 1976) organized tenants and kept the anger about post-Prop 13 rent hikes in the news. Tenant groups began to mobilize in communities across the state, demanding rent control. Experienced tenant leaders began to travel across the state, helping local groups. Newspapers reported an upsurge of rent strikes, even in the politically moderate San Fernando Valley section of Los Angeles.
By 1981, more than 25 California communities, including Los Angeles and San Francisco, had passed some kind of rent control laws. By 1988, 78 communities in California had some form of rent control, although in 64 of these jurisdictions rent control was limited to mobile homes. In the 14 cities where rent regulations covered apartments, nearly one million units were covered. Eleven of those 14 laws were enacted by ordinance. In Berkeley, Santa Monica, and Cotati, they were put into place by voters through the initiative process. In nine of these jurisdictions, the rent regulations not only covered rents, but included "just cause" eviction, limiting landlords' ability to evict a tenant without due process and cause. Los Angeles, Palm Springs and Thousand Oaks exempted so-called "luxury units" from rent regulations. Several cities exempted single-family homes; some exempted condominiums. Twelve of the 14 jurisdictions (except Los Gatos and Cotati) exempted new construction from rent regulations. Nine of the jurisdictions provide for vacancy decontrol, allowing landlords to set rents at market levels when a tenant voluntarily vacates an apartment; in six of these jurisdictions, the law requires that the unit be placed back under rent regulation after the new tenant moves in and the landlord has set the market rent. Berkeley, Santa Monica, West Hollywood, East Palo Alto, Cotati, and Palm Springs did not allow vacancy decontrol. Local rent boards set rent levels each year, no matter how many times the units turn over. Jurisdictions vary in the formulas they use to set rent increases.
In response to tenant pressure, rent strikes, and steady news coverage about rent increases and angry tenants, especially seniors, the Los Angeles City Council passed a sixmonth rent freeze in August 1978. As the rent freeze was reaching its end, tenant forces and their allies pushed for a permanent and strict rent regulation law. The City Council adopted a somewhat watered-down version of regulation, including vacancy decontrol and an exemption for single-family homes, which went into effect May 1, 1979. This law was reviewed annually by the City Council, with minor changes. In 1981 the City Council made significant changes. The original law permitted a 7.6% rent increase annually. After 1981,this was reduced to a 5.6% annual rent increase. From the beginning, landlords were allowed to raise rents more freely when an apartment became vacant, but then adjusted further rent increases for the new tenant. The original law allowed new rents to be set to market levels. The new law limited rent increases to 10%. Both laws exempted new construction, hotels, single family dwellings and so-called "luxury units" (those with rents above a specific level. Both laws contained "sunset" provisions which would end rent control if the vacancy rate in Los Angeles rental housing rose above 5%.
The Los Angeles law did not apply to the unincorporated areas of Los Angeles County, including West Hollywood, where renters composed 80% of the population. Renters organized rent strikes and rallies with as many as a thousand demonstrators and successfully pressured the county Board of Supervisors to pass a rent control law that applied to unincorporated areas. The law included a "sunset" provision and in 1985 the Board of Supervisors did not extend it. Fear of this threat led activists in West Hollywood to seek to incorporate a new city. Soon after West Hollywood became a separate city, the city council adopted rent control in June 1985. Rent control was also the driving force behind the efforts to incorporate a new city in East Palo Alto. East Palo Alto, which had about 3,000 rental units and a large African-American community, was incorporated in 1983. It adopted rent control a few months later. Landlords were unsuccessful at repealing it with several city ballot measures, sponsored by the California Apartment Owners Association.
Rent control was the centerpiece of electoral activity in Berkeley and Santa Monica, where progressive coalitions won majority blocs on the City Council of each city. In the late l960s, Berkeley was a hotbed of "radical" political activity, not only on the campus but also in the community. The Berkeley Tenants Union was formed in 1969. It formed part of a coalition of progressive activists who mobilized to gain a foothold in city government with rent control one of their key platforms. After the courts reversed the 1972 pro-rent control ballot measure on procedural grounds, the coalition tried again. Rent control supporters put another initiative on the April 1977 ballot. It lost 63% to 37%. Following Proposition 13, Berkeley voters approved a temporary rent freeze on the November 1978 ballot by 58% to 42%. Voters adopted permanent full rent control in a June 1980 initiative. The pro-tenant governing regime remained in power for almost two decades until the pro-tenant majority on the rent control board was defeated by voters in 1993. A court decision over the meaning of a "fair return" forced Berkeley to water-down its rent regulations in 1992, resulting in major rent increases. The Berkeley law regulated 21,000 of the 24,500 rental units in the City.
In Santa Monica, a coastal city of 90,000 adjacent to Los Angeles, the tenants movement formed the core of an ongoing governing coalition. As noted above, voters had defeated a rent control ballot measure in June 1978 by a 55.5% to 45.5% margin, even though renters comprised 80% of the city's residents.. In the wake of Prop 13, activists regrouped. They formed a political coalition, Santa Monicans for Renters' Rights (SMRR), which drew on a wide group of senior citizen, consumer, Democratic Party, and housing activists. SMRR put another rent control measure, Proposition A, on the ballot in April 1979. Although SMRR was outspent $217,257 to $38,443, it effectively mobilized renters as campaign volunteers. Proposition A won by a 54.5% to 45.5%.95 A few months later, a pro-tenant slate, organized by SMRR was elected to the rent control board. The next November, SMRR forces defeated Proposition Q, a real estate industry-sponsored ballot measure to weaken the rent control law by adopting vacancy decontrol. In 1981, SMRR's slate won a majority of seats on the City Council and elected a SMRR leader as mayor. The campaign mobilized over 6,000 people to get involved in phone calling, door-to-door canvassing, and other electoral activities. Since l981, SMRR has held a voting majority on the City Council, with the exception of l984 through 1988. All of SMRR's candidates supported rent control and tenants' rights, but they have included union leaders, a minister, a high school teacher, a cab driver, a disabled activist, a lesbian activist and others.
As a governing coalition, SMRR strengthened Santa Monica's rent control and condo conversion law -- key issues in an attractive beach city that was undergoing extremely strong development pressures. Indeed, Santa Monica's rent control law was perhaps the strongest in the country; for example, it did not automatically allow landlords to increase rents when they refinanced their properties. SMRR also elected a majority to the rent control board, guaranteeing that the law would be implemented effectively. Once in office, SMRR enacted a broad progressive agenda that went beyond tenant problems. But a dent in the SMRR coalition involved a controversy over the city's tolerance of homeless people in public places. Even in "the People's Republic of Santa Monica," as opponents called the city, political support for rent control was weakened in the early l990s by two forces: a visible increase in homelessness, which landlords effectively linked to the city's rent control law, and the Northridge earthquake of January 1994. Complaints from businesses and other citizens led SMRR to toughen its policy by allowing police to remove homeless vagrants from public places and require them to move to a city-run shelter or day program.
Other cities joined the rent control list. The San Francisco Board of Supervisors passed rent control (with vacancy decontrol) in 1979 to head off a stronger initiative put on the ballot by community and tenant groups. San Jose's law went into effect in l979. It was called the Rental Dispute Mediation and Arbitration ordinance.
Faced with all these local brushfire battles, and unable to get Gov. Brown to sign a local pre-emption bill, the real estate industry's strategy was to circumvent the liberal governor by putting the issue of pre-emption before the voters in a statewide initiative. Seeking to stop the rent control momentum, the CHC, the umbrella lobby group of the state's largest landlords, spearheaded the campaign for Proposition 10, which appeared on the ballot on June 3, 1980. Voters overwhelmingly defeated Proposition 10 by a 65% to 35% margin, despite the fact that the CHC outspent the opposition by an 80-to-1 margin. The landlord campaign used the usual arguments that rent control stymied new construction as well as maintenance and thus have a serious negative impact on the supply of rental housing. CHC polls showed that, as a group, "landlords" were not well-liked. (At the same time, San Diego Mayor Pete Wilson successfully led the opposition to a rent control initiative in that city).
During the l980s, the statewide momentum for rent control slowed down. No new cities enacted rent control laws, but neither did local politicians seek to weaken rent control where it already existed. The real estate industry recognized in 1987 that "rent control may no longer be the single hot issue that it once was." While it was difficult to roll back existing local laws, the industry saw that "rent control no longer draws the overriding community concern that it once did." In 1987, for example, only one locality, Burlingame, sought to pass a rent control measure, and it was defeated. In 1988, the CHC helped defeat a citywide ballot initiative for full rent control. In 1991, Mayor Art Agnos, who had been elected as a rent control supporter, got the Board of Supervisors to pass full rent control, but the real estate industry got the issue on the ballot and orchestrated an expensive and successful campaign to repeal the Board's vote. Then in December 1991 the real estate industry helped police chief Frank Jordan, a foe of rent control, defeat Agnos for reelection. The ballot victory and Jordan's election, in a liberal city with a big tenant majority, led real estate interests to conclude that "rent control is not what it used to be 'as a political issue'(pg. 16-20).
"Beginning in 1983, Assemblyman Jim Costa (D-Fresno) annually introduced a bill on behalf of real estate industry (California Housing Council, California Association of Realtors, California Apartment Association, and California Building Industry Association) to weaken local rent regulation, or what they termed "radical rent control ordinances." The Costa bills included a requirement for vacancy decontrol, an exemption for new construction, and an exemption for single-family homes. In 1983 and 1984, his bills included mobile homes, but subsequent bills exempted mobile homes.
Typically, the Costa bill would whiz thru the Assembly, whose leaders were closely connected to real estate lobbyists, but bog down in the Senate, largely at the behest of Senator David Roberti. Roberti was majority leader and then president pro tem of the Senate. He represented part of Los Angeles's San Fernando Valley, as well as parts of Hollywood, and was a major fundraiser for his Democratic colleagues. Roberti would assign the Costa bill to the Senate Judiciary Committee, which had a strong liberal majority. Invariably, the committee would reject the Costa bill.
In fact, only Roberti's influence kept the state legislature from bowing to landlord pressure to dismantle local rent laws. The real estate industry, especially the California Housing Council, identified Roberti as their chief obstacle to eliminating rent control. "As long as Roberti was there, we couldn't win. So we focused our attention on the local level, just trying to keep the lid on," explained the CHC's lobbyist. By the early 1980s, tenant organizing in California had declined significantly. Only in Santa Monica, and to a lesser degree in West Hollywood, East Palo Alto, and Berkeley, did tenant organizations wield significant political influence. Roberti consistently warned tenant activists and cities with rent control not to get complacent, and encouraged them to organize, since he would not be in the legislature forever, but they did not heed his warnings. In the big cities like San Francisco, Los Angeles, and San Jose, tenant organizing was ineffective. But, according to CHC lobbyist Steve Carlson, "the rent control forces never had to assert themselves so long as Roberti was there. It was a slam dunk."
Over the years, apartment owners and other real estate interests invested millions in campaign contributions to support anti-rent control legislation. A 1987 report by the California Association of Realtors claimed that the industry had spent over $14.2 million to fight rent control. About $5.6 million was spent on Proposition 10 in 1980. A more recent estimate claimed that in the past 12 years, the industry spent an estimated $50 million to fight rent control -- pouring money into local rent control ballot initiatives, city council, legislative, and gubernatorial races, and efforts to unseat Roberti. A real estate lobbyist explained, "it is a small investment when you consider a billion dollars or more in apartment real estate values are at stake."
In some ways, rent control's fate was doomed in 1988, when California voters passed an initiative imposing term limits on state legislators. That meant that Roberti would have to leave the state Senate in l995. In 1994, the real estate industry and the National Rifle Association (angered by Roberti's support for strong gun control) tried to evict Roberti from the legislature a year early by sponsoring a recall campaign in his new Senate district. The recall effort by NRA failed with Roberti garnering help from housing activists from Santa Monica and other cities outside his new district. Tenant activists from as far away as San Francisco came to the San Fernando Valley to campaign against the recall vote.
After the recall effort failed, but knowing that Roberti would be out of office after 1995, the real estate industry set the stage for the following year's battle. Again, Costa filed his legislation. Again, it sailed through the Assembly and wound up in the Senate Judiciary Committee. A public hearing was held in June 1994. This time, however, the vote was closer than in earlier years. A number of Democrats who in the past had voted with Roberti broke ranks and others had to have their arms twisted by Roberti and labor leaders. A hearing was held in Sacramento in June. But they came within one vote of passing the bill in the Judiciary Committee. The deciding vote was cast by Sen. Art Torres, a liberal Democratic, who was also leaving office. Tellingly, Sen. Bill Lockyer, who would replace Roberti as president pro tem, abstained. In June 1994 the state Senate voted against the bill. According to CHC lobbyist Steve Carlson, "It seemed to us that we were getting closer." As president pro tem, "Lockyer wouldn't make this a life-or-death issue that way Roberti did." Defeated, Costa withdrew his bill on August 16, 1994, but it was already clear that Roberti's grip had weakened and that the real estate industry was flexing its muscles for the next legislative session.
Several factors changed the balance of forces. Roberti was forced to leave the Senate because of term limits; his final term ended in December 1995. Senator Bill Lockyer, no ardent fan of rent control, was elected president pro tem. Also, Costa was elected to the Senate. In 1995, the Republicans won control of the Assembly. The political center of gravity had shifted to the right. Governor Pete Wilson was re-elected in November 1994, defeating Kathleen Brown. A long-time opponent of rent control, going back to his tenure as San Diego mayor, he was certain to sign any anti-rent control bill.
In 1995, the San Jose Mercury-News described the Costa bill as "moving smoothly" through the legislature. Costa bill was approved by a 5-2 vote in Senate Judiciary Committee on April 4, 1995. Senator Nicholas Petris, a liberal Democrat who represented Oakland and Berkeley and was a member of the Judiciary Committee, as well as a long-time supporter of rent control, voted for the Costa bill in the Judiciary Committee, sending it to the Senate floor. The Senate passed the Costa bill on May 23, 1995 by 22 to 14 vote, one more than the majority required. Ironically, Petris voted against it once it reached the floor. The Assembly Housing and Community Development Committee approved the bill 6-2 on June 21, 1995. The bill was approved 10-7 by the Assembly Appropriations Committee in July, 1995. On July 24, 1995, the Senate (24-11) and Assembly (45-18) passed the Costa/Hawkins bill. To win Assembly passage, Democrats supported compromise provisions that phased in rent increases over 3 years, then allows full decontrol. Rents can go up 15% the first year. Wilson signed the bill on August 4, 1995, with the law to go into effect on January 1, 1996.
Opposition to the Costa/Hawkins bill was very feeble. Only Santa Monica, West Hollywood, Berkeley, East Palo Alto, and Cotati would be significantly affected, because the other cities with rent regulations already had vacancy decontrol. San Francisco and Los Angeles would lose their rent regulations on single-family homes, but this did not provide a broad enough political constituency to mobilize serious opposition. Tenant groups from these jurisdictions and city governments sent representatives to the public hearings in Sacramento, but were vastly outnumbered by representatives from the real estate industry, particularly so-called "Mom and Pop" landlords who were the public face of the industry campaign. The Western Center on Law and Poverty, an arm of legal services, led the opposition. It sought to piece together a coalition of local tenant groups, senior citizens groups, religious groups, and local governments. The cities of Santa Monica, Berkeley, and West Hollywood chipped in funds to hire a Sacramento lobbyist to orchestrate a lobbying and public relations effort to defeat the Costa bill. But Roberti's warnings had proven accurate. The pro-rent control forces lacked the organizational infrastructure and grassroots constituency to mount a serious opposition effort. It was easy for legislators to vote for a bill that would only significantly affect the small cities of Santa Monica, Berkeley, West Hollywood, Cotati, and East Palo Alto, the only cities with even a modicum of grassroots tenant activism. According to one organizer of the pro-rent control coalition, they considered passage of the Costa/Hawkins bill a "done deal." Their efforts to stop it was viewed as a "last gasp." Seventeen years after the post Proposition 13 groundswell of pro-rent control tenant activism, the legislature was able to pass a statewide pre-emption bill with almost no political fallout"(pg. 21-23).
"Since 1985, bills to weaken rent control in California have carefully exempted mobile homes. This is no accident. In contrast to the tenants movement, residents of mobile homes have been well organized and able to defeat efforts to weaken protections. Mobile home park owners lack the political clout of their counterparts in the real estate industry. As a result, rent regulations affecting mobile homes is widespread and shows little signs of weakening.
Mobile home owners occupy an unusual status. They own their homes, but they rent the spaces in mobile home parks. Compared with apartment tenants, they are actually less mobile, because of the size and cost of moving their structures. Thus they have a major stake in opposing rent increases and organizing for rent control.
The number of mobile homes in California increased during the l980s as a result of rising housing prices. There are 375,000 mobile homes in California parks with about one million residents. Mobile home owners pushed for local rent control. The first wave of mobile home rent control activity coincided with the general post Proposition 13 groundswell for rent regulation. For example, San Jose adopted rent control for mobile homes in 1979. But unlike the efforts of apartment tenants, the momentum for mobile home rent control persisted in the l980s and early 1990s. Today, about 140,000 to 250,000 live in rent controlled parks. Eighty-nine cities and counties have adopted mobile home rent control in the state.
Mobile home owners are older and are "faithful voters." They have their own political lobby, the Golden State Mobilehome Owners League. It has 80,000 members statewide, from big cities to small towns. Led by Jeffrey Kaplan, the owner of several mobile home parks, park owners formed the CA Mobilehome Parkowners' Alliance in 1988. Over the years, they have mobilized local and statewide ballot measures, and worked through the legislature, to abolish rent control for mobile homes.
In 1995, Sen. Raymond Haynes (R-Riverside) filed a bill, on behalf of the Alliance, to exempt mobilehome parks from rent control. Haynes had received significant campaign contributions ($7,500) from park owners. The bill went nowhere. The Alliance then bankrolled the petition drive for the anti-rent control ballot measure in March 1996. Prop 199, on the March 26, 1996 ballot, would have voided and phased out local rent control laws for mobile homes. As one news report explained, "Owners went to the initiative after years of losing battles in the Legislature." The mobilehome park owners outspent the tenants by 3-1 in the Prop 199 battle: $1.6 million to $489,000, most of it in small $25 and $50 contributions from tenants. A later article put the figures at $2.1 million vs. $320,000. The mobile home residents were well-organized. They engaged in protest rallies, candidates nights, letters-to-editor of newspapers, guest columns, and other forms of protest and electoral mobilization. The residents personalized the opposition campaign by focusing on Kaplan.
A number of major daily newspapers, including the Los Angeles Times, San Jose Mercury News, and the Sacramento Bee, editorialized against Prop 199. The Bee's editorial reflected its ambivalence about rent control. "Rent control usually creates more problems than it solves -- but there are compelling reasons why this measure should be defeated." Supporters of Prop 199 included mobile home park owners groups, the state Republican Party and Republican legislators. Opponents included mobilehome owners groups, the AARP, the Congress of California Seniors, the state AFL-CIO, and the state Democratic Party. Opponents also included 14 counties and 85 cities. City Councils in small and large cities voted to oppose Prop 199. Prop 199 lost by 61% (3.1 million) to 39% (1.98 million.) Ironically, the spokesman for the Yes on 199 campaign, Denis Wolcott, which spent about $2.1 million, said "the money is simply not there," to run an effective campaign. During l994 through 1996, anticipating the state law, a number of cities and some counties passed mobile home rent control laws"(pg. 23-24).
"It is difficult to exaggerate the political influence of the real estate industry, fueled by a combination of political contributions and grassroots networks. For years, the various components of the industry -- apartment owners, developers, realtors, managers and lenders -- worked together to oppose rent control and other tenant protections. This persistence and unity eventually paid off. Even when the industry lost some battles, it persisted in fighting the long-term war over rent control, refining its ammunition and, when necessary, calling for reinforcements. These industry organizations and their staffs developed close ties to legislators at the state and local levels over the course of several decades. They have the staying power to persist in waging their efforts year after year. The deregulation victories in 1994 and 1995 should be seen as part of this long-term process, not a sudden reversal of fortune.
In both states, the real estate industry is one of the most powerful political lobby groups in the state legislature. In Massachusetts, it is one of the six more generous industries in terms of PAC campaign contributions and lobbyists' personal contributions to state legislators. In California, the California Real Estate PAC was the sixth largest contributor ($649,800) to legislative campaigns during the 1991-92 election cycle. From 1983 through 1993, the Real Estate PAC was among the ten largest PAC donors each year, ranking as high as third during the l987-88 election cycle. Costa was one of the industry's favorite beneficiaries. Other industry trade associations and individuals are major donors. Still as one California real estate lobbyist noted, "If it had just been `juice,' we would have gotten rid of rent control a long time ago." Other factors opened a window of opportunity for the housing industry to get the Costa bill through the legislature.
In Massachusetts, the Greater Boston Real Estate Board played the role of coordinating the industry's activities, with strong support from the Massachusetts Association of Realtors and others. In Massachusetts, the emergence of the SPOA, representing small property owners, could have undermined the industry's unity, but quite early in the Question 9 campaign, SPOA and the GBREB joined forces, linking the ideologically-driven SPOA with the more pragmatic GBREB. In fact, the emergence of SPOA helped shape the public debate in ways that helped define the GBREB as "moderate" and its legislative efforts as a "compromise." The SPOA's willingness to engage in protest tactics helped make the "abuses" of Cambridge's rent control a newsworthy story and draw attention to the issue. The fact that it was landlords, not tenants, engaging in protest was to journalists the equivalent of "man bites dog." The SPOA lacked the political resources to carry out a statewide strategy, so its fragile alliance with the major real estate industry proved useful, even though some of SPOA's members considered the legislative solution a "sell out."
In California, the California Housing Council, formed in the l970s to represent the large apartment owners and managers, worked closely with the California Apartment Association (which represents smaller property owners), the Building Industry Association, and California Association of Realtors, and others. The lobbyists for these groups meet once a week "to compare notes." A split between CAA (representing small apartment owners) and CHC (large landlords) in California emerged in the late l980s when there was little likelihood of defeating rent control, but this split was resolved in the mid-l990s when, according to a CHC lobbyist, "we realized it wasn't possible to get rid of it entirely" and CAA accepted the need to compromise. Echoed another lobbyist: "It took awhile for small owners to concede that we should settle for something short of the complete elimination of rent control."
The influence of the real estate industry goes beyond its campaign contributions to local and state public officials. The financial resources of the real estate industry have been used to constantly put its opposition on the defensive. As a result, tenants organizations have constantly had to organize to protect the status quo from further erosion of tenant protections. With their considerable financial resources, the CHC and the Greater Boston Real Estate Board sponsored ballot measures or introduced anti-rent control legislation at the state or local levels that kept tenant groups busy and in a reactive mode. They also kept filing lawsuits challenging the legality of various tenant protection laws and then appealing them if and when they lost in lower courts. This served to sap some of the strength and persistence of tenant organizations. It also turned so-called "tenants rights" struggles into complex legal, technical, and legislative maneuvers.
Moreover, the real estate industry is well-organized at the national level. State and local real estate organizations can draw on the experience, expertise, and resources of national bodies and each other. For example, in both states, national real estate industry trade associations and firms have contributed money to support anti-rent control ballot measures, including the Question 9 campaign. Also, national real estate groups have spent several decades hiring academics to conduct studies that criticize rent control as a public policy, while tenant groups generally lack the resources to sponsor comparable research, and disseminate these studies to state and local groups to use in their battles against rent control. The findings of this research, repeated often enough, becomes the "conventional wisdom" among academics. There is now a cadre of academic experts that the industry uses to testify before legislative bodies and to speak to the media. For example in the late l980s, when the Los Angeles City Council was considering renewing (and even strengthen) its rent regulations, the CHC brought Brookings Institution's Anthony Downs, who had written a report against rent control sponsored by a coalition of national real estate industry groups, to Los Angeles to talk to Council members and staff, the media, and industry officials. In support of the Costa-Hawkins bill, the CAA and CHC brought several academics to Sacramento to testify against rent control, summarizing their studies that had been paid for by the industry. During the Question 9 campaign, the GBREB hired two academics to conduct studies to support the anti-rent control arguments.
Finally, the real estate industry was effective at mobilizing its constituency when its leaders thought doing so was necessary. As one real estate lobbyist explained, the realtors, landlords, and developers view this behavior as part of their business activities and spending money for political influence as a business expense. Unlike some other highly-concentrated industries, real estate has many small- and medium-size firms among landlords, realtors, and developers. For example, the California Association of Realtors alone has over 100,000 members. The industry's professional lobbyists catalyze this constituency to write letters to newspapers and politicians, arrange group meetings with elected officials, and attend public hearings"(pg. 24-26).
"Although renters represent a majority of the population in most major cities, they represent a minority in the larger population of both Massachusetts and California. Even more important, the number of tenants who would be directly affected by the loss of rent control was a relatively small subcategory of all tenants. In both states, rent control exempted public housing, private developments with project-based subsidies from federal and state government, and units with Section 8 vouchers and certificates. In Massachusetts, in particular, this represents a sizable proportion of the residents of rental housing. In the Boston area, too, the housing stock consists of many two- and three-unit owner-occupied buildings, whose tenants are also exempt from rent regulations. In Cambridge, for example, half of all renters were exempt from rent control. In California, the Costa-Hawkins bill carefully excluded mobile homes, thus eliminating another potential ally in the fight to preserve rent regulations.
One could reasonably argue that the real estate industry had already won the war against rent control when, during the l970s, it used its political muscle to limit what it called "extreme" or "radical" rent control to a handful of cities in both states. Moreover, in California the Costa-Hawkins bill did not seek to abolish all rent regulations. It allowed cities to adopt or maintain vacancy decontrol provisions. As a result, tenants in the major cities which already had vacancy decontrol -- San Francisco, Los Angeles, Oakland, and San Jose, among them -- would not be directly affected. Only renters in the small cities of Santa Monica, West Hollywood, Berkeley, East Palo Alto, and Cotati stood to lose protections. In Massachusetts, Question 9 sought to wipe out all rent regulations and the subsequent legislation did the same. But only Boston, Cambridge, and Brookline would be affected by this change in policy, and, by 1994, only Cambridge still had full rent control. Landlords in buildings with decontrolled units in Boston and Brookline, which represented the vast majority of units, had already pushed rents to market levels when units became vacant. Although these tenants in Boston were still helped by the "grievance" system, it did not provide the same degree of protection as those handful of tenants who remained in rent controlled apartments. Tenants in those decontrolled apartments had little immediate stake in mobilizing to oppose the real industry's deregulation efforts "(pg. 26).
"Effective tenant organizing would incorporate a combination of electoral work, lobbying, and protest activity. In both states, existing tenant organizations lacked the capacity to mount much more than token mobilization efforts. During the l970s, tenant activists in both states had helped organize rent strikes, large rallies and demonstrations, and occassionally civil disobedience. These activities have two functions. They help solidify the morale and expand the base of the tenant constituency. They also can help catalyze support from third parties (such as the media), a topic discussed below. By the late l980s, tenant groups in both states had ceased engaging in this kind of protest activity. Landlords did not feel sufficiently threatened to negotiate directly with tenants or indirectly through elected officials" (pg. 27).
"Most tenants are low- or moderate-income. Real estate industry claims to the contrary, a majority of tenants living in regulated apartments fall into these categories. Even if they have the capacity to recruit members and collect dues -- itself a complex and laborintensive task -- it is very difficult for organizations with low- and moderate-income constituencies to sustain themselves with dues from members. Thus, if tenant organizations are to hire staff, rent office space, publish and mail newsletters, and undertake the other tasks required of grassroots organizations, they have to attract money from "outside" sources. Since the early 1980s, this has proved increasingly difficult to do.
Many of the grassroots community and tenant organizations of the l960s and l970s received funds from a variety of federal programs, such as VISTA, CETA (the job training program), and others. When President Reagan took office in 1981, a top item on his agenda was to "defund the left" -- to withdraw federal funds from groups engaged in liberal advocacy and organizing" (pg. 28).
"Rent control supporters lost the Costa-Hawkins and Question 9 battles primarily because they were outgunned by the real estate industry's superior financial and political resources. There are no public opinion polls to gauge changes over time in rent control's favorable and unfavorable ranking, so it is impossible to say with certain how the "public" feels about this policy. But there is little doubt that the real estate industry was successful in discrediting the very idea of "rent control" took a beating as a public policy to address housing problems -- if not among the general public, then at least among opinion leaders and elected officials.
Rent control has always been controversial, even during World War 2 when it was imposed to address the housing shortage and help the war effort. During the l970s, however, rent control was viewed as a policy to protect vulnerable tenants from rising rents and arbitrary evictions perpetrated by "greedy" landlords. By the 1990s, the real estate industry had succeeded in repositioning, if not completely discrediting, rent control in the public debate. It argued that rent control had become a policy that protected undeserving affluent tenants and abused small property owners.
This did not occur overnight or by accident. It was part of a long-term effort by the real estate industry. Moreover, it occurred in a broader political environment in which "active government" itself came under assault. During the l970s and l980s, corporate America engaged in an ideological assault on government activism174. This exacerbated and reinforced public skepticism about the capacity of government to solve social and economic problems. Indeed, it directly challenged the role that government had played in the private economy. Rent control was a weapon in this battle. It became a convenient symbol of the excesses of government regulation.
The Question 9 ballot measure took place on the same day in November 1994 as what one real estate lobbyist called the "Republican revolution in Congress" which brought a GOP majority in both Houses and led to the elevation of Cong. Newt Gingrich as Speaker of the House. The campaign around the Costa-Hawkins bill in l995 occurred soon after Governor Pete Wilson had been re-elected and Californians had voted for Proposition 187 (to restrict illegal immigration) and defeated Proposition 186 (to enact "single-payer" health care reform).
In other words, the changing public mood toward government itself might be considered the "background noise" in the rent control battle. Real estate and tenant groups then sought to position or "frame" rent control in ways that would win public sympathy. In the current political climate, however, real estate groups had the ideological upper hand. Moreover, they were able to mobilize their substantial resources to take advantage of this situation. As one tenant activist explained, the industry helped frame the issue so that "rent control was seen as the ultimate big government solution" in a period when "big government" was not a term of endearment.
As noted above, the real estate industry over the years has used a number of arguments to attack rent control, but most recently that have sought to emphasize their claim that it does not help -- in fact, it hurts -- the poor. The industry effectively co-opted the message of rent control advocates by arguing that it primarily benefits affluent renters at the expense of the poor, the elderly, and minorities. Beginning in the mid-1980s, the closelyknit network of conservative think tanks and publications promoted the notion that local rent regulations led to an increase in homelessness. This idea was not only picked by the mainstream media but used by conservative members of Congress and HUD Secretary Jack Kemp to back legislation to withhold federal HUD funds to localities with rent control.This persistent drumbeat of negativism toward rent control had a cumulative effect. According to a California real estate lobbyist, "After 10 or 12 years of fighting rent control, I think we could make a compelling argument that this form of rent control did not fulfill its goals. In fact, it had negative impacts. We had studies and census data and experts who could tell this story."
This public relations effort played up the image of affluent professionals -- "yuppies" -- monopolizing rent controlled units and living in "subsidized" apartments, while, in effect, shutting out more needy renters. The image of West Hollywood, Santa Monica, Cambridge, and Brookline as havens of yuppie affluence reinforced the real estate industry's propaganda. On the eve of the Costa-Hawkins and Question 9 showdowns, the California Housing Council and the Greater Boston Real Estate Board both sponsored studies that claimed to demonstrate that cities with rent control had seen a decline in the number of minority or low-income residents and/or that residents living in regulated apartments were not primarily low-income. Although these studies had serious methodological flaws, the real estate industry was able to widely disseminate their findings, while tenant advocates flailed away, trying to find academics to poke holes in the studies' statistical methods. Perhaps even more importantly, the real estate industry was able to "humanize" this point by identifying some high-profile individuals living in rent regulated apartments. In Massachusetts, the names of Cambridge Mayor Ken Reeves and Supreme Judicial Court Justice Ruth Abrams repeatedly appeared in the news media as examples of the "abuses" of rent control. "I'm forever grateful to Ken Reeves," said Ed Shanahan of the Rental Housing Association and the GBREB.
Real estate interests were so successful at injecting this view into the public debate that news columnists and elected officials repeated it as if it were a truism. Sen. Ray Haynes (R-Riverside) was quoted as saying, "Rent control deprives the young and the old of affordable housing." Upon signing the bill, Gov. Wilson called it "a fundamental issue of fairness for both property owners and those who have artificially been denied access to quality housing." Even a Boston Globe editorial opposing Question 9 repeated the canard that in "Cambridge, the rent control ordinance has indeed been abused by middle-class tenants to can afford to pay market rents." In fact, those few newspaper editorials that opposed Costa-Hawkins, Question 9, and Proposition 199 (to abolish rent control for mobile homes) tended to echo the Globe's view that while rent control itself was problematic, this approach was too blunt an instrument. The tenant groups and their sympathetic politicians had no effective retort to these statements. Even the head of the MTO-led effort was reduced to the defensive posture that rent control is "not a perfect system" and that only a handful of tenants who live in regulated apartments are rich.
The real estate industry had learned to use the phrase "extreme" or "radical" rent control to describe the laws in Cambridge, Santa Monica, West Hollywood and Berkeley. By this they meant that it did not allow vacancy decontrol and that it posed a particular hardship for small property owners, who were characterized as "Mom and Pop" landlords. Both the news media and many elected officials picked up this jargon. It helped to frame the issues so that "vacancy decontrol" became defined as the "moderate" or "compromise" version of rent control. The real estate industry cleverly anointed small property owners as the public face of the deregulation campaigns. When they needed people to testify at hearings, to appear on television, or to be interviewed by reporters, they had a battery of small property owners with "horror stories" to tell. Interviewees in both California and Massachusetts used the same word -- "poster child" -- to identify the individuals who became the representatives of the anti-rent control forces. One real estate industry lobbyist referred to SPOA's Denise Jillson as a "great poster girl." A California tenant activist acknowledged that the landlords had "good poster children" from Santa Monica, Berkeley, and West Hollywood.
In retrospect, some (though not all) housing activists acknowledge that the very strict rent control regulations in Cambridge, Santa Monica, West Hollywood, and Berkeley may have played into the hands of rent control's opponents. In particular, they cite regulations in Cambridge that prohibited some condominium owners from living in their own units, and regulations in Berkeley that allowed the rent board to require large rent rollbacks because small property owners had misunderstood some technical regulations. No doubt all of these examples can be justified legally and technically by rent board staff and rent control supporters. The point of the tenant activists is that these examples provided ammunition for their opponents -- examples of government "abuse" that ordinary people could identify with. One Massachusetts tenant activist acknowledges that during the Question 9 campaign, some Brookline and Boston tenant activists thought that "those Cambridge tenants ruined it for all of us" by failing to correct some of the more stringent aspects of that city's rent control law. He noted that it was no accident that the backlash against rent control was strongest among small property owners in Cambridge, not Brookline and Boston. A California tenant advocate acknowledged that Berkeley's strict rent control system "pissed off even some sympathizers," most importantly, Senator Nick Petris. None of these people favored eliminating full rent control in favor of vacancy decontrol. But they argued that by not treating "Mom and Pop" landlords (small property owners) differently, cities with strong rent control gave the real estate industry ammunition to use against rent control and helped ignite the SPOA rebellion in Cambridge. Also, as noted earlier, the real estate industry was able to stigmatize "radical" rent control by associating it with the unconventional reputations of Berkeley, Santa Monica, West Hollywood, and Cambridge.
As noted earlier, the news media, for the most part, framed the battles over rent control in ways that undermine the tenants' perspective. The controversy was a constant source of news in the local Santa Monica, Berkeley, Cambridge, and Brookline newspapers, but it was only irregularly covered in the major dailies such as the Boston Globe, Boston Herald, Los Angeles Times, San Jose Mercury-News, San Francisco Chronicle, and others. The Boston papers paid only sporadic attention to the Question 9 campaign until the last weeks. It then covered the battle in the state legislature as an "inside politics" fight, focusing on the roles of Governor Weld and the key legislators. The Globe did offer some "human interest" stories, equally balancing the hardships of tenants with those of small property owners. The Boston press paid no attention to the financial contributions of the real estate lobby, or the close connections between SPOA and the major real estate groups; indeed, it emphasized the split between SPOA and GBREB rather than their symbiotic relationship. In comparison, however, the major California media virtually ignored the battle over the Costa-Hawkins bill. As one housing activist noted, the issue was "not on their screen." By 1995, the mainstream media was "tired of rent control as an issue. They viewed it as an 'old' issue." California's major newspapers reported the key votes on Costa-Hawkins, but did not cover the legislative maneuverings or the potential consequences of its passage. It was viewed almost entirely as a political story. Not surprisingly, most of the stories about the Costa-Hawkins battle emanated from their bureaus in Sacramento, the state capital, far from where deregulation would have the most impact. (Sacramento does not have any form of rent control). It is not surprising that the battle over rent control received more coverage in Massachusetts than in California. In Massachusetts, Boston is the state capital, the major media market, and the geographic area where all rent control battles have taken place "(pg. 31-34).
" ...there have been no systematic studies of housing conditions in either the Boston metropolitan or Los Angeles metropolitan areas, or in any of the submarkets in which rent deregulation took place. Even if such studies existed, however, it would be difficult to separate the impact of rent deregulation from other factors such as cuts in federal and state housing studies, state welfare reform, immigration, population growth or decline, and other demographic forces.
It is reasonable to argue that rent deregulation had already taken affect in California and Massachusetts by the late 1970s or early l980s. In other words, the major cities in both states had already adopted vacancy decontrol policies. Los Angeles, San Francisco, San Jose, and Oakland adopted vacancy decontrol from the beginning. Boston had rent control for five years before it was changed to vacancy decontrol. Other major cities -- Worcester, Springfield, New Bedford, Fall River, San Diego, San Bernadino, and others -- and most suburbs and small towns never adopted any reform of rent regulations on apartments.
By the mid-1990s, only about 75,000 units out of 4.6 million rental units in California (in Santa Monica, West Hollywood, Berkeley, East Palo Alto, and Cotati) and about 40,000 units out of 915,617 rental units in Massachusetts (in Boston, Cambridge, and Brookline) were under rent control. This is a extremely small proportion of the rental housing stock in both states. The real estate industry had already won the rent control war. Question 9 and the Costa-Hawkins bill were the final battles in a war of attrition.
An examination of the "impacts of deregulation," therefore, must be viewed in this context. San Francisco, Los Angeles, and San Jose never adopted strong rent controls. Their vacancy decontrol laws meant that all apartment units would eventually reach market levels and that market forces, not government regulation, set rent levels.186 The impact will be small because the overall number of units affected is so small. For example, the real impacts of deregulation in Boston began in l976, when vacancy decontrol initially took affect and the number of units under rent control fell from about 100,000 to 22,000 in less than a decade...Even if we could isolate the impact of deregulation from these other factors, any analysis of this question must separate (a) the immediate or short-term impact on existing or sitting tenants from (b) the longer-term impact on the housing market, particularly the availability of affordable housing. "(pg. 34,35).
"Under Costa-Hawkins, landlords will be allowed to increase rents, no more than twice between 1996 and 1999, but the greater of 15% above the then-existing Maximum Allowable Rent (MAR), as set by local rent control boards, or an amount such that the total rent does not exceed 70% of the Fair Market Rent (FMR) in Los Angeles County, as set by the U.S. Department of Housing and Urban Development. Beginning January 1, 1999, rent increases on vacated units will be deregulated. So long as tenants currently (as of January 1996) in rent controlled apartments remain in these units, they will continue to be subject to rent control -- in other words, landlords will be allowed to increase rents as approved by the Rent Control Board.
The Costa-Hawkins bill will not eliminate the re-control provisions in Los Angeles, San Francisco, and several other cities with vacancy decontrol, but it will primarily affect those cities with full rent control. These include Santa Monica (86,000 population, 68% rental units, 28,200 rent controlled units), West Hollywood (36,118 population, 88% rental units; 19,300 rent control units) Berkeley (102,724 population, 48% rental units, 21,000 rent controlled units), East Palo Alto (23,452 population; 53% renter units; 2,700 rent control units), and Cotati (6,455 population, 600 rent control units). From a statewide perspective, the overall number of units under rent control is quite small, but in each city the number represents a substantial proportion of its housing stock. The impact will not be felt, however, all at once. Tenants will be protected by rent control as long as they stay in their units.
One immediate consequence of Costa-Hawkins, at least in Santa Monica, is the decline in the number of rental units available for renters with Section 8 certificates and vouchers. Prior to Costa-Hawkins, landlords in Santa Monica were eager to accept Section 8s because the Fair Market Rents (FMR) were often higher than the allowable rents under rent control and units were exempt from rent control so long as they had Section 8s. Once Costa-Hawkins passed, the number of landlords willing to accept Section 8s has dwindled. In fact, some landlords are holding units vacant until January 1, 1999 (when all rent regulations are eliminated) rather than rent to new tenants, including Section 8 holders. Current FMRs for the Los Angeles/Long Beach area, which includes Santa Monica, are $675 for a one-bedroom apartment, $854 for a two-bedroom apartment, and $1153 for a three-bedroom apartment. If landlords are willing to forgo these rent revenues, it suggests that market rents in Santa Monica are even higher.
In terms of short-term impact, a major concern is the threat that landlords now have an incentive to encourage tenants to vacate units so they can be free of rent regulations. Some tenant activists warned that the Costa-Hawkins bill will lead landlords to harass tenants to vacate their rent controlled apartments. Staff at the Santa Monica rent board and several legal services attorneys indicated that, indeed, they have knowledge of such increased harassment, but they were unable to quantify the magnitude of the increase. Santa Monica passed an anti-harassment law in July 1995 to address this threat.
The impact of deregulation in Santa Monica and other rent control cities depends on the rate of turnover of regulated units. Between January 1996 (when the law took effect) and May 5, 1997, landlords of over one-fifth (6,354) of the approximately 28,200 rent controlled units in Santa Monica had already registered a vacancy and applied for a vacancy rent increase. Of these, 790 were filing for their second vacancy. A survey of Santa Monica households found the following:
"Average incomes of households in rent-controlled units are significantly lower than households in uncontrolled units and below those of tenants in rent-stabilized units in West Los Angeles. Median household income for tenants in rent-controlled units is $27,000, compared with a median of $42,500 in non-controlled units. In West Los Angeles in 1992, median income for households in rent stabilized units was $32,500. Adjusting for inflation, there has been a decline in real median income among households in controlled units between 1986 ($30,623 in 1994 $) and 1994 ($27,500)."
The survey found that almost three-quarters of the households in rent controlled apartments meet federal guidelines for low- and moderate-income. Tenants in Santa Monica's rent controlled units stay in their units longer than those in other units. They also have lower rent-to-income ratios. Even so, almost half (45%) of households in rent controlled units were paying more than 30% of their incomes for rent, despite the fact that their rents were considerably below the market level. Impressionistic evidence from knowledge sources in Boston and Cambridge suggest a comparable profile of tenant in rent controlled units and compared with renters in nearby cities. When these tenants move -- assuming their incomes do not dramatically increase and that they remain in the Los Angeles area -- it is very likely that they will pay higher rents and have higher rent-to-income ratios" (pg. 38-39).
"In Santa Monica, the 28,000 rent controlled units represent about 60% of the city's housing stock. One study estimates that by 2003, between one-half and three-quarters of Santa Monica's rent controlled stock will be decontrolled. Given projected rent increases, these will no longer be affordable to low- and moderate-income households. Among those units that do turn over once between 1996 and 1999, average rents are expected to increase between 23% and 25%. By 2003, cumulative rent increases are predicted to increase between 46% and 48%. Even within the remaining stock of rent controlled apartments, allowable rent increases under the Costa-Hawkins formula could reduce the proportion of units affordable to low-income households from 45% in 1995 to 24-30% by 2002. Apartments in East Palo Alto currently rent for about half what they cost in neighboring cities. According to a member of the East Palo Alto rent stabilization board, the CostaHawkins law "means East Palo Alto will be gentrified..." Within ten years, "East Palo Alto will look like Palo Alto," a much more affluent city."
Other factors suggest an intensification of competition for rental housing in the Boston area, the Los Angeles area, and the San Francisco area, a trend that will push rents higher. All three metro areas are experiencing population growth. Moreover, the supply of subsidized housing is at risk due to federal housing policy changes. Boston, in particular, has a large inventory of Section 8 developments and other developments facing expiration of low-income use restrictions. In both Massachusetts and California, state housing programs have been contracted since the late l980s; state housing finance agencies are not sponsoring new rental housing construction in either state. At the same time, changes in federal welfare policy will reduce the incomes of many low-income households. Rising rent levels and the reduction of subsidized housing will make it even more difficult for lowincome households to find affordable housing.
Some argue that a significant increase in new rental housing construction could offset these trends. Rent deregulation has seen an increase in rehabilitation and remodeling of existing rental units in Boston, Cambridge, and Santa Monica, but there has not been any significant increase in construction of rental housing since the deregulation laws took effect in both areas. According to the mayor's housing policy advisor in Boston, developers claim that they need rent levels of about $2,000 to make the investment sufficiently profitable and that, with the exception of a few downtown neighborhoods, the Boston housing market has not reached that level. Perhaps a rental housing construction boom will emerge, but it has not yet been seen. Moreover, what new construction is currently in the pipeline is almost entirely market-rate and luxury apartments. There is much debate among housing experts about the so-called "filtering" process -- whether an increase in rental housing at the upper tier of rents loosens the rental housing market in older units. There is considerable evidence that an increase in market-rate and luxury housing may have the opposite impact -- leading to "filtering up" (gentrification) rather than "filtering down."
The most likely scenario is that housing affordable to low- and moderate-income households will decline both in absolute numbers and as a proportion of the rental housing stock in cities where rent control has been or is in the process of being eliminated. As a consequence, rent-to-income ratios for existing244 and future renters will increase. This will have an importance beyond the household or the housing market; it will mean that renters, with less discretionary income, will spend less on other goods and services, including basic necessities such as food and clothing as well as other items. This will have a negative impact on the larger economy as the effective demand for non-housing goods and services declines. One can expect an increase in overcrowding as tenant households facing rising rent-toincome ratios and lower vacancy rates respond by doubling-up. Even with rising rent-toincome ratios and increased overcrowding, it is likely that the number of low- and moderateincome households will decline in absolute numbers and as a proportion of the populations of formerly rent controlled cities. These communities will lose some of their economic and social diversity. The bonds of "community" -- reflected in social ties -- may begin to diminish. It is impossible to put a price-tag or to quantify this aspect of a city's quality of life" (pg. 41-42).
"When people work to make our cities better places, they indirectly contribute to higher housing costs. Public investment, in particular, makes a big difference. When we build new infrastructure or transit systems, we see dramatic and immediate increases in the price of surrounding properties because these areas become more attractive places to live. Ideally, everyone would benefit from improved cities, but in reality the costs and benefits of improvement are not shared equally.
Lower-income residents looking for a new home soon face a choice among several undesirable options: extreme commute times, overcrowding, substandard housing, or rents or mortgages that are so high they deplete resources for other essentials. Displaced families are not the only ones who suffer—everyone loses when economic diversity deteriorates. Unequal access to housing drives sprawling development patterns; worsens traffic congestion; pollutes air quality; increases taxpayer dollars spent on basic infrastructure; and decreases racial, cultural, and economic diversity
Recognizing that this basic dynamic will not change naturally, more and more communities have been consciously seeking to promote mixed-income development. Instead of accepting the assumption that economic growth must automatically lead to economic exclusion, they have been developing local policies that seek to increase economic inclusion." (pg. 8).
"It might stand to reason that development of housing— any kind of housing—would lead to lower housing prices. In most urban areas, however, the opposite occurs. Construction of new residential real estate impacts the price or rent of existing homes in two different ways simultaneously. As the basic notion of supply and demand suggests, the addition of new units in a given market will inevitably put some downward pressure on the cost of existing units. But the larger effect tends to be upward pressure on housing costs because new homes are primarily built for higher income residents. A 2015 study commissioned by the Wall Street Journal found that 82 percent of new rental housing in the United States was luxury housing (Kusisto 2015). Not only do the new units command higher rents, but also the new residents who can afford them spend money in ways that create demand for more lower-wage workers in the area. This, in turn, creates more demand for housing and ultimately raises housing costs.
Modest price increases in a region can translate into very acute increases in specific neighborhoods. For example, new luxury housing may cause dramatic upswings in the price of residential real estate in formerly distressed central neighborhoods, but the lower costs resulting from increased supply may be apparent only at the suburban fringe of the region (page 12)".
"Since 2012, large investment companies, mainly private equity firms, have raised and/or invested $20 billion to purchase as many as 200,000 single-family homes throughout the United States. This investment space opened up as a result of the foreclosure crisis, which lowered property values, tightened mortgage credit, increased rental demand, and consolidated unprecedented amounts of single-family homes under the ownership of banks and government-sponsored enterprises. While local “mom and pop” ownership has long characterized the single-family rental market, these post-crisis conditions created new opportunities for firms like Blackstone and Colony Capital to enter the market. Within just a few years, single-family rental housing has become a new institutional asset class. The recent rollout of the first rent-backed securities has some analysts estimating the market as a $1.5 trillion opportunity
This generation’s crisis of affordable housing will impact renters the most — especially low-income people of color living in urban areas. The rise of the corporate landlord in the single family market is central to understanding the housing crisis renters face today. The need to bring public attention to this paradigm shift is particularly important in light of intensifying housing cost-burden for renters and surging post-crisis rental demand, which together have brought chronic housing insecurity for low-income renters to crisis proportions" (page 6).
"Tenants could face higher rental costs due to pressure for private equity funds to deliver returns to investors, particularly with the advent of rental bonds. Among Invitation Homes tenants we interviewed in Atlanta, Los Angeles, and Riverside, rents often exceeded the HUD Fair Market Rents for the area; lease renewals increased rents by 37 to 53 percent. The long distance nature of the tenant-landlord relationship and the practicalities of investment strategies may also increase corporate landlords’ reliance on financial penalties, potentially limiting tenants’ opportunities to seek recourse in cases of hardship...
...Corporate landlords’ limited experience means they may fail to comply with fair housing law in how they market their properties, who they rent to, and whether they make accommodations for people with disabilities. Overall, less than 1 percent of the properties owned by Invitation Homes are occupied by tenants with Section 8 vouchers. In our surveys of Invitation Homes tenants in Los Angeles and Riverside, only one of 50 respondents received a Section 8 subsidy. We must also consider how shifting investment priorities could contribute to housing instability for low-income renters over the medium and long term. What are the ramifications of the government subsidizing such cases of speculation?...
...Since institutional investors are not experienced in property management and maintenance, housing quality can easily be compromised. Many Invitation Homes tenants in Atlanta expressed concern about shoddily completed renovations. Recently, a Los Angeles family sued the company for its failure to quickly respond to water leaks, mold, and cockroaches, which adversely affected their health. Greater reliance on leveraged purchasing increases the potential for investors to experience financial distress, adding to the risk of property neglect...
...Situated in the footprint of the foreclosure crisis, a major concern about the new single-family rental market is the potential for another speculative cycle that could end in a bust, subjecting communities to yet another round of destabilization.14 Tenants may be forced to move out or adjust to new policies and practices when their home is flipped to a new investor-landlord. There is also a need to consider how renters can hold distant corporate landlords accountable. Invitation Homes tenants in Atlanta, Los Angeles and Riverside report they have never seen anyone from the company since they moved in and are not in regular contact with their landlord" (page 7).
"The institutionalization of the single-family rental market raises questions about housing access, affordability, quality and stability. The entrance of corporate investors as landlords represents a fundamental change in the nature of the tenant-landlord relationship in the single-family context, potentially complicating tenants’ ability to communicate with and hold landlords accountable. Moreover, this market has developed in the footprint of the foreclosure crisis, in places that the housing collapse has left deeply unsettled for half a decade or more. Thus beyond the potential implications for renter households, the institutionalization of the single family rental market must also be considered in terms of the consequences for homeowners (nearly 1 in 5 of whom owe more on their mortgage than their homes are worth) and the risk to communities, cities and regions" (page 9).
"Renting is often associated with multifamily apartment buildings, but a significant share of renters, typically families, has always lived in single-family homes. This share has recently expanded: whereas 30.8% of all renters lived in single family homes in 2005, 34.1% did in 2011. The nation’s housing bust has also expanded the supply of single-family rental housing: from 2007 to 2011, 2.4 million single-family homes were converted from owner-occupied to rental tenure, compared to just under a million such conversions between 2003 and 2007. This brings the total number of single-family rental homes to 14 million, which represents about a third of the nation’s rental housing inventory.
While single-family housing makes up a good portion of the total rental housing stock, local investors and individual “mom and pop” style owners have traditionally dominated this market segment. However, increased rental demand, plus the consolidation of massive amounts of single-family homes under bank ownership and continuing high levels of foreclosure and nonperforming loans, have created new market opportunities for larger investors to purchase single family homes for conversion to rental housing.
Based on data from the National Association of Realtors, investors accounted for almost a fifth (19%) of home sales from 2010 to 2013. Recent research from the Federal Reserve suggests that business investors buying three or more homes accounted for 6.5% of home sales in 2012, up from less than 1% in 2004; purchases by private equity-funded institutional investors buying 200+ homes a year have jumped significantly in the past two years. Institutional investors’ entrance to the single-family rental sector represents a paradigm shift for what has long been a fragmented and highly differentiated market...
...Starting as early as 2008 with smaller private equity firms like Waypoint in California and American Residential Homes in Arizona, institutional investors have been developing a “buy to rent” strategy (as opposed to a buy to sell strategy). This strategy was initially called “REO-to-rental” because it was based on buying distressed properties at a discount and renting them out pending home value recovery, or forming single-family real estate investment trusts. However, the actors and tactics involved in buy to rent have evolved rapidly over the past few years, with market innovations that have extended the strategy beyond REO properties to include nonperforming loans.
The government also got into the game: in 2012 the Federal Housing Finance Agency began piloting bulk sales of pools of REO Fannie Mae properties to investors as a means of getting these assets off the GSE balance sheets, with a focus on properties in hard-hit metropolitan areas including Atlanta, Chicago, Las Vegas, Los Angeles, Phoenix, and parts of Florida. The REO Pilot Initiative was meant to show whether it was possible to stimulate private investment in single-family rental markets by attracting large investors with bulk sales. The Initiative came with a comprehensive and demanding application process, requirement for both property and asset management experience, inability to ‘cream’ pools for the best properties, and other stipulations, e.g. that operators have worked in the geographies in which properties are located.
Given FHFA’s relatively smaller share of the REO market, the future benefit of such sales would be more applicable to private market players. Government agencies hoped the Initiative would serve as a model for private sector participants, and that they would maintain the high standards implemented by FHFA. Indeed, By 2012, large, well-capitalized institutional investors, including industry leader Blackstone, had begun to partner with smaller firms, who could provide better knowledge of local markets. For example, last fall the Starwood mortgage real estate investment trust (REIT) purchased Waypoint’s management division to operate its new single-family REIT" (page 10).
"Alternative investment companies like private equity funds are generally opaque, thinly regulated, and typically undertake riskier investment strategies. While government agencies hoped private sector participants would adopt the high standards of the REO Pilot Initiative, the defining characteristics of private equity present a challenge to this objective. This creates a corresponding need for sunlight on the institutionalization of single-family rental housing.
At around 200,000 properties, the overall scale of their purchasing is still small compared to buying by smaller and individual investors, but institutional investors enjoy market advantages over would-be competitors. In-house expertise and resources enable institutional investors to hire in-house staff and develop proprietary software to manage property renovations and rentals. Larger investors’ scale and pace of activity in target markets also offers them the potential to secure exclusive arrangements with local real estate agents and contractors.
But their chief advantage is the ability to bypass today’s tighter mortgage requirements through raising cash cheaply on capital markets, allowing institutional investors to outspend and out-scale smaller outfits. Indeed, although REO-to-rental started out as a an un-levered industry, several large banks, including Deutsche Bank, JPMorgan Chase, Wells Fargo, Citigroup and Bank of America now offer financing for acquisitions by institutional investors. Along with a syndicate of other lenders (including JPMorgan Chase, Goldman Sachs, Wells Fargo), Deutsche Bank provided approximately $3.6 billion to fund Blackstone’s acquisitions; it also arranged a $100 million credit facility for Five Ten Capital and a $200 million credit line for Apollo to support their single-family acquisition strategies. Bank of America and JPMorgan Chase made a $200 million line of credit available to Silver Bay Realty Trust; Wells Fargo provided a $500 million line of credit (expandable to $1 billion) to American Homes 4 Rent.
Recently, private equity firms have also benefited from an influx of capital from investors like pension funds and mutual funds seeking yield in the context of interest rates held close to zero. Tasked with investing this “impatient capital,” the greater opacity of alternative investment approaches like private equity also allows firms to pursue risky strategies (such as highly leveraged deals) and frequently reconfigure their tactics in order to meet the demand for yield. This demand by equity coming in and the availability of debt leverage, combined with the status of single-family rental housing as an incomplete market, has created several opportunities for market innovation "(page 11).
"An important feature of the entrance of institutional investors to the single-family sector is the rapid development of an array of market strategies. These offer large, well-capitalized firms multiple ways of expanding their property holdings. In turn, expanded property holdings provide inputs for financial instruments, such as stock shares and rental bonds. For example, in 2012, Silver Bay Realty Trust was the first single-family operator to go public as a REIT, raising $245 million with the initial public offering on its 2,450-unit portfolio, which it planned to plow back into acquiring 3,100 more properties. Since then, American Homes 4 Rent and American Residential Properties have also entered this relatively uncharted territory with similar public offerings. Going public allows investment companies to raise additional capital and enlarge their portfolios of single-family rental properties.
Most recently, securitization has emerged as a new opportunity for corporate investors to undertake leveraged acquisitions. In November 2013, Blackstone’s single-family rental arm Invitation Homes issued the first security backed by rental income, much of it rated AAA. Structured by Deutsche Bank, the securitization included 3,207 homes and yielded proceeds of $479 million after attracting six times as many investors as it could accept; rental bonds could total $7 billion in 2014 and reach $22 billion annually. In March of this year, Colony Capital began to market the industry’s secondever REO-to-rental bond, a $500 million pool. American Homes 4 Rent, “the largest publicly-traded U.S. single-family landlord,” also began marketing its own rental bond. Both invitation Homes and Colony American Homes have each issued a second rental securitization.
Rental bonds offer investors like mutual funds and insurance companies a stream of payments based on monthly rental income, while giving corporate landlords leverage to buy more homes and increasing their profits by lower ing the cost of borrowing. The leverage securitization offers could double or triple returns on equity from 5-7% annually to more than 15% a year. Analysts estimate that up to $5 billion in rental bonds may be issued this year. Of course, as we saw in the financial crisis, investor demand for such products helped drive high-risk lending practices in order to create the inputs (new mortgage debt) for mortgagebacked securities. Thus a fundamental question about rental securitization is whether renters, who are more vulnerable to unemployment, underemployment and economic downturns, will be able to make timely rental payments.
The role of major credit rating agencies in the meltdown is also well-documented, with their flawed models and drive for market share and fees accounting for inflated ratings of instruments backed by risky loans. The eager market demand with which Blackstone’s first rental securitization was met suggests they could be the rating agencies’ new golden goose, raising concerns about the data and motivations underlying rental bond ratings" (page 12).
"The implications of this shift in the rental market are of special significance for people of color, women and immigrants. African-American and Latino households experienced a dramatic loss of wealth as a result of the foreclosure crisis, with their ejection from homeownership into the rental market contributing to intensified competition for affordable rental housing. Reflecting racialized disparities in homeownership declines, people of color, particularly Hispanics, will account for the majority of the anticipated growth in rental demand over the next decade. The burden of eviction and lack of housing access, as well as the health impacts of overcrowded and poor-quality housing, fall disproportionately on people of color, women and immigrants. The commodification of single-family rental housing by financial actors threatens to intensify the ongoing rental crisis for these populations.
Yet because this market has emerged so recently and is developing so rapidly, we lack adequate information about its consequences. Could converting formerly owner-occupied single-family homes to rental housing alleviate affordability pressures by adding to the housing supply? Will gentrification result as investors upgrade properties and increase rents, thus worsening affordability issues and contributing to displacement? Could investors’ lack of management experience and investment practices contribute to housing decline and neighborhood instability? These potential outcomes are not mutually exclusive, and will depend to a great extent on how local, state and federal government and regulatory agencies, consumer protection groups, housing advocates, and communities themselves respond to and engage with the newly institutionalized single-family rental market" (page 14).
"More than just basic shelter, housing affects our lives in other important ways, determining our access to work, education, recreation, and shopping. The cost and availability of housing also matters for the state’s economy, affecting the ability of businesses and other employers to hire and retain qualified workers and influencing their decisions about whether to locate, expand, or remain in California...
...High Housing Costs Are Not California’s Only Housing Challenge. Though this report focuses on high housing costs, California also faces other significant housing challenges meriting legislative consideration, including: (1) facilitating housing options for the state’s homeless individuals and families; (2) mitigating adverse health effects related to living in substandard housing or housing near sources of pollution; and (3) removing noneconomic barriers to housing, such as race, ethnicity, gender, and disability status. These challenges are beyond the scope of this report" (page 5).
"Single-family home prices and apartment rents in less costly areas of the state, such as Fresno and Bakersfield, though considered inexpensive by California standards, are about average compared with the rest of the country. Each of the state’s other major metros are well-above the rest of nation, even California’s other major inland metros, Riverside-San Bernardino and Sacramento...
... California’s high housing costs force many households to make serious trade-offs. In most instances, these trade-offs are particularly challenging for households with low incomes. Notable and widespread trade-offs include (1) spending a greater share of their income on housing, (2) postponing or foregoing homeownership, (3) living in more crowded housing, (4) commuting further to work each day, and (5) in some cases, choosing to work and live elsewhere...
... Federal, state, and local government housing programs generally work in one of two ways, by: (1) increasing the supply of moderately priced housing or (2) reducing housing costs for some households.
Programs That Build New Housing. Federal, state, and local governments provide direct financial assistance— typically tax credits, grants, or low-cost loans—to housing developers for the construction of new rental housing. In exchange, developers reserve these units for lower-income households. (Until recently, local redevelopment agencies also provided this type of financial assistance.) Data suggests these programs together have subsidized the new construction of about 7,000 rental units annually in the state—or about 5 percent of total public and private housing construction—since the mid-1980s. In addition to direct subsidies, some local governments increase the supply of affordable housing by requiring developers of market-rate housing to set aside some of the units they are building for low- and moderate-income households, a policy called 'inclusionary housing'.
Programs That Help Households Afford Housing. In some cases, the federal government makes payments to landlords—known as housing vouchers—on behalf of low-income tenants for a portion of a rental unit’s monthly cost. About 400,000 California households receive this type of housing assistance. In other cases, local governments limit how much landlords can increase rents each year for existing tenants. About 15 California cities have these so-called rent controls, including Los Angeles, San Francisco, San Jose, and Oakland" (page 7,9).
"A collection of factors drive California’s high cost of housing. First and foremost, far less housing has been built in California’s coastal areas than people demand. As a result, households bid up the cost of housing in coastal regions. In addition, some of the unmet demand to live in coastal areas spills over into inland California, driving up prices there too. Second, land in California’s coastal areas is expensive. Homebuilders typically respond to high land costs by building more housing units on each plot of land they develop, effectively spreading the high land costs among more units. In California’s coastal metros, however, this response has been limited, meaning higher land costs have translated more directly into higher housing costs. Finally, builders’ costs—for labor, required building materials, and government fees—are higher in California than in other states. While these higher building costs contribute to higher prices throughout the state, building costs appear to play a smaller role in explaining high housing costs in coastal areas. This section describes how each of these factors increase home prices and rents in California...
...A collection of factors drive California’s high cost of housing. First and foremost, far less housing has been built in California’s coastal areas than people demand. As a result, households bid up the cost of housing in coastal regions. In addition, some of the unmet demand to live in coastal areas spills over into inland California, driving up prices there too. Second, land in California’s coastal areas is expensive. Homebuilders typically respond to high land costs by building more housing units on each plot of land they develop, effectively spreading the high land costs among more units. In California’s coastal metros, however, this response has been limited, meaning higher land costs have translated more directly into higher housing costs. Finally, builders’ costs—for labor, required building materials, and government fees—are higher in California than in other states. While these higher building costs contribute to higher prices throughout the state, building costs appear to play a smaller role in explaining high housing costs in coastal areas. This section describes how each of these factors increase home prices and rents in California.
Between 1980 and 2010, construction of new housing units in California’s coastal metros was low by national and historical standards. During this 30-year period, the number of housing units in the typical U.S. metro grew by 54 percent, compared with 32 percent for the state’s coastal metros" (page 10).
" Home building was even slower in Los Angeles and San Francisco, where the housing stock grew by only around 20 percent. As Figure 5 shows, this rate of housing growth along the state’s coast also is low by California historical standards. During an earlier 30-year period (1940 to 1970), the number of housing units in California’s coastal metros grew by 200 percent.
Jump in California Housing Costs Occurred as Building Slowed. A look at housing costs in California’s coastal metros in recent decades shows a connection between the slow rate of building and higher housing costs. The slowdown in building in California’s coastal metros corresponded with a substantial rise in housing costs relative to the rest of the country. In 1970, home prices in the state’s coastal metros were about 50 percent more expensive than in the rest of the country. This gap has widened considerably since that time. Homes in the coastal metros are now more than three times more expensive than the rest of the country. Similarly, rents have grown more expensive, with the gap between the coastal metros and the rest of the country increasing threefold since 1970 (from 16 percent more expensive to around 50 percent more expensive)" (pages 10,11, 12).
"Link Between Development and Housing Costs Exists Elsewhere Too. The same relationship between growth of housing supply and housing costs exists throughout the country, suggesting that what has occurred in California is not coincidental. Looking broadly at major metropolitan counties (counties comprising metros with a population of 500,000 or greater) throughout the country, places with slower housing growth generally have more expensive housing. Based on U.S. Census data, the median home price in 2010 was just over $300,000 in the fifth of counties that grew the slowest between 1980-2010, compared with $195,000 in the fifth of counties that grew the fastest.
Our review indicates that that the relationship between growth of housing supply and increased housing costs is complex and affected by other factors—such as demographics, local economies, and weather. Nonetheless, using common statistical techniques to account for the influence of these other factors, there remains a strong relationship between home building and prices. For example, our analysis suggests that—after controlling for other factors—if a county with a home building rate in the bottom fifth of all counties during the 2000s had instead been among the top fifth, its median home price in 2010 would have been roughly 25 percent lower. Similarly, its median rent would have been roughly 10 percent lower...
... California’s inland metros added housing at about twice the rate of the typical U.S. metro between 1980 and 2010. Yet housing costs in much of inland California are above average relative to the rest of the country. High housing costs in the state’s inland metros appear to result largely from their proximity to California’s coast. Some households and businesses that want to locate on California’s coast but find housing too expensive there locate in California’s inland metros instead. This displaced demand places pressure on inland housing markets and results in higher home prices and rents there. Examining the relationship between housing costs in neighboring counties throughout the country using U.S. Census data from 1980 and 2010, we find that this spillover effect is substantial. Our analysis suggests that—after accounting for a variety of other factors that can affect housing costs—a 10 percent increase in housing costs in a county is associated with a roughly 5 percent increase in housing costs in its neighboring counties" (page 12).
"Land prices on the California coast are among the highest in the country. In contrast, land prices in inland California typically are at or below the national average. Comparing land prices across metropolitan areas can be difficult, largely due to data limitations. Nonetheless, several estimates of land values are available in the economics literature and they find that land is considerably more expensive on California’s coast. One analysis of land sales between 2005 and 2010 found that land prices in California’s metros ranged from twice as expensive as the average U.S. metro (Oakland and San Diego) to more than four times as expensive (San Francisco)...
... Residential land in an average U.S. metro was valued at around $20,000 per acre, compared with over $150,000 in California’s coastal metros. Land values were highest in San Francisco, where an acre of land was valued at nearly $400,000.
High Land Costs Can Be Offset Through Dense Development. Although high land costs can translate into higher home prices and rents, it is possible to offset the effects of high land costs through more dense development. (The density of housing refers to the number of housing units per unit of land—typically measured in units per acre. Higherdensity housing, such as an apartment building, has more housing units per acre.) Building more units on the same plot of land allows a developer to spread land costs across more units, lessening the impact of land costs on the cost of each unit. This is because land costs are fixed and do not increase if a developer builds additional units. For example, if a developer builds five homes on a plot of land that costs $100,000, the land cost per unit is $20,000. Alternatively, if the developer builds ten homes on the same plot of land, the land cost per unit is only $10,000. Builders faced with high land costs, therefore, generally will build more dense housing. When this occurs, the effect of high land costs on home prices and rents is reduced...
...of California’s coastal metros found that housing densities rose significantly faster in San Francisco than the other California coastal metros, which is unsurprising given that San Francisco’s land prices are higher than just about anywhere else in the U.S...
... Our review found that, during the 2000s, the housing density of a typical neighborhood in California’s coastal metros rose by 4 percent. This increase in density was considerably less than the 11 percent average increase in our comparison group. Furthermore, we estimate that the new housing built in these comparison metros was about 40 percent more dense than housing built in California’s coastal metros. New housing in the comparison metros had an average density of about 14 units per acre, compared with about ten units per acre in California’s coastal metros" (pages 12,13).
"Aside from the cost of land, three factors determine developers’ cost to build housing: labor, materials, and government fees. All three of these components are higher in California than in the rest of the country. Construction labor is about 20 percent more expensive in California metros than in the rest of the country. California’s building codes and standards also are considered more comprehensive and prescriptive, often requiring more expensive materials and labor. For example, the state requires builders to use higher quality building materials— such as windows, insulation, and heating and cooling systems—to achieve certain energy efficiency goals.
Additionally, development fees—charges levied on builders as a condition of development—are higher in California than the rest of the country. A 2012 national survey found that the average development fee levied by California local governments (excluding water-related fees) was just over $22,000 per singlefamily home compared with about $6,000 per single-family home in the rest of the country. (This survey reflects school facilities fees imposed during this period and not the higher so-called “Level 3” fees that school districts may impose in the future if the State Allocation Board makes certain declarations about the availability of school construction funds.) Altogether, the cost of building a typical single-family home in California’s metros likely is between $50,000 and $75,000 higher than in the rest of the country.
In places where housing is relatively abundant, such as much of inland California, building costs generally determine housing costs. This is because landlords and home sellers compete for tenants and homebuyers. This competition benefits renters and prospective homebuyers by depressing prices and rents, keeping them close to building costs. In these types of housing markets, building costs account for the vast majority of home prices. In two major inland metros—Riverside-San Bernardino and Sacramento—building costs account for over fourth-fifths of home prices. In contrast, in coastal California, the opposite is true. Renters and home buyers compete for a limited number of apartments and homes, bidding up prices far in excess of building costs. Building costs account for around one-third of home prices in California’s coastal metros. Under these circumstances, as Figure 6 shows, building costs explain only a small portion of growth in housing costs. Instead, increasing competition for limited housing is the primary driver of housing cost growth in coastal California" (pages 13, 14).
"A collection of factors inhibit developers from doing so. The most significant factors are:
• Community Resistance to New Housing. Local communities make most decisions about housing development. Because of the importance of cities and counties in determining development patterns, how local residents feel about new housing is important. When residents are concerned about new housing, they can use the community’s land use authority to slow or stop housing from being built or require it to be built at lower densities.
• Environmental Reviews Can Be Used to Stop or Limit Housing Development. The California Environmental Quality Act (CEQA) requires local governments to conduct a detailed review of the potential environmental effects of new housing construction (and most other types of development) prior to approving it. The information in these reports sometimes results in the city or county denying proposals to develop housing or approving fewer housing units than the developer proposed. In addition, CEQA’s complicated procedural requirements give development opponents significant opportunities to continue challenging housing projects after local governments have approved them.
• Local Finance Structure Favors Nonresidential Development. California’s local government finance structure typically gives cities and counties greater fiscal incentives to approve nonresidential development or lower density housing development. Consequently, many cities and counties have oriented their land use planning and approval processes disproportionately towards these types of developments.
• Limited Vacant Developable Land. Vacant land suitable for development in California coastal metros is extremely limited. This scarcity of land makes it more difficult for developers to find sites to build new housing" (page 15).
"Local zoning laws and building codes specify where housing may be built, as well as its density, quality, and style. Housing developers are required to obtain building permits from city and county planning departments and typically must gain approval from local planning commissions and city councils or county boards of supervisors. Cities and counties also prepare General Plans that shape their communities’ long-term development patterns...
...There are many possible reasons residents may be hesitant about new housing. Some residents may see new housing as a threat to their financial wellbeing. For many homeowners, their home is their most significant financial investment. Existing homeowners, therefore, may be inclined to limit new housing because they fear it will reduce the values of the homes.
Residents also may feel that new housing reduces their nonfinancial wellbeing. Many people, as they become accustomed to their lifestyle and the character of their neighborhood, naturally are hesitant about change and future unknowns. It is unsurprising then that they would be concerned about adding new housing to their community because it presents uncertainty and possibilities of change. Expanded development can strain existing infrastructure—such as streets and roads, schools, and parks—requiring residents to change the way they use these public goods. For example, new development may increase traffic on existing streets and roads, forcing some residents who commute via car to take public transportation instead. Strains on existing infrastructure also may require state and local governments to make new investments in infrastructure to expand capacity. New housing also can alter the character of a community, shifting it from a rural to an urban setting or from a traditional single-family home neighborhood to a neighborhood with a mix of densities and land uses. In addition, new housing can place strains on natural and environmental resources, in some instances making it more difficult to ensure adequate air and water quality or to protect natural ecosystems.
Opposition to New Housing Appears to Be Heightened on the California Coast. Hesitance about new housing can lead residents to pressure local officials to use their land use authority to slow or block new development or may result in residents directly intervening in land use decisions via the initiative and referendum process. Compared with the rest of the country, these types of activities appear to occur more often in California’s coastal communities, suggesting that community opposition to housing is heightened in these areas.
Many Coastal Communities Have Growth Controls. Over two-thirds of cities and counties in California’s coastal metros have adopted policies (known as growth controls) explicitly aimed at limiting housing growth. Many policies directly limit growth—for example, by capping the number of new homes that may be built in a given year or limiting building heights and densities. Other policies indirectly limit growth—for example, by requiring a supermajority of local boards to approve housing projects. Research has found that these policies have been effective at limiting growth and consequently increasing housing costs. One study of growth controls enacted by California cities found that each additional growth control policy a community added was associated with a 3 percent to 5 percent increase in home prices" (page 15, 16).
"Project Reviews Along Coast Often Are Slow and Cumbersome. Cities and counties often require housing projects to go through multiple layers of review prior to approval. For example, a project may require independent review by a building department, health department, fire department, planning commission, and city council. Each layer of review can increase project approval time. Additional complexity in review processes also creates avenues for concerned residents to slow building or reduce its size and scope, as the story in the nearby box shows. One survey of city and county officials nationwide suggests that communities in California’s coastal metros take about two and a half months longer, on average, to issue a building permit than in a typical California inland community or the typical U.S. metro (seven months compared to four and a half months). Divergence from the rest of the country was more significant in some communities—for example, typical approval time was over a year in San Francisco and over eight months in the City of Los Angeles. If a project required a change in local zoning laws—as is common among large projects—approval time was much longer. The average time to approve a rezoning was just under a year in California’s coastal metros, about three months longer than in a typical California inland community or a typical U.S. metro. Researchers have linked additional review time to higher housing costs. A study of jurisdictions in the Bay Area found that each additional layer of independent review was associated with a 4 percent increase in a jurisdiction’s home prices.
Local Ballot Measures on Coast Have Limited Development. Many significant land use decisions in California’s coastal communities are made by voters. More often than not, voters in California’s coastal communities vote to limit housing development when given the option. Our review of local elections data between 1995-2011 found that voters in California’s coastal metros took a position that limited housing growth—either by voting “yes” for a measure constraining growth or voting “no” for a measure that would allow growth— about 55 percent of the time. On average, coastal communities as a whole approved five measures per year limiting housing growth (or rejected measures allowing new building). While most major local jurisdictions throughout the country have some form of an initiative and referendum process, California’s high degree of voter involvement in land use decisions appears to be unique. One review of election results across the country during the November 2000 election found that just under half of all measures related to land use planning and growth management were in California" (pages 16, 17).
"Why Is Community Resistance to New Housing Heightened on California Coast? A collection of factors come together on the California coast to create a particularly heightened level of community resistance to new housing. High demand to live on California’s coast results in constant pressure for additional housing. At the same time, residents of California’s coast have much at stake in decisions about housing growth, as their communities have very high home values and desirable natural amenities. As a result, residents often push back against proposals for new housing. In addition, there is very little vacant land for new housing, meaning that development often takes the form of redevelopment in established neighborhoods. Redevelopment changes these neighborhoods, creating additional concerns for existing residents...
...CEQA Requires Environmental Review for New Housing. CEQA was enacted in 1970 in order to ensure that state and local agencies consider the environmental impact of their decisions when approving a public or private project. Under CEQA, before approving new housing (or other development), cities and counties usually must conduct a preliminary analysis to determine whether a project may have significant adverse environmental impacts. If it is determined that a project might create significant impacts, then an environmental impact report (EIR) must be prepared. An EIR provides detailed information about a project’s likely effect on the environment, considers ways to mitigate significant adverse environmental effects, and examines alternatives to the project. Where an EIR finds that a project will have significant adverse environmental impacts, a city or county is prohibited from approving the project unless one of the following two conditions is met: (1) the project developer makes modifications that substantially lessen the adverse environmental effects or (2) the city or county finds that economic or other project benefits override the adverse environmental effects. This level of environmental review for private housing development is uncommon among U.S. states. Only four other states have comparable requirements.
CEQA Can Be Used to Reduce New Housing Development. The CEQA process can provide valuable information to decision makers and help to avoid unnecessary environmental impacts. The CEQA review process also provides many opportunities for opponents to raise concerns regarding a project’s potential effects on a wide array of matters, including parking, traffic, air and water quality, endangered species, and historical site preservation. A project cannot move forward until all concerns are addressed, either through mitigation or with a determination by elected officials that benefits of the project outweigh the costs. In addition, after a local governing board approves a project, opponents may file a lawsuit challenging the validity of the CEQA review. As a result of these factors, CEQA review can be time consuming for developers. Our review of CEQA documents submitted to the state by California’s ten largest cites between 2004-2013 indicates that local agencies took, on average, around two and a half years to approve housing projects that required an EIR. The CEQA process also, in some cases, results in developers reducing the size and scope of a project in response to concerns discovered during the review process" (page 18).
"Local Governments Weigh Fiscal Impacts of Land Use Decisions. When property is developed, communities usually:
• Receive Increased Tax Revenues. Many developments, for example, generate increased property and/or sales tax revenues for the communities in which they are located.
• Face Increased Demand for Public Services and Infrastructure. For example, developments can trigger increased demand for local governments to provide police and fire services to new residents or to expand streets and roads to accommodate increased vehicle traffic.
Because different types of developments yield different amounts of tax revenues and service demands, local governments throughout the nation commonly examine these fiscal effects when considering new developments or planning for future development. As a matter of fiscal prudence, development that does not generate sufficient revenues to fund a local government’s new costs often is revised or rejected...
...commercial developments—particularly major retail establishments, auto malls, restaurants, and hotels—yield the highest net fiscal benefits. This is because the increased sales and hotel tax revenue that a city (or, in the case of a development in an unincorporated area, the county) receives from these developments often more than offsets the local government’s costs to provide them public services. As a result, cities and counties often encourage these types of commercial developments to locate within their jurisdictions—for example by zoning large sections of land for these purposes and by offering subsidies or other benefits to the prospective business owners.
In contrast, many California cities and counties find that housing developments lead to more local costs than offsetting tax revenues. This is because these properties do not produce sales or hotel tax revenues directly and the state’s cities and counties typically receive only a small portion of the revenue collected from the property tax. In addition, lower-density luxury housing often “pencils out” more favorably from a local government standpoint than higher-density moderate cost housing. This is because the luxury housing generates higher levels of property tax revenues per new resident...
...Topography is the primary constraint on developable land in California’s coastal metros. Just under two-thirds of the area surrounding the urban centers on California’s coast is undevelopable due to mountains, hills, ocean, and other water. This compares to less than a quarter of land lost due to topography in a typical U.S. metro" (page 18,19).
"Redeveloping Land Possible, but More Difficult and Expensive. Overall, one survey of land in California’s urban areas conducted in 2006 found that less than 1 percent of land in California’s coastal urban areas was developable and vacant. Limited vacant land, however, does not mean that development must cease. Previously developed but abandoned or underutilized parcels can be redeveloped. Older, lower-density housing can be replaced with new higher-density housing. These types of redevelopment activities can yield increased housing supply even in areas where little or no vacant land exists. Redevelopment, however, often is more cumbersome and expensive than development on vacant land. Developers must demolish old buildings and often are required to address environmental pollutants and toxic
substances leftover from previous uses. New construction, therefore, is likely to proceed at a slower pace where land must be redeveloped. Community Decisions Can Exacerbate Land Scarcity. City and county land use policies can alleviate pressures created by limited vacant land by encouraging redevelopment and allowing developers to build more housing on each parcel. In many California communities, however, for reasons discussed earlier the opposite is true. Zoning laws often require developers to build housing at densities that are common elsewhere in the community, preventing developers from building at higher densities to counter high land costs. In addition, local communities sometimes pressure developers to reduce a project’s planned density during approval processes. Cities and counties also can magnify the effect of scarce land on housing costs by choosing to allocate a large share of available land to nonhousing uses, such as retail and hotel development" (page 20).
"Key Findings. As we discuss further below, our model estimates that keeping California home prices from growing faster than the nation between 1980 and 2010 would have required the state to have:
• Built substantially more new housing—in the range of 70,000 to 110,000 additional units each year.
• Shifted more home building to coastal areas.
• Built denser housing, concentrated in central cities.
More Housing in Total. Between 1980 and 2010, California’s major metros added about 120,000 new housing units each year. Our analysis suggests that between 190,000 units per year and 230,000 units per year were needed to keep California’s housing cost growth in line with cost escalations elsewhere in the U.S. (Our midpoint estimate—which represents our single best guess at California’s housing need—is slightly above 210,000 units per year. For the remainder of this section, we discuss our midpoint estimates.)
These statewide estimates, however, mask significant variation across regions of the state, as well as across cities within those regions.
More Building on Coast, Less Inland. Our estimates suggest that, to contain price growth, the geographical distribution of new housing over the past three decades needed to be different, with significantly more building in coastal areas and somewhat less building in inland area" (page 21).
" Housing densities in many coastal counties would be more than two-thirds higher under the LAO growth scenario than they are today" (page 23).
"If California had added 210,000 new housing units each year over the past three decades (as opposed to 120,000), California’s population would be much greater than it is today. We estimate that around 7 million additional people would be living in California. In some areas, particularly the Bay Area, population increases would be dramatic" (page 23, 24).
"Many of the primary factors that make California desirable—moderate weather, natural beauty, and coastal proximity of its major metros—are ongoing. At the same time, we see no signs that coastal community resistance to new housing construction is abating. In addition, many state and local policies that have slowed or stopped development in recent decades remain in effect today. We therefore think that, in the absence of major policy changes, California’s trend of rapidly rising housing costs is very likely to continue in the future" (page 24).
"Housing Costs Are a Major Consideration for Most Households. Housing costs are the largest component of most household’s spending each month. For homeowners, these costs include monthly principal and interests payments; property taxes and homeowner’s insurance; and household utilities like water, gas, and electricity. For renters, housing costs are their monthly rent and any utilities the tenant pays. On average, American households spend about one-quarter of their gross monthly income on housing...
...Median household income in California is about $9,000 more annually than the national median. Median California housing costs, however, are about $5,300 greater as well. For most California households, therefore, higher housing costs consume a large portion of their higher income.
Specifically, the median California household spends about 27 percent of their monthly income on housing. The median household in the rest of the country, on the other hand, spends about 23 percent" (page 25).
"California households in the bottom quarter of the income distribution—the poorest 25 percent of households—report spending four times more of their income (67 percent, on average) than households in the top quarter of the income distribution (16 percent, on average)...
... California households with incomes in the bottom quartile report spending 67 percent of their income on housing, about 11 percent more than low-income households elsewhere...
...Renters Spend a Much Larger Share of Income on Housing. Nationwide, renter households spend a significantly larger share of their income on housing. The median renter spends about 30 percent of his or her income on housing, whereas the median homeowner spends 20 percent. Primarily, this occurs because renter households have notably lower incomes, on average, than owner households. In addition to generally lower income levels, renters spend more on housing, on average, because a portion of homeowners have owned their homes for many years and therefore have very low monthly mortgage costs or no mortgage costs whatsoever" (page 25, 26).
"...by the Official Poverty Measure, which defines a family as poor if their pretax cash income is less than a poverty threshold that is standard across the nation. Based on this measure, California’s poverty rate is slightly higher than the rest of the United States, as shown in Figure 13. The federal government also reports poverty levels using an alternative measure, the so-called Supplemental Poverty Measure, which adjusts poverty thresholds based on local costs of living. Primarily because of California’s high housing costs, the state’s alternative poverty level is 23.4 percent, the highest in the nation and almost 9 percentage points higher than average.
High Housing Costs May Make Personal Finances More Fragile. One byproduct of spending a large share of one’s income on housing is that personal finances may be more fragile—meaning a smaller share of a household’s income is available for nonhousing goods and services, including savings. As a result, these households may find it more difficult to accommodate a drop in household income because they have a smaller amount of nonhousing disposable income and likely have smaller available savings...
...Homeownership Helps Households Build Wealth. The federal government has actively promoted homeownership since it restructured the housing finance system during the Great Depression. As a result, beginning in 1940s, the U.S. homeownership rate rose steadily and substantially, peaking at 70 percent just before the recent housing crisis. (Since then, it has fallen 64 percent, a low not seen since the 1990s.) Homeownership helps households build wealth, requiring them to amass assets over time. Among homeowners, saving is automatic: every month, part of the mortgage payment reduces the total amount owed and thus becomes the homeowner’s equity. For renters, savings requires voluntarily foregoing near-term spending. Due to this and other economic factors, renter median net worth totaled $5,400 in 2013, a small fraction of the $195,400 median homeowner’s net worth. For many households in high housing cost areas, though, homeownership’s benefits remain out of reach, as higher home prices (relative to area incomes) mean fewer and fewer households can afford to become homeowners.
California’s Homeownership Rate Among Lowest in Nation. About 64 percent of U.S. households own their homes, but only 54 percent of California households do. (Only New York State and Nevada have lower homeownership rates.) In areas with high housing prices, including those in California, homeownership tends to lag behind more affordable areas" (page 28).
"Households That Do Buy Purchase Later and Take on More Debt. An additional byproduct of higher home prices is that young people delay purchasing their first home, possibly because saving for a down payment takes longer or households are not able to generate qualifying income levels until later in their careers. According to National Association of Realtors data, the median first-time homebuyer in California in 2013 was 34 years old, three years older than the median first-time homebuyer nationwide.
In addition, households that are able to purchase a home typically take on more mortgage debt because home prices are higher here. Urban Institute data shows that the average California homeowner had $55,000 in mortgage debt outstanding as of 2013, about $17,000 more than the average U.S. homeowner ($38,000)...
...What Is Crowded Housing? Housing experts measure crowding by comparing the number of people in a household to the number of rooms in their home, including bedrooms and common rooms but excluding bathrooms. Although several definitions exist, we consider a household crowded if there is more than one adult per room, counting two children as equivalent to one adult. Under this definition, a three room apartment (with a kitchen, living room, and one bedroom) is crowded if more than three adults live there. It is also considered crowded if more than two adults and two children live there. Researchers who study crowding report that it leads to a wide range of negative outcomes...socioeconomic factors that might affect well-being, like income and educational level.
Crowded Housing Affects Well-Being and Educational Achievement. Individuals who live in crowded housing generally have worse educational and behavioral health outcomes than people that do not live in crowded housing. Among adults, crowding has been shown to increase stress and aggression, lead to social isolation, and weaken relationships between parents and their children. Crowding also has particularly notable effects on children. Researchers have found that children in crowded housing score lower on standardized math and reading exams. A lack of available and distraction-free studying space appears to affect educational achievement. Crowding may also result in sleep interruptions that affect mood and behavior. As a result, children in crowded housing also displayed more behavioral problems at school" (page 29, 30).
"California Households Four Times More Likely to Live in Crowded Housing. Certain household types are more likely than average to live in crowded housing, such as households headed by foreign-born adults, Hispanics, and those with children. California has a higher share of these household types than the rest of the U.S. Because of this, we would expect California to have a higher crowding rate. A review of the data, however, shows that California’s crowding rate is higher than one would expect based solely on its larger share of these household types. This is because crowding rates for each household type (including those most likely to live in crowded housing) are higher in California than they are elsewhere. As a result, California’s overall crowding rate is four times higher than the U.S. average, partly due to demographics and partly to other factors, including higher housing costs, as discussed below.
Crowding Appears Associated With High Housing Costs. Determining whether housing costs affect crowding is challenging because areas with the high housing costs tend to have fewer households types that are likely to be crowded. Using statistical analysis, however, we found that living in a high housing cost area is associated with a higher likelihood of living in crowded housing, after accounting for other factors that also affect crowding rates... being crowded increases when the area’s median home price increases (moving from left to right)" (pages 30, 31).
"Complex Metro Characteristics Influence Commute Times. Each major metro area in the country has unique characteristics that influence whether it has above- or below-average commute times. Most factors are straightforward— for instance, natural geography, existing transportation infrastructure and the availability of public transit, and the spatial distribution of jobs relative to that of housing. Other factors are less straightforward. A metro’s land area and its density affect commute times, but in complex ways. For example, up to a point, commute times generally increase as areas become denser because transportation options become more congested. After densities reach a certain level, however, the viability of public transportation options improves. In some circumstances, this can relieve pressure on other transportation options and reduce average commute times.
California’s Coastal Metros Have Long Commutes. In 2013, workers in large metros throughout the country spent, on average, 55 minutes commuting each day. Workers in California’s coastal metros averaged 60 minutes, about 10 percent more than the national average. Commute times in Los Angeles, the state’s largest metro, averaged 62 minutes, 12 percent longer than the U.S. average. San Francisco has the state’s longest average commutes—72 minutes per day— about 30 percent longer than the U.S. average.
How Might Housing Costs Affect Commute Times? The relationship between metropolitan characteristics, including its housing costs, and average commute times is complex. Assuming neighborhood characteristics and other preferences are unchanged, housing costs should decline as one moves further from job centers. This is because commuting involves monetary and nonmonetary costs that must be offset somehow. Neighborhood characteristics and preferences change across metropolitan areas, however, making the analysis of commute times and metro characteristics additionally complex. To find housing at a price they are willing to pay, households in more expensive metros might choose to live further from work than they would if housing were less expensive. This could lead average commute times to be longer in areas with higher housing costs. Not surprisingly, we found that metro areas with higher housing costs tend to have longer average commute times" (page 32).
"After controlling for these factors—in essence isolating the effect of housing costs on commute times—a 10 percent increase in a metro’s median rent is associated with a 4.5 percent increase in individual commute times. The fact that California’s average commute times are only moderately above average (despite notably higher housing costs) suggest that other California-specific factors reduce average commute times. These factors may include weather conditions, widespread development and availability of freeway systems, and an above-average share of commuters who drive to work. (Driving commutes are generally fast, and therefore metros with higher shares of driving commuters tend to have shorter commute times.) Despite these mitigating factors, however, our analysis suggests that California’s high housing costs cause workers to live further from where they work, likely because reasonably priced housing options are unavailable in locations nearer to where they work...
...Despite this complexity, economists and other researchers have identified ways that housing costs affect migration—and, in some instances, have attempted to quantify the magnitude of these effects...
... The ratio of in-migration to out-migration, a measure of population flow, is lowest when California’s home prices are high relative to other places. On the other hand, this flow is highest when California housing becomes relatively more affordable compared to other states...
...High Housing Costs May Make it Difficult to Recruit Employees. For most businesses, labor costs are their largest operating cost. In areas with higher costs of living, businesses generally must pay employees higher wages because they require additional income to offset the cost of living differences. California’s cost of living is among the highest in the nation, largely because California’s housing costs are so high. As a result, businesses in California’s coastal metros may find it challenging (and expensive) to recruit or retain qualified employees. In a 2014 survey of more than 200 business executives conducted by the Silicon Valley Leadership Group, 72 percent of them cited “housing costs for employees” as the most important challenge facing Silicon Valley businesses. Employee recruitment and retention, closely related to housing costs, was the second most frequently identified challenge. Similarly, other important sectors of the state’s economy may find recruitment challenging and labor costs expensive. For example, some higher education institutions in high housing cost areas provide housing subsidies in order to recruit successfully top administrators and academic specialists. Stanford University recently announced plans to lease a 167-unit apartment complex for their staff and faculty, noting that providing housing helps them 'compete to recruit the best faculty from other parts of the country, where they experience very different real estate markets'"(pages 32-34).
"High Housing Costs Mean Fewer Californians Work in State’s Most Productive Cities. In general, businesses and employees in large cities are more economically productive than those in other areas. (Economists use the term “agglomeration economies” to describe these areas. Agglomeration economies are areas where worker productivity increases as population density increases.) Higher productivity leads to more economic output per employee, and thus greater economic growth in the region. Under normal circumstances, these economic opportunities attract new workers from other areas. Historically, this has led to significant population growth in the state’s cities. However, in recent decades, high housing costs have slowed this trend. This is because the expected wage gains (from moving to a city) are not large enough for many prospective workers to make up for their higher housing costs. California’s major productive cities have therefore grown less quickly than they otherwise would.
Fewer Workers in State’s Most Productive Cities Hinders Economic Growth. The slowing flow of workers to productive cities likely has constrained economic growth because potential workers, unable to move to productive cities due to high housing costs, do not benefit from the productivity gains occurring in cities. If more workers lived in the state’s highly productive cities (and therefore reaped these cities’ productivity benefits), per capita economic activity in the state would be greater than it is today. Estimating the magnitude of this impact involves considerable uncertainty. Recent research, however, may provide a helpful guide as to this impact’s order of magnitude. Economists at the University of California, Berkeley and the University of Chicago recently estimated that annual U.S. economic output—the total value of goods and services produced each year—is 13 percent lower today than it otherwise would be due to “increased constraints to housing supply in highly productive cities"(page 34).
" If California continues on its current path, the state’s housing costs will remain high and likely will continue to grow faster than the nation’s. This, in turn, will place substantial burdens on Californians— requiring them to spend more on housing, take on more debt, commute further to work, and live in crowded conditions. Growing housing costs also will place a drag on the state’s economy" (page 34).
" ...the Legislature:
• Aim to Build More Housing in Coastal Cities, Densely. The greatest need for additional housing is in California’s coastal urban areas. We therefore recommend the Legislature focus on what changes are necessary to promote additional housing construction in these areas.
• Put All Policy Options on the Table. Given the magnitude of the problem, the Legislature would need to take a comprehensive approach that addresses the problem from multiple angles and reexamines major policies. Major changes to local government land use authority, local finance, CEQA, and other major polices would be necessary to address California’s high housing costs.
• Recognize Targeted Role of Affordable Housing Programs. These programs play an important role in assuring housing access for many Californians with unmet housing needs. We note, however, that the scale of these programs—even if greatly increased—could not meet the magnitude of new housing required that we identify in this report. Accordingly, we recommend the Legislature consider how targeted programs could supplement more private housing construction by assisting those with limited access to market rate housing, such as people experiencing homelessness, those with mental and/or physical health challenges, and those with very low incomes.
• Understand That Some Factors Are Beyond Policy Makers’ Control. Much can be done by state and local governments to promote additional housing construction and therefore slow down growth in home prices and rents going forward. Some factors, however, such as high demand to live in the state and natural limitations on developable land, largely are beyond the control of policy makers. As a result, home prices and rents in California likely will remain above-average for the foreseeable future, even if public policies highly favorable to new housing construction were instituted that slowed future growth in housing costs" (page 35).