News

Rent control committee preps for a flood of landlord petitions

Hearings would create system for owners to request bigger rent increases

Mountain View inched a little bit closer to establishing its new rent-control program and deciding how to settle the myriad disputes it is expected to generate.

At a Thursday, June 8, meeting, the city's rental-housing committee began the first of several planned discussions for establishing a new system for adjudicating disputes on rent increases. This is of key importance for both landlords and tenants, since it would be one of the only ways to raise apartment rents at a higher rate than the city's new rent-control ordinance sets as the standard, which is based on increases in the local Consumer Price Index (CPI).

Every landlord and property manager speaking at the June 8 meeting stressed that simply tying rent-controlled apartments to the CPI would be insufficient for their various expenses. For next year, that allowable rent increase has been capped at 3.4 percent.

There was a feeling of deja vu as many of the same concerns and arguments spanning years of the debate over rent control were trotted out. A large showing of tenants and other rent-control advocates reminded the committee that the new law is the result of a brutal seven-year period when average rents throughout Mountain View nearly doubled. Landlords and property managers warned that the new restrictions would fall hardest on landlords who had previously tried to keep their units affordable. Meanwhile, many in attendance wanted better data to distinguish who is acting in good faith.

Many of these concerns are supposed to eventually funnel into a new process involving city hearing officers who will review cases that aren't directly addressed in the language of the Community Stabilization and Fair Rent Act (CSFRA). Both landlords and committee members hinted this program could see a flood of petitions, especially from property owners seeking to notch up rent on their units higher than 3.4 percent.

Joe Maydek, an apartment manager, said he expected to petition for 11 of his 14 units to receive a higher increase. He pointed out that he needed to recover revenues after a citywide roll-back on apartment rates to October 2015 levels had reduced his tenants' rents by about $500 each. Many other landlords are likely to do the same, he warned.

"I'm pointing this out to you so you have some numbers to anticipate what's going to happen," he said. "Even if the petition fees are passed to the (property owners), I think they would see the value in doing it."

Landlords, tenants or any authorized advocate can make a case for why rents need to change by filing out a petition form, which eventually should be available on the city's website. As part of filing this paperwork, a petitioner can also provide documentation, witnesses or expert testimony to support the case. Of all the groups, landlords seeking to raise their apartment rents seem to have the highest burden of proof. They would need to provide the city with 16 pieces of information, including years of income and expense statements for each apartment building.

“We're not reinventing the wheel; we're trying to streamline this and use the best practices from other jurisdictions,” explained City Attorney Jannie Quinn.

To review and rule on these petitions, Mountain View staff suggested that the city hire trained attorneys, preferably with experience working as judges or arbitrators. But that level of experience won't come cheaply -- each hearing officer will cost from $600 to $1,250 per case, depending on the size and complexity.

It remains unclear how this money will be collected. City staff say it could be paid directly by whoever files a petition, or it could be taken from the general fee that will be levied on all affected apartments in the city. That fee has not been established yet.

City staff indicated that many cases probably won't rise to a full hearing. A previous city program of mediation resolved about 87 percent of conflicts between landlords and tenants, according to city housing staff. When you get people sitting around the table, the success rate for reaching a compromise is high, said Emily Hislop, a case manager with Project Sentinel, which provides the city's mediation services.

"In our experience with mediation, when you get people facing each other, then landlords get a chance to show all their expenses for water, garbage, everything," she said. "That way, tenants who might feel like their landlords are taking every opportunity to raise rents, then they can see where they're coming from."

For that reason, Hislop and others in the field suggested that many disputes could be settled early on without the need for a formal meeting with a paid hearing officer.

The Rental Housing Committee reviewed only an early draft of the planned petition process, which will revised and brought back for the next committee meeting on June 19. At the meeting, the committee will also discuss establishing standards for a "fair rate of return" for landlords, which would guide how hearing officers review petition cases.

City housing officials say the petition process, hearing officers and fair rate of return guidelines will likely be bundled together for final approvals at the July 10 meeting.

In a related discussion, the committee decided not to take action on a proposed citywide 0.6 percent rent increase to cover the period between October 2015 and February 2016. City staff originally proposed this increase because they say this time period was not reflected in CSFRA language. However, tenant advocates warned this rent increase would be illegal.

On Thursday, city staff signaled a change of heart, and they urged the committee to hold off on any decision for now. City Attorney Quinn suggested that the committee first establish its processes and return to the issue at a later date.

In a 4-1 vote, with Chairwoman Vanessa Honey opposed, the committee agreed to table the discussion.

Comments

28 people like this
Posted by YIMBY #2
a resident of Cuernavaca
on Jun 16, 2017 at 12:10 pm

"Each hearing officer will cost from $600 to $1,250 per case, depending on the size and complexity". Not sure how this will be paid for. Suggestion include out of city coffers or fees on landlords.

I have been waiting for this cost data for a long time. Notice that this the cost of running Measure V was not disclosed during the campaign. Generalizations (paraphrasing from my memory) such as it won't cost much, or it won't hurt the little landlords who have maintained low rental rates , or the costs will be borne by small fees reasonable for the landlords have been used. It should also be noted that a hidden cost on the landlord side is the time/effort/cost of collecting, organizing, and making the data useful for presentation to *lawyer* grade presentation. Some of us may refer to this as "increasing operational overhead"
That's just a fancy way of saying it will create a lot more work/cost for everybody involved.

I am sure the big rental operators can afford those fees. But for us little guys (who in my case have been restricting rental rate increases on my middle class non-rich tenants to 4%), it is significant. That type of money can be used to improve my pre-1995 real estate for my tenants. For example, I just spent $700 to repair just on two sliding glass doors and opted not to pay $450 to fix an old out of date knob (not kidding!). In addition to doing my own yard work and painting to avoid those expenses. Should I spend that money to these lawyer grade hearing officers without a reasonable rate of return or spending it on repairing items for my tenants. BTW, I do not have an infinite supply of $1,000 batches of money. Should
I spend time on data collection and paper work or painting or maintaining my yard.
BTW, I do not have an infinite amount of time.

What is a fair rate of return? Why has America been based on free markets since its inception. Why did Soviet Union implode 38 years ago. What did China switch from a pure form of communism to substantially market based economy?

Simple but hard questions. Note that the the economies and China (PRC) and Soviet Union moved away from Centrally Planned Economies because it is so inefficient to make these decisions. But we have chosen a Centralized Planning process to manage some of the key above enumerated questions under Measure V.

Right now market forces are working. Rents are slowng or flat. City of MV, despite a lot of criticism is increasing supply. And that increased supply will help mitigate rent increases. I know we all want to blame the landlords, but if you look at any economy (primitive, developing, developed) prices go up when there is too little supply. But this rent increase mitigation is done without all the operational overhead (and inherent risks of bias and corruption) of central planning. What is driving these rent increases is the success of Silicon Valley coupled with lack of building new supply, and landlords are behaving in a way that addresses imbalances in supply and demand, without the cost and operational overhead of centralized planning. The answer is more supply, and that is underway.





25 people like this
Posted by george drysdale
a resident of another community
on Jun 16, 2017 at 12:20 pm

The greatest land swindle in American history in dollar terms, rent control in California. Also, and I'll take it, the number one lesson plan in basic economics. It is so much easier to let price which is determined by supply and demand to determine prices whether for rentals or bananas, etc. The Santa Rosa Press Democrat becomes the most powerful newspaper in California by allowing full discussion of rent control to take place. Their editorial board came out strongly against rent control. Rent control was defeated soundly in Santa Rosa in spite of it's cynical politicians. Fight on landlords for freedom against the slavery of ignorance. Also, for getting a passing grade in high school economics a required course. Why doesn't the Mountain View voice publish my blog about the bombing damage to Mountain View via rent control. Are you craven?
George Drysdale a social studies teacher (always) and land economist


15 people like this
Posted by Dan Waylonis
a resident of Jackson Park
on Jun 16, 2017 at 2:46 pm

Who could have possibly imagined that passing rent control would create a new, costly, and convoluted bureaucracy?

Look at the things in your life that are archaic, inefficient, and unproductive. It's likely to be things that tightly regulated and controlled by "TOP MEN" who make decisions based on incomplete pricing information.

The free market works exceptionally well. Any external manipulation of prices (e.g., rent control) will produce unintended and undesirable consequences.

To put it as simply as possible, there is no such thing as a free lunch.


21 people like this
Posted by Elaine A
a resident of Blossom Valley
on Jun 16, 2017 at 2:55 pm

As an owner of a small 65+ year old building, I have just had to put in many tens of thousands of dollars to upgrade aging kitchens, replace appliances, put in new floors (trashed by a tenant who stopped paying rent) replace a crumbling sewer line, repaint, redo the parking area, replace electrical to get a permit signed off on electrical that was updated 10 years ago.

I never expected to get rich from my investment, but it's going to take me years to break even, since I kept my rents below market for many years, believing that to be the right thing to do.

Meanwhile, REITS and investor groups bought expensive buildings at higher and higher prices, and raised rents higher and higher. They'll have lawyers and experts to deal with all the petitions and paperwork, but those of us who worked and provided housing will struggle.

Oh well, I guess it's my own fault. I guess I should have put my money in high tech companies -- you know, the ones who keep hiring more and more people and creating supply/demand balances? They get to stash their money in Ireland.


4 people like this
Posted by YIMBY
a resident of Another Mountain View Neighborhood
on Jun 16, 2017 at 5:52 pm

With Prop 13 giving property owners every incentive to block new developments in high-demand areas, increasing property values to everyone elses detriment, there has to be some check on costs for renters. Once Prop 13 goes, so can rent control.


10 people like this
Posted by george drysdale
a resident of another community
on Jun 17, 2017 at 11:05 am

The number one lesson plan in basic economics, here we go. Prop 13 is completely different fron rent control as Milton Friedman told the San Francisco board of supervisors. With Prop 13 taxes were shifted to income tax. California has the highest income taxes in the U.S., a very unstable situation because when the economy goes south guess what, incomes go down. That's why Washington state with no state income taxes has so many well to do Californians (who can escape). Aside from this, take note Palo/Alto online editors, California's student population is 52% low income. Land economics: which must consider demography. Also, Mark Noack, who is doing a good job takes note that government "affordable housing" ends up costing much more. All you have is smiling politicians taking credit which is just what happened in Mountain View recently. Here's your assignment: read all the material on the internet under rent control. You have to be a good reader now because there's so much to read on the internet. After reading this material you will be sick of rent control: You see, the better off end up with price fixed rents, not the poor. Rent control is costing California billions of dollars a year in damages and the production of rentals (cheap housing). The battleground will now be Silicon Valley and San Jose for the sake of liberty.

George Drysdale, a social studies teacher (always) and land economist


10 people like this
Posted by YIMBY #2
a resident of Cuernavaca
on Jun 17, 2017 at 11:13 am

I would like to see:
* full public disclosure of the costs of running this program
* With context of cost/benefits

For example, I understand the following are additional costs of the program
* database to keep track of every of transactions
* HW/SW/Application
* Customization
* IT Administration
* Maintenance/support

It would be good to understand how many "hearings" are processed and the cost to get to the net result. For example X number and value of rents raised/reduced/same versus time and money to achieve this. Kinda basic finance 101 stuff.

Also hope to avoid any accounting funny business. Like saying, well we just had a little space on existing IT gear so its all free. There is something called chargeback, where these cost get accounted for. There is no free lunch.

Note that these resource expenditures do nothing to add to supply, which would be the most effective way to reduce and manage rents.

The above may be kinda obvious and trite. But I remember talking to a tenant activist to understand her point of view. I said Berkeley rent control results in less money to maintain their buildings. She pointed out that her friend got a home equity loan to do some big ticket items (new roof/paint ect). Well, she didn't understand that they needed a loan because they weren't bringing enough rent to set aside the standard 10% reserve that you normally set aside to fund big ticket items like replacing out of date or worn out water pipes, electrical panel, roof, paint, furnaces. Failure of these big ticket items can be forecast and the fiscally prudent landlord will set aside funds in anticipation of these expenses. But this tenant coalition activist did not understand this and thought taking on more debt (and interest payments) was the way to handle it when it should be funded out of rental income.



19 people like this
Posted by lan
a resident of Rengstorff Park
on Jun 17, 2017 at 2:30 pm

For the landlords who have kept rents down, and did consistent and necessary upgrades, rent control may prove to be a breaking point. How will they raise enough revenue from rents to make needed structural and cosmetic improvements to their units? The outside appearance of an apartment building is important, but not viewed as a necessity by the new rent control laws. An older building I used to live just got a beautiful facelift and it looks great.

Landlords who invested large sums of money, and time, to do needed upgrades since October 2015, and raised rents to help cover these upgrades, will now have to figure out how to pay for these upgrades. This isn't good either.

For the landlords who did no upgrades, have been long-time owners of older buildings and raised tenants rents considerably, no sympathy here, and any petition to raise rents on theses types of units should be denied.



2 people like this
Posted by The Business Man
a resident of Another Mountain View Neighborhood
on Jun 17, 2017 at 7:55 pm

The Business Man is a registered user.

Here is my opinion as a business advocate:

The Harvard Joint Center for Housing Studies provides ample evidence of Market Manipulation nationwide. It clearly states:

“A decade after the onset of the Great Recession, the national housing market is finally returning to normal. With incomes rising and household growth strengthening, the housing sector is poised to become an important engine of economic growth. But not all households and not all markets are thriving, and affordability pressures remain near record levels. ADDRESSING THE SCALE AND COMPLEXITY OF NEED REQUIRES A RENEWED NATIONAL COMMITMENT TO EXPAND THE RANGE OF HOUSING OPTIONS AVAILABLE FOR AN INCREASINGLY DIVERSE SOCIETY.”

It Also States:

“After more than a decade of soaring demand and five years of real rent increases, rental markets across the nation remain extremely tight in 2016. Rapid growth in both renters and rents continued in most markets, although the pace moderated somewhat in certain high-cost markets. Meanwhile, multifamily construction took up the lead from single-family conversions in adding supply, but most of these new apartments are concentrated at the high end. AS A RESULT, THE DIMINISHING SUPPLY OF LOWCOST RENTAL HOUSING REMAINS IN HIGH DEMAND, FUELING ONGOING CONCERNS ABOUT THE MARKET’S ABILITY TO MEET THE HOUSING NEEDS OF LOWER-INCOME HOUSEHOLDS.”( Web Link)

This is an elite business school that is starting to address the fact that the market does not work where most of the market is free of regulation. The simple fact is that the industry has chosen to push onto the consumer the lack of affordable housing and forces the consumer to pay for more than what they want or need. Here is an objective study that indeed proves my observations I have been making.

So those like George Drysdale have the right to their opinions. But it appears that even the economic studies are now coming to the conclusion that the free-market is NOT addressing the REAL market, only the market they want to address. Under these circumstances, the fact is that only until the free market can demonstrate addressing affordable housing, there will be a wave of commercial regulations that will impact the apartment industry adversely. The simple TRUTH is that when those are unwilling to accommodate the market, the market forces will correct them.

Under the Porter’s Five Forces model of markets there consists the following component:

“Bargaining power of customers

The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes. Firms can take measures to reduce buyer power, such as implementing a loyalty program. The buyer power is high if the buyer has many alternatives. The buyer power is low if they act independently e.g. IF A LARGE NUMBER OF CUSTOMERS WILL ACT WITH EACH OTHER AND ASK TO MAKE PRICES LOW THE COMPANY WILL HAVE NO OTHER CHOICE BECAUSE OF LARGE NUMBER OF CUSTOMERS PRESSURE.( Web Link)

This is the essence of the CSFRA. Thus the market caused this problem and must take responsibility for it.


3 people like this
Posted by Social Studies
a resident of Castro City
on Jun 17, 2017 at 8:24 pm

[Post removed due to disrespectful comment or offensive language]


10 people like this
Posted by george drysdale
a resident of another community
on Jun 18, 2017 at 10:11 am

Businessman? You do deserve a reply. There has been no market failure. The market is working very well in Mountain View in a dramatic fashion. Google and others have attracted some of the most talented people in the world to work with them. They drive up the rents. As for some kind of subsidy where do you expect to get it? Are you going to have a tax payer in Bakersfield subsidize your living in one of the premier cities of the world? Here's your assignment: Go to Foothill Jr. College and buy a econ 101 textbook. Read it cover to cover. Avoid contact with your peer group of rent freeloaders. You're simply being replaced by your bettors.

Geroge Drysdale a social science teacher (always) and land economist


2 people like this
Posted by Social Studies
a resident of Castro City
on Jun 18, 2017 at 10:17 am

[Post removed due to disrespectful comment or offensive language]


10 people like this
Posted by YIMBY #2
a resident of Cuernavaca
on Jun 18, 2017 at 11:25 am

Businessman, I disagree with your assertion that adding high end units to the supply is bad. It has been my experience that high earners are often reluctant to rent an older property such as mine. But if supply is tight, they will take it. Or if they are a smart and practical young couple, they will use my lower rents to save money and buy a house. As an aside, my middle class non-rich tenants are staying put because I offer reasonable rents. But the net/net: the high end supply does relieve demand pressure by addressing market demand for these high end units from high earners. This is one of several reasons I kept my rent increases reasonable as I had forecast on a regional basis more high end units coming online, and in fact there could be potential for over building in some market segments, and subsequent price reductions (I have observed this in one case so far and I would hope they fired their demand forcast and pricing people since they way over-priced their product and had to sell/dump their property very quickly after coming to market. All this reduces the "reluctant* demand for the older units such as mine, mitigates the ability to raise rents.

I understand the appeal of "affordable housing". Municipal Governments all over the bay area are echoing the same theme. But I ask you, who pays to make the building affordable. Where does the money come from? Municipal budgets? Federal funds? State funds? Unused City land? Where and how do these entities get their money? Who and how many is served by affordable housing. Is this sustainable on a large scale?
At the end of the day, it is a subsidy by tax payers which serves few people (relative to overall all demand). Mr. Businessman, I think you should be citing several studies which show the slow build-out of supply is significantly affected (but not all) by the difficulty (red tape/bureaucracy/cost of land/scare construction labor) of building new supply. This is where productive efforts should be directed. Rather than adding the operational overhead of centralized planning which does nothing to increase supply.


2 people like this
Posted by The Business Man
a resident of Another Mountain View Neighborhood
on Jun 19, 2017 at 12:26 am

The Business Man is a registered user.

George Drysdale and YIMBY #2:

Please provide me with any Harvard study that indicates that the problems of housing are because of (red tape/bureaucracy/cost of land/scare construction labor) of building new supply? If there is one, why is it MY responsibility to provide it to you, your intelligent enough to provide studies to support your point of view? However, it will be checked to see if it is truly scientific or is it research funded by the financial interests of private interests.

I have noticed that in most of your discussions, there is a significant lack of objective evidence provided. The information I provided was created by an organization that:

“HISTORY

The Joint Center for Housing Studies was originally formed in 1959 as the Joint Center for Urban Studies of MIT and Harvard, and took up the challenge of addressing intellectual and policy issues confronting a nation experiencing widespread demographic, economic and social changes, with dramatic and far-reaching effects on cities in particular. With principal support from the Ford Foundation, the research agenda was based on the premise that the resolution of these issues called for imaginative interdisciplinary approaches to the study of urban problems and issues and required cooperation among universities, government and industry.”( Web Link)

So if you are claiming that I am using a “biased” source of information, please provide me with some evidence to that effect. This work was done and required extensive PEER REVIEW before it was published. Thus there was a record of consensus by those in the fields of economics and public policy that must have agreed with the conclusions.

At a point of time I would have argued for significant subsidies to motivate building projects as an incentive to provide more housing options. However, your argument makes sense so I will drop the idea of subsidies.

Instead, the laws should be passed to require mixed levels of housing in every project. To have at least 1 Very Low Income Unit, 1 Low Income Unit, 1 Median Income Unit and 1 Premium unit proportionality. Meaning in every new development 1 premium unit must be required to have 1 of each of the others.

Since the industry will not do so voluntarily, there is no constitutional conflict in simply requiring a development to be required to provide all levels of quality of housing, just like any gas station selling gas providing the complete choice of octanes of gasoline. Of course the industry could do it voluntarily.

This report I discovered indicates that if there is another major financial crises, perhaps 10s of million people will wind up homeless in addition to the ones we already have. And this will be serious economic damage for the apartment industry as well. Simply because this could FORCE the government to get into the apartment business, and this will dramatically drop values of premium property because they will no longer be NEEDED, they will be an OPTION, which the majority of your customers will choose to REJECT.


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