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What's a fair rent increase in Mountain View?

Rent committee struggles to balance conflicting interests in setting new policies

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It was a painful slog for Mountain View's Rental Housing Committee on Monday night as they waded into the delicate issues of pricing and profit under citywide rent control.

At the June 19 meeting, the five-member committee worked to figure out how landlords of rent-controlled apartments would be guaranteed a "fair rate of return," as specified in the language of the rent control measure. But it soon became clear that "fair" meant wildly different things to the people in the room.

Through a debate that stretched nearly to midnight, a split committee voted 3-2, with Vanessa Honey and Tom Means opposed, to develop a basic system to allow landlords' profits to increase only by inflation. The system -- dubbed the Maintenance of Net Operating Income (MNOI) standard -- received strong endorsement from tenants' advocates as well as city staff, who described it as the least risky option.

Even the supporters were lukewarm. Committee member Evan Ortiz championed the MNOI standard even as he acknowledged its flaws. But he urged his colleagues to get an imperfect system in place so that it could be tweaked as needed in the future. He pointed out repeatedly that nearly all California cities with rent-control laws also followed the same MNOI standard.

"If this is part of the growing pains of implementing the law, so be it," Ortiz said. "If we were to pursue something that no one else has done that would open us up to litigation and more uncertainty and ambiguity."

It was a complex debate, and the city's team of three attorneys often had to re-explain how the rent-control system would operate. Under the measure, landlords would typically only be allowed to raise rents according to annual inflation, as determined by the Bay Area Consumer Price Index. For the upcoming year, the amount has been set at 3.4 percent.

The law gives some wiggle room for special cases, such as when extra repairs or maintenance issues pop up in decades-old apartments. For those cases, landlords can seek to raise rents higher, but they have to go through a petition process and provide an itemized list of expenses to a city hearing officer. This same petition process is also supposed to be used by landlords if they need to raise rents because they aren't turning a profit from their investment.

Exactly how much profit was fair? In talks prior to the meeting, landlords insisted they should get a fixed return of 12 percent on their investment. As in other recent similar meetings, a large group of apartment owners came to the meeting to highlight their challenges under the new law. All of them warned that simply tying profit to inflation would be disastrous.

"If the return isn't adequate then our alternative is to redevelop," warned apartment owner Elizabeth Lindsay. "It makes no sense to remain in an area that's not fair market, and we'll have to relocate to another area."

It remains unclear whether city officials would allow property owners to redevelop rent-controlled apartments as a way to circumvent the new rules. Any apartments first occupied after February 1995 are immune from rent control measures due to the Costa Hawkins Act. But tenant advocates say the city could force developers who demolish rent-controlled apartments to include just as many price-restricted units in a new housing project.

Some on the committee sympathized with landlords dealing with the new rules. Honey and Means both insisted that landlords deserved to increase their rent by more than the annual CPI because their investment was riskier. Ditching the staff suggestions, Means tried to craft his own fair-rate standard based on apartment owners routinely reappraising their buildings. He warned that the petition process would be too cumbersome for landlords since they would have to present invoices and expense summaries to justify their rent increases.

"That's a high burden of proof," he said. "I'd like to take the assessed value and add in a fixed rate of return, rather than going through this morass."

City attorneys urged the committee not to jury-rig a new system on the spot. Other red flags appeared when attorneys from tenant groups hinted they would sue if the committee veered too far from the spirit of the rent-control law.

The swing vote of the night was committee member Matthew Grunewald, who originally wanted to split the difference and meld multiple systems. As the night went on, he sided with Ortiz and committee member Emily Ramos in supporting the MNOI standard, but he indicated he wanted a "generous" list of capital improvements that would be covered under the petition process.

The committee's 3-2 votes directs city staff to draft a full policy for a fair-rate of return standard. That draft will be brought back to the committee in early July.

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Comments

41 people like this
Posted by Resident
a resident of Cuesta Park
on Jun 20, 2017 at 2:43 pm

What a mess. Who could have seen this coming?


3 people like this
Posted by Depressed
a resident of North Whisman
on Jun 20, 2017 at 2:48 pm

Does the 3.4 percent increase apply to all rentals, including duplexes? Our raised out rent 8 percent last year and four months earlier than usual.


3 people like this
Posted by MVNative
a resident of Shoreline West
on Jun 20, 2017 at 3:01 pm

@Depressed the new law does not apply to duplexes. It does not matter how old they are.


83 people like this
Posted by Fair?
a resident of Monta Loma
on Jun 20, 2017 at 3:26 pm

Title: What is fair Rent?

How about what the market bears? This is SO WRONG. It is
Hurting people who took risks and made investments.

Every single economic study proves that rent control does not work, does not create this great Affordable housing.

But of course it was voted in by a group of people who have been sold a bill of goods by a do-gooder group who is causing such problems. Makes me sick to my stomach.


8 people like this
Posted by @Monta Loma
a resident of Another Mountain View Neighborhood
on Jun 20, 2017 at 3:59 pm

You don't have the facts on your side, so you come up with some fairy tale the apartment owners' associations provide you.

Sad!


112 people like this
Posted by Ed
a resident of Old Mountain View
on Jun 20, 2017 at 4:04 pm

The committee meeting sounds like an Econ 101 case study: "Why Creating a Centrally Planned Economy is Hard."

Under the proposed regime in which even "extra repairs or maintenance issues" involve a trip through city bureaucracy for permission to recoup costs, why would a landlord choose to make any improvements beyond bare minimum code compliance?

A decade or two from now, how will a newcomer locate Mountain View's rent-controlled apartments? (Hint: they will all look like they haven't been touched since the year 2017.)


154 people like this
Posted by Mt. View Neighbor
a resident of North Whisman
on Jun 20, 2017 at 5:14 pm

If you demonize landlords, good landlords will leave and all that will remain is corporate giants who don't give a rat's butt. People have risked their life savings and sweat.in small apartment buildings and are now stuck with the inability to recoup their investments, much less ever profit.

The property values for sale and loan purposes are based on rental income and projected future rents. By implementing rent control, property values for these buildings will not keep up with market value, creating a feeding fremzy for developers. THERE IS NO WAY AROUND THIS.

These laws will eventually cannibalize the existing affordable housing, as it is torn down and replaced with high end rentals.

Very sad.


15 people like this
Posted by Neighbor
a resident of Another Mountain View Neighborhood
on Jun 20, 2017 at 6:04 pm

Well maybe finally apartment rows around California and Latham will be torn down, their residents gone, and schools will finally improve.


166 people like this
Posted by Another Neighbor
a resident of Another Mountain View Neighborhood
on Jun 20, 2017 at 6:12 pm

@Neighbor: Good idea. Maybe you could also figure out a way to let only healthy people into hospitals, so mortality rates improve.


6 people like this
Posted by The Business Man
a resident of Another Mountain View Neighborhood
on Jun 20, 2017 at 8:14 pm

The Business Man is a registered user.

Just my 2 cents worth,

There was a nationwide economic study by the Joint Center For Housing Studies of Harvard. This organization has the following pectinate history:

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.

JCHS Today

In contrast to the Center of several decades ago, the Joint Center for Housing Studies is institutionally smaller, yet more connected to national and international networks as we investigate and illuminate housing’s critical role in the economy and in communities. We continue to foster strong academic ties with schools, faculty and students from across the university community, and to engage with new initiatives on global urbanism, sustainability, and other critical topics for the 21st century. Most importantly, our work continues to serve as a resource for scholars, public and private sector leaders, housing practitioners, and policymakers.

This organization has produced a study called “THE STATE OF THE NATION’S HOUSING 2017” This study indicates that:

“Nearly 39 million US households live in housing they cannot afford. The shrinking supply of low-cost rentals, along with potential losses of subsidized units and declines in the value of tax credits, could widen the already substantial gap between the demand for and supply of affordable housing.

Meanwhile, the retrenchment in federal funding has put increased pressure on state and local governments to address the housing needs of the most vulnerable individuals. The aging of the US population adds to the nation’s challenges by driving up demand for housing that is both accessible and affordable.”( Web Link)

The problem is that we are overdue for another recession. When it happens there is a high likelihood that these 39 Million households (houses, duplexes, triplexes, quadraplexes, and apartments) will be lost during that time because more than 50% of the earnings are going for payments to stay in them at this time. This will make the 2007 recession look like a stick of tnt, and the next recession be more like “Little Boy” of Hiroshima.

The losses that these markets will have will be staggering. NOW is the time to take action to prevent this from happening. The markets must reassess their properties and reduce principals of the “loans” or “mortgages” NOW. If you don’t you will simply face a much larger loss in the future. If these markets do not take action, they should be solely responsible for their losses, and not expect a bailout. Why?

Because we had this same problem occur in 2007, and these markets decided to gamble again in the same way, and it took only 10 years for the same problem to occur. Damn me once shame on you, Damn me twice shame on me applies here. There was a significant lesson to learn in 2007, and ignorance of it cannot be the reason to force the public to bear the same mistake.


7 people like this
Posted by Gary
a resident of Sylvan Park
on Jun 22, 2017 at 3:58 pm

Gary is a registered user.

Landlords will still make a mint by raising rents to "the market" when units turn over. The danger is that some landlords will look to get rid of existing tenants with carrots or sticks or both.


5 people like this
Posted by The Business Man
a resident of Another Mountain View Neighborhood
on Jun 25, 2017 at 2:49 pm

The Business Man is a registered user.

Well, did you all read the Mercury News on Saturday?( Web Link)

They reported that the “Google” residential project is going to not be 10,000 units like the City hoped for, but a measly 1,500 units. This is especially frustrating because the “Google” project never seems to break ground ever. How many years was this being dangled in front of the City of Mountain View?

This was inevitable because the local infrastructure and resources could never have been able to accommodate the project. Even with ridiculous ideas like:

The Mountain View staff memo now recommends only 1,500 units be developed initially in North Bayshore, and for the City Council to assess then if another 1,500 are feasible. If only 1,500 units are built in the area, staff say it could support 1.2 parking spaces per unit. With 3,000 units, it could accommodate 0.6 parking spaces per unit.( Web Link)

If you extrapolate the original number of 10,000, it would result in only .3 parking units per apartment unit. Absolutely incredible

Of course the landlords would love to blame Measure V for this. But Measure V cannot touch these units as long as Costa Hawkins is in effect.

But the landlords are aware of one thing, Costa Hawkins is under very serious threat of being repealed under AB 1506. Thus the Apartment industry is already taking measures to restrict more inventory of apartments to penalize the Citizens of California. They want to take away their “ball” from the rest of the kids because they don’t like the rules of the game.


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