242050_Salinas_Rent_Stabilization_Analysis_08-2024 — Salinas City Council, August 20, 2024

Administrative Draft
Proposed Rent Stabilization
Ordinance Analysis

Prepared for:

City of Salinas

Prepared by:

Economic & Planning Systems, Inc. (EPS)

August 2024

EPS #242050

Table of Contents
Introduction and Summary of Findings .............................................. 1 Introduction ....................................................................................... 1 Study Overview .................................................................................. 2 Background ....................................................................................... 3 California Rent Stabilization .................................................................. 4 Rent Stabilization Concepts and Discussion ............................................. 6 Key Findings and Considerations ........................................................... 6 Overall Conclusions ........................................................................... 11 Recommendations ............................................................................ 12 Regulatory Context ....................................................................... 15 California Rent Stabilization ................................................................ 15 Summary of Salinas’ Proposed Ordinance ............................................. 16 Additional Renter Protections .............................................................. 17 Literature Review and Case Study ................................................... 19 Impacts on Renter Displacement ......................................................... 20 Impacts on Rental Supply .................................................................. 21 Impacts on Economic Inequality .......................................................... 23 Impacts on Property Values ................................................................ 24 Impacts on Building Quality ................................................................ 25 Other Potential Impacts ..................................................................... 26 Case Study Research ......................................................................... 27 Literature Review and Case-Study Conclusions ...................................... 31 Economic and Fiscal Impacts of Rent Stabilization ............................ 33 Housing Supply ................................................................................ 33 Affordable Housing Supply ................................................................. 35 Residential Property Tax .................................................................... 35 Rent Pressures and Displacement ........................................................ 38

Renter Household Socioeconomics ....................................................... 41 Economic Impact on Property Owner ................................................... 44 Program Implementation Costs to the City ........................................... 53 Conclusions and Recommendations ................................................. 59 Conclusions ...................................................................................... 59 Recommendations ............................................................................ 60

Appendices
Appendix A: Demographic and Socioeconomic Analysis Support Tables Appendix B: Financial Analysis Support Tables

List of Tables
Table 1-1. California Cities with Rent Stabilization ........................................... 5

Table 3-1. Comparison of Rent Stabilization Ordinance (3 pages) .................... 28

Table 4-1. Summary of Housing Inventory as it Relates to Rent Stabilization: City of Salinas ............................................................... 34

Table 4-2. Affordable Housing Inventory: City of Salinas ................................ 35 Table 4-3. Real Estate Assessed Values: City of Salinas .................................. 37 Table 4-4. Rent-Burdened Households: City of Salinas ................................... 40 Table 4-5. Renter Movement by City............................................................ 41 Table 4-6. City Salinas Median Income, Average Household Size, and Income Per Capita by Household Tenure: City of Salinas ................................ 41 Table 4-7. Householder Race: City of Salinas ................................................ 42 Table 4-8. Householder Age: City of Salinas ................................................. 43 Table 4-9. Median Renter Household Income compared to
Average Monthly Rent ............................................................................... 44

Table 4-10. IRR and Property Value Growth Sensitivity Analysis ...................... 50 Table 4-11. Estimate Range of Required Staff ............................................... 53 Table 4-12. Estimated Staffing and Annual Costs Rental Registry and Rent Stabilization Program ......................................................................... 56 Table 4-13. Estimated Annual Cost Variations: Rental Registry and Rent Stabilization Program ......................................................................... 57 Table 4-14. Current Rental Registry Fee Comparison ..................................... 57

List of Figures
Figure 1. CPI Comparison .......................................................................... 13 Figure 2. Housing Inventory as it Relates to Rent Stabilization:

City of Salinas .......................................................................................... 34 Figure 3. Breakdown of the City of Salinas Assessed Value by Land Use ............ 37 Figure 4. Year-Over-Year Percentage Change in Median Renter-Occupied Household Income versus Average MFR Rent for Apartments Built Before 1995: City of Salinas: 2012-2022/2024 ............................................. 39 Figure 5. Rental Revenue Differential: Market Rate vs
Stabilization Alternatives ........................................................................... 46 Figure 6. Effective Rent Roll Growth with Vacancy Decontrol by Rent Stabilization Rate .............................................................................. 47 Figure 7. Inflation and Corresponding Allowable Rental Increases .................... 47 Figure 8. Internal Rate of Return Differential: Market-Rate Base Case vs.

Alternative Rent Stabilization Scenarios ....................................................... 49 Figure 9. Internal Rate of Return Differential: Impact of 5 Percent Annual Operating Expense Growth .............................................................. 51 Figure 10. Peer Cities Hypothetical IRR Comparison ....................................... 52

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Introduction and Summary of Findings
Introduction
At the request of the City of Salinas’ (City) City Council (Council), Economic & Planning Systems, Inc. (EPS) was retained to provide due diligence by analyzing the potential economic effects of establishing a rent stabilization policy (Study).1 Please note that rent stabilization ONLY applies to residential land use with the following characteristics:
• Multifamily rental dwelling units (including duplexes and triplexes, unless one unit is occupied by the property owner).
• Built before February 1, 1995.
• Remodeled residential units converted from space long dedicated to residential.2
The following residential land uses are EXEMPT:
• Single-family dwelling units.
• Single-family rentals.
• Condominiums units.
• Condominium rentals.
• Multifamily dwellings units built after February 1, 1995. • Newly constructed dwelling units.3

1 The City Attorney retained the services of EPS to serve as an outside expert by conducting a Consultant’s study of the proposed rent stabilization ordinance intended to inform and support the City Attorney’s legal evaluation. As such, the following memorandum is subject to evidentiary protections under the attorney work product doctrine or attorney-client privilege, and all written communications should be appropriately marked to preserve those protections. 2 California Legislative Information Civil Code – CIV DIVISION 3. OBLIGATIONS [1427 - 3273.69] (Heading of Division 3 amended by Stats. 1988, Ch. 160, Sec. 14.) PART 4.

OBLIGATIONS ARISING FROM PARTICULAR TRANSACTIONS [1738 - 3273.69] (Part 4 enacted 1872.) TITLE 5. HIRING [1925 - 1997.270] (Title 5 enacted 1872.) CHAPTER 2.7. Residential Rent Control [1954.50 - 1954.535] (Title 5 added by Stats. 1995, Ch. 331, Sec. 1.) https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=CIV&division=3.&title =5.&part=4.&chapter=2.7.&article (accessed May 2024).
3 Ibid.

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NOTE: Rent stabilization provides landlords with the ability to increase rent by a fixed percentage year over year. This differs from rent control, which is defined as when a municipality locks in rental rates at a specific amount. Please note that while the distinction between these methods of regulating rent is important, the terms may sometimes be used interchangeably within the literature review and other parts of this analysis.

This Study was prepared to answer the following key questions related to a potential rent stabilization ordinance on multifamily residential rental units in the City:
• What socioeconomic and real estate trends led City officials to consider implementing a rent stabilization policy?
• How can the experiences of cities with existing rent stabilization policies inform the elements of the proposed policy requirements in Salinas? • What are the potential fiscal implications of a proposed rent stabilization ordinance on the City’s General Fund?
• What are the estimated impacts of different rent stabilization ordinance scenarios on housing supply in the City?
It is important to note that local rental markets are complex and influenced by a variety of factors that are external to the proposed Ordinance, including regional growth trends, State and federal policies and regulations, and business cycle considerations, among others. Thus, the identified economic and fiscal impacts of the proposed ordinance are informed by available evidence and not intended to be precise predictions, but to support discussion of potential policies and recommendations
Study Overview
This Study includes various research methods to help examine the economic and fiscal effects of rent stabilization including a literature review on rent stabilization, case studies of rent stabilization regulations implemented in jurisdictions in California, and a technical socioeconomic and financial analysis.

The technical analysis component of this Study comprises the following key analytic elements and addresses how they relate to and could be affected by rent stabilization:

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• Demographic and Socioeconomic Profile. Identifies trends in population and households, age, race & ethnicity, and household income. • Residential Market Profile. Examines the housing inventory and residential market trends in the City.
• Economic and fiscal impacts. Estimates the economic impacts of rent stabilization on housing supply and pricing, the City’s General Fund, and on landlord returns.

The purpose of this evaluation is to develop an understanding of the dynamics of socioeconomic and residential market trends in Salinas, to examine the economic and fiscal impacts of rent stabilization and address the key questions to help the City develop a rent stabilization ordinance that considers and balances the economic implications for both the tenants and building owners.

Supporting data tables underlying the findings and figures presented herein are included in appendices at the end of this memorandum.

Sources
This Study replies on publicly available data sources (e.g., 2012 and 2022 U.S.

Census American Community Survey, California Department of Finance, HUD, RedFin, Zillow, Nolo) and subscription-based data (e.g., CoStar, ParcelQuest) to document and evaluate trends in the City, the state, and other jurisdictions.

Background
As the County seat, the City of Salinas is both a center of agricultural production and an affordable residential center for service economy employees serving the Monterey Peninsula. The City has been making gains in its downtown, which has become a compelling and livable district. Recent years have shown Salinas’ economic base growing at a modest pace, with agriculture making up the largest portion of economic activity.

Salinas’ labor force is young, with a large proportion of workers lacking a high school or college education. Salinas also has a shortage of both agricultural production workers as well as health care and educational workers.

The labor force also has a sizable number of professionals and construction workers who commute to jobs outside of the City and Monterey County. The role of Salinas as a bedroom community for those workers has put upward pressure on housing prices, and the regional shortage of agricultural workers as well as the tourist-serving hospitality workers is an outcome of that trend.

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Salinas has a rare if not unfortunate status as an area of lower wage labor subject to very expensive land and development costs (similar to the greater Bay Area).

With very little new market supply added despite several major Specific Plans on the books, these forces have combined to create a high cost of living.

Communities to the south of Salinas on Highway 101 are actively seeking to compete for this labor force as part of their own economic development ambitions. While every effort is being made to diversify and train the local labor force and enable citizens to gain additional skills and command higher wages, these efforts take time. In the interim, rising costs, including the cost of housing, are important to understand and where possible, moderate through intentional policy efforts.

California Rent Stabilization
The California Tenant Protection Act established a statewide maximum allowable rent increase and just-cause evictions protections. The statewide policy caps rent increases at the lesser of 5 percent plus the increase in the regional consumer price index (CPI) or 10 percent of the lowest rent charged over the 12 months before the increase.4
Cities and counties may also enact their own rent stabilization with a lower rent cap than the statewide provision. However, any local ordinance is limited by the Costa-Hawkins Rental Act which exempts single-family homes, condominiums, and all housing built after 1995 from rent stabilization (but not just cause eviction). State law also dictates that all units covered by rent stabilization are subject to vacancy decontrol, which allows landlords to establish market rate rents for new tenants.5
There is currently a statewide ballot initiative set for the November 2024 ballot that would repeal Costa-Hawkins.6 If the initiative passes, any local ordinance not explicitly written to exempt single-family homes or provide vacancy decontrol will take effect. Therefore, if Costa-Hawkins is repealed, the City’s proposed rent stabilization ordinance, if approved, would apply to all rental housing including single-family units and rents would not reset to market for new tenants.

Various studies on rent stabilization in California suggest that approximately 30 cities in the State currently have some form of a program, or about 7 percent the total cities (accounting for 22 percent of the state’s population).7

4 Rent Control Is Here: California’s Tenant Protection Act of 2019 | Nolo 5 Costa-Hawkins Act • California Apartment Association (caanet.org) 6 California Prohibit State Limitations on Local Rent Control Initiative (2024) - Ballotpedia 7 California Rent Control Law | Nolo
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As illustrated in Table 1-1 most of these cities tie rent caps to a percentage of the CPI. A smaller number of cities cap rent at an annual percentage increase, ranging from two to ten percent, regardless of the CPI.

Table 1-1. California Cities with Rent Stabilization

City City
Bell Gardens 50% Gardena 5%
Antioch 60% Hayward 5%
Concord 60% Larkspur 7%
Oakland 60% Mountain View 2% - 5%
Richmond 60% Oxnard 4%
San Francisco 60% Sacramento 10%
Berkeley 65% San Jose 5%
Alameda 70% Average 6%
Los Gatos 70%
Fairfax 75%
Palm Springs 75%
Pasadena 75%
Santa Monica 75%
West Hollywood 75%
East Palo Alto 80%
Santa Ana 80%
Baldwin Park 100%
Beverly Hills 100%
Cudahy 100%
Culver City 100%
Inglewood 100%
Los Angeles 100%
Pomona 100%
Average 78%
Source: Nolo; EPS.

Allowable Annual
Rent Increase
(% of CPI)
Allowable Annual
Rent Increase
Flat %
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Rent Stabilization Concepts and
Discussion
Rent Stabilization and control is a controversial concept subject to divisive opinions and concerns.

Common concerns with this regulatory policy include:
• Reduced rental unit supply.
• Reduced residential mobility.
• Reduced property value.
• Decreased revenue leading to property disinvestment.
• Inflated rent as an effect of vacancy decontrol.

Conversely, positive expectations from rent stabilization include:
• Housing stability:
‒ Reduced worker turnover.
‒ Improved educational outcomes.
‒ Reduced demand for social services.
• Increased discretionary income to potentially help boost the local economy. • Protecting communities of color from historical housing cost burdens. • Increase in income equality.

Many of the concerns can be alleviated through education of the proposed rent stabilization policy, for example making sure the community understands which residential units qualify for rent stabilization, specifically clarifying it does not affect new development, as discussed in Chapter 2, and refuting some common misconceptions as discussed in Chapter 3.

Key Findings and Considerations
Key Question 1: What socioeconomic and real estate trends led City officials to consider implementing a rent stabilization policy? For decades, California has faced a housing crisis related to its significant unhoused population and housing affordability related to rising housing costs and lack of supply. For renters, especially those living in poverty, high rental rates have translated into large proportions of their income allocated to housing costs, leaving little remaining for basic living expenses, let alone bolstering savings Proposed Rent Stabilization Ordinance Analysis
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accounts to build wealth.8 Disparities in cost burdens persist among renters, particularly affecting households from a diverse racial background. These disparities are attributed to long-standing discrimination in housing,9 employment, and education.10 Black, Hispanic, and multiracial households face higher rates of cost burdens compared to white renters by 5 to 10 percent.11 Among the renters experiencing housing hardships, 4 in 10 renter households are Black and Latinx.12 This housing crisis is exacerbated for people of color, who often face additional barriers such as lower wages and fewer housing options in desirable neighborhoods. These communities are more likely to experience housing instability and are at greater risk of eviction. The socioeconomic factors and real estate trends discussed below have prompted the City Council to consider a rent stabilization policy within the City to help protect the vulnerable renter communities by helping to alleviate the pressures of increasingly high rents.

Characteristics of renter-occupied households in Salinas include:
• In Salinas, overcrowding in renter-occupied households has increased by more than 24 percent over the last decade, compared to only 6 percent statewide.13
• 53 percent of City renter-occupied households have 4 or more occupants, compared to 27 percent statewide.
• Mirroring a trend negatively affecting all of California, more than half of renter-occupied households in the City are considered rent-burdened and 26 percent are considered severely cost-burdened:
‒ Median renter household income: $64,509/year
‒ 30 percent of median income: $1,612/month
‒ Median MFR rent for units built before 1995: $1,994/month

8 Kimberlin, Sara and Esi Hutchful, 2019. New Census Figures Show More Than 1 in 6 Californians Struggle to Afford Basic Necessities. California Budget and Policy Center. [online] Available at https://calbudgetcenter.org/resources/number-of-californians-living-in-poverty-has- been-declining-but-more-than-1-in-6-residents-still-struggle-to-afford-basic- necessities/#:~:text=Approximately%207.1%20million%20Californians%20lived,Supplemental% 20Poverty%20Measure%20(SPM) [Accessed January 2021].
9 CBPC, Who is Experiencing Housing Hardship in California?, May 2022; 5 10 JCHS of Harvard University, America’s Rental Housing, 2024; 34-36 11 JCHS of Harvard University, America’s Rental Housing, 2024; 34-36 12 CBPC, Who is Experiencing Housing Hardship in California?, May 2022, 13 An overcrowded household is defined by the U.S. Census as having 1 or more persons per room (excluding bathrooms and kitchens).

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• Approximately 18 percent of families that are renters fall below the poverty level compared to 6 percent of owner-occupied families in Salinas, statewide 16 percent of renters fall below the poverty level and 4 percent of owner- occupied.14
• More than half (53 percent) of the City’s households are renter-occupied, in comparison to 44 percent statewide.
• Latinx population comprises 81 percent of the renter-occupied units in Salinas, compared to 30 percent countywide and 37 percent statewide. • 57 percent of renter-occupied households comprise householders ages 44 or younger compared to 37 percent countywide and 53 percent statewide.

The multifamily rental rate increase of 86 percent over the past decade greatly exceeds the increase in renter-household incomes which only increased by a total of 33 percent (in 2022 dollars) over the same period.15 In addition, the housing market in Salinas has become much more expensive, home prices have increased 203 percent since 2012 (2023 average median sales price is $675,000 for for-sale units) and rents in multifamily units built before 1995 have increased by 86 percent since 2012 (2023 average asking rent was about $1,980 for all unit sizes).

The housing market is considered tight with little room for movement with overall low vacancy of about 3 percent compared to the County’s 8 percent average, indicating the need for increased housing supply.

The City’s current overall vacancy rate of 3 percent falls below the 5 percent threshold that many housing experts believe to be an ideal vacancy rate.16 Higher vacancy rates provide prospective buyers and renters with more options when searching for homes, helping to stabilize prices. Below this 5 percent rate, those looking for housing have fewer options, allowing landlords or sellers to charge higher prices. Research has consistently found that a vacancy rate below this 5 percent threshold leads to increasing rents and sales prices.

The undersupply of housing most prominently affects underserved populations, including students, teachers, young families, low-income families and individuals, seniors, people with disabilities, and the unhoused population indicating the need

14 The US Department of Housing and Urban Development defines a household spending more than 30 percent of their income on housing as "rent burdened." Households spending more than 50 percent of their income on housing are considered "severely rent burdened." 15 This is based on the difference between 2012 and 2024 for multifamily rental units built before 1995.
16 Phillips, Shane. 2020. Does the Los Angeles Region Have Too Many Vacant Homes? UCLA Lewis Center for Regional Policy Studies Working Paper Series. https://escholarship.org/uc/item/87r4543q [Accessed October 2021].

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for focused strategies to increase access to a variety of housing types at various levels of affordability.

Key Question 2: How can the experiences of cities with existing rent stabilization policies inform the elements of the proposed policy requirements in Salinas?
A survey of rent stabilization ordinances in comparative jurisdictions was completed to examine established policy structures as well as program fee amounts. The full survey can be found in Chapter 3 Table 3-1.

The rent stabilized jurisdictions analyzed in the case study implemented varying levels of rent increase percentages as well as different fee amounts. One of the key takeaways is the emphasis on the importance of educating the community, property owners, and developers on the types of units subject to rent stabilization as well as the elements within the ordinance that can help both renters and landlords.

In addition, it is important to acknowledge that rent stabilization does not serve as a single “silver bullet” solution to such a pervasive problem. For it to alleviate some of the housing pressure, it must be combined with other policies that protect renters and encourage additional supply such as providing incentives to support the development of missing housing types in the City, encouraging infill development, streamlining the permitting process, create supportive housing- related programs for underserved populations, etc.

Key Question 3: What are the potential fiscal implications of a proposed rent stabilization ordinance on the City’s General Fund? Property Tax
There may be positive fiscal impacts on property taxes and property transfer taxes if rental units are sold in response to a rent stabilization ordinance.

However, these fiscal impacts will be minor under current conditions as the ordinance only applies to multifamily units. The building would either be sold and continued to be occupied as rental units, or the property owner would have to go through the detailed process of converting to condominiums, which could then reduce the rental supply.

There is also the potential that limiting rent increases could reduce the assessed value of a rent stabilized property. However, because of the impact of Proposition 13 on assessed values, only properties that have been sold would be eligible for a reassessment in their taxable value. In these circumstances, some new property owners may ultimately file assessment appeals if the values of their properties do not keep pace with inflation because the real rental revenue is declining over time. The impact of this effect on property taxes will depend on the portion of Proposed Rent Stabilization Ordinance Analysis
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multifamily rental housing that was recently transacted. In the last 5 years only

5.5 percent of the City’s rental inventory that would qualify for the ordinance was sold.

In addition to property tax payments, any change in property values would also impact the City’s property tax in-lieu of vehicle license fee revenue received from the State. Therefore, if the proposed ordinance were to result in a decrease (or increase) in assessed values, the city would receive lower (or higher) revenue from the State.

Program Costs to the City’s General Fund
Salinas will incur both one-time and on-going costs to implement and administer a Rent Stabilization Program, costs that could potentially be covered through a per unit fee program specified in the Ordinance. Based on discussions with rent stabilization program staff in other jurisdictions, Salinas would likely need 4.2 to

11.4 Full-time employees equivalent (FTEs) to manage the proposed ordinance (excluding the Rental Registry FTEs). Preliminary EPS estimates suggest on-going program administration costs ranging from about $621,000 to $1.2 million per year, as detailed in Chapter 4 Table 4-12. A combined annual per unit fee for the Rental Registry and Rent Stabilization programs should be designed to recover the costs of the fully burdened costs of staff. An illustrative example using the estimated maximum annual costs of $1.2 million reflects a range s from about $20 for partially covered units and $115 for fully covered units. The actual fees will depend on the level of staffing and will decrease over time if not escalated to keep pace with inflation. This fee does not include the initial costs to implement the program and provides an estimated cost of hiring third party sources that may help with services such as legal counsel, tenant relocation assistance, and renter helpline, actual costs of third-party services will depend on what elements are included from each service type.

Key Question 4: What are the estimated impacts of different rent stabilization ordinance scenarios on housing supply in the City? Under current State law, the impact of the proposed Ordinance on City finances and economic trajectory is likely to be relatively modest. Because of the statewide exemptions for single-family homes and multifamily units built after 1995, the rent stabilization provisions of the ordinance would only impact about 19 percent of the City's total housing stock. The most significant economic impacts are likely to be distributional, with existing renters experiencing direct financial benefits at the expense of property owners. The rent and eviction protections may also limit displacement among lower income communities who tend to disproportionately occupy rental housing.

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Vacancy decontrol, which allows the rent for vacated units to be brought up to market rate, helps stabilize the potential financial effects for property owners reflecting only a slightly decreased Internal Rate of Return (IRR) depending on the rent cap. A financial sensitivity analysis shows that prototypical rent stabilized building would appreciate at a slower rate compared to a market rate building not subject to rent stabilization. In addition, rent stabilized buildings are considered low-risk investments requiring a stable IRR from about 8 percent to 12 percent compared to new construction which would need to range about 2 percentage points higher. See Chapter 4.

Operating expenses for multifamily buildings have been somewhat volatile in recent years, largely because of increases in utility costs and particularly insurance costs. Increases in operating costs impact the net operating income for owners of multifamily rental units that are unable to pass along the total increased cost to tenants. Correspondingly, the return on investment for landlords can be negatively impacted. At the most restrictive rent control rates, the rates of investor return can potentially dip close to levels that can be achieved with far less risk and effort through an investment account. Under such a scenario, there would be increased incentive for some landlords to exit the market. The inclusion of provisions for landlords to petition for rent increases to accommodate additional operating expenses is an important safety valve to prevent undue burden and potential loss of rental units.

Overall Conclusions
Rent regulations are increasingly prevalent in California. In cities like Salinas where apartments account for about 36 percent of the housing stock, the policy could have a range of potential impacts. As discussed previously, current state law limits the impact of rent stabilization by exempting single-family units, condominiums, and properties built after February 1995 and allowing for vacancy decontrol (the ability to raise rent back to market rate after a tenant leaves).

For applicable units (19 percent of the City’s housing), the proposed Ordinance is likely to stabilize rents and decrease displacement risk, which is an important equity concern in the City. Thus, existing City renters would be the direct beneficiaries of the Ordinance, accruing long-term financial benefits and reduced risk of eviction. This benefit would come at a cost to existing Salinas landlords who could experience reduced rental income and limitations on removing unwanted tenants. However, the effects on income appear to be relatively modest particularly as the ordinance has policies to help protect hardships by allowing a landlord to petition for rent increase beyond the allowed rent stabilized increase to obtain a fair and reasonable return as well as petition to pass through to the tenant specific capital improvements. Conversely there is a policy that allows a tenant to petition for a rent reduction if they believe that the Proposed Rent Stabilization Ordinance Analysis
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landlord has demanded, accepted, or retained any rent in excess of the rent permitted.

However, despite the clear and direct redistribution effects of the proposed Ordinance, the broader economic implications are likely to be modest absent the repeal of Costa-Hawkins, which would expand the incidence of rent control beyond the above-referenced 19 percent of the City’s housing.

While 19 percent of the City’s housing is not immaterial, the renter protections included in the Ordinance are likely to have both positive and negative impacts on the local economy and the City’s fiscal health. The positive impacts include reduced displacement as well as increased economic stability and disposable income for renters. The negative impacts may include reduced labor mobility and housing availability for new residents, as rent stabilization is shown to decrease turnover by about 20 percent, and with vacancy in the City experiencing an extremely tight market, this exacerbates the limited housing options for new residents and the ability for existing residents to move, as discussed in Chapter 3.

Rent stabilization is part of a toolkit that, along with other policies and incentives, can help alleviate some housing cost pressures. Taken in combination with other policies that encourage renter protections and additional supply, it can be part of a multi-pronged effort to improve the outlook for residents struggling to afford housing.

Recommendations
Based on the findings from the literature review, a survey of comparable cities, and the technical fiscal and economic impacts analysis, EPS recommends the City consider adopting a rent stabilization ordinance, limiting the maximum increase of rent between the following ranges to help stabilize rents and prevent displacement for the City’s most vulnerable populations:
• The lesser of 2.5 percent or 65 percent of the CPI for All Urban Consumers in the Urban West (CPI-U West)
OR
• The lesser of 2.75 percent or 75 percent of the CPI for All Urban Consumers in the Urban West
Using a percentage of CPI to calculate allowed annual rent increases maintains a logical basis because the CPI itself includes changes in housing prices to measure inflation. As of December 2023, rent of primary residences relative importance to the CPI-U West was 9.7 percent while owners’ equivalent rent’s relative Proposed Rent Stabilization Ordinance Analysis
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importance was 27.1 percent.17 Thus, using CPI to calculate allowable rent increases risks “double-counting” rent, in that exogenous rent increases in non- rent stabilized units could drive higher allowable rent increases that are larger than the increased costs of maintenance services captured in the CPI. Using either 65 percent or 75 percent of CPI to benchmark allowable rent increases helps to mitigate this potential issue.

The BLS does publish inflation measures that exclude housing costs, titled “CPI – Less Shelter.” However, this measure can be extremely volatile, as the large relative importance of shelter costs and their relative stability year-over-year mitigates more volatile consumer goods and services costs in unstable inflationary environments. For example, during the inflationary spikes of 2021 and 2022, which were driven by COVID-related supply chain issues for consumer goods, the CPI-Less Shelter was 26 percent and 12 percent higher than the overall CPI-U West, respectively. See Appendix A Table A-14.

The allowed rent increases strike a balance to benefit both the tenant and the property owner, preventing exorbitant increases in rent while still providing a reasonable rate of return for the property owner.

Figure 1. CPI Comparison

17 Owners’ equivalent rent is the amount that an owner-occupied home would rent for on the open market. Relative importance indicates the relative contribution of one category of items to the overall inflation measure. For example, with 9.7 percent relative importance, a 10 percent increase in rent of primary residences would increase the overall CPI by 0.97 percent, assuming all other items’ prices do not change.
-2%
0%
2%
4%
6%
8%
10%
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 [2]
60% CPI
80% CPI
CPI - Less Shelter
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The Rent Stabilization Ordinance should include strong tenant protections. Strong tenant protections include Just Cause eviction protections as well as No-Fault evictions protections such as requiring landlords to pay fair relocation costs. See Appendix A Table A-1 for no-fault eviction within the California cities that have rent stabilization ordinances. An additional protection the City could consider is setting a cap on the number of units that can convert to condos within a year and providing current tenants the right of first refusal to purchase condo conversions.

Based on data from other cities, the additional staffing needed to establish, operate, and maintain the Rent Stabilization ordinance ranges from the equivalent of 4.2 to 11.4 net new hires (excluding the rental registry staff) or a percentage of existing employees’ time. With the minimum level of only 4.2 new staff members, or 5.1 FTEs total, Salinas would likely need to contract third party services for legal counsel, tenant relocation services, and mediation and dispute resolution. As staffing increases beyond 5.1, the number of third-party source contracts will decrease.

The City should consider including language in the ordinance establishing periodic reviews elements such as the rent increase caps, the number of petitions, staffing levels, fee amounts, etc. to ensure the program operates effectively for property owners, tenants and the City.

In addition, the City should take careful consideration to explicitly include any elements that would like to retain from Costa-Hawkins, such as exempting single-family homes, exempting new development, and providing vacancy decontrol. If these are not included in the City’s ordinance and the statewide ballot initiative set for the November 2024 ballot to repeal Costa- Hawkins passes the local ordinance would apply to all rental housing including single-family units and rents would not reset to market for new tenants.

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Regulatory Context
This chapter summarizes the existing California legal context relevant to evaluating the fiscal and economic impact of the proposed ordinance and the specific provisions of the proposed Ordinance in this context.

California Rent Stabilization
The California Tenant Protection Act established a statewide maximum allowable rent increase and just-cause evictions protections. The statewide policy caps rent increases at the lesser of 5 percent plus the increase in the regional consumer price index (CPI) or 10 percent of the lowest rent charged over the 12 months before the increase.
18 Cities and counties may also enact their own rent stabilization with a lower rent cap than the statewide provision. However, any local ordinance is limited by the Costa-Hawkins Rental Act which exempts single-family homes, condos, and all housing built after 1995 from rent stabilization (but not just cause eviction). State law also dictates that all units covered by rent stabilization are subject to vacancy decontrol, allowing landlords to establish market rate rents for new tenants.19 There is a statewide ballot initiative set for the November 2024 ballot that would repeal Costa-Hawkins.20 If the initiative passes, any local ordinance not explicitly written to exempt single-family homes or provide vacancy decontrol will take effect, as would be the case for Salinas as described further below. Therefore, if Costa-Hawkins is repealed, the City’s proposed rent stabilization ordinance, if approved, would apply to all rental housing including single-family units and rents would not reset to market for new tenants.

Assorted studies on rent stabilization in California suggest that approximately 30 cities in the State currently have some form of a program, or about 7 percent the total cities (accounting for 22 percent of the state’s population).21

18 Rent Control Is Here: California’s Tenant Protection Act of 2019 | Nolo 19 Costa-Hawkins Act • California Apartment Association (caanet.org) 20 California Prohibit State Limitations on Local Rent Control Initiative (2024) - Ballotpedia 21 California Rent Control Law | Nolo
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As illustrated in Table 1-1 most of these cities tie rent caps to a percentage of the Consumer Price Index (CPI), similar to the approach in the proposed Salinas Ordinance. A smaller number of cities cap rent at an annual percentage increase, ranging from two to ten percent, regardless of the CPI.

Summary of Salinas’ Proposed
Ordinance
The City of Salinas Rent Stabilization and Tenant Protection Ordinance proposes to establish an annual rent increase cap of the lesser of a specified percentage or a percentage of the Consumer Price Index (CPI) (percentage amounts to be determined later) and establishing just cause eviction protections. As illustrated in Table 1-1, 60 percent of CPI threshold is the lower end (e.g., more favorable for existing tenants) than other California cities that have such ordinances (the average is 78 percent of CPI).

Like most rent stabilization programs, the proposed Ordinance applies to all covered units irrespective of household income (e.g., it is not means tested).

As in Costa-Hawkins the ordinance exempts the following properties:
• Any residential real property with a certificate of occupancy issued after February 1, 1995.
• Rental units in hotels, motels, and inns (for a period of fewer than 30 days). • Dormitories.
• Rental units in any hospital, convent, monastery, or extended care facility. • A rental unit that has been the primary residence of the landlord since the beginning of the tenancy, and where the landlord shares a bathroom or kitchen with the tenant.
• Rental units fully owned, operated, and managed by a County government unit, agency, or authority if applicable federal, state, or administrative regulations specifically exempt the units from local rent stabilization. • Mobile homes located in mobile home parks.

Notably, the Ordinance does not exempt single-family or vacated units. While these units are exempt from rent stabilization under Costa-Hawkins if voters repeal this law (as proposed in a statewide ballot measure) both single-family and vacated units would thereafter be covered by the proposed City Ordinance.

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In addition, the ordinance provides the following policy stipulations to protect both tenants and property owners:
• Reasonable rate of return
• Tenant protection for rent reduction
• Landlord petition for rent increase
• Petition for pass through for specific capital improvements • Rent increase ineffective (e.g. landlord fails to comply with the provisions of the ordinance)
• Notice requirements
• Violations and remedies
If passed, the City would fund the administration of the Ordinance through the Rent Program Fee charged to landlords per non-exempt unit per year. The amount of the fee has yet to be determined. Other complaint-driven enforcement jurisdictions charge fees that range from $59 to $144 per unit.

Additional Renter Protections
Rent stabilization is a single policy tool designed to protect renters, other rental protections and aid should be considered as well. For example, from March 2021 through the end of 2023, the City partnered with United Way to establish a funding agreement providing the City with $15 million to assist with over 3,800 rental payments. The program serves low-income residents throughout Monterey County who are at risk of becoming homeless. During this time, the City was able to help:
• 2,031 Rental Cases
• 1,705 Utility Cases
• 61 Motel Payments
The City is working with United Way to develop a Homeless Housing Navigation and Stabilization Program (HHNSP), which includes partnering with the Housing Authority of Monterey County as a subgrantee. Funding will be used by the City’s housing case navigators to provide case management, housing navigation referrals, and financial assistance with application fees, deposits, move-in fees, and storage fees to help residents obtain stable housing. These services are provided to individuals that are already a part of the City’s Emergency Motel Program (EMP) or the Salinas Outreach and Response Team (SORT).

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The City is not assisting with rental or utility services but helps provide referrals to outside services using the Smart Referral Network (SRN). The City is working on partnering with Monterey College of Law to assist tenants with tenant/ landlord mediation services.

Potential Options for Additional Renter Protection
In addition to or in place of a rent stabilization ordinance, the following renter protection methods can be considered:
• AB 1482: The California Tenant Protection Act of 2019. This law went into effect January 1, 2020, and expires on January 1, 2030. These are the two main aspects of this law:
‒ Requires a landlord to have a “just cause” to terminate a tenancy. ‒ Limits annual rent increases to more than 5 percent + local CPI, or 10 percent, whichever is lower.

This law applies to units that were constructed 15 years ago or more, which differs from Costa-Hawkins in that unit age is on a rolling basis. Another difference is it can apply to single-family homes and condominiums if those units are owned by a real estate trust, a corporation or and LLC with at least one corporate member.
• Additional renter protection programs provided by other cities include:
‒ Just cause eviction ordinances.
‒ Tenant protection ordinances.
‒ Legal assistance.
‒ Fair housing services.
‒ Emergency assistance programs.
‒ Housing stability assistance program.

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Literature Review and Case Study
The impact of rent stabilization ordinances on communities largely depends on the framework of the policy and the context of the local housing market. That said, there are common themes that can be gleaned from empirical and academic studies on the topic. Traditional economic analyses often focused on negative aspects of rent control, a much stricter form of rent regulation originating from World War II-era price controls that is now only applicable to approximately 24,000 rental units located exclusively in New York City.22 Under the rent control regime that was in place between 1943 and 1968 in New York City, landlords were required to apply to a rent commission for rental increases, with no allowances for automatic inflationary increases of rent. 23 Although economic
theory predicts that such a hard price ceiling, coupled with no exemptions for new construction, would significantly depress new construction of rental housing and investment in maintenance and upkeep of current units, such strict policies were only in place temporarily and are not reflective of the more nuanced policies in place in most jurisdictions.24 Nearly all rent stabilization policies currently in place now include significant allowances for automatic inflationary adjustments of rent, increases for capital improvements, vacancy decontrol, and exemptions for new construction, mitigating harmful effects on new construction and maintenance investment from the price control aspect of the policies.

Most empirical studies on more moderate rent stabilization policies indicate that the policy is effective in its intended goal of reducing rent for existing tenants.

However, rent stabilization policies have also been found to cause a range of other impacts on the housing market including increased rent for new residents and reduced housing mobility/displacement. Impacts on other factors are more ambiguous. A summary of the salient findings from a variety of empirical rent stabilization studies is provided below.

22 New York City Rent Guidelines Board, 2024. Frequently Asked Questions. Available at:
https://rentguidelinesboard.cityofnewyork.us/resources/faqs/. Accessed June 18, 2024. 23 Cavadias, M., 2017. A Brief History of Rent Regulation in New York. Hypocrite Reader.

Available at: https://hypocritereader.com/81/rent-regulation-nyc. Accessed June 18, 2024. 24 Jenkins, B., 2009. Rent Control: Do Economists Agree? Econ Journal Watch. Vol. 6, Issue 1.

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Impacts on Renter Displacement
Almost all academic research finds that tenants in rent stabilized apartments have longer tenures and are less likely to move than renters in non-rent stabilized units.25 In other words, households that are protected from rapid rent increases appear less likely to move. In a 2019 Stanford research paper, authors Diamond, McQuade, and Qian (DMQ) examined the impacts of San Francisco’s rent stabilization after a 1994 law removed an exemption for small multifamily units in the City. The paper concluded that San Francisco’s rent stabilization lowered renter displacement by about 20 percent.26 The authors note that rent stabilization had an especially significant impact in preventing the displacement of racial minorities. A summary of stabilization’s impacts by PolicyLink noted that tenants living in rent-stabilized units move less frequently and are less likely to experience forced moves.27
The “strictness,” as measured by the magnitude of rent increases allowed and the burden of proof necessary to raise rents beyond the standard allowed increases, of rent control policies is strongly correlated with longer tenancies.28 Under extremely strict rent control regimes, such as those that existed in New York City before 1968, the impacts on tenant mobility can be extreme, with a 1992 study finding that the typical tenant in a rent-controlled unit would remain in the same unit for 18 years longer than a similar tenant in a non-rent-controlled unit.29 Although economic analyses of strict rent control policies have often focused on the misallocation of rent control’s benefits (i.e. that most benefits accrue to upper income households) recent analysis of rapidly gentrifying neighborhoods in the San Francisco Bay Area finds that rent stabilization is uniquely effective in preventing displacement of extremely low-income households.30 In Salinas, increasing housing stability for the City’s rental community, specifically the 81 percent of renter-occupied units comprising Latinx residents, and other

25 Pastor, M.; Carter, V.; Abood, M. 2018. Rent Matters: What are the impacts of rent- stabilization measures. Available at: https://dornsife.usc.edu/eri/wp- content/uploads/sites/41/2023/01/2018RentMattersPERE.pdf. Literature reviews findings from 26 DMQ.pdf (stanford.edu)
27 OurHomesOurFuture_Web_08-02-19.pdf (policylink.org)
28 Crispell, M., 2016. Rent Control Policy Brief. University of California Berkeley Urban Displacement Project.
29 Ault, R.l Jackson, J.; & Saba, R. 1992. The Effect of Long-Term Rent Control on Tenant Mobility.
30 Hwang, J., et al., 2022. Who Benefits from Tenant Protections? The Effects of Rent Stabilization and Just Cause for Evictions on Residential Mobility in the Bay Area. University of California Berkeley Institute of Governmental Studies Policy Brief.

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vulnerable residents such as farmworkers, the elderly, and low-income households, is key to ensuring quality of life for these communities and the City as a whole. Research from San Mateo County shows that displacement, whether from formal eviction or an inability to afford rent, has disastrous impacts on families’ well-being. Renters displaced from their homes experienced extremely high rates of homelessness compared to other families and on average were forced to move to communities with worse environmental health outcomes and longer commutes.31 Additional research from Michigan conducted during the Great Recession shows that people who move due to an inability to afford rent or mortgage are more than twice as likely to report anxiety attacks or severe depression than people who move for other reasons.

Impacts on Rental Supply
Much of the economic literature critical of rent control policies’ depressive impact on new housing development examines strict rent control policies present in New York City and many European cities immediately following World War II.32 33 However, empirical evidence from more moderate rent stabilization policies with exemptions for new construction find little to no effect on the supply of new housing. An examination of the end of rent stabilization policies in Boston, where new construction was exempted, found that being in a zone of Boston exempt from rent stabilization led to an increase of only

0.2 percentage points in the quantity of new housing.34 Similarly, analysis comparing 76 cities in New Jersey both with and without rent stabilization policies found that moderate price control policies had no statistically significant effect on new construction.35
While moderate rent stabilization policies with exemptions for new construction may not depress new housing development, they may lead to the conversion of existing rental units to condominiums, generating a shift toward for-sale housing. Over the 36-year study period, DMQ found that impacted landlords reduced the supply of available rental housing by 15 percent by selling to owner-

31 Marcus, J.; Zuk, M., 2017. Displacement in San Mateo County, California: Consequences for Housing, Neighborhoods, Quality of Life, and Health. University of California Berkeley Institute of Governmental Studies Policy Brief.
32 Glaeser, Edward L. 2002. Does Rent Control Reduce Segregation? Harvard Institute of Economic Research Discussion Paper No. 1985.
33 Arnott, Richard. 1995. "Time for Revisionism on Rent Control?" Journal of Economic Perspectives, 9 (1): 99–120.
34 Sims, David P. 2007. Out of Control: What Can We Learn from the End of Massachusetts Rent Control? Journal of Urban Economics 61(1).
35 Gilderbloom, John I., and Lin Ye. 2007. “Thirty Years of Rent Control: A Survey of New Jersey Cities.” Journal of Urban Affairs 29(2).

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occupants and redeveloping buildings. As a result, rental properties made up a smaller portion of the City’s housing over time, which increased the cost of rental housing. The shift toward for-sale housing and the increased price of rental housing together directed the City’s housing stock toward higher income households.

Since the ordinance only applies to multifamily buildings, the property owners of apartment buildings that qualify for rent stabilization in Salinas would have to go through the legal process to convert the rental units to condominiums.

The conversion process is complex, with many detailed steps. The following steps are suggested:

1. Consult with a real estate attorney

2. Conduct a market assessment

3. Retain a licensed professional to examine the property

4. Talk to a mortgage broker

5. Understand the role of the title company

6. Tenant Notice or Vacancy Exemption

7. Application process:
‒ Application
‒ Tenant history and provisions
‒ Inspection
‒ CC&Rs
‒ Site plan and floor plans
‒ Utility plan
‒ Tentative Parcel Map
‒ Subdivision Map
‒ Preliminary Title Report
‒ Affordable housing proposal, if applicable

8. Recordation of applicable paperwork

9. Post-conversion refinance and sales transactions.36
While apartment to condo conversions would reduce rental inventory, several policies exist to mitigate the threat of these conversions, including the prohibition of condo conversions for buildings over a certain number of units, requiring that landlords pay fair relocation costs, or providing current tenants the right of first refusal to purchase condominium units in the converted building.

36 Old Republic Title, “Understanding the Condo Conversion Process,” December 14, 2022 , https://www.linkedin.com/pulse/understanding-condo-conversion-process-oldrepublictitle/ (accessed May 2024).

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Impacts on Economic Inequality
Economists have made varying conclusions on how rent stabilization impacts inequality.

While rent control does not directly decrease income inequality, the benefits of housing, rental expenditure, and neighborhood stability are much more impactful for low-income households. Because rent stabilization is a broadly targeted policy, benefitting tenants regardless of their incomes, many economists have noted that the majority of the aggregate benefits of cheaper rent accrue to middle- and upper-income households.37
However, analysis of the aggregate benefits of lower rent does not consider the relative effect of stabilized rents on household of different incomes. Lower income families spend a much larger proportion of their incomes on rent—in 2017, 80 percent of low-income households spent more than 30 percent of their income on rent, compared to only 16 percent of high-income households.38 39 Thus, the income saving aspect of rent stabilization policies is much more impactful for low- income households than higher-income households, even if the nominal dollar benefit is the same.

However, rent stabilization (along with the robust tenant protections that often accompany these policies) allow lower-income families to remain in neighborhoods even as rental prices and neighborhood incomes rise. As noted in the study of San Francisco rent stabilization, allowing low-income families to remain in place while the average income of in-migrants rises actually increases income inequality on a city-wide scale as the incomes of existing tenants and new residents diverge. However, these families, and especially young children, strongly benefit from housing stability in an improving neighborhood.

As noted above, low-income families displaced from gentrifying neighborhoods are often forced to move to neighborhoods with lower opportunity and higher environmental health risks. In addition, as average neighborhood incomes rise, children raised in these higher-income, higher-opportunity neighborhoods grow up to have significantly lower incarceration rates, much higher employment rates,

37 Ault, R. & Saba, R., 1990. The economic effects of long-term rent control: The case of New York City. The Journal of Real Estate Finance and Economics. Volume 3. 38 Kimberlin, S., 2019. California’s Housing Affordability Crisis Hits Renters and Households With the Lowest Incomes the Hardest. California Budget & Policy Center. 39 Low-income is less than 200 percent of the federal poverty line, while high-income is 400% or more of the federal poverty line.

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and higher incomes, regardless of the household income of the family they were raised in.40
In an economy such as Salinas where many workers cannot afford to live and may struggle to afford rent and prices rice, with elevated levels of overcrowding in residential units and high percentages of households that are cost burdened, rent stabilization can allow low-income households to remain in their neighborhoods even as the housing prices and average incomes rise.

Impacts on Property Values
Classical economics holds that rent stabilization potentially impacts property values by limiting the income earning potential of rental properties and potentially by reducing investment on building maintenance, leading to building deterioration. Although studies of strict rent control policies do show that such policies lead to significantly lower property values compared to uncontrolled rental properties, moderate rent stabilization policies allowing for vacancy decontrol and allowances for capital improvements have been shown to have little to no effect on property values.

The unanticipated elimination of rent stabilization in Massachusetts in 1995 provided economists with an opportunity to study the price effects on decontrolled properties. MIT researchers analyzed the elimination of rent stabilization in Cambridge and found that previously rent-controlled properties rose in assessed value by approximately 13 percent to 25 percent over the 10 years following rent decontrol. However, Cambridge’s rent control policy and implementation was extremely strict, with very limited annual allowable rent increases for inflation and no vacancy decontrol.

Alameda County’s experience with rent stabilization in the 1970s and 1980s also allowed for studying the effects of varying degrees of strictness. Of the 13 incorporated cities in the County, 1 (Berkeley) had strict rent control, with minimal allowed rent increases and no rent control, 2 (Hayward and Oakland) had more moderate rent stabilization policies, and the remaining 10 cities had no rent control or stabilization policies during the study period (1970-88). Although property values in Berkeley were approximately 50 percent lower than would have been expected during the study period, property values in Oakland and Hayward were unaffected by their more moderate policies.
41 A similar study in New Jersey
examined property values in 74 cities with moderate rent stabilization polices and 87 cities without rent stabilization policies. With over 40 years of data captured,

40 Kramer, M. How the neighborhood you grow up in affects your future. Available at:
https://projects.publicsource.org/pittsburgh-neighborhood-success/ 41 St. John, M., 1990. The Impact of Rent Controls on Property Value. UC Berkeley Fisher Center Working Papers. Available at: https://escholarship.org/uc/item/8c9648s1 Proposed Rent Stabilization Ordinance Analysis
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this study found that the rent stabilization policies had no significant impact on property values, with property appreciation rates amongst the cities driven much more strongly by median household income and other demographic factors.42 Impacts on Building Quality
Research on rent stabilization and building quality is ambiguous, due in large part to the difficulty in measuring building quality and levels of maintenance on a large scale. However, empirical research has found that moderate rent stabilization policies which allow landlords a return on investments in building improvement do not depress the amount of building maintenance. In Boston, rent stabilization regulations were found to lead to a decline in cosmetic maintenance although the author notes that such regulations did not appear to lead to “catastrophic failures” and that the end of such policies did not lead to an increase in “functional maintenance” of building systems such as windows, plumbing, and climate control.
43 Similarly, experience in Cambridge
showed that the strict rent control regime there, combined with the low likelihood that the City would approve rent increases for property improvements, reduced property owners’ incentive to maintain or improve their units.44 Conversely, several researchers have found that the increased length of tenure allowed by rent stabilization policy increases tenants’ willingness to maintain their own units.45 46 Importantly, a study of moderate rent stabilization policies in North American cities find that such policies which allow for capitalization of building improvements and/or increase enforcement of housing codes find that these policies do not negatively impact owner investments in property upkeep and improvements. A key finding from that study is that “allow[ing] increases in the level of housing services [i.e. building improvements] to be valued at their market price,” is critical to ensuring that the price control aspect of rent stabilization policies does not depress investment in building upkeep and improvement.47

42 Ambrosius, J., et al., 2015. Forty years of rent control: Reexamining New Jersey’s moderate local policies after the great recession. Cities. Vol. 49. 43 2007 Sims MA rent control study - DocumentCloud
44 Autor, D.; Palmer, C.; and Pathak, P., 2014.
45 Gyourko, J., and Linneman, P. 1990. Rent Controls and Rental Housing Quality: A Note on the Effects of New York City’s Old Controls. Journal of Urban Economics Vol. 27, Issue 3. 46 Moon, Choon-Geol, and Janet G. Stotsky. 1993. The Effect of Rent Control on Housing Quality Change: A Longitudinal Analysis. The Journal of Political Economy Vol. 101, Issue 6. 47 Kutty, N. 2007. The impact of rent control on housing maintenance: A dynamic analysis incorporating European and North American rent regulations. Housing Studies. Vol. 11, Issue 1.

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However, when coupled with strong just-cause protections, rent stabilization has been found to provide leverage to tenants to advocate for improved conditions.

A study in Washington DC found that the share of physically deficient units decreased after rent stabilization when most tenants said they were more willing to insist on repairs.48
This discrepancy may be explained by the type of investments being examined.

While tenants may have added leverage to request repairs related to basic building functionality and health and safety requirements, landlords may have less of an incentive to make more cosmetic investments or add amenities designed to appeal to new tenants.

If Salinas does implement a rent stabilization ordinance it will be important to include strong just-cause protections and support for tenants to advocate for the health and safety of their living conditions.

Other Potential Impacts
There are many potential impacts of rent stabilization that have not been significantly studied. A few impacts that have been noted by researchers but have less empirical support are listed below:
• Sales tax impacts: Sales taxes may be impacted both positively and negatively by rent stabilization. Rent stabilization increases the discretionary income of renters, allowing households to spend money and boost the local economy.

Conversely, if rent stabilization were to limit the influx of higher income residents it may reduce the number of households that spend the most money on local services.
• Workforce Impacts: A lack of available housing can be a barrier to attracting and retaining employees. While the proposed ordinance would help existing renters remain in place, it may reduce the availability of housing for people moving to Salinas. A potential spatial mismatch between employment and worker populations can limit access to jobs.49 On the other hand, rent stabilization and subsequent housing stability may provide economic benefits through reduced worker turnover. Displacement and housing instability lead to

48 OurHomesOurFuture_Web_08-02-19.pdf
49 Four Reasons Why Employers Should Care about Housing | Housing Matters (urban.org) Proposed Rent Stabilization Ordinance Analysis
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absenteeism from work, reduced productivity, and higher turnover—people who experience eviction are up to 22 percent more likely to be laid off.50 • I mproved educational outcomes: Children who move frequently have more absences and a lower likelihood of finishing school. Reduced displacement can lead to fewer moves for students and as a result, improved overall educational outcomes. In addition, rent stabilization may help teachers w
ho are rent burdened to continue in their profession at their local school. • D emand for social services: The benefits of improving financial stability for renters can be significant.51 All else equal, financially stable households are less likely to need public benefits. As a result, increased housing stability can potentially decrease the need for government spending on food and housing assistance. This has the potential to reduce a city’s expenditures.

Case Study Research
A survey of the rent stabilization programs in comparative jurisdictions was completed to help examine the current requirements and fee amounts in cities with a similarly sized population and/or socioeconomic elements. The communities surveyed include the cities of Oxnard, Antioch, Mountain View, Oakland, and San Diego. Examining the rent stabilization elements in these communities provides insight into ordinance elements that are working well in other communities as well as concerns from the community. Table 3-1 provides a summary of the survey of the rent stabilization ordinances in the comparative jurisdictions.

Both Oxnard and Antioch only recently adopted their rent stabilization ordinances in 2022 and while Oxnard established a straight percentage limit of 4 percent, Antioch limits rent increases to the lesser of 3 percent or 60 percent of CPI.

Oakland adopted an amendment in 2022 to their rent stabilization ordinance, which was originally passed in 1980, to the same limits as Antioch. Mountain View limits rent increases to no less than 2 percent and no more than 5 percent.

As shown in Table 1-1, cities in California with rent stabilization ordinances have allowed increases ranging from a low of 50 percent of CPI up to a maximum 10 percent increase, which is the maximum increase per state law. The City of San Diego has chosen to adopt the AB 1482 rent cap, discussed in Chapter 1, which limits the rent increase to 5 percent plus the percentage change in CPI or 10 percent, whichever is lower.
50 Housing and Employment Insecurity among the Working Poor | Social Problems | Oxford Academic (oup.com)
51 Thriving Residents, Thriving Cities: Family Financial Security Matters for Cities (urban.org) DRAFT

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Case Study
Item [1] Salinas Oxnard Antioch Mountain View Oakland San Diego [2] Richmond Sacramento Socioeconomic Factors (2023)
Total Housing Units 43,649 54,494 36,850 35,973 175,640 531,259 39,245 197,362 Households 157,083 195,793 114,712 83,311 409,417 1,307,002 111,924 505,137 Persons per Household 3.60 3.59 3.11 2.32 2.33 2.46 2.85 2.56 Renter-Occupied Housing
Total 22,437 22,668 13,637 20,589 96,383 264,566 96,383 941 Persons per Household 3.93 3.99 3.25 2.23 2.21 2.45 2.89 2.45 Renter Median Household Income $64,509 $68,872 $61,411 $153,279 $68,434 $75,291 $62,537 $56,131 Median Rent $1,795 $1,907 $2,150 $2,855 $1,849 $2,080 $1,853 $1,592 Estimated Average Rent Burden 33% 33% 42% 22% 32% 33% 36% 34% % Rent Burden Households 52% 57% 62% 37% 48% 52% 56% 51% Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Peer City_ Matrix_7.30.24.xlsx 28 DRAFT

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Case Study
Item [1] Salinas Oxnard Antioch Mountain View Oakland San Diego [2] Richmond Sacramento Rent Stabilization Factors
Article Name N/A Rent Stabilization Ordinance
No.3013
Rent Stabilization Ordinance No.
2219-C-S
Community Stabilization and Fair Rent
Act
Rent Adjustment Program O.M.C.

Section 8.22.010 (RAP)
N/A Richmond Fair Rent, Just
Cause for Eviction and
Homeowner Protection
Ordinance Chapter 11.100
Sacramento Tenant
Protection Act Ordinance.
2019-0025 § 2
Municipal Code N/A Chapter 1 of Title 11, Section 11-

1.01 Part 1 Article 17 Title 8 Chapter 8.22 N/A Chapter 11.100 Title 5 Chapter 5.156 Tenant Protection
Year Adopted N/A 2022 2022 2016 1980 (Ordinance No. 9980 C.M.S.) but it was amended many times from 1980
to 2023. Current Ordinance is O.M.C.

Section 8.22.010 et seq.)
N/A 2017 2019
Expiration Year N/A 2030 N/A N/A - N/A N/A 2024
Increase N/A Limits rent increases to one rent
increase per 12-month period not to
exceed 4%
Limits rent increases to one rent
increase per 12-month period not to
exceed lesser of 3% or 60% of the
most recent 12-month increase in
the CPI for All Urban Consumers in
the San Francisco Oakland-
Hayward Area
Limits rents to no less than 2%, no
more than 5%
In June 2022, the City Council has
adopted an amendment to change the
formula used to calculate the annual
allowable rent increase to 60% of the
change in CPI, or 3%, whichever is
lower. (per 12-month period)
N/A On November 8, 2022,
Richmond Measure P limit rent
increases for regulated units to
3% or 60% of the Consumer
Price Index, whichever is less.
(per 12-month period)
Evert April 1st the annual
rent adjustment is 5% plus
the percentage of the
annual increase in the cost
of living adjustment, if any,
but not to exceed a
combined total of 10%. A
tenant may not waive this
limitation on the increase
in rent.

Fees N/A Fee amount not yet established. The
City is currently performing a
research study.

Fee amount not yet established. $108 per unit $101 per unit N/A $220/Controlled rental unit $125/Partially covered rental
unit
$20 flat rate
Other N/A - N/A -minimum of 3+ units The Oakland Rent Adjustment Ordinance allows an annual rent
increase based on the regional
Consumer Price Index (CPI) without a
petition.

If the owner does not give a RAP
notice, the landlord cannot increase the
rent until 6 months after the tenant
receives the notice.

N/A N/A Staff can impose
administrative penalties
against landlords for
violation of the ordinance
which can range from
$100 to $25,000 per
violation.

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Case Study
Item [1] Salinas Oxnard Antioch Mountain View Oakland San Diego [2] Richmond Sacramento Rent Stabilization Factors
Legal Issues N/A Passed in a 5-2 vote.
-Concern of not enough affordable
housing stock. Fear that the new
ordinances may exacerbate the
housing shortage.

City Counsel voted 3-2 for a Rent
Stabilization Ordinance. Concerns
for Mom-and-Pop renters and
disagreement with limit
percentages.
-Organizers claim renters in
apartments received rent increases
between $200 and $700 per month
threatening to displace them.
-Other speakers believe Antioch
should build more homes not focus
on rent control.
-Landlords protested and requested
regulations that do not affect base rent.
-April (2024), the Rental Housing
Committee in Mountain View rejected a
proposal related to rent reduction
guidelines in a 2-4 vote.
-Mountain View experienced an
increase in the number of petitions filed
by tenants and appeals from tenants
and landlords challenging the decisions
of hearing officers.

The City Council voted 6-1 for an
ordinance to stabilize rents.
-Despite amending their Rent ordinance
multiple times, at the time of the most
recent ordinance amendment renters
were claiming to have 7% rent
increases, which could force them out
of their home (in 2022).

N/A N/A A significant number of
landlords objected to the
wording in the act, which
was approved with a 7-to-
1 vote. Low-income
residents also voiced their
concerns during the
meeting, stating that a 10
percent cap on yearly rent
increases is inadequate.

Additional Renter Protection Programs N/A -Mobile Home Park Rent Stabilization (MHRS)
-Tenant Protection Ordinance 3012-
Just Cause
-No-fault Just Cause Evictions
Ordinance 3042
-Urgency Ordinance Regarding No-
Fault Just Cause Evictions
Ordinance 3041
-Tenant Protection Ordinance No.
2232-C-S
-Bay Area Legal Aid
-Contra Costa Senior Legal
Services
-California Civil Rights Department
-Tuesday Tenant Legal Clinic
-Housing Help Center for Tenants
(HHC)
-Fair Housing Services
-Mediation Program
-Emergency Assistance Program
-Just Cause for Eviction Ordinance
(Measure EE) Section 8.22.300
-Tenant Protection Ordinance Section

8.22.600
-Residential Tenant Protections
Ordinance 21647 N.S.
-Housing Stability Assistance
Program (COVID-19)
-California Western Community
Law Project
-Legal Aid Society of San Diego
Affordable Housing Advocates
-San Diego Regional Alliance for
Fair Housing (SDRAFFH)
-Renter Assistance Resources
-Renter Relief Program
-Richmond Rapid Response
Fund (R3F)
-Tenant Protection
Program
-Emergency Rental
Assistance Program
Grounds for Landlord Rent Increase
Petitions
Landlord must substantiate their
claim that the Ordinance has
impeded their ability to achieve a fair
return. Explanation of claim and
accompanying evidence must satisfy
the following condition: "The 4%
annual limitation imposed by the City
of Oxnard Rent Stabilization
Ordinance has prevented the
petition owner from receiving a fair
and reasonable return on the
[identified] property".
- Maintenance of Net-Operating
Income (MNOI)
- MNOI with Amortized Operating
Expenses (includes Capital
Improvement costs and legal
expenses)
- Other Grounds
Applicable factors Hearing Officer
may consider when determining
outcome of Fair Return Petition:
- Changes in CPI
- Time since last Rent increase
or
Rent increase application
- Capital Improvements (inc.
materials, labor, construction
interest, permit fees) amortized
over period not less than 60
months
- Rehab work amortized over
period not less than 36 months
- Changes in property taxes or
other taxes related to the
subject real property
- Changes in utility charges
- Changes in reasonable
operating
and maintenance expenses
- Repairs caused by
circumstances other than
ordinary wear and tear
- Amount and quality of services
- Maintenance of Net Operating Income
(MNOI): "provides for rent increases if
necessary to ensure that the net
operating income earned in the petition
year is at least equal to the inflation-
adjusted net operating income earned
in the base year."
- Specified Capital Improvement
Petitions: allows a temporary increase
in rent for qualifying improvements. The
maximum increased allowed under this
petition is:
- Capped at 5% of annual rent (not
including the Annual General
Adjustment)
- Amortized over a specific time
period
for each type of improvement
- Limited by the number of units on
the
property (associated values reflect
the maximum percentage of costs
that can be passed through to
tenants)
- 1-5 units on property: 90%
- 6-20 units on property: 75%
- >20 units on property: 50%
- Capital improvements: Allows a 70%
cost pass-through (plus interest) to
tenants, divided among affected units
and amortized over the improvement's
expected life.
- Uninsured repair costs: Allows pass-
through of costs for compliance-related
repairs from natural disasters, not
covered by insurance.
- Increased Housing Service Costs:

Permits rent increases above CPI due
to rising net operating costs. Replaces
CPI increase for the current year and
applies to all units.
- Fair Return: Allows rent increases
when NOI indicates the owner is denied
a fair return, replacing CPI increases for
all years.
- Banking: Deferred annual rent
increases can be carried over ("banked)
for up to 10 years without prior
approval, unless combined with other
petitions.
- Additional Occupant(s): Allows up to a
5% rent increase for occupants
exceeding the base level, excluding
covered family members, legal
guardians, and caretakers.
- Tenant Not Residing in Unit as
Principal Residence: Allows for
unrestricted rent increase
For its Section 8 Housing Choice
Voucher program, the San
Diego Housing Commission
permits landlords to increase
rents if the requested amount is
deemed "reasonable." The
SDHC determines this by
evaluating comparable units
within the same complex and the
broader market.
- Maintenance of Net Operating
Income (MNOI)
- Increase in Number of
Occupants: Allows an increase
of up to 15% for each additional
occupant above base
occupancy level, in addition to
any Maximum Allowable Rent
adjustment to which the
Landlord is otherwise entitled.

Excludes family members, legal
guardians and caretakers.
- Change in Space or Services:

Increase in usable space or in
Housing Services. Rent
increase request
commensurate with the cost
increase associated with the
change in space or service.
- Restoration of Denied Annual
General Adjustments: Allows
landlords to recover AGAs
previously denied due to code
violations, non-payment of
Rental Housing Fees, or failure
to comply with orders from a
Hearing Examiner or Rent
Board (or other reasons).
- Increase in Security Deposit
Due to Addition of Pet(s)
Six options for valid
claims:
- Cap improvements (a)
necessary for safety and
health and are not routine
maintenance/repair or (b)
substantial repair outside
of normal wear and tear
(uninsured disaster or
vandalism)
- "Unavoidable" increases
in operating expenses
- Increases in Housing
Services costs
- Tenant number increase
leading to operating or
capital improvement
expense increases
- Property tax increases
above standard 2%
- Cost of debt service due
to purchase of the rental
property by new owner
.

Does not include refi or
variable rate loan
Source: Cities of Oxnard, Antioch, Mountain View, Oakland, and San Diego; EPS. [2] The City of San Diego adopted the California Assembly Bill 1482 rent cap, which the limits rent increases to 5 percent plus the percentage change of CPI or 10 percent, whichever is lower. [1] California Assembly Bill 1482 also known as the Tenant Protection Act of 2019, was signed into law in September 2019 and it was established to address the state's housing affordability crisis by imposing statewide rent control measures and provide just cause eviction protection for tenants. The bill caps annual rent increases at 5 percent plus the local rate of inflation, with a maximum limit of 10 percent. In response to AB 1482, some cities in California have established additional rent stabilization ordinances to further protect tenants. These local ordinances often provide stricter rent control measures and additional tenant protection beyond the statewide law. However, there are exceptional cities that enacted rent control ordinances before the California Assembly Bill 1482, such as City of Oakland.Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Peer City_ Matrix_7.30.24.xlsx 30 Proposed Rent Stabilization Ordinance Analysis
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Economic & Planning Systems, Inc. (EPS) 31
As discussed later in Chapter 4, enforcing the rent stabilization ordinance creates the need for additional staffing at a cost to the City even if enforced on a complaint driven basis. To help alleviate some of the financial burden some jurisdictions opt to charge a fee to the property owners of the rent stabilized units. The cities of Oxnard and Antioch have not established their fee amounts, but plan to at a later time, Mountain View charges $108 per unit, and Oakland charges $101 per unit.

Rent stabilization concerns from the city’s council members and the communities included:
• The ordinance will negatively affect smaller “mom and pop” building owners, and it should be directed more at corporate owners.
• The City should focus on building more housing, not focusing solely on rent stabilization.
• The ordinance will dive up landlord costs causing them to go out of business, accelerating housing shortage, or corporate owners take over the buildings. • California Apartment Association representatives argue that protections are already covered by state law, AB 1482.
• The question of the equity of the economic effects created by the potential policy: for example, the ordinance will affect a landlord’s income, but for tenants the ordinance affects both their discretionary income and their access to housing.

Literature Review and Case -Study
Conclusions
The literature review and case study findings indicate the potential for the following positive and negative outcomes.

Pros to Rent Stabilization
• Reduces renter displacement by about 20 percent and has a significant impact in preventing the displacement of racial minorities and other vulnerable renter populations.
• Increased benefits to low-income households:
‒ Housing
‒ Decreased rental expenditure
‒ Neighborhood stability
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Cons to Rent Stabilization
• Very little to no negative effect on property value.
• Slight reduction in rental supply through condo-conversions, building redevelopment, and reduced tenant turnover.
• May increase rents as landlords’ reaction to the policy. • If the policy does NOT allow for increases of housing services to be valued at their market price it may disincentivize building improvements and maintenance.

While the jurisdictions analyzed in the case study implemented varying allowed rent income percentages and fee program amounts, one of the key takeaways is the emphasis on the importance of educating the community, property owners, and developers on rent stabilization. In addition, acknowledging that rent stabilization is not the single solution, it is one part of a larger toolkit, that along with other policies and incentives, can help alleviate some housing cost pressures.

Taken in combination with other policies that encourage additional supply, it can be part of a multi-pronged effort to improve the outlook for residents struggling to afford housing.

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Economic and Fiscal Impacts of
Rent Stabilization
This chapter describes the composition of the City’s housing supply and renter population to shed light on likely fiscal and economic implications of the Ordinance if approved, followed by discussion of the potential economic implications for the property owners.

Housing Supply
The City has over 44,500 total residential units with a 97 percent occupancy (43,070 occupied units). Of the total inventory, 52 percent comprises rental units and 51 percent is occupied by renters, as shown in Table 4-1 and Appendix A Table A-1, Table A-2, Table A-3, and Table A-4. All the rental properties would be subject to the just-cause portion of the proposed ordinance, however, because of the Costa-Hawkins Rental Housing Act, single-family homes, condos, and all housing built after 1995 are exempt from rent stabilization. As shown in Figure 2 and Table 4-1, Appendix Table A-5 and Table A-6, these statewide exemptions would cover 35 percent of the City’s rental inventory and 81 percent of total housing inventory. More than half of the City’s occupied housing comprises renters (53 percent), a rental housing portion 7 percentage points higher than the state overall (44 percent). As a result, whether Costa-Hawkins is repealed or maintained, the proposed Salinas ordinance would have some impact on the City’s housing market.

As noted in the literature review section, research indicates that rent stabilization has the potential to cause landlords to sell off units. Single-family homes are most likely to be sold in response to rent stabilization since they are the easiest to convert to for-sale housing as opposed to shifting multifamily rentals to condos; however, given that State law currently exempts single-family units from rent stabilization, the scale of conversion is likely to be relatively small unless California voters overturn Costa-Hawkins. Single-family attached and detached homes account for 38 percent of the City’s occupied rental housing.

If this portion of rental properties were sold in response to the ordinance, it may lead to a significant reduction in rental supply. Conversely, this phenomenon would also lead to an increase in for-sale housing which could increase home ownership opportunities. The fiscal impact of housing stock being sold in response to the proposed ordinance could lead to a short-term gain in property transfer taxes and an increase in property taxes because of a realignment of the taxes with market value. Conversely, over the long term, this phenomenon could decrease overall affordability in the rental market by reducing rental supply.

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Table 4-1. Summary of Housing Inventory as it Relates to Rent Stabilization: City of Salinas (2022)

Figure 2. Housing Inventory as it Relates to Rent Stabilization: City of Salinas (2022)

Item Total
Residential Units [1]
Total Units 44,503 100.0% 52.0%
Total Rental Inventory 23,132 52.0% 100.0%
Total Renter-Occupied 22,794 51.2% 98.5%
Total Exempt Units 36,173 81.3% 35.3%
Total Units Qualifying for Rent Stabilization 8,330 18.7% 36.0% Source: American Community Survey 5-Year Estimates; CoStar; EPS. [1] See Table A-6.

City of Salinas
% of Total
Housing
Inventory

Rental
Housing
Inventory

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Affordable Housing Supply
As shown in Table 4-2 and Appendix A Table A-7, the City has approximately 3,240 deed-restricted affordable housing units, most of which were constructed after 1995. These units are essentially already rent-stabilized and likely would not be impacted by the proposed ordinance.

Table 4-2. Affordable Housing Inventory: City of Salinas

Residential Property Tax
Property tax accounts for about 21 percent of Salinas’ total General Fund revenues.52 Thus, to the extent that rent stabilization materially affects the performance of the City’s housing markets, the proposed Ordinance could affect the City’s fiscal outlook through property-related taxes. Rent stabilization policies can potentially impact property-related revenues in multiple ways, as described below:
• Conversion of rental housing to ownership: To the extent that the Ordinance incentivizes landlords to sell rental housing, these properties would be reassessed to prevailing market values. Because of Proposition 13, the assessed value of most property that has remained under the same ownership

52 https://www.cityofsalinas.org/files/sharedassets/city/v/1/finance/documents/fy_2023_adopted_o perating_budget.pdf
Item
Median
Year Built
Total
Units
% of
Rental
Housing
Affordable Housing [1]
Apartment Units 2003 2,654 11.5%
Other Afford. Units 1998 587 2.5%
Total Affordable Units 2001 3,241 14.0%
[1] See Table A-7.

City of Salinas
Source: Costar; HUD National Low Income Housing Tax Credit 1987- 2022 Data; EPS.

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for multiple years is typically well below its true market value.53 This pattern is often more acute for rental property which tends to exhibit lower market turnover rates relative to owner-occupied units. Thus, any increase in housing sales attributable to the Ordinance would likely generate an at least temporary increase in property-related tax revenues such as property tax, property transfer tax, and motor vehicle in-lieu payments. • Reduced Assessed Value of Rent Stabilized Properties: By limiting rent increases to a specified percentage of the CPI, the proposed Ordinance essentially mandates a gradual decline in the real rents of affected properties over time. This effect will, in turn, limit the income generating potential of these properties and ultimately their economic and market values. However, because of the impact of Proposition 13 on assessed values, as noted above, it is likely that only a portion of residential rental properties would be eligible for a reassessment in their taxable value. Specifically, recently transacted multifamily properties, that is, those that have been recently purchased, are most likely to have assessed values that are most closely aligned with prevailing market prices. In these circumstances, some new property owners may ultimately file assessment appeals if the values of their properties do not keep pace with inflation because real rental revenue is declining over time.

The impact of this effect on property taxes will depend on the portion of multifamily rental housing that was recently transacted. In the last 5 years, 74 multifamily properties have been sold in Salinas according to CoStar.

Almost 96 percent of these properties (71) were built before 1995 and would therefore be subject to rent stabilization. These properties are most at-risk for assessment repeals under the premise that the income stream estimated at purchase will now be restricted. The 71 properties account for 1,277 units, or

5.5 percent of the City’s total rental housing inventory. The potential impact of reassessments is likely to be more pronounced if Costa-Hawkins is overturned.

In addition to property tax payments, any change in property values would also impact the City’s property tax in-lieu of vehicle license fee revenue received from the State. The State sends cities these funds based on the gross assessed valuation of taxable property in the jurisdiction. Therefore, if the proposed ordinance were to result in a decrease (or increase) in assessed values, the city would receive lower (or higher) revenue from the State.

The significance of the potential impacts of rent stabilization on housing values and in turn, property taxes, depends on the value makeup of Salinas’ rental stock.

Based on 2023 assessed value data, residential property accounted for 67 percent

53 California passed Proposition 13 in 1978 to limit property tax increases. Property taxes are based on a property’s purchase price, each year thereafter, the property’s taxable value increases by 2 percent or the rate of inflation, whichever is lower.

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of the citywide assessed value. As shown in Table 4-3 and Figure 3, single- family properties comprised almost 82 percent of the residential assessed value, while multifamily rental units, including duplexes and triplexes, accounted for about 13 percent of residential assessed value. As noted previously, under Costa- Hawkins, rent stabilization will only apply to the portion of multifamily units that were built before 1995. Therefore, any property value impacts caused by the proposed ordinance will impact properties accounting for less than 13 percent of the City’s residential assessed value.

Table 4-3. Real Estate Assessed Values: City of Salinas (2023)

Figure 3. Breakdown of the City of Salinas Assessed Value by Land Use (2023)

Item Total % of Total
Residential Land Use
Single-Family $11,637,215,636 81.9%
Multifamily $1,804,679,180 12.7%
Condo $662,840,239 4.7%
Mobile home Park $101,282,848 0.7%
Residential Total $14,206,017,903 100.0%
Total Citywide Assessed Value $21,169,840,831 67.1%
Source: ParcelQuest, Monterey County Secured Tax Roll, 2023; EPS.

City of Salinas
Residential Assessed Value

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Rent Pressures and Displacement
Salinas’ low-income households have experienced significant overcrowding and displacement pressures caused primarily by rising house prices and the influx of higher income households. Although Salinas has experienced a 23 percent increase in median income over the past decade, the growth has come from households with annual incomes above $75,000; the City experienced a net decrease in households in every income category below $75,000. The increase in household incomes may be explained by the increase in persons per household or increased income disparity.

Average rents for multifamily units have continually increased at a higher rate compared with the increase in the median income for renter-occupied household, as shown in Figure 4, with the exception of 2018 and 2022, which both followed years with very large percentage increase gaps between rents and income. Rents in multifamily buildings built before 1995 in Salinas have increased by 117 percent between 2000 and 2024, with an average vacancy of only

3.3 percent, as shown in Appendix A Table A-8.

In addition, as an agriculture-based economy, Salinas has a bifurcated population with farm workers that serve the community not being able to afford to live there.

A 2018 study done for the Salinas Valley and Pajaro Valley regions indicated a farmworker housing shortage of more than 45,500 units
.54
As a result of the disparity between increases in rents and household incomes, lack of farmworker housing, overcrowding and displacement have become pressing issues facing the City of Salinas community creating overcrowding by causing households to double up or move, redistributing demand to south County and other locations.

In addition to the influx of higher income households, the cost of living in Salinas has remained high, in line with the County overall. As shown in Figure 4, rents have increased an average of about 5 percent each year since 2012, with a spike in rent between 2020 and 2021, with an almost 13 percent increase, and then resuming regular increases over the past 2 years.55 A little more than half of the City’s renter-occupied households remain rent-burdened, paying 30 percent or more of their household income on housing, as shown in Table 4-4. Rent-

54 Farmworker Housing Study and Action Plan for Salinas Valley and Pajaro Valley, prepared by California Institute for Rural Studies, June 2018.
55 The years time trend between 2012 to 2022 was analyzed based on availability of ACS data at the time this study was completed for renter household incomes, rents are based on CoStar which provides more up-to-date data out to the most recent completed month of the current year.

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burdened households have less money to spend on other essentials like food, transportation, healthcare, and childcare.

Figure 4. Year-Over-Year Percentage Change in Median Renter- Occupied Household Income versus Average MFR Rent for Apartments Built Before 1995: City of Salinas: 2012-2022/2024 [1]

Source: CoStar; ACS 5-year Estimates Table B25119; BLS; EPS.

1.9% 2.7%

4.0%

11.5%

7.9%

7.6%

5.0%

2.4%

6.9%

12.8%
(3.2%)

6.4%

0.81%
(1.0%) (1.5%)

0.9% 1.3%

3.3%

1.2% 5.3%

2.8%

5.6% 2.4%

4.9%
(10.0%)
(5.0%)

0.0%

5.0%

10.0%

15.0%

20.0%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Average MFR Rent Median Renter HH Income
[1] See Appendix A Table A-8 and Table A-9.

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Table 4-4. Rent-Burdened Households: City of Salinas (2012 & 2022)

Based on renter mobility/displacement data, it appears that other economic factors may be more significant than rent stabilization in impacting renter movement. Table 4-5 compares the percentage of renters living in the same unit as the previous year in Salinas compared to other communities with rent stabilization. Mountain View adopted their rent stabilization in 2017, but continually shows significantly lower rates of renters staying in the same units than the state overall. This may be caused by a prevalence of students and young professionals that stay for short periods, which may also be a factor in San Diego.

Salinas and four of the comparative cities experienced an increase in renters remaining in the same unit between 2017 and 2022, there is likely two contributing factors, first rent stabilization ordinances and amendments were approved in 2022 in both Oxnard, Antioch, and Oakland and a likely result from a State approved a rent stabilization ordinance in 2020 that limited rent increases and prevented evictions until September 2021 San Diego adopted AB 1482 in 2023, indicating that the increase in renters staying longer in San Diego and Salinas were a likely result from a State approved a rent stabilization ordinance in 2020 that limited rent increases and prevented evictions until September 2021.

The decrease in housing movement may also be contributed by the ever-rising housing costs.

Item
Total Renter
Households
% of Total Renter
Households
Total Renter
Households
% of Total Renter
Households
Rent as a Percentage of
Household Income [1]
Less than 30% of Income 8,908 39.4% 10,245 44.9%
30% to 50% of Income 6,934 30.6% 6,086 26.7%
More than 50% of Income 6,007 26.5% 5,837 25.6%
Total Renter Households 22,637 100.0% 22,794 100.0%
2022
Source: American Community Survey 5-Year Estimates, Table B25070; EPS. [1] The US Department of Housing and Urban Development defines a household spending more than 30% of their income on housing as "rent burdened." Households spending more than 50% of their income on housing are considered "severely rent burdened." Approximately 612 households were not computed. 2012
City of Salinas
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Table 4-5. Renter Movement by City

Renter Household Socioeconomics
Literature indicates that current renting residents benefit the most from rent stabilization and eviction protections. However, because rent stabilization policies are not means tested, a question arises about the socioeconomic status of the intended beneficiaries. As shown in Table 4-6, renter-occupied households in Salinas have lower incomes per capita than households who own their homes.

Therefore, although the proposed ordinance is not means-tested, it will on average benefit households with lower than median incomes.

Table 4-6. City Salinas Median Income, Average Household Size, and Income Per Capita by Household Tenure: City of Salinas (2022)

Item Salinas Antioch Oakland San Diego
2022
Renting HH's 88,229 91,491 44,663 46,179 232,184 653,750 Renters Living in the Same Unit as Previous Year 78,316 83,432 37,351 33,083 194,535 509,207 % of Renters Living in the Same Unit as Previous Year 89% 91% 84% 72% 84% 78% 2017
Renting HH's 86,183 98,722 43,516 44,122 235,423 692,471 Renters Living in the Same Unit as Previous Year 76,550 84,213 32,785 31,914 190,430 519,901 % of Renters Living in the Same Unit as Previous Year 89% 85% 75% 72% 81% 75% 2012
Renting HH's 83,660 87,636 37,825 41,497 211,425 624,587 Renters Living in the Same Unit as Previous Year 67,496 69,937 23,987 29,128 163,262 450,068 % of Renters Living in the Same Unit as Previous Year 81% 80% 63% 70% 77% 72% Source: ACS 2022 5-Year estimate Table B07013; EPS.

Oxnard
Mountain
View
Item
Household Tenure
Owner-occupied $107,679 3.32 $32,433
Renter-occupied $64,509 3.58 $18,019
Total Households $84,250 3.46 $24,350
Source: ACS 2022 5-Year estimate Table B25010 and Table B25119; EPS.

Median
Household
Income
Average
Household Size
Income per
Capita
City of Salinas
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In addition, the affordability crisis disproportionately affects people of color because these communities are over-represented in the renter population.

As shown in Table 4-7, Latinx (Hispanic or Latino) and Some Other Race residents in Salinas make up larger shares of the renter population than in the city overall. The pattern of disparity of affordability for people of color is not unique to Salinas, its prevalent in most U.S. cities driven primarily by a history of racially restrictive housing covenants, redlining, and discriminatory lending.

Because of existing racial disparities in home ownership, policies that protect renters like rent stabilization and just cause eviction protections are most likely to benefit Salinas’ Latinx residents.

Table 4-7. Householder Race: City of Salinas (2022)

Item
Renter-
Occupied
Owner-
Occupied Citywide
Householder Race
White 24.1% 41.0% 32.1%
Latinx (Hispanic or Latino) 80.4% 59.3% 70.5%
Asian 4.4% 9.2% 6.6%
Some Other Race 60.8% 35.4% 48.9%
Two of More Races 8.0% 11.7% 9.7%
Black 1.6% 1.3% 1.5%
Indigenous (Native American and Alaksa Native) 0.2% 0.1% 0.1% Source: American Community Survey 5-Year Estimates Table S2502; EPS.

City of Salinas Housing Units
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Salinas’ renter population also skews younger than the City’s population overall.

As indicated in Table 4-8, residents above the age of 65 account for approximately 12 percent of the City’s renters, compared to residents under 35 which accounts for almost 30 percent of the renter population. Although older renters may be one of the groups most positively impacted by rent stabilization since many seniors live on fixed incomes. Noting that not every renter lives in a unit that falls under the rent stabilization building qualifications, the effect of the proposed ordinance will impact less than total renter population.

Table 4-8. Householder Age: City of Salinas (2022)

Item Total % Total % Total %
Householder Age
Under 35 years 6,468 28.4% 1,572 7.8% 8,040 18.7%
35 to 44 years 6,576 28.8% 3,564 17.6% 10,140 23.5%
45 to 54 years 4,563 20.0% 4,664 23.0% 9,227 21.4%
55 to 64 years 2,561 11.2% 4,565 22.5% 7,126 16.5%
Over 65 years 2,626 11.5% 5,914 29.2% 8,540 19.8%
Total 22,794 100.0% 20,279 100.0% 43,073 100.0%
Source: American Community Survey 5-Year Estimates Table S2502; EPS.

City of Salinas Housing Units
Renter-Occupied Owner-Occupied Citywide
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A comparison of the median renter income compared with average monthly rents between 2012 and 2022 for the peer cities reflects a large disparity between the increases in rent compared to increases in income for the cities with recent adoptions or no rent stabilization in place. See Table 4-9. The cities with recent or no rent stabilization in place including Salinas, Oxnard, Antioch, and San Diego experienced high increases in average rent ranging from about 38 percent up to almost 50 percent compared to proportionally lower increases in renter median household income from 18 percent to 33 percent. Both Mountain View and Oakland have had rent stabilization policies in place and both cities experienced higher increases in rent household incomes compared to increases in average rent. This indicates rent stabilization policies do actually help control increases in rent, helping maintain a balance in inflation.

Table 4-9. Median Renter Household Income compared to Average Monthly Rent (2012 and 2022)

Economic Impact on Property Owner
The proposed ordinance also needs to consider the implications of reduced rents for the property owners resulting from rent stabilization. While a rent stabilization policy restricts annual rent adjustments, costs of operating and maintaining residential properties to their current standard will continue to increase. However, with vacancy decontrol, vacated units revert to the current market rate, helping to offset some of reduction in rental revenue to landlords.

Item Salinas Oxnard Antioch Mountain View Oakland San Diego Year RSO Adopted -- 2022 2022 2016 1980
Median Renter Household Income (2022$)
2012 [1] $48,547 $55,058 $52,256 $100,070 $45,906 $60,767 2022 $64,509 $68,872 $61,411 $153,279 $68,434 $75,291
% Change 32.9% 25.1% 17.5% 53.2% 49.1% 23.9%
Average Monthly Effective Rent [2]
2012 $1,070 $1,193 $994 $2,050 $1,318 $1,289
2022 $1,859 $1,942 $1,647 $2,675 $1,701 $2,093
% Change 73.7% 62.8% 65.7% 30.5% 29.1% 62.4%
Percentage Point Difference Rent Inc. to Income 40.9% 37.7% 48.2% (22.68%) (20.02%) 38.5% Source: U.S. Census Bureau ACS 2012 & 2022, Table S1901; CoStar; EPS. [1] The median household incomes reported by ACS are inflation-adjusted to constant dollars. [2] This data reflects market rate multifamily apartment units built before 1995 from CoStar.

Comparable Cities
AB 1482 as of
2023
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Rental Revenue Impact
Each year a share of units in rent stabilized buildings/complexes will be vacated by existing tenants and replaced by new tenants. As noted above, with vacancy decontrol, the vacated units will be eligible for rental at current market rates.

It has been found that the average length of tenure in units, or turnover, decreases with rent stabilization by about 20 percent. For Salinas, a 20 percent reduction in turnover translates to an average turnover of 11 percent.

For purposes of analyzing the effects of rent stabilization on property owners, EPS modeled rental revenue and operating expenses for a hypothetical 100-unit existing apartment complex, occupied at the current market average occupancy rate of 97 percent, with current rents at the market average for pre-1995 apartments.

Several scenarios were modeled to compare the impact of different rent stabilization thresholds: Base Case using the recent market rent growth rate of 3.35 percent; 100 percent of CPI (currently 3 percent); 80 percent of CPI; and 60 percent of CPI. Estimated rent rolls were developed for each scenario, assuming each year 11 percent of units are vacated, re-rented at current market rents under the vacancy decontrol provision, and escalated annually per the assumed rate for that scenario.

The effect of the vacancy decontrol provision is a lessening of the overall reduction in potential rental revenues collected by landlords, while maintaining rent stabilization for existing tenants and for future tenants after occupancy.

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The overall effect on rental income for the 4 scenarios described above is shown in Figure 5.

Figure 5. Rental Revenue Differential: Market Rate vs Stabilization Alternatives

As shown in the illustration above, after factoring in vacancy decontrol, the estimated reduction in rental revenue by the tenth year of rent stabilization ranges from a 2 percent reduction with a rent growth cap at 100 percent of CPI to an 8 percent reduction with a rent growth cap at 60 percent of CPI.56

56 Assumes annual turnover of 11 percent (20 percent lower than current turnover without rent stabilization) and annual market rate rent growth of 3.35 percent. -2%
-5%
-8%
Market Rate
100% of CPI
80% of CPI
60% of CPI
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Figure 6 provides a summary of the estimated effective annual growth rate in rental revenue for different rent stabilization rates, after factoring in vacancy decontrol.

Figure 6. Effective Rent Roll Growth with Vacancy Decontrol by Rent Stabilization Rate

In low or moderate inflation years, stabilized rents will typically increase based on the adopted percent of CPI growth. However, in years with higher inflation, the adopted maximum rate of rent growth provides a cap on the rent increases that would otherwise be allowed based on the percentage of CPI. Figure 7 provides a comparison of the allowable rent increases at different rates of inflation (CPI) under alternative rent stabilization rates (65 percent to 75 percent of CPI), to illustrate at what level of inflation the adopted flat rates would take effect. The proposed flat rate caps would take effect at about 3.5 to 4.0 percent inflation (CPI).

Figure 7. Inflation and Corresponding Allowable Rental Increases

Measure 60% 65% 70% 75% 80% 85% 90% 95% 100%
Effective Rent Roll Growth Rate [1][2] 2.50% 2.58% 2.66% 2.74% 2.83% 2.91% 2.99% 3.07% 3.16% Source: US Census; Costar; EPS.
[2] Compound Annual Growth Rate (CAGR).

Rent Stabilization Rate - % CPI
[1] Assumes 11% turnover (20% reduction from current state due to rent stabilization), average CPI of 3%, and vacancy decontrol market-based annual rent growth of 3.35% (based on recent historic average).

Consumer Price Index 2.0% 2.5% 3.0% 3.5% 3.75% 4.0% 4.5% 5.0% Allowable Rent Increases at Alternative Stabilization Rates 65% of CPI 1.3% 1.6% 2.0% 2.3% 2.4% 2.6% 2.9% 3.3%
70% of CPI 1.4% 1.8% 2.1% 2.5% 2.6% 2.8% 3.2% 3.5%
75% of CPI 1.5% 1.9% 2.3% 2.6% 2.8% 3.0% 3.4% 3.8%
Source: EPS.

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Financial Feasibility Summary
The financial feasibility analysis uses multi-year cash flows to compare investment returns of the hypothetical 100-unit apartment complex under a market rate base case scenario and 3 alternative rent stabilization scenarios.

The metric used to compare the alternative scenarios is the Internal Rate of Rate (IRR). IRR is a standard measure used in real estate analysis that evaluates the potential project return over time against the investment required, accounting for risk and the time-value of money. Technically, the IRR is the discount rate that equates the present value of the future cash inflows with the initial cash outflow.57 IRRs typically include an initial investment (acquisition), ongoing revenues and expenses, and reversion (sale) in the final year of analysis. For this analysis, acquisition of a hypothetical, existing, occupied 100-unti building was assumed, with resale after 10 years of operation.

IRRs can be categorized as either “leveraged” (also referred to as “levered”) or “unleveraged” (also referred to as “unlevered”). A leveraged IRR measures return on equity and compares initial equity investment and debt service, while an unleveraged IRR, sometimes referred to as a project IRR, compares the costs with the anticipated future revenues, without regard to the financing structure.

While most of buildings in question in Salinas are not necessarily changing ownership, the IRR requires some form of initial investment to be compared to the following cash flow, so in the hypothetical scenarios, a cap rate was applied to the NOI to estimate the initial investment (building purchase).

57 Brueggeman & Fisher, Real Estate Finance and Investments, Tenth Edition, 1997, Page 321.

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Net Operating Income Sensitivity Analysis
Figure 8 illustrates the leveraged and unleveraged IRRs for the hypothetical 100-unit apartment under the market rate base case scenario and 3 rent stabilization scenarios.

Figure 8. Internal Rate of Return Differential: Market-Rate Base Case vs. Alternative Rent Stabilization Scenarios

7.5%

8.0%

8.5%

8.7%

9.8%

11.0%

12.2%

12.5%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%
60% of CPI
80% of CPI
100% of CPI
Market Rate
Leveraged IRR Unleveraged IRR
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Table 4-10 presents the same IRR sensitivity results illustrated above in tabular form, along with a comparison of the average annual growth rate in property value for the hypothetical apartment complex under the different scenarios. Note that for each rent stabilization scenario, operating expenses are assumed to increase at the same rate as CPI.

Table 4-10. IRR and Property Value Growth Sensitivity Analysis

Detailed cash flow analyses including assumptions and prototype characteristics can be found in Appendix B. The rent stabilization allowed increases based on percentage of CPI options were chosen based on the average low and high of the rent stabilization requirements in other jurisdictions as shown in Table 1-1.

In addition, as discussed in Chapter 3, rent stabilization impacts renter turnover, with estimates of turnover rates decreasing by about 20 percent.

The rates of return in the sensitivity analysis would be considered low for a new construction project, but for a relatively low-risk investment in an existing, tenanted asset, the returns for scenarios with rent stabilization at 80 percent of CPI and 100 percent of CPI appear adequate and are not too dissimilar to the market rate base case returns. Projects entailing substantial new development and or/upgrades to existing product entail speculative market risk suggesting higher rates of return needed (e.g., 10 to 15 percent leveraged; 15 to 20 percent unleveraged), the hypothetical scenarios included in this analysis assume the purchase, operation, and sale of a stabilized and operating asset, where acceptable returns may be much lower in the absence of development risk.

A strong IRR for a lower risk, stable property is estimated to range from around 8 percent to 12 percent.

Property Value
Annual
Item Growth Rate Unleveraged Leveraged
Scenario
Market Rate Building 3.4% 8.7% 12.5%
Rent Stabilized Building [1]
60% of CPI 2.3% 7.5% 9.8%
80% of CPI 2.8% 8.0% 11.0%
100% of CPI 3.2% 8.5% 12.2%
Source: EPS.
[1] Includes 20% lower tenant turnover.

Value Comparison
Internal Rate of Return
(IRR)
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Impact of Operating Expense Growth
Operating expenses have been somewhat volatile in recent years, largely because of increases in utility costs and particularly insurance costs. Increases in operating costs impact the net operating income for multifamily rental units that are unable to pass along the total increased cost to tenants. Correspondingly, the return on investment for landlords can be negatively impacted. Figure 9 summarizes the effect higher operating expense growth has on the potential investment return at different rent stabilization rates (modeled using a 5 percent average growth in costs).

Figure 9. Internal Rate of Return Differential: Impact of 5 Percent Annual Operating Expense Growth

Compared to Figure 8, with operating expenses increasing at the overall rate of inflation, Figure 9 illustrates the lower rates of return resulting from higher operating expenses under different rent stabilization rates. At the more restrictive rent control rates, the rates of investor return are not significantly higher than what can be achieved with far less risk and effort through an investment account.

Under such a scenario, there may be increased incentive for landlords to exit the market. The inclusion of provisions for landlords to petition for rent increases to accommodate additional operating expenses is an important safety valve to prevent undue burden and potential loss of rental units. See Appendix A Table A-15 and Table A-16.

6.4%

7.0%

7.5%

7.9%

7.1%

8.6%

9.9%

10.7%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%
60% of CPI
80% of CPI
100% of CPI
Market Rate
Leveraged IRR Unleveraged IRR
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Peer Cities Feasibility Comparison
To compare the scenarios discussed above to the identified peer cities, EPS developed similar investment and operating pro formas, using the adopted rent stabilization rates and actual local market data for hypothetical 100-unit apartment complexes in each city.

The results of the peer city rent stabilization financial feasibility comparison are illustrated in Figure 10.

Figure 10. Peer Cities Hypothetical IRR Comparison

Antioch and Oakland both have rent stabilization rates at 60 percent of CPI.

Both Oxnard (4 percent maximum) and Mountain View (2-5 percent) were estimated to be roughly equivalent to CPI, while San Diego, based on AB 1482 allowing 5 percent plus the rate of inflation, was assumed to be the equivalent of 167 percent of CPI.

San Diego’s much higher allowable annual rent increase, combined with relatively high rents and high turnover, results in the highest rate of return of the peer cities. Mountain View’s high acquisition cost and currently low rate of market rent growth results in the lowest rate of return, along with Antioch, which limits rent growth to 60 percent of CPI and has the lowest market rent among the peer cities.
0% 2% 4% 6% 8% 10% 12% 14%
San Diego - 167% of CPI (est.)
Oakland - 60% of CPI
Mtn View - 100% of CPI (est.)
Antioch - 60% of CPI
Oxnard - 100% of CPI (est.)
Salinas - 60% of CPI
Salinas - 80% of CPI
Salinas - 100% of CPI
Salinas - Market Rate
Leveraged
Unleveraged
Note: Based on purchase, 10-year operation, and resale of prototypical existing, occupied 100-unit building/ complex using current local market variables. Leveraged analysis assumes 30% equity, 25-year loan at 6%.

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Program Implementation Costs to the
City
EPS conducted research to help estimate the costs of implementing and administering rent stabilization programs. EPS reviewed financial information from other city programs and interviewed staff from 3 jurisdictions with varying levels of rent stabilization: Mountain View, Hayward, and Richmond. This research confirmed that implementing and administering these programs requires full-time staff and associated equipment and office space. However, costs can vary significantly based on the level of enforcement and complimentary support services. The City envisions that if adopted the Rent Stabilization Program would consolidate with the existing Rental Registry Program, combining the existing costs with the estimated costs to implement the Rent Stabilization Program.

The estimated implementation costs for Salinas depend on the level of enforcement and subsequent staffing. The City estimates that their Rent Stabilization Program will be a complaint-driven enforcement program. To illustrate this range, EPS estimated staff at a minimum, average, and maximum level of complaint-based enforcement, as shown in Table 4-11, please note that these totals exclude the rental registry FTEs. The ratio of units per staff are based on a staffing level analysis of rent stabilization jurisdictions completed by Mountain View in 2021.

Table 4-11. Estimate Range of Required Staff

Item Total
Staffing Level
Minimum 0.13 1.1 1.9 3.0
Average 0.20 1.7 3.0 4.7
Maximum 0.50 4.2 7.2 11.4
Salinas Rental Units 8,330 14,464 22,794
Source: City of Mountain View Memorandum to the Rental Housing Committee, dated January 25, 20 y
Covered
Units
Complaint-Driven Rest Stabilization Enforcement
Estimated City of Salinas
FTEs Equivalent by Unit Type
(Excluding the Rental Registry)
[1] Based on varying fee levels for complaint-driven rent stabilization jurisdictions across California, sourced
Required
Staff per 1,000
Units [1]
Fully Covered
Units
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Based on data from other cities, the required staff for the City of Salinas would range from the equivalent of 4.2 to 11.4 net new hires (excluding the rental registry staff) or a percentage of existing employees’ time. At these levels, the primary role of the City employees would be to monitor the rental registry and rent stabilization program, educate the community, manage third party services and software, and manage the petition process. Education occupies the most core part of the program.

Even in a complaint-driven enforced rent stabilization program, staff communicated that education is key to keeping people informed of their rights.

Education includes preparing materials in multiple languages, direct mailing, and tabling at community events. With the minimum level of only 4.2 new staff members, or 5.1 FTEs total, Salinas would likely need to contract third party services for legal counsel, tenant relocation services, and mediation and dispute resolution. These services along with third party software are estimated to cost approximately $360,000 annually.

In each increasing level of staffing level scenario estimated below, there is the potential that fewer services would be contracted out, with City in-house staff completing all tasks in the maximum staffing level scenario. Under maximum staff, Salinas would actively oversee the rental registry which would involve reviewing every rent increase submitted by landlords. The City of Richmond demonstrates a staffing level of full enforcement, and the City of Mountain View is approaching this level by adding additional staff. Both cities, however, did not start their programs at full capacity, rather they began by contracting portions of the program and hiring full-time staff over time. Richmond staff noted that the first six months of the program cost about $1.1 million.

The program fee should be designed to recover costs of all budgeted operations:
• Personnel costs of staff, benefits, and overtime.
• Risk management of general and supplemental liability insurance. • Charges allocated to City Departments to reimburse the General Fund for administrative services by central service departments (i.e. City Council, City Manager, City Attorney, City Clerk, Finance, HR, etc.). • Information Technology expenses associated with a property and rent- tracking database and maintenance of computer hardware and software. • Legal costs to support enforcement and defense of legal challenges to the Ordinance.

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• Cost of education and outreach, including the printing and distribution of print material and ho sting of community workshop and seminars. • Contracts for translation and other professional services. • An operating reserve to fun unanticipated costs and variations in collection of the fee.58
Table 4-12 estimates the range of staff when combined with the Rental Registry Program and the associated costs.59 The Rental Registry Program is budgeted for

2.1 FTEs with a total estimated staffing cost of about $290,000 plus $110,000 for other costs, totaling almost $400,000. Combined with the estimated range of required Rent Stabilization staff increases and third-party services and software the FTEs from 5.1 up to 13.4 and total costs from $1.1 million up to $1.8 million.

Table 4-13 illustrates the potential fee amount for all rental units, including fully covered units (rent stabilization, tenant protections, and rental registry) and partially covered units (tenant protections and rental registry), which are exempt from Rent Stabilization. These fees are calculated to allow the City to essentially “break even” in covering the estimated costs of the required staff needed for the administration of the proposed Ordinance combined with the Rental Registry Program, as well as third-party services and software.

Looking at each program separately the fee ranges from $28 for the 14,464 exempt units to be part of the existing rental registry program, $135 per fully covered unit for the minimum of 5.1 staff members up to about $220 per fully covered unit for 13.4 staff members. The fully burdened cost of staff shown includes salaries, taxes, and benefits. These fees are higher than what would actually be because they are looking at each program separately. Table 4-14 provides an estimate of the fees with the rental registry, tenant protections, and rent stabilization combined program. Please note that the fee for partially covered units should be less than the fully covered unit fee. Other cities have fees ranging from about $60 for all units in San Francisco up to $344 per fully covered unit and $212 for partially covered units in Berkeley as shown in Appendix A Table A-13.

58 City of Richmond Rent Program, Adopted May 31, 2002, FY 2022-23 Budget and Rental Housing Fee Study.
59 Estimated staff and staff costs are based on the proposed budget amounts for the rental registry program per the Residential Registry Community Development Council Staff Report dated April 4, 2023.

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Table 4-12. Estimated Staffing and Annual Costs Rental Registry and Rent Stabilization Program

Item Assumptions Minimum Average Maximum

CITY COST
Number of Staff
Planning Manager - 0.1 0.1 0.2 0.5
Community Development Analyst - 1.0 0.5 0.5 1.7
Administrative Analyst - Housing - 1.0 0.5 1.0 2.0
Subtotal - 2.1 3.0 4.7 11.4
Total Combined with Rental Registry 5.1 6.7 13.4
Total Staffing Costs Cost per FTE [2]
Planning Manager $229,947 $11,497 $34,492 $57,487 $126,471 Community Development Analyst $158,720 $158,720 $238,080 $238,080 $428,545 Administrative Analyst - Housing $119,489 $119,489 $179,233 $238,977 $358,466 Subtotal Staffing Costs - $289,706 $451,805 $534,544 $913,481 Other Costs
Software & Systems Supporters - $10,000 $24,825 $32,715 $65,595 Tenant/Landlord Services and Resource - $100,000 $248,254 $327,147 $655,951 Subtotal Other Costs - $110,000 $273,079 $359,862 $721,546 Subtotal Staff Cost $399,706 $724,884 $894,406 $1,635,027 Third-Party Software + Services Estimate - $400,000 $300,000 $200,000 Total Cost $399,706 $1,124,884 $1,194,406 $1,835,027
Source: City of Salinas; EPS.
[3] Total Rent Stabilization Program costs include the total for the Rental Registry Program. ------------------------------------- FTEs ------------------------------------------- --------------------------- Cost by Staff Level [3]-------------------------------- Rental Registry + Rent Stabilization
Program Level of Enforcement Range [1]
[2] Staff costs are based on the proposed budget amounts for the rental registry program per the Residential Registry Community Development Council Staff Report dated April 4, 2023. [1] See Table 4-11
---------------------- Other Costs by Staff Level [3] --------------------------- g
Rental
Registry
Program
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Table 4-13. Estimated Annual Cost Variations: Rental Registry and Rent Stabilization Program

Table 4-14. Current Rental Registry Fee Comparison

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For the Rental Registry Program fee, the City currently charges a fee based on the number of units within a range per parcel. The initial goal was to not overcharge owners of smaller buildings; however, this fee structure actually provides a monetary break for larger developments and creates a financial loss to the City.

As shown in Table 4-14, the total estimated revenue based on the City’s current Rental Registry fee structure is about $207,000 compared to if the City changed a fee on a per unit basis. For illustrative purposes EPS used the estimated minimum cost of about $1.1 million to estimate a fee for the 14,464 partially covered units of $20 per unit per year and $115 for the 8,330 fully covered units, which would create a cost recovery of over $1.2 million.

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Conclusions and Recommendations
Conclusions
Rent regulations are increasingly prevalent in California. In cities like Salinas where apartments account for about 36 percent of the housing stock, the policy could have a range of potential impacts. As discussed previously, current state law limits the impact of rent stabilization by exempting single-family units, condominiums, and properties built after 1995 and allowing for vacancy decontrol (the ability to raise rent back to market rate after a tenant leaves).

For applicable units (19 percent of the City’s housing), the proposed Ordinance is likely to stabilize rents and decrease displacement risk, which is an important equity concern in the City. Thus, existing City renters would be the direct beneficiaries of the Ordinance, accruing long-term financial benefits and reduced risk of eviction. This benefit would come at a cost to existing Salinas landlords who could experience reduced rental income and limitations on removing unwanted tenants. However, the effects on income appear to be relatively modest particularly as the ordinance has policies to help protect hardships by allowing a landlord to petition for rent increase beyond the allowed rent stabilized increase to obtain a fair and reasonable return as well as petition to pass through to the tenant specific capital improvements. Conversely there is a policy that allows a tenant to petition for a rent reduction if they believe that the landlord has demanded, accepted, or retained any rent in excess of the rent permitted.

While 19 percent of the City’s housing is not immaterial, the renter protections included in the Ordinance are likely to have both positive and negative impacts on the local economy and the City’s fiscal health. The positive impacts include reduced displacement as well as increased economic stability and disposable income for renters. The negative impacts may include reduced labor mobility and housing availability for new residents, as rent stabilization is shown to decrease turnover by about 20 percent and with vacancy in the City already extremely tight this exacerbates the limited housing options for new residents and the ability for existing residents to move, as discussed in Chapter 3.

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Rent stabilization is part of a toolkit that, along with other policies and incentives, can help alleviate some housing cost pressures. Taken in combination with other policies that encourage additional supply, it can be part of a multi-pronged effort to improve the outlook for residents struggling to afford housing.

Recommendations
Based on the findings from the literature review, economic impacts analysis, EPS recommends that City consider adopting a rent stabilization ordinances limiting the maximum increase of rent to the lesser of 2.5 percent or 65 percent of the Consumer Price Index for All Urban Consumers in the West or

2.75 percent or 75 percent of the Consumer Price Index for All Urban Consumers in the West.

The Rent Stabilization Ordinance should include strong tenant protections as well as clearly providing guidance on the types of units that would qualify in the event Costa-Hawkins is repealed. Strong tenant protections include Just Cause eviction protections as well as No-Fault evictions protections such as requiring landlords to pay fair relocation costs. See Appendix A Table A-1 for no-fault eviction within the California cities that have rent stabilization ordinances. An additional protections the City could consider is setting a cap on the number of units that can convert to condos within a year and providing current tenants the right of first refusal to purchase condo conversions.

The City should consider merging the Rent Stabilization Fee into the Rental Registry Fee and charge this fee on a per unit basis. The fee amount should differ based on unit type: fully covered units (rental registry, tenant protections, and rent stabilization should be higher than partially covered units (rental registry and tenant protections). The fee is to help the City recover the costs to run the program including staffing, third party services and software, community education, and program enforcement and should provide financial neutrality. Based on data from other cities, the additional staffing needed to establish, run, and maintain the Rent Stabilization ordinance ranges from the equivalent of 4.2 to 11.4 net new hires (excluding the rental registry staff) or a percentage of existing employees’ time. With the minimum level of only 4.2 new staff members, or 5.1 FTEs total, Salinas would likely need to contract third party services for legal counsel, tenant relocation services, and mediation and dispute resolution. As staffing increases beyond the 5.1, the amount of third-party source contracts will decrease.

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The City should consider including language in the ordinance establishing periodic reviews elements such as the rent increase caps, the number of petitions, staffing levels, fee amounts, etc. to ensure the program operates effectively for property owners, tenants and the City.

In addition, the City should take careful consideration to explicitly include any elements they would like to retain from Costa-Hawkins, such as exempting single- family homes, exempting new development, and providing vacancy decontrol.

If these are not included in the City’s ordinance, and the statewide ballot initiative set for the November 2024 ballot to repeal Costa-Hawkins passes, the local ordinance would apply to all rental housing—including single-family units—and rents would not reset to market for new tenants.

APPENDICES:

Appendix A: Demographic and Socioeconomic
Analysis Support Tables
Appendix B: Financial Analysis Support Tables

APPENDIX A:

Demographic and Socioeconomic
Analysis Support Tables

Table A-1 Units in Structure: City of Salinas .................................. A-1 Table A-2 Vacant Housing Units by Usage Category ........................ A-2 Table A-3 Total Vacancy Rate ...................................................... A-3 Table A-4 Tenure by Units In Structure ........................................ A-4 Table A-5 Tenure by Age of Structure: City of Salinas ..................... A-5 Table A-6 Residential Inventory Characteristics:

City of Salinas ............................................................ A-6 Table A-7 Subsidized Affordable Housing Units .............................. A-7 Table A-8 Multifamily Housing Market Summary ............................ A-8 Table A-9 Household Income by Range......................................... A-9 Table A-10 Household Size and Tenure ........................................ A-10 Table A-11 Year Householder Moved into Unit ............................... A-11 Table A-12 Units Permitted by Year ............................................. A-12 Table A-13 Comparable Rent Stabilization Programs
Staffing and Fees ...................................................... A-13 Table A-14 Inflation Method Comparison ...................................... A-14 Table A-15 Household Operations and Furnishings
Price Index Change ................................................... A-15 Table A-16 Median Operating Expenses by Property Type ............... A-16

DRAFT
Table A-1
City of Salinas
Rent Stabilization Analysis
Units in Structure: City of Salinas (2022)
Item Units % of Total
Type of Unit
Single Detached Units 25,252 56.7%
Single Attached Units 2,517 5.7%
2-4 Units 3,602 8.1%
5+ Units 11,019 24.8%
Mobile Homes 2,113 4.7%
Total Housing Units 44,503 100.0%
Source: ACS; EPS.
2022
Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Salinas_Rent_Stabilization_08-08-24.xlsx A-1
DRAFT
Table A-2
City of Salinas
Rent Stabilization Analysis
Vacant Housing Units by Usage Category (2022)
Item Units % of Total Units % of Total
Vacant Housing Units
For Rent 265 18.5% 1,589 12.4%
Unoccupied Rentals 73 5.1% 302 2.4% For-Sale 162 11.3% 565 4.4%
Unoccupied Sold Units 165 11.5% 501 3.9% Seasonal, Recreational, or Occasional
Use
123 8.6% 6,290 49.3%
For Migrant Workers - - 95 0.7% Other 642 44.9% 3,428 26.8%
Total Vacant 1,430 100.0% 12,770 100.0%
Source: American Community Survey 5-Year Estimates Tables B25004; EPS.

Monterey County
2022 VACANT HOUSING UNITS
City of Salinas
Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Salinas_Rent_Stabilization_08-08-24.xlsx A-2
DRAFT
Table A-3
City of Salinas
Rent Stabilization Analysis
Total Vacancy Rate (2010-2023)
Item City of Salinas Monterey County
Year
2010 5.3% 9.4%
2011 5.3% 9.6%
2012 5.3% 9.6%
2013 5.5% 9.9%
2014 5.5% 10.0%
2015 5.5% 10.0%
2016 5.6% 10.3%
2017 5.6% 10.3%
2018 5.6% 10.5%
2019 5.7% 10.6%
2020 2.8% 8.2%
2021 2.9% 8.2%
2022 2.9% 8.1%
2023 2.9% 8.1%
Source: California Department of Finance E-5; EPS.

Total Residential Vacancy Rate
Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Salinas_Rent_Stabilization_08-08-24.xlsx A-3
DRAFT
Table A-4
City of Salinas
Rent Stabilization Analysis
Tenure by Units In Structure (2012-2022)
Item
Owner-
Occupied
Renter
Occupied
Share Renter
Occupied
% of Unit
Type
Owner-
Occupied
Renter
Occupied
Share Renter
Occupied
% of Unit
Type Total % Total %
Unit Type
Detached Single-Family 15,409 6,834 30.7% 55.2% 17,392 7,234 29.4% 57.2% 1,983 12.9% 400 5.9% Attached Single-Family 1,140 1,456 56.1% 6.4% 1,031 1,457 58.6% 5.8% (109) (9.6%) 1 0.1% Duplex 38 815 95.5% 2.1% - 891 100.0% 2.1% (38) (100.0%) 76 9.3% 3 to 4 unit building 116 2,654 95.8% 6.9% 255 2,301 90.0% 5.9% 139 119.8% (353) (13.3%) 5 + unit building 200 10,368 98.1% 26.2% 124 10,288 98.8% 24.2% (76) (38.0%) (80) (0.8%) Other 752 510 40.4% 3.1% 1,477 623 29.7% 4.9% 725 96.4% 113 22.2% Total 17,655 22,637 56.2% 100.0% 20,279 22,794 52.9% 100.0% 2,624 14.9% 157 0.7% Source: American Community Survey 2018-2022 5-Year Estimate s, Table B25032; EPS.

Owner-Occupied
2021-2022 Change
Renter Occupied2012 2022
City of Salinas
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Table A-5
City of Salinas
Rent Stabilization Analysi
s
Tenure by Age of Structure: City of Salinas (2022)
Item Total % Total % Total % Total %
Year
Built 2020 or later 22 0.1% 13 0.1% 35 0.1% 35 0.1%
Built 2010 to 2019 216 1.1% 621 2.7% 837 1.9% 845 1.9%
Built 2000 to 2009 2,499 12.3% 1,921 8.4% 4,420 10.3% 4,645 10.4% Built 1990 to 1999 3,344 16.5% 3,753 16.5% 7,097 16.5% 7,258 16.3% Est. of units built between 1990 and 1994 751 3.7% 843 3.7% 1,593 3.7% 3,187 7.2% Built 1980 to 1989 2,147 10.6% 3,803 16.7% 5,950 13.8% 6,221 14.0% Built 1970 to 1979 3,384 16.7% 4,636 20.3% 8,020 18.6% 8,213 18.5% Built 1960 to 1969 3,005 14.8% 2,860 12.5% 5,865 13.6% 6,074 13.6% Built 1950 to 1959 2,607 12.9% 2,387 10.5% 4,994 11.6% 5,231 11.8% Built 1940 to 1949 1,553 7.7% 1,657 7.3% 3,210 7.5% 3,257 7.3% Built 1939 or earlier 1,502 7.4% 1,143 5.0% 2,645 6.1% 2,724 6.1% Total 20,279 100.0% 22,794 100.0% 43,073 100.0% 44,503 100.0% Built Before 1995 14,949 73.7% 17,329 76.0% 32,277 74.9% 34,907 78.4% Built 1995 or Late
r 5,330 26.3% 5,465 24.0% 10,796 25.1% 9,596 21.6%
Source: American Community Survey 2018-2022 5-Year Estimates, Table B25034; EPS.

CITY OF SALINAS AGE OF RESIDENTIAL STRUCTURE
Tenure of Occupied Housing Units
Total Housing Units
[1] ACS data only provides data within 10-year timeframes; the number of units estimated to be built between 1990 and 1994 is based on the average percentage of permits pulled between those years within the 1990 to 1999 time period. See Table A-12.

Owner-Occupied Renter-Occupied Total
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Table A-6
City of Salinas
Rent Stabilization Analysis
Residential Inventory Characteristics: City of Salinas (2022) Item Source/Table Formula Total
Housing Inventory
Total Single Family Residential (SFR) Detached Table A-1 A 25,252 56.7% 28.6% Total Multifamily (MFR) and Other Table A-1 B 19,251 43.3% 82.6% Total Units 44,503 100.0% 52.0%
Total Occupied Units
Owner-Occupied SFR Table A-4 C 17,392 39.1% -
Owner-Occupied MFR Table A-4 D 2,887 6.5% -
Renter-Occupied SFR Table A-4 E 7,234 16.3% 31.3% Renter-Occupied MFR Table A-4 F 15,560 35.0% 67.3% Total Occupied Units G = C + D + E + F 43,073 96.8% - Vacant Units
Owner/For-Sale Table A-2 H 327 0.7% -
Rental/For Rent Table A-2 I 338 0.8% 1.5%
Seasonal, Rec. Use, Migrant Workers, Other Table A-2 J 765 1.7% - Total Vacant Units K = H + I + J 1,430 3.2% -
Total Rental Unit Inventory L = E + F + I 23,132 52.0% 100.0% Units Exempt from Rent Stabilization
Built 1995 or Later
Total Owner-Occupied M = C + D + H 20,606 46.3% - Renter-Occupied Built 1995 or Later Table A-5 N 5,465 12.3% 23.6% Multifamily Built 1995 or Later [1] CoStar O 2,022 4.5% 8.7% SFR Renter-Occupied E 7,234 16.3% 31.3%
Seasonal, Rec. Use, Migrant Workers, Other [2] J 765 1.7% - Built 1995 or Later Table A-5 P 24% - -
Rental/For Rent [3] Q = I * P 81 0.2% 0.4% Total Exempt Units R = M + N + O + E + J + Q 36,173 81.3% 54.9% Units Qualifying for Rent Stabilization
Renter-Occupied Built Prior to 1995 Table A-5 S 17,329 38.9% 74.9% Built Prior to 1995 Table A-5 T 76% - -
Rental/For Rent [3] U = I * T 257 0.6% 1.1% Less Renter-Occupied SFR E (7,234) (16.3%) (31.3%) Less Multifamily Built 1995 or Later O (2,022) (4.5%) (8.7%) Total Units Qualifying for Rent Stabilization V = S + U - E - O 8,330 18.7% 36.0% Source: American Community Survey 5-Year Estimates Table S2502; EPS. [1] Per CoStar.
[2] To remain conservative, EPS assumes seasonal, recreational, occasional use, migrant worker housing, and other are exempt from rent stabiliz [3] To estimate the year built for vacant rentals, EPS applied the percentage breakdown for renter-occupied units from Table A-5.

City of Salinas
% of Total
Housing
% that is Rental
Housing
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Table A-7
City of Salinas
Rent Stabilization Analysis
Subsidized Affordable Housing Units (April 2024)
Item Address Type Year Built
Total
Units Studio
One-
Bedroom
Two-
Bedrooms
Three-
Bedrooms
Four Bed-
Rooms
Apartment Units
Moon Gate Plaza 21 Soledad Street Apartments 2017 90 81 4 5 - - Haciendas 3 40, 50, 60 East Rossi Street Apartments 2016 50 - 19 16 15 - Gabilan Plaza 736 Williams Rd. Apartments 2013 200 - 36 74 90 - Harden Ranch Apts 1907 Dartmouth Way Apartments 2013 100 - 16 20 48 16 Haciendas Apartments II 275 Calle Cebu Apartments 2012 46 - 6 20 17 3 One Haciendas 233 Calle Cebu Apartments 2011 52 - 9 27 14 3 Salinas Gateway Apts 25 Lincoln Ave Apartments 2011 52 25 21 6 - - Tresor Apts 1041 Buckhorn Dr Apartments 2009 81 - - 24 41 16 La Gloria Senior Apts 539 E Market St Apartments 2009 23 - 23 - - - Sherwood Village 808 N Main St Apartments 2006 124 - 102 22 - - Jardines Del Monte Apartments 1259 Del Monte Ave Apartments 2004 28 - - - - -
Salinas Pointe Apts 1260 John St Apartments 2003 219 3 91 61 8 - Salinas Bay Apts 920 Larkin St Apartments 2002 95 - - 25 60 10 Plaza Grande 50 E Market St Apartments 2002 92 91 1 - - - Montecito at Williams Ranch 1598 Mesquite Dr Apartments 2000 132 - 107 25 - - Steinbeck Commons Apts 10 Lincoln Ave Apartments 2000 100 - 99 - - - Nantucket Bay Apts 950 Nantucket Blvd Apartments 1999 160 - - 70 70 20 Plaza Club Apts 100 Harden Pkwy Apartments 1997 208 - 7 28 8 - Shadowbrook Apartments 1115-1118 Alamo Way Apartments 1988 88 - 20 38 30 - Vista De La Terraza 165-177 Carr Ave Apartments 1984 40 - - 15 10 15 Las Casas de Madera 510 E Market St Apartments 1982 75 - - 22 28 25 Lakeview 58 Natividad Rd Apartments 1982 50 - - 28 9 13 Parkside Manor 1112-1115 Parkside St Apartments 1971 48 - - - - - Tynan Village 323 Front St Apartments - 172 - 65 60 35 12 Santanna Apartments 1235 Garner Ave Apartments - 160 - - - - - Tesoros del Campos 42 La Posada Dr Apartments - 57 - - 8 43 6 Del Monte Plaza 1415 Del Monte Ave Apartments - 44 - - - - - Ocean View Apartments 44 Natividad Rd Apartments - 40 - 8 19 13 - Mariposa Apartments 300 Casentini St Apartments - 21 - - - - - - 775 Elkington Ave Apartments - 7 - - - - - Subtotal Multifamily Units 2,654
Other Affordable
East Salinas Family Rad Scattered Sites Townhomes 2016 202 - 35 86 63 18 Los Abuelitos Senior Apts 528 E Market St Senior 2004 25 - 25 - - - Mountain View Townhomes 1580 Falcon Dr Townhomes 2000 68 - - 20 40 8 Addington Way Homes 288 Addington Ln Special Needs 1999 2 - - - 2 - Roosevelt Street Townhomes II 504 Roosevelt St Townhomes 1998 22 - - - 22 - Regency Court Senior 472 Regency Cir Senior 1997 119 - 96 24 - - Gabilan Hills Townhomes 1051-1057 Paseo Grande Townhomes 1995 100 - - 32 34 34 Roosevelt Townhomes 522 Roosevelt St Townhomes 1995 22 - - - - - Plaza Hotel 30 E Market St SRO 1992 27 - - - - - Subtotal Other Units 587
Total 3,241 200 626 594 526 139 Source: Costar; HUD National Low Income Housing Tax Credit 1987-2022 Data; EPS.

City of Salinas
[1] Some properties do not include the number of rooms as Costar and the Department of Housing and Urban Development (HUD) do not provide this information.

The absence of data may occur due to various reasons, such as privacy policies, incomplete records, or the nature of the reporting systems of these organizations.

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Table A-8
City of Salinas
Rent Stabilization Analysis
Multifamily Housing Market Summary (2012-2024)
Item
Year
2000 $920 - 2.4%
2001 $963 4.7% 3.3%
2002 $955 (0.8%) 4.0%
2003 $947 (0.8%) 4.3%
2004 $948 0.1% 4.3%
2005 $979 3.3% 4.0%
2006 $1,015 3.7% 3.9%
2007 $1,046 3.1% 3.4%
2008 $1,068 2.1% 3.7%
2009 $1,027 (3.8%) 4.1%
2010 $1,041 1.4% 4.1%
2011 $1,050 0.9% 4.5%
2012 $1,070 1.9% 4.1%
2013 $1,099 2.7% 3.7%
2014 $1,143 4.0% 3.1%
2015 $1,274 11.5% 2.8%
2016 $1,375 7.9% 3.0%
2017 $1,480 7.6% 2.4%
2018 $1,554 5.0% 2.1%
2019 $1,592 2.4% 2.7%
2020 $1,702 6.9% 2.4%
2021 $1,920 12.8% 2.4%
2022 $1,859 (3.2%) 2.8%
2023 $1,978 6.4% 2.8%
2024 $1,994 0.8% 2.7%
Average/
Total Change $1,280 3.4% 3.3%
Source: CoStar; EPS.
[1] This data reflects market rate multifamily apartment units built before 1995 in the City of Salinas.

City of Salinas Multifamily Housing [1]
Monthly Effective
Rent
% Change, Rent
Asked Vacancy Rate
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Table A-9
City of Salinas
Rent Stabilization Analysis
Household Income by Range (2012 & 2022)
Item 2012 [1] % 2022 % % Change 2012 [1] % 2022 % % Change Income Range
<$15,000 3,981 9.9% 2,550 5.9% (35.9%) 10,761 8.6% 6,915 5.3% (35.7%) $15,000 - $24,999 4,992 12.4% 2,718 6.3% (45.6%) 12,012 9.6% 6,667 5.1% (44.5%) $25,000 - $34,999 4,831 12.0% 2,589 6.0% (46.4%) 12,012 9.6% 8,369 6.4% (30.3%) $35,000 - $49,999 6,080 15.1% 4,355 10.1% (28.4%) 16,766 13.4% 12,560 9.6% (25.1%) $50,000 - $74,999 7,974 19.8% 7,111 16.5% (10.8%) 24,524 19.6% 19,240 14.7% (21.5%) $75,000 - $99,999 4,871 12.1% 6,638 15.4% 36.3% 15,891 12.7% 18,454 14.1% 16.1% $100,000 - $149,999 5,153 12.8% 8,963 20.8% 73.9% 19,394 15.5% 25,658 19.6% 32.3% $150,000 - $199,999 1,527 3.8% 3,924 9.1% 157.0% 6,882 5.5% 13,739 10.5% 99.6% $200,000+ 882 2.2% 4,225 9.8% 378.9% 6,882 5.5% 19,371 14.8% 181.5% Total 40,292 100.0% 43,073 100.0% 6.9% 125,123 100.0% 130,973 100.0% 4.7% Median Household Income in 2022$ $68,364 $84,250 23.2% $81,279 $91,043 12.0% Source: U.S. Census Bureau ACS 2012 & 2022, Table S1901; EPS. [1] The median household incomes reported by ACS are inflation-adjusted to constant dollars.

City of Salinas Monterey County
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Table A-10
City of Salinas
Rent Stabilization Analysis
Household Size and Tenure (2012 and 2022)
Item Total % Total %
Renter-Occupied Households
1-person 3,973 17.6% 3,821 16.8% (3.83%)
2-person 3,721 16.4% 3,773 16.6% 1.40%
3-person 3,750 16.6% 3,093 13.6% (17.52%)
4+ -person 11,193 49.4% 12,107 53.1% 8.17%
Total 22,637 100.0% 22,794 100.0% 0.69%
Owner-Occupied
1-person 2,648 15.0% 3,082 15.2% 16.39%
2-person 4,645 26.3% 5,112 25.2% 10.05%
3-person 3,011 17.1% 3,211 15.8% 6.64%
4+ -person 7,351 41.6% 8,874 43.8% 20.72%
Total 17,655 100.0% 20,279 100.0% 14.86%
Source: American Community Survey 5-Year Estimates Table B25009; EPS. 2012 2022 Change
(2012-2022)
City of Salinas
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Table A-11
City of Salinas
Rent Stabilization Analysis
Year Householder Moved into Unit
Item Min Max Avg. Total % Total %
Year Householder Moved Into Unit
Moved in 2021 or later 0 - 1 0.5 5,141 20.4% 472 2.3% Moved in 2018 to 2020 2 - 4 3 7,406 29.3% 2,254 11.0% Moved in 2010 to 2017 5 - 12 8.5 7,775 30.8% 6,036 29.3% Moved in 2000 to 2009 13 - 22 17.5 3,641 14.4% 5,867 28.5% Moved in 1990 to 1999 23 - 32 27.5 918 3.6% 3,211 15.6% Moved in 1989 or earlier 33 + 33 358 1.4% 2,736 13.3% Total 25,239 100.0% 20,576 100.0%
Weighted Average Years
Lived in Unit 7.6 16.5
Source: ACS 2022 5-Year estimates Table B25038; EPS.

Renter-Occupied
City of Salinas Households
Owner-Occupied
Years Lived
in Unit
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Table A-12
City of Salinas
Rent Stabilization Analysis
Units Permitted by Year (2000-2022)
Item 1-Unit 2-Unit
3- and 4-
Unit 5-Unit + Total
Year
1990 194 8 3 - 205 1991 160 8 3 - 171 1992 197 10 - 16 223 1993 275 - 7 27 309 1994 585 10 46 6 647 1995 431 4 9 98 542 1996 413 2 11 253 679 1997 628 - - 207 835 1998 500 - - - 500 1999 809 22 - 531 1,362 2000 579 4 18 50 651 2001 268 - - 160 428 2002 442 14 9 92 557 2003 257 - 14 273 544 2004 231 - 6 25 262 2005 224 - - 21 245 2006 119 - - - 119 2007
72 2 - 170 244 2008 24 2 8 58 92 2009 19 - - 18 37 2010 35 - 16 88 139 2011 7 - 8 10 25 2012 11 2 - - 13 2013 3 2 3 51 59 2014 30 - - 36 66 2015 46 2 - 46 94 2016 2 2 - 48 52 2017 26 - - - 26 2018 57 - - 106 163 2019 80 4 - 12 96 2020 96 - - 109 205 2021 64 4 - 130 198 2022 59 2 - - 61 Total 1990-2022 6,943 104 161 2,641 9,849 Average per Year (1990-2022)
217 3 5 83 308
Total 1995-2022 5,532 68 102 2,592 8,294 Average per Year (1995-2022) 205 3 4 96 307 City of Salinas
Source: United States Department of Housing and Urban Development State of the Cities Database; EPS.

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Table A-13
City of Salinas
Rent Stabilization Analysis
Comparable Rent Stabilization Programs Staffing and Fees Item

JURISDICTION
Actively Enforced Rent Programs
East Palo Alto 2,500 2 1,250 0.80 $234 NA 50% Berkeley 20,000 22 909 1.10 $344 $212 50% Oakland 65,000 11 5,909 0.17 $101 NA 50% Richmond 18,000 13 1,385 0.72 $238 $135 0% Santa Monica 28,000 26 1,077 0.93 $228 NA 50% Total/Weighted Avg. 133,500 74 3,449 0.83 $185 -- Complaint Driven Rent Programs
Mountain View 15,000 5 3,000 0.33 $120 NA NA West Hollywood 17,000 9 2,000 0.50 $144 $144 50% San Jose 39,000 16 2,438 0.41 $106 $34 NA San Francisco 173,000 31 5,581 0.18 $59 $59 50% Los Angeles 600,000 80 7,500 0.13 $39 NA 50% Total/Weighted Avg. 844,000 141 6,682 0.20 $50 -- Source: City of Mountain View Memorandum to the Rental Housing Committee, dated January 25, 2021; City Web Sites; EPS.

Portion of the Fee
Passed Through
to Tenants
Number of
Qualifying
Units
Staff per
1,000
Units
Number
of Units
per Staff
Staffing
FTEs
Fully Covered
Unit
Partially
Covered Unit
Current Rental Housing
Fees per Fully Covered Unit
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Table A-14
City of Salinas
Rent Stabilization Analysis
Inflation Method Comparison
Year Total 60% CPI 80% CPI Total Change
2014 240.215 226.976
2015 243.015 0.70% 0.93% 226.12 -0.38%
2016 247.705 1.16% 1.54% 226.814 0.31%
2017 254.738 1.70% 2.27% 230.467 1.61%
2018 263.263 2.01% 2.68% 236.871 2.78%
2019 270.350 1.62% 2.15% 240.92 1.71%
2020 275.057 1.04% 1.39% 243.674 1.14%
2021 287.494 2.71% 3.62% 257.523 5.68%
2022 310.509 4.80% 6.40% 280.63 8.97%
2023 323.834 2.57% 3.43% 288.792 2.91%
2024 [2] 331.933 1.50% 2.00% 294.262 1.89%
Total Change (2014-2024) 22.91% 30.55% 29.64%
Source: Bureau of Labor Statistics; and EPS.
[1] Consumer Price Index for All Urban Consumers (CPI-U), West Region. [2] Values for 2024 indicate calendar year average through June.

CPI [1]
Annual Change CPI - Less Shelter
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Table A-15
City of Salinas
Rent Stabilization Analysis
Household Operations and Furnishings Price Index Change Year HIOC COICOP 05 CPI
2014 -1.38% -1.45% -0.86%
2015 -0.43% -0.74% 0.48%
2016 -0.86% -1.16% -0.18%
2017 -0.77% -0.90% -0.53%
2018 0.72% 0.55% 1.25%
2019 1.75% 1.75% 2.30%
2020 1.50% 1.75% 3.08%
2021 4.49% 4.41% 3.29%
2022 9.03% 9.16% 8.82%
2023 2.93% 2.63% 2.86%
Total Change (2014-2023) 19.47% 18.38% 23.16%
CAGR (2014-2023) 1.63% 1.55% 1.98%
Source: Bureau of Labor Statistics; and EPS.
[1] Consumer Price Index for All Urban Consumers (CPI-U), West Region. [2] Values for 2024 indicate calendar year average through June.

Index Change from Previous Year
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Table A-16
City of Salinas
Rent Stabilization Analysis
Median Operating Expenses by Property Type (2011-2022)
Item 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Mid Rise
Administration $668 $647 $643 $602 $627 $720 $688 $813 $836 $785 $855 $887 Repairs and Maintenance $1,067 $1,042 $1,031 $1, 135 $1,106 $1,259 $1,263 $1,349 $1,480 $1,481 $1,741 $1,829 Utilities $833 $782 $838 $923 $871 $919 $928 $927 $1,022 $1,103 $1,020 $1,202 Payroll $1,298 $1,347 $1,360 $1,380 $1,299 $1,471 $1,429 $1,455 $1,553 $1,658 $1,655 $1,837 Management Fee $485 $460 $491 $497 $422 $535 $523 $629 $708 $764 $778 $695 Property Insurance $288 $298 $306 $286 $262 $239 $224 $332 $324 $421 $560 $739 Total Mid Rise [1] $4,639 $4,576 $4,669 $4,823 $4,587 $5,143 $5,055 $5,505 $5,923 $6,212 $6,609 $7,189 Low Rise
Administration $557 $620 $594 $580 $631 $612 $588 $711 $744 $755 $741 $852 Repairs and Maintenance $839 $838 $917 $964 $974 $1,037 $1,075 $1,103 $1,236 $1,202 $1,308 $1,650 Utilities $694 $725 $775 $811 $793 $804 $793 $844 $876 $946 $966 $1,043 Payroll $1,075 $1,101 $1,132 $1,172 $1,239 $1,228 $1,274 $1,336 $1,423 $1,482 $1,489 $1,639 Management Fee $392 $406 $421 $431 $420 $436 $443 $519 $589 $673 $707 $672 Property Insurance $229 $250 $265 $275 $272 $281 $282 $311 $346 $395 $515 $528 Total Low Rise [1] $3,786 $3,940 $4,104 $4,233 $4,329 $4,398 $4,455 $4,824 $5,214 $5,453 $5,726 $6,384 Single-family. Duplex and Townhomes
Administration $505 $525 $575 $552 $595 $659 $657 $681 $769 $753 $737 $787 Repairs and Maintenance $840 $908 $961 $1,000 $1, 022 $1,119 $1,145 $1,131 $1, 243 $1,253 $1,375 $1,554 Utiiities $669 $694 $749 $758 $800 $780 $750 $891 $912 $995 $872 $972 Payroll $1,006 $1,074 $1,116 $1,091 $1,280 $1,203 $1,376 $1,416 $1,473 $1,625 $1,461 $1,605 Management Fee $364 $335 $330 $328 $454 $438 $481 $679 $729 $762 $705 $683 Property Insurance $258 $293 $329 $309 $262 $258 $243 $265 $348 $318 $497 $542 Total Single-family. Duplex and Townhomes [1 $3,642 $3,829 $4,060 $4,038 $4,413 $4,457 $4,652 $5,063 $5,474 $5,706 $5,647 $6,143 Average All
Administration $577 $597 $604 $578 $618 $664 $644 $735 $783 $764 $778 $842 Repairs and Maintenance $915 $929 $970 $1,033 $1, 034 $1,138 $1,161 $1,194 $1, 320 $1,312 $1,475 $1,678 Utiiities $732 $734 $787 $831 $821 $834 $824 $887 $937 $1,015 $953 $1,072 Payroll $1,126 $1,174 $1,203 $1,214 $1,273 $1,301 $1,360 $1,402 $1,483 $1,588 $1,535 $1,694 Management Fee $414 $400 $414 $419 $432 $470 $482 $609 $675 $733 $730 $683 Property Insurance $258 $280 $300 $290 $265 $259 $250 $303 $339 $378 $524 $603 Total Average All $4,022 $4,115 $4,278 $4,365 $4,443 $4,666 $4,721 $5,131 $5,537 $5,790 $5,994 $6,572 Year-Over-Year Change (Average All Types)
Administration 3.58% 1.12% (4.30%) 6.86% 7.45% (2.91%) 14.07% 6.53% (2.38%) 1.74% 8.27% Repairs and Maintenance 1.53% 4.34% 6.53% 0. 10% 10.09% 1.99% 2.87% 10.49% (0.58%) 12.40% 13.77% Utiiities 0.23% 7.31% 5.50% (1.12%) 1.58% (1.28%) 7.73% 5.56% 8.33% (6.11%) 12.56% Payroll 4.23% 2.44% 0.97% 4.80% 2.20% 4.54% 3.14% 5.75% 7.10% (3.36%) 10.34% Management Fee (3.22%) 3.41% 1.13% 3.18% 8. 72% 2.70% 26.26% 10.89% 8.54% (0.41%) (6.39%) Property Insurance 8.52% 7.02% (3.33%) (8. 51%) (2.26%) (3.73%) 21. 23% 12.11% 11.39% 38.62% 15.08% Total Year Over Year Change 2.30% 3.95% 2.03% 1.79% 5.02% 1.17% 8.69% 7.92% 4.58% 3.52% 9.64% Compound Annual Growth Rate (2014-2020)
Administration 3.50%
Repairs and Maintenance 5.66%
Utiiities 3.53%
Payroll 3.78%
Management Fee 4.67%
Property Insurance 8.01%
Total 4.56%
Source: Novogradac, 2023. Low-Income Housing Tax Credit Income and Operating Expenses Report.

Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Salinas_Rent_Stabilization_08-08-24.xlsx A-16

APPENDIX B:

Financial Analysis Support Tables

Table B-1 Rent Stabilized Annual Cash Flow Estimate—
Market Rate Base Case ................................................ B-1 Table B-2 Rent Stabilized Annual Cash Flow Estimate—
100% of CPI .............................................................. B-2 Table B-3 Hypothetical Rent Stabilized Gross Rent Roll Estimate— 100% of CPI .............................................................. B-3 Table B-4 Rent Stabilized Annual Cash Flow Estimate—
100% of CPI .............................................................. B-4 Table B-5 Hypothetical Rent Stabilized Gross Rent Roll Estimate— 80% of CPI ................................................................ B-5 Table B-6 Rent Stabilized Annual Cash Flow Estimate—
60% of CPI ................................................................ B-6 Table B-7 Hypothetical Rent Stabilized Gross Rent Roll Estimate— 60% of CPI ................................................................ B-7 DRAFT
Appendix Table B-1
City of Salinas
Rent Stabilization Analysis
Rent Stabilized Annual Cash Flow Estimate - Market Rate Base Case Item Assumptions Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 10 Market Rent Increase 3.35%
Allowed Rent Increase (% of CPI) na
CPI (Inflation) 3.00%
Operating Expense Growth 3.00%
Gross Rental Revenue $2,388,000 $2,468,043 $2,550,768 $2,636,267 $2,724,631 $2,815,957 $3,320,609 Less Vacancy Loss @ 3.00% ($71,640) ($74,041) ($76,523) ($79,088) ($81,739) ($84,479) ($99,618) Net Rental Revenue - $2,316,360 $2,394,001 $2,474,245 $2,557,179 $2,642,892 $2,731,478 $3,220,991 Less Operations & Maintenance [1] @ 30.00% ($694,908) ($715,755) ($737,228) ($759,345) ($782,125) ($805,589) ($933,898) Net Operating Income (NOI) - $1,621,452 $1,678,246 $1,737,017 $1,797,834 $1,860,767 $1,925,890 $2,287,092 Capitalization Rate 6.00%
Building Value $27,024,200 $27,970,769 $28,950,289 $29,963,899 $31,012,782 $32,098,158 $38,118,207 Annual Change in Value 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 10-Year Average Annual
Appreciation Rate

3.50%
Return on Investment (ROI) 10-yr = 41.05% 3.50% 7.13% 10.88% 14.76% 18.78% 41.05% Hypothetical Acquisition
(Plus Acq. Cost)
@

4.00% ($28,105,168)
Net Operating Income $1,678,246 $1,737,017 $1,797,834 $1,860,767 $1,925,890 $2,287,092 Reversion Value
(Less Marketing Cost)
@ 4.00% $36,593,478
Net Cash Flow ($28,105,168) $1,678,246 $1,737,017 $1,797,834 $1,860,767 $1,925,890 $38,880,571 Unleveraged IRR 8.84%
Leveraged IRR
Initial Equity Investment @ 30% -$8,431,550
Net Operating Income $1,678,246 $1,737,017 $1,797,834 $1,860,767 $1,925,890 $2,287,092 Debt Service - Principal (25-yr) @ 6.00% -$358,585 -$380,101 -$402,907 -$427,081 -$452,706 -$605,823 Debt Service - Interest (25-yr) @ 6.00% -$1,180,417 -$1,158,902 -$1,136,096 -$1,111,921 -$1,086,297 -$933,180 Reversion $36,593,478
Less Remaining Principal -$14,947,176
Net Proceeds to Developer Equity ($8,431,550) $139,244 $198,015 $258,831 $321,764 $386,887 $22,394,392 Leveraged IRR 12.88%
Source: CoStar; EPS.
[1] For market-rate base case example, op ex as percentage of rental income applied across all years.

Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Salinas_Cash_Flow_06_19-24 B-1
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Appendix Table B-2
City of Salinas
Rent Stabilization Analysis
Rent Stabilized Annual Cash Flow Estimate - 100% of CPI Item Assumptions Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 10 Market Rent Increase 3.35%
Allowed Rent Increase (% of CPI) 100.00%
CPI (Inflation) 3.00%
Operating Expense Growth 3.00%
Gross Rental Revenue $2,388,000 $2,460,562 $2,536,178 $2,614,897 $2,696,778 $2,781,881 $3,258,336 Less Vacancy Loss @ 3.00% ($71,640) ($73,817) ($76,085) ($78,447) ($80,903) ($83,456) ($97,750) Net Rental Revenue - $2,316,360 $2,386,745 $2,460,092 $2,536,450 $2,615,874 $2,698,425 $3,160,586 Less Operations & Maintenance [1] Yr 0 @ 30.00% ($694,908) ($715,755) ($737,228) ($759,345) ($782,125) ($805,589) ($933,898) Net Operating Income (NOI) - $1,621,452 $1,670,990 $1,722,864 $1,777,106 $1,833,749 $1,892,836 $2,226,688 Capitalization Rate 6.00%
Building Value $27,024,200 $27,849,834 $28,714,406 $29,618,425 $30,562,487 $31,547,270 $37,111,462 Annual Change in Value 3.06% 3.10% 3.15% 3.19% 3.22% 3.35% 10-Year Average Annual
Appreciation Rate

3.22%
Return on Investment (ROI) 10-yr = 37.33% 3.06% 6.25% 9.60% 13.09% 16.74% 37.33% Hypothetical Acquisition
(Plus Acq. Cost)
@ 4.00% ($28,105,168)
Net Operating Income $1,670,990 $1,722,864 $1,777,106 $1,833,749 $1,892,836 $2,226,688 Reversion Value
(Less Marketing Cost)
@ 4.00% $35,627,003
Net Cash Flow ($28,105,168) $1,670,990 $1,722,864 $1,777,106 $1,833,749 $1,892,836 $37,853,691 Unleveraged IRR 8.54%
Leveraged IRR
Initial Equity Investment @ 30% -$8,431,550
Net Operating Income $1,670,990 $1,722,864 $1,777,106 $1,833,749 $1,892,836 $2,226,688 Debt Service - Principal (25-yr) @ 6.00% -$358,585 -$380,101 -$402,907 -$427,081 -$452,706 -$605,823 Debt Service - Interest (25-yr) @ 6.00% -$1,180,417 -$1,158,902 -$1,136,096 -$1,111,921 -$1,086,297 -$933,180 Reversion $35,627,003
Less Remaining Principal -$14,947,176
Net Proceeds to Developer Equity ($8,431,550) $131,987 $183,862 $238,103 $294,747 $353,834 $21,367,513 Leveraged IRR 12.20%
Source: CoStar; EPS.
[1] After Year 0 for rent stabilization examples, operations and maintenance expenses increase at the rate of CPI.

Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Salinas_Cash_Flow_06_19-24 B-2
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Appendix Table B-3
City of Salinas
Rent Stabilization Analysis
Hypothetical Rent Stabilized Gross Rent Roll Estimate - 100% of CPI Item
Assumptions Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Assumed Units 100
Year 0 Average Rent $1,990
Year 0 Vacancy Decontrol Rent $1,990
Average Number Years in Unit 9.11
Turnover 11.0%
Market Rent Increase 3.35%
Allowed Rent Increase (% CPI) 100.00%
CPI Inflation 3.00%
Gross Units by Occupancy Date
Year 0 (or before) 100.0 89.0 79.3 70.6 62.8 55.9 49.8 44.3 39.5 35.1 31.3 Year 1 - 11.0 9.8 8.7 7.7 6.9 6.1 5.5 4.9 4.3 3.9
Year 2 - - 11.0 9.8 8.7 7.7 6.9 6.1 5.5 4.9 4.3
Year 3 - - - 11.0 9.8 8.7 7.7 6.9 6.1 5.5 4.9
Year 4 - - - - 11.0 9.8 8.7 7.7 6.9 6.1 5.5
Year 5 - - - - - 11.0 9.8 8.7 7.7 6.9 6.1
Year 6 - - - - - - 11.0 9.8 8.7 7.7 6.9
Year 7 - - - - - - - 11.0 9.8 8.7 7.7
Year 8 - - - - - - - - 11.0 9.8 8.7
Year 9 - - - - - - - - - 11.0 9.8
Year 10 - - - - - - - - - - 11.0
Total Units 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Average Rent by Occupancy Date
Year 0 (or before) $1,990 $2,050 $2,111 $2,175 $2,240 $2,307 $2,376 $2,447 $2,521 $2,596 $2,674 Year 1 - $2,057 $2,118 $2,182 $2,247 $2,315 $2,384 $2,456 $2,529 $2,605 $2,684 Year 2 - - $2,126 $2,189 $2,255 $2,323 $2,392 $2,464 $2,538 $2,614 $2,693 Year 3 - - - $2,197 $2,263 $2,331 $2,401 $2,473 $2,547 $2,623 $2,702 Year 4 - - - - $2,271 $2,339 $2,409 $2,481 $2,555 $2,632 $2,711 Year 5 - - - - - $2,347 $2,417 $2,490 $2,564 $2,641 $2,720 Year 6 - - - - - - $2,425 $2,498 $2,573 $2,650 $2,730
Year 7 - - - - - - - $2,507 $2,582 $2,659 $2,739
Year 8 - - - - - - - - $2,591 $2,668 $2,748
Year 9 - - - - - - - - - $2,677 $2,758
Year 10 - - - - - - - - - - $2,767
Gross Rent $2,388,000 $2,460,562 $2,536,178 $2,614,897 $2,696,778 $2,781,881 $2,870,277 $2,962,038 $3,057,244 $3,155,980 $3,258,336 Source: US Census; Costar; EPS.

Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Salinas_Cash_Flow_06_19-24 B-3
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Appendix Table B-4
City of Salinas
Rent Stabilization Analysis
Rent Stabilized Annual Cash Flow Estimate - 80% of CPI
Item Assumptions Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 10 Market Rent Increase 3.35%
Allowed Rent Increase (% of CPI) 80.00%
CPI (Inflation) 3.00%
Operating Expense Growth 3.00%
Gross Rental Revenue $2,388,000 $2,447,807 $2,511,406 $2,578,768 $2,649,874 $2,724,718 $3,155,573 Less Vacancy Loss @ 3.00% ($71,640) ($73,434) ($75,342) ($77,363) ($79,496) ($81,742) ($94,667) Net Rental Revenue - $2,316,360 $2,374,372 $2,436,064 $2,501,405 $2,570,377 $2,642,976 $3,060,905 Less Operations & Maintenance [1] Yr 0 @ 30.00% ($694,908) ($715,755) ($737,228) ($759,345) ($782,125) ($805,589) ($933,898) Net Operating Income (NOI) - $1,621,452 $1,658,617 $1,698,836 $1,742,060 $1,788,252 $1,837,387 $2,127,007 Capitalization Rate 6.00%
Building Value $27,024,200 $27,643,618 $28,313,934 $29,034,334 $29,804,206 $30,623,123 $35,450,120 Annual Change in Value 2.29% 2.42% 2.54% 2.65% 2.75% 3.09% 10-Year Average Annual
Appreciation Rate

2.75%
Return on Investment (ROI) 10-yr = 31.18% 2.29% 4.77% 7.44% 10.29% 13.32% 31.18% Hypothetical Acquisition
(Plus Acq. Cost)
@ 4.00% ($28,105,168)
Net Operating Income $1,658,617 $1,698,836 $1,742,060 $1,788,252 $1,837,387 $2,127,007 Reversion Value
(Less Marketing Cost)
@ 4.00% $34,032,115
Net Cash Flow ($28,105,168) $1,658,617 $1,698,836 $1,742,060 $1,788,252 $1,837,387 $36,159,122 Unleveraged IRR 8.01%
Leveraged IRR
Initial Equity Investment @ 30% -$8,431,550
Net Operating Income $1,658,617 $1,698,836 $1,742,060 $1,788,252 $1,837,387 $2,127,007 Debt Service - Principal (25-yr) @ 6.00% -$358,585 -$380,101 -$402,907 -$427,081 -$452,706 -$605,823 Debt Service - Interest (25-yr) @ 6.00% -$1,180,417 -$1,158,902 -$1,136,096 -$1,111,921 -$1,086,297 -$933,180 Reversion $34,032,115
Less Remaining Principal -$14,947,176
Net Proceeds to Developer Equity ($8,431,550) $119,615 $159,833 $203,057 $249,250 $298,385 $19,672,944 Leveraged IRR 11.02%
Source: CoStar; EPS.
[1] After Year 0 for rent stabilization examples, operations and maintenance expenses increase at the rate of CPI.

Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Salinas_Cash_Flow_06_19-24 B-4
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Appendix Table B-5
City of Salinas
Rent Stabilization Analysis
Hypothetical Rent Stabilized Gross Rent Roll Estimate - 80% of CPI Item
Assumptions Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Assumed Units 100
Year 0 Average Rent $1,990
Year 0 Vacancy Decontrol Rent $1,990
Average Number Years in Unit 9.11
Turnover 11.0%
Market Rent Increase 3.35%
Allowed Rent Increase (% CPI) 80.00%
CPI Inflation 3.00%
Gross Units by Occupancy Date
Year 0 (or before) 100.0 89.0 79.3 70.6 62.8 55.9 49.8 44.3 39.5 35.1 31.3 Year 1 - 11.0 9.8 8.7 7.7 6.9 6.1 5.5 4.9 4.3 3.9
Year 2 - - 11.0 9.8 8.7 7.7 6.9 6.1 5.5 4.9 4.3
Year 3 - - - 11.0 9.8 8.7 7.7 6.9 6.1 5.5 4.9
Year 4 - - - - 11.0 9.8 8.7 7.7 6.9 6.1 5.5
Year 5 - - - - - 11.0 9.8 8.7 7.7 6.9 6.1
Year 6 - - - - - - 11.0 9.8 8.7 7.7 6.9
Year 7 - - - - - - - 11.0 9.8 8.7 7.7
Year 8 - - - - - - - - 11.0 9.8 8.7
Year 9 - - - - - - - - - 11.0 9.8
Year 10 - - - - - - - - - - 11.0
Total Units 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Average Rent by Occupancy Date
Year 0 (or before) $1,990 $2,038 $2,087 $2,137 $2,188 $2,241 $2,294 $2,349 $2,406 $2,464 $2,523 Year 1 - $2,057 $2,106 $2,157 $2,208 $2,261 $2,316 $2,371 $2,428 $2,486 $2,546 Year 2 - - $2,126 $2,177 $2,229 $2,282 $2,337 $2,393 $2,451 $2,510 $2,570 Year 3 - - - $2,197 $2,250 $2,304 $2,359 $2,416 $2,473 $2,533 $2,594 Year 4 - - - - $2,271 $2,325 $2,381 $2,438 $2,496 $2,556 $2,618 Year 5 - - - - - $2,347 $2,403 $2,461 $2,520 $2,580 $2,642 Year 6 - - - - - - $2,425 $2,483 $2,543 $2,604 $2,667
Year 7 - - - - - - - $2,507 $2,567 $2,628 $2,691
Year 8 - - - - - - - - $2,591 $2,653 $2,716
Year 9 - - - - - - - - - $2,677 $2,742
Year 10 - - - - - - - - - - $2,767
Gross Rent $2,388,000 $2,447,807 $2,511,406 $2,578,768 $2,649,874 $2,724,718 $2,803,306 $2,885,654 $2,971,789 $3,061,747 $3,155,573 Source: US Census; Costar; EPS.

Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Salinas_Cash_Flow_06_19-24 B-5
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Appendix Table B-6
City of Salinas
Rent Stabilization Analysis
Rent Stabilized Annual Cash Flow Estimate - 60% of CPI
Item Assumptions Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 10 Market Rent Increase 3.35%
Allowed Rent Increase (% of CPI) 60.00%
CPI (Inflation) 3.00%
Operating Expense Growth 3.00%
Gross Rental Revenue $2,388,000 $2,435,051 $2,486,771 $2,543,027 $2,603,707 $2,668,724 $3,056,973 Less Vacancy Loss @ 3.00% ($71,640) ($73,052) ($74,603) ($76,291) ($78,111) ($80,062) ($91,709) Net Rental Revenue - $2,316,360 $2,361,999 $2,412,168 $2,466,736 $2,525,596 $2,588,662 $2,965,264 Less Operations & Maintenance [1] Yr 0 @ 30.00% ($694,908) ($715,755) ($737,228) ($759,345) ($782,125) ($805,589) ($933,898) Net Operating Income (NOI) - $1,621,452 $1,646,244 $1,674,940 $1,707,391 $1,743,471 $1,783,073 $2,031,366 Capitalization Rate 6.00%
Building Value $27,024,200 $27,437,403 $27,915,664 $28,456,517 $29,057,852 $29,717,886 $33,856,095 Annual Change in Value 1.53% 1.74% 1.94% 2.11% 2.27% 2.85% 10-Year Average Annual
Appreciation Rate

2.28%
Return on Investment (ROI) 10-yr = 25.28% 1.53% 3.30% 5.30% 7.53% 9.97% 25.28% Hypothetical Acquisition
(Plus Acq. Cost)
@ 4.00% ($28,105,168)
Net Operating Income $1,646,244 $1,674,940 $1,707,391 $1,743,471 $1,783,073 $2,031,366 Reversion Value
(Less Marketing Cost)
@ 4.00% $32,501,852
Net Cash Flow ($28,105,168) $1,646,244 $1,674,940 $1,707,391 $1,743,471 $1,783,073 $34,533,217 Unleveraged IRR 7.49%
Leveraged IRR
Initial Equity Investment @ 30% -$8,431,550
Net Operating Income $1,646,244 $1,674,940 $1,707,391 $1,743,471 $1,783,073 $2,031,366 Debt Service - Principal (25-yr) @ 6.00% -$358,585 -$380,101 -$402,907 -$427,081 -$452,706 -$605,823 Debt Service - Interest (25-yr) @ 6.00% -$1,180,417 -$1,158,902 -$1,136,096 -$1,111,921 -$1,086,297 -$933,180 Reversion $32,501,852
Less Remaining Principal -$14,947,176
Net Proceeds to Developer Equity ($8,431,550) $107,242 $135,937 $168,388 $204,469 $244,071 $18,047,039 Leveraged IRR 9.79%
Source: CoStar; EPS.
[1] After Year 0 for rent stabilization examples, operations and maintenance expenses increase at the rate of CPI.

Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Salinas_Cash_Flow_06_19-24 B-6
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Appendix Table B-7
City of Salinas
Rent Stabilization Analysis
Hypothetical Rent Stabilized Gross Rent Roll Estimate - 60% of CPI Item
Assumptions Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Assumed Units 100
Year 0 Average Rent $1,990
Year 0 Vacancy Decontrol Rent $1,990
Average Number Years in Unit 9.11
Turnover 11.0%
Market Rent Increase 3.35%
Allowed Rent Increase (% CPI) 60.00%
CPI Inflation 3.00%
Gross Units by Occupancy Date
Year 0 (or before) 100.0 89.0 79.3 70.6 62.8 55.9 49.8 44.3 39.5 35.1 31.3 Year 1 - 11.0 9.8 8.7 7.7 6.9 6.1 5.5 4.9 4.3 3.9
Year 2 - - 11.0 9.8 8.7 7.7 6.9 6.1 5.5 4.9 4.3
Year 3 - - - 11.0 9.8 8.7 7.7 6.9 6.1 5.5 4.9
Year 4 - - - - 11.0 9.8 8.7 7.7 6.9 6.1 5.5
Year 5 - - - - - 11.0 9.8 8.7 7.7 6.9 6.1
Year 6 - - - - - - 11.0 9.8 8.7 7.7 6.9
Year 7 - - - - - - - 11.0 9.8 8.7 7.7
Year 8 - - - - - - - - 11.0 9.8 8.7
Year 9 - - - - - - - - - 11.0 9.8
Year 10 - - - - - - - - - - 11.0
Total Units 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Average Rent by Occupancy Date
Year 0 (or before) $1,990 $2,026 $2,062 $2,099 $2,137 $2,176 $2,215 $2,255 $2,295 $2,337 $2,379 Year 1 - $2,057 $2,094 $2,131 $2,170 $2,209 $2,249 $2,289 $2,330 $2,372 $2,415 Year 2 - - $2,126 $2,164 $2,203 $2,243 $2,283 $2,324 $2,366 $2,408 $2,452 Year 3 - - - $2,197 $2,236 $2,277 $2,318 $2,359 $2,402 $2,445 $2,489 Year 4 - - - - $2,271 $2,311 $2,353 $2,395 $2,438 $2,482 $2,527 Year 5 - - - - - $2,347 $2,389 $2,432 $2,476 $2,520 $2,566 Year 6 - - - - - - $2,425 $2,469 $2,513 $2,559 $2,605
Year 7 - - - - - - - $2,507 $2,552 $2,598 $2,644
Year 8 - - - - - - - - $2,591 $2,637 $2,685
Year 9 - - - - - - - - - $2,677 $2,726
Year 10 - - - - - - - - - - $2,767
Gross Rent $2,388,000 $2,435,051 $2,486,771 $2,543,027 $2,603,707 $2,668,724 $2,738,005 $2,811,499 $2,889,170 $2,970,997 $3,056,973 Source: US Census; Costar; EPS.

Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Salinas_Cash_Flow_06_19-24 B-7

Salinas City CouncilAugust 20, 2024

Salinas City Council
August 20, 2024