c. Staff and Operational Costs Associated with Diversion: Costs associated with actual diversion from the Pond Three Pump Station. M1W’s costs associated with operating the diversion is $1,000 per week ($1,000 / 7 days = $142.85/day)
d. Standard Overhead Rate: 20% of Variable Treatment Rate and Staff and Operational Costs Associated with Diversion. The overhead rate is calculated for the combined daily rate of operational costs ($142.85 * 20% = $28.57).
In the event the diverted and treated water is used for CSIP or PWM, the City will not be responsible for paying the Primary & Secondary Treatment Cost but will be required to pay for the Pro-Rated Annual Fixed Costs for the operation of the Pond 3 Pump Station identified in (a) above. In the event the diverted and treated water is not needed and used for CSIP or PWM, the City will pay all costs associated with the diversion and primary and secondary treatment of the industrial wastewater to go to the ocean outfall as set forth in (a), (b), (c) and (d) above. The Parties agree that the fixed costs and interruptible rates identified above are subject to change by the M1W Board of Directors at their next scheduled meeting on August 26, 2024. The City agrees to pay the fixed cost (a) and interruptible rate (b) as approved by the M1W Board.
The City guarantees at least 60 days of diversions of the Pond 3 Water, but may, after 30 days, terminate this agreement anytime thereafter by providing M1W with thirty (30) days written notice. The notice shall be in writing and sent to Mike McCullough at [email protected]. The notice needs to indicate the effective date of the termination. Thereafter, M1W shall cease accepting diversion from Pond 3 through the Pond 3 Pump Station.
The City agrees to indemnify, defend and hold M1W harmless against any and all adverse effects of the aforesaid diversions. The City further agrees that nothing in this letter agreement affects or changes M1W’s right to divert industrial wastewater pursuant to the terms of the Agreement for Conveyance & Treatment of Industrial Wastewater dated October 27, 2015, which shall remain in full force and effect.
Please sign and return this Letter of Agreement indicating the City’s agreement to the terms and conditions set forth above.
Sincerely,
Paul A. Sciuto, PE
General Manager
BY SIGNING BELOW, THE CITY AGREES TO AND ACCEPTS THE TERMS SET FORTH IN THIS LETTER AND THE
REPRESENTATIVE OF THE CITY SIGNING THIS LETTER AGREEMENT DECLARES THAT HE HAS BEEN GIVEN AUTHORITY TO SIGN ON BEHALF OF THE CITY OF SALINAS.
Dated: ________________________________
City of Salinas
By: _____________________________________
Rene Mendez
City Manager
City of Salinas
Legislation Text
200 Lincoln Ave., Salinas,
CA 93901
www.cityofsalinas.org
File #: ID#24-469, Version: 1
Amendment No. 1 to the Agreement for Services with Kysmet Security & Patrol, Inc.
Approve a Resolution authorizing the City Manager to execute Amendment Number 1 with Kysmet Security & Patrol, Inc. for security services to increase the compensation by $36,000 for a revised not to exceed amount of $116,000 and extend the term to December 31, 2024.
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CITY OF SALINAS
COUNCIL STAFF REPORT
DATE: AUGUST 20, 2024
DEPARTMENT: LIBRARY & COMMUNITY SERVICES
FROM: KRISTAN LUNDQUIST, DIRECTOR
BY: ANA AMBRIZ, REC-PARK SUPERINTENDENT
TITLE: AMENDMENT No. 1 TO THE AGREEMENT FOR SERVICES
WITH KYSMET SECURITY & PATROL, INC.
RECOMMENDED MOTION:
Adopt a resolution authorizing the City Manager to execute Amendment Number 1 with Kysmet Security & Patrol, Inc. for security services to increase the compensation by $36,000 for a revised not to exceed amount of $116,000 and extend the term to December 31, 2024.
EXECUTIVE SUMMARY:
In April of 2023, the City initiated a 90-day pilot program for security services at Closter Park.
Following the pilot program, the City Council authorized the City Manager to enter into a Service Agreement with Kysmet Security & Patrol, Inc. in an amount not to exceed $80,000 for security services for the period of September 2023-August of 2024. Staff wishes to extend the term of the agreement to December of 2024 or until construction of the park begins and increase the compensation in an amount not to exceed $116,000 in order to continue to provide security services at Closter Park.
DISCUSSION:
Closter Park has a history of negative incidents in and around the park including, drug and alcohol use and gang activity. These types of incidents have led to the community feeling unsafe and an overall perception that the park is not safe for use by residents in the area. As a result, staff initiated a pilot program in April of 2023. In September 2023, the City Council authorized the City Manager to enter into an Agreement for Services with Kysmet Security & Patrol, Inc. in the amount of $80,000 for security services at Closter Park for the period of September 2023-August 2024.
Since adding security at the park, the guards have been able to address alcohol and drug use in the park and deter some minor vandalism and disruptive behaviors by park users.
Staff has also inquired with the Salinas Boxing Club and National Little League, organizations who utilize the park on a regular basis and the feedback received is that security has helped to deter Page | 2
negative behaviors. In addition, Staff reviewed police statistics for Part 1 and 2 Crimes and found that the number of incidents recorded during the September 2023-July 2024 period and the previous year has remained the same. While there wasn’t a change in the number of recorded police incidents, the security presence is a deterrent and provides an increased perception of safety.
Staff is seeking authorization to enter into Amendment No. 1 to the Agreement for Services with Kysmet Security & Patrol, Inc. to extend the term of the agreement and increase compensation for services at Closter Park. The extension of the agreement will ensure security services are available until construction starts for park renovations.
Consistent with Purchasing Policies and ordinance (2576) Service Agreements in the amount of more than $30,000 requires City Council Authorization.
CEQA CONSIDERATION:
Not a Project. The City of Salinas has determined that the proposed action is not a project as defined by the California Environmental Quality Act (CEQA) (CEQA Guidelines Section 15378).
STRATEGIC PLAN INITIATIVE:
Providing security at Closter Park is consistent with the City Council Goals of:
Youth and Seniors
Public Safety
DEPARTMENT COORDINATION:
The Library & Community Department has worked with the Salinas Police Department to gather Part 1 and 2 Crime data of the area.
FISCAL AND SUSTAINABILITY IMPACT:
Funds are available and appropriated in 1000.55.6233.
ATTACHMENTS:
Resolution
Amendment NO. 1
Page | 1
RESOLUTION NO. (N.C.S.)
A RESOLUTION AUTHORIZING THE CITY MANAGER TO ENTER IN TO AN
AMENDMENT TO A SERVICE AGREEMENT AMENDMENT WITH KYSMET
SECURITY & PATROL, INC.
WHEREAS, on September 26, 2023, the City entered into an Agreement with Kysmet Security & Patrol Inc. to provide security services at Closter Park for the period of September 2023-August of 2024 in an amount not to exceed $80,000; and WHEREAS, the proposed Amendment No. 1 to the Agreement extends the term of the agreement to December 31,2024 or until construction of the park begins; and WHEREAS, Amendment No. 1 increases the compensation amount by $36,000, bringing the total of the Agreement to an amount not to exceed $116,000; and NOW, THEREFORE, BE IT RESOLVED that the Salinas City Council hereby authorizes the City Manager to enter into Amendment No. 1 with Kysmet Security & Patrol, Inc. for security services.
PASSED AND APPROVED this 20th day of August, 2024, by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
APPROVED:
_______________________
Kimbley Craig, Mayor
ATTEST:
_________________________
Patricia M. Barajas, City Clerk
Version: November 2023
AGREEMENT — AMENDMENT NO. 1 TO
AGREEMENT FOR SERVICES
BETWEEN KYSMET SECURITY & PATROL INC. AND CITY OF SALINAS This Amendment No. 1 to the Agreement for Services (the “Amendment”) is entered into this 20 th day
of August 2024, by and between the City of Salinas (the “City”) and Kysmet Security & Patrol Inc., (the “Consultant”). City and Consultant may be individually referred to herein as a “Party” and collectively the City and Consultant may be referred to as the “Parties.”
RECITALS
WHEREAS, pursuant to Resolution 22799 (N.C.S), the City and Consultant first entered into an Agreement for Services for Closter Park Security Pilot Program effective September 1, 2023, in an amount not to exceed $80,000 to which Contractor agreed to provide services to the City for compensation (the “Agreement”); and
WHEREAS, the City and Contractor desire to amend the Agreement to reflect the extension of the agreement to December of 2024 and increasing the agreement compensation by $36,000 for security services at Closter Park.
NOW, THEREFORE, in mutual consideration of the terms and conditions set forth below, the Parties agree as follows:
TERMS
1. The Term of the Agreement as set forth in Section 2, is extended to December 31, 2024.
2. The total amount of compensation to be paid to the Contractor by the City for services provided pursuant to the Agreement shall not exceed one hundred sixteen thousand dollars ($116,000).
3. All other covenants, terms, and conditions set forth in the Agreement and not amended by this Amendment shall remain in full force and effect as if fully set forth herein.
IN WITNESS WHEREOF, the undersigned, as authorized representatives of the City and Contractor have entered into this Agreement as of the date first written above.
CITY OF SALINAS
___________________________________
Rene Mendez, City Manager
APPROVED AS TO FORM:
___________________________________
□ Christopher A. Callihan, City Attorney
□ Rhonda Combs, Assistant City Attorney
Version: November 2023
KYSMET SECURITY & PATROL INC.
____________________________________
Printed name: ________________________
Title: ________________________________
City of Salinas
Legislation Text
200 Lincoln Ave., Salinas,
CA 93901
www.cityofsalinas.org
File #: ID#24-470, Version: 1
Tow Service Franchise Agreements for FY 2024-25
Approve a Resolution authorizing the City Manager to enter into the Salinas Police Department’s FY 2024-25 Tow Service Franchise Agreements, setting the FY 2024-25 franchise fee, and increasing the credit for disposal of recreational vehicles from $1,300 to $1,500 per vehicle.
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CITY OF SALINAS
COUNCIL STAFF REPORT
DATE: AUGUST 20, 2024
DEPARTMENT: SALINAS POLICE DEPARTMENT
FROM: JOHN C. MURRAY, ACTING CHIEF OF POLICE
BY: BRIAN JOHNSON, POLICE COMMANDER
TITLE: TOW SERVICE FRANCHISE AGREEMENT FOR FY 2024-25
RECOMMENDED MOTION:
A motion to approve a Resolution authorizing the City Manager to enter into the Salinas Police Department’s FY 2024-25 Tow Service Franchise Agreements, setting the FY 2024-25 franchise fee, and increasing the credit for disposal of recreational vehicles from $1,300 to $1,500 per vehicle.
EXECUTIVE SUMMARY:
The City of Salinas, through the Police Department, manages a rotational tow program to provide towing services for the abatement and removal of vehicles. Tow companies provide services pursuant to a Tow Service Franchise Agreement which is approved each fiscal year. On June 25, 2024, the City Council approved a short-term extension of the FY 2023-24 Tow Service Franchise Agreement through August 23, 2024, to work with the tow companies to resolve outstanding issues. Those issues have now been resolved and the Police Department is requesting approval to enter into the FY 2024-25 Tow Service Franchise Agreements.
BACKGROUND:
The City of Salinas, through the Police Department, manages a rotational tow program to provide towing services for the abatement and removal of abandoned, wrecked, dismantled or inoperative vehicles from private or public property, and to impound and provide storage of such vehicles as ordered and designated by authorized members of the Salinas Police Department. Tow companies provide service to the Salinas Police Department pursuant to a franchise issued by the City and a Tow Service Franchise Agreement between the City and the tow companies. The City currently has six tow companies participating in the rotational tow program. Each tow company is required to pay a franchise fee to the City during the term of the franchise, in an amount set by Resolution of the City Council pursuant to Salians Municipal Code Section 20-191. The franchise fee is paid quarterly and is based on the number of tows generated and the City’s actual costs in managing the franchise tow program.
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Pursuant to the terms of the TSFA, tow companies are required to respond to Salinas Police Department calls 24 hours a day, seven days a week, within 30 minutes from 7am to 5pm. One of the issues that required resolution with the tow companies was their concern with meeting this response time following the City Council’s prohibition on the parking of tow vehicles within residential districts. Whereas before tow truck drivers could park at their homes and directly respond to calls for service, with the prohibition in place tow trucks must be parked at the tow yards which requires drivers to first go to the tow yard and then respond to the call for service. To address this concern, the Salinas Police Department has agreed to extend the required response time for drivers during the hours of 5:00 p.m. and 7:00 a.m. from 30 minutes to 45 minutes and is recommending the City Council agree to this as a part of the updated TSFA.
All tow companies towing for the Police Department are still required to tow and store recreational vehicles (RVs). They may contract with another company if they do not have the proper equipment to tow an oversized RV, but they are responsible for the storage, and if necessary, the disposal of an RV towed under this agreement. This more evenly distributes the RV towing among all rotation tow companies. Another concern raised by the tow companies is the current cost for disposal of RVs. Currently tow companies receive a credit of $1,300 per RV against their total franchise fee.
Given the increased costs incurred by the tow companies associated with disposal of RVs, the Salinas Police Department has agreed to increase the credit to $1,500 and is recommending the City Council approve this increase to the credit.
POLICE COMMUNITY ADVISORY COMMITTEE:
The Acting Chief of Police has presented this item to the Police Community Advisory Committee on May 22, 2024. The Committee did not have questions or comments related to this requested action.
CEQA CONSIDERATION:
Not a Project. The City of Salinas has determined that the proposed action is not a project as defined by the California Environmental Quality Act (CEQA) (CEQA Guidelines Section 15378).
STRATEGIC PLAN INITIATIVE:
Approving the proposed Resolution will support the City Council’s Strategic Plan Goal of Public Safety.
DEPARTMENTAL COORDINATION:
The Salinas Police Department has worked closely with the City Attorney’s office in the development of the draft FY 2024-2025 Tow Service Franchise Agreement.
FISCAL AND SUSTAINABILITY IMPACT:
The City received an estimated $17,100 on average in revenue for FY 22-23 and FY 23-24. It is anticipated that revenue will decrease due to the franchise fee credit for the towing of recreational vehicles.
Page | 3
ATTACHMENTS:
Resolution
Tow Service Franchise Agreement FY 2024-25
RESOLUTION NO. ___________ (N.C.S.)
A RESOLUTION AUTHORIZING THE EXECUTION OF FY 2024-25 TOW SERVICE
FRANCHISE AGREEMENTS, SETTING THE NON-EXCLUSIVE
FRANCHISE FEE FOR POLICE TOWING, AND INCREASING THE CREDIT FOR
DISPOSAL OF RECREATIONAL VEHICLES
WHEREAS, the City of Salinas, through its Police Department, manages a rotational tow program to support the Police Department’s operations and enforcement of the law; and WHEREAS, tow companies provide service to the Salinas Police Department pursuant to a franchise issued by the City and a Tow Service Franchise Agreement entered into between the City and the tow companies; and
WHEREAS, each tow company is required to pay a franchise fee to the City during the term of the franchise in an amount set by Resolution of the City Council pursuant to Salinas Municipal Code section 20-191; and
WHEREAS, the franchise fee is based on the number of tows generated and the City’s actual costs in managing the franchise tow program and is paid quarterly by the franchised tow companies; and
WHEREAS, the Salinas Police Department, from time-to-time, orders the tow of an oversized vehicle including, for example, a recreational vehicle. Such vehicles require specialized equipment and services because they contain hazardous materials or substances (including, for example, human waste and refrigeration chemicals) which, if not property disposed of, can negatively affect the health, safety, and welfare of the community. Such vehicles are sometimes inoperable and incapable of being driven or otherwise moved without the assistance of a tow truck, rendering them with little to no value; and
WHEREAS, because of the condition of some oversized vehicles, and the need for them to be properly cleaned, transported, and disposed of, the franchise tow companies sometimes realize a loss of revenue as a result of assisting the Salinas Police Department with the tow and the removal of some oversized vehicles.
NOW, THEREFORE, BE IT RESOLVED the City Council authorizes the City Manager to execute the FY 2024-25 Tow Service Franchise Agreements with the franchise tow companies; and
BE IT FURTHER RESOLVED by the City Council, that to accommodate the Salinas Police Department’s need for the tow and removal of oversized recreational vehicles and the negative financial effect on the franchise tow companies as a result of being called upon to tow and dispose of an oversized recreational vehicle, in some instances the franchise fee due and payable to the City from each franchise tow company may be reduced by up to one thousand five hundred dollars ($1,500) for each oversized vehicle towed by each company as further specified in the Tow Service Franchise Agreement; and
BE IT FURTHER RESOLVED that in the event a franchise tow company’s franchise fee is fully reduced to zero as a result of having towed and removed such oversized recreational vehicles, the franchise tow company will not be required to pay a franchisee fee but will not receive a credit for additional tows completed beyond the value of the franchise fee.
PASSED AND APPROVED this 20th day of August 2024, by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
APPROVED:
_______________________________
Kimbley Craig, Mayor
ATTEST:
_________________________________
Patricia M. Barajas, City Clerk
TSFA FY 2024-25 Page 1
Salinas Police Department
TOW SERVICE FRANCHISE AGREEMENT
This Tow Service Franchise Agreement (“Agreement”) is entered into this 1st day of July 2024, by and between the City of Salinas, a California charter city and municipal corporation (“City”) and ____________________________ (“Franchisee”).
RECITALS
A. Pursuant to California Vehicle Code Section 22660 and Section 20-178 of the Salinas City Code, the City has the authority to grant a franchise to a tow service Franchisee to provide towing services for the abatement and removal of abandoned, wrecked, dismantled or inoperative vehicles (including recreational vehicles and other over-sized vehicles) or parts thereof from private or public property, and to impound and provide storage of such vehicles as ordered and designated by authorized members of the Salinas Police Department.
B. The City, for the purpose of insuring the continued protection and preservation of the public health, welfare and convenience of the citizens of Salinas, desires to award a towing franchise to Franchisee for towing services within the City.
C. Franchisee desires to provide such towing services upon the terms and conditions set forth herein.
AGREEMENT
This Tow Service Franchise Agreement (as defined in Attachment A) contains rules and regulations that a company agrees to comply with in order to receive a rotation tow listing with the Salinas Police Department. Participation in the Salinas Police Department Rotation Tow Program is voluntary and not intended to be the main source of income. A Franchisee (as defined in Attachment A), by agreeing to participate in the program is not acting as an agent for the Salinas Police Department or the City of Salinas when performing services under the Agreement.
Compliance with all of the terms and conditions of the Tow Service Franchise Agreement is mandatory for tow companies participating in the Salinas Police Department Rotation Tow Program. All participants in the Salinas Police Department Rotation Tow Program shall provide towing and storage services for public safety response calls regardless of the value or the size of the vehicle or vehicles to be towed and stored, and regardless of the nature of the public safety response call (including collision, DUI, abandoned vehicle abatement, and all other call for service by Police Department officials).
Attachments: For clarification purposes, many words and phrases used in this Agreement are defined in Attachment A. Attachment B contains a listing of tow truck (as defined in Attachment A) equipment specifications and equipment use requirements applicable to all tow franchisees.
TSFA FY 2024-25 Page 2
1. TOWING
The Salinas Chief of Police shall establish towing procedures to facilitate the distribution of calls and meet the needs of the Salinas Police Department with regards to response time (as defined in Attachment A) and availability of tow services. Within the City, Chief of Police shall determine the maximum response time, enrollment period (as defined in Attachment A), reasonable rates, and minimum number of trucks.
2. ROTATION LISTS
A. Within the City, Chief of Police may choose to maintain separate rotation tow lists for each category of towing or may choose to maintain a single rotation tow list to cover all categories of towing.
B. Regardless of the class of tow truck utilized or responding to the call, charges shall not be more than for the class of vehicle towed or serviced, except when vehicle recovery operations (as defined in Attachment A) require a larger class of tow truck.
C. A call to a Franchisee shall constitute one turn on the list after which the Franchisee shall be moved to the bottom of the list. This includes when the Franchisee fails to answer the phone, is unable to respond, is unable to perform the required service, refuses to respond to provide service, or is cancelled due to excessive response time.
If it is determined that the Franchisee is not needed and is cancelled by the Salinas Police Department, up to and including arrival at the scene, there shall be no charges and the Franchisee shall be placed back at the top of the list. 1) If the Franchisee is cancelled by the vehicle’s owner or agent prior to the Franchisee taking possession (as defined in Attachment A) of the vehicle, there shall be no charges for towing. The Franchisee shall immediately contact the Salinas Police Department and advise them of the cancellation. The Franchisee shall then be placed back at the top of the list.
2) If service, other than towing and recovery, has begun and is cancelled by the vehicle’s owner or agent, the Franchisee may charge a minimum of one-half of the regular hourly service charge, for the time expended on the call. For purposes of cancellation, service begins when physical work on the vehicle has begun, not the response. No lien shall arise for the service unless the Franchisee has presented a written statement to the vehicle’s owner or agent for the signed authorization of services to be performed.
a) The Franchisee shall not attempt to take possession of the vehicle in order to establish a lien for any non-towing services performed, or begun and subsequently cancelled, when not entitled to such lien by law. The Franchisee shall comply with Civil Code Section 3068.
TSFA FY 2024-25 Page 3
D. If two or more Franchisees are called to the same incident, distribution of the vehicles shall be at the discretion of the Salinas Police Department Incident Commander (as defined in Attachment A).
E. The Salinas Police Department Incident Commander may direct a tow Franchisee to move vehicles to help clear a roadway or for lifesaving operations. Franchisees shall provide the assistance as directed. There shall be no charge for this assistance, and the assistance provided shall not change the Franchisee’s place in the rotation.
F. A Franchisee shall have a business office and storage yard within the city limits or within a ten (10) mile radius from where any vehicle is removed.
G. Franchisees applying for a rotation listing shall have a minimum of three (3) years verifiable for-hire-towing experience, as an owner or principal, prior to the final filing date of the enrollment period in order to qualify for a Salinas Police Department rotation tow listing. This requirement may be waived by the Chief of Police where the applicant proves to the Chief of Police that it has the required experience in the industry, the financial and technical capacity to perform the work contemplated by this Agreement and has all necessary equipment. Franchisees currently on a Salinas Police Department rotation list and having less than the required three (3) years’ experience are exempt from this provision.
H. Franchisees shall not be allowed more than two (2) passes on a Police Department request for service during any calendar month, no more than three (3) passes within two consecutive calendar months, and no more than six (6) passes within six consecutive calendar months. A Franchisee who takes more than the authorized maximum number of passes during a calendar month, two consecutive calendar months, or six consecutive calendar months, will be automatically suspended from the rotation for a period of sixty (60) days. After the first thirty (30) days of suspension, the Franchisee may request a meeting with the Chief of Police to request early reinstatement which may be granted by the Chief of Police in his/her sole discretion. Notwithstanding what is otherwise provided for in this subsection, if a Franchisee passes on a Class C or a Class D tow that Franchisee will receive the next Class C or Class D call for service and will not be permitted to pass on that second call for service.
I. Franchisees must at a minimum meet the class A requirements and must meet the following qualifications to tow under each class:
1) Class A – Light Duty
a. A Light Duty Franchisee shall maintain a minimum of one tow truck, which as a manufacturer’s GVWR of at least 14,000 pounds.
Class A equipment specifications can be found in Attachment B of this Agreement.
TSFA FY 2024-25 Page 4
b. A “trailer for hire” shall not be approved for listing as a Class A tow truck.
2) Class C- Heavy Duty
a. A Heavy-Duty Franchisee shall maintain at least one three-axle tow truck with a GVWR of at least 48,000 pounds. The truck shall be equipped with air brakes and must be capable of providing and maintaining continuous air to the towed vehicle.
3) Class D- Super Heavy Duty
a. A Heavy-Duty operator shall maintain at least one three-axle tow truck with a GVWR rating of at least 52,000 pounds. The truck shall be equipped with air brakes and must be capable of providing and maintaining continuous air to the towed vehicle.
4) The qualifications for the Heavy Duty and Super Heavy-Duty Tow List do not preclude an operator from utilizing a Class-B tow truck when the GVWR is sufficient to tow the vehicle.
J. Heavy Duty and Super Heavy-Duty franchisees will respond to Heavy Duty salvage and recovery operations with the following
1) At least one (1) driver shall have five (5) verifiable years for-hire salvage and recovery experience.
a. The five (5) year for-hire salvage and recovery experience shall be determined by SPD.
2) Two (2) tow trucks which shall be one (1) Class D tow truck and one (1) Class C tow truck.
3. TOW TRUCK CLASSIFICATIONS
A. A Franchisee shall equip and maintain tow truck(s) covered under this Agreement in accordance with the provisions set forth in the California Vehicle Code, Title 13 of the California Code of Regulations, the specifications contained in this Agreement, and consistent with industry standards and practices. 1) Notwithstanding Vehicle Code Section 615, all tow trucks shall have recovery capabilities, wheel lift capabilities, and a boom meeting the specifications contained in this Agreement. For the purpose of this Agreement, “a trailer for hire that is being used to transport a vehicle” shall not qualify as a primary tow truck for rotation tow lists.
TSFA FY 2024-25 Page 5
a. For purposes of this Agreement a recovery is defined as a vehicle which is overturned, down an embankment, or is otherwise not on upright on its wheels.
2) A Franchisee who has a car carrier may be exempted from the recovery, wheel lift, and boom capability requirements. However, the car carrier must be an additional unit.
B. A violation of the Gross Vehicle Weight Rating (GVWR) and safe loading requirements of a tow truck shall be cause for immediate suspension (as defined in Attachment A) and/or other disciplinary measures. This includes exceeding the tow truck’s GVWR, front axle weight rating, rear axle weight rating, maximum tire weight ratings, or not maintaining 50% of the tow truck’s unladen weight on the front axle when lifting/carrying a load.
C. To properly and safely tow and service the wide variety of vehicles being operated on the highway, a towing procedure may require the use of auxiliary equipment specifically designed for the purpose. This auxiliary equipment should be used when appropriate. A listing of service and auxiliary equipment for each classification can be found in Attachment C of this Agreement.
D. Tow truck and car carrier classifications are based on the truck chassis GVWR, and the classification system used by the American Trucking Association (ATA) and truck manufacturers. Tow truck and car carrier classifications shall meet all applicable state and/or federal standards.
3.A. Over-Sized Vehicles.
A. For purposes of this Agreement, the term “over-sized vehicle” means any vehicle or trailer or combination of vehicles or trailers in excess of twenty feet in length or seven feet in height, exclusive of any projecting lights or devices allowed under the California Vehicle Code. The terms “vehicle” or “trailer” shall be as those terms are defined in the California Vehicle Code and include any recreational vehicle as that term is defined in the Salinas Municipal Code and also includes any boat or other watercraft.
4. TOW TRUCK DRIVERS
A. The Franchisee hereby agrees that all tow truck drivers responding to calls initiated by the Salinas Police Department are qualified and competent employees of its company. The Franchisee further agrees that all its tow truck drivers are trained and proficient in the use of tow truck and related equipment, including, but not limited to, the procedures necessary for the safe towing and recovery of the various types of vehicles serviced through Salinas Police Department rotation. Tow truck drivers shall be at least 18 years old and possess the following minimum class driver license:
TSFA FY 2024-25 Page 6
1) Class A tow truck – A valid Class C license, or a valid Class A license with valid medical certificate.
2) Class C tow truck – A valid Class A license with valid medical certificate.
3) Class D tow truck – A valid Class A license with valid medical certificate.
a. The Class A (1) license must be endorsed to allow operation of special vehicle configurations and/or special cargos (refer to Attachment B).
B. Potential tow truck drivers who want to be involved with the City of Salinas rotation tow program shall complete a Salinas Police Department Tow Driver Application and shall be fingerprinted for the purpose of conducting criminal history inquiries.
1. Any operator or tow truck driver who separates from the rotation tow program, in excess of one year, shall be fingerprinted for the purpose of conducting a criminal history check regardless of prior criminal history clearances (e.g., Tow Service Franchise Agreement or Salinas PD Evidence Tow Agreement).
2. Potential new tow truck drivers shall disclose on their applications all prior criminal convictions (felony,
misdemeanor, and infraction). The failure of an applicant to disclose any previous conviction shall be cause to deny the application. An applicant who fails to disclose a previous conviction shall be ineligible to re-apply for a period of one (1) year from the date the application is denied.
2) The Salinas PD will receive subsequent arrest/conviction notifications for all operators and tow truck drivers.
3) A Franchisee shall notify the Salinas Police Department tow officer of any arrest and/or conviction of a tow truck driver, or the operator, prior to the beginning of the next work shift.
a) Failure to make notification shall be cause for disciplinary action. 4) The Salinas Police Department tow officer shall be notified immediately by an operator upon a tow truck driver’s or manager’s separation from the rotation tow program.
TSFA FY 2024-25 Page 7
C. The Franchisee shall maintain a current list of drivers and each of their qualifications and licenses.
1) The Franchisee shall provide a current list of its drivers to the Salinas Police Department upon execution of this Agreement. The Franchisee shall notify the Salinas Police Department of any change in driver status, including but not limited to, the addition of any new driver(s), the deletion of any driver(s), changes in licensing including, but not limited to, revocation or suspension, or changes in insurance for drivers. An updated list shall be provided to the Salinas Police Department within seven calendar days of any change in driver status.
2) Franchisees, shall at a minimum, maintain the following information for each employee, which records may be inspected by Salinas Police Department during normal business hours:
a) Full name
b) Date of birth
c) California driver license number
d) Copy of valid medical certificate (if required)
e) Job title/description
f) Current home address
g) Current home phone number
h) Type(s) of truck(s) driver has been trained and instructed to operate and training received by each driver.
D. All tow truck drivers and owner/operators shall be enrolled in the Pull Notice Program.
1) Upon the addition of new drivers, a Franchisee shall be granted a maximum of 30 days to enroll drivers in the Pull Notice Program. 2) Pull Notices shall be kept on file, signed, and dated by the Franchisee. 3) The Chief of Police may require a Franchisee to provide copies of Pull Notice Reports to the Chief of Police within one business day.
E. All tow truck drivers shall retain at all times in his or her possession an Identification Card issued by the City. While engaged in towing activities pursuant to this Agreement, each person shall wear such Identification Card in plain sight on his or her person and shall upon demand of any City Police Officer or other City official or person to whom towing services are being provided exhibit said Identification Card. The Identification Card shall be issued by the City and shall at a minimum contain the name and date of birth of the tow truck driver; the name, business address, and telephone number of the towing company for which such tow truck driver is employed; and a photograph of the tow truck driver. No TSFA FY 2024-25 Page 8
Identification Card issued under the provisions of this section shall be used at any time by any person other than the one to whom it was issued.
1. No Identification Card shall be altered, removed or obliterated or any entry made upon such Identification Card nor shall such Identification Card be defaced in any way. Each Identification Card shall be personal and shall not be assignable or transferable.
F. Operators shall have all tow truck drivers involved with Salinas Police Department rotation tow operations participate in a controlled substance and alcohol testing (CSAT) program. All drivers shall be enrolled by September 1, 2014.
1) Drivers requiring a Class A, Class B, or commercial Class C license (endorsed for hazardous materials transportation) shall participate in a CSAT program as defined in the Code of Federal Regulations, Title 49, Parts 40 and 382.
2) Drivers not required to possess a Class A, Class B, or commercial Class C license shall be enrolled in a CSAT program substantially similar to the requirements as outlined in Section 1) above.
3) The operator shall ensure selection pools for commercial and noncommercial licensed drivers are maintained separately. 4) A driver possessing a non-commercial driver license who returns with a positive test result shall meet the same reinstatement requirements as a driver required to possess a commercial driver license.
G. Uniforms: Salinas Police Department rotation tow truck drivers shall wear an identifiable uniform (either shirt and pants or coveralls) displaying the company’s and driver’s names while engaged in Salinas Police Department rotation tow operations.
H. Personal appearance: Salinas Police Department rotation tow truck drivers shall represent a professional appearance. An unacceptable representation would include: unbathed, excessively dirty/torn uniform, body art, visible body piercing, etc.
I. Safety Garments: Salinas Police Department rotation tow truck drivers shall wear appropriate warning garments (e.g., vests, jackets, shirts, retroreflective clothing) during daylight and hours of darkness in accordance with Code of Title 8, Section 1598 CCR. If the tow truck driver is working on a Federal-aid highway, the operator shall comply with the guidelines contained in the Federal Code of Regulations, Title 23, Highways, Chapter 1, Federal Highway Administration, Department of Transportation, Part 634, Worker Visibility, which requires high- TSFA FY 2024-25 Page 9
visibility personal protective safety clothing to be worn that meets the Performance Class 2 or 3 requirements of the ANSI/ISEA 107-2004.
J. Tow truck drivers shall perform all towing and recovery operations in the safest, fastest and most expedient manner possible.
5. RATES
A. Fees charged for response to calls originating from the Salinas Police Department shall be reasonable and not in excess of those rates charged for similar services provided in response to requests initiated by any other public agency or private person. The reasonableness of the fees charged shall be determined in the following manner:
1) The Franchisee shall submit its retail hourly rate to the Salinas Police Department at the time of the application and/or renewal of this Agreement in Attachment C. The Chief of Police shall determine the validity and reasonableness of the submitted rates or rate changes. The rates shall be approved prior to the Franchisee answering calls for service pursuant to this tow service agreement.
a) Validity shall be based upon telephone quotes, posted rates, charges to retail customers, etc. Any submitted rate in excess of a Franchisee’s retail rate (as defined in Attachment A) shall be considered invalid and shall not be accepted. A Franchisee that submits an invalid rate shall not be allowed to resubmit a new rate and shall be disqualified from Salinas Police Department rotation tow listing until the next enrollment period.
b) Reasonableness shall be determined as compared to other rates. A Franchisee who submits a rate that is determined to be excessive shall be allowed to resubmit its rates only once.
2) In an effort to remain competitive in the open market, the Franchisee may lower retail rates at any time by notifying the Salinas Police Department When a Franchisee lowers its retail rate, that retail rate becomes the new approved Salinas Police Department rate. Franchisees may only raise rates for Salinas Police Department calls during enrollment periods or upon approval after a midterm review. Franchisees may raise rates for nonSalinas Police Department calls at anytime. Rates for Salinas Police Department calls shall remain at the lowest retail rate until the next enrollment period.
3) Any Franchisee who charges rates above its retail hourly rates or submitted rates for a Salinas Police Department call shall be in violation of this Agreement and subject to disciplinary action, including but not limited to, suspension or removal from the rotation tow program.
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B. The rate for towing shall be computed from portal to portal (as defined in Attachment A). Time expended shall be charged at a rate not to exceed the hourly rate.
1) The Franchisee may charge up to a thirty-minute minimum per call. 2) The Franchisee may charge up to a one-hour minimum per call on public safety response call (as defined in Attachment A).
3) The Franchisee shall base towing charges upon the class of vehicle being towed regardless of the class of truck used, except when vehicle recovery operations require a larger class truck.
C. Rates for a service call (out of gas, lockouts, tire changes, etc.) shall be from portal to end of service, and may be at the hourly rate with up to a thirty-minute minimum.
Charges in excess of thirty minutes may be charged in no more than one-minute increments.
D. Fees for Special Operations:
1) For special operations involving Class B and C tow trucks, the Franchisee shall submit its proposed fees for vehicle recovery operations and load salvage operations (as defined in Attachment A) to the Chief of Police at the same time and under the same conditions as other rates pursuant to Section 5.A.1 herein. Fees shall be reasonable and consistent with those for similar operations. Charges in excess of thirty minutes may be charged in no more than one-minute increments.
a. Hourly rates shall be established by the Franchisee and approved by the Chief of Police in advance for the following:
(1) Auxiliary Equipment, e.g., airbags, converter gear/dolly, additional trailers, forklifts, scoop loaders, etc.
(2) Contracted Equipment, e.g., airbags, converter gear/dolly, additional trailers, forklifts, scoop loaders, etc.
(3) Contract labor.
b. The Chief of Police shall determine the reasonableness of the fees for these types of operations, based upon the average of the proposed fees submitted and a comparison to industry standards for similar operations.
2) Franchisees shall submit a mark-up rate (percentage of the cost to the Franchisee) for retail equipment and specialized labor not otherwise listed on the application.
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3) If a Franchisee performs a service for which a required rate was not submitted to, and approved by, the Chief of Police, the Franchisee shall only be entitled to charge for the actual cost of that service. Example: contract labor rate not submitted, the Franchisee may only charge for the actual rate paid for the labor.
E. The total fees charged for after hours release shall be no more than one-half the hourly rate, and shall only be allowed if there is no person on duty at the storage facility for release and a call back is required outside normal business hours.
F. Storage Fees.
1) The Franchisee shall submit its proposed storage fees, for inside and outside storage, to the Chief of Police at the same time as all other rates are required to be submitted for approval. The Chief of Police shall determine the reasonableness of the fees for inside and outside storage, based upon the average of the proposed fees submitted by those applying for rotation. 2) The Franchisee shall display in plain view at all cashiers’ stations, a sign as described in Section 3070 of the Civil Code, disclosing all storage fees and charges in force, including the maximum storage rate.
3) Vehicles stored 24 hours or less shall be charged no more than one-day storage. Each day thereafter shall be calculated by calendar day. 4) Inside storage fees shall only be charged when inside storage is requested by SPD, the registered owner, legal owner, the insurance company or when inside storage can be reasonably justified by the Franchisee.
G. The approved schedule of rates charged by the Franchisee shall be available in the tow truck, and shall be presented upon demand to the person(s) for whom the tow services were provided, or its agent, or any Salinas Police Department officer at the scene.
H. Rate requirements represent the maximums a Franchisee may charge on a Salinas Police Department call. A Franchisee is not precluded from charging less when deemed appropriate by the Franchisee. These requirements shall not be construed as requiring a charge when a Franchisee would not normally charge for such service. No Franchisee or employee shall refer to any rate as the minimum required or set by Salinas Police Department.
I. Fees for Special Operations:
1) Fees shall be reasonable and consistent with industry standards for similar operations.
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2) Franchisee who provide Super Heavy Duty recovery services may charge a minimum two (2) hour rate.
a) Time expended in excess of the two-hour minimum shall be at the hourly rate in no more than one-minute increments.
b) If a second hour is charged, the second hour shall meet the invoicing requirements pursuant to Section 22651.07(e)(7) CVC. c) If it is determined that only one truck is required, the second truck may claim time from portal to portal and the time expended on scene until the determination was made that only one truck was needed.
J. Lien Fees
1) If a vehicle has been determined to have a value exceeding four thousand ($4,000), pursuant to Section 22670 CVC, the lien shall be satisfied pursuant to Section 3071 CC (Section 3074 CC).
2) The lienholder may charge a fee for lien sale preparations not to exceed seventy dollars ($70), for a vehicle valued at four thousand dollars ($4,000) or less and not to exceed one hundred dollars ($100) for a vehicle valued at greater than four thousand dollars ($4,000) (Section 3074 CC). a) These charges may commence when the lienholder requests the names and addresses of all persons who have an interest in the vehicle from the Department of Motor Vehicles (Section 3074 CC). b) Not more than 50 percent of the allowable fee may be charged until the lien sale notifications are mailed to all interested parties and the lienholder or registration service agent has possession of the required lien processing documents (Section 3074 CC).
c) This fee shall not be made in the case of any vehicle redeemed prior to the 72 hours from the initial storage (Section 3074 CC).
6. COLLUSION
A. A Franchisee and/or applicant shall not conspire, or attempt to conspire, or commit any other act of collusion, with any other Franchisee, applicant, City officer or City employee or any other person, for the purpose of secretly, or otherwise, establishing an unfair understanding regarding rates, or conditions or performance of the Agreement that would bring about any unfair condition which could be prejudicial or detrimental to the Salinas Police Department, the motoring public, or other Franchisee(s).
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1) Examples of “collusion” include, but are not limited to: conspiracy by any Franchisee(s) to establish artificially high or low rate(s) for services performed pursuant to the Agreement, conspiracy or attempt to circumvent the midterm review process, conspiracy or attempt to obtain preference in rotational tows or in towing of specific vehicles, or any other practice that would give unfair advantage to one Franchisee over another, conspiracy or attempt to defraud members of the public.
B. A finding by the Chief of Police that any Franchisee or applicant has been involved in collusion shall be cause for denial of an application or shall nullify the Agreement. Any Franchisee or applicant found to be involved in any act, or attempted act of collusion, shall be disqualified from participation on the rotation tow list for the current term plus three years.
7. RESPONSE TO CALLS
A. The Franchisee shall respond to Salinas Police Department calls 24 hours a day, seven days a week, within 30 minutes from 7:00 a.m. to 5:00 p.m. and within 45 minutes from 5:00 p.m. to 7:00 a.m. The Franchisee shall respond with a tow truck of the class required to tow the vehicle specified by the Salinas Police Department.
The Franchisee shall advise Salinas Police Department dispatch, at the time of notification, if they are either unable to respond or unable to meet the maximum response time. If, after accepting the call, the Franchisee is unable to respond or shall be delayed in responding, the Franchisee shall immediately notify the Salinas Police Department Communications Center. The Franchisee shall not assign initial calls to other tow Franchisees. The Chief of Police may change required response times upon 30 days notice to all Franchisees.
1) A failure(s) to respond and/or repeated failure(s) to meet the maximum response time requirements shall constitute failure to comply with the terms and conditions of this Agreement. (This includes refusal to respond to abandoned vehicle calls. Justification for failure to respond to calls shall be determined by the Chief of Police or his designee.)
a. The Chief of Police may take immediate disciplinary action for any violation of the requirement to respond within the maximum response time. b. When a Franchisee shall be temporarily unavailable to provide services due to preplanned/scheduled activity, e.g., medical leave, etc., he/she shall notify the Salinas Police Department at least 24 hours prior to the date that services shall be unavailable, noting the times and dates of the unavailability. The Franchisee shall only be allowed three passes on the rotation per month based on unavailability.
B. The Franchisee, or its employee(s) responding to a Salinas Police Department call, shall perform the towing or service required for which he/she was called. This TSFA FY 2024-25 Page 14
requirement may be waived by the Salinas Police Department Incident Commander if the requested equipment is inadequate for the service to be performed. 1) Any refusal to respond or to perform the required towing or service may subject the Franchisee to disciplinary action if deemed appropriate by the Salinas Police Department.
C. A Franchisee shall not respond to a Salinas Police Department call assigned to another Franchisee unless requested to do so by the Salinas Police Department. 1) There may be times when the Franchisee assigned the initial Salinas Police Department call may require the assistance of an additional Franchisee at the scene. The Franchisee assigned the initial call may, subject to prior agreement with the Chief of Police, and with the concurrence of the Salinas Police Department Incident Commander, request a specific Franchisee to assist him/her. The request shall be routed to the additional Franchisee through the Salinas Police Department.
2) There may be times when a Franchisee, who was not called to a scene, comes upon a collision scene where a vehicle or vehicles are blocking a roadway and a Salinas Police Department officer requests its assistance in clearing the roadway. In such a case, the Franchisee may be requested to move the vehicle to a safe location, as directed by the officer, and leave it.
There shall be no charge for this assistance, and the assistance provided shall not change the Franchisee’s place in the rotation. 3) Violations of section 22513 CVC shall result in disciplinary action.
D. Only the tow truck personnel and equipment requested shall respond to a Salinas Police Department call. (e.g., tow truck driver bringing friends, family members, significant others or pets etc., is not allowed) Additional tow truck personnel and equipment shall be at the approval of the Salinas Police Department Incident Commander. This shall not preclude the Franchisee from responding to an incident to ascertain if additional assistance or equipment is required. There shall be no charge for any personnel or equipment that is not necessary to perform the required service.
E. The Franchisee will participate in the vehicle abatement program. This includes the abatement of recreational vehicles and over-sized vehicles.
F. An operator or tow truck driver shall respond with a properly equipped tow truck of the class required to tow the vehicle, perform vehicle recovery (e.g., rollover, vehicle down embankment etc.) provide service (e.g., fuel, flat tire change, etc.) and be in possession of the appropriate class of driver license, applicable endorsements, and permits.
TSFA FY 2024-25 Page 15
G. All operators shall respond to requests for the tow of recreational vehicles. If, after the operator responds to the tow location, the recreational vehicle to be towed is found to be to large for the operator’s equipment, the operator is responsible for contracting another company with the appropriate equipment to perform the tow. 1) A Heavy Duty or Super Heavy-Duty tow operator towing for another operator under this agreement must meet the
requirements of TFSA and must be approved by the Chief of Police.
2) The operator who receives the rotation request is responsible for the storage of the recreational vehicle towed under this agreement and the vehicle will be stored at the operator’s facility.
3) If a vehicle to be towed has a sewage tank that shows no signs of leakage, the vehicle will be towed to the franchisee’s storage facility. SPD will arrange for the tank to be emptied, at the city’s expense, at the franchisee’s storage facility.
4) If a vehicle shows signs of leaking sewage, the tank will be emptied, at the city’s expense, prior to being towed.
H. The failure of a franchisee to respond to a request for a tow of a recreational vehicle will constitute a pass pursuant to Section 2 of this Agreement.
I. A Franchisee who shows proof a tow and disposal of a recreational vehicle will receive a credit of $1,500 toward their annual franchisee, in accordance with a Resolution approved by the City Council.
8. STORAGE FACILITY
A. The Franchisee shall maintain its own storage facility and shall be responsible for the security of vehicles and property at the place of storage. As a minimum, a fenced or enclosed area shall be provided. The Franchisee is responsible for the reasonable care, custody, and control of any property contained in towed or stored vehicles.
B. The Franchisee shall obtain approval from the Salinas Police Department prior to the removal of any property from a stored or impounded vehicle and shall provide the Salinas Police Department a receipt identifying the property, with a copy placed in the stored vehicle. The requirement to obtain approval from the Salinas Police Department prior to the removal of property may be excused by the Chief of Police if it is determined that proper safeguards and procedures are utilized by the Franchisee.
TSFA FY 2024-25 Page 16
1. This requirement shall not be waived in cases where a vehicle has been impounded for evidence or investigation.
2. Upon approval from the Salinas Police Department, the Franchisee shall release personal property from an impounded vehicle at the request of the vehicle owner or its agent.
a) There shall be no charge for property released during normal business hours. The fees charged for property released after hours shall be consistent with the after-hours vehicle release provisions.
Personal property shall not be released without specific approval of the Salinas Police Department.
b) Cargo shall be released upon demand of the carrier or pursuant to a court order.
C. The primary storage facility shall normally be at the same location as the business address. If not at the same location, there shall be no charge for any additional distance traveled to and from a secondary location. The vehicle and/or personal property shall be released at the primary storage facility or place of business (when the primary storage facility and place of business are not at the same location) upon request of the owner or a person having a legal entitlement to the vehicle and/or property.
1) Prior to the utilization of new storage facilities that were not listed on the application for rotation tow listing, the Franchisee shall obtain the Chief of Police’s approval of the new facility and furnish the address to the Chief of Police.
2) Secondary storage facilities shall be located reasonably close to the main business office.
D. The tow Franchisee shall maintain sufficient storage spaces to meet the obligations of this Agreement.
E. The Franchisee’s place of business shall have a sign that clearly identifies it to the public as a towing service. The sign shall have letters that are clearly visible to the public from the street. The sign shall be visible at night. 1) Business hours shall be posted in plain view to the public. Employees shall be properly trained to conduct business transactions related to towing, storage and release of vehicles/property.
2) Vehicles stored by the Salinas Police Department shall not be released without Salinas Police Department approval if a vehicle storage form was issued at the time the vehicle was stored.
TSFA FY 2024-25 Page 17
F. A storage yard shared by operators or any other business establishment(s) must be physically separated and secured from the other storage yard and from the other business establishment(s).
G. Prior to the utilization of a new storage yard, the operator shall obtain the approval of the Salinas Police Department.
9. INSURANCE
A. The Franchisee shall; throughout the duration of this Agreement, maintain the following minimum forms and limits of insurance covering all operations of the Franchisee, its agents and employees, performed in connection with this agreement:
1) Commercial Business Automobile Liability (as required by Section 16500.5 of the California Vehicle Code) – Bodily injury and property damage with a combined single limit of not less than one million dollars ($1,000,000.00).
These minimum standards are to include non-owned and hired auto coverage.
2) Uninsured Motorist - One million dollars ($1,000,000.00), combined single limit.
3) On-Hook Coverage - Insuring the vehicle in tow for one million dollars ($1,000,000.00).
4) Garage Liability - Includes premises and operations. Coverage for bodily injury and property damage with a combined single limit of not less than one million dollars ($1,000,000.00).
5) Garage Keepers Liability - Shall be the same minimum as on-hook coverage for vehicles in the care, custody, and control of the Franchisee in the storage yard.
6) Workers’ Compensation Insurance - Legal minimum requirement.
B. All insurance companies affording coverage to the Franchisee, with the exception of worker’s compensation, shall be required to add the City of Salinas, its officers, employees, agents, and volunteers as additional “insured’s” by endorsement under the insurance policy. Each insurer shall stipulate that its insurance policy shall operate as primary insured for the work performed under this agreement and that no other insurance affected by the City or other named insured shall be called upon to contribute to a loss covered thereunder. The policy shall contain no special limitations on the scope of protection afforded to the City, its officers, employees, agents, or volunteers.
TSFA FY 2024-25 Page 18
C. All insurance companies affording coverage to the Franchisee shall be insurance organizations authorized by the Insurance Commissioner to transact the business of insurance in the State of California.
D. All insurance companies affording coverage shall provide thirty (30) days written notice by certified mail to the City of Salinas should the policy be canceled or reduced in coverage before the expiration date. For the purposes of this notice requirement, any material change prior to expiration shall be considered cancellation.
E. Franchisee shall provide evidence of compliance with the insurance requirements listed above by providing a certificate of insurance, in a form satisfactory to the City Attorney concurrently with the submittal of this Agreement. A statement on the insurance certificate which states that the insurance company “will endeavor” to notify the certificate holder, “but failure to mail such notice shall impose no obligation or liability of any kind upon the company, its agents, or representatives” does not satisfy the requirements of subsection D herein. The Franchisee shall ensure that the above-quoted language is stricken from the certificate by the authorized representative of the insurance company. The insurance certificate shall also state the unpaid limits of the policy.
F. Franchisee shall provide substitute certificate of insurance no later than ten (10) days prior to the policy expiration date. Failure by the Franchisee to provide such a substitution and extend the policy expiration date shall be considered a default by Franchisee.
G. All policies, except workers’ compensation, shall cover on an occurrence or an accident basis, and not on a claims-made basis.
H. Maintenance of insurance by the Franchisee as specified in the agreement shall in no way be interpreted as relieving the Franchisee of any responsibility whatever and the Franchisee may carry, at its own expense, such additional insurance as it deems necessary.
10. INSPECTIONS
A. The Salinas Police Department shall refer Franchisees to a facility for annual inspection of all tow trucks at the expense of the Franchisee. The Salinas Police Department may conduct additional inspections without notice during normal business hours. The Franchisee shall not dispatch a tow truck for Salinas Police Department rotation that has not been inspected and approved by the California Highway Patrol and has a valid inspection sticker issued by the California Highway Patrol.
1. A copy of the California Highway Patrol truck inspection form must be provided to the Salinas Police Department during the annual facility inspections.
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11. BUSINESS RECORDS
A. The Franchisee shall maintain all records of tow services furnished at its place of business.
1) Invoices shall at a minimum include a description of vehicle(s), nature of service, start time, end time, location of call, and itemized costs of towing and storage.
2) Records for each call shall indicate the tow truck driver’s name and truck used.
B. The Franchisee shall also maintain business records relating to personnel, insurance, personnel taxes, payroll, applicable operating authorities, local operating authorities, lien sale actions, FCC licensing, and non-Salinas Police Department tows.
C. The Salinas Police Department may inspect all Franchisee records without notice during normal business hours.
D. Franchisees shall permit the Salinas Police Department to make copies of business records at their place of business, or to remove business records for the purpose of reproduction.
1) The Salinas Police Department shall provide a receipt for any original records removed from the place of business.
E. The Franchisee shall maintain business records for a period of two (2) years, plus the current term of this agreement, and shall make them available for inspection.
F. Failure of the Franchisee to comply with the inspection requirements shall be cause for disciplinary action if deemed appropriate by the Salinas Police Department.
12. FINANCIAL INTEREST
A. No Franchisee or applicant shall be directly involved in the towing-related business of any other Franchisee or applicant on the Salinas Police Department rotation tow list. “Directly involved” shall mean anything in common between Franchisees or applicants with regards to any of the following:
1) Business licenses;
2) Insurance;
3) Tow truck or equipment use, rental, or ownership;
4) Employees;
5) Premises; or
TSFA FY 2024-25 Page 20
6) Performance of this Agreement.
B. Storage facilities owned by a Franchisee, and shared by with another Franchisee, shall only be approved if:
1) The owner/Franchisee charges for the space exclusively on a flat monthly rate rather than a vehicle-by-vehicle basis, or combination thereof; and 2) Storage facilities shared by Franchisees shall be physically separated and secured from each other.
C. Storage facilities leased or rented by a Franchisee shall only be approved under the following conditions:
1) The rental fee for the facility is paid as a flat monthly rate, rather than a per vehicle rate or combination thereof
2) The Franchisee must be solely responsible for maintaining and operating the storage facility. This responsibility shall not be delegated to any third party by the Franchisee.
D. No Franchisee or applicant shall refer calls for service to another Franchisee or applicant in contravention of the rotational tow list.
E. The sale or transfer of controlling interest in a company shall immediately terminate an Agreement. The new owner(s) may apply for a rotation tow listing at any time during the remainder of the current Agreement term, regardless of the City’s enrollment period.
F. Any violation of this section may be cause for disciplinary action by the Salinas Police Department.
13. ANNUAL MEETINGS
A. The Chief of Police or his/her designee may conduct meetings to discuss issues concerning the tow rotation. All meetings shall be mandatory for the Franchisee or its designee wishing to remain on rotation. The Salinas Police Department shall give the Franchisee 15 days written notice (as defined in Attachment A) of these meetings. Attendance may be excused by the Chief of Police for good cause.
14. DEMEANOR AND CONDUCT
A. While involved in the Salinas Police Department rotation tow Franchisee or related business, the Franchisee and/or its employee(s) shall refrain from any act(s) of misconduct, to include, but not limited to, any of the following:
TSFA FY 2024-25 Page 21
1) Rude or discourteous behavior;
2) Lack of service, selective service, or refusal to provide service that the Franchisee is/should be capable of performing;
3) Any act of harassment or discrimination;
4) Unsafe driving practices;
5) Exhibiting any objective symptoms of alcohol and/or drug use; 6) Appearing at the scene of a Salinas Police Department rotation tow call with the odor of an alcoholic beverage emitting from his/her breath. a. The Franchisee/tow truck driver shall submit to a preliminary alcohol-screening test upon demand of the Salinas Police Department.
B. All Salinas Police Department related tow service complaints received by the Salinas Police Department against the Franchisee or its employee(s) shall be accepted and investigated in a fair and impartial manner. The Franchisee shall fully cooperate with any such investigation. Failure of the operation to cooperate may subject the Franchisee to disciplinary action including termination. As a result of the investigation, the Salinas Police Department may initiate action as deemed appropriate. The Franchisee shall be notified of the results of the investigation.
C. Should the filing of criminal charges be a possibility, the Salinas Police Department shall conduct the investigation to conclusion or assist the lead investigation agency and, if warranted, request prosecution.
D. Any violation of this section may be cause for disciplinary action.
15. COMPLIANCE WITH LAW
A. The Franchisee and its employees shall, at all times, comply with federal, state, and local laws and ordinances, which include, but are not limited to, those laws which are applicable to the Franchisee (refer to Attachment B for selected Vehicle Code and Civil Code Sections). The Franchisee shall also comply with all Federal Department of Transportation drug and alcohol testing requirements for employees and commercial drivers. Records of compliance with such testing requirements shall be available for inspection during normal business hours. Failure to comply with such federal, state and local laws may subject the Franchisee to disciplinary action.
1) In the event of a minor traffic violation(s) by the tow truck driver(s) which is/are known by the Salinas Police Department, the Franchisee may be advised of the violation(s) by the Salinas Police Department. The Franchisee shall be granted the opportunity to take necessary steps to ensure that its driver(s) drive(s) in compliance with the law unless the conduct is deemed injurious to the public health or safety. Any subsequent traffic violation(s) may be cause for disciplinary action against the Franchisee.
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2) Any traffic violation(s) may be cause for immediate disciplinary action against the Franchisee.
B. The provisions contained in Section 16, Compliance with Law, do not preclude the Salinas Police Department from taking appropriate enforcement or administrative action for any violations of the law.
C. Any conviction of the Franchisee involving a stolen or embezzled vehicle, fraud related to the towing business, stolen or embezzled property, a crime of violence, a drug related offense, a sexual offense, felony driving while under the influence of alcohol and/or a drug, misdemeanor driving while under the influence of alcohol and/or a drug while involved in a Salinas Police Department rotation tow call, or moral turpitude should be cause for denial of application or termination of the Agreement.
D. Any conviction of an employee involving a stolen or embezzled vehicle, fraud related to the towing business, stolen or embezzled property, a crime of violence, a drug related offense, a sexual offense, felony driving while under the influence of alcohol and/or a drug, misdemeanor driving while under the influence or alcohol and/or a drug while involved in a rotation tow call, or moral turpitude should be cause for the termination of the Franchisee from the list of current Salinas Police Department rotation Franchisees and termination of this Agreement.
E. Any arrest or charge for a violation by a Franchisee or employee involving any of the above crimes may be cause for suspension of the Franchisee until the case is adjudicated.
F. Salinas Police Department personnel, as well as tow operators and their employees, shall not be offered nor accept gratuities pursuant to Section 12110(a) CVC.
G. No tow operator or their employees shall accept any gratuities from a repair shop for the delivery of a vehicle, not owned by the repair shop or tow company, for the purpose of storage or repair pursuant to Section 12110(c) CVC.
H. An operator shall satisfy a court order mandating reimbursement to the vehicle or property owner for the damage or loss which occurred while the vehicle was in the operator’s custody.
I. An operator or employee arrested/charged for a violation involving any of the crimes shall be suspended from the Salinas Police Department rotation until the case is fully adjudicated.
16. COMPLIANCE WITH AGREEMENT
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A. The Franchisee agrees, as a condition of inclusion on the rotation tow list, to comply with all of the terms and conditions of this Tow Service Franchise Agreement, all of which are considered material terms and conditions. Furthermore, the Franchisee agrees that failure by the Franchisee or its employees or agents to comply with these terms and conditions shall be cause for written reprimand (as defined in Attachment A), suspension, or termination from the Salinas Police Department rotation tow list(s) and termination of this Agreement. Alleged violations of this Agreement shall be investigated by the Salinas Police Department tow officer. The Franchisee shall be notified of the Salinas Police Department’s findings within 30 days of the conclusion of the investigation.
17. DISCIPLINARY ACTION
A. The Chief of Police may take disciplinary action against Franchisees for violations investigated and confirmed or sustained.
1) The Chief of Police shall retain discretion regarding the length of any suspension imposed pursuant to the terms and conditions of this Agreement and pursuant to Ordinance.
B. Records of violations shall be retained by the Salinas Police Department for at least 36 months.
C. A violation of the equipment requirements related to safety shall be cause for immediate disciplinary action. All suspensions are at the discretion of the Chief of Police and shall remain in effect until the period of suspension is completed and the Franchisee has presented proof of correction of the safety violation.
D. A violation of the GVWR and safety loading requirements of a tow truck shall be cause for immediate suspension. This includes exceeding the tow truck’s GVWR, front axle weight rating, rear axle weight rating, maximum tire weight ratings, or not maintaining 50% of the tow truck’s unladen weight on the front axle when lifting/carrying a load.
E. A violation of overcharging shall be cause for suspension and/or other disciplinary action. The period of the suspension shall be determined by the Chief of Police.
The suspension shall remain in effect until the period of suspension is completed and the Franchisee has presented proof to the Salinas Police Department that reimbursement has been made to the aggrieved customer(s).
F. A violation of the Biennial Inspection of Terminals (BIT) Program requirements shall be cause for suspension. The period of suspension shall be determined by the Chief of Police. The suspension shall remain in effect until the period of suspension is completed and the Franchisee has presented proof of compliance with the BIT requirements. Any unsatisfactory rating shall be cause for suspension.
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G. Failure of the Franchisee to satisfy a court order mandating reimbursement to the vehicle or property owner for the damage or loss which occurred while the vehicle was in its custody shall result in a suspension. The period of the suspension shall be determined by the Chief of Police. The suspension shall remain in effect until the period of suspension is completed and the Franchisee has presented proof of the reimbursement.
H. Failure of the Franchisee to comply with the inspection requirements of this Agreement shall result in a suspension. The period of the suspension shall be determined by the Chief of Police. The suspension shall remain in effect until the period of suspension is completed and the Franchisee has complied with the inspection requirement.
I. Failure of the Franchisee to maintain the minimum insurance requirements set forth in the Agreement shall be cause for immediate suspension of the Franchisee and action to terminate the Agreement for violation of a material term of the Agreement. 1) The Franchisee shall also be subject to an additional suspension for failure to notify the Salinas Police Department in advance of the insurance policy expiration or cancellation.
J. Failure of the Franchisee or employee to comply with Section 14, Demeanor and Conduct, and/or Section 15, Compliance with Law, may be cause for suspension and/or other disciplinary action if deemed appropriate by the Chief of Police. 1) Minor traffic violations may be considered violations of the Agreement. 2) A tow truck driver, not under the immediate supervision of the Franchisee, while on-duty and driving a tow truck, who is arrested and subsequently convicted for misdemeanor driving under the influence of alcohol and/or controlled substances, shall be subject to suspension from participating as a tow truck driver under the provisions of this Agreement. The length of suspension shall be at the Chief of Police’s discretion.
K. A terminated or suspended Franchisee and the tow business he/she owned at the time of its suspension or termination (as defined in Attachment A) shall not be eligible for a rotation listing for the duration of the suspension or termination. This provision applies to the Franchisee working in any capacity within any tow business or operating any tow business, and to the tow business, even if operated under new ownership.
L. If the Franchisee is serving a suspension, or has been removed from consideration as a rotational tow Franchisee for any period of time, he/she shall be required to execute and comply with all terms and conditions of the Agreement in effect at the time of the reinstatement. There shall be no approval of equipment that is not in compliance with the equipment specifications contained in the Agreement in effect TSFA FY 2024-25 Page 25
at the time of reinstatement. Sections of this Agreement which are commonly referred to as “grandfather clauses” shall not apply to such a Franchisee who is suspended or who has been removed from consideration for any period of time.
M. Nothing herein shall be deemed to prohibit the Salinas Police Department from immediately suspending any Franchisee whose conduct, or that of its employee(s), in the discretion of the Chief of Police, is deemed to be a danger to the health or safety of others or who has engaged in conduct constituting a violation of this Agreement.
18. MIDTERM REVIEW OF THE TERMS AND CONDITIONS OF THE AGREEMENT A. The purpose of this section is to provide a process for a midterm review of the terms and conditions of the Agreement in the event that there is a legitimate and substantial change in conditions or law affecting the majority of the Franchisees within the City, or the Salinas Police Department. Examples of conditions may include, but are not limited to:
1) Substantial increase or decrease in business expenses. 2) Advances in technology in the industry related to safety issues. 3) Changes in law requiring the Salinas Police Department or the Franchisees to perform specific functions or operations in order to comply. 4) Proposed changes to the terms and conditions of the Agreement pursuant to Subsection B below.
B. A midterm review of the terms and conditions of the Agreement on a particular subject matter may only be granted by the Chief of Police. 1) A request for a midterm review of the terms and conditions of the Agreement shall be communicated to the Chief of Police in writing, from a representative(s) of the towing industry, not merely at the request of a single Franchisee. The Chief of Police may also request a midterm review if he/she feels it is in the best interests of the motoring public, the tow industry, and/or the Department.
2) Conditions indicating a need for midterm review must be substantial and must affect the entire towing industry or the Salinas Police Department. For purpose of this Agreement, the midterm review process is not intended to provide relief for a small number of Franchisees who wish to increase their rates, or change any other term or condition of the Agreement, to compensate for financial problems brought about as a result of business decisions or conditions which affect a small percentage of the industry. 3) A request for review shall not be processed if there are 60 days or less remaining in the term of the Agreement.
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B. A midterm review, when granted by the Chief of Police or his/her designee, shall not automatically authorize a change in the terms and conditions of this Agreement.
If a midterm review is announced by the Chief of Police, or his/her designee, it is the responsibility of the Chief of Police to conduct a review of the conditions which initially caused the request to be communicated and to determine if the change is justified.
1) The Chief of Police, after completing the review of all pertinent issues, may authorize the Franchisees to submit their proposed changes or he/she may notify the Franchisees of changes to be implemented and direct them to comply with those changes. If, after evaluating all pertinent information, the Chief of Police authorizes or directs a change in the terms and conditions of the Agreement, or if he/she decides that a change is not justified, he/she shall notify the towing industry representative within 14 calendar days. a) Franchisees shall resubmit their proposed changes in writing to the Chief of Police within seven calendar days of the date that the Chief of Police announces his/her decision. Failure to resubmit a written proposal within the specified time may result in the Franchisee forfeiting its ability to propose more equitable conditions or rates, or may be cause for disciplinary action or termination of the Agreement.
(1) If the proposed change affects tow rates only, Franchisees shall resubmit their proposed rates on a new application.
The new application shall contain only the information
pertinent to the rate proposals. When received by the Salinas Police Department, the new application shall be attached to the original application for the current term.
(2) The Chief of Police shall determine the reasonableness of the rate, based upon the average of the proposed rates submitted.
An additional page with the new rate(s) shall be signed and attached to the original.
19. ADVERTISING
A. The Franchisee shall not display any sign or engage in any advertisement indicating an official or unofficial connection with the Salinas Police Department. 1) Examples include, “Official Salinas Police Department Tow,” “Approved by Salinas Police Department,” “Salinas Police Department Rotation Tow,” etc.
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2) This shall not preclude the Chief of Police from implementing a system to mark and identify particular tow trucks as having passed the Salinas Police Department inspection.
B. Any violation of this section is cause for disciplinary action.
20. CANCELLATION
This Agreement may be cancelled by either party without prejudice and without cause by giving 20 days advance written notice to the other party.
21. FRANCHISE FEES.
A. Franchisee shall pay to City a franchise fee in an amount as set forth by resolution of the City Council.
B. Franchise fees shall be due and payable in full no later than the tenth (10th) day of each quarter. The franchisee shall pay the required franchise fee to the City's director of finance.
C. Any franchise fees which remain unpaid after the date specified in subsection (B) above shall be delinquent and shall result in an immediate penalty equal to 10% of the unpaid amount. The unpaid amount shall thereafter accrue interest at 10% per annum until paid.
D. In the event of the suspension or termination of a franchise, the franchisee shall forfeit any fees paid to the City. Franchisee waives any and all claims or rights to collect back from the City any amounts collected by the City pursuant to this program.
E. The payment to the City by the franchisee pursuant to this article shall be in addition to any license fee or business tax prescribed by the City for the same period.
F. By accepting this franchise, Franchisee irrevocably waives the defenses of any statute of limitation, laches, waiver or other equitable doctrine of similar import or effect in any action brought by the City to recover any franchise fee, interest or penalties due under this Agreement.
G. By accepting this franchise, Franchisee agrees that if it challenges the right of the City to collect the franchise fee provided by this Agreement, any relief requested by Franchisee and awarded to it by virtue of such challenge shall be prospective only from and after the date of the filing of the initial pleading seeking such relief in a court of competent jurisdiction. Franchisee hereby waives any and all claims or rights to collect back from the City, or obtain credit against future payment obligations, any amounts collected by the City prior to the filing of the initial pleading seeking such relief. In the event Franchisee's challenge to any franchise fee payments should result in an initial judgment in its favor, Franchisee shall continue to make all franchise fee payments in accordance with this Agreement pending an appeal by the City. If the court of appeal, or trial court if City elects not to appeal, determines that the City is not entitled to collect any or all of the franchise TSFA FY 2024-25 Page 28
fees, the City shall refund to Franchisee those portions of the franchise fee which the court deems the City was not entitled to collect which were made subsequent to the filing of the initial action by Franchisee, exclusive of interest on such amount.
H. The City shall retain the right to impose alternative forms of fees in the event that the franchise fees provided for in this Agreement do not adequately recover the actual and reasonable costs of the police department’s towing program and/or are no longer assessable due to a subsequent change in federal, state or local law.
22. JURISDICTION.
This Agreement shall be administered and interpreted under the laws of the State of California.
Jurisdiction of litigation arising from this Agreement shall be in the State of California, in the County of Monterey or in the appropriate federal court with jurisdiction over the matter.
23. SEVERABILITY.
If any part of this Agreement is found to be in conflict with applicable laws, such part shall be inoperative, null and void insofar as it is in conflict with said laws, but the remainder of the Agreement shall continue to be in full force and effect.
24. NOTICES.
(A) Written notices to the City hereunder shall, until further notice by City, be addressed to:
Salinas Police Department
312 E. Alisal St
Salinas, California 93901
With a copy to:
City Attorney
City of Salinas
200 Lincoln Avenue
Salinas, California 93901
(B) Written notices to the Contract shall, until further notice by the Contractor, be addressed to:
[Insert Notice Contact Information]
(C) The execution of any such notices by the City Manager of the City shall be effective as to Contractor as if it were by resolution or order of the City Council, and Contractor shall not question the authority of the City Manager to execute any such notice.
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(D) All such notices shall either be delivered personally to the other party’s designee named above, or shall be deposited in the United States Mail, properly addressed as aforesaid, postage fully prepaid, and shall be effective the day following such deposit in the mail.
25. NONDISCRIMINATION.
During the performance of this Agreement, Contractor shall not discriminate against any employee or applicant for employment because of race, color, religion, ancestry, creed, sex, national origin, familial status, sexual orientation, age (over 40 years) or disability. Contractor shall take affirmative action to ensure that applicants are employed, and that employees are treated during employment without regard to their race, color, religion, ancestry, creed, sex, national origin, familial status, sexual orientation, age (over 40 years) or disability.
26. CONFLICT OF INTEREST.
Contractor warrants and declares that it presently has no interest, and shall not acquire any interest, direct or indirect, financial or otherwise, in any manner or degree which will render the services required under the provisions of this Agreement a violation of any applicable local, state or federal law. Contractor further declares that, in the performance of this Agreement, no subcontractor or person having such an interest shall be employed. In the event that any conflict of interest should nevertheless hereinafter arise, Contractor shall promptly notify City of the existence of such conflict of interest so that City may determine whether to terminate this Agreement. Contractor further warrants its compliance with the Political Reform Act (Government Code section 81000 et seq.) and Salinas City Code Chapter 2A that apply to Contractor as the result of Contractor’s performance of the work or services pursuant to the terms of this Agreement.
25. HEADINGS.
The section headings appearing herein shall not be deemed to govern, limit, modify, or in any manner affect the scope, meaning or intent of the provisions of this Agreement.
26. ATTORNEY’S FEES.
In case suit shall be brought to interpret or to enforce this Agreement, or because of the breach of any other covenant or provision herein contained, the prevailing party in such action shall be entitled to recover their reasonable attorneys’ fees in addition to such costs as may be allowed by the Court. City’s attorneys’ fees, if awarded, shall be calculated at the market rate.
27. RIGHTS AND OBLIGATIONS UNDER AGREEMENT.
By entering into this Agreement, the parties do not intend to create any obligations express or implied other than those set out herein; further, this Agreement shall not create any rights in any party not a signatory hereto.
28. LICENSES.
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If a license of any kind, which term is intended to include evidence of registration, is required of Contractor, its representatives, agents or subcontractors by federal, state or local law, Contractor warrants that such license has been obtained, is valid and in good standing, and that any applicable bond posted in accordance with applicable laws and regulations.
30. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute a single agreement.
31. LEGAL REPRESENTATION.
Each party affirms that it has been represented by legal counsel of its own choosing regarding the preparation and the negotiation of this Agreement and the matters and claims set forth herein, and that each of them has read this Agreement and is fully aware of its contents and its legal effect.
Neither party is relying on any statement of the other party outside the terms set forth in this Agreement as an inducement to enter into this Agreement.
32. JOINT REPRESENTATION.
The language of all parts of this Agreement shall in all cases be construed as a whole, according to its fair meaning, and not strictly for or against any party. No presumptions or rules of interpretation based upon the identity of the party preparing or drafting the Agreement, or any part thereof, shall be applicable or invoked.
33. WARRANTY OF AUTHORITY.
Each party represents and warrants that it has the right, power, and authority to enter into this Agreement. Each party further represents and warrants that it has given any and all notices, and obtained any and all consents, powers, and authorities, necessary to permit it, and the persons entering into this Agreement for it, to enter into this Agreement.
34. WAIVER OF RIGHTS.
Waiver of a breach or default under this Agreement shall not constitute a continuing waiver or a waiver of a subsequent breach of the same or any other provision of this Agreement. The failure to provide notice of any breach of this Agreement or failure to comply with any of the terms of TSFA FY 2024-25 Page 31
this Agreement shall not constitute a waiver thereof. Failure on the part of either party to enforce any provision of this Agreement shall not be construed as a waiver of the right to compel enforcement of such provision or any other provision. A waiver by the City of any one or more of the conditions of performance under this Agreement shall not be construed as waiver(s) of any other condition of performance under this Agreement.
CITY OF SALINAS
_____________________________ ______________________________ René Mendez, City Manager Date
APPROVED AS TO FORM:
______________________________
Christopher A. Callihan, City Attorney Date
FRANCHISEE
Company Name
______________________________ ______________________________ Authorized Representative Date
_____________________________
Authorized Representative Name (print)
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ATTACHMENT A
DEFINITIONS
CHIEF OF POLICE
The Chief of Police of the City of Salinas and/or his/her designee.
BASE SERVICES
Flat tires, out of gas, lockouts, and other similar roadside services.
ENROLLMENT PERIOD
The enrollment period for purposes of this Agreement shall be the period during which a Request for Proposals has been released by the City with respect to services to be provided hereunder or the date, established by the City, on which this Agreement is signed each year by tow service providers.
INCIDENT COMMANDER
The Salinas Police Department member present at the incident that has scene management responsibilities.
LOAD SALVAGE OPERATIONS
Any operation involving the recovery of a load which has been spilled, or the off-loading and reloading of a load from an overturned vehicle performed in order to upright the vehicle.
NORMAL BUSINESS HOURS
For the purpose of this agreement, “normal business hours” shall not be less than 8 a.m. to 5 p.m., Monday through Friday, except for the following holidays: New Years Day, Martin Luther King Day, Lincoln’s Birthday, President’s Day, Memorial Day, Independence Day, Labor Day,.
Columbus Day, Veterans Day, Thanksgiving Day, Day after Thanksgiving Day, Christmas Eve, and Christmas Day as recognized by the State of California and the City of Salinas.
NOTICE
All notices relating to this Agreement shall be in writing and delivered to the other party in person, via FAX, email or by US mail.
FRANCHISEE
A tow service operator that has been issued a Letter of Authorization, has signed the Tow Service Franchise Agreement, and is approved to receive Salinas Police Department referred calls. The term “Franchisee” refers to the company, its owner(s), and its manager(s) who have authority to TSFA FY 2024-25 Page 33
enter into an Agreement with the Salinas Police Department for towing services and to conduct business in accordance with the terms of this Agreement, and its employees.
PARTY OF INTEREST
Refers to the registered owner of the vehicle, or his/her agent. An agent is a party who may lawfully act on behalf of the registered or legal owner of the vehicle.
PERSONAL PROPERTY
Any item(s) that are not affixed to a vehicle, including but not limited to: papers, transportable cellular telephones, pull-out radios, portable radios, portable stereo equipment, clothes, luggage, tools, etc.
PORTAL TO PORTAL
Service shall start at the time of departure from the place of business or point of dispatch, whichever is closer to the location of the call, and shall end at the estimated time of return to the place of business or the completion of the call, if another call is pending, whichever is shorter.
Return to place of business includes a reasonable and verifiable amount of time required to place the tow truck back into service when unusual circumstances require additional time that are not part of normal operating procedures. (Examples: 1) 4x4 recovery in the mud: reasonable to charge for cleaning mud from truck and equipment, 2) burned car on car carrier: reasonable to charge for cleaning burn debris from carrier bed; 3) car towed from side of road on misty night and leaves mud track on bed of carrier: not reasonable to charge for cleaning of carrier bed.) For the purpose of this Agreement, "Portal to Portal” shall also mean “Portal to End of Service.” The Chief of Police of the Salinas Police Department and/or his/her designee
POSSESSION
Possession is deemed to arise when the vehicle is removed and is in transit, or when vehicle recovery operations or load salvage operations have begun (Section 3068.1[a] of the Civil Code [CC] and Section 22851[a][1] of the California Vehicle Code [CVC]).
PUBLIC SAFETY RESPONSE CALL
A response that results in storage of a vehicle at the direction of an officer. This does not include storage at the request of the vehicle Franchisee, registered owner, or agent.
REPRESENTATIVE
A person or group of persons appointed by the Franchisees within the City, designated to represent their interests to the Chief of Police.
RESPONSE TIME
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The period of time from a Franchisee’s notification by the Salinas Police Department Communications Center of a call to the arrival of the tow truck at the location requested.
RETAIL RATE
The usual customary retail rate charged by a Franchisee to individual retail customers. This is the competitive rate a company has posted in the office and quotes over the phone.
SUSPENSION
Removal of a Franchisee from the rotation tow list for a specified period of time. Suspensions may be effective immediately and may be for periods longer than the current term of the Agreement.
TERMINATION
Permanent removal of a tow Franchisee from the rotation tow list for the remainder of the term of the Tow Service Agreement and disqualification from any further participation in the Department’s Rotation Tow Program. Termination may be with or without cause.
TOW TRUCK
A tow truck as defined in Section 615 of the California Vehicle Code. Also includes slide back carriers and wheel lift vehicles.
TOW SERVICE AGREEMENT
A document which sets forth the terms and conditions of an Agreement between the Franchisee and the officer representing the Salinas Police Department.
VEHICLE RECOVERY OPERATION
An operation involving the process of uprighting an overturned vehicle or returning a vehicle to a normal position on the roadway which requires the use of auxiliary equipment due to the size or location of the vehicle.
WRITTEN REPRIMAND
A written notice to a Franchisee which specifies any violation(s) of the Tow Service Agreement, orders corrective action, and warns of further action(s) to be taken if corrective action is not taken.
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ATTACHMENT B
I. GENERAL EQUIPMENT SPECIFICATIONS AND USE REQUIREMENTS A. Equipment Limitations
1) All towing equipment, recovery equipment, and carrier ratings are based on structural factors only. Actual towing, carrying, and recovery capacity may be limited by the capacity of the chassis and the optional equipment selected.
B. Towing Limitations
1) GVWR and not exceed either the front axle weight ratings (FAWR) or rear axle weight ratings (RAWR).
2) The truck must meet all applicable state and/or federal standards. 3) The front axle load must be at least 50% of its normal or unladed weight after the load is lifted.
4) Any violation of this section is cause for suspension.
C. Identification Labels
1) Each piece of towing equipment shall have a label or identification tag permanently affixed to the equipment in a prominent location to identify the manufacturer, serial number, model, and rated capacity.
D. Recovery Equipment Rating
1) The basic performance rating of the recovery equipment is the weight the equipment can lift in a winching mode, when the boom is static at a 30- degree elevation with the load lines vertical and the lifting cables sharing the load equally, measured with a live load (weight or load cell). a) The structural design of the recovery equipment must have a higher load capacity than the performance rating(s).
b) Winches shall conform to or exceed the specifications set forth by the Society of Automotive Engineers (SAE) Handbook, SAE J706.
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c) All ratings for cable and chain assemblies are for the undamaged assembly condition. All cable and chain assemblies should be the same type, construction, and rating as specified by the original equipment manufacturer (OEM) for the equipment.
E. Safety Chains
1) Safety chains shall be rated at no less than the rating specified by the OEM. a) Two safety chains shall be used for vehicles being towed. The safety chains shall be securely affixed to the truck bed frame or wrecker boom, independent of the towing sling, bar or hitch, wheel lift or under lift towing equipment. The towed vehicle shall be secured to the towing equipment independent of the safety chains by either two chains or two straps.
b) Vehicles being transported on slide back carriers shall be secured by four tie-down chains or straps independent of the winch or loading cable.
c) All safety connections and attachments shall have a positive means, of sufficient strength, to ensure that the safety connection or attachment cannot become disengaged while in transit.
F. Control/Safety Labels
1) All controls shall be clearly marked to indicate proper operation, as well as any special warnings or cautions.
G. Signs
1) All tow trucks shall display signs on both sides containing the Franchisee’s company name, business address, and telephone number. The signs shall be permanently affixed and in compliance with the requirements of Section 27907 VC.
H. Wire Rope (Cable)
1) Wire rope shall be maintained in good condition. Only wire rope with swaged ends, wedge locks, or braided ends, with metal sleeves in the loops, shall be approved for use by the Salinas Police Department. Consistent with the California Code of Regulations, Title 13, Section 1305(b), wire rope is not in good condition when it is stranded, knotted, crushed, excessively rusty, kinked, badly worn, when there are 12 or more wires broken in lay length, or where there is other visible evidence of loss of strength.
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2. TOW TRUCK CLASSIFICATIONS AND EQUIPMENT SPECIFICATIONS A. Class A Tow Truck
1. Minimum Equipment Specifications
a) 14,000 pound GVWR chassis.
b) 4-ton recovery equipment rating
c) Hydraulic or mechanical winch(es).
d) 100 foot 3/8 inch 6 x 19 cable or original equipment manufacturers (OEM) specifications.
e) Tow chains, 5/16 inch alloy or OEM specifications, J/T hook assembly.
f) Safety chains, 5/16 inch alloy or OEM specifications. g) Tow sling rating 3,000 pounds, when equipped.
h) Wheel lift safety straps or equivalent mechanical device. i) All required wheel safety straps or equivalent mechanical device.
All required wheel safety straps, or equivalent wheel retention device, tie-down straps, and safety chains shall be used during towing operations.
j) Tow dolly.
k) One 3-ton snatch block.
l) Wheel lift rating – retracted 3,000 pounds
85 inch extension 3,000 pounds
Measured from the center line of the rear axle of the towing vehicle to 10 inches behind the back face of the lifting bar.
B. Class A Car Carrier – One Car
1. Minimum Equipment Specifications
a) 14,000 pound GVWR chassis.
b) Hydraulic or mechanical winch.
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c) 50 feet 3/8 inch 6x19 cable or OEM specifications.
d) J/T hook loading bridle/chains.
e) Safety chains, 5/16 inch alloy or OEM specifications; four safety chains for the vehicle being transported.
f) All required tie-down straps and safety chains shall be used as required during towing operations.
C. Class A Car Carrier – Two Cars
1. Minimum Equipment Specifications
a) 16,001 pound GVWR chassis.
b) Hydraulic or mechanical winch.
c) 50 feet 3/8 inch 6x19 cable or OEM specifications.
d) J/T hook loading bridle/chains.
e) Safety chains, 5/16 inch alloy or OEM specifications; four safety chains for the vehicle being transported and two safety chains for the vehicle being towed.
(1) All required tie-down straps and safety chains shall be used as required during towing operations.
D. Class C tow truck
1) Minimum Equipment Specifications
a) 48,000 pound GVWR chassis.
b) Air brakes w/air hookup package.
c) 30-ton recovery equipment rating.
d) Hydraulic or mechanical winch(es).
e) 250 foot ¾ inch 6x9 cable or OEM specifications.
f) Tow chains, 5/8 inch alloy or OEM specifications.
g) Safety chains, 5/8 inch alloy or OEM specifications.
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h) Tow sling rating 20,000 pounds.
i) Two 12-ton snatch blocks.
j) Under lift rating – retracted 32,000 pounds
100 inch extension * 16,000 pounds
Measured from the center line of the rear axle to the center of the lift forks.
3. AUXILIARY EQUIPMENT
A. Required Equipment All Classes
1. Extension -- Brake and tail lamps.
2. Fire extinguisher (Approved 4-B, C rating or better).
3. Flashlight.
4. Broom.
5. Shovel.
6. Wrecking bar (large pry bar).
7. Reflective triangles.
8. Equivalent of six 30-minute flares.
9. Covered trash can(s) with absorbent.
10. Shop rags and/or paper towels.
11. Shop to truck communications (C/B and cellular phones excluded).
B. Service and Other Equipment -- (For service calls, each tow truck shall be equipped with the following service equipment):
1. Adequate emergency supply of fuel in an approved container.
2. Booster battery or hot box starting system.
3. Hydraulic jack capable of handling passenger cars and light trucks.
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4. Metric and standard lug wrenches.
5. Rubber mallet/hub cap tool.
6. Lockout tools.
7. Motorcycle straps (Class A only).
8. Sledge hammer.
9. Tool kit may include:
a) Assorted open end wrenches; standard, ¼ inch – 7/8 inch and Metric, 6-19 mm.
b) Assorted screwdrivers; Straight blade and Phillips.
c) Crescent wrench.
d) Ball peen hammer.
e) Pliers.
f) Battery and terminal cleaning tool.
g) Mechanic’s wire.
h) Plastic electrical tape/duct tape.
i) Tire valve core tool.
j) Miscellaneous fuses.
k) Small pry bar.
l) Socket sets; ¼ inch – 1 inch and 6-19 mm.
m) Ratchet and extensions.
C. Class A
1. Required Equipment
a) One 3-ton rated snatch block.
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b) Towing sling -- J/T hook tow chain assembly, a 4”x4”x48” and a 4”x4”x60” wooden crossbeam, a pair of spacer blocks, a steering wheel clamp, a towing dolly, and safety chains.
c) Wheel lift -- Wheel safety straps or equivalent mechanical device, steering wheel clamp, towing dolly, and safety chains.
d) Car carrier -- J/T hook loading bridle, a 4”x4”x48” and a 4”x4”x60” wooden crossbeam, a pair of spacer blocks, and two pairs of safety chains.
D. Classes B and C
1. Required Equipment
a) Towing sling -- Tow chain assembly, a 4”x4”x60” and a 6”x6”x60” wooden crossbeam, a pair of spacer blocks, a steering wheel clamp, and safety chains.
b) Truck hitch -- Tow chain assembly, 4”x4”x60” and 6”x6”x60” wooden crossbeams (as necessary), aluminum tow angle(s) and safety chains.
c) Under reach -- Assortment of lift forks/adapters, safety tie-down chain(s), and safety chains.
d) Steering wheel clamp.
e) Two 12-ton rated snatch blocks.
f) Axle covers/caps.
g) Air hoses and necessary fittings to provide air to the towed vehicle.
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ATTACHMENT C
FEE SCHEDULE
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HOURLY RATE
INSIDE STORAGE
OUTSIDE STORAGE
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SPECIAL EQUIPMENT Rate
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City of Salinas
Legislation Text
200 Lincoln Ave., Salinas,
CA 93901
www.cityofsalinas.org
File #: ID#24-457, Version: 1
a. Existing Litigation - Cal. Govt. Code section 54956.9(a), conference with legal counsel regarding, Lino Sanchez vs. City of Salinas, Workers’ Compensation Appeals Board Case Number(s):
ADJ15768435; ADJ 15768439.
b. Existing Litigation - Cal. Govt. Code section 54956.9(d)(1), conference with legal counsel regarding, California Department of Housing and Community Development v. Shangri-La Industries, LLC et al.
Los Angeles County Superior Court Case no. 24STCCV00629. c. Anticipated Litigation - Cal. Govt. Code section 54956.9(d)(4), conference with legal counsel regarding potential initiation of litigation (one case).
City of Salinas Page 1 of 1 Printed on 8/16/2024
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City of Salinas
Legislation Text
200 Lincoln Ave., Salinas,
CA 93901
www.cityofsalinas.org
File #: ID#24-478, Version: 1
Rent Stabilization and Tenant Protection
Receive a report and provide direction related to the preparation of a final draft Rent Stabilization Ordinance, Tenant Protection and Just Cause Eviction Ordinance, and Tenant Anti-Harassment Ordinance.
City of Salinas Page 1 of 1 Printed on 8/16/2024
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CITY OF SALINAS
COUNCIL STAFF REPORT
DATE: AUGUST 20, 2024
DEPARTMENT: CITY ATTORNEY’S OFFICE
FROM: CHRISTOPHER A. CALLIHAN, CITY ATTORNEY
TITLE: RENT STABILIZATION AND TENANT PROTECTION
RECOMMENDED MOTION:
It is recommended that the City Council receive a report on a rent stabilization and tenant protection program and consider whether to direct the City Attorney’s Office to prepare final drafts of a Rent Stabilization Ordinance, a Tenant Protection and Just Cause Eviction Ordinance, and a Tenant Anti-Harassment Ordinance for introduction on September 10, 2024. Should the City Council introduce final ordinances on September 10, 2024, final drafts would be brought forward for adoption by the City Council on September 24, 2024.
EXECUTIVE SUMMARY:
Beginning in October 2023, the City Council began exploring the concepts of local rent stabilization and tenant protections. Since then, the City began developing a rent stabilization and tenant protection program which generally consists of three ordinances: a Rent Stabilization Ordinance, a Tenant Protection and Just Cause Eviction Ordinance, and a Tenant Ant-Harassment Ordinance (collectively, the “Ordinances”).
Since the City Council first began exploring these concepts, the City has engaged with the community to receive feedback to inform the City Council’s consideration of the program and its components. Prior to this August 20, 2024, meeting, the City Council has not met as a full body to discuss or agree on criteria for a rent stabilization and tenant protection program.
To help ensure the City Council and the public have an opportunity to consider the program and its components, the City Council’s consideration will be through a presentation of the program and its components on August 20, 2024. Provided the City Council agrees on criteria for a rent stabilization and tenant protection program on August 20, 2024, final draft Ordinances would be brought forward for introduction on September 10, 2024, and adoption of the Ordinances would be scheduled for September 24, 2024. As discussed below in this report, should the City Council adopt the Ordinances they would become effective thirty (30) days following the date of adoption, but would not become operative until January 1, 2025.
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BACKGROUND:
Rent stabilization and tenant protection ordinances have existed at the local level in some California cities since the 1970’s. Prior to existing state law, local governments were able to enact such ordinances with few constraints specifically imposed by state law. In 1995, however, the Costa-Hawkins Rental Housing Act (1995) (the “Costa-Hawkins Act”) introduced three significant limitations. First, it exempted certain types of rental units from local rent stabilization (most notably single-family homes and condominiums). Second, it exempted units built after the February 1, 1995, the effective date of the Costa-Hawkins Act. Third, it prohibited “vacancy control.” Vacancy control refers to regulating the amount a landlord may charge for a new lease of a vacant unit. Under the Costa-Hawkins Act, when a rental unit becomes vacant, a landlord is not restricted in the amount of rent charged in a new lease.
On January 1, 2020, rent stabilization and tenant eviction protections became state law and took effect with the enactment of the Tenant Protection Act. The Tenant Protection includes the following significant provisions:
It applies to units that are more than fifteen years old; It applies to single-family homes and condominiums if those units are owned by a real estate trust or corporation;
It establishes a ceiling or cap on rent increases in a twelve-month period of 5% plus inflation (a local Consumer Price Index) not to exceed 10%; It codifies definitions of “at-fault” and “no-fault” just cause evictions and establishes that when a tenant is evicted under a “no-fault” cause the tenant shall receive compensation equivalent to one month of rent; and
The Tenant Protection Act sunsets on January 1, 2030.
The Tenant Protection Act requires no local enforcement. Disputes are resolved among the parties through the legal system.
Rent Stabilization Ordinance.
Through the community engagement process, many local residents, particularly those in lowincome households, expressed their struggles with paying for rising housing costs and meeting other basic needs such as food, transportation, and health care. The effect of high rents coupled with low incomes, critical shortages of affordable housing, and rapidly rising costs for other basic necessities leaves residents vulnerable to economic hardship, housing insecurity and displacement, threatening the public health, safety, and welfare of a substantial number of City residents. The draft Rent Stabilization Ordinance is intended to provide stability with respect to rent increases and housing by establishing additional tenant protections exceeding those set forth in state law.
Although the terms “rent control” and “rent stabilization” are often used interchangeably, they are distinct. Both regulate the amount of rent that may be increased during a tenancy, but only rent control regulates the amount of rent charged when the tenancy begins. Under rent stabilization, annual increases of a tenant’s rent are limited. However, when a tenant moves out, the initial amount of rent for the next tenant is not restricted.
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Cities in California can no longer adopt full rent control, which would regulate the amount of initial rent, due to the Costa-Hawkins Act. Rent control ordinances that existed in 1995 when the Costa-Hawkins Act was adopted were grandfathered, resulting in only a small number of cities within full rent control on certain types and ages of units within those cities. With the CostaHawkins Act effectively prohibiting new local rent control, cities which choose to adopt such regulations focus instead on rent stabilization. This type of regulation protects tenants during the tenancies by limiting how much the rent may be increased each year.
The Tenant Protection Act enacted statewide rent stabilization. Beginning January 1, 2020, where applicable, rent may be annually increased no more than 5% plus the regional Consumer Price Index (CPI) or 10%, whichever is less.
Under the draft Rent Stabilization Ordinance, one increase is allowed per 12-month period. Should the City Council determine to proceed with introduction and adoption of a Rent Stabilization Ordinance, it must provide direction as to the specific amount by which rent may be annually increased. As discussed in the attached report from Economic & Planning Systems, Inc., it is recommended that the City Council set the cap or ceiling at a rate within the following range: 2.5% to 2.75% or 65% to 75% of the Consumer Price Index for all Urban Consumers (CPI-U) Series Title: All Items in West Urban, all urban consumers, not seasonally adjusted.
Applicability.
The Costa-Hawkins Act, except in very limited circumstances, prohibits local restrictions on the amount of rent a landlord can charge at the beginning of a tenancy. For this reason, among others, the City Council should consider whether to adopt a rent stabilization ordinance which regulates rent increases during a tenancy. The Costa-Hawkins Act also significantly restricts which rental units may be subject to local rent stabilization. There are two categories of rental units for which rent increases during a tenancy cannot be regulated by the City Council. The first, with narrow exceptions, is single family homes that do not have an accessory unit, condominiums, and cooperatives. The second category is rental units first receiving a certificate of occupancy after February 1, 1995.
The Rent Stabilization Ordinance complies with the Costa-Hawkins Act by exempting rental units protected thereunder and regulating rental units constructed on or before February 1, 1995, that share a property with at least one other unit that cannot be sold separately. In other words, the Rent Stabilization Ordinance would apply to multi-family rental units built before February 1, 1995.
Single-family rental units, condominium rental units, multi-family dwelling units built after February 1, 1995, newly constructed dwelling units, and rental units that are deed restricted as affordable housing by a regulatory agreement or similar recorded documents are exempt from the Rent Stabilization Ordinance. The Rent Stabilization Ordinance does not have a minimum residency requirement for its rent-increase protections. The City Council may choose to consider whether to exempt certain rental units from local protection under a rent stabilization ordinance.
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Rent Program Fee and Registration Requirement.
The Rent Stabilization Ordinance establishes a regulatory fee charged to landlords to fund the Rent Stabilization Ordinance program for the sole purpose of reimbursing the City for the costs of administering the Rent Stabilization Ordinance. The regulatory fee will be imposed on each rental unit which must be paid by landlords and not passed through to the tenants. Landlords subject to this Rent Stabilization Ordinance must continue to register all units on the City’s Rental Registry.
The City Council should consider whether to establish a single program fee to cover both the Rental Registry and the Rent Stabilization Ordinance. The Rent Program Fee will come forward to the City Council through a recommended resolution.
Tenant Petition for Rent Reduction; Landlord Petition for Rent Increase; Capital Improvements.
The Rent Stabilization Ordinance also offers a procedure for accommodating certain tenant requests for rent reductions and landlord requests for increases in rent above the established limit if needed to comply with the constitutional right of “fair return.” The Rent Stabilization Ordinance establishes a petition process that is reviewed and determined by a Hearing Officer identified by the City Attorney.
A tenant may petition for a reduction of rent (“Rent Reduction Petition”) if the tenant believes the landlord has charged the tenant a higher rent than is permitted by the Rent Stabilization Ordinance.
The landlord shall be informed of the tenant’s complaint and shall have the opportunity to respond to the tenant’s claim of rent overcharge. A reduction in housing services or failure to maintain the rental unit in a habitable condition may be cause for a reduction in rent pursuant to the petition process. The tenant has the burden of demonstrating that a rent reduction is necessary to comply with the Rent Stabilization Ordinance. The Hearing Officer has sixty (60) days to make a decision on a Rent Reduction Petition. The Hearing Officer’s decisions are appealable to the City Council.
A landlord may petition for a rent increase in excess of that provided in the Rent Stabilization Ordinance in order to obtain a fair and reasonable return on the landlord property (“Fair Return Petition”). The landlord will be required to provide a copy of the Fair Return Petition to the City and to the tenants. The landlord has the burden of establishing that a rent increase, in excess of that permitted in the Rent Stabilization Ordinance, is necessary to provide the landlord with a fair and reasonable return on the property. The landlord will be responsible for all costs associated with the City’s review of the Fair Return Petition. A Fair Return Petition shall be decided by the Hearing Officer within ninety (90) days. The Hearing Officer’s decisions are appealable to the City Council.
Landlords also have the opportunity under the Rent Stabilization Ordinance to use the Fair Return Petition process to petition the City for a pass through of certain capital improvement costs to the tenants. Should the City Council adopt the Rent Stabilization Ordinance, regulations will be developed to establish the process for a landlord to petition for pass through of capital improvement costs.
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Tenant Protection and Just Cause Eviction Ordinance.
Eviction protections are generally viewed as a necessary complement to rent stabilization protections because they mitigate the incentive to evict for the purpose of increasing a rental unit’s rent to market rate. Some cities do not choose to approve a tenant protection and just cause eviction ordinance without also adopting a local rent stabilization ordinance.
The Tenant Protection Act codified certain eviction protections as state law, Under the Tenant Protection Act, there are two categories of “just cause” for eviction; an eviction cannot occur without there being just cause: “At Fault” and “No Fault.” Generally, a tenant is “at fault” when they violate the terms of the lease or prevailing law. A “no fault” eviction takes place when a tenant is evicted for allowable reasons that are beyond control of the tenant. Under the Tenant Protection Act, the following are identified as the “at fault” reasons why a tenant may be evicted:
Non-payment of rent;
Breach of a material term of the rental agreement that has not been corrected after written notice;
Maintaining or committing a nuisance;
Maintaining or committing waste;
Termination of the rental agreement without renewal (i.e., the tenant refuses to sign a written extension or renewal after written request or demand from the owner); Criminal activity by the tenant;
Unapproved subtenant;
The tenant has refused to give the landlord access to the rental unit as permitted by law; Illegal use of the unit;
Failure to vacate after termination of employment or agency as described in state law; and Failure to deliver possession after the tenant provides written notice of intent to vacate or makes a written offer of surrender that is accepted by the landlord.
The following are identified as the “no fault” reasons why a tenant may be evicted:
The owner, spouse, domestic partner, children, grandchildren, parents or grandparents intends to occupy the Rental Unit. (For new or renewed leases entered into on or after July 1, 2020, the tenant must agree to this in writing.);
Withdrawal of the rental unit from the rental market; Compliance with a government or court order or local ordinance that necessitates vacating the premises; and
Demolition or substantial remodel of the rental unit.
The Tenant Protection Act provides for relocation assistance equal to one month of rent either paid directly to the tenant or waived by the landlord, in the event of a no-fault eviction. Relocation benefits are not required for at-fault evictions.
The Tenant Protection and Just Cause Eviction Ordinance creates local regulations that strengthen the Tenant Protection Act. Following are the significant elements of the draft Tenant Protection and Just Cause Eviction Ordinance. The ordinance applies to all rental units in the city, except Page | 6
those specifically exempted. Certain transient units, units within institutional facilities, and units within properties where the owner also maintains their primary residence are exempt (Sec. 17-
02.52(b).)
The following are identified as “at-fault” reasons why a tenant may be evicted (Sec. 17-02.53(a)):
Failure to pay rent;
Breach of the lease. However, this section of the ordinance provides certain protections for families: the tenant’s addition of their child, parent, grandchild, grandparent, brother or sister, or spouse or domestic partner to the rental unit shall not give a landlord just cause to evict the tenant (Sec. 17-02.53(a)(2)(B);
Maintaining a nuisance or committing waste;
Criminal activity or criminal threats;
Assignment or subletting in violation of the rental housing agreement; Failure to give access; and
Illegal use of the rental unit.
The following are identified as “no-fault” reasons why a tenant may be evicted when the landlord acts in good faith, without ulterior motives, and with honest intent (Sec. 17-02.5(b)):
The landlord seeks to recover possession of the rental unit for use and occupancy as a primary residence by the landlord or the landlord’s spouse, domestic partner, child, grandchild, parent, or grandparent.
The landlord, after having obtained all necessary permits and approvals, seeks to demolish or to undertake substantial repairs which are necessary to bring the property into compliance with applicable codes affecting the health and safety of tenants or where such substantial repairs cannot be completed while the tenant continues to reside on the property.
In the event a tenancy is terminated for an “at-fault” reason, the landlord must provide notice to the tenant and an opportunity to the violation (Sec. 17-02.54(a).) In the event a tenancy is terminated for a “no-fault” reason, the landlord must provide notice to the tenant and must provide relocation assistance in an amount equal to three (3) months’ actual rent, in addition to any deposit or security amounts owed to the tenant (Sec. 17-02.54(c).) Additionally, if the rental unit is offered for rent or lease within five (5) years of the date the tenant was evicted for a “no-fault” reason the landlord shall first offer the rental unit to the tenant who was displaced by the no-fault eviction provided the tenant has taken certain steps to keep informed of the rental unit’s availability. All notices provided under the Tenant Protection and Just Cause Termination Ordinance must be provided in both English and Spanish.
Security Deposits.
The City received questions and comments from the public about including restrictions on security deposits; however, California already has strict rules about tenant security deposits that all residential landlords and property managers must follow. (California Civil Code section 1950.5).
Consequently, additional restrictions on security deposits are not incorporated into the draft ordinance attached to this report. A security deposit belongs to the tenant, but the landlord is Page | 7
allowed to hold on to the deposit until the tenant moves out. Security deposits must be returned when the tenant moves out, minus allowed expenses. State law limits the amount of security deposits: the limit is one month’s rent. For landlords who own no more than two residential rental properties that collectively include no more than four total units for rent, the limit is two times the monthly rent, but only if the landlord is a natural person or a limited liability company in which all members are natural persons. Security deposits may not be uses for other costs such (1) damages that were already there when the tenant moved in; (2) unreasonable or unnecessary expenses; or (3) ordinary wear and tear. Landlords can only use security deposits for the following specified expenses: past due rent; the cost of repairing damages caused by tenants or their guests, not including ordinary wear and tear; the cost of cleaning the property so that it is as clean as when the tenant first moved in; and the cost of replacing or restoring the landlord’s personal property, such as furniture, but only if the rental agreement says this is allowed.
Tenant Anti-Harassment Ordinance.
Under state law, tenant harassment occurs when a landlord engages in specific acts with intent to cause a tenant to vacate a rental unit. The harm state law seeks to prevent is “constructive eviction,” and it does not address harassing acts by landlord that are not accompanied by the specific intent to cause the tenant to vacate or where it is difficult to provide this specific intent.
A City policy prohibiting harassment by residential landlords, or “anti-harassment” policy, can focus more broadly on harmful actions by landlords that have no lawful purpose. The Tenant AntiHarassment Ordinance identifies specific acts and omissions by landlords that constitute prohibited harassment. This encompasses situations where a landlord harasses a tenant in order to cause the tenant to leave, as well as situations where a landlord wants to avoid the expense or inconvenience of providing a tenant what they are lawfully owed or acts in a discriminatory manner. The draft ordinance includes enforcement mechanisms allowing for enforcement by an aggrieved tenant, the City, or an organization or other entity that represents the interests of aggrieved tenants. The draft ordinance also provides for minimum damages amount and enhanced damages where a tenant is disabled or age 65 or over.
The Tenant Anti-Harassment Ordinance creates local regulations that strengthen tenant protections beyond what is otherwise provided for in state law. Following are the significant elements of the draft Anti-Harassment Ordinance:
California Proposition 33: Prohibit State Limitations on Local Rent Control Initiative (“Justice for Renters Act”)
California Proposition 33, an initiative measure, will be on the November 2024 ballot. This initiative measure “was designed to repeal the Costa-Hawkins Rental Housing Act enacted in 1995… By repealing the act, the initiative would allow cities and counties to limit rent on any housing and limit the rent for a first-time tenant. Any local laws currently inoperative under CostaHawkins would take effect upon its repeal. The initiative would also add language to California’s Page | 8
Civil Code prohibiting the state from limiting ‘the right of any city, county, or city and county to maintain, enact or expand residential rent control.’”1(emphasis in original) The City Council should consider the local effects should the initiative measure pass and the City Council adopt the Ordinances. Specifically, the City Council should consider whether to explicitly include any elements from Costa-Hawkins, such as exempting single family homes, exempting new development, and providing vacancy decontrol. If these items are not included in the City’s Ordinances and the statewide ballot initiative passes, the City’s Ordinances would apply to all rental housing in the city, including single-family units and rents would not reset to market for new tenants.
Proposed Operative Date of Ordinances.
Should the City Council adopt one or more of the Ordinances, the ordinance will become effective on the thirty-first (31) day after the date of adoption. To give the City additional time to implement the program, including the identification of resources necessary to implement the program, it is recommended that the City Council make the Ordinances operative no sooner than January 1, 2025. The City will need to prepare notices, forms, and regulations identified in the Ordinances, as well as build an educational program about the Ordinances which will be posted on the City’s website. The City may also need to hire additional staff or retain consultants to implement the program on a day-to-basis. This will include responding to resident questions and providing educational materials to residents affected by the Ordinances. The City will also need to identify a Hearing Officer to receive and to decide petitions for rent increases or rent reductions by landlords and tenants, respectively. Additional information about the resource needs are discussed in the attached report prepared by Economic & Planning Systems, Inc., and in the Fiscal and Sustainability Impact section of this report.
Public Outreach and Community Engagement.
The City began the public process around the rent stabilization program on October 24, 2023, when the City Council received a report on Rent Stabilization and Tenant Protection. Following the City Council’s direction at that meeting to return to the City Council with recommendations on the establishment and implementation of a rent stabilization and tenant protection program, the City began engaging the community beginning at the March 26, 2024, Housing and Land Use Committee meeting. Following that, the City hosted a Listening Session on June 6, 2024, and two Community Engagement meetings, the first on June 13, 2024, and the second on August 1, 2024.
Updates were provided to the Housing and Land Use Committee as the work progressed. The City also engaged directly with a Technical Advisory Committee (TAC) comprised of representatives of property owners, developers, property managers, and tenants. TAC meetings were held on April 30, May 15, May 29, and July 17, 2024.
The Community Development Department sent notices directly to all individuals on the Housing Division’s Distribution List, which includes 162 individuals. The City’s Community Relations
1 https://ballotpedia.org/California_Proposition_33,_Prohibit_State_Limitations_on_Local_Rent_Control_Initiative_( 2024)
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division provided notice through social media and other platforms, as well as through surveys and petitions submitted directly to the City throughout the process. Combined, these resulted in a total engagement/reach of 28,986 users as shown on the following table. In addition, 932 individuals signed up to receive direct notifications on this topic. The City’s work on a rent stabilization and tenant protection program has been well-documented by local media sources.
Date Reach Topic Platform
8/1/2024 1,601
Recap of 8/1 meeting with links to
presentation/resources Facebook
8/1/2024 1,639
Recap of 8/1 meeting with links to
presentation/resources Instagram
8/1/2024 1,042Reminder for 8/1 community meeting NextDoor 7/31/2024 349Reminder for 8/1 community meeting Facebook 7/23/2024 760Created event Facebook
7/23/2024 913Created event NextDoor
7/19/2024 852Rescheduled meeting date to 8/1 Facebook
7/19/2024 866Rescheduled meeting date to 8/1 Instagram
7/10/2024 1,256Final community meeting promo Facebook
7/10/2024 756Final community meeting promo Instagram
6/12/2024 1,115Meeting reminder in English Facebook
6/12/2024 623Meeting reminder in English Instagram
6/12/2024 658Meeting reminder in Spanish Facebook
5/17/2024 1,175June Zoom and in person meeting promo Facebook 5/17/2024 506June Zoom and in person meeting promo Instagram 3/26/2024 10,940English survey Facebook
3/26/2024 1,345English survey Instagram
3/26/2024 923Spanish Survey Facebook
3/26/2024 533Spanish Survey Instagram
3/26/2024 411English Survey Results OpenForms Survey
3/26/2024 99Spanish survey results OpenForms Survey
3/26/2024 624Survey - Paper/handwritten
Submitted to City
Clerk
Housing and Land Use Committee.
At its August 13, 2024, meeting, the Housing and Land Use Committee directed the presentation of the rent stabilization and tenant protection program to the City Council on August 20, 2024, and that final draft ordinances be presented to the City Council on September 10, 2024, for introduction, and on September 24, 2024, for adoption with operative dates of January 1, 2025. In Page | 10
addition, the Housing and Land Use Committee directed staff to incorporate a requirement in the Rent Stabilization Ordinance that all required notices be prepared in both English and Spanish and to consider including tenant relocation assistance for Ellis Act evictions under the Tenant Protection and Just Cause Eviction Ordinance. Should the City Council move forward with introduction of the Ordinances with those changes, the draft Ordinances will be updated to incorporate those changes.
Public Comments and Questions.
Written public comments received through this process are attached to this report for the City Council’s reference. In addition, questions and comments recorded during the Housing and Land Use Committee meetings, TAC meetings, Listening Session, and Community Engagement Meetings are attached to this report for the City Council’s reference.
CEQA CONSIDERATION:
Not a Project. The City Council’s adoption of the ordinances is not a project subject to environmental review under the California Environmental Quality Act (CEQA Guidelines section 15061(b)(3).) Additionally, the City Council’s adoption of the ordinances is exempt because it does not meet the definition of a “project” under CEQA, pursuant to CEQA Guidelines sections 15060(c)(1) and 15378(a), because it has no potential to result in a direct or reasonably foreseeable physical change in the environment.
STRATEGIC PLAN INITIATIVE:
The City Council’s consideration of whether to establish and to implement rent stabilization and tenant protection strategies is consistent with the City Council’s goal of promoting Housing/Affordable Housing (City of Salinas Strategic Plan 2022-2025).
DEPARTMENTAL COORDINATION:
City Administration, the City Attorney’s Office, and Community Development Department will continue to coordinate on the implementation of the rent stabilization program following the City Council’s action.
FISCAL AND SUSTAINABILITY IMPACT:
Should the City Council adopt the rent stabilization and tenant protection program, the City will need to augment its existing staffing and support in order to effectively implement and manage the program. Staff has identified two potential ways to accomplish this. The first is to add between 3 and 6 staff members which is estimated between $621,404 and $1,246,976. The second option is to explore working with a consultant to provide the services. The City would have to perform additional research to determine the cost. The ordinances contemplate the City will recover its costs through the adoption of a fee paid by the property owners renting units. Should the City Council adopt the rent stabilization and tenant protection program, a resolution will be brought Page | 11
forward at a later date to establish the program fee. At which time the budget would be established for this program and brought forward to the Council for adoption.
If this moves forward and a program fee is established, there will be a delay in the revenue received by the City, which is not uncommon when setting a new program; but it will impact the City’s cash position in the short term and perhaps long term based on the fee ultimately established and the collection rate. Short-term the City would need to rely on its cash flow or general reserves2 ATTACHMENTS:
Draft Rent Stabilization Ordinance
Draft Tenant Protection and Just Cause Eviction Ordinance Draft Tenant Anti-Harassment Ordinance
Economic & Planning Systems, Inc. Report
Economic & Planning Systems, Inc., PowerPoint Presentation Public Comments and Questions
2 The City maintains a General Reserve of 12% of the Operating Budget, which currently is at $20.7 million.
Rent Stabilization Ordinance
August 7, 2024 Draft
ORDINANCE NO. _____ (N.C.S.)
AN ORDINANCE ADDING ARTICLE IIA TO CHAPTER 17 OF THE SALINAS
MUNICIPAL CODE RELATED TO RENT STABILIZATION
City Attorney Impartial Analysis
…
RECITALS…
NOW, THEREFORE, BE IT ORAINED BY THE CITY COUNCIL OF SALINAS as follows:
SECTION 1. Article IIA is hereby added to Chapter 17 of the Salinas Municipal Code to read as follows:
Article IIA. Rent Stabilization.
Sec. 17-02.01. Rent Stabilization.
This article shall be known as the “Rent Stabilization Ordinance.” Sec. 17-02.02. Application.
This Rent Stabilization Ordinance shall be interpreted and administered in a manner consistent with the Costa-Hawkins Rental Housing Act codified in California Civil Code section 1954.50 et seq. (“Costa Hawkins”). If any conflict exists between the provisions of Costa Hawkins and this article, Costa Hawkins shall prevail.
(a) Applicability of this Article. The provisions of this Rent Stabilization Ordinance apply to all Rental Units in the city of Salinas, except as otherwise exempted in this section. (b) Exemptions from this Article. The following Rental Units are exempt from Rent Stabilization:
(1) Rental Units exempt from rent stabilization pursuant to the Costa Hawkins Rental Housing Act (California Civil Code section 1954.50 et seq. (2) Rental Units which a government unit, agency, or authority owns, operates, manages, or in which governmentally subsidized Tenants reside only if applicable federal or state law or administrative regulation specifically exempts such units from municipal rent stabilization.
(3) Rental Units which are deed restricted as affordable housing by a regulatory agreement or similar recorded document.
(4) Rental Units in any hospital, covenant, monastery, extended medical care facility, non-profit home for the aged, or dormitory as defined in California Building Code Rent Stabilization Ordinance
August 7, 2024 Draft
section that is solely owned and operated by an accredited institution of higher education.
(5) A unit in a hotel, motel, inn, or room and boarding house which is rented primarily to transient guests for a period of twenty-eight (28) consecutive calendar days or less, counting portions of calendar days as full days and other transient occupancies as defined in California Civil Code section 1940(b).
(6) A unit in an institutional facility, including a hospital, medical care facility, residential care facility, asylum, group home for seniors or the disabled, or transitional housing program that assists homeless persons as defined in California Civil Code section 1954.12.
Sec. 17-02.03. Definitions.
(a) For the purpose of this Article, the following words or phrases shall have the following meanings:
“Annual Allowable Rental Adjustment.” Annual Allowable Rental Adjustment refers to the limit on the Maximum Allowable Rent increase which a Landlord may charge on any covered Rental Unit each year without an order from a hearing officer. “Capital Improvement.” An improvement or repair to a Rental Unit or property that materially adds to the value of the Property, appreciably prolongs the Property’s useful life or adapts the Property to a new use, becomes a part of the real property or is permanently affixed to the real property such that its removal would result in material damage to the real property or to the improvement itself, has a useful life or more than one (1) year and that is required to be amortized and depreciated over the useful life of the improvement under the provisions of the Internal Revenue Code and related regulations, and may also include work necessary to comply with applicable local, state, or federal building, health, and safety codes. “Capital Improvement Plan.” A detailed proposal submitted to the City Attorney or designee by a Landlord in order to proceed with one or more Capital Improvements, and/or receive a Pass Through.
“Controlled Rental Unit.” A Rental Unit located within the city of Salinas not specifically exempted by an applicable exemption to this Article.
“Housing Services.” All amenities and services related to the use or occupancy of a Rental Unit and common areas that are provided by the Landlord. Housing Services includes without limitation hot and cold water, heat, light, utilities that are paid by the Landlord, painting, elevator service, window shades and screens, refuse removal, janitorial service, maintenance, repairs, replacement, recreational areas (including pools or gyms) kitchen, bath, laundry facilities, furnishings, storage space, parking (including one or more automobiles), employee services, security services, insurance, the payment of property taxes, and any other benefits or privileges permitted to the Tenant by agreement, whether express or implied, including the right to have a specific number of occupants and the right to one-for-one replacement of roommates, regardless of any prohibition Rent Stabilization Ordinance
August 7, 2024 Draft
against subletting and/or assignment. Housing Services also includes those basic Housing Services required by California Civil Code section 1941.1. Housing Services includes a proportionate part of services provided to common facilities of the building and Property in which the Rental Unit is contained.
“Landlord.” An owner, lessor, sublessor, or any other person entitled to receive Rent for the use and occupancy of any Rental Unit, or any agent, representative, or successor of any of the foregoing.
“Maximum Allowable Rent.” The maximum allowable rent which may be charged on any Rental Unit covered by this Article.
“Property.” All Rental Units on a parcel or lot or contiguous parcels or contiguous lots under common ownership.
“Pass Through.” Any monetary amount a Landlord is authorized to pass through to, and recover from, one or more Tenants in the form of a surcharge or in addition to Rent, as authorized by an approved Capital Improvement Plan or any other lawful authorization. “Rent.” All periodic payments and all nonmonetary consideration including, but not limited to, the fair market value of goods, labor performed or services rendered to or for the benefit of the Landlord under a Rental Housing Agreement, as defined in this section, concerning the use or occupancy of a Rental Unit and premises, including all payment and consideration demanded or paid for parking, utilities, pets, furniture, subletting, and security deposits for damages and cleaning.
“Rental Housing Agreement.” An agreement, oral, written, or implied, between a Landlord and Tenant, for use or occupancy of a Rental Unit and for Housing Services. “Rental Housing Fee.” The fee described in Section 17-02.13. “Rental Unit.” Any building, structure, or part thereof, or land appurtenant thereto, or any other rental Property rented or offered for Rent for residential purposes, together with all Housing Services connected with the use and occupancy of such Property such as common areas and recreational facilities held out for use by the Tenant. “Tenant.” A tenant, subtenant, lessee, sublessee, or any other person entitled under the term of a Rental Housing Agreement to the use and the occupancy of any Rental Unit. “Utility Charges.” Any charges for gas, electricity, water, cable, or internet. (b) Terms defined in other sections of this Rent Stabilization Ordinance shall have such meaning when used in this Rent Stabilization Ordinance, whether singular or plural.
Sec. 17-02.04. Limit on Rental Rate Increases.
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(a) Increases in Rent on residential real property in the city may not exceed the lesser of ____% or _____% of the most-recent 12-month increase in the Consumer Price Index for All Urban Consumers in the ______________________ Area published by the Bureau of Labor Statistics. Only one rent increase in any 12-month period is permitted. A reduction in Housing Services is an increase in Rent.
(b) Subsection (a) of this section shall apply to all Rent increases occurring on or after December 31, 2023. A Landlord has no duty to refund otherwise lawful rent received prior to the effective date of this Rent Stabilization Ordinance in excess of the amount authorized by this section.
(c) The 12-month period referenced in subsection (a) of this section shall begin on the date of the last Rent increase regardless of whether the last Rent increase occurred prior to the effective date of the Rent Stabilization Ordinance.
Sec. 117-02.05. Reasonable Rate of Return.
This Rent Stabilization Ordinance allows for an annual adjustment of residential real property Rent as specified in subsection (a) of section 17-02.04 of this article. Such an increase is found and determined to provide a just and reasonable return on a Landlord’s Property, and has been adopted to encourage good management, reward efficiency, and discourage the flight of capital, as well as to be commensurate with returns on comparable investments, but not so high as to defeat the purpose of curtailing excessive Rent and rental increases. Notwithstanding the foregoing, and Landlord who contends that the limit on Rent increases set forth in Section 17-02.04 will prevent the Landlord form receiving a fair and reasonable return on the Property may petition for relief from the limit set forth in section 17-02.04 pursuant to the procedures set forth in section 17-02.07.
In making annual adjustments of the Annual Allowable Rental Adjustment, Hearing Officers shall consider the purpose of this Article and the requirements of law.
Sec. 17-02.06. Tenant Petition for Rent Reduction.
(a) Unlawful Rent. A Tenant of a Controlled Rental Unit may petition for a reduction of Rent (“Rent Reduction Petition”) if the Tenant believes that the Landlord has demanded, accepted, or retained from the Tenant any Rent in excess of the Rent permitted by this Rent Stabilization Ordinance. The Landlord shall be informed of the Tenant’s complaint and shall have the opportunity to respond to the Tenant’s claim of Rent overcharge. (b) Reduction in Housing Services or Failure to Maintain Habitable Premises. A Tenant may petition for a reduction of Rent (“Rent Reduction Petition”) to request a refund of, or decrease in, Rent proportional to the Landlord’s reduction in Housing Services or failure to maintain then Controlled Rental Unit as a habitable premise in accordance with applicable State rental housing laws, State and local health and safety laws, or the Rental Housing Agreement.
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(c) Such Rent Reduction Petition shall be on an application form prescribed by the City Attorney or designee, shall be submitted to the City Attorney, and shall be decided by a Hearing Officer designated by the City Attorney.
(d) The Tenant shall provide a copy of any Rent Reduction Petition submitted to the City Attorney to the applicable Landlord and shall provide the City Attorney with proof of completing such service to the applicable Landlord. The Landlord shall have thirty (30) days from the date of receiving the Rent Reduction Petition to reply or to provide additional materials in response to the Rent Reduction Petition. Such reply or additional materials shall be submitted to the City Attorney.
(e) The Tenant shall bear the burden of establishing that a Rent reduction is necessary to comply with the Rent Stabilization Ordinance by providing information including the type of dwelling, dates of tenancy, dates of Rent increases, amount of Rent increases, dates of charges, and amounts of charges.
(f) The factors the Hearing Officer may consider in deciding a Rent Reduction Petition shall be matters related to the Landlord’s failure to comply with the Rent Stabilization Ordinance, reductions in Housing Services, and habitability violations. For example, the amount of Rent that the Landlord has actually demanded, accepted, or retained from the Tenant exceeds the amount of the Rent that the Landlord could lawfully charge. The Hearing Officer may also consider decreases in living space, furnishings, equipment, or services; substantial deterioration of the Controlled Rental Unit other than as a result of ordinary wear and tear; or failure on the part of the Landlord to provide adequate Housing Services or to comply with applicable housing, health, and safety codes. (g) A Rent Reduction Petition shall be decided by the Hearing Officer within sixty (60) days of the date that the Rent Reduction Petition has been deemed complete by the City Attorney, including submission of proof of service of the Rent Reduction Petition on the applicable Landlord, unless an extension of time has been agreed upon by the parties. The decision shall be sent by mail and shall be emailed with proof of mailing to the applicable Tenant, the designated representative of the Tenant, the subject Landlord, and the Landlord’s designated representative for the Rent Reduction Petition, if any. Any person aggrieved by the decision of the Hearing Officer may appeal to the City Council. On appeal, the City Council shall affirm, reverse, or modify the decision of the Hearing Officer.
The decision of the Hearing Officer shall be the final decision of the City in the event of no appeal to the City Council.
(h) Decisions decreasing Rent shall remain in effect until the Hearing Officer finds that the Landlord has corrected the defect warranting the decrease. The City Attorney shall establish procedures for making prompt compliance determinations. Upon a determination of compliance, the Landlord shall be entitled to reinstatement of the prior Rent level, retroactive to the date that the Landlord corrected the defect which warranted the decrease.
This shall be in compliance with California Code of Civil Procedure section 1942.2. If the Rent Stabilization Ordinance
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Landlord is found to be in violation of California Code of Civil Procedure section 1942.2, then no Rent shall be charged for the period during which the Landlord was in violation.
Sec. 17-02.07. Landlord Petition for Rent Increase.
(a) A Landlord may petition for a Rent increase for a Controlled Rental Unit in excess of that provided in Sec. 17-03.04 in order to obtain a fair and reasonable return on the Landlord’s Property (“Fair Return Petition”). It is the intent of this Article that individual upward adjustments in the Maximum Allowable Rent on Controlled Rental Units be made only when the Landlord demonstrates that such adjustments are necessary to provide the Landlord with a fair return on investment.
(1) Nothing in this section shall be interpreted to authorize a Rent increase for a Controlled Rental Unit in excess of the amount authorized pursuant to California Civil Code section 1947.12.
(2) Such Fair Return Petition shall be on an application form prescribed by the City Attorney and shall include a declaration by the Landlord that the Rental Unit meets all requirements of this Article. Fair Return Petitions shall be decided by a Hearing Officer designated by the City Attorney.
(3) The Landlord shall provide a copy of any Fair Return Petition submitted to the City to the applicable Tenant(s) and shall provide the City with proof of completing such service to the applicable Tenant(s). The Tenant(s) shall have thirty (30) days from the date of receiving the Fair Return Petition to reply or provide additional materials to the City Attorney in response to the Fair Return Petition. (4) The Landlord shall be responsible for all costs associated with the City’s review of the Fair Return Petition.
(5) Upon receipt of a Fair Return Petition, the Hearing Officer shall determine the anticipated costs of review and if the employment of expert(s) will be necessary or appropriate for a proper analysis of the Landlord’s request. If the Hearing Officer so determines, the Hearing Officer shall also determine the anticipated costs of employing such expert(s). The resulting estimated cost shall be communicated to the Landlord and the Fair Return Petition shall not be processed until the Landlord has paid to the City the estimated cost of the completed analysis. The City will provide the Landlord with an invoice of all costs incurrent after the review of the Fair Return Petition. Any unused portion of the advance payment for analysis shall be refunded to the Landlord. If additional funds are required, payment will be required before the Landlord receives the determination on the Fair Return Petition from the City.
(b) The factors the Hearing Officer may consider in deciding a Fair Return Petition include, but are not limited to, the following:
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(1) Changes in the Consumer Price Index for All Urban Consumers in the ________________ Area published by the Bureau of Labor Statistics arising after commencement of the tenancy.
(2) The pattern of recent Rent increases or decreases.
(3) Changes in property tax or other taxes related to the Controlled Rental Unit arising after commencement of the tenancy.
(4) Unavoidable changes in operating and maintenance expenses arising after commencement of the tenancy.
(5) Substantial deterioration of the Controlled Rental Unit other than as a result of ordinary wear and tear.
(6) Increases or decrease in the number of Tenants occupying the Controlled Rental Unit, living space, furniture, furnishings, equipment, or other Housing Service provided, or occupancy rules.
(7) Failure on the part of the Landlord to provide adequate Housing Services, or to comply with applicable state rental housing laws, local housing health an safety codes, or the Rental Housing Agreement.
(8) Relevant evidence demonstrating that a Landlord, as of the effective date of this Rent Stabilization Ordinance, does not receive a just and reasonable return under the provisions of this Article.
(c) The Landlord may not charge for utilities unless the utility is separately or individually metered.
(d) A Fair Return Petition shall be decided by the Hearing Officer within ninety (90) calendar days of the date that the Fair Return Petition has been deemed complete by the City Attorney, including submission of proof of service of the Fair Return Petition on the applicable Tenant(s), unless the Landlord has failed to pay all applicable costs associated with the City Attorney, and designees’, review of the Fair Return Petition or an extension of this time has been agreed upon by the Landlord and the Tenant(s). The decision shall be sent by mail and shall be emailed with proof of mailing to the subject Landlord, the Landlord’s designated representative for the Fair Return Petition, the applicable Tenant(s), and the designated representative of the Tenant(s), of any. Any person aggrieved by the decision of the Hearing Officer may appeal to the City Council. On appeal, the City Council shall affirm, reverse, or modify the decision of the Hearing Officer. The decision of the Hearing Officer shall be the final decision of the City in the event of no appeal to the City Council.
Sec. 17-02.08. Petition for Pass Through for Specified Capital Improvements.
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In addition to the petition process set forth above in section 17-02.07, a Landlord may file on an application form prescribed by the City Attorney for a Capital Improvement Plan, with or without a request for a Pass-Through of certain Capital Improvement costs to Tenants of Rental Units not exempt from rent control by state law, subject to the provisions and limitations set forth in this section, but shall include the cost of planned or completed Capital Improvements to the Rental Unit (as distinguished from ordinary repair, replacement, and maintenance) where such Capital Improvement costs are properly amortized over the life of the improvement. The City Council may adopt reasonable regulations to govern Capital Improvement standards and applications under this section.
Sec. 17-02.09. Rent Increase Ineffective; No Waiver.
(a) A Rent increase shall be ineffective if the Landlord:
(1) Fails to comply with all provisions of this Rent Stabilization Ordinance, as may be amended from time-to-time, and with any other applicable policies, regulations, or resolutions concerning Rent including, without limitation, the service of the Tenant with a legally required notice of a Rent increase under this Rent Stabilization Ordinance or state law, the registration of all Rental Units within the city, and the payment of all Rent program fees set forth in the City’s Fee Schedule; or (2) Fails to maintain the residential real property in compliance with California Civil Code section 1941.1 and California Health and Safety Code sections 17920.3 and 17920.10; or
(3) Fails to make repairs ordered by the City or any court of competent jurisdiction. (b) Any waiver or purported waiver by a Tenant of rights granted under this Article prior to the time when such rights may be exercised, whether oral or written, in or pertaining to a Rental Housing Agreement, shall be void as contrary to public policy. (c) If a Tenant reasonably believes a Landlord has increased the Tenant’s Rent in violation of this section, the Tenant may submit to the City Attorney a petition to determine compliance for consideration by a Hearing Officer designated by the City Attorney. The Landlord shall have the opportunity to respond to the petition to determine compliance and to participate in the administrative proceeding. The City Attorney shall promulgate regulations to effectuate this section, in addition to those authorized by the Salinas Municipal Code.
Sec. 17-02.10. Notice Requirements.
(a) On or before the date of commencement of a tenancy, the Landlord of any residential real property subject to this Rent Stabilization Ordinance shall deliver to the Tenant written notice of the following in a form prescribed by the City Attorney:
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(1) The tenancy is regulated by this Rent Stabilization Ordinance; (2) The Tenant has a right to submit a complaint to the City pursuant to section 17-
02.13 or a Rent Reduction Petition pursuant to section `7-02.06 for Rent demanded, accepted, or retained in violation of this Rent Stabilization Ordinance, a reduction in Housing Services, or failure to maintain habitable premises; (3) The Landlord has a right to respond to any Rent reduction petition filed by the Tenant with the City pursuant to section 17-02.06; and
(4) The Tenant has a right to respond to any Fair Return Petition filed by the Landlord with the City pursuant to section 17-02.07.
(b) At the same time and with any notice to increase Rent, the Landlord must deliver written notice of the following:
(1) The tenancy is regulated by this Rent Stabilization Ordinance; (2) The Tenant has a right to submit a complaint to the City pursuant to the procedures established pursuant to section 17-02.12 or a Rent Reduction Petition pursuant to section 17-02.06 for Rent demanded, accepted, or retained in violation of this Rent Stabilization Ordinance, a reduction in Housing Services, or failure to maintain habitable premises;
(3) The Tenant has a right to respond to any Fair Return Petition filed by the Landlord with the City pursuant to sec. 17-02.07; and
(4) No rent increase is effective unless and until the requirements of this Rent Stabilization Ordinance have been met.
(c) When a Landlord and Tenant have entered into a written Rental Housing Agreement, the Landlord must give notices to the Tenant in the language primarily used in the Rental Housing Agreement. When a Landlord and Tenant have not entered into a written Rental Housing Agreement, the Landlord must give notices to the Tenant in the language that a Landlord and Tenant used primarily when negotiating the terms of the Tenancy.
Sec. 17-02.11. Judicial Review.
A Landlord or Tenant aggrieved by any action or decision of the City or of the City Council may seek judicial review by appealing to the appropriate court with jurisdiction over the matter.
Sec. 17-02.12. Violations and Remedies.
(a) It shall be unlawful for any person to violate or fail to comply with any provision of this Rent Stabilization Ordinance, or any rule, regulation, or order promulgated, including demanding, accepting, or retaining Rent in excess of the Maximum Allowable Rent in violation of this Rent Stabilization Ordinance or a determination by a Hearing Officer of Rent Stabilization Ordinance
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City Council, and including the provisions ensuring compliance with habitability standards and registration fee requirements.
(b) Any person who violates or aids or incites another person to violate the provisions of this Rent Stabilization Ordinance shall be liable in a civil action for each and every such offense for actual damages suffered by an aggrieved party (including damages for mental or emotional distress); or for statutory damages in the sum of three times the amount by which the payment demanded, accepted, or retained exceeds the Maximum Allowable Rent, or for statutory damages in the sum of $1,000, whichever is greater; and whatever other relief the court deems appropriate. In the case of an award of damages for mental or emotional distress, said award may be trebled if the trier of fact finds that the person acted in knowing violation of or in reckless disregard of this Rent Stabilization Ordinance. The trier of fact may also award punitive damages to any plaintiff, including the City, in a proper case as defined by California Civil Code section 3294. No administrative remedy need be exhausted prior to filing suit pursuant to this subsection. (c) Any person who is convicted of violating this Rent Stabilization Ordinance shall be guilty of a misdemeanor and upon conviction shall be punished by a fine of not greater than $1,000 or by imprisonment in the county jail for not more than six (6) months, or by both such fine and imprisonment.
(d) Any person, including the City, may enforce the provisions of this Rent Stabilization Ordinance by means of a civil action. The burden of proof in such cases shall be by preponderance of the evidence. The prevailing party in any civil action brought pursuant to this section shall be entitled to recover reasonable attorney’s fees and costs. A violation of this Rent Stabilization Ordinance may be asserted as an affirmative defense in an unlawful detainer action.
(e) Any person who commits an act, proposes to commit an act, or engages in any pattern and practice that violates this Rent Stabilization Ordinance may be enjoined therefrom by any court of competent jurisdiction. An action for injunction under this subsection may be brought by any aggrieved person, by the City Attorney, or by any person or entity who will fairly and adequately represent the interest of the protected class. (f) This Rent Stabilization Ordinance may be enforced as provided in the Salinas Municipal Code in addition to other remedies provided herein, which shall be in addition to any other existing remedies which may be available.
Sec. 17-02.13. Rent Program Fee.
For the sole purpose of reimbursing the City for the costs of administering this Rent Stabilization Ordinance, there is hereby imposed on each Controlled Rental Unit subject to the provisions of this Rent Stabilization Ordinance, a regulatory fee (“Rent Program Fee”) to cover the costs to provide and administer the programs created by this article or in such amount as the City Council may establish by resolution from time-to-time. Landlords subject to this Rent Stabilization Rent Stabilization Ordinance
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Ordinance shall register all Rental Units subject to this article consistent with the City’s Residential Rental Registration Program (Article I of Chapter 17 of the Salinas Municipal Code) with the City and pay the Rent Program Fee at such time and in such manner as established by City Council resolution. A Landlord may not recover any portion of the Rent Program Fee, or any associated late penalties, from Tenants.
Sec. 17-02.14. Implementation.
The City Manager and the City Attorney shall take or cause to be taken such actions necessary to implement this Rent Stabilization Ordinance and effectuate the intent of the City Council in adopting this Rent Stabilization Ordinance, including the preparation of informational materials and forms and promulgation of administrative regulations. The City Manager shall designate a City department to provide information and receive Tenant complaints pertaining to violation of this Rent Stabilization Ordinance. The City Manager and the City Attorney shall publicize this Article so that all residents of Salinas will have the opportunity to become informed about their legal rights and duties under this Article. The City Attorney shall prepare informational materials which fully describe the legal rights and duties of Landlords and Tenants under this Rent Stabilization Ordinance. The informational materials will be available to the public and each Tenant of a Rental Unit shall receive a copy of the informational materials from their Landlord.
Landlords shall provide the informational materials at the commencement of the tenancy and with each written notice of Rent increase. The informational materials will be made available on the City of Salinas website.
SECTION 2. All ordinances and parts of ordinances and all resolutions and parts of resolutions in conflict herewith are hereby repealed as of the effective date of this ordinance.
SECTION 3. Publication. The City Clerk shall cause a summary of this ordinance to be published once in a newspaper published and circulated in Salinas within fifteen (15) days after adoption. (Salinas Charter Section 11.9)
SECTION 4. CEQA Compliance. The City Council’s adoption of this ordinance is not a project subject to environmental review under the California Environmental Quality Act (CEQA Guidelines Section 15061(b)(3) because it would not have a significant effect on the environment.
Additionally, the City Council’s adoption of this ordinance is exempt because it does not meet the definition of a “project” under CEQA, pursuant to CEQA Guidelines sections 15060(c)(1) and 15378(a), because it has no potential to result in a direct or reasonably foreseeable physical change in the environment.
SECTION 5. Severability. If any section, subsection, sentence, clause, or phrase of this ordinance is for any reason held to be invalid or unconstitutional by a decision of any court of any competent jurisdiction, such decision shall not affect the validity of the remaining portions of this ordinance.
The Salinas City Council hereby declares that it would have passed this ordinance and each and every section, subsection, clause, and phrase thereof not declared invalid or unconstitutional without regard to whether any portion of the ordinance would be subsequently declared invalid or Rent Stabilization Ordinance
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unconstitutional.
SECTION 6. Effective Date. This ordinance will take effect thirty (30) days from and after its adoption.
PASSED AND ADOPTED this _____ day of ____________________, 2024, by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
APPROVED:
_________________________________
Kimbley Craig, Mayor
APPROVED AS TO FORM:
___________________________________
Christopher A. Callihan, City Attorney
ATTEST:
___________________________________
Patricia M. Barajas, City Clerk
Just Cause Eviction and Tenant Protection Ordinance
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ORDINANCE NO. _____ (N.C.S.)
AN ORDINANCE ADDING ARTICLE IIB TO CHAPTER 17 OF THE SALINAS
MUNICIPAL CODE RELATED TO JUST CAUSE EVICTION AND TENANT
PROTECTION
City Attorney Impartial Analysis
…
RECITALS…
NOW, THEREFORE, BE IT ORDAINED BY THE CITY COUNCIL OF SALINAS as follows:
SECTION 1. Article IIB is hereby added to Chapter 17 of the Salinas Municipal Code to read as follows:
Article IIB. Just Cause Eviction and Tenant Protection.
Sec. 17-02.50. Title; Purpose.
(a) This Article shall be known as the “Just Cause Eviction and Tenant Protection Ordinance.” (b) It is the purpose and the intent of this Article to provide housing stability in the Salinas rental market and limit adverse impacts on displaced tenants forced to find replacement housing in the expensive and limited Salinas housing market. Pursuant to California Civil Code section 1946.2(g)(1)(B), the City Council hereby makes the following findings: This Article requiring just cause for termination of a residential tenancy is consistent with and more protective than California Civil Code section 1946.2. This Article is more protective because it further limits the reasons for termination of a residential tenancy, provides for higher relocation assistance amounts, and provides additional tenant protections that are not prohibited by any other provision of law. The rights conferred by this Article are in addition to any existing rights provided to Tenants by state or federal law.
Sec. 17-02.51. Definitions.
The following words or phrases as used in this Article shall have the following meanings:
(a) “Buyout Agreement.” A written agreement where a Landlord pays a Tenant money or other consideration to vacate a Residential Unit.
(b) “Buyout Negotiations.” Any discussion or bargaining, whether oral or written. Between a Tenant and a Landlord regarding the possibility of entering into a Buyout Agreement.
Buyout Negotiations begin upon the Landlord’s initiation of such discussion or bargaining and end at the earliest of the following events: when a Buyout Agreement is executed, when Just Cause Eviction and Tenant Protection Ordinance
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the Tenant vacates their Rental Unit, when the Tenant provides written notice to the Landlord that the Tenant no longer wishes to engage in Buyout Negotiations, or when the Landlord provides written notice to the Tenant that the owner no longer wishes to engage in Buyout Negotiations. A counteroffer by the Tenant does not end Buyout Negotiations. (c) “Disabled.” The same meaning as in California Government Code section 12955.3. (d) “Housing Service.” All amenities and services related to the use or occupancy of a Rental Unit and common areas that are provided by the landlord. Housing Services includes without limitation hot and cold water, heat, light, utilities that are paid by the Landlord, painting, elevator service, window shades and screens, refuse removal, janitorial service, maintenance, repairs, replacement, recreational areas (including pools or gyms), kitchen, bath, and laundry facilities, furnishings, storage space, parking (including one or more automobiles), employee services, security services, insurance, the payment of property taxes, and any other benefits or privileges permitted to the Tenant by agreement, whether express or implied, including the right to have a specific number of occupants and the right to one-for-one replacement of roommates, regardless of any prohibition against subletting and/or assignment. Housing Services also includes those basic Housing Services required by California Civil Code §1941.1. Housing Services includes a proportionate part of services provided to common facilities of the building and Property in which the Rental Unit is contained.
(e) “Landlord.” An owner, lessor, sublessor, or any other person entitled to receive Rent for the use and occupancy of any Rental Unit, or any agent, representative, or successor of any of the foregoing.
(f) “Primary Residence.” Occupancy which does not require that the individual be physically present in the unit at all times or continuously, but the unit must be the individual’s usual place of return. Indicia of primary residence include:
(1) The individual carries on basic living activities at the subject premises for extended periods;
(2) The subject premises are listed with other public agencies, including federal, state, and local taxing authorities as their primary residence; (3) Utilities are billed to and paid by the individual at the subject premises; (4) Homeowner’s tax exemption for the individual has not been filed for a different property;
(5) The occupant is not registered to vote at any other location; Just Cause Eviction and Tenant Protection Ordinance
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(6) Ownership must be held in the same name of the individual claiming primary residence and not held by a limited liability company or other corporate structure; and
(7) Other relevant factors illustrating primary residence. (g) “Property.” All Rental Units on a parcel or lot or contiguous parcels or contiguous lots under common ownership.
(h) “Rent” means all periodic payments and all nonmonetary consideration including, but not limited to, the fair market value of goods, labor performed or services rendered to or for the benefit of the Landlord under a Rental Housing Agreement, as defined in this section, concerning the use or occupancy of a Rental Unit and premises, including all payment and consideration demanded or paid for parking, utilities, pets, furniture, subletting, and security deposits for damages and cleaning.
(i) “Rental Housing Agreement.” An agreement, oral, written, or implied, between a Landlord and Tenant, for use or occupancy of a Rental Unit and for Housing Services. (j) “Recognized Tenant Organization” means any group of tenants residing in rental units in the same building or in different buildings operated by the same management company, agent, or landlord, who choose to be so designated.
(k) “Rental Unit.” Any building, structure, or part thereof, or land appurtenant thereto, or any other rental Property rented or offered for Rent for residential purposes, including any dwelling or unit in a mobilehome park, together with all Housing Services connected with the use of occupancy of such Property such as common areas and recreational facilities held out for use by the Tenant.
(l) “Tenant.” A tenant, subtentant, lessee, sublessee, or any other person entitled under the term of a Rental Housing Agreement to the use of occupancy of any Rental Unit. (m)“Utility Charges.” Any charges for gas, electricity, water, cable, or internet.
Sec. 17-02.52. Applicability; Exemptions.
(a) Applicability of this Article. This Article applies to all residential Rental Units, except for those units that are exempted.
(b) Exemptions from this Article. The following residential Rental Units are exempt from all provisions of this Article:
(1) A unit in a hotel, motel, inn, tourist home, or rooming and boarding house which is rented primarily to transient guests for a period of twenty-eight (28) consecutive calendar days or less, counting portions of calendar days as full days and other Just Cause Eviction and Tenant Protection Ordinance
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transient occupancies as defined in California Civil Code section 1946.12. This exemption does not apply, however, to the following:
(A)A Tenant who has lived at the property for more than thirty (30) consecutive calendar days;
(B) A Tenant who has entered into a Rental Housing Agreement to lease a Rental Unit for thirty (30) days or more; or
(C) Where a Landlord has violated California Civil Code section 1940.1 with regard to the Tenant.
(2) Rental Units in a hospital, convent, monastery, extended medical care facility, nonprofit home for the aged, or dormitory as defined in California Building Code section 202 that is solely owned and operated by an accredited institution of higher education.
(3) Dormitories owned and operated by an institution of higher education or a kindergarten and grades 1 to 12, inclusive.
(4) Housing accommodations in which the Tenant shares a bathroom or kitchen facilities with the owner who maintains their Primary Residence at the residential rental property.
(5) Single-family owner-occupied residences which the owner maintains as their Primary Residence, including a residence in which the owner-occupant rents or leases no more than two units or bedrooms, including, but not limited to, an accessory dwelling unit or junior accessory dwelling unit.
Sec. 17-02.53. Just Cause Required for Termination of Tenancy.
No Landlord shall take action to terminate any residential tenancy including, but not limited to, making a demand for possession of a Rental Unit threatening to terminate a residential tenancy verbally or in writing, serving any notice to quit or other eviction notice, or bringing any action to recover possession or be granted recovery of possession of a Rental Unit without just cause. For purposes of this Article, just cause includes at-fault and no-fault just cause. (a) At Fault Just Cause. At Fault Just Cause is any of the following:
(1) Failure to Pay Rent. The Tenant has failed to pay the Rent which the Landlord is legally entitled under the Rental Housing Agreement, this Article, or any other local law. However, this subsection shall not constitute grounds for eviction where the Tenant has withheld Rent pursuant to applicable law or where the amount of Rent demanded is less than one (1) month of fair market Rent for a unit of equivalent size in the Salinas metro area as determined by the U.S. Department of Housing and Urban Development.
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(2) Breach of Lease. The Tenant has continued, after written notice to cease, to substantially violate any of the material terms of the Rental Housing Agreement, except the obligation to surrender possession on proper notice as required by law, and provided such terms are reasonable and legal and have been accepted in writing by the Tenant or made a part of the Rental Housing Agreement; and provided further, that, where such terms have been accepted by the Tenant or made a part of the Rental Housing Agreement subsequent to the initial creation of the tenancy, the Landlord shall have first noticed the Tenant in writing that he or she need not accept such terms or agree to their being made part of the Rental Housing Agreement. (A)Notwithstanding nay contrary provision in this section, a Landlord shall not take any action to terminate a tenancy based on a Tenant’s sublease of the Rental Unit if the following requirements are met:
(i) The Tenant continues to reside in the Rental Unit as his, her, or their primary residence;
(ii) The sublease replaces one or more departed tenants under the Rental Housing Agreement on a one-for-one basis; and
(iii) The Landlord has unreasonably withheld the right to sublease following written request by the Tenant. If the Landlord fails to respond to the Tenant in writing within fourteen (14) days of receipt of the Tenant’s written request, the Tenant’s request shall be deemed approved by the Landlord. A Landlord’s reasonable refusal of the Tenant’s written request may not be based on the proposed additional occupant’s lack of creditworthiness, if that person will not be legally obligated to pay some or all of the Rent to the Landlord. A Landlord’s reasonable refusal of the Tenant’s written request may be based on, but is not limited to, the ground that the total number of occupants in a Rental Unit exceeds the maximum number of occupants as determined under Section 503(b) of the Uniform Housing Code as incorporated by
California Health and Safety Code section 17922.
(B) Protections for Families. Notwithstanding any contrary provision in this section, a Landlord shall not endeavor to recover possession of a Rental Unit as a result of the addition to the Rental Unit of the Tenant’s child, parent, grandchild, grandparent, brother or sister, or the spouse or domestic partner (as defined in California Family Code section 297) of such relatives, or as a result of the addition of the spouse or domestic partner of the Tenant, so long as the number of occupants does not exceed the maximum number of occupants as determined under section 503(b) of the Uniform Housing Code as incorporated by California Health and Safety Code section 17922.
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(C) Before endeavoring to recover possession based on the violation of a legal obligation or covenant of tenancy regarding subletting or limits on the number of occupants in the Rental Unit, the Landlord shall serve the Tenant a written notice of the violation that provides the Tenant with a minimum of fourteen (14) days’ opportunity to cure the violation. The Tenant may cure the violation by making a written request to add occupants referenced in subsection (2)(A)(iii) of this section or by using other reasonable means to cure the violation including, but not limited to, the removal of any additional or unapproved occupant. Nothing in this subsection is intended to limit any other rights or remedies that the law otherwise provides to Landlords or to Tenants.
(3) Nuisance. The Tenant has continued, after the Landlord has served the Tenant with a written notice to cease, to commit or expressly permit a nuisance in, or cause substantial damage to the Rental Unit.
(4) Waste. The committing of waste as described in California Code of Civil Procedure section 116(4), as may be amended.
(5) Criminal Activity; Criminal Threats. Criminal activity by the Tenant on the residential rental property, including any common areas associated with the residential rental property. A criminal threat, as defined in California Penal Code section 422(a), as may be amended, by the Tenant regardless of where made directed at the Landlord or any other Tenant of the residential rental property. (6) Assignment or Subletting in Violation of the Rental Housing Agreement. The Tenant’s assignment or sublet of the residential rental property in violation of the Tenant’s lease, as described in Section 17-02.53(a)(2)(A). (7) Failure to Give Access. The Tenant has continued to refuse without good cause, after the Landlord has served the Tenant with a written notice, to grant the Landlord reasonable access to the Rental Unit for the purposes of showing the Rental Unit to prospective purchasers, renters, or mortgagees, or making necessary repairs or improvements required by federal, state, or local laws. This shall include inspections by the City and other inspections needed so that the Landlord may comply with such laws. Unless due to a documented emergency affecting the Tenant’s health and/or safety, all repair or improvement work will be scheduled in compliance with applicable City regulations. To terminate a tenancy under this subsection, a Landlord must show that written notice was provided to the Tenant and all necessary repair or improvement work was scheduled in compliance with this subsection and all applicable City regulations. Landlords may not use lockboxes on occupied Rental Units.
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(8) Illegal Purpose. The Tenant is convicted of using or expressly permitting the Rental Unit to be used for any illegal purpose. Residing in a Rental Unit that lacks a certificate of occupancy, has not been approved by the City for residential use, or that has been cited for housing, building, or Zoning Code violations does not constitute use of the premises for an illegal purpose.
(b) No Fault Just Cause. No Fault Just Case is any of the following actions taken by the Landlord in good faith, meaning the Landlord acts without ulterior motives and with honest intent.
(1) Owner Move-In. The Landlord seeks to recover possession in good faith for use and occupancy as a Primary Residence by the Landlord or the Landlord’s spouse, domestic partner, child (by blood or adoption), grandchild (by blood or adoption), parent, or grandparent.
(A)Landlord, as used in this subsection, shall only include a Landlord that is a natural person who has at least fifty-one (51) percent recorded ownership interest in the property.
(B) The notice terminating tenancy shall contain the name, address or primary residence, and relationship to the Landlord of the person intended to occupy the Rental Unit, a list of all real property owned by each intended future occupant, and the address of the real property, if any, on which each intended future occupant claims a homeowner’s property tax exemption. (C) The Landlord or enumerated relative must intend in good faith to move into the Rental Unit within ninety (90) days after the Tenant vacates and occupy the Rental Unit as a primary residence for at least thirty-six (36) consecutive months.
(D)If the Landlord or enumerated relative specified in the notice terminating tenancy fails to occupy the unit for at least a thirty-six (36) consecutive month period, or fails to occupy the Rental Unit within ninety (90) days after the Tenant vacates, the Landlord shall:
(i) Offer the Rental Unit to the Tenant who vacated it at the same Rent and the same terms in effect at the time the Tenant vacated; and
(ii) Pay to said Tenant all reasonable expenses incurred in moving to and from the Rental Unit, including the lease termination fees.
This subsection does not limit any other remedies a Tenant may have under this Article or other applicable law.
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(E) No eviction may take place for an “owner move in” if the same Landlord or enumerated relative already occupies a Rental Unit on the Property, or if a vacancy already exists on the Property. Once a Landlord or enumerated relative has successfully recovered possession of a Rental Unit for an “owner move in” pursuant to this section, no other current Landlords or enumerated relatives may recover possession of any other Rental Unit in the building under this section. Only one (1) specific unit per building may undergo an eviction under this section. Any future evictions taking place in the same building under this section must be of that same unit. At all times a Landlord may request a reasonable accommodation if the Landlord or enumerated relative is disabled or another unit is necessary to accommodate the person’s disability.
(F) The Landlord may not recover possession for an “owner move-in” pursuant to this section if a comparable unit, owned by the Landlord and located within the city of Salinas, was, at the time of the Landlord’s decision to seek to recover possession of the Rental Unit, already vacant and available, or if a comparable unit, owned by the Landlord in the city of Salinas, thereafter becomes vacant at any time until the earlier of the Tenant’s surrender of possession of the premises or the entry of a judgment of a court of competent jurisdiction awarding possession of the premises to the Landlord.
In an action by or against the Tenant, evidence that a comparable unit was vacant and available within ninety (90) days prior to the date of a notice terminating the Tenant’s tenancy shall create a presumption that such unit was vacant and available at the time of the Landlord’s decision to seek to recover possession of the premises. “Presumption” means that the court must find the existence of the presumed fact unless and until the contrary is proven by a preponderance of the evidence.
(2) Temporarily Vacate in Order to Undertake Substantial Repairs; Demolition. (A)The Landlord, after having obtained all necessary permits from the City and other governmental agencies, seeks in good faith to demolish or to undertake substantial repairs which are necessary to bring the Property into compliance with applicable codes and laws affecting the health and safety of Tenants of the building or where necessary under an outstanding notice of code violations affecting the health and safety of Tenants of the building, and where such repairs cannot be completed while the Tenant resides on the Property. For purposes of this section, “substantially remodel” means the replacement or substantial modification of any structural, electrical, plumbing, or mechanical system that requires a permit from a governmental agency, or the abatement of hazardous materials, including lead-based paint, mold, or asbestos, in accordance with applicable federal, state, and local laws. Cosmetic improvements alone, including painting, decorating, and Just Cause Eviction and Tenant Protection Ordinance
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minor repairs, or other work that can be performed safely without having the residential real property vacated, do not qualify as a substantial remodel. (i) The Landlord shall give written notice to the Tenant at least thirty (30) days prior to the proposed date of commencement of such substantial repair which notice shall include a description of the repairs to be completed and the approximate expected duration of the repairs, together with a copy of the permit(s) required or, if the substantial remodel does not require any permit, a copy of the signed contract with the contractor hired by the Landlord to complete the substantial repairs that reasonably details the work that will be undertaken.
(B) Where such repairs can be completed in a period of sixty (60) or fewer days, and the Tenant agrees in writing to vacate the premises during the period required to complete the repairs, the Landlord may not recover possession pursuant to this section unless the Tenant shall fail or refuse to vacate the premises in accordance with such agreement.
(C) Where the Landlord owns any other residential Rental Units in the city of Salinas, and such Rental Unit is vacant and available at the time of service of the written notice terminating the tenancy, or ay any other time thereafter until the earlier of the Tenant’s vacating the premises or the entry of a judgment by a court of competent jurisdiction awarding possession of the premises to the Landlord, the Landlord shall, as a condition of obtaining possession pursuant to this subsection notify the Tenant in writing of the existence and address of such vacant Rental Unit and offer the Tenant the right, at the Tenant’s option:
(i) To enter into a Rental Housing Agreement (to be designated as a “temporary housing agreement”) on any available Rental Unit which the Tenant may choose, at a Rent not to exceed the lesser of the lawful Rent which may be charged for such available Rental Unit or the lawful Rental in effect, at the time of the notice of termination of tenancy, on the unit being vacated, said Rental Housing Agreement to be for a term of the lesser of ninety (90) days or until completion of repairs on the Rental Unit being vacated by the Tenant;
(ii) To enter into a new Rental Housing Agreement for such available Rental Unit at a Rent not to exceed the lawful Rent which may be charged for such available Rental Unit.
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(D)Where the Landlord recovers possession under this subsection the Tenant must be given the right of first refusal to re-occupy the Rental Unit upon completion of the reconstruction or the required work.
Sec. 17-02.54. Requirements Upon Termination of Tenancy. (a) Requirements Upon Termination of Tenancy for At Fault Just Cause. If a Landlord issues a termination notice for at fault just cause, the Landlord shall do the following:
(1) Notice to Tenant. Before a Landlord issues a notice to terminate a tenancy for at fault just cause that is a curable lease violation, the Landlord shall first give written notice of the violation within a reasonable time period prior to serving a notice to terminate tenancy, with a minimum of ten (10) days’ opportunity to cure the violation, and shall inform the Tenant that a failure to cure may result in the initiation of eviction proceedings, including a description of the violation and an opportunity to cure the violation. The notice shall also include any information necessary to determine the date, time, place, witnesses present, and other circumstances concerning the reason for the notice. The ten (10) day written warning notice requirement shall not apply if the Landlord is seeking to recover possession based on the Tenant causing or creating an imminent risk of physical harm to persons or property.
(2) Additional Notice to Tenant. The Landlord shall give written notice to the Tenant at least thirty (30) or sixty (60) days prior to the proposed date of termination as required by California Civil Code section 1946.1, as may be amended, in no less than 12-point font. The written notice shall contain the following:
(A) The Landlord shall provide a description of the basis for the termination. In any notice purporting to terminate a tenancy the Landlord shall state the cause for the termination, and in any action brought to recover possession of a Rental Unit, the Landlord shall allege and prove compliance with this section and that the Landlord seeks to recover possession of the Rental Unit with good faith, honest intent, and with no ulterior motive for the reason stated in the termination notice. (b) Requirements Upon Termination of Tenancy for No Fault Just Cause. If a Landlord issues a termination notice for no fault just cause, the Landlord shall do the following:
(1) Notice to Tenant. The Landlord shall give written notice to the Tenant at least thirty (30) or sixty (60) days prior to the proposed date of termination as required by California Civil Code section 1946.1, as may be amended, in no less than 12-point font. The written notice shall contain the following:
(A)The Landlord shall provide a description of the basis for the termination. In any notice purporting to terminate a tenancy the Landlord shall state the cause for the termination, and in any action brought to recover possession Just Cause Eviction and Tenant Protection Ordinance
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of a Rental Unit, the Landlord shall allege and prove compliance with this section and that the Landlord seeks to recover possession of the Rental Unit with good faith, honest intent, and with no ulterior motive for the reason stated in the termination notice.
(B) The notice shall state the Tenant’s right to relocation assistance by a direct payment to the Tenant.
(C) The notice shall state the Tenant’s right to receive an offer to renew the tenancy and thirty (30) days to accept the offer in the event the residential Rental Unit is offered again for rent or lease for residential purposes within five (5) years of the date the Tenant was evicted under Section 17-02.53(b) and that to exercise such right, the Tenant:
(i) Shall notify the Landlord in within thirty (30) days of the termination notice of the Tenant’s desire to receive an offer to renew the tenancy;
(ii) Provide the Landlord a mailing address or email address for the Landlord to send the offer; and
(iii) Provide the Landlord a change of mailing address or email address.
Rent shall be the Rent lawfully paid by the Tenant at the time the Landlord gave notice to vacate plus any lawful adjustment under the Rent Stabilization Ordinance. The terms of the Rental Housing Agreement shall be the same terms in effect as of the date of the notice to vacate. All notices of termination of tenancy served under this section shall state the lawful Rent in effect at the time of termination of tenancy.
(2) Filing Termination Notices with the City. The Landlord shall file with the City Attorney a copy of any notice of terminating tenancy upon a Tenant and any accompanying materials, including all warning notices, within three (3) days of service of the notice on the Tenant. Each notice shall be indexed by property address and by the name of the Landlord.
(c) Relocation Assistance for Termination for No Fault Just Cause. (1) A Landlord seeking to recover possession under section 17-02.53(b) shall, regardless of the Tenant’s income or length of tenancy provide relocation assistance to the Tenant in an amount equal to three months of actual Rent under the Tenant’s Rental Housing Agreement in effect at the date of the notice.
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(2) The relocation assistance required by this section shall not relieve the Landlord’s obligation to, and shall be in addition to, the return of any deposit or security amounts owed to the Tenant.
(d) Additional Requirement Upon Termination of a Tenancy for No Fault Just Cause. If a residential rental property is offered for rent or lease for residential purposes within five (5) years of the date the Tenant was evicted under section 17-02.53(b), a Landlord shall first offer to lease the residential real property in writing to the Tenant displaced from the Rental Unit by the no fault just cause termination if the Tenant:
(1) Advised the Landlord in writing within thirty (30) days of the termination notice of the Tenant’s desire to receive an offer to renew the tenancy; and (2) Provide the Landlord a mailing address or email address for the Landlord to send the offer, including any change of mailing address or email address.
The Landlord shall have the right to screen the Tenant using industry accepted methods and shall communicate the minimum screening criteria in the written offer for the new tenancy. The Tenant shall have thirty (30) days from the date of receipt of the offer to accept.
(e) In addition to other remedies applicable to Landlord’s failure to comply with this Article, a Landlord’s failure to strictly comply with this section shall render void any notice of termination required by this section.
Sec. 17-02.55. Notice to Tenant of Residential Tenant Protections. (a) A Landlord of residential rental property subject to this Article shall provide written notice in no less than 12-point font to the Tenant, and in a manner that complies with California Civil Code section 1632, as may be amended, that states as follows:
Salinas law limits the amount your Rent can be increased. See Salinas Municipal Code section [_______________] for more information. Salinas law also provides that a Landlord shall provide a statement of cause in any notice to terminate a tenancy. In addition, Tenants evicted on a no fault basis have the right to return at the same rent, and the right to relocation payments. See Salinas Municipal Code section 17-02.54(b) for more information.
(b) For a tenancy in a residential rental property subject to this Article existing on or before the effective date of this ordinance, the notice required by subsection (a) of this section shall be provided to the Tenant directly or as an addendum to the Rental Housing Agreement within thirty (30) days of the effective date of this ordinance. (c) For a tenancy in a residential rental property subject to this Article commencing or renewed after the effective date of this ordinance, the notice required by subsection (a) of this section Just Cause Eviction and Tenant Protection Ordinance
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shall be included in the Rental Housing Agreement, or as a written notice provided to the Tenant at the time the Rental Housing Agreement is entered into. (d) Landlords must provide to each Tenant a current notice of Tenant and Tenant household rights under this Article in accordance with the requirements of this section:
(1) Within thirty (30) calendar days of this Article taking effect; (2) When entering into a Rental Housing Agreement;
(3) When renewing a Rental Housing Agreement;
(4) When providing notice of a Rent increase;
(5) When a Landlord lists the Property for sale; and
(6) Within thirty (30) days of acquiring title to the Rental Unit or Property. (e) Notices provided under this section shall be in English and in Spanish. If the Rental Housing Agreement governing a Rental Unit to which this Article applies is in a language other than English or Spanish, the Landlord must provide an accurate translation of the notice of Tenant’s rights in the language of the Rental Housing Agreement. (f) Failure to comply with the notice requirements in this section shall render any rental increase notice invalid and unenforceable until such non-compliance is cured. Failure to comply with the notice requirements of this section may only be cured by providing notice of Tenants’ rights in accordance with this section.
Sec. 17-02.56. Buyout Agreements.
It is the purpose and the intent of this section to regulate Buyout Agreements, to increase the fairness of Buyout Negotiations and Buyout Agreements, to ensure that Tenants who enter into Buyout Agreements are aware of their rights, and to prevent Landlords from contracting around the legal rights and remedies available to Tenants under existing law. (a) Disclosure Prior to Buyout Negotiations. Prior to initiating Buyout Negotiations, the Landlord shall provide each Tenant in a Residential Unit a written disclosure that shall include the following:
(1) A statement that the Tenant has a right to refuse to enter into a Buyout Agreement or to engage in Buyout Negotiations;
(2) A statement that the Tenant may choose to consult with an attorney before entering into a Buyout Agreement or engaging in Buyout Negotiations; Just Cause Eviction and Tenant Protection Ordinance
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(3) A statement that the Landlord may not retaliate against the Tenant for refusing to enter into or negotiate a Buyout Agreement;
(4) A statement that offering payments to a Tenant to vacate more than once in a six (6) month period after the Tenant has notified the Landlord in writing that the Tenant refuses to enter into a Buyout Agreement or engage in Buyout Negotiations constitutes harassment under the City’s Anti-Harassment Ordinance; (5) A statement that the Tenant is eligible for relocation assistance and the amount of the required relocation assistance in section 17-02.54 of this Article; (6) The names of all people authorized to discuss the buyout offer and enter into a Buyout Agreement on the Landlord’s behalf;
(7) A statement that the Tenant may find information regarding Tenants’ rights and contact information for Tenants’ assistance organizations at the City’s website, as well as information regarding the City’s other relevant online resources; (8) A space for each Tenant to sign and write the date the Landlord provided the Tenant with the disclosure; and
(9) A space for the Landlord to sign and write the date on which the Landlord provided the Tenant with the disclosure.
(b) The Landlord shall provide each Tenant a fully executed copy of the disclosure form within three (3) days of its execution and retain a copy of each signed disclosure form for five (5) years, along with a record of the date the Landlord provided the disclosure to each Tenant. (c) Requirements for Buyout Agreements. The Landlord shall comply with the following. A Buyout Agreement that does not strictly comply with all the requirements of this section shall be void.
(1) The Buyout Agreement shall be in writing.
(2) A copy of the executed Buyout Agreement shall be given to each Tenant at the time the Tenant signs the Buyout Agreement.
(3) The Buyout Agreement shall include the following statements in bold letters at least 14-point font in close proximity to the space reserved for the signature of the Tenant:
(A)You, the Tenant, have a right not to enter into this Buyout Agreement.
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(B) If you, the Tenant, are entitled to relocation assistance under federal, state, or local law, a Buyout Agreement for less than the amount of the relocation assistance to which you are entitled violated this Article and is void. (C) You, the Tenant, may choose to consult with an attorney before signing this Buyout Agreement.
(4) If the Tenant primarily negotiates the Buyout Agreement, orally or in writing, in a non-English language, the Landlord shall provide the Tenant with an English and a translated version of the Buyout Agreement at the same time. (d) Void Buyout Agreements. Buyout Agreements must be for an amount that is greater than the amount of relocation assistance available to the Tenant under this Article. A Buyout Agreement for less than the amount of relocation assistance owed to the Tenant violates this Article and is void.
(e) No Waiver. The provisions of this section may not be waived in a Buyout Agreement. Any term of a Buyout Agreement, lease, contract, or other Rental Housing Agreement which purports to waive or to limit a Tenant’s rights under this section is contrary to public policy, unenforceable, and void.
Sec. 17-02.57. Ellis Act Provisions. Withdrawal of a Residential Rental Structure from the Rental Market.
California Government Code Sections 7060, et seq. (the "Ellis Act") permits the City, among other things, to require Landlords to provide all Tenants with 120 days’ notice, or one year if the Tenants lived in the accommodations for at least one year and are more than 62 years of age or disabled, when Rental Units subject to the Rent Stabilization Ordinance are to be withdrawn from the rental market.
The Ellis Act also permits the City to impose other restrictions, conditions and requirements upon the Property. It is the purpose of this section to implement provisions of the Ellis Act and shall be interpreted so as to provide the City with the broadest range of authority permitted under these provisions and to intrude the least into the City's authority in all other applications of its power. The City Attorney may develop forms and regulations to assist in the implementation of these provisions.
Pursuant to California Government Code section 7060, the Ellis Act and this Section shall not apply to a Residential Hotel as defined in accordance with California Health and Safety Code section 50519. (a) This Section 17-02.57 shall only apply to and shall only be exercised for the concurrent withdrawal of all Rental Units in all buildings or structures on a parcel of land from the rental market except where there is more than one building on a parcel and all buildings contain four or more rental units, in which case the Landlord may withdraw all of the units in one or more of the buildings.
(b) Not less than 120 days from the date the Landlord intends to withdraw the Rental Units in a building or structure from the rental market, and after completion of all required proceedings, if Just Cause Eviction and Tenant Protection Ordinance
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any, the Landlord shall:
(1) By first class mail, postage prepaid, or by personal delivery, provide written notice under penalty of perjury to the city of such intent, which notice shall contain the following information: Address and legal description of the subject Property, number of Rental Units being removed, the names of all Tenants residing in the units being removed, and the current Rent applicable to each such unit. If a unit is not occupied at the time notice is given, for purposes of the City's recordkeeping needs, the notice shall state the last Rent paid for such unit. Said notice shall be accompanied by a fee in an amount to be determined by resolution of the City Council, to reimburse the City for the direct and actual costs of tenant counseling and relocation assistance associated with an eviction under this Section 17-02.57.
(2) Record with the Monterey County Registrar-Recorder a written notice prepared by and containing such information as is prescribed by the city summarizing the Landlord's notice of intent and certifying that evictions have commenced or will commence in accordance with applicable law.
(3) Provide written notice of termination of tenancy to all affected Tenants, which notice shall contain the following information:
(i) That the Landlord is evicting the Tenant pursuant to this Section 17-02.57 and will provide the City with the written notice required in subparagraph (b)(1) above;
(ii) A summary of the specific information to be provided to the City in that notice regarding the Tenant's unit;
(iii) That within thirty (30) days of receipt of notice to terminate, the Tenant may notify the Landlord in writing that the Tenant would be interested in rerenting the unit if any of the units are re-offered for rent at a future time and advising the Tenant to notify the Landlord of future address changes. A Tenant shall also provide the City with a copy of the written notice. Failure to submit a copy of the written notice to the City does not affect the Tenant's right of first refusal if the Landlord was properly notified; (iv) A description of the Tenant's rights as set forth in subparagraphs (c) and (d) below. The notice shall be accompanied by a relocation fee in accordance with subsection (b)(1) above; and
(v) A description of the Tenant's rights under subparagraph (b)(4). (4) If the Tenant is at least sixty-two years old or disabled, and has lived in the Rental Unit at least one year before the Landlord gave the City notice of intent to withdraw the unit from the rental market, the Tenant may extend the time before he or she must vacate.
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The extension shall be to one year from the date when the Landlord gave the City proper notice of intent to withdraw. In order to obtain the extension, the Tenant must give the Landlord written notice that he or she is at least sixty-two years old or disabled, and must do so no more than sixty (60) days after the Landlord gave the City notice of intent to withdraw. Then, the following provisions shall apply:
(i) The tenancy shall be continued on the same terms and conditions as existed on the date of delivery to the city of the notice of intent to withdraw, subject to any adjustments otherwise available under this Article; (ii) No party shall be relieved of the duty to perform any obligation under the lease or Rental Housing Agreement;
(iii) The Landlord may elect to extend the date of withdrawal on any other accommodation within the same building up to one year after the date of delivery to the City of the notice of intent to withdraw, subject to paragraphs (i) and (ii);
(iv) Within thirty (30) days of the notification by the Tenant to the Landlord of his or her entitlement to an extension, the Landlord shall give written notice to the City of the claim that the Tenant is entitled to stay in their Rental Unit for one year after the date of delivery to the City of the notice of intent to withdraw;
(v) Within ninety (90) days of the date of delivery to the City of the notice of intent to withdraw, the Landlord shall give written notice to the City and the affected Tenant(s) of the Landlord's election to extend the date of withdrawal and the new date of withdrawal under paragraph (iii). (c) In the event that any of the withdrawn Rental Unit are re-offered for rent by the Landlord within two years from the effective date of withdrawal, the Landlord shall:
(1) Provide written notice of such action to the City not less than thirty (30) days prior to re-renting the Rental Units;
(2) Offer the Rental Units at the same terms and conditions as of the date of withdrawal plus any general across-the-board adjustment that would have applied had the Rental Units not been withdrawn;
(3) Provide those Tenants who provided a notice of interest in re-renting pursuant to subparagraph (b)(3)(iii) above the right to first refusal to re-rent the Rental Unit by certified or registered mail, postage prepaid, to the last address provided by the Tenant, in which case the Tenant shall have no less than thirty (30) days within which to accept the offer, by personal service or certified or registered mail; (4) Be liable in a civil action if commenced within three years of displacement to any Tenant evicted due to withdrawal of a Rental Unit pursuant to this Section 17-02.57 for actual damages which were the proximate result of the displacement, in accordance with Just Cause Eviction and Tenant Protection Ordinance
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the principles enunciated in Sections 7262 and 7264 of the California Government Code, and exemplary damages; and
(5) Be liable in a civil action, if commenced within three years of displacement, to the City for exemplary damages for each of the withdrawn units.
(d) In the event any of the withdrawn Rental Units are re-offered for rent by the Landlord within five (5) years after any notice of intent to withdraw the accommodation is filed with the City or within five (5) years after the Rental Units are withdrawn, whichever is later, the Landlord shall:
(1) Provide not less than thirty (30) days' prior written notice of such action to the City prior to re-renting the Rental Units;
(2) Offer the Rental Units at the same terms and conditions as of the date the notice of intent to withdraw is filed with the City, plus any general adjustments that would have applied under this Article had the Rental Units not been withdrawn; (e) If any of the withdrawn Rental Units are re-offered for rent less than ten (10) years from the effective date of removal, the Landlord shall provide those tenants who provided notice of interest in re-renting pursuant to subparagraph (b)(3)(iii) the right of first refusal to re-rent the Rental Unit, by certified or registered mail, postage prepaid, to the last address provided by the Tenant, in which case the Tenant shall have no less than thirty (30) days within which to accept the offer by personal service or certified or registered mail. Failure of the Landlord to provide the Tenant with this right of first refusal shall render the Landlord liable in a civil action to the tenant in punitive damages in an amount not to exceed six (6) months' rent. (1) The Landlord shall provide not less than thirty (30) days’ prior written notice of such action to the City prior to re-renting the Rental Units. (f) This Section 17-02.57 shall in no respect relieve a Landlord from complying with the requirements of any applicable state law or of any Rental Housing Agreement. (g) The remedies provided for in this Section 17-02.57 shall not be exclusive and shall not preclude a Tenant from pursuing any alternative remedy available under the law. Failure by any Landlord to comply with the requirements of this Section 17-02.57 shall constitute a defense in any unlawful detainer action brought to evict a tenant under this Section 17-02.57. (h) For the purpose of this Section 17-02.57, the term "landlord" shall be interpreted to include any and all successors-in-interest of any landlord.
(i) The notice to the City provided for in this section shall be accompanied by a processing fee in an amount determined by resolution of the City Council.
Sec. 17-02.58. Remedies.
(a) Affirmative Defense. A Landlord’s failure to comply with the requirements of this article shall be an affirmative defense to an unlawful detainer action by a Landlord. A Tenant who prevails in a case for wrongful eviction due to the Landlord’s non-compliance with this article shall recover costs and reasonable attorney’s fees.
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(b) Whenever a Landlord or anyone assisting a Landlord wrongfully endeavors to recover possession or recovers possession of a Rental Unit in violation of this Article, The Tenant or the City may institute a civil proceeding for injunctive relief, money damages or not less than three times actual damages (including damages for mental or emotional distress), and whatever other relief the court deems appropriate. In the case of an award of damages for mental or emotional distress, said award shall only be trebled if the trier of fact finds that the Landlord acted in knowing violation of or in reckless disregard of this article. The prevailing party shall recover reasonable attorney’s fees and costs pursuant to order of the court.
(c) The remedies available in this section shall be in addition to any other existing remedies which may be available to the Tenant.
(d) City Authorization to Enforce this Article. The City shall have the right and authority, but not the duty, to enforce the requirements of this article by bringing actions for injunctive relief on behalf of the city or tenants or tenant households to which this article applies, and by seeking compliance by landlords with the requirements of this article through administrative remedies or by citation. The city in itssole discretion may choose to enforce the provisions of this article through administrative fines or other remedies provided in the Salinas Municipal Code. The city’s decision to pursue or not pursue enforcement of any kind shall not affect the rights of tenants or tenant households to whom this article applies to pursue civil remedies for violations of this article. (e) Other private rights of action. Nothing in this article shall be deemed to limit the right of a landlord to file an action against a tenant or non-tenant third party for damage to the landlord’s property, or to otherwise seek recovery from tenants or third parties as permitted by a lawful rental agreement or applicable provisions of law. (f) It shall be unlawful for a Landlord to refuse to rent or lease or otherwise deny to or withhold from any person any Rental Unit because the age of a prospective Tenant would result in the Tenant acquiring rights under this Article. (g) It shall be unlawful for a Landlord or any other person who willfully assists the Landlord to endeavor to recover possession or to evict a Tenant except as provided in this article. (h) No cause of action against the city. To the maximum extent permitted by law, nothing in this article shall be construed to create a cause of action against the City, or a basis for seeking an award of attorney’s fees against the City pursuant to the private attorney general’s statute in Code of Civil Procedure section 1021.5, or on any other basis arising from or related to an alleged violation of the requirements of this article, and/or based on or related to the City’s prosecution or enforcement or alleged failure to prosecute or enforce any such alleged violation, and/or based on or related to the City’s implementation or alleged failure to implement the requirements of this article.
Sec. 17-02.59. Administrative Regulations and Forms.
The City Manager and the City Attorney are authorized to promulgate guidelines and regulations to Just Cause Eviction and Tenant Protection Ordinance
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implement this article, including publication of form notices and other documents. Any and all forms, notices, and other documents necessary or helpful in the administration of this article may be adopted by the City Manager and the City Attorney.
Sec. 17-02.60. Retaliation Prohibited.
(a) No landlord may threaten to bring, or bring, an action to recover possession, cause the tenant to quit the unit involuntarily, serve any notice to quit or notice of termination of tenancy, decrease any housing services or increase the rent where the landlord’s intent is retaliation against the tenant for the tenant’s assertion or exercise of any right under thistitle. (b) Any action of retaliation described in subsection (a)shall be a defense to an action to recover possession, or it may serve as the basis for an affirmative action by the tenant or actual and punitive damages and injunctive relief.
(c) A tenant may assert retaliation affirmatively or as a defense to the landlord’s action regardless of the period of time which has elapsed between the tenant’s assertion or exercise of rights under this chapter and the alleged act of retaliation.
Sec. 17-02.61. Affirmative Defense.
Failure to comply with any requirement of this article may be asserted as an affirmative defense in an action brought by a Landlord to recover possession of the Rental Unit.
Sec. 17-02.62. Non-waiverability.
Any provision, whether oral or written, in or pertaining to a rental Housing Agreement whereby any provision of this article for or of the benefit of the Tenant is waived, shall be deemed to be against public policy and shall be void.
SECTION 2. All ordinances and parts of ordinances and all resolutions and parts of resolutions in conflict herewith are hereby repealed as of the effective date of this Ordinance.
SECTION 3. Publication. The City Clerk shall cause a summary of this ordinance to be published once in a newspaper published and circulated in Salinas within fifteen (15) days after adoption. (Salinas Charter Section 11.9)
SECTION 4. CEQA Compliance. The City Council’s adoption of this ordinance is not a project subject to environmental review undertheCalifornia Environmental Quality Act(CEQA Guidelines section 15061(b)(3).) Additionally, the City Council’s adoption of this ordinance is exempt because it does not meet the definition of a “project” under CEQA, pursuant to CEQA Guidelines sections 15060(c)(1) and 15378(a), because it has no potential to result in a direct or reasonably foreseeable physical change in the environment.
SECTION 5. Severability. If any section,subsection,sentence, clause, or phrase of this ordinance is for any reason held to be invalid or unconstitutional by a decision of any court of any competent Just Cause Eviction and Tenant Protection Ordinance
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jurisdiction, such decision shall not affect the validity of the remaining portions of this ordinance.
The Salinas City Council hereby declares that it would have passed this ordinance, and each and every section, subsection, clause, and phase thereof not declared invalid or unconstitutional without regard to whether any portion of the ordinance would be subsequently declared invalid or unconstitutional.
SECTION 6. Effective Date. This Ordinance will take effect thirty (30) days from and after its adoption.
PASSED AND ADOPTED this ____ day of ________________, 2024, by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
APPROVED:
____________________________________
Kimbley Craig, Mayor
APPROVED AS TO FORM:
________________________________
Christopher A. Callihan, City Attorney
ATTEST:
___________________________________
Patricia M. Barajas, City Clerk
Tenant Anti-Harassment Ordinance
August 7, 2024
ORDINANCE NO. ______ (N.C.S.)
AN ORDINANCE ADDING ARTICLE IIC TO CHAPTER 17 OF THE SALINAS
MUNICIPAL CODE RELATED TO TENANT ANTI-HARASSMENT PROTECTIONS City Attorney Impartial Analysis
…
RECITALS…
SECTION 1. Article IIC is hereby added to Chapter 17 of the Salinas Municipal Code to read as follows:
Article IIC. Anti-Harassment.
Sec. 17-02.100. Title, Purpose, and Applicability.
(a) This Article shall be known as the “Tenant Anti-Harassment Ordinance.” (b) The Tenant Anti-Harassment Ordinance augments existing protections provided to residential Tenants under federal, state, and local laws to prohibit and to deter Tenant harassment by Landlords in all residential Rental Units, including single-family residences and condominiums.
(c) The Tenant Anti-Harassment Ordinance applies to all Landlords and Tenants of residential Rental Units within the city, including mobile-homes, mobile-home spaces, trailers, trailer spaces, unless exempted herein, including Landlords and Tenants who may not be covered by other Tenant protection policies.
Sec. 17-02.101. Definitions.
For the purpose of this Article, the following words or phrases shall have the following meanings:
(a) Housing Services. All amenities and services related to the use or occupancy of a Rental Unit and common areas that are provided by the Landlord. Housing Service includes without limitation hot and cold water, heat, light, utilities that are paid by the Landlord, painting, elevator service, window shades and screens, refuse removal, janitorial service, maintenance, repairs, replacement, recreational areas (including pools or gyms), kitchen, bath, and laundry facilities, furnishings, storage space, parking (including one or more automobiles), employee services, security services insurance, the payment of property taxes, and any other benefits or privileges permitted to the Tenant by agreement, whether express or implied, including the right to have a specific number of occupants and the right to one-for-one replacement of roommates, regardless of any prohibition against subletting and/or assignment. Housing Services also includes those basic Housing Services required by Cal. Civil Code §1941.1. Housing Services includes a proportionate part of services Tenant Anti-Harassment Ordinance
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provided to common facilities of the building and Property in which the Rental Unit is contained.
(b) Landlord. An owner, lessor, sublessor, or any other person entitled to receive rent for the use and occupancy of any rental unit, or an agent, representative, or successor of any of the foregoing.
(c) Property. All Rental Units on a parcel or lot or contiguous parcels or contiguous lots under common ownership.
(d) Rent. All periodic payments and all nonmonetary consideration including, but not limited to, the fair market value of goods, labor performed or services rendered to or for the benefit of the Landlord under a Rental Housing Agreement, as defined in this section, concerning the use or occupancy of a Rental Unit and premises, including all payment and consideration demanded or paid for parking, utilities, pets, furniture, subletting, and security deposits for damages and cleaning.
(e) Rental Housing Agreement. An agreement, oral, written, or implied, between a Landlord and Tenant for the use or occupancy of a Rental Unit and for Housing Services. (f) Rental Unit. Any building, structure, or part thereof, land appurtenant thereto, or any other rental Property rented or offered for rent for residential purposes, together with all Housing Services connected with use or occupancy of such Property such as common areas and recreational facilities held out for use by the Tenant. (g) Tenant. A tenant, subtenant, lessee, sublessee, or any other person entitled under the terms of a Rental Housing Agreement to the use or occupancy of any Rental Unit.
Sec. 17-02.102. Exemptions.
The following Rental Units are exempt from the restrictions and requirements of this Article:
(a) Rental Units in any hospital, skilled nursing facility, or health facility. (b) Rental units in a nonprofit facility that has the primary purpose of providing short-term treatment, assistance, or therapy for alcohol, drug, or other substance abuse and the housing is provided incident to the recovery program, and where the client has been informed in writing of the temporary or transitional nature of the housing at itsinception and islicensed for such purpose where such license is required.
(c) Rental units in a nonprofit facility that provides a structured living environment with the primary purpose of helping homeless persons obtain skills necessary for independent living in permanent housing and where the occupancy is restricted to a limited and specific period of time of not more than 24 months, and where the client has been informed in writing of the Tenant Anti-Harassment Ordinance
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temporary or transitional nature of the housing at its inception and is licensed for such purpose where such license is required.
(d) Rental units exempted from Cal. Civil Code Part 4, Title 4, Chapter 2 by § 1940(b) (transient occupancy in hotels/motels), or successor statute, unless either the landlord offers for rent or rents the rental unit for a period of 30 days or more, or the landlord violates Cal. Civil Code § 1940.1, or successor statute, to avoid tenancy status.
Sec. 17-02.103. Harassment by Landlord Prohibited; Harassment by Tenant Prohibited. (a) No Landlord, and no agent, representative, or employee of the Landlord, shall engage in any act or omission described below in bad faith. Each act or omission in violation of this section constitutes harassment.
(1) Interrupt, terminate, or fail to provide, or threaten to interrupt, terminate, or fail to provide Housing Services required by a Rental Housing Agreement or by state or local housing, health, or safety laws. This includes, without limitation, the following:
(A)Curtailing any utility services by any means whatsoever including, but not limited to, the cutting or removing of wires, removal of fuses, switching of breakers, and non-payment of bills for utilities that are part of the housing services. Utility services includes, but is not limited to, water, heat, electricity, gas, telephone, cable, internet, garbage and recycling collection, and sewage.
(B) Impeding reasonable access to the residential units. (C) Removing, without replacement within a reasonable period time period, when building permits are obtained, if required, doors or windows of the Rental Unit.
(2) Fail to perform or threaten to fail or perform, repairs or maintenance required by a Rental Housing Agreement or by state or local housing, health, or safety laws. (3) Fail to exercise due diligence in completing repairs or maintenance once undertaken or fail or follow appropriate industry repair containment or remediation protocols designed to minimize expose to noise, dust, lead paint, mold, asbestos, or other building materials with potentially harmful health impacts. (4) Take, or threaten to take, any action to recover possession or cause the Tenant to quit the Rental Unit involuntarily, decrease a Housing Service, or increase Rent with the intent to retaliate against the Tenant for the Tenant’s assertion or exercise of any right under this Article, including a right to request reasonable repairs or maintenance, or to deter the assertion or exercise of such rights.
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(5) Solicit a Tenant for sexual conduct in exchange for protection from eviction, repairs or maintenance of the Rental Unit or rental property, or the fulfilment of an obligation of the Landlord under the Rental Housing Agreement or law. (6) Abuse the right of access into a rental unit as established and limited by Cal. Civil Code § 1954 orsuccessor statute, including entering or photographing portions of the Rental Unit that are beyond the scope of a lawful entry or inspection. (7) Remove from the Rental Unit personal property, furnishings, or other items that belong to the tenant or that are part of the Housing Services without the prior written consent of the Tenant, except when done pursuant to the procedures set forth in Cal.
Civil Code § 1980 et seq., or successor statute.
(8) Remove or cause removal of a Tenant's vehicle from the rental property or abutting street in violation of applicable law. If applicable law allows for towing of the vehicle, then towing the vehicle does not constitute harassment. (9) Influence or attempt to influence a Tenant to vacate a Rental Unit through fraud, intimidation, or coercion. This includes threatening to report a Tenant or other person known to the Landlord to be associated with the Tenant to any local, state, or federal agency based on their perceived or actual immigration status. The prohibition shall not be construed as preventing communication with such agencies regarding an alleged immigration violation as permitted by law. This provision shall also not be construed to conflict with Cal. Civil Code § 1940.2(a)(5) or successor statute. (10) Offer payments to a Tenant to vacate more than once in six months, after the tenant has notified the landlord in writing the Tenant does not desire to receive further offers of payments to vacate.
(11) Attempt to coerce a Tenant to vacate with offer(s) of payments to vacate that are accompanied with threats or intimidation.
(12) Threaten a Tenant or their guest by word or gesture, with physical harm.
Similarly, no Tenant may threaten a Landlord or their guests, agents, employees, or representatives by word or gesture, with physical harm. (13) Engage in verbal or nonverbal abuse of a Tenant or their guest or use verbal or nonverbal actions directed at a tenant or their guest that are likely, or intended, to cause physical, mental, or emotional harm, including verbal or nonverbal actions directed toward a tenant or their guest as a member of a protected classthat are likely, or intended, to cause, physical, mental, or emotional harm. Similarly, no Tenant may engage in verbal or nonverbal abuse of a Landlord or their guests, agents, or representatives or use verbal or nonverbal actions directed at a Landlord or their guests, agents, or representatives that are likely to cause physical, mental, or Tenant Anti-Harassment Ordinance
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emotional harm, including verbal or nonverbal actions directed toward a Landlord or their guests, agents, or representatives as a member of a protected class that are likely, or intended, to cause physical, mental, or emotional harm. (14) Engage in any act or omission that interferes with a Tenant's right to quiet use and enjoyment of a Rental Unit, as that right is defined by California law. (15) Violate a law that prohibits discrimination based on actual or perceived race, color, sex (including pregnancy, childbirth, and related medical conditions), gender, sexual preference, sexual orientation, ethnic background, nationality, ancestry, place of birth, immigration or citizenship status, primary language, religion, age, source of income, military or veteran status, familial status (including parenthood, occupancy of a minor child, and composition of family unit), maritalstatus, disability (including mental and physical disability), genetic information, or medical condition.
Parentheticals in the foregoing list are without limitation. (16) Refuse to accept or acknowledge receipt of a tenant's lawful rent payment, except as such refusal may be permitted by state law after a notice to quit has been served on the Tenant and the time period for performance pursuant to the notice has expired.
(17) Refuse to cash a rent check or money order for more than 30 days, except as such refusal may be permitted by state law after a notice to quit has been served on the tenant and the time period for performance pursuant to the notice has expired. (18) Engage in any act that interferes with a Tenant's right to privacy or request information that violates a tenant's right to privacy, including, without limitation, residency or citizenship status or social security number, except as authorized by law. This includes a refusal to accept equivalent alternatives to information or documentation that does not concern immigration or citizenship status, e.g., an Individual Taxpayer Identification Number (ITN). This also includes, but is not limited to: video or audio recording that captures the interior of a Tenant’s unit, unreasonably inquiry into a Tenant’s relationship status or criminal history, and unreasonable restrictions on or inquiry into overnight guests. (19) Misrepresent to a Tenant that they are required to vacate a Rental Unit or otherwise entice a Tenant to vacate a Rental Unit through misrepresentation or concealment of material facts.
(20) Force a Tenant to vacate their Rental Unit and reregister to avoid classification as a Tenant under California Civil Code section 1940.1. Forced vacation can be implied from the totality of the circumstances. (21) Unilaterally impose or require an existing Tenant to agree to material new terms of tenancy or to a new Rental Housing Agreement, unless:
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(A)Subsection subsection (21)(c), below, the change in terms of tenancy is explicitly authorized by this title, California Civil Code sections 1946.2(f), 1947.5, or 1947.12 or any successor statute thereof, or is required by federal, state, or local law or regulatory agreement with a government agency; or (B) Subject to section (21)(c) below, the change in terms of the tenancy was accepted in writing by the Tenant after receipt of written notice from the Landlord that the Tenant need not accept such new terms as part of the Rental Housing Agreement.
(C) Notwithstanding the foregoing, where a Rental Unit is regulated by the Rent Stabilization Ordinance, any change in terms of tenancy must comply with the Rent Stabilization Ordinance and associated regulations. (22) Take any action to recover possession of a Rental Unit that is exempt from rent increase limitations under this title or any other provision of law by means of a rent increase that is imposed in bad faith with intent to coerce the tenant into vacating the rental unit in circumvention ofstate and local eviction protection laws. Evidence of bad faith may include, without limitation, the following: (i) the rent increase was substantially in excess of market rates for comparable units; (ii) the rent increase was within sixmonths after an attempt to recover possession ofthe unit; and (iii) such other factors as a court may deem relevant.
(23) Prohibit, interfere with, retaliate against, or threaten retaliation against tenant organizing activities or engaging in other political activities when hosted by a tenant. "Tenant organizing activities" include the following:
(A)Initiating contact with the Tenants to ascertain interest in, or seek support for forming, a tenant association or union, which may include conducting door-to-door surveys;
(B)Joining, supporting, or operating a tenant association or union; (C) Requesting or providing information, offering assistance, distributing literature, convening meeting with or without a Landlord or Landlord representative, or otherwise acting on behalf of one or more Tenants in the building regarding housing conditions, community life, Landlord-Tenant relations, and/or similar issues of common interest or concern among Tenants in the building;
(D)This subsection (a)(23) does not prohibit a Landlord from establishing reasonable time, place, and manner requirements of organizing activities so long as the requirements would not effectively prohibit or substantially interfere with organizing activities.
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(24) Other repeated acts or omissions of such significance as to substantially interfere with or disturb the comfort, peace, or quiet of any person lawfully entitled to occupancy of such Rental Unit and that cause, are likely to cause, or are intended to cause any person lawfully entitled to occupancy of a Rental Unit to vacate such Rental Unit or to surrender or waive any rights in relation to such occupancy. (b) The conduct described in subsection (a), above, shall not include conduct intended to communicate ideas or beliefs to the public at-large and that has only an incidental effect upon a person or persons.
Sec. 17-02.104. Notice.
(a) On or before the commencement date of a tenancy, and at the same time as any notice of termination of tenancy, a Landlord shall deliver to the Tenant written notice of the following in the form prescribed by the City:
(1) The tenancy is regulated by this Tenant Anti-Harassment Ordinance. (2) Section 17-02.103 of the Salinas Municipal Code prohibits Landlords from engaging in certain acts or failing to perform certain acts related to a tenancy in bad faith or with a dishonest intent.
(3) Landlords that violate this Article may be held liable for damages. (b) The form of notice prescribed by the City shall include a Spanish language translation of the text and may include translations in additional languages or additional information deemed necessary or convenient to effectuate the purpose of this Article. (c) For tenancies existing on the effective date of this article or any amendment thereof, a landlord shall deliver to each existing tenant the written notice required by subsection (a), above, in the form prescribed by the City within thirty (30) days of such effective date. (d) Where a property contains more than one rental unit and an interior common area accessible by the tenants of more than one rental unit, landlords shall post the written notice required by subsection (a), above, in the form prescribed by the city in at least one interior common area.
Sec. 17-02.105. Severance of Amenities Prohibited.
(a) The following amenities, supplied in connection with use or occupancy of a Rental Unit, may not be severed from a tenancy without good cause: garage facilities, parking facilities, driveways, storage space, laundry rooms, decks, patios, backyards, gardens on the same lot, kitchen facilities, toilet facilities, or lobbies.
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(b) For purposes of this section, good cause shall include:
(1) Required by federal, state, or local law;
(2) For Rental Units that are exempt from the Rent Stabilization Ordinance, acceptance of the severance in writing by the Tenant after receipt of written notice from the Landlord that the Tenant need not accept the severance; (3) For Rental Units that are regulated by the Rent Stabilization Ordinance, approval of the removal of amenities by a hearing officer; or
(4) Severance results from the removal of a balcony for which repair or removal was necessary for safety and the Landlord has obtained all necessary permits for the removal.
(c) A severance does not include noticed temporary unavailability of the above housing services to perform necessary work with all required permits. (d) For Rental Units covered under the Rent Stabilization Ordinance, any severance permitted under this section shall be offset by a corresponding reduction in Rent. Either a Landlord or a Tenant may file a Rent Reduction Petition with the City to determine the amount of Rent reduction.
(e) Late Payment Fees Late fees may not be imposed except if provided for in a written Rental Housing Agreement.
Sec. 17-02.106. Waiver Void.
It is against public policy, void and unenforceable, to waive or to modify any provision of this Article in an oral or written Rental Housing Agreement.
Sec. 17-02.107. Remedies and Penalties.
(a) Criminal Penalty. A violation of any provision of this Article is punishable as an infraction or misdemeanor. A misdemeanor conviction under this Article shall be punished by a fine of not more than $1,000 for each offense or by imprisonment in the County jail for a period of not more than six (6) months or both, as determined by the court. (b) Civil Action. Any aggrieved person, or any person, organization, or entity who will fairly and adequately represent the interest of an aggrieved Tenant under this Article, or the City may institute civil proceedings as provided by law against any Landlord violating any of the provisions of this Article and any person who aids, facilities, and/or incites another to violate the provisions of this Article, regardless of whether the Rental Unit remains Tenant Anti-Harassment Ordinance
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occupied or has been vacated due to harassment. The burden of proof in such cases shall be preponderance of the evidence.
(c) Injunction/Equitable Relief. Any person who commits an act or engages in any pattern and practice that violates this Article may be enjoined therefrom by a court of competent jurisdiction. A court may issue other equitable relief as appropriate. An action for injunction under this section may be brought by an aggrieved person, by the City Attorney, or by any person or entity who will fairly or adequately represent the interests of the protected class. (d) Penalties and Other Monetary Awards.
(1) Any person who violates, or aids or incites another person to violate, the provisions of this Article is liable in a court action for each and every such offense for money damages of not less than three times actual damages suffered by an aggrieved Tenant (including damages for mental or emotional distress), or for the minimum damages in the sum of $2,000, whichever is greater, or whatever other relief the court deems appropriate, and shall be liable for such attorneys’ fees and costs as may be determined by the court. In the case of an award for damages for mental or emotional distress, such award shall be trebled only if the trier of fact finds that the Landlord acted in knowing violation of or reckless disregard of this Article. (2) Any person who violates, or aids or incites another person to violate, this Article shall be liable for an additional civil penalty of up to $5,000 for each offense committed against a person who is disabled within the meaning of California Government Code section 12926, et seq., or successor statute, or aged 65 or over.
A Tenant prevailing in a court under this Article may be awarded compensatory damages, Rent refunds for reduction in housing services, Tenant relocation costs, imposition of civil penalties up to $10,000 per violation depending upon the severity of the violation or history of violations by this Article by the Landlord, and other appropriate relief, as adjudged by the court.
(3) The court may also award punitive damages to any plaintiff, including the City, in a proper case as defined by California Civil Code section 3294 or successor statute.
The burden of proof for purposes of punitive damages shall be clear and convincing evidence.
(4) A prevailing defendant in a civil action under this section shall be entitled to an award of attorneys’ fees only if it is determined by the court that the action was devoid of merit and brought in bad faith.
(e) Affirmative Defense. A violation of this Article may be asserted as an affirmative defense in an unlawful detainer action.
(f) Additional Enforcement; Non-exclusive Remedies and Penalties. This Article may be enforced as provided in the Salinas Municipal Code in addition to other remedies provided Tenant Anti-Harassment Ordinance
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herein. The remedies in this Article shall be in addition to any other existing remedies which may be available.
SECTION 2. All ordinances and parts of ordinances and all resolutions and parts of resolutions in conflict herewith are hereby repealed as of the effective date of this ordinance.
SECTION 3. Publication. The City Clerk shall cause a summary of this ordinance to be published once in a newspaper published and circulated in Salinas within fifteen (15) days after adoption. (Salinas Charter Section 11.9)
SECTION 4. CEQA Compliance. The City Council’s adoption of this ordinance is not a project subject to environmental review under the California Environmental Quality Act (CEQA Guidelines Section 15061(b)(3) because it would not have a significant effect on the environment.
Additionally, the City Council’s adoption of this ordinance is exempt because it does not meet the definition of a “project” under CEQA, pursuant to CEQA Guidelines sections 15060(c)(1) and 15378(a), because it has no potential to result in a direct or reasonably foreseeable physical change in the environment.
SECTION 5. Severability. If any section, subsection, sentence, clause, or phrase of this ordinance is for any reason held to be invalid or unconstitutional by a decision of any court of any competent jurisdiction, such decision shall not affect the validity of the remaining portions of this ordinance.
The Salinas City Council hereby declares that it would have passed this ordinance and each and every section, subsection, clause, and phrase thereof not declared invalid or unconstitutional without regard to whether any portion of the ordinance would be subsequently declared invalid or unconstitutional.
SECTION 6. Effective Date. This ordinance will take effect thirty (30) days from and after its adoption.
PASSED AND ADOPTED this _____ day of ____________________, 2024, by the following vote:
AYES:
NOES:
ABSENT:
ABSTAIN:
APPROVED:
_________________________________
Kimbley Craig, Mayor
Tenant Anti-Harassment Ordinance
August 7, 2024
APPROVED AS TO FORM:
___________________________________
Christopher A. Callihan, City Attorney
ATTEST:
___________________________________
Patricia M. Barajas, City Clerk
Questions from Community Engagement Meeting
1. Who will be controlling the rental increase?
2. Can we have application fees controlled?
3. Why isn't contact information from Rental Registration being used to inform landlord and tenants about this meeting?
4. How does the city plan to educate tenants and landlords about new laws (still unclear on state laws and protections provided by the state)
5. Does the proposed increase percentage include CPI?
6. Why should a tenant need 3 months of relocation fees if they are only to provide a 30-day notice?
7. Will the city provide landlords with notice templets that they can use in multiple languages?
8. Will there be any new development soon that will also help the rental situation?
9. Why does Salinas want different rules then what the State and federal already provide?
10. Can limitations be placed on homes that re-enter the market after being remodeled? Will the extent of the remodel be taken into consideration before the new rental price is determined?
11. Will the rent ordinance apply to those that do not have a lease?
12. How will the decisions on the set percentage be made?
13. What will be the required fee that will be charged to have this ordinance in place? Will it be covered by general funds?
14. At what point will the overcrowding in small units be address?
15. Will the city provide Rental assistance or wraparound services?
16. What is currently being done for properties that are currently not following state laws?
17. Can the city provide more workshops in English and Spanish top help people further understand?
18. Will anything be done for students who can't afford the cost of living?
19. How can we afford the cost of living when it keeps going up and the minimum wage doesn't?
20. Can the City regulate the move in conditions are safe for tenants to move in?
21. What can be done to include mobile homes and single-family homes in this ordinance?
22. What will happen to all the other properties that are not covered under this ordinance?
23. Can more community meetings be held in different districts?
24. How much return / capital is considered enough?
25. What can a tenant do to ensure that the deposit is received when a tenant needs to be relocated due to home repairs?
26. Can unit inspections be done with categories that is available to everyone for transparency purposes?
27. Why can’t the city do rent stabilization / control based on the average salaries individuals make?
28. Does any other city do the 30 days just cause? If so, please provide information on which ones?
29. Can we consider the CPI + the % determined by EPS to be considered.
30. Can we make this ordinance more neutral to help not only tenants but owners & property managers as well. It is very single sided.
Questions on August 1
st Community Meeting
o Allowing units to be sent over to market rate incentivizes the turnover to take place and leave those who have left the units looking at units that have now been reset to market value when the reason they left is because they couldn’t afford it. Ordinance is needed but it doesn’t go far enough to drive those that live here and work here. Rents being reset isn’t helping. o Has the data been looked at in a lens of the insurance industry. California properties are getting dropped and are going up by a 384% increase.
o How is rent control creating more housing? How is lowering the rents creating more housing? o Why is your data 5 years old? In the last year and a half there has been an increase of 30-35% groceries and gasoline, we don’t have a rent control problem we have a housing problem.
Before we can have a rent control, we have to have housing to fit everyone in Salinas. These numbers don’t make it affordable (EPS Data) How is this information collected? Its old information.
o Vacancy decontrol is important to landlord feasibility, so what you are saying is this rent control model is not feasible for landlords that have long term tenants. Finding show tenants long term but how long do they need to stay to make it sustainable for a landlord? o Will this lead landlords to sell or convert to condos or townhouses, which will reduce the amount of rental stock?
o What are the most accurate numbers of EPS? (based on the multiple PowerPoints) o Consider on average what cap rates a buyer will purchase a property at based on IRRs? What debt the buyer is going to inquire a building at? How can a landlord stay profitable especially if they have new acquisition if their expenses are growing in 5% but only asking to raise rent only
2.5%.
o Please explain how 2.5 and or 2.75% because I think landlord are not understanding how it can be beneficial for both parties.
o What is the threshold that this program is going to set on the market on average rents. o How is it that with how much restrictions there is on raising rent still not profitable enough to supply more housing and now assuming with the deed restrictions that making ownership less profitable how are there going to be more housing? How are we not going in the direction of Venezuela and Argentina?
o Certain units vs rental units that are not part of the program this will only apply to 18% of the units in Salinas did we look at expanding that? If this only apply to 18% that is only 1 in 5 o This has to be a side by side with rent stabilization and affordable housing. How is the city going to function if not everyone can afford to live here. This will not build housing, but it will be a temporary solution until we build more housing. Supply and demand but will take decades because we are decades behind.
o Concern for everyone in the city that it only applies to 18% how is it going to fix the problem and how would anyone want to invest in the city? Insurance is beyond our control, but I understand that some thing needs to be done. Only a small percentage of homes build go to low income and does not solve the problem. We are the city rich in land but how do we embrace everyone. I’m here in support but this does now answer our needs more need to be done. Are we going to come up with real solutions?
o How will the appeals process look? If our insurance goes up 20-30% can we come to u to appeal for increase more than 2.5-2.7%?
o I have a friend that is afraid to tell her landlord stuff is broken because she’s afraid she’s going to be kicked out. The only thing the landlord was good for was to collect rent. I went back recently and her house is black, it’s going to affect their health. They always charge rent but don’t fix what needs to be fixed.
o What are we incentivizing turn over once the units are sent to market rate. I don’t think its fair for people to have to look for units at the market rate. If they couldn’t afford the units, they left how will the be able to afford the units at the new market rate? o Market rates are determined by what? If I can suggest instead of the Rental registry let’s make it free and ask how much rent is charged to figure out what market rent is. o Who determines the voucher rates for the housing authority? The biggest drives is the housing authority writing blank checks to the property owners.
o Can you explain on the December 31St retroactive date? Questionnaires
1. Are you a Tenant, Landlord, or Property Manager?
a. Tenant/ Renter (43)
b. Landlord/ Property Owner (9)
c. Property Management (7)
d. Other (3)
2. How often is rent increased?
a. Annually (34)
b. Bi-annually (12)
c. Lease Renewal (6)
d. Other (10)
3. What should be the proposed maximum annual rent increase percentage in the Rent Stabilization Ordinance? The percentages provided are a simulation and do not rely on concrete data.
a. 2% (41)
b. 5% (4)
c. 7% (1)
d. 10% (11)
- We did not have an “other” option but we did have a few individuals not answer and recommended another option. (5)
October 23, 2023
Mayor and City Council
City of Salinas
200 Lincoln Ave
Salinas, CA 93901
Re: October 24, 2023 City Council Meeting - Item ID#23-648 - Rent Stabilization and Tenant Protection - OPPOSE
Dear Mayor and City Council:
The Salinas Valley Chamber of Commerce sent a letter to you dated February 28, 2023 entitled “Position on Rental Registry Ordinance Proposed by City of Salinas Staff.” It stated the following:
Under the leadership of Community Development Department staff, particularly Director Megan Hunter, the committee worked toward creating an ordinance with language that all parties could accept as a reasonable compromise. We believe an acceptable compromise has been achieved.
Our letter also stated the following:
…the Chamber recommends that the Mayor and City Council wait to see measurable, data-based results of this rental registry program before imposing additional fees and regulations on property owners who rent their properties.
Our position has not changed, and therefore we oppose this proposal to abandon the compromise and instead prepare “rent stabilization” and “tenant protection” ordinances. We also ask that you maintain the Technical Advisory Committee on Housing rather than assigning the Housing and Land Use Committee as the forum through which the City engages the community on these issues.
Sincerely,
Bill Hastie
Board Chair
attachment
February 28, 2023
Mayor and City Council
City of Salinas
200 Lincoln Ave.
Salinas, CA 93901
Re: Position on Rental Registry Ordinance Proposed by City of Salinas Staff Dear Mayor and City Council:
In 2019, and again in 2022 and 2023, the City of Salinas Community Development Department convened a Technical Advisory Committee to discuss the development and implementation of a “rental registry” ordinance, as directed by the City Council. Thank you for the inclusion of the Salinas Valley Chamber of Commerce in that advisory committee.
Under the leadership of Community Development Department staff, particularly Director Megan Hunter, the committee worked toward creating an ordinance with language that all parties could accept as a reasonable compromise. We believe an acceptable compromise has been achieved.
This ordinance is a strategy for housing, not a solution in itself. The Chamber strongly encourages the Mayor and City Council to move beyond verbal commitments and make an aggressive effort to increase the supply of housing that ordinary people can afford.
While the City of Salinas is transparent about its progress with the Regional Housing Needs Allocation (RHNA) in the Housing Element of its General Plan - and has performed much better than many other Monterey County local governments - the achievements are still well short of the goals. Regrettably, the City Council (and the public) only gets to see these shortcomings once a year, when the city submits its mandatory data to the state. See the attached table.
Increasing the housing supply needs to move beyond state-funded permanent supportive housing and random, speculative proposals from private developers that come on infrequent occasions. It requires leadership and responsibility for seeing the transformation of the city’s blighted, underused, and vacant parcels into assets for the community.
The Chamber supports the hiring of an Economic Development Director who can act as a comprehensive thinker and visionary in that position. This person should be someone who reports directly to the City Manager, not a technocrat who fills out grant applications and government forms as a cog in a sprawling operation.
This person should be working with every city council member to identify the parcels in their districts that should be targeted for activation.
Also, the Mayor and City Council should be aware that the Chamber’s neutrality on these new Rental Registry fees and regulations is conditional. If the Chamber sees parties exploiting the registry for “shakedown” purposes or sees the rental registration fee revenue diverted for purposes unrelated to identifying and rectifying unsafe and substandard rental housing, we will present the evidence and demand repeal of the ordinance.
In addition, the Chamber recommends that the Mayor and City Council wait to see measurable, data-based results of this rental registry program before imposing additional fees and regulations on property owners who rent their properties.
The Chamber supports “a thriving, welcoming Salinas Valley where people, families and businesses succeed via economic growth and opportunity.” This includes accountability for property owners and justice for tenants. We hope this ordinance flushes out landlords in the City of Salinas who take advantage of tenants by providing them with unsafe and substandard housing conditions.
Sincerely,
Bill Hastie
Chairman of the Board of Directors
City of Salinas Regional Housing Needs Allocation (RHNA) Progress 2015-2023 Housing Element (5th Cycle)
Income Category RHNA
Goal 2015 2016 2017 2018 2019 2020 2021 2022 2023 Total Unitsto Date Total
Remaining
Units
%
Achieved
Very Low 537 21 24 50 42 0 0 88 0 225 312 42%
Low 351 20 16 0 53 8 0 1 0 98 253 28%
Moderate 407 6 1 3 0 0 0 0 0 10 397 2%
Above Moderate 934 142 52 25 71 100 210 189 139 928 6 99% Total RHNA 2,229 189 93 78 166 108 210 278 139 1,261 882 57% CAUTION: This message originated outside of the City of Salinas email system. Do not click on links or open attachments unless you are sure the content is safe.
From: Gloria Moore
To: "Christopher Callihan"; "Lisa Brinton"
Subject: Another Player in the Rent Capping Arena
Date: Monday, April 8, 2024 12:53:31 PM
Attachments: scan_20240408113004.pdf
TO ALL:
Here is another player in the rent capping arena.
I am expecting more players to keep arriving.
Gloria J. Moore
Advocate for Common Sense
From: Krystal Lazcano
To: Christopher Callihan
Cc: Araceli Jacinto
Subject: FW: Comments on the City of Salinas Draft Rent Stabilization Ordinance Date: Friday, August 2, 2024 4:13:34 PM
Note sure if you need to see this, it came through the legal web mail. -Krystal
-----Original Message-----
From: Alan Stumpf <[email protected]>
Sent: Friday, August 2, 2024 4:06 PM
To: _legalwebmail <[email protected]>
Cc: housingwebmail <[email protected]>; Larry Bussard <[email protected]>; Rhiyan Quiton <[email protected]>
Subject: Comments on the City of Salinas Draft Rent Stabilization Ordinance CAUTION: This message originated outside of the City of Salinas email system. Do not click on links or open attachments unless you are sure the content is safe.
Thank you for this opportunity to comment on the draft ordinance. I am a long-time owner of a duplex rental (that was formerly my residence) in an older Salinas neighborhood, and I am also a former City employee and former department head of the Redevelopment and Community Development Departments. Having reviewed the proposed rent stabilization ordinance and attended the the community meeting on August 1, I have a few questions that I felt were not adequately answered in the presentation. I also have strong suspicions that this ordinance would be a huge regulatory burden on the City, a cumbersome and expensive financial burden on a selected few landlords, and provide too-little benefit to low-income residents needing rent relief. Further, ordinances of this type are very much in the experimental phase and, in the long run, will likely have unforeseen, negative consequences for the City as a whole.
The first question involves how the determination was made for which rental units would be subject to the proposed ordinance, and those that would not. Based on the presentation from EPS, slightly more than one third of rental units (and only one fifth of all housing units) would be subject to the Ordinance. This means that only the oldest rental units in the City would bear the burden of ordinance requirements, while the vast majority of rentals would not. The 1995 cutoff date seems arbitrary, as does the exclusion for renting single family homes. Placing such a burden only on owners of the oldest units in the City thus seems arbitrary, capricious, and wholly against providing fair and equitable treatment of housing throughout the City. The EPS analysis should further evaluate how many of the units subject to the ordinance are actually charging very high rents; its analysis is only based on averages. As noted at the meeting, its analysis is also based on economic data and assumptions that are several years old and it did not create any original research data for the City.
Ultimately, the few low income families who will actually benefit from the ordinance will be like winners of a slowevolving lottery, rewarded on the one hand, perhaps, with lower rent over time, but on the other hand, they will likely remain in units long past when, in an unobstructed market, would turn over as family living conditions change. This is indicated as a benefit in the EPS analysis. However, some examples of how this could play out in the long term - 1. A family moves into a 3 bedroom unit at a price affordable for them; over time the children grow up and move out, leaving more bedrooms empty. Despite being “overhoused”, the tenant will continue to stay because of the below-market rent. The ordinance, in the long run, is not only an incentive for tenants to stay longer, but would also lead to less housing available for families in the community, as that tenant remains under-housed.
This has been observed in many of the older, rent-subsidized, multifamily developments in the City. 2. In my own case, rents for my two units are well below market, but they are also very old and often in need of capital repairs and maintenance. While the ordinance allows for increased rents for such purposes, the ordinance's approval process to increase rent accordingly, is very cumbersome and will likely add significantly to costs and time to effect the improvements. This becomes a big disincentive to effect needed repairs and maintenance, and would likely delay those repairs (for many landlords) until they become health and safety issues. This leads to older neighborhoods having less landscaping maintained, more peeling paint, more missing shingles, more broken fences and pavement, and overall less investment in those older neighborhoods; in effect, leading to more blighted older neighborhoods.
This isn’t an overnight effect, but rather one that is akin to the”broken window syndrome", that slowly leads a neighborhood into disrepair and blight.
I do not deny that rents have become outrageously high in Salinas and some unscrupulous landlords have taken advantage of many low-income renters in our community. Shame on them. However, the ordinance does not address outrageous rents prior to 2024, and higher baseline rent will only continue for those landlords- and can only continue upward after the new ordinance. Meanwhile, most rental units in the City -those built after 1995 and others exempt from the ordinance, will enjoy significantly higher rents each year and over time. This increases disparity and disinvestment in the older parts of the City (i.e. concentrated in and around the downtown, and parts of East and North Salinas} versus newer areas. Is this what the City wants - to accelerate disinvestment in these older neighborhoods?
In summary, the ordinance seems “too little, too late” to benefit any but a very few, very lucky, renters, only some of whom may be low-income, while putting in place a very cumbersome and expensive, untested City-wide apparatus for regulation - expensive both for landlords and the City budget (unless adoption of higher fees, of course). The ordinance discourages private investment in older development and neighborhoods, and thus in the long run promotes blight in those neighborhoods.
I would recommend proceeding cautiously, and waiting to see the longer term results of this type of ordinance in other cities of similar size and demographics - this ordinance is an experiment that the City of Salinas needs to get right - the first time, and currently there are too many unknown, unintended consequences, with benefits for too few low income families. I know that the City has long suffered from an unaffordable housing market, and I encourage the City to increase investment in affordable housing developments with for-profit and non-profit partners, leveraging their expertise and financial resources. The City's (and former Redevelopment Agency’s) partnering with nonprofits such as CHiSPA, Interim Inc. and the Housing Authority has resulted in development of thousands of permanently affordable rental units in the City. These provide guaranteed affordable rents specifically for low income families, and they also leverage City funding with state and federal programs to assist those developments and residents.
As for me, maybe adoption of this ordinance is a signal for a new family to come along and purchase my old duplex, that will likely result in my long-time tenants needing to move on and presumably face much higher rents elsewhere. I don’t wish to disrupt their lives, but It’s that or be subject to increasingly burdensome regulation benefitting neither myself nor my tenants.
Sincerely,
Alan Stumpf
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From: Patricia Barajas
To: Christopher Callihan
Subject: Fw: Opposition to rent stablization ordinance
Date: Wednesday, August 7, 2024 10:20:01 AM
Patricia M. Barajas, CMC
City Clerk
City of Salinas
200 Lincoln Avenue
Salinas, California 93901
(831) 758-7383
From: susan wang <[email protected]>
Sent: Tuesday, August 6, 2024 10:26 PM
To: cclerk <[email protected]>; Mayor <[email protected]>; _district1 <[email protected]>; _district2 <[email protected]>; _district3 <[email protected]>; _district4 <[email protected]>; _district5 <[email protected]>; _district6 <[email protected]> Subject: Opposition to rent stablization ordinance
Dear all city council members:
My name is Susan Wang, I am writing as a house provider in Salinas to voice my objection against the proposed rent stabilization
ordinance in Salinas.
My husband and me are over 65 years old relying on rental income to support and cover the expenses of my and my husband's retirement living costs. We are hardworking people and have poured our life savings into investing in income property in Salinas, hoping that it will help to supplement our retirement income.
Since the pandemic, the cost to maintain properties has gone up tremendously due to inflation, supply chain issues and even insurance and utilities bills have gone up.
It is already hard to provide safe and decent housing for our tenants based on the current rent increase allowed by the State of California. If the city is going to adopt the rent stabilization ordinance in Salinas and limit rent increase to cap at 2.5-3%, it will leave house providers with noreasonable return of investment, hence limiting our ability to maintain safe and good housing environments for tenants.
Furthermore, this rent stabilization will limit the real estate potential in Salinas.
Developers or multiunit housing will cease to invest in Salinas. Investors will not want to invest and hence the overall real estate value of Salinas will drop tremendously. This will eventually impact the economy of the community and driving people, whether tenants or homeowners, to move out. Salinas will turn from a community to a dead city.
As taxpayers and house providers, I urge the city NOT to pass the rent stabilization ordinance.
Thanks so much!
From: GMRealtors
To: [email protected]
Cc: [email protected]
Subject: FW: RENT STABILIZATIO AND TENANT PROTECTION
Date: Monday, October 23, 2023 3:48:01 PM
Mayor & Council:
We all can agree that the statewide housing crisis is almost without a plausible solution. Attainable housing is at a current low with interest rates at a current high.
The market-place is under constraints that slow or eliminate new construction. Residents’ static wages are not rising to the current inflationary costs of goods and services.
In my 43-year association with Salinas’s real estate, the market place has under-valued the need for more rental housing - be it apartments or other styles of rental housing.
Short periods of housing growth get suppressed by long periods of housing growth mired in regulations and unreasonable demands that Inhibit growth in supply.
Vacancy rates within a marketplace are the controlling factor for setting rents. Supply v, Demand Available housing for sale at all levels determine the costs to purchase.
All this being affected by the regional marketplace.
The old planning practices of a local jobs/housing balance disappeared years ago when It quickly moved toward regional outcomes. Can this trend be reversed so that a city such as Salinas can actually build for our local needs? What has happened in the renter/rental property balance? Local government should be encouraging local investments in a solid rental inventory. Our locally-owned, small-scaled landlords are being squeezed out by inflation, non-resident investors, and government interference in private property rights.
My point of view is that we all have become victims in this housing crises.
Thank you for allowing me time in your busy schedules.
Gloria J. Moore
Broker/Owner
GLORIA MOORE, REALTORS®
From: Patricia Barajas
To: Christopher Callihan
Subject: Fw: Rent Stabilization Ordinance
Date: Monday, August 12, 2024 9:28:59 AM
Attachments: Salinas City Letter Rent Cap .docx
Patricia M. Barajas, CMC
City Clerk
City of Salinas
200 Lincoln Avenue
Salinas, California 93901
(831) 758-7383
From: [email protected] <[email protected]> Sent: Sunday, August 11, 2024 10:55 PM
To: cclerk <[email protected]>; Mayor <[email protected]>; _district1 <[email protected]>; _district2 <[email protected]>; _district3 <[email protected]>; _district4 <[email protected]>; _district5 <[email protected]>; _district6 <[email protected]> Subject: Rent Stabilization Ordinance
CAUTION: This message originated outside of the City of Salinas email system. Do not click on links or open attachments unless you are sure the content is safe.
Sent from my iPhone
CAUTION: This message originated outside of the City of Salinas email system. Do not click on links or open attachments unless you are sure the content is safe.
From: Krystal Lazcano
To: Christopher Callihan
Subject: FW: Rent Stabilization Ordinance
Date: Friday, August 9, 2024 12:14:35 PM
Attachments: Rent Stabilization Ordinance_Letter_08.09.2024.pdf Here you go.
From: [email protected] <[email protected]>
Sent: Friday, August 9, 2024 11:59 AM
To: housingwebmail <[email protected]>
Cc: _legalwebmail <[email protected]>; Rene Mendez <[email protected]> Subject: Rent Stabilization Ordinance
Messrs. Callahan and Mendez,
Please consider the attached letter regarding the proposed Rent Stabilization Ordinance.
Sincerely,
Greg Piini, MAI
_______________________
Piini Realty, Inc.
263 Lincoln Avenue
Salinas, CA 93901
Work: (831) 422-5327x101
Cell: (831) 596-5763
Email: [email protected]
CAUTION: This message originated outside of the City of Salinas email system. Do not click on links or open attachments unless you are sure the content is safe.
From: Patricia Barajas
To: Christopher Callihan
Subject: Fw: Rent Stabilization Ordinance
Date: Friday, August 9, 2024 1:26:39 PM
Patricia M. Barajas, CMC
City Clerk
City of Salinas
200 Lincoln Avenue
Salinas, California 93901
(831) 758-7383
From: Craig Coming <[email protected]>
Sent: Friday, August 9, 2024 12:25 PM
To: cclerk <[email protected]>; Mayor <[email protected]>; _district1 <[email protected]>; _district2 <[email protected]>; _district3 <[email protected]>; _district4 <[email protected]>; _district5 <[email protected]>; _district6 <[email protected]> Subject: Rent Stabilization Ordinance
Dear Representatives,
As one of the largest property managers in Salinas, I am very discouraged that at no point has anyone from the City of Salinas, the Mayors office, or anyone from City Council contacted me, or other property managers, to learn and educate themselves on how landlords are doing in the current economy and rental market. If you would have, you would learn that the cost of running a rental property has drastically increased with inflation and other reasons. The costs to own rental properties are increasing at a dramatic rate. As you know, sewer rates are going up 122% from 2021 to 2026, water rates are skyrocketing, insurance rates have gone up 20- 30% in one year, etc. We have maintenance vendors raising their rates because they are in high demand and cannot find employees to do the work. A water heater that cost $460 five years ago now cost $865-899. To maintain the properties at an acceptable level, owners are spending much more than they ever have. The operating costs have been increasing at higher rates than the rent increases. The other problem is that the buildings are aging and need major capital improvements. Most of the rental properties in Salinas were built over 50 years ago.
Now when we have a vacancy it is common to spend $15,000-$25,000 doing upgrades to the unit. That mixed with new roofs, termite fumigations, new driveways, electrical panel upgrades, etc., the costs are higher than ever. We even need to fix the City Sidewalks when they fail.
Raising rents is a responsible way to maintain properties and improve the quality of our cities.
Do I think there have been some landlords that have raised rents irresponsible, yes. Do I care about the residents of Salinas, absolutely yes. Mangold Property Management has been managing apartments in Salinas for over 40 years and we feel like we have contributed to the quality of the neighborhoods where we manage. My goal has always been to provide the cleanest, safest, and best maintained rentals in Salinas. This is why we have convinced the owners we manage for to invest so much money into these properties. This ordinance will change the way we manage these properties. This is a real concern and the hundreds of owners I manage for feel attacked.
I believe you have the best intentions in mind. But the presentation on August 1st was misleading. The main factor is the current inflationary economy we have been in. None of the data that is being used is taking into consideration that there is a drastic increase in the cost to run these properties over the last 5 years and more particularly in the last 2 years. In the presentation they stated that “The empirical evidence dispels many of the concerns..” about the “Moderate” Rent Stabilization Ordinance. A 2-3% cap on rent increases is not Moderate.
This would be one of the most restrictive ordinances in the country. This is a severe ordinance you are considering. The concerns that property values with go down, that it will reduce supply, reduce maintenance, and result in inflated rents are all real concerns, especially in our current economy. They suggest a 65-85% of CPI rent increase cap. This is absurd. To consider an ordinance that does not even give a cost-of-living increase will bring all those concern to reality. On the list of positives of the ordinance they listed Reduced demand for social services and an increase in discretionary income which helps boost local economy.
These positives are taking private ownership, turning it into subsidized housing, to apparently help the local economy. This would only be fair if the government reimbursed the private landlords for the subsidy. Just like Section 8 properties.
You are considering an attack on landlords without looking at any other part of the equation of poverty and housing costs. You are not considering a higher minimum wage, you are not talking about putting a cap on the expenses landlords incur, you are not talking with landlords at all.
I encourage any of you to reach out to me so that I can show you and educate you on the reality of what we are dealing with. Any less would be irresponsible.
My door is open to discuss this any time.
Sincerely,
_________________________________
Craig Coming
President, Broker Lic#01258178
Mangold Property Management, Inc.
[email protected]
Office: (831) 372-1338 Ext. 107 Fax: (831) 372-1488
Notice of Confidentiality: This transmission constitutes an electronic communication within the meaning of the Electronic Commissions Privacy Act, 18 U.S .C. 2510, and its disclosure is strictly limited to the recipient intended by the sender of this message, together with any attachments. This communication, including any attachments, may contain confidential and privileged material for the sole use of the intended individual or entity, and receipt by any party other than the intended recipient does not constitute a loss of the confidential or privileged nature of the communication.
CAUTION: This message originated outside of the City of Salinas email system. Do not click on links or open attachments unless you are sure the content is safe.
From: Krystal Lazcano
To: Christopher Callihan
Subject: FW: rent stabilization ordinance
Date: Monday, August 12, 2024 8:23:03 AM
From: Jeff LaTourette <[email protected]>
Sent: Saturday, August 10, 2024 3:58 PM
To: _legalwebmail <[email protected]>
Cc: Tony Lombardo <[email protected]>
Subject: rent stabilization ordinance
Hello, I am sending in comments on the proposed rent stabilization ordinance. Below are my comments.
1. CEQA requires evaluation and mitigation of impacts to historic resources. There would be significant impacts to historic apartments in
Salinas. This ordinance will limit the resources for property owners to maintain the historic resource. Historic resources should be exempt from the ordinance.
2. Section 17.02.04 limit on rental rate increases. This amount needs to be set at a limit that will allow property owners the ability to maintain and operate their properties.
With rising costs such as insurance, material and labor for repairs and general maintenance it should be at least 5%. And for older buildings it should be even more as older building require more maintenance and repairs.
3.sec 17.02.07 (c) landlord may not charge for utilities unless separately metered.
This is in the landlord petition for rent increase section. Many older units do not have the ability to separately meter utilities. It is not equitable to allow units who have separate meters to charge and units (mostly older) who don't not to charge. Many landlords do not include the master metered utilities in the rent and bill separately so each tenant pays their fair share of the utilities.
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From: Patricia Barajas
To: Christopher Callihan
Subject: Fw: Rental Regulations proposed
Date: Thursday, August 1, 2024 10:30:15 AM
Patricia M. Barajas, CMC
City Clerk
City of Salinas
200 Lincoln Avenue
Salinas, California 93901
(831) 758-7383
From: Pete Deoudes <[email protected]>
Sent: Wednesday, July 31, 2024 5:15 PM
To: _district3 <[email protected]>; cclerk <[email protected]> Subject: Rental Regulations proposed
Hello Mr. Valenzuela,
I was recently sent the following notice:
"Update: Salinas Rent Stabilization Ordinance
The exact details are not finalized yet, but it is likely that the City of Salinas will pass the Rent Stabilization and Tenant Protection ordinance on August 20. This will probably include a cap on rent increases of 2-3% per year, with no adjustment for CPI." As a long time owner, with a partner, of 10 rental units in Salinas I cannot understand the logic or constitutionality of this proposal. Whoever did propose this has no understanding of what is involved in successfully maintaining rental units. Margins are tight enough as it is, and now we are expected to accept returns, not only below market rates, but well below the average rate of inflation the last 4 years? Not to mention the cost of insurance, materials, and service providers...unless those prices will be limited by the city of Salinas to 2-3% per year as well?
I guarantee that this action will result in a certain decline in rental quality as owners cannot afford to maintain their properties with such an artificially low return. Multi-unit property values will decline based on artificially limited income, resulting in less property tax revenue to the city, tenants will suffer with rentals that are not maintained due to lack of funds, and the availability of units will lessen by lowering the incentive for development of additional units.
The city has never shared in the tremendous risk that private citizens took to invest in rental housing.
Most of us exposed ourselves to financial ruin to take a chance and become income property owners.
Now the city is expecting private citizens to subsidize public housing by forcing us to operate professionally maintained rentals at a financial loss?
Such an ordinance may "sound good" to renters, but will actually make their situation worse for the reasons I have stated, but that does not appear to be a concern for most politicians in recent years. Just as the "fast food minimum wage law" has resulted in more automation and thousands of workers losing their jobs, pandering measures by politicians have driven a record number of businesses and people out of state. Having been born in Salinas, I am saddened to see the city follow down the same anti-business, and counterproductive path. Perhaps you, or members of your family operate a business. I would suggest you ask them how the city, arbitrarily and severely restricting what they could charge for whatever they produce, would impact them.
Pete Deoudes
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From: Hap Albers
To: [email protected]
Cc: Hap Albers
Subject: Fw: Salinas Rent Control
Date: Monday, April 29, 2024 9:02:32 PM
Hello Salinas City Government Representatives:
Rent control is a concept that sounds great and will definitely help you get reelected. It also has many unintended consequences that will ultimately hurt the City of Salinas, as it has San Francisco, Berkeley, and Oakland.
My background is apartment building sales since 1998. I have sold 200+ buildings, including 37 complexes in Salinas. Prior to selling commercial real estate, I worked as a sales representative in San Francisco for Old Republic Title Company - I was able to see the non-tourist areas and the many dilapidated apartment complexes. I have sold apartment complexes in Oakland and there are a lot of dilapidated apartment complexes in Oakland. San Francisco and Oakland have similar rent control to what is being proposed for Salinas.
What will happen with rent control in Salinas:
Tenant side:
1. Tenants will have locked in rent increases at whatever percentage the city council decides is equitable and fair.
2. The housing supply will not increase because there is no longer an incentive to construct new housing, including ADU's, redevelopment, and perhaps, the many parcels in the northern section of the City. One of my customers has decided to not construct ADU's on his property because of this ordinance.
3. As the building and neighborhood quality declines, the bad violence from the past could return. I pray this does not happen. This scenario is not needed in Salinas - it already has a bad reputation.
4. If the Costa Hawkins ballot measure succeeds and the City applies rent control to homes, then there will be many rental homes sold to owner occupants, further constricting the rental supply.
Landlord side:
1. Most apartment complexes have expense ratios which use 35%-45%+ of the collected income for operating expenses. Mortgage loan debt can add another 50%-65% leaving very little profit on a large down payment investment. These are not lucrative investments and come with constant repair issues, people issues, and legal risk from property management.
The owner has purchased a second job.
Most multi-family owners are experiencing a sharp cost increases due to insurance, insurance required repairs for roofs, electrical panels, sewer line replacement, water line replacement, all building materials, labor costs, and the simple fact that most apartment complexes were constructed from 1950-1980 - they are now old buildings. It flat out costs a lot more to operate an apartment complex today than it did two or three years ago and it will continue to increase because of the repairs previously mentioned.
One of my customers' insurance premiums went from $12,000 to $55,000 for a lot less coverage - just fire insurance only - no liability insurance for trip and fall down the stairs. 450% increase. This is not uncommon.
Another customer is being forced to replace roofs or lose insurance coverage.
Another customer is being forced to replace all electric panels - main and subpanels.
This is very common.
2. The owners will not be able to increase rents at inflation or greater. This results in lower revenue and less money to cover repairs, insurance, debt service, and other expenses.
3. Eventually, the owner will begin to let the building quality decline because their expenses will grow faster than rents.
4. Then they get in trouble with code enforcement but have less money to spend.
5. They also will have to get on their knees to plead for rent increases to cover capital improvements after they are completed. Good luck with that
6. Maybe they will sell the property. The new buyer will have the same problem - rents have to grow at inflation or greater to cover expense inflation. Very simple. They will also have higher property taxes.
7. The eventual result is building quality will decline, they will sell for less, and the property taxes, which I believe the City of Salinas benefits from at some level, will not increase as rapidly as many in the budget department are planning.
You should also expect the property owners to petition the county tax assessor for a property tax reduction.
8. For the owner, the day this rent control ordinance passes at less than 5% annual rent increases, the entire City of Salinas multi-family inventory value drops 20% plus or roughly $40,000 to $50,000 per unit.
9. Back to Costa Hawkins: If the ballot measure succeeds, then the owner's financial math gets worse if rents are not allowed to be increased to market rates when a voluntary vacancy occurs. Values drop further for every California apartment complex if Costa Hawkins is rescinded and there will be a lot fewer constructed, regardless of any rent control exemption window. This is a bad ballot measure.
Going forward: Rent control is easy to pass. Is it smart to do so is very questionable. If you do pass it, the annual rent increase minimum should be no less than the Bay Area CPI index plus 1 to 2%. San Jose has 5% annual rent increases. This is fair to both parties.
The scenarios in the tenant side are all very possible outcomes. There will be unintended consequences - there always are when the government tries to engineer solutions to housing. The problem is supply and solutions need to be focused on more housing and rewarding those with the financial courage to provide it.
Thank you for taking the time to read this email. I would enjoy the opportunity to talk with you folks regarding rent control and how to create more housing in Salinas and the Central Coast.
Hap Albers
Owner / Broker
Albers Real Estate
831.372.1922 Office
408.893.6002 Cell
DRE#: 01006596
www.AlbersRealEstate.com
From: [email protected]
To: [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected] Subject: Fwd: Rent Control by a different name
Date: Sunday, October 22, 2023 5:23:47 PM
Attachments: 20231022165002965.pdf
Good afternoon to all. To all property owners who own rentals "you are under attack". You were just required to pay a fee to become a target "RENTAL REGISTRY". read the attached City of Salinas meeting agenda.
It is time for us as concerned citizens to form an association for self protection. The City of Salinas makes it difficult to build new houses and the more they attack property owners the fewer rental properties they will have. I was told by a person working in politics, that the general public would not come together to protect them selves from Government even poor Government. Wake up and smell the coffee.
Please respond to this email if you are interested in being free, and limiting government authority.
Chuck
The Government has many valuable services, RULING the public is not one of them.
From: [email protected]
To: [email protected]
Sent: 10/22/2023 5:09:20 PM Pacific Daylight Time
Subject: Fwd Rent Control by a different name
Preview of: 20231022165002965.pdf
From: [email protected]
To: [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected] Subject: Fwd: Rent Control by a different name
Date: Sunday, October 22, 2023 5:23:47 PM
Attachments: 20231022165002965.pdf
Good afternoon to all. To all property owners who own rentals "you are under attack". You were just required to pay a fee to become a target "RENTAL REGISTRY". read the attached City of Salinas meeting agenda.
It is time for us as concerned citizens to form an association for self protection. The City of Salinas makes it difficult to build new houses and the more they attack property owners the fewer rental properties they will have. I was told by a person working in politics, that the general public would not come together to protect them selves from Government even poor Government. Wake up and smell the coffee.
Please respond to this email if you are interested in being free, and limiting government authority.
Chuck
The Government has many valuable services, RULING the public is not one of them.
From: [email protected]
To: [email protected]
Sent: 10/22/2023 5:09:20 PM Pacific Daylight Time
Subject: Fwd Rent Control by a different name
Preview of: 20231022165002965.pdf
CAUTION: This message originated outside of the City of Salinas email system. Do not click on links or open attachments unless you are sure the content is safe.
From: Patricia Barajas
To: Christopher Callihan
Subject: Fwd: What Rent Control will do to Salinas?
Date: Tuesday, August 13, 2024 9:37:50 AM
Get Outlook for iOS
From: Hui Qian <[email protected]>
Sent: Tuesday, August 13, 2024 5:55:43 AM
To: cclerk <[email protected]>; Mayor <[email protected]>; _district1 <[email protected]>; _district2 <[email protected]>; _district3 <[email protected]>; _district4 <[email protected]>; _district5 <[email protected]>; _district6 <[email protected]> Subject: What Rent Control will do to Salinas?
Swedish economist Assar Lindbeck famously said, “rent control appears to be the most efficient technique presently known to destroy a city — except for bombing.” Look at San Francisco! Look at Oakland! What happened there after they put in rent control? I am a retired senior citizen and have poured my life savings into investing in income property in Salinas, hoping that it will help to supplement my retirement income. Since the pandemic, the cost to maintain properties has gone up tremendously due to inflation, supply chain issues and even utility bills have gone up a lot. The reality is: It is already hard to provide safe and decent housing for our tenants based on the current rent increase allowed by the State of California.
The city is going to cap rent increase at 2.5-3%, while the insurance cost has more than doubled since the pandemic, and it is still increasing in double digits, what would you do in this situation?
This rent stabilization will limit the real estate potential in Salinas. Developers or multiunit housing will cease to invest in Salinas. Investors will not want to invest and hence the overall real estate value of Salinas will drop tremendously. This will eventually impact the economy of the community and driving people, whether tenants or homeowners, to move out. Salinas will turn from a community to a dead city.
As a taxpayer and a housing provider, I urge the city to reject the rent stabilization ordinance.
From: Todd Dudley
To: [email protected]
Subject: Homeowner Input for Record for Salinas City Council Meeting of 24 Oct 23 // Opposition to Rent Control Date: Monday, October 23, 2023 5:35:48 PM
Dear City Council Members,
I am a California native and homeowner-landlord in Salinas and am writing to ask you to OPPOSE rent control in our beautiful city.
Inflation: Causes the Housing Problem. As you are aware, the high interest rates seen in the mortgage market today are a direct result of government spending, which increases M1 money supply in economy and causes prices to rise. To counter the effect of government spending, the Fed then increases the fed funding rate, which pulls this same money out of supply by raising interest rates (to include mortgage rates offered by banks to prospective homeowners). Due the high interest rates present while trying to curb inflation, government spending thus significantly contributes to the lack of affordable housing at a time when supply of rental properties is already limited. Imposing further rent controls during already-high inflation (and consequent high rental demand) thus destroys any remaining market incentive available that would serve to increase the supply of rental homes. Price controls will make the housing problem worse; government spending needs to be curtailed.
Rent Control: Accelerates the Problem. While rent control sounds like a humanitarian solution to the above problem, it attacks and in fact punishes the wrong elements that contribute to an affordable housing market. In fact, rent controls will make the housing crisis worse, as they destroy any remaining market incentive available that would serve to increase the supply of rental homes. For people that already cannot contemplate the purchase of a home in Salinas, the rental market worsens in the short term and then completely evaporates in the long term. Rent control will accelerate the housing crisis, a crisis best solved by less government spending, resulting lower interest rates, and more lending/construction/economic activity in the private sector.
Bottom line: High Government Spending Causing Inflation, Plus Government Rent Control to Fix It = Long Term Damage to Salinas' Housing Market, and to our Beautiful City.
Thank you,
Todd Dudley
Homeowner
19386 Acclaim Dr
Salinas, CA 93908
CAUTION: This message originated outside of the City of Salinas email system. Do not click on links or open attachments unless you are sure the content is safe.
From: Vanessa Nguyen
To: [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected] Date: Sunday, April 7, 2024 11:29:20 AM
Here some of the key concerns I have regarding this ordinance:
1. Decrease in housing stock due to landlords' inability to navigate new regulations or afford housing provision.
2. Annual rental increases burdening tenants.
3. Lack of understanding regarding the high costs of property maintenance.
4. Challenges in recovering funds from tenants who damage property.
5. Potential for a housing crisis similar to that experienced in certain European cities. I believe that constructive dialogue and collaborative efforts are essential in addressing these concerns.
Therefore, I propose the following solutions for consideration:
1. Formation of small groups comprising landlords, property managers, builders, and tenants to discuss the issue.
2. Streamlining the housing development process by reducing regulatory barriers and associated costs.
3. Regulate the Monterey County Housing annual increases. Most property managers and landlords mirror their rates to them
4. Temporary rent subsidies to alleviate immediate financial burdens on tenants.
5. Exploration of municipal low-income housing initiatives.
6. Streamlined processes for converting vacant commercial spaces into housing units.
7. Provision of interruption services through the City to address disputes and for leases.
8. Enforcement of existing state rent control laws by mirroring them at the municipal level.
9. Ensuring equitable distribution of responsibilities between landlords and tenants.
10. Establishment of a task force to address issues related to substandard housing while supporting responsible landlords.
Monterey County Association of Realtors®
5 Harris Court, Building A
Monterey CA, 93940
October 24, 2023
Mayor Kimbley Craig
Councilmember Tony Barrera
Councilmember Carla Viviana González
Councilmember Steve McShane
Councilmember Orlando Osornio
Councilmember Anthony Rocha
Councilmember Andrew Sandoval
Re. Agenda item 23-648: Rent Stabilization and Tenant Protection Honorable Mayor and City Councilmembers,
Now is the time to seek collaborative, innovative, and pro-housing solutions to our housing availability and affordability crisis. This is especially true for rental housing; renters are in need to help and we agree steps must be taken to do so. However, policies that divide our community, punish housing providers, and disincentivize growth in housing will achieve the opposite.
Consistent with other recent changes to City housing policies, we request that these policy proposals:
1. Be referred to the Technical Advisory Committee on housing for expert input including tenants right advocates, and..
2. That no fewer than six (6, one in each district) public meetings , hearings, or workshops be held to gather community input.
Enhance tenant protections were recently signed into law by Governor Gavin Newsom, and go into effect in January. Changes to how State and local government administer rental pricing regulations are expected to be on the November 2024 ballot. In light of these upcoming or anticipated changes to State policy, it does not make sense to pursue local policies which may turn out to be redundant, contradictory to, or otherwise in conflict with State law.
Additionally, the City’s rental registry program is incomplete. Earlier this year members of the council supporting the registry expressed a desire to see data from the registry in order to better inform further policy decisions. The registry has just barely been implemented, there has been minimal communication from the City to property owners about this requirement. We were promised an online portal where property owners and managers could log in and manage and update the registration of their units. Instead what we have is a Google Form, which is free to create, and cannot be updated. This begs the question, what was the $400,000 budget for the rental registry spent on, and what are the fees charged to landlords and tenants being used for? Given these facts and unanswered questions, it is not reasonable to build further punitive policies based on incomplete data from a program that was not implemented as promised.
The renters of Salinas cannot afford to be the subjects of policy experiments, especially when past policy experiments of this nature have proven harmful to renters. We cite the following, peer reviewed studies as evidence (attached for the Council’s convenience and for the public record).
Research by Konstantin A. Kholodilin & Sebastian Kohl, published in the International Journal of Housing Policy (Feb., 2023), studies data from numerous regions and found the following:
The (re-)introduction of tenancy regulation in the form of rent controls, tenant protection or supply rationing is back on the agenda of policymakers in light of rent inflation in many global cities. While rent controls promise short-term relief, economists point to their negative long-run effects on new construction. This study presents new long-run data on both rent regulation and housing construction for 16 developed countries (1910–2016) and finds that more restrictive rental market legislation generally has a negative impact on both new housing construction and residential investment.
Furthermore, research by Rebecca Diamond, Tim McQuade, and Franklin Qian, published in the American Economic Review (Sep., 2019) examines the effects of rent control in San Francisco. Abstract:
Using a 1994 law change, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants and landlords. Leveraging new data tracking individuals’ migration, we find rent control limits renters’ mobility by 20 percent and lowers displacement from San Francisco. Landlords treated by rent control reduce rental housing supplies by 15 percent by selling to owner-occupants and redeveloping buildings. Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law.
We request that the Council take the time to consider this evidence, gather expert testimony through the TAC, and seek public feedback through meetings accessible to all community members. This will ensure policies are created with due diligence and as much relevant data as possible. Furthermore this will provide time for the rental registry to collect a more complete dataset, and for everyone to better understand how new State laws will affect rental housing.
Sincerely,
Adam Pinterits
Government & Community Affairs Director
Monterey County Association of Realtors®
Full Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=reuj20 International Journal of Housing Policy
ISSN: (Print) (Online) Journal homepage: https://www.tandfonline.com/loi/reuj20 Do rent controls and other tenancy regulations
affect new construction? Some answers from longrun historical evidence Konstantin A. Kholodilin & Sebastian Kohl
To cite this article: Konstantin A. Kholodilin & Sebastian Kohl (2023): Do rent controls and other tenancy regulations affect new construction? Some answers from long-run historical evidence, International Journal of Housing Policy, DOI: 10.1080/19491247.2022.2164398 To link to this article: https://doi.org/10.1080/19491247.2022.2164398 © 2023 The Author(s). Published by Informa
UK Limited, trading as Taylor & Francis
Group
Published online: 20 Feb 2023.
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International Journal of Housing Policy
Do rent controls and other tenancy regulations
affect new construction? Some answers from
long-run historical evidence
Konstantin A. Kholodilina,b and Sebastian Kohlc,d
a
Macroeconomics, DIW Berlin, Berlin, Germany; bEconomics, NRU HSE, St. Petersburg, Russia; cMax-Planck-Institut für Gesellschaftsforschung, Cologne, Germany; dSociology, Freie Universität Berlin, Berlin, Germany
ABSTRACT
The (re-)introduction of tenancy regulation in the form of rent controls, tenant protection or supply rationing is back on the agenda of policymakers in light of rent inflation in many global cities. While rent controls promise short-term relief, economists point to their negative long-run effects on new construction.
This study presents new long-run data on both rent regulation and housing construction for 16 developed countries (1910–2016) and finds that more restrictive rental market legislation generally has a negative impact on both new housing construction and residential investment. This is especially true for strict rent controls and housing rationing measures in the post-1960 period.
Tenancy security can on average also dampen construction activity. The negative effect is overall less significant and strong in magnitude than expected and may have been offset by exemptions for new construction, by compensating social housing construction and by a flight of new construction into the owner-occupied sector. Still, on average, rent controls came at the cost of less construction activity.
KEYWORDS: Residential construction; rent control; tenure security; housing rationing; panel data model
JEL CODES: C23; O18; R38
Introduction
Long thought to be a relic of the past, rent controls and other measures protecting urban tenants are back on the political agenda in a wide range of countries. Even if the move towards homeownership has made owner-occupying households the majority almost worldwide, many of larger cities possess significant tenant populations. They still make up an https://doi.org/10.1080/19491247.2022.2164398
© 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group CONTACT Sebastian Kohl [email protected]
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http:// creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
2 K. A. KHOLODILIN AND S. KOHL
important constituency which advocates for rent regulation as a form of social policy.
Particularly in 2019, several countries and states have introduced new or reinforced measures to cap rent price increases. For example, in February 2019, the authorities of the state of Oregon (USA) imposed upper bounds on rent increases on the consumer price index (CPI) growth rate above 7%.1 In June 2019, in New York, several measures to enhance rental regulations were introduced, including the removal of the vacancy decontrol, which was previously possible, if rent prices for a dwelling or the income of tenant renting exceeded certain thresholds.2 In February 2020, a so-called Mietendeckel (literally meaning ‘rental lid’) was introduced in Berlin (Germany) leading to a rent freeze for the following five years and even providing the possibility to cut rents in the case they were found to be too high.3 However, on 25 March 2021, the rent freeze was abolished by the German constitutional court. During the September 2021 Bundestag elections, the issue of extending the rent freeze to the whole of Germany was debated. Similarly, a law was enacted in Catalonia (Spain) in September 2020 capping initial rents at a local reference rent (plus 10%) for non-luxury units in tense housing market areas. Simultaneously rent increases were pegged to the index of competitiveness recovery of Spain with respect to the European Monetary Union.4 The Covid-19 pandemic provided an additional impetus for rent regulations. Thus, almost 50 countries introduced eviction bans, while over 20 countries enacted rent freezes, including rent reductions and moratoria of rents during the emergency period.5 Yet, despite this surge of regulations in private rental markets, housing scholars still focus predominantly on social housing or homeownership as dominant segments in the housing market.
The renaissance of rent control even in the rigid forms of freezing rents introduced as first-generation controls during both World Wars is surprising, given the almost unanimous agreement among economists on the negative effects of tenancy regulation in general and rent controls in particular on the allocation and supply of housing, as several surveys conducted among economists between 1979 and 2009 show (Kearl et al., 1979; Alston et al., 1992; Jenkins, 2009). Among the negative effects attributed to these market regulations the allegedly negative effect on new construction is probably the most prominent one. Richard Arnott also observed the ‘widespread agreement that rent control discourages new production’ (Arnott, 1995, p. 99). Restrictive housing market regulation such as protections from rent increases or evictions are thus made responsible for lowering construction activities and increasing housing shortages. They are seen as measures which reduce the incentives for investing in new residential construction, especially of rental housing, since governmental restrictions limit rental revenues and the freedom to dispose freely of one’s real estate property. Today’s climate of urban housing shortages in most booming European cities has led many economists to regard the removal of rent International Journal of Housing Policy 3
regulations as stimulus for new housing supply (Diamond, 2018), even though the existing literature shows relatively mixed results.
This study investigates the relationship between restrictive governmental housing regulations—not just rent controls but also protection from eviction and housing rationing measures—and residential construction for the first time with international historical long-run data. It draws on two novel data collections ranging between 1910 and 2016 for 16 developed countries: the first one contains rent regulation indices based on manual codings of all major tenancy-related laws in a country, and the second one contains data on building activity. The regulation data include measures for three types of restrictive housing policies: rent control, security of tenancy and rationing of housing units. Our dependent variables are annual time series of new residential construction (housing units, investment) and we control for economic (real GDP per capita, long-term interest rates and mortgage debt) and demographic factors (population growth, total dependency ratio and marriage rates) in panel-data models.
While our findings are broadly in line with economists’ general expectations, i.e., in normal and post-war periods, rent controls, tenancy-security and rationing regulation have on average negative effects on new construction activity, the surprising finding is that the significance is not as persistent as economists would expect. Whereas the severe rationing measures are significant almost throughout, security of tenancy and rent price regulation are only significant under certain conditions: in their strict form of rent freezes and in the post-1960 period. Increasing the regulation by 1 on a scale from 0 to 1, i.e., shifting from zero to full control, decreases new construction by 0.06 per 1000 inhabitants, which is a sizeable magnitude when accumulated over several years, but also not a complete construction stopper.
We suggest that this rather surprising non-universality of a strong negative tenancy-regulation effect could be explained by the fact that new construction has often been exempted from rent control. Moreover, tenancy regulation may crowd out rental units in favour of owner-occupied ones which can enjoy ongoing construction despite rent control (Kholodilin & Kohl, 2021b; Fetter, 2016). While this article only focuses on new construction, the regulation effects on existing stock should also be kept in mind.
Finally, strict rent control rarely comes without active social housing policies in favour of new construction which can compensate for the loss of private construction. The findings also highlight that tenancy regulation beyond rent controls, and the war-related housing rationing measures, in particular, can significantly impact new construction and that for rent control effects themselves, the historical and country context matters. In that, our findings on rent control appear to be similar to mixed findings on the effect of minimum wages on labour supply, i.e., the labour market equivalent of price controls (Doucouliagos & Stanley, 2009).
Existing research on private rental markets and rent control is rather scarce, uses mostly geographically limited data for snapshot moments or 4 K. A. KHOLODILIN AND S. KOHL
the short run. Our main contribution is to expand on this understudied topic by extending the geographic and temporal scope of the analysis with the help of new international long-run data, which cover the historical time periods in which rent control was first introduced and most widespread. Against the backdrop of these long-run data, our findings confirm a long-held expectation about tenancy policies’ negative effects on building activity, but also show that the effects are less consistent and smaller than expected. The implication of our findings is that strong rent controls or rationing measures, if not compensated by social housing construction, may have negative effects on housing construction and investment.
The study proceeds as follows. The next section reviews the literature on the effects of governmental regulations on residential construction.
The following section describes the data used and explains the methodology applied in this study, while the third section discusses the results obtained. The last section points to potential interpretations of the main finding and concludes.
Determinants of residential construction
Rental housing market regulations and most prominently rent controls are a phenomenon that has attracted quite some attention from economists. We identified 99 empirical studies published in peer-reviewed journals between 1967 and 2022 that overall cover 36 different countries, with one-third of the studies being devoted to North America and more than a half of studies concentrating on European countries, the remainder focussing on the Global South (Kholodilin, 2022).
Together they investigate 19 different effects that rent controls can typically have, while many studies examine several impacts at a time.
Most authors are interested in the effects of rent control on rents of controlled apartments (31 studies), residential mobility (19), new housing construction (12) and homeownership (11). Other studies are interested in effects on welfare, segregation, misallocation, vacancies, quality, homelessness, etc.
This literature generally finds that rent regulation in the form of price controls significantly lowers controlled rents (and returns) but increases uncontrolled rents (e.g., Attia, 2016; Baye & Dinger, 2022; Ahrens et al., 2019). At the same time, it tends to increase homeownership, as it crowds out rental housing units (Diamond et al., 2019; Asquith, 2019; Appelbaum et al., 1991; Fetter, 2016). Studies unanimously find that rent controls lower residential mobility, as tenants have a strong incentive to remain in controlled units (Gyourko & Linneman, 1989; Clark & Heskin, 1982; Bonneval et al., 2022; Karpestam, 2022; Gardner, 2022). The literature also agrees on the negative effects on housing quality, as landlords lose the means and incentive for proper maintenance (Gilderbloom & Ye, 2007; Breidenbach et al., 2022; Tan, 2021).
International Journal of Housing Policy 5
The number of studies investigating rent control effects on residential construction is already more limited and much more mixed in comparison to the articles studying other outcomes. We identified a total of 12 published studies. These studies mostly cover Canada, Scotland, Sweden and the United States. The estimation techniques are rather rudimentary, except for Sims (2007) who uses difference-in-differences regressions, although the authors are sometimes very inventive regarding their data sources. Most studies (seven out of 12) find a negative impact of rent control (Lind, 2003; Smith & Tomlinson, 1981; Smith, 1988) or a positive effect of deregulation (Bailey, 1999; Gibb, 1994) on new housing construction. Only Gilderbloom and Ye (2007) and Ambrosius et al. (2015), using more or less the same data and the same methodology as Gilderbloom and Markham (1996), find no impact of rent control on new residential construction. Moreover, in this particular case, rent controls are thought to be moderate. Goetz (1995) concludes that the multifamily-housing production in San Francisco has accelerated after the introduction of rent control. However, he does not control for other factors, except for dummy variables of rent control introduction, that could explain higher construction rates after rent control was adopted in 1979.
The best evidence comes from sub-national case studies. The most prominent recent quasi-experimental study of San Francisco estimated the effect of rent controls on new construction as high as a 15% reduction in new supply (Diamond et al., 2019). Also studying San Francisco, Asquith (2019) finds a reduction in rental housing supply, as landlords sell off apartments in the condo-market or simply hold back supply. A similar phenomenon—a conversion of rental into owner-occupied units—was found by Fetter (2016) for the US rent controls during and immediately after World War II (WWII). However, Sims (2007), using microdata from a housing survey conducted in Massachusetts in 1985–1998, finds little effect of rent control on new housing construction. Studying the same de-control moment, Autor et al. (2014) also find a very low effect of de-control on new residential investment. Mense et al. (2018), who investigate a recent strengthening of German rental policy—the rental brake (Mietpreisbremse)— establish that it fostered new construction in the controlled municipalities.
Overall, the existing literature on the construction and supply effects has predominantly focussed on the effects of rent price controls and not on other forms of tenancy regulation (such as supply restrictions or tenant protection). The existing macro-studies have been rather narrow in terms of geographic scope and regarding the length of time series data used.
Almost all studies ignore the historical moments with highest rent regulation activity. We address these shortcomings below by increasing both geographic and time coverage and by including different dimensions of tenancy regulation.
6 K. A. KHOLODILIN AND S. KOHL
Data
In this section, we present the variables and operationalisation used in this study. For the sake of convenience, we split them into tenancy regulation indices, dependent construction variables and control variables.
Table 1 reports the sources of data in more detail and presents the descriptive statistics.
Regulation indices
The main explanatory variable is the intensity of tenancy regulation which we approximate by drawing on the restrictive rental market regulations indices, as developed by Kholodilin (2020) and Weber (2017). They cover three types of regulations: rent control, tenure security and housing rationing. The rent control index measures the intensity of restrictions imposed on the level of rent and its rate of increase. This index is computed as a simple average of six binary indices reflecting the following policies: real rent freeze, nominal rent freeze, rent level control, inter-tenancy decontrol, other specific rent decontrol and specific rent re-control.
Thus, the rent control index varies on a continuous scale between 0 and 1.
Moreover, economists distinguish between the first and the second generation of rent control (Arnott, 1995). The first generation implies a hard rent freeze, when rents are fixed at a given level, while under the softer second-generation rent control, the starting rent is generally set at market level, but its growth rate is tied to a measure of living or building costs. Here, we use regulation indices of the first- and second-generation rent control. In case of the first-generation rent control, there are both real and nominal rent freezes as well as rent level controls. By contrast, under the second-generation rent control, only real rent freezes are present. The Rent laws index, on the one hand, and first- and second-generation rent control indices, on the other hand, are constructed in a different way. Unlike the continuous Rent laws index, the generation indices of rent control are binary indices—being equal either to 0 or to 1—reflecting whether the state uses the first or second generation of rent control or not. Therefore, they contain related but not the same information.
The tenure security index, in turn, reflects the degree of protection of tenants from evictions by landlords. The main instruments of protection are eviction protection during a given lease term or period; eviction protection at the end of the term or period; imposition of a minimum duration of rental contracts; and a prohibition of short-term tenancies (of less than one year).
Finally, the housing rationing index measures the intensity of redistribution within the existing housing stock. It includes such policies as registration of housing; protection of housing (e.g., prohibitions to convert residential premises to other uses or to short-term rentals); requisition of vacant housing; restriction of freedom to move into areas with tight International Journal of Housing Policy 7
Table 1. Description of variables used in the analysis.Variable description Source Period Minimum Mean Maximum Standard deviation Housing completions by 1000 inhabitants Kohl (2021) 1900–2016 0.020 5.447 17.314 2.928Share of residential construction in GDP, % Macrohistory 1900–2017 0.039 4.806 12.081 2.079Rent laws index, (0, 1) RHMR 1900–2021 0 0.488 1 0.361First-generation rent control index, (0, 1) RHMR 1900–2021 0 0.493 1 0.500Second-generation rent control index, (0, 1) RHMR 1900–2021 0 0.128 1 0.334Tenure security index, (0, 1) RHMR 1900–2021 0 0.393 1 0.245 Housing rationing index, (0, 1) RHMR 1900–2021 0 0.109 0.750 0.165 Rental market regulation index, (0, 1) RHMR 1900–2021 0 0.440 0.917 0.255Real GDP per capita, 1990 international Geary–Khamis dollars, 1000
Maddison 1900–2018 1.833 17.116 84.580 14.156
Real per-capita GDP growth rate Own calculations 1901–2018 −0.878 0.020 0.506 0.056Long-term interest rate, % Macrohistory and OECD 1900–2018 −0.251 5.675 21.502 3.180Total loans-to-GDP ratio, % Macrohistory and own calculations
1900–2016 0.019 0.641 2.045 0.365
Population growth Maddison and own
calculations
1901–2018 −0.075 0.007 0.034 0.006
Housing return minus equity return (relative rate of
return)
Macrohistory 1900–2015 −0.096 0.014 0.102 0.025
Government budget balance-to-GDP ratio Macrohistory and own calculations
1900–2016 −0.752 −0.022 0.201 0.059
Ratio of dependent (younger than 15 and older than
64 y. o.) population to working-age (15 through 64 y. o.) population, [0,1] World Development
Indicators of the World Bank and European University Institute 1900–2016 0.425 0.544 0.993 0.067
Number of marriages per 1000 population Mitchell (2013) and OECD Vital Statistics
1900–2016 2.113 7.058 17.959 1.838
Note: BIS =Bank for International Settlements (https://www.bis.org/statistics/pp_detailed.htm); Federal Reserve Bank of Dallas (https://www.dallasfed.org/institute/houseprice#tab2); Macrohistory=Jordà–Schularick–Taylor Macrohistory Database (http://www.macrohistory.net/data/); Maddison=Maddison Historical Statistics (https://www. rug.nl/ggdc/historicaldevelopment/maddison/); OECD= Organisation for Economic Cooperation and Development Housing prices data (https://data.oecd.org/price/housing-prices.htm); RHMR = Rental Housing Market Regulation database (https://rpubs.com/Konstantin_Xo/RHMR). 8 K. A. KHOLODILIN AND S. KOHL
housing markets; conservation of social composition of the neighbourhoods in order to prevent gentrification; imposition of maximum housing consumption norms; and nationalisation of private housing stock.
All three indices range between 0 and 1: the higher the index the more intense the regulation. In addition, following Weber (2017), we computed a rental market regulation index (RMRI) as a simple average of the rent control index and tenure security index. Thus, it measures an overall security of tenants by simultaneously capturing the protection of tenants from rent increases and from eviction.
The indices are constructed based on a manual content coding of the corresponding legal acts (see https://rpubs.com/Konstantin_Xo/RHMR for details) and, to the best of our knowledge, represent the best available data source for comparative long-run measures of tenancy regulation. It is important to note that the indices do not measure how tight each regulation in place is, but whether regulations of different sorts are generally in place or not and how many of them are enacted. It is also important to keep in mind that this law-based approach cannot deal with different degrees of enforcement of laws. A final note of caution is that these laws are enacted on the national level and do not account for regional variations. In most cases, the national focus reflects the most important regulation level, with decentralisation of housing policies starting in the 1980s in many countries. The indices thus measure, for instance, that the US federal government does not implement any rent controls and that this differs from Germany, which allows municipalities to use regionally specific comparative-rent tables to enforce soft rent controls, but the index ignores differences between the enforcement in Berlin and Cologne.
While these are some obvious shortcomings of the indices, they are the only available long-run regulation data at hand. There are two additional arguments speaking in their favour. First, our indices correlate quite well with alternative ones, as shown in Kholodilin (2020). Second, there are already quite a few researchers, including those from the IMF and the OECD, who are using the indices for their research, where they have become a common data currency.6
Housing construction intensity
Our dependent variable is housing construction intensity, which is defined as the number of completed dwellings per 1000 persons (cf.
Kohl 2021). Surveying construction requires a certain governmental control of property rights and of the construction sector which is not given in many developing nations and therefore restricts the countries we can sensibly include in the study. Construction volume is available as permits, starts and completions and with the exception of a few countries such as the US, completions are reported throughout. The advantage of International Journal of Housing Policy 9
housing starts (and permits) as measure is that they are the most sensitive measures to reveal macroeconomic impacts on initiated construction activity. Their obvious shortcoming is that not all housing starts end up in completions due to construction-loan problems, bad calculations or speculation. Completions, in turn, have the disadvantage that they lag behind starts by one or two years. However, they indicate what has been constructed and their coverage across countries is highest. For these reasons, we choose completions as our measure for new construction volume.
To control for demography right from the start, we divide completions by the current population, which yields a commonly used variable in the range of 2 to 15 completed units per 1000 inhabitants (cf. Kohl 2021). In cases of missing completion data due to countries not having surveyed them at all or only at certain points in time, we approximate completions through housing starts and permits. Our rule of approximation is the following: If available, we use the first lag of housing starts multiplied by the median ratio of housing completions and starts in our sample excluding the war and post-war years, namely 0.98. If starts are also not available, we use the first lag of permits again multiplied by the average ratio of housing completions and permits, namely 0.95. This is to make sure that the levels of completions are approximated, as the over-time trends are highly similar. For the available data, both lagged permits and lagged housing starts strongly correlate (r=0.98).
To include new housing quality and investments in existing stock, we also rely on total residential construction investment per GDP as an alternative dependent variable, which comes with the advantage of being a monetary variable, but is therefore also subject to price effects.
Control variables
The existing literature usually points to a list of control variables, mainly the common economic and demographic background variables, which need to be available for the very long-run for our purposes. On the economic side, we control for GDP per capita as higher income levels allow for more construction to take place. The business cycle is also known for its strong correlation with the building cycle (Leamer, 2007). With government activity being important for the building sector, we also include the governmental budget balance as a variable. Most new construction is not financed out of equity, which is why capital markets play a crucial role.
We, therefore, include long-term interest rates that govern mortgage lending. Moreover, we include the growth of mortgages outstanding to GDP:
in normal times, more mortgage supply should lead to new construction, but we also include its quadratic term, as too high levels of mortgage indebtedness has been found to just drive up prices and to not extend supply further (Kohl, 2021). New construction depends on the relative 10 K. A. KHOLODILIN AND S. KOHL
attractiveness to build; we, therefore, include the relative rate of return computed as a difference between housing rental returns and stock market returns in the estimation. Finally, we would include homeownership rates, but their coverage reduces our sample to a post-1950 sample, giving away our long-run data advantage.7
On the demographic side, we control for population growth to account for rising demand. As a more refined measure, we also control for marriage rates per population because they indicate the formation of new households. Family formation requires the extension of living space, whereas older household cut back living space at higher ages. We therefore also include a dependency ratio by interpolating the age composition of the population surveyed at census points.8
Econometric methodology
Methodologically, the availability of longitudinal data suggests the use of a panel data model. Given the strong persistence of construction intensity and in order to remove serial correlation and potential non-stationarity, we compute the dependent variable as the first difference of the log of construction intensity.
yx zv it
it it
it
it
,, 12
(1)
where yit is the first difference of the construction intensity or the percentage of residential construction in GDP in country i in the year t; xit is the vector of control variables; zit is the vector of regulation indices; ηi is the country fixed effects; θt is the time fixed effects; vit is the random disturbance; and β is the vector of coefficients.
We transform the explanatory variables that Dickey-Fuller tests reveal to be non-stationary (population, mortgages and GDP per capita) into growth rates or first differences which also transforms some of these stock-variables into flows, more apt to explain the flow of new constructions. We use the second lag of the regulation indices in order to capture the fact that housing construction takes time to reach completion. The plot of land must be found, the architectural plans must be made, the building permit must be obtained and finally, the house must be built.
All these procedures take time and on average two years can pass between the decision to build and the completion. In addition, factors such as bad weather and unavailability of subcontractors and workers during periods of busy construction activity can lengthen the process even more. For example, according to the US Census Bureau 2020 statistics, it takes on average about 7 to 16 months between the start and completion of single- and multi-family houses, respectively.9 For the control variables we use their first lags. Given that we work with annual data, one lag should be sufficient. Wooldridge (2012, p. 658), for instance, International Journal of Housing Policy 11
suggests to use at most two lags for annual time series. A larger number of lags would reduce the already modest degrees of freedom in our models.
Results
We first describe how construction and tenancy regulation developed across time and different regions to then present the multivariate results.
Descriptive findings
Figure 1 depicts the evolution of the three regulation indices between 1900 and 2021. All curves show a two-hump structure: regulation set in with WWI as consumer socialism for the home front of soldiers’ families.
Figure 1. Residential construction intensity and rental housing market regulations.
Note: Construction intensity is measured as the number of completed dwellings per 1000 persons. The indices of rent control, tenure security and housing rationing vary between 0 (no rent control) and 1 (very strict control). All indices are obtained by averaging from the country-specific indicators of 16 countries under investigation. 12 K. A. KHOLODILIN AND S. KOHL
It was then reversed during the interwar years only to spike again during WWII. But whereas the rationing supply side restrictions were almost completely dismantled in the post-war development, tenancy security was on average maintained throughout all jurisdictions. Rent regulation itself reduced in intensity everywhere: the strong first-generation freezes of absolute rent levels softened into second-generation regulation of rent increases.
While this is the broad common story across jurisdictions, there are notable differences between low-regulation Anglophone countries and continental European countries with a tradition of stronger tenancy regulation.
In addition, Figure 1 shows the long-run construction cycle. With the exception of socialist countries, there is a rough counter-cyclical movement of construction and rent regulation over the 20th century: rent regulation surges in war times when construction is low and it fades out with the building cycle taking off. Towards the end of the reporting period, the negative correlation is less evident as building cycles can occur even at a constant rent level.
Multivariate estimations
In what follows, we estimate four different models, depending on the combination of rental regulation indices and control variables included.
We choose these models to uncover different combinations of the regulation indices (models 1–2), to distinguish soft from hard rent controls (3) and to uncover potential non-linear effects (4). We estimate these models for two dependent variables: completed housing units per population and residential investments per GDP.10 We include a total of 16 countries: with the exception of Portugal, all countries start at least in the interwar period, most even before the First World War.
Tables 2 and 3 report estimation results for housing completions for the whole sample and the war-unaffected, post-1960 subsample, respectively. We distinguish war- from post-war-times because the former are arguably very unrepresentative times for housing policies and rent policies in particular. A first observation is that the different combinations of regulation indices share a persistent negative coefficient sign (with the exception of second generation controls), but at low significance levels. A closer look shows that three regulation indices are statistically significant: tenancy security in the whole sample, housing rationing and rent price controls in the war-unaffected subsample. The effect of the general rent price regulation is entirely driven by the remaining hard first-generation price controls. All affect the intensity of residential construction negatively. Thus, stricter regulations, limiting the freedom of landlords to set prices and to select tenants, diminish the incentives to build new housing.
Table 2 presents estimation results for the whole sample using the intensity of housing construction as a dependent variable.
Regarding the magnitude of the effect, it is sizeable, but also not extremely large. The linear effects are the smallest for the models International Journal of Housing Policy 13
estimated over the whole period: the largest decline of the growth rate of construction intensity is obtained for the maximum rent control intensity (equal to 1) and is between −1.3% for all and −1.6% for developed economies. For the post-1960 period, the effects are much larger, varying from the largest decline of about −6% for all countries to almost −8% for developed ones. Assume that in the initial situation (period t) there is no rent control and that construction intensity is 10 dwellings per 1000 inhabitants. If in the following year (t + 1) the strictest possible rent control is introduced, in t + 3 the construction intensity would fall to 9.84–9.87 dwellings per 1000 persons for the whole period and to
9.2–9.4 dwellings per 1000 persons for the post-1960 period. In a country with 100 million inhabitants, it would correspond to a reduction in residential construction by 13,000–16,000 and 60,000–80,000 dwellings, respectively, which is a sizeable magnitude over several years, but also not a complete construction stop.
Table 2. Estimation results of panel data model: construction intensity, whole period.
Dependent variable: growth rate of construction intensity Model 1 Model 2 Model 3 Model 4
Rent lawst−2 −0.026 −0.160
(0.036) (0.111)
Rent lawst−2
2 0.127
(0.110)
First-generation rent controlt−2 −0.031
(0.020)
Second-generation rent controlt−2 0.013
(0.027)
Tenure securityt−2 −0.083* −0.102* −0.073
(0.041) (0.051) (0.039)
Rationingt−2 −0.081 −0.082 −0.071 −0.087
(0.095) (0.096) (0.096) (0.099)
RMRI
t−2 −0.094
(0.063)
Per-capita GDP growtht−1 0.252 0.256 0.260 0.256
(0.179) (0.179) (0.181) (0.177)
Long-term interest ratet−1 −0.003* −0.003* −0.002 −0.003 (0.001) (0.001) (0.001) (0.002)
Relative rate of returnt−1 −0.045 0.007 0.014 −0.004
(0.222) (0.225) (0.232) (0.227)
Change in loan-to-GDP ratiot−1 0.177 0.189 0.185 0.195
(0.176) (0.179) (0.177) (0.180)
Change in loan-to-GDP ratio t−1
2 −5.032*** −5.142*** −5.068*** −5.140***
(1.079) (1.029) (1.056) (1.088)
Government balance-to-GDP ratiot−1 0.015 −0.013 0.030 −0.001 (0.191) (0.179) (0.190) (0.197)
Population growtht−1 1.874 1.593 1.816 1.792
(1.637) (1.634) (1.701) (1.667)
Dependency ratiot−1 −0.275 −0.292 −0.314 −0.279
(0.196) (0.212) (0.203) (0.195)
Marriage ratet−1 0.027* 0.028* 0.028* 0.027*
(0.011) (0.011) (0.011) (0.011)
R2 0.054 0.052 0.057 0.055
Number of observations 1005 1005 1005 1005
***p<0.001, **p<0.01, *p<0.05.
14 K. A. KHOLODILIN AND S. KOHL
Over the whole sample, growth of real per-capita GDP is statistically significant among the control variables. It exerts a strong positive effect on the construction intensity, which corroborates economic theory and common sense. Higher interest rates, in turn, rather depress new construction, whereas more mortgage debt (insignificantly) increases construction, but only up to a certain point (significantly negative square term). Among the demographic variables, marriage rates have a statistically significant positive effect. Even when people marry less, marriage rates might be a proxy for years when demographic cycles produce more family formation and hence construction demand. The addition of demographic and particularly economic variables normally associated with the building cycle takes away the significance of regulation indices.
Much of the regulation effect is driven by the war-time effects as the war-unaffected subsample results in Table 3 shows: post-1960, rent and Table 3. Estimation results of panel data model: construction intensity, 1960–2016.
Dependent variable: growth rate of construction intensity Model 1 Model 2 Model 3 Model 4
Rent lawst−2 −0.085** −0.013
(0.027) (0.104)
Rent laws t−1
2 −0.069
(0.100)
First-generation rent controlt−2 −0.043*
(0.019)
Second-generation rent controlt−2 0.003
(0.025)
Tenure securityt−2 −0.069 −0.087 −0.072
(0.036) (0.046) (0.038)
Rationingt−2 −0.221*** −0.221*** −0.231*** −0.224***
(0.056) (0.054) (0.061) (0.055)
RMRI
t−2 −0.157**
(0.050)
Per-capita GDP growtht−1 0.629** 0.627** 0.629** 0.628** (0.207) (0.202) (0.206) (0.207)
Long-term interest ratet−1 −0.003* −0.003* −0.002 −0.003* (0.002) (0.002) (0.001) (0.002)
Relative rate of returnt−1 0.162 0.142 0.169 0.160
(0.324) (0.305) (0.341) (0.325)
Change in loan-to-GDP ratiot−1 0.153 0.150 0.140 0.140
(0.196) (0.196) (0.198) (0.196)
Change in loan-to-GDP ratio t−1
2 −3.144* −3.113* −3.153* −3.090*
(1.276) (1.298) (1.276) (1.286)
Government balance-to-GDP ratiot−1 0.303 0.310 0.337 0.311 (0.201) (0.193) (0.212) (0.202)
Population growtht−1 1.443 1.499 1.405 1.639
(0.774) (0.798) (0.897) (0.873)
Dependency ratiot−1 −0.055 −0.054 −0.030 −0.070
(0.129) (0.127) (0.141) (0.141)
Marriage ratet−1 0.026*** 0.026*** 0.027*** 0.026***
(0.007) (0.007) (0.007) (0.007)
R2 0.095 0.095 0.094 0.096
Number of observations 807 807 807 807
***p<0.001, **p<0.01, *p<0.05.
International Journal of Housing Policy 15
rationing regulation indices are negatively associated with construction intensity and significantly so. Apparently, the housing rationing, being one of the most drastic measures, has a strong negative impact on the confidence of investors and, therefore, on their willingness to build new houses. Thus, the threat of being expropriated represents an effective obstacle to residential construction. The rent control effect is again driven by the strict rent freezes and not the second-generation controls.
The coefficient estimates obtained for the alternative dependent variable, construction investment per GDP, are very consistent with those obtained for the construction intensity (not shown). Restrictive housing policies appear to exert a negative impact on residential construction, especially since 1960, but at low significance levels. For the more recent period, rent price controls have again a significantly negative effect, mostly driven again by the first-generation rent controls. Supply rationing measures are highly significant in this period and reduce new constructions.
Tenure security regulations are only statistically significant for the estimation over the whole sample. Increasing tenancy regulation to a maximum leads to a decrease of residential investment per GDP of 0.085 percentage points and of up to 0.043 for the strict first-generation controls. The control variables behave very similarly to the results in the previous two estimates.
Although we find negative effects of restrictive regulations on housing construction, these effects are often not statistically significant. It is possible that due to factors internal to each country positive and negative effects in different types of countries cancel each other out. This issue could theoretically be addressed by focussing on specific countries.
However, such a country-specific analysis is rather difficult due to the limited number of observations per country. This is the reason why we opted for using the panel-data approach that dramatically increases the number of observations. To some extent, the country-specific effects are captured by the fixed effects. However, it can be true that an offsetting of effects in various countries occurs. Nevertheless, as an overview of the empirical literature on rent control effects shows, most studies using different methodologies and data find that rent control exerts either a negative or no impact on housing construction (Kholodilin, 2022). Thus, the cancelling out of effects could hardly affect our main conclusion.
Discussion and conclusion
The general finding points to the expected negative effect of rent regulation on new residential construction: throughout different samples and specifications, the regulation coefficients are negative, albeit with changing levels of significance. The finding is most persistent for rationing and first-generation rent controls and most pronounced for the war-unaffected period which reaches up to the current day. Higher levels of security of tenure can depress new construction. However, this finding is not always confirmed, as the corresponding coefficient is only statistically significant 16 K. A. KHOLODILIN AND S. KOHL
in the total sample. Overall, with the most complete historical-comparative data available, the received wisdom among economists of a negative construction and investment effect of rent controls seems to hold, but with far less persistence and magnitude than is usually assumed. In many models, new construction depends more on economic or demographic factors than on tenancy regulation. This is in line with the rather mixed results of existing studies of smaller geographic and temporal scope, where almost half of the studies produce null findings.
The models covering the whole time period do not find any significant rent-control effect other than for the war-related first-generation controls and for the rationing measures. One explanation could be that lower rent control intensity corresponds to the more flexible first-generation rent control, while higher ones correspond to the much more restrictive first-generation rent control. This is in line with previous research (Mense et al., 2018). Finally, one could argue that the magnitude of the examined effects is not particularly high in general. It is not the case that private construction completely stops after the introduction of rent control measures.
What could explain the deviance from the usually expected result? In the following, we want to discuss potential data and model configurations which could explain our main results. One obvious explanation is that rent control laws often exempt new construction from regulations. A subitem in the regulation data set measures whether exceptions to rent controls exist (e.g., for the luxury market segment, new construction, and certain geographies). In the global sample, these exceptions were present in about 70% of all country years during which rent legislation was in place. Unfortunately, the variable is coded too broadly, not taking into account kind and degree, to produce any significant results. Yet, the purpose of many exceptions is to guarantee that the incentives for building new houses are not diminished. Thus, the rents for newly built dwellings are not controlled and so the investors can earn decent profits on it. But investors might still shy away from further investment in rental stock, as they might expect a general deterioration of investment climate and a slippery slope towards even more state intervention.
A second explanation can draw on the fact that tenancy regulation crowds out rental dwellings in favour of owner-occupied ones in the existing housing stock (Fetter, 2016; Kholodilin & Kohl, 2021b). What holds for the existing housing stock may as well hold for new construction: A potential reduction in completions of rental dwellings could thus be more than offset by the increase in the completion numbers in the owner-occupied housing segment. This is all the more probable, given the evidence that homeowner-dominated societies are more prone to speculative house price dynamics (Rünstler, 2016). Homeowners or would-be homeowners who observe house price increases and expect them to continue are eager to participate in the overall speculative movement hoping to obtain capital gains. Thus, more housing is built in such economies than in the tenant-dominated ones, where most people are rather unwilling to see house prices International Journal of Housing Policy 17
increases, since this often goes hand in hand with rent increases. It should be noted also that the switch from tenant to homeowner dominance can be the result of too strict rental regulations. In principle, one would need to replace our current dependent variable of all new constructions by new rental constructions, but the future use of a housing unit is unfortunately not known, let alone surveyed at the point of its construction.
A final explanation for why rent regulation is not universally affecting new construction resides in the fact that in many historical cases the restrictive rental measures are accompanied by housing policies seeking to foster the building activities through social housing or the stimulation of more private housing construction. This has especially been the case after major housing supply shocks caused by wars or natural catastrophes.
The inevitable rent increases are anticipated by using rent controls and the resulting unwillingness to build by private investors makes the government step in to either replace the private building initiative or stimulate it artificially. This could also explain why the global sample results show less significant results than the shorter sample estimates as they included the period of strongest state intervention in housing markets, including social housing construction.
What then are the implications? Rent control measures of even the hard first-generation rent freezes or rationing measures are currently debated and passed in European countries and beyond. Even though they are often introduced with good intentions as social policy in favour of tenants and even potentially lowering short-term inequalities (Kholodilin & Kohl, 2021a), our results suggest that economists do have a point when warning about unintended consequences of depressing new construction. Rent controls help sitting tenants in the short run but contribute to future housing shortages for new tenants in the longer run. This long-run result can partially be offset by additional state policies stimulating housing construction. However, under rent control, the efforts to spur residential construction have to be much larger than in its absence. This undermines the frequently used argument that rent control is an interim measure deployed in order to combat rent increases, while awaiting for construction to gain momentum. Therefore, if one wants to overcome housing shortages as soon as possible, it may be better to abstain from restricting rents, especially from using strict first-generation rent controls.
Notes
1. Senate Bill 608 relating to residential tenancies; creating new provisions; amending ORS 90.100,
90.220, 90.323, 90.427, 90.600, 90.643, 90.675 and 105.124; and declaring an emergency.
2. Housing Stability and Tenant Protection Act of 2019.
3. See ‘Gesetz zur Mietenbegrenzung im Wohnungswesen in Berlin (MietenWoG Bln)’ as of 11 February 2020. The law was enacted on 23 February 2020.
4. Ley 11/2020, de 18 de septiembre, de medidas urgentes en materia de contención de rentas en los contratos de arrendamiento de vivienda y de modificación de la Ley 18/2007, de la Ley 24/2015 y 18 K. A. KHOLODILIN AND S. KOHL
de la Ley 4/2016, relativas a la protección del derecho a la vivienda. This regulation was apparently influenced to a large extent by the so-called rental brake (Mietpreisbremse) introduced in Germany in 2015. However, in March 2022, the Catalan rent control law was revoked by the Spanish Constitutional Court as unconstitutional—Sentencia de Tribunal Constitucional de España—Sentencia 37/2022, de 10 de marzo de 2022. Recurso de inconstitucionalidad 6289-2020.
5. See https://rpubs.com/Konstantin_Xo/COVID19_housing_policies.
6. To name just a few: (1) Cournède et al. (2019) find that a tighter rental regulation tends to exacerbate the risk of severe economic downturns; (2) Cavalleri et al. (2019) suggest that restrictive rental market regulations can decrease the price elasticity of housing supply; while (3) Elfayoumi et al. (2021) investigate the link between rental market regulations and affordability of rental housing.
7. In such a regression, the homeownership variable does not have significant effects.
8. Marriage rates and age composition are interpolated using the R-package stinepack based on Stineman (1980).
9. Average Length of Time from Start to Completion of New Privately Owned Residential Buildings; https://www.census.gov/construction/nrc/pdf/avg_starttocomp.pdf. The larger the building, the lengthier the process: it takes 18months for buildings with 20 units and more. Thus, changes in regulations affect the willingness of investors to apply for permits. Only after the permits are obtained the construction can begin.
10. The results for the second dependent variable are available upon request, and more documentation is shown in the longer working paper version.
Disclosure statement
The authors confirm that the article involves no conflicts of interest.
ORCID
Sebastian Kohl http://orcid.org/0000-0002-8358-6021
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American Economic Review 2019, 109(9): 3365–3394
https://doi.org/10.1257/aer.20181289
3365
The Effects of Rent Control Expansion on Tenants,
Landlords, and Inequality: Evidence from San Francisco† By Rebecca Diamond, Tim McQuade, and Franklin Qian*
Using a 1994 law change, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants and landlords. Leveraging new data tracking individuals’ migration, we find rent control limits renters’ mobility by 20 percent and lowers displacement from San Francisco. Landlords treated by rent control reduce rental housing supplies by 15 percent by selling to owner-occupants and redeveloping buildings. Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law. (JEL R23, R31, R38) Steadily rising housing rents in many of the United State’s large, productive cities has brought the issue of affordable housing to the forefront of the policy debate and reignited the discussion over expanding or enacting rent control provisions. While the details of rent control regulations vary some across places, they generally regulate rent increases and place restrictions on evictions. State lawmakers in California, Colorado, Illinois, and Oregon have considered repealing laws that limit cities’ abilities to pass or expand rent control. Rent control is already extremely popular around the San Francisco Bay Area. Nine Bay Area cities already impose rent control regulations, two of which recently passed rent control laws through majority votes on the November 2016 ballot.
A substantial body of economic research has warned about potential negative efficiency consequences of limiting rent increases below market rates, including overconsumption of housing by tenants of rent-controlled apartments (Olsen 1972, Gyourko and Linneman 1989), misallocation of heterogeneous housing to heterogeneous tenants (Suen 1989, Glaeser and Luttmer 2003, Sims 2011, Bulow and Klemperer 2012), negative spillovers onto neighboring housing (Sims 2007; Autor, Palmer, and Pathak 2014) and neglect of required maintenance (Downs 1988).
Yet, due to incomplete markets, in the absence of rent control, many tenants are unable to insure themselves against rent increases. Of course, individuals who have little connection to any specific area may be able to easily insure themselves against *Diamond: Stanford Graduate School of Business, 655 Knight Way, Stanford, CA 94305, and NBER (email:
[email protected]); McQuade: Stanford Graduate School of Business, 655 Knight Way, Stanford, CA 94305 (email: [email protected]); Qian: Department of Economics, Stanford University, 579 Serra Mall, Stanford, CA 94305 (email: [email protected]). Thomas Lemieux was the coeditor for this article. We are grateful for comments from Ed Glaeser, Christopher Palmer, Paul Scott, and seminar and conference participants. The authors declare that they have no relevant or material financial interests that relate to the research described in this paper. †Go to https://doi.org/10.1257/aer.20181289 to visit the article page for additional materials and author disclosure statements.
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local rental price appreciation by simply moving to a cheaper location. However, if long-term tenants have developed neighborhood-specific capital, such as a network of friends and family, proximity to one’s job, or proximity to the schools of one’s children, then these tenants face large risks from rent appreciation. A variety of affordable housing advocates have argued that many tenants greatly value such insurance and that rent control can effectively provide it.
Despite the policy interest, due to a lack of detailed data and natural experiments, we have little well-identified empirical evidence evaluating how introducing local rent controls affects tenants, landlords, and the broader housing market.1 In this
paper, we bring to bear new microdata and exploit quasi-experimental variation in the assignment of rent control to fill this gap. We exploit an unexpected 1994 law change that suddenly rent-controlled a subset of San Francisco buildings and their tenants, based on the year each building was built. However, the law left very similar buildings and tenants without rent control. We find tenants covered by rent control do place a substantial value on the benefit, as revealed by their choice to remain in their apartments longer than those without rent control. Indeed, we find the vast majority of those incentivized to remain in their rent-controlled apartment would have been displaced from San Francisco had they not been covered.
However, landlords of properties affected by the law change respond over the long term by substituting to other types of real estate, in particular by converting to condos and redeveloping buildings so as to exempt them from rent control. In the long run, landlords’ substitution toward owner-occupied and newly constructed rental housing not only lowered the supply of rental housing in the city, but also shifted the city’s housing supply toward less affordable types of housing that likely cater to the tastes of higher income individuals. Ultimately, these endogenous shifts in the housing supply likely drove up citywide rents, damaging housing affordability for future renters, and counteracting the stated claims of the law.
In 1979, San Francisco imposed rent control on all standing buildings with five or more apartments. While all large buildings built as of 1979 would now be rent-controlled, new construction was exempt from the law, since legislators did not want to discourage new development. In addition, smaller multi-family buildings were exempt from rent control since they were viewed as more “mom and pop” ventures, and did not have market power over rents. However, this small multi-family exemption was lifted through a 1994 San Francisco ballot initiative. Proponents of this law change argued small multi-family housing was now primarily owned by large businesses and should face the same rent control restrictions of large multi-family housing. Since the initial 1979 rent control law only impacted properties built from 1979 and earlier, the removal of the small multi-family exemption also only affected properties built 1979 and earlier. This led to quasi-experimental rent control expansion in 1994 based on whether the small multi-family housing was built prior to or post 1980.
To examine rent control’s effects on tenant migration and neighborhood choices, we make use of new panel data which provide address-level migration decisions 1Notable exceptions to this are Sims (2007) and Autor, Palmer, and Pathak (2014) which use the repeal of rent control in Cambridge, Massachusetts to study its spillover effects onto nearby property values and building maintenance. Neither one of these papers, however, directly studies how rent control impacts tenants.
VOL. 109 NO. 9 DIAMOND ET AL.: THE EFFECTS OF RENT CONTROL EXPANSION 3367 and housing characteristics for the majority of adults living in San Francisco in the early 1990s. This allows us to define our treatment group as renters who lived in small multi-family apartment buildings built prior to 1980 and our control group as renters living in small multi-family housing built between 1980 and 1990. Using our data, we can follow each of these groups over time up until the present, regardless of where they migrate.
We find that between five and ten years after the law change, the beneficiaries of rent control are, on average, 3.5 percentage points more likely to still remain at their 1994 address relative to the control group. Since only 18 percent of the control group still remained at their 1994 address for this long, this estimate represents a 19.4 percent increase in not moving (3.5/18) relative to the control group. We further find that the beneficiaries are 4.5 percentage points more likely to remain in San Francisco relative to the control group, indicating that a large share of the renters who remained at their 1994 address due to rent control would have left San Francisco had they not been covered by rent control. This would likely be viewed as a desirable outcome by rent control advocates.
We next analyze treatment effect heterogeneity along a number of dimensions.
We first find that our estimated effects are significantly stronger among older households and among households that have already spent a number of years at their address prior to treatment. This is consistent with the idea that both of these populations are less likely to experience personal shocks requiring them to change residence and thus, are better able to take advantage of the potential savings offered by rent control.
We then examine whether the effects we estimate vary across racial groups. We do not directly observe race in our data, so we use an imputation procedure based on renters’ names and addresses.2
We find rent control has an especially large impact
on preventing the displacement of racial minorities from San Francisco, suggesting that rent control helps to foster the racial diversity of San Francisco, at least among the initial cohort of renters covered by the law.
Finally, we analyze whether rent control enables tenants to live in neighborhoods with better amenities. One might expect neighborhoods with the largest increases in market prices and amenities would be ones where tenants would remain in their rent-controlled apartments the longest, since their outside options in the neighborhood would be especially expensive. However, for these same reasons, landlords in these high-rent, high-amenity neighborhoods would have large incentives to remove tenants.3
They then could either reset rents to market rates with a new tenant or redevelop the building as condos or new construction, both of which are exempt from rent control. These landlord incentives would push rent control tenants out of the nicest neighborhoods. In fact, we find the landlords’ incentives appear to dominate.
The average tenant treated by rent control lives in a census tract with worse observable amenities, as measured by the census tract’s median household income, share of the population with a college degree, median house value, and share unemployed. 2We impute race by combining imputed race based on first and last name (Ye et al. 2017) and the racial mix of one’s census block of residence in 1990. See Section II for more details. 3In practice, landlords use a number of legal means to remove their tenants, including owner move-in eviction, Ellis Act eviction, or monetary compensation. Landlords may also engage in various pressure tactics, such as tardy maintenance, to pressure tenants to leave.
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Thus, while rent control does prevent displacement from San Francisco, it does not provide access to the best neighborhoods in the city.
The evidence above suggests that landlords do not passively accept the burdens of the law. To further study the landlord response to the rent control expansion and to understand the impact of rent control on rental supply, we merge in historical parcel history data from the San Francisco Assessor’s Office, which allows us to observe parcel splits and condo conversions. We find that rent-controlled buildings were 8 percentage points more likely to convert to a condo or a Tenancy in Common (TIC) than buildings in the control group. Consistent with these findings, we find that rent control led to a 15 percentage point decline in the number of renters living in treated buildings and a 25 percentage point reduction in the number of renters living in rent-controlled units, relative to 1994 levels. This large reduction in rental housing supply was driven by both converting existing structures to owner-occupied condominium housing and by replacing existing structures with new construction.
This 15 percentage point reduction in the rental supply of small multi-family housing likely led to rent increases in the long run, consistent with standard economic theory. In this sense, rent control operated as a transfer between the future renters of San Francisco (who would pay these higher rents due to lower supply) to the renters living in San Francisco in 1994 (who benefited directly from lower rents). Furthermore, since many of the existing rental properties were converted to higher-end, owner-occupied condominium housing and new construction rentals, the passage of rent control ultimately led to a housing stock which caters to higher income individuals. We directly test whether rent control led to in-migration of higher income residents by imputing household income as the per capita income of the census block groups in which the building occupants resided in five year prior.
We find that this high-end housing, developed in response to rent control, attracted residents with at least 18 percent higher income, relative to control group buildings in the same zip code.
Taking all of these points together, it appears rent control has actually contributed to the gentrification of San Francisco, the exact opposite of the policy’s intended goal. Indeed, by simultaneously bringing in higher income residents and preventing displacement of minorities, rent control has contributed to widening income inequality of the city. For a full quantitative analysis of the welfare gains and losses due to rent control, see our companion paper (Diamond, McQuade, and Qian 2018), which estimates a dynamic discrete choice model of tenant migration and performs general equilibrium counterfactual analysis of the impacts of rent control.
Our paper is part of the literature on rent control. The two papers most closely related to ours are Sims (2007) and Autor, Palmer, and Pathak (2014), both of which study the effects of ending rent control in the Boston metropolitan area. Sims (2007) uses American Housing Survey (AHS) data to show that towns in the Boston metropolitan area in which rent control was abolished saw increases in rental supply and increased housing maintenance. Sims (2007) also shows some evidence of spillover effects on non-controlled properties. Autor, Palmer, and Pathak (2014) use property-level data on assessed values and transaction prices in Cambridge, Massachusetts to investigate these spillover effects more directly. They show that decontrol led to price appreciation at decontrolled and never-controlled units.
VOL. 109 NO. 9 DIAMOND ET AL.: THE EFFECTS OF RENT CONTROL EXPANSION 3369 Our paper is different on a number of important dimensions. First, our paper uses a different natural experiment which has the nice feature of generating quasi-random assignment of rent control within narrowly defined neighborhoods. More substantively, by bringing to bear a unique, rich, and previously unused dataset, our paper is the first in this literature to be able to study how rent control impacts the behavior of the actual tenant beneficiaries. These estimates reveal a number of important insights regarding the value tenants place on rent control protections and rent control’s ability to limit displacement, but also potential limitations in the ability of tenants to realize rent savings due to landlord responses.
Finally, since our unique data provide property-level information on renovations, condo conversions, and redevelopment, our paper shows that rent control can lead to an upgraded housing stock catering to higher income individuals. Indeed, the previous literature has shown that ending rent control leads to higher maintenance and higher nearby property values. To reconcile these seemingly conflicting points, it is crucial to understand that decontrol studies the effects of removing rent control on buildings which still remain covered. In fact, one of our key points is to show that a large share of landlords substitute away from supply of rent-controlled housing, making those properties which remain subject to rent control a selected set. In this way, studying the introduction of rent control, which our paper does, is not the same as studying the abolishment of rent control.
There also exists an older literature on rent control combining applied theory with cross-sectional empirical methods. These papers test whether the data are consistent with the theory being studied, but usually cannot quantify causal effects of rent control (Early 2000, Glaeser and Luttmer 2003, Gyourko and Linneman 1989, Gyourko and Linneman 1990, Moon and Stotsky 1993, Olsen 1972).
The remainder of the paper proceeds as follows. Section I discusses the history of rent control in San Francisco. Section II discusses the data used for the analysis.
Section III presents our empirical results. Section IV concludes.
I. A History of Rent Control in San Francisco
Regulations are widespread in housing markets, and rent controls are arguably among the most important historically (Stigler and Friedman 1946, Gyourko and Glaeser 2008). The modern era of US rent controls began as a part of World War II era price controls and as a reaction to housing shortages following demographic changes immediately after the war (Fetter 2016). These “hard price controls” that directly regulate the exact price of housing have been replaced by newer policies that regulate rent increases (Arnott 1995). This “newer style” policy is what exists in San Francisco.
Rent control in San Francisco began in 1979, when acting Mayor Dianne Feinstein signed San Francisco’s first rent control law. Pressure to pass rent control measures was mounting due to high inflation rates nationwide, strong housing demand in San Francisco, and recently passed Proposition 13.4
This law capped annual nominal rent increases to 7 percent and covered all rental units built before June 13, 4Proposition 13, passed in 1978, limited annual property tax increases for owners. Tenants felt they were entitled to similar benefits in the form of capped annual rent increases. 3370 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 2019
1979 with one key exemption: owner-occupied buildings containing 4 units or less.5 These “mom and pop” landlords were cast as being less profit-driven than largescale, corporate landlords, and more similar to the tenants being protected. These small multi-family structures made up about 44 percent of the rental housing stock in 1990, making this a large exemption to the rent control law.
While this exemption was intended to target “mom and pop” landlords, in practice small multi-families were increasingly purchased by larger businesses who would then sell a small share of the building to a live-in owner so as to satisfy the rent control law exemption. This became fuel for a new ballot initiative in 1994 to remove the small multi-family rent control exemption. This ballot initiative barely passed in November 1994. Suddenly, all multi-family structures with four units or less built in 1979 or earlier were now subject to rent control. These small multi-family structures built prior to 1980 remain rent-controlled today, while all of those built from 1980 or later are still not subject to rent control. San Francisco rent control laws have remained stable since then, possibly due to the statewide Costa-Hawkins Act. This law precludes any California city from rent controlling any housing stock built 1994 or later and regulates the scope of rent control allowed. For example, it requires rent-controlled apartment rents to be unregulated between tenants.
II. Data
We bring together data from multiple sources to enable us to observe property characteristics, determine treatment and control groups, track the migration decisions of tenants, and observe the property decisions of landlords. Our first dataset is from Infutor, which provides the entire address history of individuals who resided in San Francisco at some point between the years of 1980 and 2016.6 The data
include not only individuals’ San Francisco addresses, but any other address within the United States at which that individual lived during the period of 1980–2016. The dataset provides the exact street address, the month and year in which the individual lived at that particular location, the name of the individual, and some demographic information including age and gender.
We link these data to property records provided by DataQuick. These data provide us with a variety of property characteristics, such as the use-code (single-family, multi-family, commercial, etc.), the year the building was built, and the number of units in the structure. For each property, the data also detail its transaction history since 1988, including transaction prices, as well as the buyer and seller names. By comparing last names in Infutor to the listed owners of the property in DataQuick, we are able to distinguish owners from renters.
Next, we match each address to its official parcel number from the San Francisco Assessor’s office. Using the parcel ID number from the Secured Roll data, we merge in any building permits that have been associated with that property since 1980.
These data come from the San Francisco Planning office. This allows us to track 5The annual allowable rent increase was cut to 4 percent in 1984 and later to 60 percent of the CPI in 1992, where it remains today. 6Infutor is a data aggregator of address data using many sources including sources such as phone books, voter files, property deeds, magazine subscriptions, credit header files, and others.
VOL. 109 NO. 9 DIAMOND ET AL.: THE EFFECTS OF RENT CONTROL EXPANSION 3371 large investments in renovations over time based on the quantity and type of permit issued to each building.
Finally, the parcel number also allows us to link to the parcel history file from the Assessor’s office. This allows us to observe changes in the parcel structure over time. In particular, this allows us to determine whether parcels were split off over time, a common occurrence when a multi-family apartment building (one parcel) splits into separate parcels for each apartment during a condo conversion.
Summary statistics are provided in Table 1. We see the average renter in our sample in 1994 is about 37 years old and has lived at their current address for 6 years.
We also see that these small multi-family properties are made up of 82 percent (0.74/0.9) renters and 18 percent owner occupants prior to 1994.
A. Data Representativeness
To examine the representativeness of the Infutor data, we link all individuals reported as living in San Francisco in 1990 to their census tract, to create census tract population counts as measured in Infutor. We make similar census tract population counts for the year 2000 and compare these San Francisco census tract population counts to those reported in the 1990 and 2000 Census for adults 18 years old and above. Regressions of the Infutor populations on census population are shown in Figure 1.7
Panel A shows that for each additional person recorded in the 1990 Census, Infutor contains an additional 0.44 people, suggesting we have a 44 percent sample of the population. While we do not observe the universe of San Francisco residents in 1990, the data appear quite representative, as the census tract population in the 1990 Census can explain 69 percent of the census tract variation in population measured from Infutor. Our data are even better in the year 2000. Panel B shows that we appear to have 1.1 people in Infutor for each person observed in the 2000 US Census. We likely overcount the number of people in each tract in Infutor since we are not conditioning on year of death in the Infutor data, leading to overcounting of alive people. However, the Infutor data still tracks population well, as the census tract population in the 2000 Census can explain 90 percent of the census tract variation in population measured from Infutor.
Infutor also provides information on age. As additional checks, we compare the population counts within decadal age groups living in a particular census tract as reported by Infutor to that reported by the Census. We again report the results for both 1990 and 2000. Unlike the prior analysis, we must drop Infutor observations missing birth date information for this, making our sample smaller. As shown in panel A of Table 2, the slopes of the regression lines for the 18–29, 30–39, 40–49, 50–59, and 60–69 age groups are 0.31, 0.44, 0.42, 0.24, and 0.16, respectively. This indicates the Infutor coverage is strongest for 30–49-year-olds in 1990. The R2 values are also the highest in this age range at 65 to 76 percent. The coverage of the data improves dramatically by 2000, as shown in panel A of Table 2. The regression line slopes for the respective age groups are now 0.33, 0.74, 0.72, 0.70, 0.45. The R2 values range from 0.61–0.85. It is clear the data disproportionately undersamples 7We only can do data validation relative to the US Censuses for census tracts in San Francisco because we only have address histories for people who lived in San Francisco at some point in their life. 3372 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 2019
the youngest group, but this is unsurprising as these data come from sources such as credit header files, voter files, and property deeds. Eighteen-year-olds are less likely to show up in these sources right away. Overall the data coverage looks quite good.
As described above, we merge the Infutor data with public records information provided by DataQuick about the particular property located at a given address, such as use-code and age of the property. We assess the quality of the matching procedure by comparing the distribution of the year buildings were built across census tracts among addresses listed as occupied in Infutor versus the 1990 and 2000 Censuses.
Table 1—Sample Characteristics of Multi-Family Properties (2– 4 Units) and Their Tenants 1990–1993 1994–2016
Treat Control Difference Treat Control Difference
Panel A. Tenants living in multi-family residence (2−4 units) A1. Demographics
Age in 1993 37.708 37.120 0.587 37.708 37.120 0.587
(10.438) (10.639) (0.247) 10.438 (10.639) (0.247)
A2. Residency
In San Francisco 0.954 0.954 0.000 0.569 0.538 0.032
(0.210) (0.210) (0.002) (0.495) (0.499) (0.002)
Same address 0.870 0.867 0.003 0.261 0.240 0.021
(0.336) (0.340) (0.004) (0.439) (0.427) (0.002)
Years at address 6.015 5.825 0.190 6.590 6.267 0.324
(3.958) (3.927) (0.047) (5.898) (5.530) (0.029)
Number of persons 44,502 1,861 46,363 44,502 1,861 46,363 Panel B. Multi-family properties (2−4 units)
B1. Residency
Conversion 0.000 0.000 0.000 0.096 0.044 0.051
(0.009) (0.000) (0.000) (0.294) (0.206) (0.002)
B2. Population, 1990–1994
Population/avg. population 0.898 0.905 −0.008 2.282 2.252 0.030 (0.436) (0.426) (0.007) (4.029) (2.998) (0.028)
Renters/avg. population 0.741 0.737 0.004 1.680 1.700 −0.020 (0.484) (0.482) (0.008) (3.555) (2.517) (0.025)
Renters in rent-controlled 0.741 0.737 0.004 1.404 1.570 −0.165 buildings/avg. population (0.484) (0.482) (0.008) (1.927) (2.053) (0.014) Renters in redeveloped 0 0 0 0.129 0.060 0.069
buildings/avg. population (0) (0) (0) (0.740) (0.541) (0.005) Owners/avg. population 0.157 0.168 −0.012 0.602 0.552 0.050 (0.329) (0.335) (0.006) (1.581) (1.348) (0.011)
B3. Permits
Cumulative 0.072 0.088 −0.016 0.290 0.254 0.035
Add/alter/repair per unit (0.231) (0.287) (0.004) (0.511) (0.536) (0.004) Number of parcels 25,925 892 26,817 25,925 892 26,817
Notes: Panel A reports the summary statistics of the demographic characteristics and residency outcomes during 1990–2016 of our tenant sample. The sample consists of all tenants between 20 and 65 years old living in San Francisco as of December 31, 1993 and in multi-family residences with 2–4 units that were built during 1900–1990.
Panel B reports the summary statistics of the outcomes variables related to residency, population changes, and permit issuance during 1990–2016 of our property sample. The sample consists of all parcels that are multi-family residence with 2–4 units in San Francisco that were built during 1900−1990. The Treat and Control columns report the mean and standard deviation (in parentheses) of each outcome variable at the tenant level in panel A and at the property level in panel B. The Difference column reports the coefficient and standard error (in parentheses) of a regression of each outcome variable on the treatment dummy at the tenant level in panel A and at the property level in panel B.
VOL. 109 NO. 9 DIAMOND ET AL.: THE EFFECTS OF RENT CONTROL EXPANSION 3373 If a building is constructed after 1993 according to its current day use-code, but we observe a person living there in 1993, we include it in the treatment group for rent control. Panel B of Table 2 shows the age distribution of the occupied stock by census tract. In both of the years 1990 and 2000, our R2 values range from 67 percent 0 2,000
4,000
6,000
8,000
Infutor population 18
+
0 2,000 4,000 6,000 8,000
Census population 18+
Panel A. 1990 Infutor versus Census Panel B. 2000 Infutor versus Census 95% CI Fitted values
β = 0.442 (0.026)
R2 = 0.692
Observations = 127
β = 1.145 (0.029)
R2 = 0.898
Observations = 175
0 2,000
4,000
6,000
8,000
10,000
Infutor population 18
+
0 2,000 4,000 6,000 8,000
Census population 18+
45-degree
Figure 1. Validation of Infutor Population versus US Census Population Notes: Plot shows the population of 18 and over in each census tract in 1990 and 2000 from Infutor data against that from 1990 and 2000 Censuses, respectively. The fitted line is by OLS.
Table 2—Representativeness of Infutor Data: Population by Age Groups and Age of Occupied Housing Stocks
1990 2000
Age group Slope SE R2 Age group Slope SE R2
Panel A. Population by age group
18–29 0.314 0.026 0.534 18–29 0.325 0.016 0.696
30–39 0.444 0.022 0.758 30–39 0.744 0.024 0.850
40–49 0.416 0.027 0.649 40–49 0.715 0.032 0.741
50–59 0.237 0.023 0.458 50–59 0.695 0.033 0.723
60–69 0.159 0.015 0.469 60–69 0.447 0.027 0.611
Panel B. Age of occupied housing
Year built Slope SE R2 Year built Slope SE R2
1970–1990 0.639 0.046 0.667 1980–2000 0.813 0.024 0.876 1950–1969 0.928 0.046 0.807 1960–1979 1.083 0.036 0.853 1940–1949 1.111 0.035 0.911 1950–1959 0.955 0.049 0.711 1939 or earlier 1.024 0.040 0.872 1940–1949 1.323 0.042 0.863 1939 or earlier 1.144 0.036 0.863
Notes: Panel A reports the coefficients, standard errors, and R2 values of regressing the population counts within various age groups in each census tract from Infutor data against those from the Census in the year 1990 and 2000 respectively. Panel B reports the coefficients, standard errors, and R2 values of regressing the fraction of buildings built in various time periods in each census tract from Infutor data against those from the Census in the year 1990 and 2000 respectively. In panel B, the regressions are weighted by the number of occupied housing units in each census tract from the Census.
3374 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 2019
to 91 percent and we often cannot reject a slope of 1.8 This highlights the extremely high quality of the linked Infutor-DataQuick data, as the addresses are clean enough to merge in the outside data source DataQuick and still manage to recover the same distribution of building ages as reported in both the 1990 and 2000 Censuses.
To measure whether Infutor residents were owners or renters of their properties, we compare the last names of the property owners list in DataQuick to the last names of the residents listed in Infutor. Since property can be owned in trusts, under a business name, or by a partner or spouse with a different last name, we expect to underclassify residents as owners. Figure 2 plots the Infutor measure of ownership rates by census tract in 1990 and 2000, respectively, against measures constructed using the 1990 and 2000 Censuses. In 1990 (2000), a 1 percentage point increase in the owner-occupied rate leads to a 0.43 (0.56) percentage point increase in the ownership rate measured in Infutor. Despite the undercounting, our cross-sectional variation across census tract matches the 1990 and 2000 censuses extremely well, with R2 values over 90 percent in both decades. This further highlights the quality of the Infutor data.
B. Imputing Tenant Race
We use a two-step procedure to impute the race/ethnicity of individuals in our main sample of analysis: all tenants between 20 and 65 years old living in San Francisco as of December 31, 1993. In the first step, we use NamePrism, a 8Since year built comes from the Census long form, these data are based only on a 20 percent sample of the true distribution of building ages in each tract, creating measurement error that is likely worse in the census than in the merged Infutor-DataQuick data.
0 0.2
0.4 0.6
0.8 1
0 0.2
0.4 0.6
0.8 1
Infutor ownership rate
Panel A. 1990 Infutor-DataQuick versus Census Panel B. 2000 Infutor-DataQuick versus Census 0 0.2 0.4 0.6 0.8 1
Census ownership rate
Infutor ownership rate
0 0.2 0.4 0.6 0.8 1
Census ownership rate
95% CI 45-degree Fitted values
β = 0.432 (0.014)
R2 = 0.910
Observations = 100
β = 0.562 (0.011)
R2 = 0.939
Observations = 159
Figure 2. Home Ownership Rates in Infutor-DataQuick versus US Census Notes: Plot shows census tract average owner occupant rates in 1990 and 2000 from Infutor-DataQuick data verus that from 1990 and 2000 Censuses. The size of marker is proportional to the number of occupied housing units in each census tract. The fitted line is by weighted least squares.
VOL. 109 NO. 9 DIAMOND ET AL.: THE EFFECTS OF RENT CONTROL EXPANSION 3375 non-commercial ethnicity/nationality classification tool intended to support academic research (Ye et al. 2017), to compute baseline probabilities of race/ethnicity for each tenant based on her first name and last name. In the second step, we use Bayes’ rule to update the name-based probabilities for race and ethnicity using the local racial distribution at each tenant’s place of residence in 1990, following a similar methodology used by the Consumer Financial Protection Bureau (CFPB 2014).
More details about each step are provided below.
In step 1, for each tenant, we use both her first and last name to query the NamePrism online tool and obtain baseline probabilities for the six ethnic categories defined by the US Census Bureau: Hispanic; non-Hispanic white; non-Hispanic black or African American; non-Hispanic Asian/Pacific Islander; non-Hispanic American Indian and Alaska Native; and non-Hispanic Multi-racial.9
NamePrism employs a training dataset of 57 million contact lists from a major internet company, US Census data on the distribution of last names by race, and trains its algorithm using the homophily principle exhibited in communication as the basis for its ethnicity classifier.10 In this step, each tenant is assigned a probability, ranging from 0 percent to 100 percent, of belonging to each of the six ethnic groups, and the six probabilities sum to 1.
In step 2, we update each tenant’s baseline racial probabilities with the racial and ethnic characteristics of the census block associated with her place of residence in 1990 using Bayes’ rule to obtain posterior probabilities for the six ethnic groups.11 In particular, for a tenant with name s who resides in geographic area g, we calculate the probability of race or ethnicity r for each of the six categories for a given name s, denoted as Pr(r|s). From the Summary File 1 (SF1) from Census 1990, we obtain the proportion of the population belonging to race or ethnicity r that lives in geographic area g, denoted as Pr(g|r). Bayes’ rule then gives the probability that a tenant with name s residing in geographic area g belongs to race or ethnicity r:
Pr(r|g,s) =
Pr(r|s)Pr(g|r) ______________
∑r
′∈RPr(r
′|s)Pr(g|r′)
,
where R denotes the set of six ethnic categories. An assumption necessary for the validity of the Bayesian updating procedure is that the probability of living in a given geographic area, given one’s race, is independent of one’s name. For example, it assumes that blacks with the name John Smith are just as likely to live in a certain neighborhood as blacks in general.
For each tenant, we then assign a final racial probability if the maximum of the six posterior probabilities is equal to or above 0.8, and a final racial/ethnic category corresponding to the maximum posterior; otherwise a tenant’s race/ethnicity is unclassified. Table 3 shows the breakdown of our racial and ethnic classification for our main sample of analysis.
9This classification considers Hispanic as mutually exclusive from the race categories, with individuals identified as Hispanic belonging only to that category, regardless of racial background. 10People tend to communicate more frequently with others of similar age, language, and location. 11In practice, census block level information on the racial and ethnic composition is available for 94.7 percent of our sample. For the rest of sample, we use racial and ethnic composition at the census block group (4 percent), census tract (0.2 percent), and 5-digit zip code levels (1 percent), whichever one is first available in the order listed.
We set the posterior probabilities equal to the baseline probabilities from NamePrism for the rest: 0.1 percent of our sample.
3376 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 2019
Our methodology is similar to what’s used by the CFPB to construct proxy consumer race in order to conduct fair lending analysis. CFPB (2014) and Elliott et al. (2009) demonstrate that combining geography- and name-based information into a single proxy probability for race/ethnicity significantly outperforms traditional classification methods based on names or geography alone. The key difference between our method and CFPB’s method is that we use NamePrism to compute “prior” probabilities, whereas CFPB relies on the racial distribution for common last names in the United States published by the Census Bureau (Comenetz 2016). Since NamePrism uses both first and last names from a much larger name database, it is able to classify race/ethnicity for a much wider range of names at higher accuracy.
Moreover, we use census block level racial composition for Bayesian updating of racial probabilities whenever possible, whereas CFPB uses racial distribution at the census block group level, which is a larger geographic unit, and thus less refined.
Validation of Race Imputation.—We report some summary statistics regarding our race imputation methodology and perform a few validation checks. Using our imputation procedure and the linked Infutor-DataQuick data, we first report in column 5 of Table 3 the racial distribution of all tenants aged 20–65 living in multi-family residences with 2–4 units as of December 31, 1993. Column 6 of Table 3 reports the 1990 Census measure of this distribution. As in the census, we find that Asians are the most numerous minority, followed by Hispanics and then blacks. This table also shows that our procedure somewhat overrepresents whites in San Francisco and underrepresents the number of minorities. This is because we only assign a race to an individual if the probability of that race is above 80 percent.
In practice, this means 8,009 tenants are not assigned a race, equal to 17.27 percent of our tenant sample. Many of these unassigned individuals are likely minorities, as a large fraction of the unassigned are those with minority-sounding names but who live in relatively racially integrated neighborhoods.12 12If we do not impose this cutoff and instead simply calculate raw means of each racial group’s probabilities, our racial distribution looks much closer to the distribution reported by the Census. We feel that imposing the cutoff is appropriate, however, since it ameliorates concerns regarding measurement error in our regression analysis by Table 3—2010 Census Block Racial Distribution by Tenants’ Race among 1994 Rent Control Cohort Average share in 2010 census block SF overall
White Black Hispanic Asian Sample share 1990 census 2010 census (1) (2) (3) (4) (5) (6) (7)
Predicted race
White 63.4 4.2 12.1 16.4 75.01 57.36 52.26
Black 24.8 24.0 24.4 22.8 1.40 7.72 4.69
Hispanic 33.7 6.3 31.4 24.9 8.20 14.18 18.28
Asian 38.1 4.1 13.2 40.8 15.39 20.16 24.51
Notes: Sample consists of all tenants with a classified race/ethnicity between 20 and 65 years old living in San Francisco as of December 31, 1993 and in multi-family residences with 2–4 units that were built during 1900–1990.
We geocode the 2010 addresses of tenants in our sample to the census block level. Columns 1–4 report the average shares of white, black, Hispanic, and Asian population in the census blocks containing the 2010 addresses of tenants in each classified racial/ethnic category. Column 5 reports the share of our sample by predicted race. Columns 6 and 7 report the share of tenants in San Francisco between 20 and 65 years old who were living in small multi-family residences by racial/ethnic categories according to the 1990 and 2010 US censuses.
VOL. 109 NO. 9 DIAMOND ET AL.: THE EFFECTS OF RENT CONTROL EXPANSION 3377 To further validate our methodology, we examine the average racial makeup of the 2010 census block in which our assigned individuals live. Note that this is an out-of-sample check since we use an individual’s 1990 address, not their 2010 address, in our imputation procedure. The results are reported in columns 1 through 4 of Table 3. Consistent with what one would expect from some degree of continued racial sorting, individuals we classify as white live in neighborhoods with the greatest fraction of whites (as of 2010), those we classify as black live in neighborhoods with the greatest fraction of blacks (as of 2010), and similarly for Hispanics and Asians. The same sorting result appears when we regress racial shares of an individual’s 2010 census block on the individual’s assigned race. The results are reported in online Appendix Table A2, with black being the omitted category. For example, being white is the strongest positive predictor of the 2010 white share, being Hispanic is the strongest positive predictor of the 2010 Hispanic share, and similarly for Asians and blacks.
III. Empirical Results
Studying the effects of rent control is challenged by the usual endogeneity issues.
The tenants who choose to live in rent-controlled housing, for example, are likely a selected sample. To overcome these issues, we exploit the successful 1994 ballot initiative which removed the original 1979 exemption for small multi-family housing of four units or less, as discussed in Section I.
In 1994, as a result of the ballot initiative, tenants who happened to live in small multi-family housing built prior to 1980 were, all of a sudden, protected by statute against rent increases. Tenants who lived in small multi-family housing built 1980 and later continued to not receive rent control protections. We therefore use as our treatment group those renters who, as of December 31, 1993, lived in multi-family buildings of less than or equal to four units, built between years 1900 and 1979.
We use as our control group those renters who, as of December 31, 1993, lived in multi-family buildings of less than or equal to four units, built between the years of 1980 and 1990. We exclude those renters who lived in small multi-family buildings constructed post-1990 since individuals who choose to live in new construction may constitute a selected sample and exhibit differential trends. We also exclude tenants who moved into their property prior to 1980, as none of the control group buildings would have been constructed at the time.
When examining the impact of rent control on the parcels themselves, we use small multi-family buildings built between the years of 1900 and 1979 as our treatment group and buildings built between the years of 1980 and 1990 as our control group. We again exclude buildings constructed in the early 1990s to remove any differential effects of new construction. Figure 3 shows the geographic distribution of treated buildings and control buildings in San Francisco. Since our control group was built over a narrow time span, the sample size of the treatment group is much larger than the control group. However, the control group buildings cover many restricting to those individuals whose racial classification is more precise. We investigate using the entire sample as a robustness check in the online Appendix.
3378 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 2019
neighborhoods across San Francisco, giving the treatment and control samples good overlap.
We next estimate balance tests between our treatment and control samples to evaluate whether rent control status was as good as randomly assigned. Table 1 compares the characteristics of tenants in treatment and control buildings, from 1990–1993, prior to treatment. The comparisons in raw means do not control for the zip code of the building, which we will always condition on in our analysis. Panel A shows that tenants in the treated buildings are 0.6 years older than tenants in control buildings. This is unsurprising as the older buildings have been around much longer, allowing for longer tenancies and thus older residents. Indeed, we also see that the average tenant in the treatment building has lived there for 6 years prior to treatment, while control group tenants have lived there for 5.8 years. To account for this differences, we will always condition on the length of tenancy, measured at the time of treatment, when comparing treatment and control groups in the following analysis.
We begin our analysis by studying the impact of rent control provisions on its tenant beneficiaries. Policy advocates argue that tenants covered by rent control will be dramatically helped by lower housing costs, thereby enabling them to stay in communities that they have lived in for a number years and grown attached to. We Rent-controlled sample
Uncontrolled sample
Others
Figure 3. Geographic Distribution of Treated and Control Buildings in San Francisco Notes: The purple dots represent parcels in the treatment group, which are parcels corresponding to multi-family residences with 2–4 units in San Francisco that were built between 1900–1979. The green dots represent parcels in the control group, which are parcels corresponding to multi-family residences with 2–4 units in San Francisco that were built between 1980–1990. The gray dots represent other types of housing stocks such as single-family residences and multi-family residences with five or more units.
VOL. 109 NO. 9 DIAMOND ET AL.: THE EFFECTS OF RENT CONTROL EXPANSION 3379 evaluate these claims first by quantifying rent control’s impact on the initial cohort of tenants living in the properties newly covered by the law. Later, in Section IIIB we examine how landlords’ responses to the law change impacted the long-run housing supply of rental properties. In light of these findings, we then return to and evaluate the claim that rent control helps tenants by lowering housing costs and preventing displacement.
A. Tenant Effects
We first examine whether rent control “locks tenants into their apartments,” extending the duration of time they live at the address where they were first covered by rent control. On the one hand, locking tenants into their apartments could be viewed as a cost of rent control. Tenants might not be able to move to different types of housing as their needs change, such as when they get married or have a child. On the other hand, if tenants’ lack of migration not only keeps them in the same apartment but enables them to stay in San Francisco overall, then this could be viewed as a success in that rent control prevents displacement.
To evaluate these effects we use a difference-in-differences design described above, with the following exact specification:
(1) Yiszt =
δzt +αi +βtTi +γst +ϵit.
Here, Yiszt are outcome variables equal to 1 if, in year t, the tenant i is still living at either the same address as they were at the end of 1993, or, alternatively, if the tenant is still living in San Francisco. The variables αi denote individual tenant fixed
effects. The variable Ti
denotes treatment, equal to 1 if, on December 31, 1993, the tenant is living in a multi-family building with less than or equal to four units built between the years 1900 and 1979.
We include fixed effects γst denoting the interaction of dummies for the year s the tenant moved into their 1993 apartment with calendar year t time dummies. These additional controls are needed since older buildings are mechanically more likely to have long-term, low-turnover tenants; not all of the control group buildings were built when some tenants in older buildings moved in. Finally, note we have included a full set of zip-code-by-year fixed effects, δzt. In this way, we control for any differences in the geographic distribution of treated buildings versus control buildings, ensuring that our identification is based off of individuals who live in the same neighborhood, as measured by zip code. Our coefficient of interest, quantifying the effect of rent control on future residency, is denoted by βt .
Our estimated effects are shown in Figure 4, along with 90 percent confidence intervals. As further evidence of random assignment, we see no pre-trends leading up to time of treatment. Exactly at time of treatment we see a large spike in the probability that the treatment group remains at their 1993 address, versus the control group. We can see that tenants who receive rent control protections are persistently more likely to remain at their 1993 address relative to the control group. This effect decays over time, which likely reflects that as more years go by, all tenants are increasingly likely to move away from where they lived in 1993. Further, we find that treated tenants are also more likely to be living in San Francisco. This result 3380 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 2019
indicates that the assignment of rent control not only impacts the type of property a tenant chooses to live in, but also their choice of location and neighborhood type.
These figures also illustrate how the time pattern of our effects correlates with rental rates in San Francisco.13 We would expect our results to be particularly strong in those years with quickly rising rents and thus large potential savings. Along with our yearly estimated effect of rent control, we plot the yearly deviation from the log trend in rental rates against our estimated effect of rent control in that given year. We indeed see that our effects grew quite strongly in the mid- to late-1990s in conjunction with quickly rising rents, relative to trend. Our effects then stabilize and slightly decline in the early 2000s in the wake of the dot-com bubble crash, which led to falling rental rates relative to trend. Overall, we measure a correlation of 49.4 percent between our estimated same address effects and median rents, and a correlation of
78.4 percent between our estimated SF effects and median rents.
In Table 4, we collapse our estimated effects into a short-term 1994–1999 effect, a medium-term 2000–2004 effect, and a long-term post-2005 effect. We find that in the short run, tenants in rent-controlled housing are 2.18 percentage points more likely to remain at the same address. This estimate reflects a 4.03 percent increase relative to the 1994–1999 control group mean of 54.10 percent. In the medium term, rent-controlled tenants are 3.54 percentage points more likely to remain at the same address, reflecting a 19.38 percent increase over the 2000–2004 control group mean of 18.27 percent. Finally, in the long term, rent-controlled tenants are 1.47 percentage points more likely to remain at the same address. This is a 12.95 percent increase over the control group mean of 11.35 percent. Whether these effects should widen 13Annual advertised rents from the San Francisco Chronicle and Craigslist have been collected by Eric Fischer (https://github.com/ericfischer/housing-inventory/). Since we do not have the microdata, this gives us an aggregate San Francisco-wide annual time series of rents. Given that these data are based on actual listings, this is likely the most accurate measure of true market rate rents, among all possible data sources. Treatment effect: same address Panel A. Staying at the same address Panel B. Staying in San Francisco 1990 1995 2000 2005 2010 2015
Corr = 0.494
−0.2
−0.1
0 0.1
0.2 0.3
0.4 0.5
log median rent (detrended)
−0.2
−0.1
0 0.1
0.2 0.3
0.4 0.5
log median rent (detrended)
−0.02
0 0.02
0.04 0.06
−0.02
0 0.02
0.04 0.06
Treatment effect: In SF
1990 1995 2000 2005 2010 2015
Corr = 0.784
Same address In SF Real log median rent (detrended)
Real log median rent (detrended)
Figure 4. Treatment Effect for Tenants in Multi-Family Residence (2–4 Units) Notes: Sample consists of all tenants between 20 and 65 years old living in San Francisco as of December 31, 1993 and in multi-family residences with 2–4 units that were built during 1900–1990. The solid line plots the treatment effects for staying at the same address in panel A and staying in San Francisco in panel B along with 90 percent CI in shaded area. The dotted line plots the yearly deviation from the log trend in median rental rates. Standard errors are clustered at the person level.
VOL. 109 NO. 9 DIAMOND ET AL.: THE EFFECTS OF RENT CONTROL EXPANSION 3381 or narrow over time is ambiguous. On one hand, the wedge between market rate rents and rent control rents diverge, the longer one remains at one’s rent-controlled address. On the other hand, the mismatch between one’s 1993 address and the ideal location and type of housing is likely to grow over time, pushing tenants to give up their rent control. Since our long-term results are smaller than our medium-term findings, it appears the mismatch effect begins to grow faster than the below market rent effect over the medium to long term.
Tenants who benefit from rent control are 2.00 percentage points more likely to remain in San Francisco in the short-term, 4.51 percentage points more likely in the medium-term, and 3.66 percentage points more likely in the long term. Relative to the control group means, these estimates reflect increases of 2.62 percent, 8.78 percent, and 8.42 percent, respectively. Since these numbers are of the same magnitude as the treatment effects of staying at one’s exact 1993 apartment, we find that absent rent control a large share of those incentivized to stay in their apartments would have otherwise moved out of San Francisco. Since most of the tenants “locked” into their apartments by rent control would have otherwise left the city rather than select a different apartment in the same neighborhood, the allocative inefficiency effects of rent control might be smaller than its impacts on preventing displacement.
Robustness.—A key identifying assumption for our analysis is that once neighborhood characteristics have been controlled for, as well as the number of years lived in the apartment as of December 31, 1993, those living in older versus newer buildings would not exhibit differential trends in migration. As a robustness test, in panel A of Table 5, we have restricted our treatment group to individuals who lived in structures built between 1960 and 1979, thereby comparing tenants in buildings built slightly before 1979 to tenants in buildings built slightly after 1979. We find statistically indistinguishable results from our main analysis, with point estimates actually 5 percent to 63 percent larger across the six point estimates.
Table 4—Treatment Effect for Tenants of Multi-Family Residence (2–4 Units) In SF Same address
(1) (2)
Treat× period
1994–1999 0.0200 0.0218
(0.0081) (0.0083)
2000–2004 0.0451 0.0354
(0.0115) (0.0088)
Post 2005 0.0366 0.0147
(0.0109) (0.0063)
Control mean, 1994–1999 0.7641 0.5410
Control mean, 2000–2004 0.5138 0.1827
Control mean, post-2005 0.4346 0.1135
Adjusted R2 0.586 0.608
Observations 1,251,801 1,251,801
Notes: Sample consists of all tenants between 20 and 65 years old living in San Francisco as of December 31, 1993 and in multi-family residences with 2–4 units that were built during 1900–1990. Table reports the mean of dependent variables for the control group during 1990–1994, 2000–2004, and post-2005. Standard errors are clustered at the person level. 3382 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 2019
As further robustness, we redefine the neighborhood more finely, using census tracts instead of zip codes. Panel B of Table 5 repeats the analysis using census tract by year fixed effects. The results are also statistically indistinguishable from our main results, although the point estimates are between 1 percent and 28 percent smaller across the six point estimates. Dropping the zip-code-by-year fixed effects also produces similar results.
As a final robustness check, we use an alternative control group of renters living in larger multi-family apartment buildings not subject to rent control. Specifically, we create a control group of renters living in buildings with between 5 and 10 apartment units built between 1980 and 1990. We exclude large multi-family buildings built prior to 1980 from the control group because they have been covered by rent Table 5—Robustness Checks: Treatment Effect for Tenants of Small Multi-Family Residences Panel A. Treatment group:
buildings built between 1960
and 1979
Panel B. Census tract fixed
effects
In SF Same address In SF Same address
(1) (2) (3) (4)
Treat × period
1994–1999 0.0326 0.0289 0.0175 0.0157
(0.0105) (0.011) (0.0084) (0.0087)
2000–2004 0.0642 0.0370 0.0426 0.0284
(0.0151) (0.0118) (0.012) (0.0092)
Post-2005 0.0531 0.0164 0.0364 0.0113
(0.0145) (0.0084) (0.0114) (0.0066)
Control mean, 1994–1999 0.7641 0.541 0.7641 0.541
Control mean, 2000–2004 0.5138 0.1827 0.5138 0.1827
Control mean, post-2005 0.4346 0.1135 0.4346 0.1135
Adjusted R2 0.584 0.609 0.588 0.609
Observations 135,594 135,594 1,243,242 1,243,242
Panel C. Control group lives
in buildings with 5–10 units
Panel D. Control group lives
in buildings with 2–10 units
Treat × period
1994–1999 0.0319 0.0162 0.0256 0.0201
(0.0096) (0.0094) (0.0063) (0.0064)
2000–2004 0.0424 0.0291 0.0452 0.0340
(0.0132) (0.0099) (0.0089) (0.0067)
Post-2005 0.0400 0.0167 0.0387 0.01575
(0.0124) (0.0071) (0.0084) (0.0048)
Control mean, 1994–1999 0.7356 0.541 0.7507 0.541
Control mean, 2000–2004 0.4935 0.178 0.5043 0.1805
Control mean, post-2005 0.4092 0.1064 0.4227 0.1101
Adjusted R2 0.587 0.608 0.587 0.608
Observations 1,246,023 1,246,023 1,296,270 1,296,270
Notes: In panel A, we change our tenant sample to all tenants between 20 and 65 years old living in San Francisco as of December 31, 1993 and in multi-family residences with 2–4 units that were built during 1960–1990. Hence, we have restricted our treatment group to individuals who lived in buildings built between 1960 and 1979. In panel B, the sample of tenants is the same as in our baseline regressions. Instead of using zip-code-by-year fixed effects in our baseline regressions, we use census tract by year fixed effects. In panel C, we have changed our control group to individuals who lived in multi-family residences with 5–10 units that were built during 1980–1990. The treatment group is the same as in our baseline regressions. In panel D, we have changed our control group to individuals who lived in multi-family residences with 2–10 units that were built during 1980–1990. The treatment group is the same as in our baseline regressions. Table reports the mean of dependent variables for the control group during 1990–1994, 2000–2004, and post-2005. Standard errors are clustered at the person level.
VOL. 109 NO. 9 DIAMOND ET AL.: THE EFFECTS OF RENT CONTROL EXPANSION 3383 control since 1979. Using residents of these slightly larger buildings built in the 1980s should also act as a valid control group if the sorting of tenants to buildings within neighborhoods did not depend on the exact number of units in the buildings. Panel C of Table 5 reports the treatment effect using this alternative control group. The effects are statistically indistinguishable from our main effects. Panel D of Table 5 combines our control groups, creating a larger control group of renters living in buildings with two to ten apartments building in the 1980s. Unsurprisingly, these effects are also statistically indistinguishable from our main estimates, but the standard errors are smaller due to the increased sample size of our control group.
Treatment Effect Heterogeneity.—These estimated overall effects mask economically interesting heterogeneity. We begin by repeating our analysis separately within each racial group. Racial minorities may face discrimination in the housing market, indicating that rent control may be especially impactful on limiting their displacement. Figure 5 shows the treatment effects of remaining in one’s 1993 address for whites, and then the differential effects for each racial group. Since our sample sizes within any given racial group are smaller, we will focus on the overall “post” impact of rent control, not separating out the short-, medium-, and long-term effects.
Whites are 2.1 percentage points more likely to remain at their treated address due to rent control. For both blacks and Hispanics, we find larger treatment effects of 10.7 and 7.1 percentage point increases for these groups, respectively.14 This suggests these minority groups disproportionately valued rent control. In contrast, the effect for Asians is statistically indistinguishable from the whites effect, with a point estimate of 0.9 percentage points.
We see further evidence that racial minorities disproportionately benefited from rent control when looking at the impact of the law on remaining in San Francisco.
Rent control leads treated whites to be 2.8 percentage points more likely to remain in San Francisco, while blacks, Hispanics, and Asians are 10.7, 10.1, and 6.4 percentage points more likely to remain in San Francisco, respectively.15 This suggests that rent control had a substantial impact on limiting displacement of minorities from the city, an additional sign that rent control strongly benefits the initial cohort of renters who are covered by the law.
We next examine treatment effect heterogeneity across neighborhoods, duration of tenancy, and age.16 The goal of this exercise is two-fold. First we want to examine whether tenants who have lived in their neighborhoods for a long time disproportionately value rent control, as would be expected if these long-term tenants had built up a stock of neighborhood-specific capital. Second, we want to examine whether the value of rent control varies across tenant age. It is well known that younger individuals move more often. If young people need to move often for personal reasons, it 14Since our sample of blacks is quite small, the differential effects for blacks are not statistically indistinguishable from whites. 15As a robustness check, we repeat this analysis on the entire sample, including the renters whose probabilities for their most likely imputed race were below 80 percent. These results are in online Appendix Figure A1. The result are statistically indistinguishable from our main results, but the differences in the point estimates across races are smaller. This is consistent with the fact we have much more measurement error in the imputed races for these additional renters. 16We do not cut on race here as well, as the samples would become too thin. 3384 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 2019
will be hard for them to benefit from rent control since they cannot stay in one place long enough to access the insurance value of rent control.
To examine these effects, we cut the data by age, sorting individuals into two groups, a young group who were aged 20–39 in 1993 and an old group who were aged 40–65 in 1993. We also sort the data based on the number of years the individual has been living at their 1993 address. We create a “short-tenure” group of individuals who had been living at their address for less than four years and a “long-tenure” group of individuals who had been living at their address for between 4 and 14 years. Finally, we cut the sample of zip codes based on whether their housing price appreciation from 1990 to 2000 was above or below the median, as measured by the housing transactions observed in DataQuick. Ideally, we would measure market rental price appreciation across neighborhoods, but no data source for this exists. While rents and house prices need not be perfectly correlated, house prices and market rents tend to move together. We form eight subsamples by taking the 2 × 2 × 2 cross across each of these three dimensions and re-estimate our effects for each subsample.
The results are reported in Table 6 and plotted in online Appendix Figures A2 and A3. We summarize the key implications. First, we find that the effects are weaker for younger individuals. We believe this is intuitive. Younger households are more likely to face larger idiosyncratic shocks to their neighborhood and housing preferences (such as changes in family structure and employment opportunities), which makes staying in their current location particularly costly, relative to the types of shocks older households receive. Thus, younger households may feel more inclined to give up the benefits afforded by rent control to secure housing more appropriate for their circumstances.
Moreover, among older individuals, there is a large gap between the estimated effects based on tenure duration. Older, long-tenure households have a strong, positive response to rent control. That is, they are more likely to remain at their 1993 Panel A. Staying at same address
0.021
0.086
0.05 −0.012
0.0031
White
Differential effect: black
Differential effect: Hispanic
Differential effect: Asian
Differential effect: minorities
−0.05 0 0.05 0.1 0.15 0.2
Same address
Panel B. Staying in San Francisco
0.028
0.079
0.073
0.036
0.045
White
Differential effect: black
Differential effect: Hispanic
Differential effect: Asian
Differential effect: minorities
−0.1 0 0.1 0.2 0.3
In SF
Figure 5. Heterogeneity by Tenant’s Race in Treatment Effect for Tenants Notes: Sample consists of all tenants with a classified race/ethnicity between 20 and 65 years old living in San Francisco as of December 31, 1993 and in multi-family residences with 2−4 units that were built during 1900−1990. For white tenants, we report the average treatment effect in the post-1994 period along with 90 percent CI. For the other ethnic categories, we report the differential treatment effect in the post-1994 period between white and each ethnic category along with 90 percent CI. Minorities consist of all ethnic groups other than white. Standard errors are clustered at the person level.
VOL. 109 NO. 9 DIAMOND ET AL.: THE EFFECTS OF RENT CONTROL EXPANSION 3385 address relative to the control group. In contrast, older, short-tenure individuals are estimated to have a weaker response to rent control. They are less likely to remain at their 1993 address relative to the control group.
To further explore the mechanism behind this result, we now investigate these effects based on the 1990–2000 price appreciation of their 1993 zip codes. Among older, long-tenure individuals, we find that the effects are always positive and strongest in those areas which experienced the most price appreciation between 1990 and 2000, as one might expect. For older, short-tenure households, however, the results are quite different. For this subgroup, the effects are actually negative in the areas which experienced the highest price appreciation. They are positive in the areas which experienced below-median price appreciation.17
This result suggests that landlords actively try to remove tenants in those areas where rent control affords the most benefits, i.e., high price appreciation areas. There are a few ways a landlord could accomplish this. First, landlords could try to legally evict their tenants by, for example, moving into the properties themselves, known as owner move-in eviction. Alternatively, landlords could evict tenants according to the provisions of the Ellis Act, which allows evictions when an owner wants to remove units from the rental market: for instance, in order to convert the units into condos or a tenancy in common.18 Finally, landlords are legally allowed to negotiate with tenants over a monetary transfer convincing them to leave. In this way, tenants may “bring their rent control with them” in the form of a lump sum tenant buyout. Of 17A similar pattern holds for younger individuals as well, although the results are weaker. 18Asquith (2018) studies the use of Ellis Act evictions in the 2000s by landlords of rent-controlled properties in San Francisco.
Table 6—Heterogeneity by Age, Tenure, and Neighborhood House Price Appreciation in Treatment Effect of Staying at Same Address Older tenants Younger tenants
(1) (2) (3) (4)
Panel A. Above-median house price appreciation zip codes Treat × post 0.062 −0.107 0.018 −0.003
(0.019) (0.042) (0.012) (0.032)
Tenant tenure duration Long Short Long Short
Panel B. Below-median house price appreciation zip codes Treat × post 0.041 0.010 0.007 0.039
(0.015) (0.033) (0.009) (0.018)
Tenant tenure duration Long Short Long Short
Notes: Sample consists of all tenants between 20 and 65 years old living in San Francisco as of December 31, 1993 and in multi-family residences with 2–4 units that were built during 1900–1990. We first divide individuals into two groups by whether their 1993 zip code experienced above- or below-median house price appreciation during 1990–2000. We further sort the sample by age group. The young group refers to residents who were aged 20–39 in 1993 and the old group are residents who were aged 40–65 in 1993. Finally, we cut the data by number of years the individual has been living at their 1993 address. We define a long-tenure group of individuals who had been living at their 1993 address for greater than or equal to four years and a short-tenure group of individuals who had been living at their address for less than four years. The coefficients represent average treatment effects in the post-1994 period. Standard errors are clustered at the person level. See online Appendix Figures A2 and A3 that plot the full dynamics of these treatment effects.
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course, if landlords predominantly use evictions, tenants are not compensated for their loss of rent protection, weakening the insurance value of rent control.
Effects on Neighborhood Quality.—The results from the previous subsection help to rationalize some additional, final findings. In panel A of Figure 6, we examine the impact that rent control has on the types of neighborhoods in which tenants live. We find that those who received rent control ultimately live in census tracts with lower house prices, lower median incomes, lower college shares, and higher unemployment rates than the control group. As panel B shows, this is not a function of the areas in which treated individuals lived in 1993. In this figure, we fix Figure 6. Treatment Effect on Neighborhood Quality for Tenants of Multi-Family Residence (2−4 Units)
Notes: Sample consists of all tenants between 20 and 65 years old living in San Francisco as of December 31, 1993 and in multi-family residences with 2–4 units that were built during 1900–1990. Median household income, share of residents with college education and above, median house value, and share of unemployed are measured in the census tract that an individual is living in a given year. The data sources are decennial censuses in 1990 and 2000, as well as 5-year pooled ACS for 2010 to 2013. Panel A plots the true treatment effects for various proxies of neighborhood quality. Panel B plots the placebo treatment effects where we assume those treated by rent control remain at their 1993 addresses, but allow the control group to migrate as seen in the data. The treatment effects along with 90 percent CI are plotted. Standard errors are clustered at the person level. −4,000
−3,000
−2,000
−1,000
0 −0.03
−0.02
−0.01
0 −30,000
−20,000
−10,000
0 10,000
0 0.002
0.004
0.006
1990
2000
20102011
20122013
1990
2000
20102011
20122013
Median household income
Panel A. True treatment effect Panel B. Placebo treatment effect Share college
Median house value
Share unemployed
Median household income
Share college
Median house value
Share unemployed
−4,000
−2,000
0 2,000
0 0.02
0.04 0.06
0 50,000
100,000
150,000
−0.01
−0.005
0 0.005
VOL. 109 NO. 9 DIAMOND ET AL.: THE EFFECTS OF RENT CONTROL EXPANSION 3387 the location of those treated by rent control at their 1993 locations, but allow the control group to migrate as seen in the data. If rent-controlled renters were equally likely to remain in their 1993 apartments across all locations in San Francisco, we would see the sign of the treatment effects on each neighborhood characteristic to be the same as in the previous regression. Instead, we find strong evidence that the out-migration of rent-controlled tenants came from very selected neighborhoods.
Had treated individuals remained in their 1993 addresses, they would have lived in census tracts which had significantly higher college shares, higher house prices, lower unemployment rates, and similar levels of household median income relative to the control group.
This evidence is consistent with the idea that landlords undertake efforts to remove their tenants or convince them to leave in improving, gentrifying areas. In addition, the rent control tenants are more likely to remain at their address within the less gentrifying areas, as we saw in the previous analysis in Table 6. These combined effects lead tenants treated by rent control to live in lower quality areas. Further, it highlights that rent control does not appear to be an effective means of providing tenants access to neighborhoods with better amenities. The better locales are where landlords have the most to gain from removing rent-controlled tenants and these landlords apparently work hard to make this happen. Having said that, our prior results did show that rent control helped tenants remain in San Francisco overall.
Thus, while they are unable to live in the nicest parts of the city, it is possible that by being able to remain in San Francisco, they are able enjoy lower commute times or work at better jobs than they otherwise would have had they been displaced. These types of amenities cannot be observed in our data.
B. Parcel and Landlord Effects
The results above strongly suggest that while tenants value and take advantage of the protections offered by rent control, landlords actively take steps to reduce the burdens of the law, especially in those areas in which it would be most profitable to do. Motivated by these findings, in this section, we continue our analysis by studying and quantifying the landlord response more directly. To do so, we examine the impact of rent control on the properties themselves. In particular, we study how rent control affects the type of residents who live in the buildings, as well as how it impacts the investments that landlords choose to make in the properties. This analysis will enable us to understand the effects of rent control on long-term rental housing supply. Such changes in housing supply will ultimately impact equilibrium market rents and thus housing affordability for future renters.
Summary statistics for our key outcomes are in panel B of Table 1. This table shows that treatment and control properties are balanced in the pre-period in terms of total residents and number of renter residents. We see 1.2 percentage points more owners in the control group and 1.6 percentage points more construction/renovation permits. These small differences reflect that fact that the control buildings are slightly newer.
We run a specification similar to (1):
(2) Ykzt =
δzt +λk +βtTk +ϵkt,
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where k now denotes the individual parcel and λk represent parcel fixed effects. The variable Tk denotes treatment, equal to one if, on December 31, 1993, the parcel is a multi-family building with less than or equal to four units built between the years 1900 and 1979. The δzt variables once again reflect zip-code-by-year fixed effects.
Our outcome variables Ykzt now include the number of renters and owners living in the building, the number of renovation permits associated with the building, and whether the building is ever converted to a condo or TIC. The permits we look at specifically are addition/alteration permits, taken out when major work is done to a property.
We begin by plotting in panel A of Figure 7 the effects of rent control on the number of individuals living at a given parcel, calculated as a percentage of the average number of individuals living at that parcel between the years 1990–1994.
We estimate a decline of approximately 6.4 percent over the long run, although this effect is not statistically significant.
We next decompose this effect into the impact on the number of renters and the number of owners living at the treated buildings. As shown in panel B, we find that there is a significant decline in the number of renters living at a parcel, equal to
14.5 percent in the late 2000s, relative to the 1990–1994 level. Panel C shows that the decline in renters was counterbalanced by an increase of 8.1 percent in the number of owners in the late 2000s. This is our first evidence suggestive of the idea that landlords redeveloped or converted their properties so as to exempt them from the new rent control regulations.
We now look more closely at the decline in renters. In panel A of Figure 8, we see that there is an eventual decline of 24.6 percent in the number of renters living in rent-controlled apartments, relative to the 1990–1994 average.19 This decline is significantly larger than the overall decline in renters. This is because a number of buildings which were subject to rent control status in 1994 were redeveloped in such way so as to no longer be subject to it. These redevelopment activities include tearing down the existing structure and putting up new single family, condominium, or multi-family housing or simply converting the existing structure to condos. These redeveloped buildings replaced 7.2 percent of the initial rental housing stock treated by rent control, as shown in panel B of Figure 8.
To further investigate this mechanism, we check directly whether a multi-family property which fell under the rent control regulations in 1994 is more likely to have converted to condominium housing or a tenancy in common, relative to a multi-family property which did become subject to rent control. In panel C of Figure 8, we show that treated buildings are 8 percentage points likely to convert to condo or TIC in response to the rent control law. This represents a significant loss in the supply of rent-controlled housing.
As a final test of whether landlords actively respond to the imposition of rent control, we examine whether the landlords of rent-controlled properties disproportionately take out addition/alteration (i.e., renovation) permits. We find this to strongly be the case, with treated buildings receiving 4.6 percent more addition/ alteration permits per unit as shown in panel D of Figure 8. Of course, conversions 19Note here that we mean relative to the number of individuals who lived at parcels which received rent control status due to the 1994 law change.
VOL. 109 NO. 9 DIAMOND ET AL.: THE EFFECTS OF RENT CONTROL EXPANSION 3389 of multi-family housing to condos undoubtedly require significant alteration to the structural properties of the building and thus would require such a permit to be taken out. These results are thus consistent with our results regarding condo conversion.
Treatment Effect Heterogeneity.—We now explore the heterogeneity in these effects between high and low house price appreciation zip codes. This analysis is motivated by our previous tenant regressions in which we found that landlords of rent-controlled buildings appear to have actively removed tenants in high appreciation zip codes. Here, we investigate whether landlords of rent-controlled apartments also disproportionately converted to condo or redeveloped buildings in high appreciation areas. Table 7 reports the average treatment effects within high and low appreciation zip codes. We find a 21 percent decline in the renter population and a 12 percent increase in the owner population within the high appreciation zip codes, versus a 11 percent renter decline and 6 percent owner increase in low appreciation areas. Further, we find condo conversions increase by 10 percent in high appreciation zip codes versus 5.8 percent in low appreciation areas. The conversion to owner-occupied housing may be especially lucrative in these high appreciation zip Panel A. Population/average population 1990–1994 Panel B. Renters/average population 1990–1994 −0.4
−0.3
−0.2
−0.1
0 0
0.1 −0.4
−0.3
−0.2
−0.1
0.1 −0.4
−0.3
−0.2
−0.1
0 0.1
Population/average
population 1990–1994
Renters/average
population 1990–1994
1990 1995 2000 2005 2010
1990 1995 2000 2005 2010
1990 1995 2000 2005 2010
Panel C. Owners/average population 1990–1994 Owners/average population 1990–1994 β = 0.081 (0.041)
β = −0.064 (0.093) β = −0.145 (0.075)
Figure 7. Treatment Effect for Multi-Family Residence (2–4 Units) Notes: Sample consists of all multi-family residences with 2–4 units in San Francisco that were built during 1900–1990. The treatment effects along with 90 percent CI are plotted. Standard errors are clustered at the parcel level. The average treatment effects in the post-2006 period and their standard errors are reported in the upper-left corner.
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codes as they likely have higher income residents. In contrast, we find a larger effect (9.3 percent versus 3.2 percent) of properties being knocked down and rebuilt in low appreciation areas than high priced areas. This effect is possibly driven by land use regulations making it very hard to build new construction in high-end areas of San Francisco.20 Overall, these effects reaffirm that the landlords remove rental housing stock in those areas where it is most profitable to do so.
Gentrification Effects.—The previous section shows that rent control incentivized landlords to substitute away from an older rental housing stock toward new construction rentals and owner-occupied condos. Combining our estimates of rent control’s effect on the number of owner occupants (8.1 percent) and renters living in rent control exempt housing (7.2 percent) suggests that 15.3 percent of the treated properties engaged in renovations to evade rent control. Since these types of 20Most new construction in San Francisco has occurred in neighborhoods that historically were dominated by industry and warehouses.
−0.4
−0.3
−0.2
−0.1
0 0.1
Renters in rent-controlled buildings
1990 1995 2000 2005 2010
−0.4
−0.3
−0.2
−0.1
0.1 0
Renters in redeveloped buildings
1990 1995 2000 2005 2010
0 0.02
0.04 0.06
0.08 0.1
Conversion
Panel C. Conversion Panel D. Cumulative add/alter/repair per unit Panel A. Renters in rent-controlled
buildings/average population, 1990–1994
Panel B. Renters in redeveloped
buildings/average population, 1990–1994
1990 1995 2000 2005 2010 2015
−0.02
0.02 0
0.04 0.06
0.08 Cumulative add/alter/repair per unit
1990 1995 2000 2005 2010 2015
β = 0.079 (0.006)
β = −0.246 (0.077) β = 0.072 (0.023)
β = 0.046 (0.014)
Figure 8. Treatment Effect for Multi-Family Residence (2–4 Units) Notes: Sample consists of all multi-family residences with 2−4 units in San Francisco that were built during 1900−1990. The treatment effects along with 90 percent CI are plotted. Standard errors are clustered at the parcel level. The average treatment effects in the post-2006 period and their standard errors are reported in the upper-left corner.
VOL. 109 NO. 9 DIAMOND ET AL.: THE EFFECTS OF RENT CONTROL EXPANSION 3391 renovations create housing that likely caters to high income tastes, rent control may have fueled the gentrification of San Francisco. To assess this, we compare the 2015 residents living in properties treated by rent control to those living in the control buildings in 2015. While we do not have data directly on the income levels of the 2015 residents of these properties, we can use the historical neighborhood choices of these tenants as a proxy for their income. Intuitively, if residents of treated buildings used to live in high-end neighborhoods, while residents of control buildings used to live in low-end neighborhoods, we can infer that the residents of treated buildings are likely to be higher income. Specifically, we take all residents in the treatment and control buildings as of 2015. We then look at their addresses as of 2010, five years prior. We geocode these 2010 addresses to census block groups and measure the block group per capita income of their 2010 address, from the ACS.
We find that properties treated by rent control have tenants who came from neighborhoods with $1,292 higher per capita incomes (standard error of 522), representing a 2.8 percent increase, relative to residents of control group buildings located in the same zip code.21 This 2.8 percent increase represents the average income increase across all properties treated by rent control. Since only 15.3 percent of these properties upgraded their housing stock, we would expect these high income residents to only be drawn into this 15.3 percent. Indeed, the other 85 percent of the treated housing stock that did not renovate may have lower income residents due to the direct effect of rent control on tenant mobility. To construct a lower bound estimate of the effect of rent control on gentrification, we will assume that residents of 21The full regression details are reported in online Appendix Table A3.
Table 7—Treatment Effect Heterogeneity for Multi-Family Parcels by House Price Appreciation
High appreciation Low appreciation
(1) (2)
Population/average population 1990–1994 −0.092 −0.050
(0.176) (0.108)
Renters/average population 1990–1994 −0.207 −0.112
(0.144) (0.085)
Renters in rent-controlled −0.284 −0.225
buildings/average population 1990–1994 (0.148) (0.088)
Renters in redeveloped 0.032 0.093
buildings/average population 1990–1994 (0.058) (0.016)
Owners/average population 1990–1994 0.116 0.063
(0.066) (0.052)
Conversion 0.100 0.058
(0.011) (0.006)
Cumulative 0.016 0.061
Add/alter/repair per unit (0.03) (0.015)
Notes: Sample consists of all multi-family residences with 2–4 units in San Francisco that were built during 1900–1990. We divide tenants into two groups by whether their 1993 zip code experienced above- or below-median house price appreciation during 1990–2000. Columns 1 and 2 report the average treatment effects for various parcel level outcomes in the post-2006 period for residences in the high and low appreciation areas, respectively. Standard errors in parentheses are clustered at the parcel level.
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the non-renovated housing stock have incomes similar to that of the control group.
Under this assumption, our estimate of a 2.8 percent increase in residents’ incomes suggests that the renovated buildings attracted residents with at least 18 percent (2.8/0.153) higher incomes than residents of control group buildings in the same zip code. In this way, rent control appears to have brought higher income residents into San Francisco, fueling gentrification.
C. Impacts on Inequality
Taking our results all together, it appears rent control has substantively different impacts on income inequality in the short versus long run. In the short run, rent control prevents displacement of the initial 1994 tenants from San Francisco, especially among racial minorities. To the extent that these 1994 tenants are of lower income than those moving into San Francisco over the following years, rent control increases income inequality. However, this short-term effect decays over time. Eight years after the law change, 4.5 percent of the tenants treated by rent control were able to remain in San Francisco because of rent control. However, five years later, this effect had decayed to 3.7 percent, and will likely continue to decline in the future.
In the long run, on the other hand, landlords are able to respond to the rent control policy change by substituting toward types of housing exempt from rent control price caps, upgrading the housing stock, and lowering the supply of rent-controlled housing. Indeed, the prior section showed that as of 2015, the average property treated by rent control has higher income residents than similar market rate properties. The long-term landlord response thus offsets rent control’s initial effect of keeping lower income tenants in the city by replacing them with residents of above-average income. In this way, rent control works to increase income inequality in both the short run and in the long run, but through different means. Rent control’s short-term effects increases the left tail of the income distribution, while the longterm effects increase the right tail.
In addition to widening income inequality, rent control has unequal effects on tenants living in San Francisco at the time of the law change and future tenants of the city. Incumbent tenants already living in San Francisco who get access to rent control as part of the law change are clearly made better off as indicated by their preference to remain in their rent-controlled apartment. However, this comes at the expense of future renters in San Francisco, who must bear higher rents due to the endogenous reductions in rental supply. In this way, the law served as a transfer from future renters in the city to renters in 1994, creating economic well-being inequality between incumbent and future renters of San Francisco. Our companion paper (Diamond, McQuade, and Qian 2018) performs a fully quantitative analysis of these welfare gains and losses through the lens of a dynamic discrete choice model of tenant migration and performs general equilibrium counterfactual analyses.
Since incumbent renters are made better off, it is not surprising that popular votes to expand rent control often pass in cities with high renter populations. The beneficiaries are the ones who are able to vote, while future renters who pay the costs of rent control do not get a say in these elections. Local popular votes thus appear to be an inefficient way to set rent control policies.
VOL. 109 NO. 9 DIAMOND ET AL.: THE EFFECTS OF RENT CONTROL EXPANSION 3393 IV. Conclusion
In this paper, we have studied the impact of rent control on its tenant beneficiaries as well as the landlord response. To answer this question, we exploit a unique rent control expansion in San Francisco in 1994 that suddenly provided rent control protections for small multi-family housing built prior to 1980. By combining new panel microdata on individual migration decisions with detailed assessor data on individual parcels in San Francisco, we get quasi-experimental variation in the assignment of rent control at both the individual tenant level and at the parcel level.
We find that, on average, in the medium to long term the beneficiaries of rent control are between 10 and 20 percent more likely to remain at their 1994 address relative to the control group and, moreover, are more likely to remain in San Francisco. Further, we find the effects of rent control on tenants are stronger for racial minorities, suggesting rent control helped prevent minority displacement from San Francisco. All our estimated effects are significantly stronger among older households and among households that have already spent a number of years at their current address. On the other hand, individuals in areas with quickly rising house prices and with few years at their 1994 address are less likely to remain at their current address, consistent with the idea that landlords try to remove tenants when the reward is high, through either eviction or negotiated payments.
We find that landlords actively respond to the imposition of rent control by converting their properties to condos and TICs or by redeveloping the building in such as a way as to exempt it from the regulations. In sum, we find that impacted landlords reduced the supply of available rental housing by 15 percent. Further, we find that there was a 25 percent decline in the number of renters living in units protected by rent control, as many buildings were converted to new construction or condos that are exempt from rent control.
This reduction in rental supply likely increased rents in the long run, leading to a transfer between future San Francisco renters and renters living in San Francisco in 1994. In addition, the conversion of existing rental properties to higher-end, owner-occupied condominium housing ultimately led to a housing stock increasingly directed toward higher income individuals. In this way, rent control contributed to the gentrification of San Francisco, contrary to the stated policy goal. Rent control appears to have increased income inequality in the city by both limiting displacement of minorities and attracting higher income residents.
These results highlight that forcing landlords to provide insurance against rent increases can ultimately be counterproductive. If society desires to provide social insurance against rent increases, it may be less distortionary to offer this subsidy in the form of government subsidies or tax credits. This would remove landlords’ incentives to decrease the housing supply and could provide households with the insurance they desire. A point of future research would be to design an optimal social insurance program to insure renters against large rent increases. 3394 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 2019
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Monterey County Association of Realtors®
5 Harris Court, Building A
Monterey CA, 93940
October 24, 2023
Mayor Kimbley Craig
Councilmember Tony Barrera
Councilmember Carla Viviana González
Councilmember Steve McShane
Councilmember Orlando Osornio
Councilmember Anthony Rocha
Councilmember Andrew Sandoval
Re. Agenda item 23-648: Rent Stabilization and Tenant Protection Honorable Mayor and City Councilmembers,
Now is the time to seek collaborative, innovative, and pro-housing solutions to our housing availability and affordability crisis. This is especially true for rental housing; renters are in need to help and we agree steps must be taken to do so. However, policies that divide our community, punish housing providers, and disincentivize growth in housing will achieve the opposite.
Consistent with other recent changes to City housing policies, we request that these policy proposals:
1. Be referred to the Technical Advisory Committee on housing for expert input including tenants right advocates, and..
2. That no fewer than six (6, one in each district) public meetings , hearings, or workshops be held to gather community input.
Enhance tenant protections were recently signed into law by Governor Gavin Newsom, and go into effect in January. Changes to how State and local government administer rental pricing regulations are expected to be on the November 2024 ballot. In light of these upcoming or anticipated changes to State policy, it does not make sense to pursue local policies which may turn out to be redundant, contradictory to, or otherwise in conflict with State law.
Additionally, the City’s rental registry program is incomplete. Earlier this year members of the council supporting the registry expressed a desire to see data from the registry in order to better inform further policy decisions. The registry has just barely been implemented, there has been minimal communication from the City to property owners about this requirement. We were promised an online portal where property owners and managers could log in and manage and update the registration of their units. Instead what we have is a Google Form, which is free to create, and cannot be updated. This begs the question, what was the $400,000 budget for the rental registry spent on, and what are the fees charged to landlords and tenants being used for? Given these facts and unanswered questions, it is not reasonable to build further punitive policies based on incomplete data from a program that was not implemented as promised.
The renters of Salinas cannot afford to be the subjects of policy experiments, especially when past policy experiments of this nature have proven harmful to renters. We cite the following, peer reviewed studies as evidence (attached for the Council’s convenience and for the public record).
Research by Konstantin A. Kholodilin & Sebastian Kohl, published in the International Journal of Housing Policy (Feb., 2023), studies data from numerous regions and found the following:
The (re-)introduction of tenancy regulation in the form of rent controls, tenant protection or supply rationing is back on the agenda of policymakers in light of rent inflation in many global cities. While rent controls promise short-term relief, economists point to their negative long-run effects on new construction. This study presents new long-run data on both rent regulation and housing construction for 16 developed countries (1910–2016) and finds that more restrictive rental market legislation generally has a negative impact on both new housing construction and residential investment.
Furthermore, research by Rebecca Diamond, Tim McQuade, and Franklin Qian, published in the American Economic Review (Sep., 2019) examines the effects of rent control in San Francisco. Abstract:
Using a 1994 law change, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants and landlords. Leveraging new data tracking individuals’ migration, we find rent control limits renters’ mobility by 20 percent and lowers displacement from San Francisco. Landlords treated by rent control reduce rental housing supplies by 15 percent by selling to owner-occupants and redeveloping buildings. Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law.
We request that the Council take the time to consider this evidence, gather expert testimony through the TAC, and seek public feedback through meetings accessible to all community members. This will ensure policies are created with due diligence and as much relevant data as possible. Furthermore this will provide time for the rental registry to collect a more complete dataset, and for everyone to better understand how new State laws will affect rental housing.
Sincerely,
Adam Pinterits
Government & Community Affairs Director
Monterey County Association of Realtors®
Full Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=reuj20 International Journal of Housing Policy
ISSN: (Print) (Online) Journal homepage: https://www.tandfonline.com/loi/reuj20 Do rent controls and other tenancy regulations
affect new construction? Some answers from longrun historical evidence Konstantin A. Kholodilin & Sebastian Kohl
To cite this article: Konstantin A. Kholodilin & Sebastian Kohl (2023): Do rent controls and other tenancy regulations affect new construction? Some answers from long-run historical evidence, International Journal of Housing Policy, DOI: 10.1080/19491247.2022.2164398 To link to this article: https://doi.org/10.1080/19491247.2022.2164398 © 2023 The Author(s). Published by Informa
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Do rent controls and other tenancy regulations
affect new construction? Some answers from
long-run historical evidence
Konstantin A. Kholodilina,b and Sebastian Kohlc,d
a
Macroeconomics, DIW Berlin, Berlin, Germany; bEconomics, NRU HSE, St. Petersburg, Russia; cMax-Planck-Institut für Gesellschaftsforschung, Cologne, Germany; dSociology, Freie Universität Berlin, Berlin, Germany
ABSTRACT
The (re-)introduction of tenancy regulation in the form of rent controls, tenant protection or supply rationing is back on the agenda of policymakers in light of rent inflation in many global cities. While rent controls promise short-term relief, economists point to their negative long-run effects on new construction.
This study presents new long-run data on both rent regulation and housing construction for 16 developed countries (1910–2016) and finds that more restrictive rental market legislation generally has a negative impact on both new housing construction and residential investment. This is especially true for strict rent controls and housing rationing measures in the post-1960 period.
Tenancy security can on average also dampen construction activity. The negative effect is overall less significant and strong in magnitude than expected and may have been offset by exemptions for new construction, by compensating social housing construction and by a flight of new construction into the owner-occupied sector. Still, on average, rent controls came at the cost of less construction activity.
KEYWORDS: Residential construction; rent control; tenure security; housing rationing; panel data model
JEL CODES: C23; O18; R38
Introduction
Long thought to be a relic of the past, rent controls and other measures protecting urban tenants are back on the political agenda in a wide range of countries. Even if the move towards homeownership has made owner-occupying households the majority almost worldwide, many of larger cities possess significant tenant populations. They still make up an https://doi.org/10.1080/19491247.2022.2164398
© 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group CONTACT Sebastian Kohl [email protected]
This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http:// creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
2 K. A. KHOLODILIN AND S. KOHL
important constituency which advocates for rent regulation as a form of social policy.
Particularly in 2019, several countries and states have introduced new or reinforced measures to cap rent price increases. For example, in February 2019, the authorities of the state of Oregon (USA) imposed upper bounds on rent increases on the consumer price index (CPI) growth rate above 7%.1 In June 2019, in New York, several measures to enhance rental regulations were introduced, including the removal of the vacancy decontrol, which was previously possible, if rent prices for a dwelling or the income of tenant renting exceeded certain thresholds.2 In February 2020, a so-called Mietendeckel (literally meaning ‘rental lid’) was introduced in Berlin (Germany) leading to a rent freeze for the following five years and even providing the possibility to cut rents in the case they were found to be too high.3 However, on 25 March 2021, the rent freeze was abolished by the German constitutional court. During the September 2021 Bundestag elections, the issue of extending the rent freeze to the whole of Germany was debated. Similarly, a law was enacted in Catalonia (Spain) in September 2020 capping initial rents at a local reference rent (plus 10%) for non-luxury units in tense housing market areas. Simultaneously rent increases were pegged to the index of competitiveness recovery of Spain with respect to the European Monetary Union.4 The Covid-19 pandemic provided an additional impetus for rent regulations. Thus, almost 50 countries introduced eviction bans, while over 20 countries enacted rent freezes, including rent reductions and moratoria of rents during the emergency period.5 Yet, despite this surge of regulations in private rental markets, housing scholars still focus predominantly on social housing or homeownership as dominant segments in the housing market.
The renaissance of rent control even in the rigid forms of freezing rents introduced as first-generation controls during both World Wars is surprising, given the almost unanimous agreement among economists on the negative effects of tenancy regulation in general and rent controls in particular on the allocation and supply of housing, as several surveys conducted among economists between 1979 and 2009 show (Kearl et al., 1979; Alston et al., 1992; Jenkins, 2009). Among the negative effects attributed to these market regulations the allegedly negative effect on new construction is probably the most prominent one. Richard Arnott also observed the ‘widespread agreement that rent control discourages new production’ (Arnott, 1995, p. 99). Restrictive housing market regulation such as protections from rent increases or evictions are thus made responsible for lowering construction activities and increasing housing shortages. They are seen as measures which reduce the incentives for investing in new residential construction, especially of rental housing, since governmental restrictions limit rental revenues and the freedom to dispose freely of one’s real estate property. Today’s climate of urban housing shortages in most booming European cities has led many economists to regard the removal of rent International Journal of Housing Policy 3
regulations as stimulus for new housing supply (Diamond, 2018), even though the existing literature shows relatively mixed results.
This study investigates the relationship between restrictive governmental housing regulations—not just rent controls but also protection from eviction and housing rationing measures—and residential construction for the first time with international historical long-run data. It draws on two novel data collections ranging between 1910 and 2016 for 16 developed countries: the first one contains rent regulation indices based on manual codings of all major tenancy-related laws in a country, and the second one contains data on building activity. The regulation data include measures for three types of restrictive housing policies: rent control, security of tenancy and rationing of housing units. Our dependent variables are annual time series of new residential construction (housing units, investment) and we control for economic (real GDP per capita, long-term interest rates and mortgage debt) and demographic factors (population growth, total dependency ratio and marriage rates) in panel-data models.
While our findings are broadly in line with economists’ general expectations, i.e., in normal and post-war periods, rent controls, tenancy-security and rationing regulation have on average negative effects on new construction activity, the surprising finding is that the significance is not as persistent as economists would expect. Whereas the severe rationing measures are significant almost throughout, security of tenancy and rent price regulation are only significant under certain conditions: in their strict form of rent freezes and in the post-1960 period. Increasing the regulation by 1 on a scale from 0 to 1, i.e., shifting from zero to full control, decreases new construction by 0.06 per 1000 inhabitants, which is a sizeable magnitude when accumulated over several years, but also not a complete construction stopper.
We suggest that this rather surprising non-universality of a strong negative tenancy-regulation effect could be explained by the fact that new construction has often been exempted from rent control. Moreover, tenancy regulation may crowd out rental units in favour of owner-occupied ones which can enjoy ongoing construction despite rent control (Kholodilin & Kohl, 2021b; Fetter, 2016). While this article only focuses on new construction, the regulation effects on existing stock should also be kept in mind.
Finally, strict rent control rarely comes without active social housing policies in favour of new construction which can compensate for the loss of private construction. The findings also highlight that tenancy regulation beyond rent controls, and the war-related housing rationing measures, in particular, can significantly impact new construction and that for rent control effects themselves, the historical and country context matters. In that, our findings on rent control appear to be similar to mixed findings on the effect of minimum wages on labour supply, i.e., the labour market equivalent of price controls (Doucouliagos & Stanley, 2009).
Existing research on private rental markets and rent control is rather scarce, uses mostly geographically limited data for snapshot moments or 4 K. A. KHOLODILIN AND S. KOHL
the short run. Our main contribution is to expand on this understudied topic by extending the geographic and temporal scope of the analysis with the help of new international long-run data, which cover the historical time periods in which rent control was first introduced and most widespread. Against the backdrop of these long-run data, our findings confirm a long-held expectation about tenancy policies’ negative effects on building activity, but also show that the effects are less consistent and smaller than expected. The implication of our findings is that strong rent controls or rationing measures, if not compensated by social housing construction, may have negative effects on housing construction and investment.
The study proceeds as follows. The next section reviews the literature on the effects of governmental regulations on residential construction.
The following section describes the data used and explains the methodology applied in this study, while the third section discusses the results obtained. The last section points to potential interpretations of the main finding and concludes.
Determinants of residential construction
Rental housing market regulations and most prominently rent controls are a phenomenon that has attracted quite some attention from economists. We identified 99 empirical studies published in peer-reviewed journals between 1967 and 2022 that overall cover 36 different countries, with one-third of the studies being devoted to North America and more than a half of studies concentrating on European countries, the remainder focussing on the Global South (Kholodilin, 2022).
Together they investigate 19 different effects that rent controls can typically have, while many studies examine several impacts at a time.
Most authors are interested in the effects of rent control on rents of controlled apartments (31 studies), residential mobility (19), new housing construction (12) and homeownership (11). Other studies are interested in effects on welfare, segregation, misallocation, vacancies, quality, homelessness, etc.
This literature generally finds that rent regulation in the form of price controls significantly lowers controlled rents (and returns) but increases uncontrolled rents (e.g., Attia, 2016; Baye & Dinger, 2022; Ahrens et al., 2019). At the same time, it tends to increase homeownership, as it crowds out rental housing units (Diamond et al., 2019; Asquith, 2019; Appelbaum et al., 1991; Fetter, 2016). Studies unanimously find that rent controls lower residential mobility, as tenants have a strong incentive to remain in controlled units (Gyourko & Linneman, 1989; Clark & Heskin, 1982; Bonneval et al., 2022; Karpestam, 2022; Gardner, 2022). The literature also agrees on the negative effects on housing quality, as landlords lose the means and incentive for proper maintenance (Gilderbloom & Ye, 2007; Breidenbach et al., 2022; Tan, 2021).
International Journal of Housing Policy 5
The number of studies investigating rent control effects on residential construction is already more limited and much more mixed in comparison to the articles studying other outcomes. We identified a total of 12 published studies. These studies mostly cover Canada, Scotland, Sweden and the United States. The estimation techniques are rather rudimentary, except for Sims (2007) who uses difference-in-differences regressions, although the authors are sometimes very inventive regarding their data sources. Most studies (seven out of 12) find a negative impact of rent control (Lind, 2003; Smith & Tomlinson, 1981; Smith, 1988) or a positive effect of deregulation (Bailey, 1999; Gibb, 1994) on new housing construction. Only Gilderbloom and Ye (2007) and Ambrosius et al. (2015), using more or less the same data and the same methodology as Gilderbloom and Markham (1996), find no impact of rent control on new residential construction. Moreover, in this particular case, rent controls are thought to be moderate. Goetz (1995) concludes that the multifamily-housing production in San Francisco has accelerated after the introduction of rent control. However, he does not control for other factors, except for dummy variables of rent control introduction, that could explain higher construction rates after rent control was adopted in 1979.
The best evidence comes from sub-national case studies. The most prominent recent quasi-experimental study of San Francisco estimated the effect of rent controls on new construction as high as a 15% reduction in new supply (Diamond et al., 2019). Also studying San Francisco, Asquith (2019) finds a reduction in rental housing supply, as landlords sell off apartments in the condo-market or simply hold back supply. A similar phenomenon—a conversion of rental into owner-occupied units—was found by Fetter (2016) for the US rent controls during and immediately after World War II (WWII). However, Sims (2007), using microdata from a housing survey conducted in Massachusetts in 1985–1998, finds little effect of rent control on new housing construction. Studying the same de-control moment, Autor et al. (2014) also find a very low effect of de-control on new residential investment. Mense et al. (2018), who investigate a recent strengthening of German rental policy—the rental brake (Mietpreisbremse)— establish that it fostered new construction in the controlled municipalities.
Overall, the existing literature on the construction and supply effects has predominantly focussed on the effects of rent price controls and not on other forms of tenancy regulation (such as supply restrictions or tenant protection). The existing macro-studies have been rather narrow in terms of geographic scope and regarding the length of time series data used.
Almost all studies ignore the historical moments with highest rent regulation activity. We address these shortcomings below by increasing both geographic and time coverage and by including different dimensions of tenancy regulation.
6 K. A. KHOLODILIN AND S. KOHL
Data
In this section, we present the variables and operationalisation used in this study. For the sake of convenience, we split them into tenancy regulation indices, dependent construction variables and control variables.
Table 1 reports the sources of data in more detail and presents the descriptive statistics.
Regulation indices
The main explanatory variable is the intensity of tenancy regulation which we approximate by drawing on the restrictive rental market regulations indices, as developed by Kholodilin (2020) and Weber (2017). They cover three types of regulations: rent control, tenure security and housing rationing. The rent control index measures the intensity of restrictions imposed on the level of rent and its rate of increase. This index is computed as a simple average of six binary indices reflecting the following policies: real rent freeze, nominal rent freeze, rent level control, inter-tenancy decontrol, other specific rent decontrol and specific rent re-control.
Thus, the rent control index varies on a continuous scale between 0 and 1.
Moreover, economists distinguish between the first and the second generation of rent control (Arnott, 1995). The first generation implies a hard rent freeze, when rents are fixed at a given level, while under the softer second-generation rent control, the starting rent is generally set at market level, but its growth rate is tied to a measure of living or building costs. Here, we use regulation indices of the first- and second-generation rent control. In case of the first-generation rent control, there are both real and nominal rent freezes as well as rent level controls. By contrast, under the second-generation rent control, only real rent freezes are present. The Rent laws index, on the one hand, and first- and second-generation rent control indices, on the other hand, are constructed in a different way. Unlike the continuous Rent laws index, the generation indices of rent control are binary indices—being equal either to 0 or to 1—reflecting whether the state uses the first or second generation of rent control or not. Therefore, they contain related but not the same information.
The tenure security index, in turn, reflects the degree of protection of tenants from evictions by landlords. The main instruments of protection are eviction protection during a given lease term or period; eviction protection at the end of the term or period; imposition of a minimum duration of rental contracts; and a prohibition of short-term tenancies (of less than one year).
Finally, the housing rationing index measures the intensity of redistribution within the existing housing stock. It includes such policies as registration of housing; protection of housing (e.g., prohibitions to convert residential premises to other uses or to short-term rentals); requisition of vacant housing; restriction of freedom to move into areas with tight International Journal of Housing Policy 7
Table 1. Description of variables used in the analysis.Variable description Source Period Minimum Mean Maximum Standard deviation Housing completions by 1000 inhabitants Kohl (2021) 1900–2016 0.020 5.447 17.314 2.928Share of residential construction in GDP, % Macrohistory 1900–2017 0.039 4.806 12.081 2.079Rent laws index, (0, 1) RHMR 1900–2021 0 0.488 1 0.361First-generation rent control index, (0, 1) RHMR 1900–2021 0 0.493 1 0.500Second-generation rent control index, (0, 1) RHMR 1900–2021 0 0.128 1 0.334Tenure security index, (0, 1) RHMR 1900–2021 0 0.393 1 0.245 Housing rationing index, (0, 1) RHMR 1900–2021 0 0.109 0.750 0.165 Rental market regulation index, (0, 1) RHMR 1900–2021 0 0.440 0.917 0.255Real GDP per capita, 1990 international Geary–Khamis dollars, 1000
Maddison 1900–2018 1.833 17.116 84.580 14.156
Real per-capita GDP growth rate Own calculations 1901–2018 −0.878 0.020 0.506 0.056Long-term interest rate, % Macrohistory and OECD 1900–2018 −0.251 5.675 21.502 3.180Total loans-to-GDP ratio, % Macrohistory and own calculations
1900–2016 0.019 0.641 2.045 0.365
Population growth Maddison and own
calculations
1901–2018 −0.075 0.007 0.034 0.006
Housing return minus equity return (relative rate of
return)
Macrohistory 1900–2015 −0.096 0.014 0.102 0.025
Government budget balance-to-GDP ratio Macrohistory and own calculations
1900–2016 −0.752 −0.022 0.201 0.059
Ratio of dependent (younger than 15 and older than
64 y. o.) population to working-age (15 through 64 y. o.) population, [0,1] World Development
Indicators of the World Bank and European University Institute 1900–2016 0.425 0.544 0.993 0.067
Number of marriages per 1000 population Mitchell (2013) and OECD Vital Statistics
1900–2016 2.113 7.058 17.959 1.838
Note: BIS =Bank for International Settlements (https://www.bis.org/statistics/pp_detailed.htm); Federal Reserve Bank of Dallas (https://www.dallasfed.org/institute/houseprice#tab2); Macrohistory=Jordà–Schularick–Taylor Macrohistory Database (http://www.macrohistory.net/data/); Maddison=Maddison Historical Statistics (https://www. rug.nl/ggdc/historicaldevelopment/maddison/); OECD= Organisation for Economic Cooperation and Development Housing prices data (https://data.oecd.org/price/housing-prices.htm); RHMR = Rental Housing Market Regulation database (https://rpubs.com/Konstantin_Xo/RHMR). 8 K. A. KHOLODILIN AND S. KOHL
housing markets; conservation of social composition of the neighbourhoods in order to prevent gentrification; imposition of maximum housing consumption norms; and nationalisation of private housing stock.
All three indices range between 0 and 1: the higher the index the more intense the regulation. In addition, following Weber (2017), we computed a rental market regulation index (RMRI) as a simple average of the rent control index and tenure security index. Thus, it measures an overall security of tenants by simultaneously capturing the protection of tenants from rent increases and from eviction.
The indices are constructed based on a manual content coding of the corresponding legal acts (see https://rpubs.com/Konstantin_Xo/RHMR for details) and, to the best of our knowledge, represent the best available data source for comparative long-run measures of tenancy regulation. It is important to note that the indices do not measure how tight each regulation in place is, but whether regulations of different sorts are generally in place or not and how many of them are enacted. It is also important to keep in mind that this law-based approach cannot deal with different degrees of enforcement of laws. A final note of caution is that these laws are enacted on the national level and do not account for regional variations. In most cases, the national focus reflects the most important regulation level, with decentralisation of housing policies starting in the 1980s in many countries. The indices thus measure, for instance, that the US federal government does not implement any rent controls and that this differs from Germany, which allows municipalities to use regionally specific comparative-rent tables to enforce soft rent controls, but the index ignores differences between the enforcement in Berlin and Cologne.
While these are some obvious shortcomings of the indices, they are the only available long-run regulation data at hand. There are two additional arguments speaking in their favour. First, our indices correlate quite well with alternative ones, as shown in Kholodilin (2020). Second, there are already quite a few researchers, including those from the IMF and the OECD, who are using the indices for their research, where they have become a common data currency.6
Housing construction intensity
Our dependent variable is housing construction intensity, which is defined as the number of completed dwellings per 1000 persons (cf.
Kohl 2021). Surveying construction requires a certain governmental control of property rights and of the construction sector which is not given in many developing nations and therefore restricts the countries we can sensibly include in the study. Construction volume is available as permits, starts and completions and with the exception of a few countries such as the US, completions are reported throughout. The advantage of International Journal of Housing Policy 9
housing starts (and permits) as measure is that they are the most sensitive measures to reveal macroeconomic impacts on initiated construction activity. Their obvious shortcoming is that not all housing starts end up in completions due to construction-loan problems, bad calculations or speculation. Completions, in turn, have the disadvantage that they lag behind starts by one or two years. However, they indicate what has been constructed and their coverage across countries is highest. For these reasons, we choose completions as our measure for new construction volume.
To control for demography right from the start, we divide completions by the current population, which yields a commonly used variable in the range of 2 to 15 completed units per 1000 inhabitants (cf. Kohl 2021). In cases of missing completion data due to countries not having surveyed them at all or only at certain points in time, we approximate completions through housing starts and permits. Our rule of approximation is the following: If available, we use the first lag of housing starts multiplied by the median ratio of housing completions and starts in our sample excluding the war and post-war years, namely 0.98. If starts are also not available, we use the first lag of permits again multiplied by the average ratio of housing completions and permits, namely 0.95. This is to make sure that the levels of completions are approximated, as the over-time trends are highly similar. For the available data, both lagged permits and lagged housing starts strongly correlate (r=0.98).
To include new housing quality and investments in existing stock, we also rely on total residential construction investment per GDP as an alternative dependent variable, which comes with the advantage of being a monetary variable, but is therefore also subject to price effects.
Control variables
The existing literature usually points to a list of control variables, mainly the common economic and demographic background variables, which need to be available for the very long-run for our purposes. On the economic side, we control for GDP per capita as higher income levels allow for more construction to take place. The business cycle is also known for its strong correlation with the building cycle (Leamer, 2007). With government activity being important for the building sector, we also include the governmental budget balance as a variable. Most new construction is not financed out of equity, which is why capital markets play a crucial role.
We, therefore, include long-term interest rates that govern mortgage lending. Moreover, we include the growth of mortgages outstanding to GDP:
in normal times, more mortgage supply should lead to new construction, but we also include its quadratic term, as too high levels of mortgage indebtedness has been found to just drive up prices and to not extend supply further (Kohl, 2021). New construction depends on the relative 10 K. A. KHOLODILIN AND S. KOHL
attractiveness to build; we, therefore, include the relative rate of return computed as a difference between housing rental returns and stock market returns in the estimation. Finally, we would include homeownership rates, but their coverage reduces our sample to a post-1950 sample, giving away our long-run data advantage.7
On the demographic side, we control for population growth to account for rising demand. As a more refined measure, we also control for marriage rates per population because they indicate the formation of new households. Family formation requires the extension of living space, whereas older household cut back living space at higher ages. We therefore also include a dependency ratio by interpolating the age composition of the population surveyed at census points.8
Econometric methodology
Methodologically, the availability of longitudinal data suggests the use of a panel data model. Given the strong persistence of construction intensity and in order to remove serial correlation and potential non-stationarity, we compute the dependent variable as the first difference of the log of construction intensity.
yx zv it
it it
it
it
,, 12
(1)
where yit is the first difference of the construction intensity or the percentage of residential construction in GDP in country i in the year t; xit is the vector of control variables; zit is the vector of regulation indices; ηi is the country fixed effects; θt is the time fixed effects; vit is the random disturbance; and β is the vector of coefficients.
We transform the explanatory variables that Dickey-Fuller tests reveal to be non-stationary (population, mortgages and GDP per capita) into growth rates or first differences which also transforms some of these stock-variables into flows, more apt to explain the flow of new constructions. We use the second lag of the regulation indices in order to capture the fact that housing construction takes time to reach completion. The plot of land must be found, the architectural plans must be made, the building permit must be obtained and finally, the house must be built.
All these procedures take time and on average two years can pass between the decision to build and the completion. In addition, factors such as bad weather and unavailability of subcontractors and workers during periods of busy construction activity can lengthen the process even more. For example, according to the US Census Bureau 2020 statistics, it takes on average about 7 to 16 months between the start and completion of single- and multi-family houses, respectively.9 For the control variables we use their first lags. Given that we work with annual data, one lag should be sufficient. Wooldridge (2012, p. 658), for instance, International Journal of Housing Policy 11
suggests to use at most two lags for annual time series. A larger number of lags would reduce the already modest degrees of freedom in our models.
Results
We first describe how construction and tenancy regulation developed across time and different regions to then present the multivariate results.
Descriptive findings
Figure 1 depicts the evolution of the three regulation indices between 1900 and 2021. All curves show a two-hump structure: regulation set in with WWI as consumer socialism for the home front of soldiers’ families.
Figure 1. Residential construction intensity and rental housing market regulations.
Note: Construction intensity is measured as the number of completed dwellings per 1000 persons. The indices of rent control, tenure security and housing rationing vary between 0 (no rent control) and 1 (very strict control). All indices are obtained by averaging from the country-specific indicators of 16 countries under investigation. 12 K. A. KHOLODILIN AND S. KOHL
It was then reversed during the interwar years only to spike again during WWII. But whereas the rationing supply side restrictions were almost completely dismantled in the post-war development, tenancy security was on average maintained throughout all jurisdictions. Rent regulation itself reduced in intensity everywhere: the strong first-generation freezes of absolute rent levels softened into second-generation regulation of rent increases.
While this is the broad common story across jurisdictions, there are notable differences between low-regulation Anglophone countries and continental European countries with a tradition of stronger tenancy regulation.
In addition, Figure 1 shows the long-run construction cycle. With the exception of socialist countries, there is a rough counter-cyclical movement of construction and rent regulation over the 20th century: rent regulation surges in war times when construction is low and it fades out with the building cycle taking off. Towards the end of the reporting period, the negative correlation is less evident as building cycles can occur even at a constant rent level.
Multivariate estimations
In what follows, we estimate four different models, depending on the combination of rental regulation indices and control variables included.
We choose these models to uncover different combinations of the regulation indices (models 1–2), to distinguish soft from hard rent controls (3) and to uncover potential non-linear effects (4). We estimate these models for two dependent variables: completed housing units per population and residential investments per GDP.10 We include a total of 16 countries: with the exception of Portugal, all countries start at least in the interwar period, most even before the First World War.
Tables 2 and 3 report estimation results for housing completions for the whole sample and the war-unaffected, post-1960 subsample, respectively. We distinguish war- from post-war-times because the former are arguably very unrepresentative times for housing policies and rent policies in particular. A first observation is that the different combinations of regulation indices share a persistent negative coefficient sign (with the exception of second generation controls), but at low significance levels. A closer look shows that three regulation indices are statistically significant: tenancy security in the whole sample, housing rationing and rent price controls in the war-unaffected subsample. The effect of the general rent price regulation is entirely driven by the remaining hard first-generation price controls. All affect the intensity of residential construction negatively. Thus, stricter regulations, limiting the freedom of landlords to set prices and to select tenants, diminish the incentives to build new housing.
Table 2 presents estimation results for the whole sample using the intensity of housing construction as a dependent variable.
Regarding the magnitude of the effect, it is sizeable, but also not extremely large. The linear effects are the smallest for the models International Journal of Housing Policy 13
estimated over the whole period: the largest decline of the growth rate of construction intensity is obtained for the maximum rent control intensity (equal to 1) and is between −1.3% for all and −1.6% for developed economies. For the post-1960 period, the effects are much larger, varying from the largest decline of about −6% for all countries to almost −8% for developed ones. Assume that in the initial situation (period t) there is no rent control and that construction intensity is 10 dwellings per 1000 inhabitants. If in the following year (t + 1) the strictest possible rent control is introduced, in t + 3 the construction intensity would fall to 9.84–9.87 dwellings per 1000 persons for the whole period and to
9.2–9.4 dwellings per 1000 persons for the post-1960 period. In a country with 100 million inhabitants, it would correspond to a reduction in residential construction by 13,000–16,000 and 60,000–80,000 dwellings, respectively, which is a sizeable magnitude over several years, but also not a complete construction stop.
Table 2. Estimation results of panel data model: construction intensity, whole period.
Dependent variable: growth rate of construction intensity Model 1 Model 2 Model 3 Model 4
Rent lawst−2 −0.026 −0.160
(0.036) (0.111)
Rent lawst−2
2 0.127
(0.110)
First-generation rent controlt−2 −0.031
(0.020)
Second-generation rent controlt−2 0.013
(0.027)
Tenure securityt−2 −0.083* −0.102* −0.073
(0.041) (0.051) (0.039)
Rationingt−2 −0.081 −0.082 −0.071 −0.087
(0.095) (0.096) (0.096) (0.099)
RMRI
t−2 −0.094
(0.063)
Per-capita GDP growtht−1 0.252 0.256 0.260 0.256
(0.179) (0.179) (0.181) (0.177)
Long-term interest ratet−1 −0.003* −0.003* −0.002 −0.003 (0.001) (0.001) (0.001) (0.002)
Relative rate of returnt−1 −0.045 0.007 0.014 −0.004
(0.222) (0.225) (0.232) (0.227)
Change in loan-to-GDP ratiot−1 0.177 0.189 0.185 0.195
(0.176) (0.179) (0.177) (0.180)
Change in loan-to-GDP ratio t−1
2 −5.032*** −5.142*** −5.068*** −5.140***
(1.079) (1.029) (1.056) (1.088)
Government balance-to-GDP ratiot−1 0.015 −0.013 0.030 −0.001 (0.191) (0.179) (0.190) (0.197)
Population growtht−1 1.874 1.593 1.816 1.792
(1.637) (1.634) (1.701) (1.667)
Dependency ratiot−1 −0.275 −0.292 −0.314 −0.279
(0.196) (0.212) (0.203) (0.195)
Marriage ratet−1 0.027* 0.028* 0.028* 0.027*
(0.011) (0.011) (0.011) (0.011)
R2 0.054 0.052 0.057 0.055
Number of observations 1005 1005 1005 1005
***p<0.001, **p<0.01, *p<0.05.
14 K. A. KHOLODILIN AND S. KOHL
Over the whole sample, growth of real per-capita GDP is statistically significant among the control variables. It exerts a strong positive effect on the construction intensity, which corroborates economic theory and common sense. Higher interest rates, in turn, rather depress new construction, whereas more mortgage debt (insignificantly) increases construction, but only up to a certain point (significantly negative square term). Among the demographic variables, marriage rates have a statistically significant positive effect. Even when people marry less, marriage rates might be a proxy for years when demographic cycles produce more family formation and hence construction demand. The addition of demographic and particularly economic variables normally associated with the building cycle takes away the significance of regulation indices.
Much of the regulation effect is driven by the war-time effects as the war-unaffected subsample results in Table 3 shows: post-1960, rent and Table 3. Estimation results of panel data model: construction intensity, 1960–2016.
Dependent variable: growth rate of construction intensity Model 1 Model 2 Model 3 Model 4
Rent lawst−2 −0.085** −0.013
(0.027) (0.104)
Rent laws t−1
2 −0.069
(0.100)
First-generation rent controlt−2 −0.043*
(0.019)
Second-generation rent controlt−2 0.003
(0.025)
Tenure securityt−2 −0.069 −0.087 −0.072
(0.036) (0.046) (0.038)
Rationingt−2 −0.221*** −0.221*** −0.231*** −0.224***
(0.056) (0.054) (0.061) (0.055)
RMRI
t−2 −0.157**
(0.050)
Per-capita GDP growtht−1 0.629** 0.627** 0.629** 0.628** (0.207) (0.202) (0.206) (0.207)
Long-term interest ratet−1 −0.003* −0.003* −0.002 −0.003* (0.002) (0.002) (0.001) (0.002)
Relative rate of returnt−1 0.162 0.142 0.169 0.160
(0.324) (0.305) (0.341) (0.325)
Change in loan-to-GDP ratiot−1 0.153 0.150 0.140 0.140
(0.196) (0.196) (0.198) (0.196)
Change in loan-to-GDP ratio t−1
2 −3.144* −3.113* −3.153* −3.090*
(1.276) (1.298) (1.276) (1.286)
Government balance-to-GDP ratiot−1 0.303 0.310 0.337 0.311 (0.201) (0.193) (0.212) (0.202)
Population growtht−1 1.443 1.499 1.405 1.639
(0.774) (0.798) (0.897) (0.873)
Dependency ratiot−1 −0.055 −0.054 −0.030 −0.070
(0.129) (0.127) (0.141) (0.141)
Marriage ratet−1 0.026*** 0.026*** 0.027*** 0.026***
(0.007) (0.007) (0.007) (0.007)
R2 0.095 0.095 0.094 0.096
Number of observations 807 807 807 807
***p<0.001, **p<0.01, *p<0.05.
International Journal of Housing Policy 15
rationing regulation indices are negatively associated with construction intensity and significantly so. Apparently, the housing rationing, being one of the most drastic measures, has a strong negative impact on the confidence of investors and, therefore, on their willingness to build new houses. Thus, the threat of being expropriated represents an effective obstacle to residential construction. The rent control effect is again driven by the strict rent freezes and not the second-generation controls.
The coefficient estimates obtained for the alternative dependent variable, construction investment per GDP, are very consistent with those obtained for the construction intensity (not shown). Restrictive housing policies appear to exert a negative impact on residential construction, especially since 1960, but at low significance levels. For the more recent period, rent price controls have again a significantly negative effect, mostly driven again by the first-generation rent controls. Supply rationing measures are highly significant in this period and reduce new constructions.
Tenure security regulations are only statistically significant for the estimation over the whole sample. Increasing tenancy regulation to a maximum leads to a decrease of residential investment per GDP of 0.085 percentage points and of up to 0.043 for the strict first-generation controls. The control variables behave very similarly to the results in the previous two estimates.
Although we find negative effects of restrictive regulations on housing construction, these effects are often not statistically significant. It is possible that due to factors internal to each country positive and negative effects in different types of countries cancel each other out. This issue could theoretically be addressed by focussing on specific countries.
However, such a country-specific analysis is rather difficult due to the limited number of observations per country. This is the reason why we opted for using the panel-data approach that dramatically increases the number of observations. To some extent, the country-specific effects are captured by the fixed effects. However, it can be true that an offsetting of effects in various countries occurs. Nevertheless, as an overview of the empirical literature on rent control effects shows, most studies using different methodologies and data find that rent control exerts either a negative or no impact on housing construction (Kholodilin, 2022). Thus, the cancelling out of effects could hardly affect our main conclusion.
Discussion and conclusion
The general finding points to the expected negative effect of rent regulation on new residential construction: throughout different samples and specifications, the regulation coefficients are negative, albeit with changing levels of significance. The finding is most persistent for rationing and first-generation rent controls and most pronounced for the war-unaffected period which reaches up to the current day. Higher levels of security of tenure can depress new construction. However, this finding is not always confirmed, as the corresponding coefficient is only statistically significant 16 K. A. KHOLODILIN AND S. KOHL
in the total sample. Overall, with the most complete historical-comparative data available, the received wisdom among economists of a negative construction and investment effect of rent controls seems to hold, but with far less persistence and magnitude than is usually assumed. In many models, new construction depends more on economic or demographic factors than on tenancy regulation. This is in line with the rather mixed results of existing studies of smaller geographic and temporal scope, where almost half of the studies produce null findings.
The models covering the whole time period do not find any significant rent-control effect other than for the war-related first-generation controls and for the rationing measures. One explanation could be that lower rent control intensity corresponds to the more flexible first-generation rent control, while higher ones correspond to the much more restrictive first-generation rent control. This is in line with previous research (Mense et al., 2018). Finally, one could argue that the magnitude of the examined effects is not particularly high in general. It is not the case that private construction completely stops after the introduction of rent control measures.
What could explain the deviance from the usually expected result? In the following, we want to discuss potential data and model configurations which could explain our main results. One obvious explanation is that rent control laws often exempt new construction from regulations. A subitem in the regulation data set measures whether exceptions to rent controls exist (e.g., for the luxury market segment, new construction, and certain geographies). In the global sample, these exceptions were present in about 70% of all country years during which rent legislation was in place. Unfortunately, the variable is coded too broadly, not taking into account kind and degree, to produce any significant results. Yet, the purpose of many exceptions is to guarantee that the incentives for building new houses are not diminished. Thus, the rents for newly built dwellings are not controlled and so the investors can earn decent profits on it. But investors might still shy away from further investment in rental stock, as they might expect a general deterioration of investment climate and a slippery slope towards even more state intervention.
A second explanation can draw on the fact that tenancy regulation crowds out rental dwellings in favour of owner-occupied ones in the existing housing stock (Fetter, 2016; Kholodilin & Kohl, 2021b). What holds for the existing housing stock may as well hold for new construction: A potential reduction in completions of rental dwellings could thus be more than offset by the increase in the completion numbers in the owner-occupied housing segment. This is all the more probable, given the evidence that homeowner-dominated societies are more prone to speculative house price dynamics (Rünstler, 2016). Homeowners or would-be homeowners who observe house price increases and expect them to continue are eager to participate in the overall speculative movement hoping to obtain capital gains. Thus, more housing is built in such economies than in the tenant-dominated ones, where most people are rather unwilling to see house prices International Journal of Housing Policy 17
increases, since this often goes hand in hand with rent increases. It should be noted also that the switch from tenant to homeowner dominance can be the result of too strict rental regulations. In principle, one would need to replace our current dependent variable of all new constructions by new rental constructions, but the future use of a housing unit is unfortunately not known, let alone surveyed at the point of its construction.
A final explanation for why rent regulation is not universally affecting new construction resides in the fact that in many historical cases the restrictive rental measures are accompanied by housing policies seeking to foster the building activities through social housing or the stimulation of more private housing construction. This has especially been the case after major housing supply shocks caused by wars or natural catastrophes.
The inevitable rent increases are anticipated by using rent controls and the resulting unwillingness to build by private investors makes the government step in to either replace the private building initiative or stimulate it artificially. This could also explain why the global sample results show less significant results than the shorter sample estimates as they included the period of strongest state intervention in housing markets, including social housing construction.
What then are the implications? Rent control measures of even the hard first-generation rent freezes or rationing measures are currently debated and passed in European countries and beyond. Even though they are often introduced with good intentions as social policy in favour of tenants and even potentially lowering short-term inequalities (Kholodilin & Kohl, 2021a), our results suggest that economists do have a point when warning about unintended consequences of depressing new construction. Rent controls help sitting tenants in the short run but contribute to future housing shortages for new tenants in the longer run. This long-run result can partially be offset by additional state policies stimulating housing construction. However, under rent control, the efforts to spur residential construction have to be much larger than in its absence. This undermines the frequently used argument that rent control is an interim measure deployed in order to combat rent increases, while awaiting for construction to gain momentum. Therefore, if one wants to overcome housing shortages as soon as possible, it may be better to abstain from restricting rents, especially from using strict first-generation rent controls.
Notes
1. Senate Bill 608 relating to residential tenancies; creating new provisions; amending ORS 90.100,
90.220, 90.323, 90.427, 90.600, 90.643, 90.675 and 105.124; and declaring an emergency.
2. Housing Stability and Tenant Protection Act of 2019.
3. See ‘Gesetz zur Mietenbegrenzung im Wohnungswesen in Berlin (MietenWoG Bln)’ as of 11 February 2020. The law was enacted on 23 February 2020.
4. Ley 11/2020, de 18 de septiembre, de medidas urgentes en materia de contención de rentas en los contratos de arrendamiento de vivienda y de modificación de la Ley 18/2007, de la Ley 24/2015 y 18 K. A. KHOLODILIN AND S. KOHL
de la Ley 4/2016, relativas a la protección del derecho a la vivienda. This regulation was apparently influenced to a large extent by the so-called rental brake (Mietpreisbremse) introduced in Germany in 2015. However, in March 2022, the Catalan rent control law was revoked by the Spanish Constitutional Court as unconstitutional—Sentencia de Tribunal Constitucional de España—Sentencia 37/2022, de 10 de marzo de 2022. Recurso de inconstitucionalidad 6289-2020.
5. See https://rpubs.com/Konstantin_Xo/COVID19_housing_policies.
6. To name just a few: (1) Cournède et al. (2019) find that a tighter rental regulation tends to exacerbate the risk of severe economic downturns; (2) Cavalleri et al. (2019) suggest that restrictive rental market regulations can decrease the price elasticity of housing supply; while (3) Elfayoumi et al. (2021) investigate the link between rental market regulations and affordability of rental housing.
7. In such a regression, the homeownership variable does not have significant effects.
8. Marriage rates and age composition are interpolated using the R-package stinepack based on Stineman (1980).
9. Average Length of Time from Start to Completion of New Privately Owned Residential Buildings; https://www.census.gov/construction/nrc/pdf/avg_starttocomp.pdf. The larger the building, the lengthier the process: it takes 18months for buildings with 20 units and more. Thus, changes in regulations affect the willingness of investors to apply for permits. Only after the permits are obtained the construction can begin.
10. The results for the second dependent variable are available upon request, and more documentation is shown in the longer working paper version.
Disclosure statement
The authors confirm that the article involves no conflicts of interest.
ORCID
Sebastian Kohl http://orcid.org/0000-0002-8358-6021
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https://doi.org/10.1257/aer.20181289
3365
The Effects of Rent Control Expansion on Tenants,
Landlords, and Inequality: Evidence from San Francisco† By Rebecca Diamond, Tim McQuade, and Franklin Qian*
Using a 1994 law change, we exploit quasi-experimental variation in the assignment of rent control in San Francisco to study its impacts on tenants and landlords. Leveraging new data tracking individuals’ migration, we find rent control limits renters’ mobility by 20 percent and lowers displacement from San Francisco. Landlords treated by rent control reduce rental housing supplies by 15 percent by selling to owner-occupants and redeveloping buildings. Thus, while rent control prevents displacement of incumbent renters in the short run, the lost rental housing supply likely drove up market rents in the long run, ultimately undermining the goals of the law. (JEL R23, R31, R38) Steadily rising housing rents in many of the United State’s large, productive cities has brought the issue of affordable housing to the forefront of the policy debate and reignited the discussion over expanding or enacting rent control provisions. While the details of rent control regulations vary some across places, they generally regulate rent increases and place restrictions on evictions. State lawmakers in California, Colorado, Illinois, and Oregon have considered repealing laws that limit cities’ abilities to pass or expand rent control. Rent control is already extremely popular around the San Francisco Bay Area. Nine Bay Area cities already impose rent control regulations, two of which recently passed rent control laws through majority votes on the November 2016 ballot.
A substantial body of economic research has warned about potential negative efficiency consequences of limiting rent increases below market rates, including overconsumption of housing by tenants of rent-controlled apartments (Olsen 1972, Gyourko and Linneman 1989), misallocation of heterogeneous housing to heterogeneous tenants (Suen 1989, Glaeser and Luttmer 2003, Sims 2011, Bulow and Klemperer 2012), negative spillovers onto neighboring housing (Sims 2007; Autor, Palmer, and Pathak 2014) and neglect of required maintenance (Downs 1988).
Yet, due to incomplete markets, in the absence of rent control, many tenants are unable to insure themselves against rent increases. Of course, individuals who have little connection to any specific area may be able to easily insure themselves against *Diamond: Stanford Graduate School of Business, 655 Knight Way, Stanford, CA 94305, and NBER (email:
[email protected]); McQuade: Stanford Graduate School of Business, 655 Knight Way, Stanford, CA 94305 (email: [email protected]); Qian: Department of Economics, Stanford University, 579 Serra Mall, Stanford, CA 94305 (email: [email protected]). Thomas Lemieux was the coeditor for this article. We are grateful for comments from Ed Glaeser, Christopher Palmer, Paul Scott, and seminar and conference participants. The authors declare that they have no relevant or material financial interests that relate to the research described in this paper. †Go to https://doi.org/10.1257/aer.20181289 to visit the article page for additional materials and author disclosure statements.
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local rental price appreciation by simply moving to a cheaper location. However, if long-term tenants have developed neighborhood-specific capital, such as a network of friends and family, proximity to one’s job, or proximity to the schools of one’s children, then these tenants face large risks from rent appreciation. A variety of affordable housing advocates have argued that many tenants greatly value such insurance and that rent control can effectively provide it.
Despite the policy interest, due to a lack of detailed data and natural experiments, we have little well-identified empirical evidence evaluating how introducing local rent controls affects tenants, landlords, and the broader housing market.1 In this
paper, we bring to bear new microdata and exploit quasi-experimental variation in the assignment of rent control to fill this gap. We exploit an unexpected 1994 law change that suddenly rent-controlled a subset of San Francisco buildings and their tenants, based on the year each building was built. However, the law left very similar buildings and tenants without rent control. We find tenants covered by rent control do place a substantial value on the benefit, as revealed by their choice to remain in their apartments longer than those without rent control. Indeed, we find the vast majority of those incentivized to remain in their rent-controlled apartment would have been displaced from San Francisco had they not been covered.
However, landlords of properties affected by the law change respond over the long term by substituting to other types of real estate, in particular by converting to condos and redeveloping buildings so as to exempt them from rent control. In the long run, landlords’ substitution toward owner-occupied and newly constructed rental housing not only lowered the supply of rental housing in the city, but also shifted the city’s housing supply toward less affordable types of housing that likely cater to the tastes of higher income individuals. Ultimately, these endogenous shifts in the housing supply likely drove up citywide rents, damaging housing affordability for future renters, and counteracting the stated claims of the law.
In 1979, San Francisco imposed rent control on all standing buildings with five or more apartments. While all large buildings built as of 1979 would now be rent-controlled, new construction was exempt from the law, since legislators did not want to discourage new development. In addition, smaller multi-family buildings were exempt from rent control since they were viewed as more “mom and pop” ventures, and did not have market power over rents. However, this small multi-family exemption was lifted through a 1994 San Francisco ballot initiative. Proponents of this law change argued small multi-family housing was now primarily owned by large businesses and should face the same rent control restrictions of large multi-family housing. Since the initial 1979 rent control law only impacted properties built from 1979 and earlier, the removal of the small multi-family exemption also only affected properties built 1979 and earlier. This led to quasi-experimental rent control expansion in 1994 based on whether the small multi-family housing was built prior to or post 1980.
To examine rent control’s effects on tenant migration and neighborhood choices, we make use of new panel data which provide address-level migration decisions 1Notable exceptions to this are Sims (2007) and Autor, Palmer, and Pathak (2014) which use the repeal of rent control in Cambridge, Massachusetts to study its spillover effects onto nearby property values and building maintenance. Neither one of these papers, however, directly studies how rent control impacts tenants.
VOL. 109 NO. 9 DIAMOND ET AL.: THE EFFECTS OF RENT CONTROL EXPANSION 3367 and housing characteristics for the majority of adults living in San Francisco in the early 1990s. This allows us to define our treatment group as renters who lived in small multi-family apartment buildings built prior to 1980 and our control group as renters living in small multi-family housing built between 1980 and 1990. Using our data, we can follow each of these groups over time up until the present, regardless of where they migrate.
We find that between five and ten years after the law change, the beneficiaries of rent control are, on average, 3.5 percentage points more likely to still remain at their 1994 address relative to the control group. Since only 18 percent of the control group still remained at their 1994 address for this long, this estimate represents a 19.4 percent increase in not moving (3.5/18) relative to the control group. We further find that the beneficiaries are 4.5 percentage points more likely to remain in San Francisco relative to the control group, indicating that a large share of the renters who remained at their 1994 address due to rent control would have left San Francisco had they not been covered by rent control. This would likely be viewed as a desirable outcome by rent control advocates.
We next analyze treatment effect heterogeneity along a number of dimensions.
We first find that our estimated effects are significantly stronger among older households and among households that have already spent a number of years at their address prior to treatment. This is consistent with the idea that both of these populations are less likely to experience personal shocks requiring them to change residence and thus, are better able to take advantage of the potential savings offered by rent control.
We then examine whether the effects we estimate vary across racial groups. We do not directly observe race in our data, so we use an imputation procedure based on renters’ names and addresses.2
We find rent control has an especially large impact
on preventing the displacement of racial minorities from San Francisco, suggesting that rent control helps to foster the racial diversity of San Francisco, at least among the initial cohort of renters covered by the law.
Finally, we analyze whether rent control enables tenants to live in neighborhoods with better amenities. One might expect neighborhoods with the largest increases in market prices and amenities would be ones where tenants would remain in their rent-controlled apartments the longest, since their outside options in the neighborhood would be especially expensive. However, for these same reasons, landlords in these high-rent, high-amenity neighborhoods would have large incentives to remove tenants.3
They then could either reset rents to market rates with a new tenant or redevelop the building as condos or new construction, both of which are exempt from rent control. These landlord incentives would push rent control tenants out of the nicest neighborhoods. In fact, we find the landlords’ incentives appear to dominate.
The average tenant treated by rent control lives in a census tract with worse observable amenities, as measured by the census tract’s median household income, share of the population with a college degree, median house value, and share unemployed. 2We impute race by combining imputed race based on first and last name (Ye et al. 2017) and the racial mix of one’s census block of residence in 1990. See Section II for more details. 3In practice, landlords use a number of legal means to remove their tenants, including owner move-in eviction, Ellis Act eviction, or monetary compensation. Landlords may also engage in various pressure tactics, such as tardy maintenance, to pressure tenants to leave.
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Thus, while rent control does prevent displacement from San Francisco, it does not provide access to the best neighborhoods in the city.
The evidence above suggests that landlords do not passively accept the burdens of the law. To further study the landlord response to the rent control expansion and to understand the impact of rent control on rental supply, we merge in historical parcel history data from the San Francisco Assessor’s Office, which allows us to observe parcel splits and condo conversions. We find that rent-controlled buildings were 8 percentage points more likely to convert to a condo or a Tenancy in Common (TIC) than buildings in the control group. Consistent with these findings, we find that rent control led to a 15 percentage point decline in the number of renters living in treated buildings and a 25 percentage point reduction in the number of renters living in rent-controlled units, relative to 1994 levels. This large reduction in rental housing supply was driven by both converting existing structures to owner-occupied condominium housing and by replacing existing structures with new construction.
This 15 percentage point reduction in the rental supply of small multi-family housing likely led to rent increases in the long run, consistent with standard economic theory. In this sense, rent control operated as a transfer between the future renters of San Francisco (who would pay these higher rents due to lower supply) to the renters living in San Francisco in 1994 (who benefited directly from lower rents). Furthermore, since many of the existing rental properties were converted to higher-end, owner-occupied condominium housing and new construction rentals, the passage of rent control ultimately led to a housing stock which caters to higher income individuals. We directly test whether rent control led to in-migration of higher income residents by imputing household income as the per capita income of the census block groups in which the building occupants resided in five year prior.
We find that this high-end housing, developed in response to rent control, attracted residents with at least 18 percent higher income, relative to control group buildings in the same zip code.
Taking all of these points together, it appears rent control has actually contributed to the gentrification of San Francisco, the exact opposite of the policy’s intended goal. Indeed, by simultaneously bringing in higher income residents and preventing displacement of minorities, rent control has contributed to widening income inequality of the city. For a full quantitative analysis of the welfare gains and losses due to rent control, see our companion paper (Diamond, McQuade, and Qian 2018), which estimates a dynamic discrete choice model of tenant migration and performs general equilibrium counterfactual analysis of the impacts of rent control.
Our paper is part of the literature on rent control. The two papers most closely related to ours are Sims (2007) and Autor, Palmer, and Pathak (2014), both of which study the effects of ending rent control in the Boston metropolitan area. Sims (2007) uses American Housing Survey (AHS) data to show that towns in the Boston metropolitan area in which rent control was abolished saw increases in rental supply and increased housing maintenance. Sims (2007) also shows some evidence of spillover effects on non-controlled properties. Autor, Palmer, and Pathak (2014) use property-level data on assessed values and transaction prices in Cambridge, Massachusetts to investigate these spillover effects more directly. They show that decontrol led to price appreciation at decontrolled and never-controlled units.
VOL. 109 NO. 9 DIAMOND ET AL.: THE EFFECTS OF RENT CONTROL EXPANSION 3369 Our paper is different on a number of important dimensions. First, our paper uses a different natural experiment which has the nice feature of generating quasi-random assignment of rent control within narrowly defined neighborhoods. More substantively, by bringing to bear a unique, rich, and previously unused dataset, our paper is the first in this literature to be able to study how rent control impacts the behavior of the actual tenant beneficiaries. These estimates reveal a number of important insights regarding the value tenants place on rent control protections and rent control’s ability to limit displacement, but also potential limitations in the ability of tenants to realize rent savings due to landlord responses.
Finally, since our unique data provide property-level information on renovations, condo conversions, and redevelopment, our paper shows that rent control can lead to an upgraded housing stock catering to higher income individuals. Indeed, the previous literature has shown that ending rent control leads to higher maintenance and higher nearby property values. To reconcile these seemingly conflicting points, it is crucial to understand that decontrol studies the effects of removing rent control on buildings which still remain covered. In fact, one of our key points is to show that a large share of landlords substitute away from supply of rent-controlled housing, making those properties which remain subject to rent control a selected set. In this way, studying the introduction of rent control, which our paper does, is not the same as studying the abolishment of rent control.
There also exists an older literature on rent control combining applied theory with cross-sectional empirical methods. These papers test whether the data are consistent with the theory being studied, but usually cannot quantify causal effects of rent control (Early 2000, Glaeser and Luttmer 2003, Gyourko and Linneman 1989, Gyourko and Linneman 1990, Moon and Stotsky 1993, Olsen 1972).
The remainder of the paper proceeds as follows. Section I discusses the history of rent control in San Francisco. Section II discusses the data used for the analysis.
Section III presents our empirical results. Section IV concludes.
I. A History of Rent Control in San Francisco
Regulations are widespread in housing markets, and rent controls are arguably among the most important historically (Stigler and Friedman 1946, Gyourko and Glaeser 2008). The modern era of US rent controls began as a part of World War II era price controls and as a reaction to housing shortages following demographic changes immediately after the war (Fetter 2016). These “hard price controls” that directly regulate the exact price of housing have been replaced by newer policies that regulate rent increases (Arnott 1995). This “newer style” policy is what exists in San Francisco.
Rent control in San Francisco began in 1979, when acting Mayor Dianne Feinstein signed San Francisco’s first rent control law. Pressure to pass rent control measures was mounting due to high inflation rates nationwide, strong housing demand in San Francisco, and recently passed Proposition 13.4
This law capped annual nominal rent increases to 7 percent and covered all rental units built before June 13, 4Proposition 13, passed in 1978, limited annual property tax increases for owners. Tenants felt they were entitled to similar benefits in the form of capped annual rent increases. 3370 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 2019
1979 with one key exemption: owner-occupied buildings containing 4 units or less.5 These “mom and pop” landlords were cast as being less profit-driven than largescale, corporate landlords, and more similar to the tenants being protected. These small multi-family structures made up about 44 percent of the rental housing stock in 1990, making this a large exemption to the rent control law.
While this exemption was intended to target “mom and pop” landlords, in practice small multi-families were increasingly purchased by larger businesses who would then sell a small share of the building to a live-in owner so as to satisfy the rent control law exemption. This became fuel for a new ballot initiative in 1994 to remove the small multi-family rent control exemption. This ballot initiative barely passed in November 1994. Suddenly, all multi-family structures with four units or less built in 1979 or earlier were now subject to rent control. These small multi-family structures built prior to 1980 remain rent-controlled today, while all of those built from 1980 or later are still not subject to rent control. San Francisco rent control laws have remained stable since then, possibly due to the statewide Costa-Hawkins Act. This law precludes any California city from rent controlling any housing stock built 1994 or later and regulates the scope of rent control allowed. For example, it requires rent-controlled apartment rents to be unregulated between tenants.
II. Data
We bring together data from multiple sources to enable us to observe property characteristics, determine treatment and control groups, track the migration decisions of tenants, and observe the property decisions of landlords. Our first dataset is from Infutor, which provides the entire address history of individuals who resided in San Francisco at some point between the years of 1980 and 2016.6 The data
include not only individuals’ San Francisco addresses, but any other address within the United States at which that individual lived during the period of 1980–2016. The dataset provides the exact street address, the month and year in which the individual lived at that particular location, the name of the individual, and some demographic information including age and gender.
We link these data to property records provided by DataQuick. These data provide us with a variety of property characteristics, such as the use-code (single-family, multi-family, commercial, etc.), the year the building was built, and the number of units in the structure. For each property, the data also detail its transaction history since 1988, including transaction prices, as well as the buyer and seller names. By comparing last names in Infutor to the listed owners of the property in DataQuick, we are able to distinguish owners from renters.
Next, we match each address to its official parcel number from the San Francisco Assessor’s office. Using the parcel ID number from the Secured Roll data, we merge in any building permits that have been associated with that property since 1980.
These data come from the San Francisco Planning office. This allows us to track 5The annual allowable rent increase was cut to 4 percent in 1984 and later to 60 percent of the CPI in 1992, where it remains today. 6Infutor is a data aggregator of address data using many sources including sources such as phone books, voter files, property deeds, magazine subscriptions, credit header files, and others.
VOL. 109 NO. 9 DIAMOND ET AL.: THE EFFECTS OF RENT CONTROL EXPANSION 3371 large investments in renovations over time based on the quantity and type of permit issued to each building.
Finally, the parcel number also allows us to link to the parcel history file from the Assessor’s office. This allows us to observe changes in the parcel structure over time. In particular, this allows us to determine whether parcels were split off over time, a common occurrence when a multi-family apartment building (one parcel) splits into separate parcels for each apartment during a condo conversion.
Summary statistics are provided in Table 1. We see the average renter in our sample in 1994 is about 37 years old and has lived at their current address for 6 years.
We also see that these small multi-family properties are made up of 82 percent (0.74/0.9) renters and 18 percent owner occupants prior to 1994.
A. Data Representativeness
To examine the representativeness of the Infutor data, we link all individuals reported as living in San Francisco in 1990 to their census tract, to create census tract population counts as measured in Infutor. We make similar census tract population counts for the year 2000 and compare these San Francisco census tract population counts to those reported in the 1990 and 2000 Census for adults 18 years old and above. Regressions of the Infutor populations on census population are shown in Figure 1.7
Panel A shows that for each additional person recorded in the 1990 Census, Infutor contains an additional 0.44 people, suggesting we have a 44 percent sample of the population. While we do not observe the universe of San Francisco residents in 1990, the data appear quite representative, as the census tract population in the 1990 Census can explain 69 percent of the census tract variation in population measured from Infutor. Our data are even better in the year 2000. Panel B shows that we appear to have 1.1 people in Infutor for each person observed in the 2000 US Census. We likely overcount the number of people in each tract in Infutor since we are not conditioning on year of death in the Infutor data, leading to overcounting of alive people. However, the Infutor data still tracks population well, as the census tract population in the 2000 Census can explain 90 percent of the census tract variation in population measured from Infutor.
Infutor also provides information on age. As additional checks, we compare the population counts within decadal age groups living in a particular census tract as reported by Infutor to that reported by the Census. We again report the results for both 1990 and 2000. Unlike the prior analysis, we must drop Infutor observations missing birth date information for this, making our sample smaller. As shown in panel A of Table 2, the slopes of the regression lines for the 18–29, 30–39, 40–49, 50–59, and 60–69 age groups are 0.31, 0.44, 0.42, 0.24, and 0.16, respectively. This indicates the Infutor coverage is strongest for 30–49-year-olds in 1990. The R2 values are also the highest in this age range at 65 to 76 percent. The coverage of the data improves dramatically by 2000, as shown in panel A of Table 2. The regression line slopes for the respective age groups are now 0.33, 0.74, 0.72, 0.70, 0.45. The R2 values range from 0.61–0.85. It is clear the data disproportionately undersamples 7We only can do data validation relative to the US Censuses for census tracts in San Francisco because we only have address histories for people who lived in San Francisco at some point in their life. 3372 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 2019
the youngest group, but this is unsurprising as these data come from sources such as credit header files, voter files, and property deeds. Eighteen-year-olds are less likely to show up in these sources right away. Overall the data coverage looks quite good.
As described above, we merge the Infutor data with public records information provided by DataQuick about the particular property located at a given address, such as use-code and age of the property. We assess the quality of the matching procedure by comparing the distribution of the year buildings were built across census tracts among addresses listed as occupied in Infutor versus the 1990 and 2000 Censuses.
Table 1—Sample Characteristics of Multi-Family Properties (2– 4 Units) and Their Tenants 1990–1993 1994–2016
Treat Control Difference Treat Control Difference
Panel A. Tenants living in multi-family residence (2−4 units) A1. Demographics
Age in 1993 37.708 37.120 0.587 37.708 37.120 0.587
(10.438) (10.639) (0.247) 10.438 (10.639) (0.247)
A2. Residency
In San Francisco 0.954 0.954 0.000 0.569 0.538 0.032
(0.210) (0.210) (0.002) (0.495) (0.499) (0.002)
Same address 0.870 0.867 0.003 0.261 0.240 0.021
(0.336) (0.340) (0.004) (0.439) (0.427) (0.002)
Years at address 6.015 5.825 0.190 6.590 6.267 0.324
(3.958) (3.927) (0.047) (5.898) (5.530) (0.029)
Number of persons 44,502 1,861 46,363 44,502 1,861 46,363 Panel B. Multi-family properties (2−4 units)
B1. Residency
Conversion 0.000 0.000 0.000 0.096 0.044 0.051
(0.009) (0.000) (0.000) (0.294) (0.206) (0.002)
B2. Population, 1990–1994
Population/avg. population 0.898 0.905 −0.008 2.282 2.252 0.030 (0.436) (0.426) (0.007) (4.029) (2.998) (0.028)
Renters/avg. population 0.741 0.737 0.004 1.680 1.700 −0.020 (0.484) (0.482) (0.008) (3.555) (2.517) (0.025)
Renters in rent-controlled 0.741 0.737 0.004 1.404 1.570 −0.165 buildings/avg. population (0.484) (0.482) (0.008) (1.927) (2.053) (0.014) Renters in redeveloped 0 0 0 0.129 0.060 0.069
buildings/avg. population (0) (0) (0) (0.740) (0.541) (0.005) Owners/avg. population 0.157 0.168 −0.012 0.602 0.552 0.050 (0.329) (0.335) (0.006) (1.581) (1.348) (0.011)
B3. Permits
Cumulative 0.072 0.088 −0.016 0.290 0.254 0.035
Add/alter/repair per unit (0.231) (0.287) (0.004) (0.511) (0.536) (0.004) Number of parcels 25,925 892 26,817 25,925 892 26,817
Notes: Panel A reports the summary statistics of the demographic characteristics and residency outcomes during 1990–2016 of our tenant sample. The sample consists of all tenants between 20 and 65 years old living in San Francisco as of December 31, 1993 and in multi-family residences with 2–4 units that were built during 1900–1990.
Panel B reports the summary statistics of the outcomes variables related to residency, population changes, and permit issuance during 1990–2016 of our property sample. The sample consists of all parcels that are multi-family residence with 2–4 units in San Francisco that were built during 1900−1990. The Treat and Control columns report the mean and standard deviation (in parentheses) of each outcome variable at the tenant level in panel A and at the property level in panel B. The Difference column reports the coefficient and standard error (in parentheses) of a regression of each outcome variable on the treatment dummy at the tenant level in panel A and at the property level in panel B.
VOL. 109 NO. 9 DIAMOND ET AL.: THE EFFECTS OF RENT CONTROL EXPANSION 3373 If a building is constructed after 1993 according to its current day use-code, but we observe a person living there in 1993, we include it in the treatment group for rent control. Panel B of Table 2 shows the age distribution of the occupied stock by census tract. In both of the years 1990 and 2000, our R2 values range from 67 percent 0 2,000
4,000
6,000
8,000
Infutor population 18
+
0 2,000 4,000 6,000 8,000
Census population 18+
Panel A. 1990 Infutor versus Census Panel B. 2000 Infutor versus Census 95% CI Fitted values
β = 0.442 (0.026)
R2 = 0.692
Observations = 127
β = 1.145 (0.029)
R2 = 0.898
Observations = 175
0 2,000
4,000
6,000
8,000
10,000
Infutor population 18
+
0 2,000 4,000 6,000 8,000
Census population 18+
45-degree
Figure 1. Validation of Infutor Population versus US Census Population Notes: Plot shows the population of 18 and over in each census tract in 1990 and 2000 from Infutor data against that from 1990 and 2000 Censuses, respectively. The fitted line is by OLS.
Table 2—Representativeness of Infutor Data: Population by Age Groups and Age of Occupied Housing Stocks
1990 2000
Age group Slope SE R2 Age group Slope SE R2
Panel A. Population by age group
18–29 0.314 0.026 0.534 18–29 0.325 0.016 0.696
30–39 0.444 0.022 0.758 30–39 0.744 0.024 0.850
40–49 0.416 0.027 0.649 40–49 0.715 0.032 0.741
50–59 0.237 0.023 0.458 50–59 0.695 0.033 0.723
60–69 0.159 0.015 0.469 60–69 0.447 0.027 0.611
Panel B. Age of occupied housing
Year built Slope SE R2 Year built Slope SE R2
1970–1990 0.639 0.046 0.667 1980–2000 0.813 0.024 0.876 1950–1969 0.928 0.046 0.807 1960–1979 1.083 0.036 0.853 1940–1949 1.111 0.035 0.911 1950–1959 0.955 0.049 0.711 1939 or earlier 1.024 0.040 0.872 1940–1949 1.323 0.042 0.863 1939 or earlier 1.144 0.036 0.863
Notes: Panel A reports the coefficients, standard errors, and R2 values of regressing the population counts within various age groups in each census tract from Infutor data against those from the Census in the year 1990 and 2000 respectively. Panel B reports the coefficients, standard errors, and R2 values of regressing the fraction of buildings built in various time periods in each census tract from Infutor data against those from the Census in the year 1990 and 2000 respectively. In panel B, the regressions are weighted by the number of occupied housing units in each census tract from the Census.
3374 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 2019
to 91 percent and we often cannot reject a slope of 1.8 This highlights the extremely high quality of the linked Infutor-DataQuick data, as the addresses are clean enough to merge in the outside data source DataQuick and still manage to recover the same distribution of building ages as reported in both the 1990 and 2000 Censuses.