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.
3386 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 2019
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,
3388 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 2019
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.
3390 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 2019
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.
3392 THE AMERICAN ECONOMIC REVIEW SEPTEMBER 2019
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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65. Keuntae Kim, Ivis Garcia, Simon Brewer. 2021. Spatial Relationship Between Eviction Filings, Neighborhood Characteristics, and Proximity to the Central Business District: A Case Study of Salt Lake County, Utah. Housing Policy Debate 31:3-5, 601-626. [Crossref]
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Adam Pinterits
Government and Community Affairs Director
Monterey County Association of Realtors
5 Harris Court, Building A
Monterey, CA, 93940
[email protected]
March 26, 2024
Salinas Housing and Land Use Committee
200 Lincoln Avenue
Salinas, CA, 93901
Dear Members of the Salinas Housing and Land Use Committee, I write to you today to address an issue that deeply concerns our community: the affordability and accessibility of housing for renters in Salinas. As a renter who is rentburdened, I understand the hardships faced by many renters in our community, and my heart goes out to those struggling with these issues.
There is no doubt that action must be taken to alleviate the burden on renters and ensure that everyone has access to safe and affordable housing. However, I must express my concern regarding the potential consequences of implementing rent stabilization measures stricter than those already in place at the state level in California.
While the intention behind such regulations is noble, historic evidence and economic data suggest that they will lead to unintended consequences that ultimately harm the very renters they aim to protect.
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One of the most significant risks linked to overly strict rent stabilization is the potential to drive property owners out of the rental housing business altogether. Dr. Rebecca Diamond et al. (American Economic Review) studied San Francisco rent stabilization impacts and conclude it resulted in a 15% reduction in available rental housing. When property owners face stringent regulations that limit or complicate their ability to cover expenses and make a reasonable profit, many choose to sell their properties and exit the rental market. While space is left blanks for a capital improvements section in the draft ordinance, which would aim to address this issue, the problem remains that the owner would be required to go through additional steps to be approved for this and is less likely to put up with this added burden. The reduction in available rental units leads to increased competition among renters, ultimately driving rents even higher in the long term.
In the peer reviewed Housing Policy Debate (2022) Dr. Max Gardner’s analysis of housing data from the City of San Francisco concludes “rent control status (i.e., living in a rent-controlled unit) increases the likelihood of eviction by approximately 240% per year.” Instead of pursuing rent stabilization measures that have adverse effects, I urge the City of Salinas to consider alternative solutions that have proven to be effective in addressing housing affordability and reducing evictions. One such solution is the implementation of a renters assistance program, similar to the program presently being developed by the City of Monterey.
Monterey's renters assistance program will provide financial support to renters in need, helping them afford their housing costs and reducing the likelihood of evictions. By focusing on providing targeted assistance to those facing financial hardships, rather than imposing blanket regulations on all rental properties, the City of Salinas can achieve meaningful aid to those who need it most without worsening the long term availability and affordability of housing.
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In conclusion, I respectfully urge the Salinas Housing and Land Use Committee to prioritize the exploration and implementation of a renters assistance program as a more effective and sustainable approach to supporting renters and improving housing affordability in our community. I also urge the City of Salinas to host more public hearing and town hall events, so the thousands of stakeholders affected by these issues have ample opportunities to be heard and to develop community buy-in for policy solutions rather than passing them without such steps of due diligence.
On behalf of the over 1,400 real estate professionals in Monterey County, thank you for providing us with the opportunity to weigh in on this important matter. We want everyone to have a safe and affordable place to live. I am available to discuss these ideas further and provide any additional information or insights that may be helpful to your deliberations.
Sincerely,
Adam Pinterits
Government and Community Affairs Director
Monterey County Association of REALTORS®
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Citations
Rebecca Diamond, Tim McQuade, and Franklin Qian, The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco, American Economic Review (2019), p. 2 (accessed May 15, 2023). https://doi.org/
10.1257/aer.20181289
Dr. Max Gardner et al., The Effect of Rent Control Status on Eviction Filing Rates:Causal Evidence From San Francisco, Housing Policy Debate (2022), p. 1 (accessed Mar. 25, 2024). https://www.tandfonline.com/doi/full/10.1080/10511482.2022.2099932? scroll=top&needAccess=true#
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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: Tyler Crane
To: [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected] Subject: No on Rent Stabilization Ordinance
Date: Friday, May 3, 2024 11:00:35 AM
I am reaching out to you regarding the Rent Stabilization Ordinance currently under consideration by the City of Salinas. This ordinance proposes significant changes that could have detrimental effects on landlords and the housing market as a whole. As such, tenants will also be adversely affected.
While rent control appears to help tenants in the short term, in the long term it decreases affordability, fuels gentrification, and creates negative affects on surrounding neighborhoods. Below I have listed 5 potential negatives effects which will impact the Tenant, Owner, & the City of Salinas.
As a current owner of a single family home in south Salinas, our rent is below market value. Any further controls and regulations will only increase the burden associated with Ownership and will only lead to an increase in rental fees.
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 by other cities.
I firmly oppose the Rent Stabilization Ordinance which is being proposed. I will be attending the City Council meeting to voice my concerns. It will be interesting to see how the City Council members decide to vote on this issue.
Tyler Crane
232 Oak St.
Salinas, Ca.
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: Tony Brigantino
To: [email protected]
Subject: Proposed Rent Stabilization and Tenant Protection Ordinance Date: Tuesday, April 30, 2024 3:05:40 PM
I am writing this letter out of concern for property owners in Salinas. Having been self employed for most of my 40 year career, I am not part of a company or public pension system.
Instead, I have made various investments throughout my career in order to basically create my own pension for retirement. I have long touted the benefits of investing in Salinas and I am very concerned about the impacts the proposed RSTPO might have on all real estate values in Salinas, not just the values of rental properties.
Statistics I obtained on Data USA indicate 47% of the housing units in Salinas were owner occupied. Considering that many of the rental units in Salinas are multi-family, there could be a larger impact on the value of owner occupied units than has been discussed.
I realize the city council has determined that this ordinance need not applicable to CEQA consideration and I assume the city is correct on this determination. However; I believe that since this ordinance will directly impact nearly 50% of the homes in Salinas, some kind of detailed impact studies should be performed. I request the city employ an independent expert to study this proposal and answer some basic questions about its impacts on the rental market as well as owner occupied homes. This report should be available for public review and comment.
Some basic questions I might have are:
1. How much will it cost the city to implement and manage this program annually?
2. What will be the impact (supply/demand/price) on rental units in Salinas?
3. What will be the impact (supply/demand/price) on owner occupied residential properties in Salinas?
4. What will be the impacts on existing rental owners?
5. What will be the impact on rents when the thousands of new rental units which are currently planned for north/east Salinas are completed? I believe the public should be more informed regarding the impacts of this proposed ordinance. I also believe the city should consider the impacts of commuters on rentals in Salinas. Roadways between Salinas and Monterey, and Salinas to the Silicon Valley are congested because of workers living in Salinas for the lower rents, and working in these higher paying markets. Should the owners of rental properties in Salinas be responsible for subsidizing the housing requirements of the Monterey Peninsula and the Silicon Valley for goodness sakes? I think not.
I also believe that, in all fairness, there should be provisions in the ordinance to protect property owners when rents are not paid and damages to rental units are caused by tenants.
Sincerely,
R. Anthony “Tony” Brigantino, MAI
Brigantino & Davis, Real Estate Appraisal, Brokerage, and Consulting 18921 Portola Drive, Suite F, Salinas, CA 93908
Phone 831-455-1070
www.brigco.com
THE INFORMATION CONTAINED IN THIS E-MAIL COMMUNICATION IS INTENDED ONLY FOR THE PERSONAL AND CONFIDENTIAL USE OF THE DESIGNATED RECIPIENT NAMED ABOVE. The information contained in this message may be privileged, confidential and/or otherwise protected from disclosure by law. If the reader of this message is not the intended recipient, you are hereby notified that you have received this communication in error, and that any review, dissemination, distribution, copying of the message or the taking of any action on reliance on this communication is strictly prohibited. If you have received this transmission in error, please notify us immediately by responsive e-mail or by telephone at the number shown above.
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From: Debbie Vollstedt
To: Christopher Callihan
Subject: Proposed Rent Stabilization Ordinance
Date: Sunday, August 11, 2024 10:26:03 PM
Attachments: We are a family of five sisters_Edit.pdf
Dear Mr. Callihan
Please find below our letter regarding the Proposed Rent Stabilization Ordinance.
Thank you,
Debbie D. Vollstedt
I attended the meeting on August 1, 2024 regarding the proposed rent stabilization ordinance and I have some questions. I have only had time to review the Rental Ordinance and power point presentation but because of your time deadline that you stated at the meeting, I thought I should get this off to you as soon as possible.
1. Why were the landlords not notified that rent control meetings have been happening? Is that even legal? We have signed up for the rental registry with our email addresses, so why has there not been a mass notice sent out? Considering that we have to pay for this registry it seems that we should have been notified. It feels like the landlords have been kept in the dark during this process.
2. The power point presentation states on page 2 that “The following residential units are EXEMPT:
Single-family, condominium, Multifamily dwelling built after 2/1/95 and Newly constructed dwellings.” I do not see where it states that in the actual ordinance. What if the front units were built before 1995 and an ADU has been constructed in the back, how is it determined if all or part of the units are exempt? It needs to be stated clearly and not left up to interpretation.
3. Page 2 of power point-Could you explain what the following means? “Remodeled residential units converted from space long dedicated to residential”
4. Page 3 of power point– Regarding the initiative on the Nov 2024 ballot – If the exempt units in question 2 above are not clearly stated in the ordinance, then if the ballot passes does that mean it will apply to all rentals. For instance, Single family residences are then subject to rent control?
5. Page 3 of power point– Regarding the initiative on the Nov 2024 ballot- Where on the ordinance does it clearly state that after a vacancy, the units can be brought back up to a market rate?
6. Page 23 of power point – If Salinas chooses “minimum enforcement” that would mean that we hire 3.2 staff for a total of $621,404. That means each staff member will be making almost $200,000. I heard many people from the renters association shouting at the meeting that the landlords are “greedy”, I wonder if they realized that the new staff salaries will be $200,000.
7. It is sad that EPS had to bring “race” into their PowerPoint presentation multiple times. Salinas is a mixed culture with people of all races being renters, landlords and home owners. It shouldn’t have been part of the presentation. We are trying to solve sky rocketing rents, which should be unrelated to the color of your skin, not create more division.
8. Why did EPS change their original suggestion of “2.5% to 3%” to “2.5% to 2.75%”?
9. If I sell my property-does the new owner inherit the current tenants at the current rents? Assuming that they do, if I have kept my rents low I will be penalized because my property value is diminished.
10. Will our property taxes go down since our values are considered devalued? (EPS PPT page 5)
11. According to the online US Inflation Calculator, the current rate of inflation is 3%, last year was
3.4%, 2022 was 8%, 2021 was 4.7% and 2020 was 1.23%. That would make the average inflation rate for the last 5 years at 4.07%. So, with the current recommendation of 2.5 – 2.75%, the landlords are not even able to keep up with inflation.
12. Page 4 of the Ordinance- Sec 17-02.04a and also Sec 17-02.05 “may not exceed the lesser of ___% or ___%” Why would that show as a range?
13. Page 5 of the Ordinance – Could you clarify Sec. 17-02-04 (b) “A landlord has no duty to refund otherwise lawful rent received prior to effective date… in excess of the amount authorized by this section”?
14. If the tenant was charged 3% on January 1,2024, how will the landlord refund the extra 1%? Is it only if the tenant requests it? Will it be done as a refund or applied to the next month rent?
15. How is the refund calculated if there was no rent increase in the prior year 2023? We often only raise our rents every 1-3 years. For instance, in year 1 we did not do an increase and in year 2 we did a 4% increase. That would mean that we are being penalized because we have tried to keep the costs down for the tenant. Is it possible to not make it retroactive or to average the 2023 & 2024?
16. Page 5 – Reasonable Rate of Return: Who determines what is a “just and reasonable return on the property”? This is a business; do you plan to control what the ag companies and the grocery stores and other business can earn as a “reasonable return.” So if I feel that I am not receiving a fair and reasonable return on my investments than I can petition the City, but ultimately the City can determine if I have made the correct amount of money. If I choose to take the risk to purchase property and have a tenant live in it, why am I subject to this rule? If the reverse is happening and I am not making a “reasonable return” will the city compensate me for my poor judgement? Of course it won’t.
17. Page 7 -a-(4) This states that the landlord has to provide a financial statement to the City and “verified” financial data. That means an additional cost to the landlord to have an accountant produce and verify such information. The City shouldn’t be responsible to determine what is verified or accurate or exorbitant. Do other businesses in town have to produce their financial information just to operate in this city? This will make people not want to do business in this town. Which will ultimately lead to less landlords and rentals.
18. Page 7 -a-(5): Why is the landlord responsible for “all costs associated with the city’s review”, but the tenant is not responsible for the costs of their review? This seems very unequitable to the landlord. Who will pay for the review of the tenant? Since the landlord will be paying fees for this program, I think it could be interpreted that the landlord is ultimately paying for the tenant’s review. Is that legal to have a biased, one-sided charge?
19. Page 7 -b-(3) If there is a larger than normal increase in the property taxes one year, will there be an automatic increase in what we can charge for rent that year, or does each individual landlord have to petition for a change and each landlord then will have to pay for a review. Some examples would be: Prop 13 to be recalled or if there were to be a special assessment.
20. Page 10 - 17-02.12 (c) Since this ordinance is written in legalese and most landlords do not speak that language, it seems that there should be a warning issued before they are sent to prison for up to 6 months. Maybe a warning and then a fine?
21. Will there be a free “help line” that is available to both the tenants and the landlord that could interpret the legalese when it is needed?
22. If it becomes necessary to hire a lawyer to help interpret, can the City impose a restriction on the rates that the lawyer charges, since the landlord will have price restrictions, it seems only fair that the lawyers would also have price restrictions.
23. Page 11-Rent Program Fee – Does this new fee replace the “rental registry fee” or is it an additional fee? Is it possible to combine the “rent program fee” and the “rental registry fee” and the “city business license fee needed for over 4 units”? It seems that “one” fee would be easier to track and would require less bookkeeping on both the city and the landlords.
24. Page 11- Implementation – Am I understanding that each time there is a rent increase that the landlord will be responsible to send the same informational materials that the tenant would have received when they signed the lease? This seems like a waste of paper and extra postage and the time to print and send.
Additional questions:
25. I would be curious to know if when the Costa-Hawkins policy was adapted with a 5% cap, did it help to stabilize the rents? If it didn’t, then how do you figure that a lesser % cap is going to be the answer? If it did help to stabilize, then did it help enough that we need to do an even greater cap? Or has no one even looked at the effect it has had in our city.
26. Who enforces the current Costa-Hawkins policy? Maybe our City should start with using the rental registry fees to hire someone to enforce what we already have, instead of trying to impose stricter rules that ultimately won’t help the tenant or the landlord.
27. How is the current rental registry being enforced? Have all the landlords registered? If the current registry is ineffective than how can we expect a more restrictive program to work?
28. Will it be on future agendas to place limits on the amount of money that the lawyers, property managers, insurance companies, handyman services, plumbers, gardeners etc. can charge for their services? Will you also limit the utilities services and the price of lumber and supplies? It only seems fair that if you are limiting one business’ profits, that you should limit all of them.
Why would anyone in the future ever want to be a landlord to have it regulated by our city?
29. When a tenant’s lease expires, is the landlord obligated to renew their lease?
30. Why does Housing Authority provide such an expensive voucher for their select clients? In my opinion, that is one of the driving forces of rentals in this county. If someone is willing to pay it, then why wouldn’t the landlord charge that amount?
31. Why doesn’t Housing Authority put a limit on the amount of time that a tenant can use their program? I have had tenants who have been on the program for over 10 years. The tenants seem to work for awhile and then when Housing Authority reevaluates their fees, they decide to quit their job. It seems that it would be fairer to limit the tenants to 3- 5 years which would be enough time to go to school and get a job. Then more people would be able to get assistance to pay for housing. The able-bodied tenants that are on the program for so long are taking funds away from other people that need assistance.
32. It seems that this program will have a negative affect on those that are not currently in the housing market. For instance, if a unit becomes empty, the landlord will have to offer it at a maximum amount to make up for what they have lost on the other units. This in turn will force a new tenant such as a young person who is starting out or someone that is moving into the area to pay a high amount. They would probably choose to live in a different city. This will not “improve the outlook for residents struggling to afford housing.” I feel that this ordinance has been rushed through and not enough thought put into it. The City lawyer stated at the meeting that he has had very little input emailed to him. That shows that the meetings have not been made public to the very people that it affects. It is imperative that all of the landlords and tenants be notified for input. Maybe there could be a flyer sent to all of the landlords about an upcoming meeting and the landlords could post it for the tenants or mail it to them. This ordinance is biased towards the tenants and will eventually eliminate the small apartment owner. In the past, I have increased rents every 2-3 years, but this ordinance will probably force me to increase rent at the maximum amounts each year or I will never be able to keep up with costs.
I look forward to receiving the answers/clarification on the above questions to help me better understand the proposed ordinance. I hope that this ordinance can be postponed until all involved parties can have an opportunity to voice any concerns. We all have the same goal in mind – to live and work to make Salinas a better city.
Thank you for your time,
Sandy Desmond
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From: SEH Property
To: [email protected]
Cc: [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected] Subject: Questions about proposed Rent Stabilization
Date: Friday, August 9, 2024 1:09:46 PM
Attachments: Questions about Ordinance.pdf
Hello,
Attached are questions I have about the proposed rent stabilization ordinance.
Thank you,
Sandy
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From: Robt. Fisher Fisher
To: Christopher Callihan
Subject: Re: City Resident- Upset about Rent Control Meeting Date: Wednesday, August 7, 2024 1:53:27 PM
Attachments: image002.png
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Thank You, by the way its not fair to have a meeting that involves the citizens who want to speak when you have Property Management & Lanlords present, i'm sure there would have been a better turn out, no one wants to say anything when Property Management is present in fear of retaliation.
On Wednesday, August 7, 2024 at 12:32:06 PM PDT, Christopher Callihan <[email protected]> wrote:
Thank you, Mr. Fisher, for your comments. I will be sure your comments are included with the information presented to the City Council.
Christopher A. Callihan, Esq.
City Attorney
City of Salinas
200 Lincoln Avenue
Salinas, CA 93901-2639
Telephone: (831) 758-7256 (main)
Telephone: (831) 758-7418 (direct)
Facsimile: (831) 758-7257
Email: [email protected]
PRIVILEGED & CONFIDENTIAL -- ATTORNEY CLIENT PRIVILEGE -- ATTORNEY WORK PRODUCT The information contained in this electronic transmission is legally privileged and confidential, and it is intended solely for the use of the individual or entity to whom it is addressed. If you are not the intended recipient, please take notice that any form of dissemination, distribution or photocopying of this electronic transmission is strictly prohibited. If you have received this transmission in error, please immediately contact Christopher A. Callihan at (831) 758-7256 or [email protected] and immediately delete the electronic transmission. Thank you.
From: Robt. Fisher Fisher <[email protected]>
Sent: Wednesday, August 7, 2024 12:02 PM
To: Christopher Callihan <[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.
Subject: Re: City Resident- Upset about Rent Control Meeting Hello Mr. Callihan, my name is Robert Fisher, we briefly spoke about the rent control in Salinas recently and you recommended me to go to the meeting that was held on Aug 1 2024 i did what a joke i can't believe how blind our city is, the problem is not the housing shortage in Salinas it is PROPERTY MANAGEMENT, a few years ago there were 4-5 Property Management Company's now there are over 50 Property Managements in Monterey Ca, why because when a lanlord goes into a contract with Property Management they only want so much for rent anything over that Property Management gets, for example i'm leasing a house here in south Salinas the lanlord only wants $1800.00 our Property Management charges us $2600.00 so our Property Management has between 750-800 Properties if thats the case where is there any kind of rent control, this why there are so many Property Managements the city is not going to go after them because of the revenue they bring in, its not the lanlords its PROPERTY, MANAGEMENT, when you build more homes Property Management gets there hands on them forget it, you are going to have the same problems, Property Management are the ones controlling the rent, not the lanlords the City needs to control Property Management which i don't see it going to happen. As long as we have Property Management we will never have rent control if you wish to talk to me 831-596-2433 Thank You
On Tuesday, May 21, 2024 at 03:41:48 PM PDT, Christopher Callihan <[email protected]> wrote:
Good afternoon, Mr. Fisher.
I received the below message regarding a meeting which occurred yesterday. Please feel free to call me when you have some time: 831.758.7418.
Thank you.
Christopher A. Callihan, Esq.
City Attorney
City of Salinas
200 Lincoln Avenue
Salinas, CA 93901-2639
Telephone: (831) 758-7256 (main)
Telephone: (831) 758-7418 (direct)
Facsimile: (831) 758-7257
Email: [email protected]
PRIVILEGED & CONFIDENTIAL -- ATTORNEY CLIENT PRIVILEGE -- ATTORNEY WORK PRODUCT The information contained in this electronic transmission is legally privileged and confidential, and it is intended solely for the use of the individual or entity to whom it is addressed. If you are not the intended recipient, please take notice that any form of dissemination, distribution or photocopying of this electronic transmission is strictly prohibited. If you have received this transmission in error, please immediately contact Christopher A. Callihan at (831) 758-7256 or [email protected] and immediately delete the electronic transmission. Thank you.
From: Hazel Jovel-Cruz <[email protected]>
Sent: Tuesday, May 21, 2024 3:39 PM
To: Christopher Callihan <[email protected]>; Kimbley Craig <[email protected]> Subject: City Resident- Upset about Rent Control Meeting Hello,
Robert Fisher, a city resident, stopped by a few minutes ago. He wanted to meet with the both of you regarding yesterday’s meeting on rent control. He briefly mentioned why he was upset so I told him I could take his contact information and would let you both know.
His phone number is 831-596-2433 and his email [email protected].
Thank you.
Hazel Jovel
Human Resources Technician
Human Resources Department
200 Lincoln Avenue, Salinas, California 93901
[email protected]
P: (831) 758-7255
Virus-free.www.avg.com
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From: Robt. Fisher Fisher
To: Christopher Callihan
Subject: Re: City Resident- Upset about Rent Control Meeting Date: Wednesday, August 7, 2024 12:02:43 PM
Attachments: image006.png
image005.png
image004.png
image003.png
image002.png
Hello Mr. Callihan, my name is Robert Fisher, we briefly spoke about the rent control in Salinas recently and you recommended me to go to the meeting that was held on Aug 1 2024 i did what a joke i can't believe how blind our city is, the problem is not the housing shortage in Salinas it is PROPERTY MANAGEMENT, a few years ago there were 4-5 Property Management Company's now there are over 50 Property Managements in Monterey Ca, why because when a lanlord goes into a contract with Property Management they only want so much for rent anything over that Property Management gets, for example i'm leasing a house here in south Salinas the lanlord only wants $1800.00 our Property Management charges us $2600.00 so our Property Management has between 750-800 Properties if thats the case where is there any kind of rent control, this why there are so many Property Managements the city is not going to go after them because of the revenue they bring in, its not the lanlords its PROPERTY, MANAGEMENT, when you build more homes Property Management gets there hands on them forget it, you are going to have the same problems, Property Management are the ones controlling the rent, not the lanlords the City needs to control Property Management which i don't see it going to happen. As long as we have Property Management we will never have rent control if you wish to talk to me 831-596-2433 Thank You
On Tuesday, May 21, 2024 at 03:41:48 PM PDT, Christopher Callihan <[email protected]> wrote:
Good afternoon, Mr. Fisher.
I received the below message regarding a meeting which occurred yesterday. Please feel free to call me when you have some time: 831.758.7418.
Thank you.
Christopher A. Callihan, Esq.
City Attorney
City of Salinas
200 Lincoln Avenue
Salinas, CA 93901-2639
Telephone: (831) 758-7256 (main)
Telephone: (831) 758-7418 (direct)
Facsimile: (831) 758-7257
Email: [email protected]
PRIVILEGED & CONFIDENTIAL -- ATTORNEY CLIENT PRIVILEGE -- ATTORNEY WORK PRODUCT The information contained in this electronic transmission is legally privileged and confidential, and it is intended solely for the use of the individual or entity to whom it is addressed. If you are not the intended recipient, please take notice that any form of dissemination, distribution or photocopying of this electronic transmission is strictly prohibited. If you have received this transmission in error, please immediately contact Christopher A. Callihan at (831) 758-7256 or [email protected] and immediately delete the electronic transmission. Thank you.
From: Hazel Jovel-Cruz <[email protected]>
Sent: Tuesday, May 21, 2024 3:39 PM
To: Christopher Callihan <[email protected]>; Kimbley Craig <[email protected]> Subject: City Resident- Upset about Rent Control Meeting Hello,
Robert Fisher, a city resident, stopped by a few minutes ago. He wanted to meet with the both of you regarding yesterday’s meeting on rent control. He briefly mentioned why he was upset so I told him I could take his contact information and would let you both know.
His phone number is 831-596-2433 and his email [email protected].
Thank you.
Hazel Jovel
Human Resources Technician
Human Resources Department
200 Lincoln Avenue, Salinas, California 93901
[email protected]
P: (831) 758-7255
Virus-free.www.avg.com
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From: Kylie S
To: [email protected]
Cc: [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]
Subject: Rent Stabilization Feedback
Date: Thursday, August 8, 2024 2:54:07 PM
Attachments: Rent Stabilization Feedback.pdf
Please see the attached letter for feedback on the proposed rent stabilization ordinance.
Thank you,
Kylie Sloan
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From: Jennifer Garcia
To: [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected] Cc: Audrey wardwell; Traci
Subject: Rent Stabilization Ordinanace
Date: Wednesday, April 10, 2024 9:52:30 AM
Hello City Leaders,
My name is Jennifer Garcia, owner of real estate properties in Salinas. While I no longer live in CA, I grew up in Salinas and continue to have business ties to the area. I understand the housing difficulties many tenants face, however, I want to voice my concerns about the current ordinance from an owner perspective. If the proposed ordinance takes affect, I will likely choose not to continue to invest in the Salinas community with additional property purchases and may likely phase out or sell my current properties. It is difficult currently to live out of state, pay increasing maintenance, utility and property management fees. We just put $100,000 of updates/upgrades to an existing property and appropriately needed to increase rental rates. If this ordinance had been in effect, I likely would not have been able to recoup my investment. This is a critical time for me as I evaluate which direction I will be investing in real estate in the future.
Please consider the importance of the collaboration between local leaders, tenants and landlords in making changes to the laws regarding rent stabilization in and around the Salinas valley. While this is no small task, the importance of discussion from all sides before making changes is vital to all groups.
I pride myself in taking care of our tenants with the help of an excellent property manager.
Maintenance, taxes, and brokerage fees are expensive and inflation continues to plague the industry. Please give landowners a reason to continue to invest in the Salinas area.
Open discussion and further information is crucial in planning any changes. Thank you for your time.
Sincerely,
Jennifer Garcia
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From: Maria Venturini
To: [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected] Subject: Rent Stabilization Ordinance Draft
Date: Monday, May 20, 2024 9:09:02 AM
Mr. Callahan:
Regarding the Housing and Land Use Committee April 30 Meeting, my prior email to committee members, Mayor and council members is included below.
The Rental Stabilization Ordinance Draft appears to be overwhelmingly partial to tenants, with little recourse for owners. For example, there are provisions protecting tenants who are disabled or over 65, yet there are no such provisions for owners who are disabled or over 65. I am retired, entering my most vulnerable years, and very much concerned about the discriminatory tone in the draft against owners in general.
There are no projections in the draft for a possible future pandemic or housing emergency.
During the COVID-19 pandemic, landlords received only 80 percent of any unpaid rent owed through the Emergency Rental Assistance Program and an Eviction Moratorium was in place. What do you project the impacts on landlords to be if rents were allowed to increase only well below CPI and then be combined with an additional 20% decrease for a housing emergency?
There are no postings for the Technical Advisory Committee. The general view among economists is that rent regulation has many negative and market-distorting side effects such as misallocation, rental housing shortage and under maintenance. Whom have you contacted for technical expertise and guidance related to various aspects of the Rental Stabilization Ordinance Draft? What is the Technical Advisory Committee and who are its members? There is little information on how the draft was produced, yet it is being rushed through without adequate background documentation.
I urge you to slow down and please provide a more balanced approach for both tenants and owners in the consideration of a Rental Stabilization Ordinance.
Regards,
Maria Venturini
Subject: Housing and Land Use Committe April 30 Meeting Councilmembers and Mayor:
I am the retired owner of a Salinas duplex, currently occupied by tenants. I am extremely concerned regarding a Salinas Rent Stabilization Ordinance which could negatively impact me.
I have invested in this property in order to supplement my retirement income. This charming South Salinas duplex is old and requires frequent and often costly maintenance. The cost of a sewer line replacement or a new roof are in the tens of thousands. Appliances, with the cost of inflation, have nearly doubled in the last few years.
This is my only rental property. I have been a fair landlord and increased rents modestly and below the allowed California rent control limits. I even pay for the ever-increasing charge for sewer service. However, in order to properly maintain the property, should a large repair be needed, it might become necessary to increase the rent to the maximum currently allowed by California rent control.
I also have to deal with my own increased food, medical, housing, transportation and utility costs. I was hoping, when I could no longer make the stairs in my current home, to move into one of my duplex units, to live out my remaining years. Instead, I may have to sell the duplex, if Salinas Rent Stabilizations laws are unreasonable for landlords.
Small landlords, like me, should be exempt from any Salinas Rent Stabilization laws. The City of Monterey exempts owners of 3 or fewer units from their recently established rental registration requirements.
As a council member, you are one of the “Elders” of the community. Elders have the wisdom, experience and insight to understand the historic implications of rent stabilization laws in other communities and the long-term negative impacts they have had for tenants, as well as landlords. Rental units have often been withdrawn from the market, available only as furnished vacation rentals (AirBnB).
I am unable to Zoom or attend the April 30 Housing and Land Use Committee Meeting.
Regards,
Maria Venturini
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From: Alex Li
To: [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected] Subject: Rent Stabilization Ordinance will Hurt our Community Date: Tuesday, May 7, 2024 4:38:57 PM
Hi Council Members,
I am a landlord in Salinas and have concerns over this new Rent Stabilization Ordinance.
Here are 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.
Thank you,
-Alex Li
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From: [email protected]
To: [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; Audrey Wardwell
Subject: Rent stabilization
Date: Wednesday, April 10, 2024 4:01:59 AM
Dear leaders,
Please consider the importance of the collaboration between local leaders, tenants and landlords in making changes to the laws regarding rent stabilization in and around the Salinas valley. While this is no small task, the importance of discussion from all sides before making changes is vital to all groups.
As a landlord in Salinas, I pride myself in taking care of our tenants with the help of an excellent property manager. Maintenance, taxes, and brokerage fees are expensive and inflation continues to plague the industry.
Open discussion and further information is crucial in planning any changes.
Thank you for your time.
Sincerely,
Traci Denely
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From: Gloria Moore
To: "Anthony Rocha"; "Andrew Sandoval"; "Olando Orsonio" Cc: "Christopher Callihan"; "Lisa Brinton"
Subject: Residential Rent Stabilization and Tenant Protection & Just Cause Eviction and Tenant Protection Date: Monday, August 12, 2024 3:03:43 PM
Importance: High
HLUC Members:
Regarding the total housing crisis which includes both selling prices and rents, I cannot deny that the housing market here in Salinas struggles to find solutions that do not cause unintended consequences. When local, county, state, and federal governments do not make housing the top priority, housing supplies tend to languish under excessive regulations that escalate land costs, increase fees, and discourage investments. Lacking long-term funding for affordable housing, costs for new market-rate housing will only increase. Inflation drives the costs of labor, materials, and services into an upward spiral. These factors certainly force pressures on existing housing inventory.
Remember when local planning was based on a jobs/housing balance? What happened?
Now every community is attempting to find that balance within their scope of governance with smoke and mirrors. Starting with rent control which did supply some relief, governing bodies now reach for solutions through rent stabilization and tenant protections.
Driving-out small landlords who tend to live within our communities opens the rental market to larger real estate investors who expect larger bottom-line profits. Large Real Estate investors may have no connection with local communities and are then shielded from local scrutiny.Small landlords tend to favor less tenant turnover and understand the value of their tenants.
Now, I will focus my comments on the contents of the proposed Rent Stabilization and Tenant Protection Ordinance:
Sec. 17-02.03. Definitions. Add “Hearing Officer” Is this to be a particular staff person or a recognized representative with qualifications? This position will require demonstrated knowledge and experience in local markets and projected rates of return.
Sec. 17-02.05. Reasonable Rate of Return. …and discourage the flight of capital, as well as to be commensurate with return on comparable investments. What constitutes a comparable investment?
Sec. 17-02.04. Limit on Rental Rate Increases.
Increases in rent on residential real property controlled rental units in the city may not exceed the lesser of 10 % or 5% plus of the most recent 12-month increase in the Consumer Price Index in the San Franisco/Oakland/Hayward Area published by the Bureau of Labor Statics. Only one rent increase in any 12 month is permitted.
A reduction in Housing Services is an increase in rent.
Sec.17-02.05. Reasonable Rate of Return.
This Rent Stabilization Ordinance allows for an annual adjustment of residential real property controlled rental units rent of up to the lesser of 10% or 5% plus of the most recent 12-month increase in the CPI for San Fransico/Oakland/Hayward Area published by the Bureau of Labor Statistics, pursuant to Sea. 17-02.04.
Sec.17-02.08. Petition for Pass through for Specified Capital Improvements. The City Council may adopt reasonable rules and regulations to govern Capital Improvement Standards and applications under this Section. Question: When and How. Will there be opportunity for public input?
Sed. 17-02.12 Violations; Remedies.
(b) Who is the trier of fact? Is this a judge or . . .? Sec. 17-02.13 Rent Program Fee.
. . . Landlords subject to this rent Stabilizatiom Ordinance shall register all Controlled Rental Units 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. NOTE: Residential Rental Registry only restricts Landlord from passing through any penalties. Does this mean that units exempted by Article IIA will not be subject to the Rent program fee? SECTION 3. Publication. I suggest that the adopted ordinance be published on City’s webpage for 30 days since there is NO newspaper published and circulated in Salinas readily available in English and Spanish.
SECTION 1. Article IIB. Just Cause Eviction and Tentant Protection.
Sec.17-02-54 (b) (1) (C) The notice . . . . . . . . .. is offered again for rent or lease for residential purposes within five three years of the date . . . . .. NOTE: Three years is workable – five years less so.
Thank you for your attention.
Gloria J. Moore
Original TAC Member
To whom it may concern,
We object to the rent stabilization ordinance that the City of Salinas is attempting to implement.
The current homeowners who rent out their properties have worked long and hard to achieve what we currently have. However, this ordinance will likely cause many issues regarding costs and investment for the foreseeable future. Maintaining property costs such as insurance, utilities bills, labor, materials, and others have risen greatly due to inflation since the pandemic. As things stand now, it is already difficult for homeowners to provide safe, decent, and affordable housing with the current rent increase limit set by the State of California. House providers will be left with minimal to no reasonable return of investment which will result in our ability to provide and maintain good housing becoming extremely limited. Not to mention the rising costs for properly maintaining the properties such as material costs for repairs or additions as well as labor costs for the people that actually do the work.
Additionally, the potential for real estate within the City of Salinas will likely drop as development of housing will simply no longer be worth investing in. Investors will be unlikely to continue investing into the real estate of Salinas and the overall value will drop in large quantities. Thus, the communities’ economy will be severely impacted and likely drive people, being both tenants and homeowners, to leave the City of Salinas. The result will cause Salinas to become what is known as a dead city.
We as homeowners and taxpayers strongly advocate for the city of Salinas to NOT allow the rent stabilization ordinance to pass.
Sincerely,
Amanda Liang and Guo Xin Lei
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From: Hardenstein, Arleen
To: [email protected]; [email protected]; [email protected]; [email protected] Subject: Salinas Housing & Land Use Committee - Letter in opposition to Rent Stabilization Date: Tuesday, March 26, 2024 2:13:47 PM
Dear Members of the Salinas Housing and Land Use Committee, I am writing to express my opposition to the proposed rent stabilization measures currently under
consideration by the committee. While I share the concern and sympathy for renters facing housing challenges in our city, I firmly believe that rent stabilization is not the most effective solution to address these issues.
Firstly, I would like to acknowledge the difficult circumstances many renters in Salinas are facing. Housing affordability is undoubtedly a critical issue that needs to be tackled urgently.
However, implementing rent stabilization measures may not yield the desired outcomes and could potentially have adverse effects on both renters and property owners.
I urge the City of Salinas to prioritize hosting more public meetings and town halls to facilitate open dialogue and collaboration among stakeholders. This approach would allow for a comprehensive understanding of the challenges faced by both renters and property owners, leading to more effective and equitable solutions.
Through my interactions with numerous property owners in Salinas, I have come to understand
their concerns regarding stricter rent control measures. Many property owners have expressed that they would consider selling their properties if the city implements rent stabilization measures more stringent than those already in place at the state level. This could exacerbate the
housing crisis by reducing the available rental housing stock, ultimately impacting renters negatively.
It is crucial to find a balanced approach that addresses the needs of renters while also considering
the concerns of property owners. I believe that fostering constructive dialogue and exploring alternative solutions, such as incentivizing affordable housing development and improving tenant
protections within the existing legal framework, would be more beneficial in the long run.
In conclusion, I respectfully request the committee to reconsider the implementation of rent stabilization measures and instead focus on fostering collaboration and exploring innovative solutions to address housing affordability in Salinas.
Thank you for considering my perspective on this important matter.
Sincerely,
Arleen Hardenstein
Arleen Hardenstein CRS, SRES, GRI, PSA
Sales Associate | Canning Properties Group
DRE# 01710953 | 831.915.8989 | CanningProperties.com
#1 Team Nationally Among Sotheby’s Teams
Realtor of the Year, MCAR 2019
Director, CA Association of Realtors - 2012 to date
*Wire Fraud is Real*. Before wiring any money, call the intended recipient at a number you know is valid to confirm the instructions. Additionally, please note that the sender does not have authority to bind a party to a real estate contract via written or verbal communication.
To: Salinas Housing and Land Use Committee
RE: Rent Stabilization Ordinance
Date: March 26, 2024
Our country’s system is that of a free market economy, allowing the basic principle of supply and demand to set prices on goods and services. This fundamental principle also applies to housing, which is a commodity. It is NOT a human right, a housing law, or enshrined in our Constitution. Imposing rent control is yet another example of government overreach and intervention, immediate gratification with long term unintended consequences. The City of Mountain View implemented rent control in 2016. Its rent prices are the highest in the Bay Area, surpassing San Francisco and up 15% from last year.
Landlords are housing providers, not charitable organizations. Landlords strive to retain good tenants, and most increase rents at a minimal level if at all. Rent control clearly punishes the landlords who look out for the good tenants, while benefiting bad tenants. Rent control encourages abuse of certain rights provided to tenants after they’ve committed property damage and lease violations. These tenant rights you want to implement offers them peace of mind and freedom from any fears of accountability and consequences.
Is your goal to remove rental properties off the market while the city builds more affordable housing units? New housing units take time to construct. In the meantime, removal of rental properties by landlords will absolutely result in the gradual decrease of housing supply. There are countless examples where this has already occurred.
Your short-sightedness on rent control and expanded tenant protections will ultimately and negatively harm the residents you seek to protect. Vilifying landlords is foolish and counterproductive policy. I advise you to be prepared to deal with the unintended consequences in the years ahead if this ordinance is approved and implemented.
Karen Hillson
Landlord
To: Salinas Housing and Land Use Committee
RE: Proposed Rent Stabilization Ordinance
Date: March 26, 2024
I am writing as a concerned citizen of Monterey County about reversal of the rental registry/rent stabilization/rent control ordinances being proposed and imposed by the Cities of Salinas and Monterey. I do not own rental property and I am not a property manager. However, I have logged 45 years as an adult renter. In fact, I was happily renting for 8 years in the location of my employer until the City of Alameda imposed both, rental registry and rent stabilization/control ordinances. The following year my landlord handed me a lease termination and immediately removed his property from the rental market—forever. Alameda lost 1,500 rental units in the first year of imposing the ordinance and that number did not count units like mine—those that were never accounted for because they were removed permanently from the market before they were swallowed by City’s the imposed regulatory scheme. I have already witnessed the same happening to my friends and neighbors here, thanks to these two Cities’ recent ordinances.
As a marine biologist by profession, the interconnectedness of the natural world is undeniable. I find that use of marine-related analogies sometimes break through the noise and clutter of contentious topics like this one. In that vein, think of a human-made seawall and how a well-intentioned idea concretely implemented can have more harmful unintended consequences than were foreseen.
We have to look no further than our backyard at the seawalls in front of the Tides Inn hotel and the Ocean Harbor House condos on Del Monte Beach. While the seawall structures do as intended – they protect the buildings they were built in front of – they also cause beach loss directly in front of the seawall and they cause increased erosion in adjacent areas of the beach that do not have seawalls. This phenomenon is caused “flanking erosion” and it takes place at the ends and each side of seawalls. Let that term “flanking erosion” sink in for a minute and you will understand why myself and so many are concerned, vocal and adamantly oppose the hard structure of rent control. It will not only cause direct loss of rentals in THAT city’s market, but it will also impact adjacent areas, even if those areas do not implement rent control.
In the face of overwhelming opposition, the City of Salinas passed a rental registry less than one year ago and mandated registration no later than September 30, 2023. My understanding was that the City of Salinas would not undertake the possibility of rent stabilization/rent control discussion until at least one and one-half years AFTER the rental registry data was collected and complete, so as to have a firm grip on the data collected.
Here we are now, just six months post-registration deadline, with little compliance and only a miniscule fraction of the rentals registered. In fact, the registration is so lacking that the City took $153,000 from the general fund to cover the dismal program compliance. As the matter of fact, per a recent public record request, 6 months after their registration deadline, the city of Salinas has only 1,557 rentals registered as of earlier this month:
Also in early March, KSBW reported a similar story for the City of Monterey’s mirror rental registry effort revealing poor compliance (KSBW reported that 591 had filed; 70% (414) of those were exempt/non-paying. In doing the math that translates to 177 registrants at $50 each = $8,850 of revenue collected to cover this supposedly self-sustaining program’s staff, software and expenses.) It should also be noted that the City of Monterey continues to follow in Salinas’s footsteps having recently, similarly, taken $250,000 from the general fund to cover their touted “selfsustaining, stand-alone” program.
Considering the City of Salinas has a population 5.5 times the size of the City of Monterey and exponentially more rentals, this overwhelming lack of participation in Monterey County’s two Rental Registry programs does not bode well for either City’s General Fund budgets, nor the renters in these cities.
In closing, I ask that you please look at the instances and outcomes of rent control ordinances as occurred in Seattle and our neighboring Santa Barbara, for example. I have included hyperlinks in sentences below for your convenience.
Seattle City Council passed at least 5 new rental laws in 2020, and subsequently lost 3,400 properties totaling 11,500 rental units by 2021. Last year (2023), they reversed course and did not adopt rent control.
Santa Barbara City Council listened to its community’s opposition, the wisdom of economists and did NOT pass rent control. Instead, they opted for a task force to study it and come up with housing solutions—one of which was just passed late last year.
Learn from these City Council members’ decisions, why they reversed course and opted out. Listen to renters and property owners alike and citizens like myself who actually lived through this as renters, were handed a lease terminations because owners remove their rentals from the market upon imposing regulatory registry and rental ordinances and ultimately had to move two or more hours away from where we work.
Please seriously consider the basic economics of supply and demand as well as the data supporting the fact that these kinds of ordinances help no one – not renters, not property owners, not the health nor viability of a community.
Lastly, there was a very good housing crisis piece on NPR yesterday, March 25, 2024 which covered some good points applicable across the nation. I highly recommend listening. https://www.wbur.org/hereandnow/2024/03/25/housing-crisis-austin-texas Thank you for your time and consideration of my comments.
Sincerely,
Lori Mazzuca
Monterey County Resident
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From: Zarine Dorabji
To: [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected] Cc: Audrey Wardell
Subject: Testimony: Housing and Land Use April 30 Meeting Date: Monday, April 29, 2024 5:44:17 PM
Importance: High
Dear Council Members,
Please take my written testimony into consideration as you deliberate the Rent Stabilization Law. I thank you kindly.
Sincerely,
Zarine Dorabji
Owner, Duplex on Eisenhower St., Salinas
Please Consider:
Rental property owners are a very diverse group. A blanket Rent Stabilization Law may unintentionally harm a substantial amount of owners. I am a self-employed, single mom with two chronic illnesses and a disability. I am also the owner of a Salinas duplex, currently occupied by tenants. My ability to earn an income as an employee in a post-Covid economy has completely and irreversibly changed. I have grave concern regarding a Salinas Rent Stabilization law which could negatively impact me. I rely heavily on this property as a source of income to provide for myself and my child.
Property owner expenses are not capped and come from rental income; this will not remain sustainable if this law passes. Fencing repairs, roofing replacements, aging electrical and plumbing systems, exterior painting, landscaping, appliance replacements, outdated sewer systems, and skyrocketing INSURANCE are all front of mind! tThe escalating costs have no end in sight.
Providing a legal, safe, clean, updated, and properly managed rental property is a costly and risky endeavor. It requires knowledgeable oversight, expensive maintenance, extraordinary replacement costs, and a potential to incur substantial legal expenses. Reserves are a necessity for property owners, so that they may account for potential tenant vandalism, evictions, and attorney fees. This is in ADDITION to the other costs of ownership! Rental income must have the ability to cover the expenses of a mortgage, taxes, insurance, management, and maintenance. Rental income must also be in excess of expenses so that a cash reserve for property costs can be sustained.
The Impact of this law on property owners must be mitigated by replacing the 2% cap to a rate that is tied to the current inflation index. This adjustment is mandatory, if property owners are to have the means to pay for providing safe, legal and affordable rental housing.
The current housing market does not favor first-time buyers or homeowners, and this trend may continue a long way into the future. Inflations remains exceedingly high, interest rates are unaffordable, and housing supply remains very tight. Many property owners have very low interest rates, and are unable to sell their property and afford a new one. This is placing a substantial amount of pressure on the supply of available real estate. Rental property owners provide an important housing alternative to families who are not able to purchase their own home. Salinas renters deserve to have rental property that is properly maintained, managed, and cared for. This will not be possible if the amount of expenses exceeds the amount of rental income as the years go by.
The tenants will ultimately bear the result of cost-cutting measures implemented by property owners if this legislation passes. Tenants will be forced to reside in poorly kept, substandard housing, if property owners must resort to cutting costs. Owners will do this by eliminating property managers, deferring maintenance (except for the bare health and safety requirements), and by not investing in any substantial repairs - much less any capital improvements to keep the property pleasant and competitive. In many cases, owners may be forced to sell, further reducing the available supply of rental housing.
Property owners also have to deal with the excruciating impact of inflation. Absolutely, I have been feeling the crush of my own increased food, medical, housing, transportation and utility costs. I simply cannot afford to add to these expenses in the event that Salinas Rent Stabilizations laws become untenable for landlords.
Small landlords, like me, should be exempt from any Salinas Rent Stabilization laws. The City of Monterey exempts owners of 3 or fewer units from their recently-established rental registration requirements. I have been a fair landlord, I maintain the property, and I pride myself on providing renters with a safe, affordable, updated, and pleasant place to live for themselves and their families. The proposed legislation - as currently written - is going to prevent my ability to continue providing this standard of housing for residents of Salinas.
As I reside out of state, I am unable to Zoom for the duration of the meeting, or attend the April 30 Housing and Land Use Committee Meeting.
From: Mickel Construction
To: [email protected]
Subject: Tuesday, March 26, at 3:30pm Salinas Housing and Land Use Committee Date: Friday, March 15, 2024 2:37:03 PM
Hello Councilmembers,
I am a resident of Monterey County and I am a renter. I oppose rent stabilization/rent control for the following reasons:
1. Because of data showing how such measures in other cities (Seattle, San Francisco) have negatively impacted availability of quality places to live in those cities
2. Because of the data showing how such measures significantly decreased the number of small mom and pop landlords, who are a vital part of our communities as individuals and small businesses who have dedicated their livelihood to providing housing in the community
3. In my experience as a renter, the owner-operated properties provide a superior quality of housing and service, and maintain a more personal and fair tenant relationship, and having less of these rentals provided by "small" owners negatively impacts renters
4. I have rented several places in Berkeley CA years ago and can attest to how degraded, overpriced and unsafe the rentals were due to the hardship that such regulations put on the building owners
5. The cost of maintaining buildings has increased exponentially since that time and this will lead to even further deferred maintenance if owners can even continue to afford to make ends meet to cover costs, which I fear will lead to out-of-town wealthy developers buying out buildings, from which residents will not be able to afford to rent, while at the same time taking away business opportunities for local residents to be property owners who can provide the essential service of housing
The data is clear that rent control hurts both property owners and renters, and it hurts our communities. Let us not follow in the footsteps of the cities who had to find out the hard way and did irreversible damage to their rental markets.
Please consider this and do not begin rent stabilization in our beautiful community of Monterey County where we all deserve to prosper. Thank you for your consideration.
Sincerely,
Mallory Mickel
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From: Constantine Georgalos
To: [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected]; [email protected] Cc: Michelle georgalos
Subject: Vote no on further rent controls & regulations Date: Thursday, May 2, 2024 8:23:50 PM
I am reaching out to you regarding the Rent Stabilization Ordinance currently under consideration by the City of Salinas. This ordinance proposes significant changes that could have detrimental effects on landlords and the housing market as a whole. As such Tenants will also be adversely affected.
While rent control appears to help tenants in the short term, in the long term it decreases affordability, fuels gentrification, and creates negative affects on surrounding neighborhoods. Below I have listed 5 potential negatives affects which will impact the Tenant, Owner, & the City of Salinas.
As a current owner of a 4 unit Apartment building in south Salinas all the units are rented at below market value. Any further controls and regulations will only increase the burden associated with Ownership and will only lead to an increase in rental fees.
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 by other cities.
I firmly oppose the Rent Stabilization Ordinance which is being proposed. I will be attending the City Council meeting to voice my concerns. It will be interesting to see how the City Council members decide to vote on this issue.
Constantine Georgalos
411 Katherine Ave
Salinas, Ca.
We are a family of five sisters, born and raised in the Salinas Valley and it is home to us. Our properties, two smaller apartment complexes in Salinas, have been in our family for well over 50 years. Our father purchased these properties because he loved Salinas, and it was a way to invest in his community and his future retirement. Our father took care of these properties like they were his own home, and he instilled these values in us. We inherited these properties upon our father’s death and instead of selling them and taking the money we chose to continue with his legacy.
We are very concerned about the effects your proposed rent stabilization ordinance will have on our ability to provide the high standard we have maintained all these years for our properties which, in turn, directly benefits our tenants.
Older complexes, like ours, are costly to maintain, requiring constant work and capital improvements. Over the last ten to fifteen years alone we have invested hundreds of thousands of dollars in improvements in each of these properties with plans to continue doing so. Some of these improvements include roof replacements, window and slider replacements, complete exterior painting with new front doors and exterior lighting, landscaping and courtyard renovations, driveway replacements, and patio fencing replacements. Many of these replacements, along with the modernizing of our units with new flooring, appliances, light fixtures, and onsite laundry room facilities are upgraded to more energy efficient items.
As we have all experienced, the cost for just about everything has increased.
With these rising costs and your proposal, which will decrease rents, it will become impossible for us to continue to care for our properties and tenants as we always have. Many costs are out of our control. For example, it is incredibly challenging to obtain property insurance coverage. Should one be fortunate enough to obtain insurance, the cost has dramatically increased, even without a claim. Older properties like ours can also be faced with updating electrical, plumbing and heating systems to obtain insurance—which will cost several hundred thousand dollars more.
As property owners we pay for a number of utilities such as garbage, water, sewer, and common area lighting, the costs of which continue to rise year after year.
The proposed ordinance makes it very difficult for us to prudently and judiciously build reserves over several years so that we can be ready for both unexpected repairs and massive capital improvement outlays, without having to seek uncertain approval by the City to carry out this integral part of responsible property ownership.
We are already heavily regulated by the State of California from wage requirements for onsite managers, to health and safety inspections and compliance, to the City’s own Rental Registry program. The proposed Rent Stabilization Ordinance is not the first, but an additional layer of burdensome regulatory requirements.
In closing, we cannot stress the impact that your proposal will have on older properties such as ours. The increase in expenses, which are out of the owner’s control, and the proposed decrease in revenue, which would also be out of the owner’s control, will change how we can take care of our properties and will directly affect the quality we provide our tenants. Like our father, an investment in real estate, much like a job in our working years, allows us an income in our retirement. This is our livelihood. We chose over 30 years ago to continue with our father’s legacy but the risks versus the rewards today may sadly force us to reconsider. If that happens, we can only wonder if new owners will care for these tenants and properties to the same degree.
Sincerely,
Sandra D. Heath
Sally D. Eldredge
Diane D. Garren
Debbie D. Vollstedt
Molly D. Johnson
August 14, 2024
Via Email to City Clerk
Mayor Craig and Members of the City Council
City of Salinas City Hall
200 Lincoln St.
Salinas, CA 93901
RE: Rent Stabilization Ordinance
Dear Mayor Craig and Councilmembers:
This firm is providing comments on behalf of Kipling Manor LLC (“Kipling”), which owns and operates the Kipling Manor apartment complex at 82 Kip Drive that is generally located adjacent to North Salinas High School. This apartment complex was built in 1976 and would be subject to the proposed Rent Stabilization Ordinance (“Ordinance”). The owners have reviewed the proposed Ordinance and offer the below comments and concerns for the City Council’s consideration.
1. As this Council may already be aware, this owner and other apartment owners who would be affected by the proposed Ordinance are already subject to statewide protections against excessive rent increases and other tenant protections set forth in California Tenant Protection Act of 2019 (AB 1482) (“TPA”), which is a statewide law that went into effect on January 1, 2020. Under the TPA, a landlord may not increase rent by more than five percent plus the change in the cost of living (pursuant to the Consumer Price Index) or ten percent (10%) total, whichever is lower over any 12-month period. The TPA also provides that tenants can be evicted only for “just cause.” “Just cause” means certain specified situations, listed in Civil Code section 1946.2, where the tenant is at fault, such as nonpayment of rent or violation of a material term of their lease. “Just cause” also includes four specified “no fault” situations, all of which must meet the requirements of the TPA:
The property owner is withdrawing the unit from the rental market. The property owner or certain family members are moving into the unit. The property owner is demolishing or substantially remodeling the unit. The unit must be vacated to comply with a law or a court or government order.
Proposed Rent Stabilization Ordinance
The TPA also includes extensive regulations governing (i) a tenant eviction based on an owner move in, (ii) a tenant eviction based on demolition of substantial remodel, (iii) relocation assistance for no-fault evictions, and (iv) strict penalties for violating the rent cap and just cause eviction provisions of the TPA.
Based on these existing and extensive tenant protections, we question the need for a new set of largely duplicative, but more restrictive regulations. We would ask that the Council not adopt a new set of overlapping and more restrictive regulations that will only discourage and disincentivize property owners from investing in and improving these properties.
2. The crux of the City’s Rent Stabilization Ordinance is the proposed cap on rental rate increases, which is set forth in Section 17-02.04. However, the version of the Ordinance that is published on the City’s website (https://www.cityofsalinas.org/Residents/Community/HousingCommunity-Development/Housing-Policy-Initiatives) does not identify any proposed or recommended cap on rental rate increases. Accordingly, we cannot specifically comment on the appropriateness of the cap. Moreover, without knowing the proposed cap, it’s unclear how the City Council can make the specific finding and determination required in Section 17-02.05 that the cap amounts to a “reasonable rate of return” that will “encourage good management, reward efficiency, and discourage the flight of capital, as well as to be commensurate with returns on comparable investments” pursuant to Section 17-02.05 of the Ordinance. Prior to adopting any proposed Ordinance, the City Council should publish a complete Ordinance that includes the proposed cap so that interested parties and stakeholders have sufficient time to analyze and provide meaningful comments on the cap.
It appears based on the EPS power point presentation that the City may be contemplating a rent increase cap of (2.5%) to two and quarter percent (2.75%) cap or sixty-five percent (65%) or seventy-five percent (75%) of the Consumer Price Index, whichever is lower. However, what is missing from the EPS presentation on the recommended rent cap increase is any analysis of how such a nominal increase in rent meets the objectives set forth in Section 17-02.05 that are noted above. Moreover, the analysis does not account for the foreseeable and expected increase in annual insurance premiums, water fees, wastewater fees, trash disposal fees, maintenance and repairs, and many other fees that will increase the cost of operating Kipling Manor by far more than the rent increase caps that are being contemplated. While this analysis may be set forth in more detail in some other written report that was provided to City staff by EPS, no such report has been made available for public review and comment. At a minimum, the property owners who will be adversely affected and financially burdened by this Ordinance should be provided a chance to review and comment on the data and analysis that purportedly supports this rent increase cap prior to the Council’s adoption of the Ordinance.
Intuitively, such a negligible increase is patently unreasonable, provides no reasonable rate of return on an owner’s investment in apartment buildings, will deter property owners from upgrading and improving rental units, and will make it challenging to meet financing obligations Proposed Rent Stabilization Ordinance
that were based on the City’s existing rules. Assuming the City or EPS disagrees, we would request the data and analysis that demonstrates that the Ordinance would not impact the production of new rental units within the City.
3. According to the Ordinance, the cap on rental rate increases would be retroactive to December 31, 2023. Making the rent caps retroactive is bad policy, unfair, and would adversely impact property owners who have financed the purchase of apartment complexes and have commenced significant upgrades to these complexes in reliance on the City’s existing regulations, which establish no rent control. We would request that any rent caps become effective after the Ordinance is adopted. Any proposed ordinance with such a significant impact should provide ample time to phase in.
4. Section 17-02.07 allows landlords to petition for a rent increase that exceeds the negligible increase that may be provided in the Ordinance for the landlord “to obtain a fair and reasonable return on the Landlord’s Property.” However, the Ordinance contains no definition of “a fair and reasonable return” or the factors that the City will consider in determining whether a Landlord’s proposed increase in rent is necessary “to obtain a fair and reasonable return.” We recommend that the Ordinance define what this term means and provide interested stakeholders to comment on this definition prior to adopting the Ordinance.
5. Section 17-02.02 describes various rental units that are exempt from the Ordinance.
Section (b)(1) states that rental units exempt from rent stabilization pursuant to the Costa Hawkins Rental Housing Act (CA Civil Code section 1954.52) are exempt from the Ordinance. We assume based on this subsection that vacant rental units fall within this category of exempt rental units and request that City staff clarify that point.
6. Section 17-2.08 allows a Landlord to file a petition to pass through capital improvements, but the Section defers any rules, details, or standards that would apply to any such conditions to some later adopted rules and regulations that the Council “may” adopt at some unspecified future date. Due to the age of Kipling Manor, Kipling must make major upgrades to plumbing due to the age of complex and has plans to upgrade the apartment units and other infrastructure as needed. Kipling’s insurance carrier has also identified the need for various improvements that will be costly. Accordingly, the ability of Kipling to petition the City to pass through the cost of these improvements, which will be undertaken for the benefit of the tenants, will be critical. This Section should clearly spell out the process of reviewing a Landlord’s Capital Improvement Plan and standards that the City will apply to determine whether the City will approve or deny such pass-through costs rather than deferring it to some future guidelines or rules that the Council may never adopt.
Thank you for considering the above comments on the proposed Ordinance. Based on the current tenant protections provided under the TPA, we believe the proposed Ordinance is unnecessary. If the City intends to move forward with the Ordinance, we recommend that the Ordinance: (1) clarify that vacant units are exempt, (2) be phased in prospectively, (3) establish a Proposed Rent Stabilization Ordinance
rent increase cap that is commensurate with the TPA, (4) define a “reasonable rate return” should a rent increase cap be less than what is allowed under the TPA and what factors the City will consider to approve or deny a reasonable rate of return, (5) more clearly define the process for petitioning for pass through capital improvements.
Instead of providing disincentives to upgrading and providing modern amenities in older rental housing projects, which only benefit tenants, the City should focus its efforts on incentivizing housing providers by streamlining the permitting process for such projects, reducing permitting fees, and exploring ways to provide greater flexibility in the building and zoning code.
Respectfully Submitted,
JRG Attorneys at Law
Jason S. Retterer
cc: Chris Callihan, Esq.
Lisa Brinton
1 Alexis Mejia
From: chris erekson <[email protected]>
Sent: Friday, August 16, 2024 9:45 AM
To: cclerk; _district1; _district2; _district3; _district4; _district5; _district6 Subject: Opposition to Rent Stabilization Ordinance
Dear Members of the Salinas City Council,
I am writing to express my opposition to the proposed rent control measures being considered for the City of Salinas.
While I understand the intent behind rent control is to protect tenants from rising housing costs, I believe that implementing such policies will ultimately harm the local economy, housing market, and community.
Rent control can have several unintended consequences that may exacerbate the very problems it aims to solve. First, by artificially capping rent prices, property owners may lose the incentive to invest in and maintain their properties, leading to a deterioration of the housing stock. This could result in lower-quality living conditions for tenants over time.
Second, rent control can discourage new construction and reduce the availability of rental housing. Developers and investors may be less inclined to build new housing units or improve existing ones if they are unable to achieve a fair return on their investment. This reduction in housing supply can make it even more difficult for residents to find affordable housing, particularly as demand continues to grow.
Moreover, rent control may lead to unintended consequences, such as discrimination against potential tenants or the conversion of rental units into owner-occupied housing or short-term rentals. These outcomes could further reduce the availability of long-term rental housing in Salinas.
Rather than implementing rent control, I urge the City Council to explore alternative solutions that address the root causes of housing affordability in Salinas. Encouraging the development of more affordable housing units, providing incentives for landlords to maintain and improve their properties, and offering targeted assistance to those most in need are all measures that can more effectively address the housing challenges our community faces.
I believe that with thoughtful and comprehensive policies, we can create a housing market that serves all residents of Salinas without resorting to rent control, which may do more harm than good in the long run.
Thank you for your time and consideration. I hope you will take these concerns into account as you deliberate on this important issue.
Sincerely,
Chris Erekson
Salinas City Resident
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Administrative Draft
Proposed Rent Stabilization
Ordinance Analysis
Prepared for:
City of Salinas
Prepared by:
Economic & Planning Systems, Inc. (EPS)
August 2024
EPS #242050
Table of Contents
Introduction and Summary of Findings .............................................. 1 Introduction....................................................................................... 1 Study Overview .................................................................................. 2 Background ....................................................................................... 3 California Rent Stabilization.................................................................. 4 Rent Stabilization Concepts and Discussion............................................. 6 Key Findings and Considerations ........................................................... 6 Overall Conclusions ...........................................................................11 Recommendations ............................................................................12 Regulatory Context ....................................................................... 15 California Rent Stabilization................................................................15 Summary of Salinas’ Proposed Ordinance .............................................16 Additional Renter Protections..............................................................17 Literature Review and Case Study................................................... 19 Impacts on Renter Displacement.........................................................20 Impacts on Rental Supply ..................................................................21 Impacts on Economic Inequality..........................................................23 Impacts on Property Values................................................................24 Impacts on Building Quality................................................................25 Other Potential Impacts .....................................................................26 Case Study Research.........................................................................27 Literature Review and Case-Study Conclusions......................................31 Economic and Fiscal Impacts of Rent Stabilization............................ 33 Housing Supply ................................................................................33 Affordable Housing Supply ................................................................. 35 Residential Property Tax ....................................................................35 Rent Pressures and Displacement........................................................38 Renter Household Socioeconomics.......................................................41 Economic Impact on Property Owner ...................................................44 Program Implementation Costs to the City ...........................................53 Conclusions and Recommendations................................................. 59 Conclusions......................................................................................59 Recommendations ............................................................................60 Appendices
Appendix A: Demographic and Socioeconomic Analysis Support Tables Appendix B: Financial Analysis Support Tables
List of Tables
Table 1-1. California Cities with Rent Stabilization ........................................... 5 Table 3-1. Comparison of Rent Stabilization Ordinance (3 pages) ....................28 Table 4-1. Summary of Housing Inventory as it Relates to Rent Stabilization: City of Salinas ...............................................................34 Table 4-2. Affordable Housing Inventory: City of Salinas ................................35 Table 4-3. Real Estate Assessed Values: City of Salinas..................................37 Table 4-4. Rent-Burdened Households: City of Salinas ...................................40 Table 4-5. Renter Movement by City............................................................41 Table 4-6. City Salinas Median Income, Average Household Size, and Income Per Capita by Household Tenure: City of Salinas ................................41 Table 4-7. Householder Race: City of Salinas ................................................42 Table 4-8. Householder Age: City of Salinas .................................................43 Table 4-9. Median Renter Household Income compared to
Average Monthly Rent ...............................................................................44 Table 4-10. IRR and Property Value Growth Sensitivity Analysis ......................50 Table 4-11. Estimate Range of Required Staff ...............................................53 Table 4-12. Estimated Staffing and Annual Costs Rental Registry and Rent Stabilization Program.........................................................................56 Table 4-13. Estimated Annual Cost Variations: Rental Registry and Rent Stabilization Program.........................................................................57 Table 4-14. Current Rental Registry Fee Comparison .....................................57 List of Figures
Figure 1. CPI Comparison ..........................................................................13 Figure 2. Housing Inventory as it Relates to Rent Stabilization:
City of Salinas..........................................................................................34 Figure 3. Breakdown of the City of Salinas Assessed Value by Land Use............37 Figure 4. Year-Over-Year Percentage Change in Median Renter-Occupied Household Income versus Average MFR Rent for Apartments Built Before 1995: City of Salinas: 2012-2022/2024 .............................................39 Figure 5. Rental Revenue Differential: Market Rate vs
Stabilization Alternatives ...........................................................................46 Figure 6. Effective Rent Roll Growth with Vacancy Decontrol by Rent Stabilization Rate ..............................................................................47 Figure 7. Inflation and Corresponding Allowable Rental Increases ....................47 Figure 8. Internal Rate of Return Differential: Market-Rate Base Case vs.
Alternative Rent Stabilization Scenarios .......................................................49 Figure 9. Internal Rate of Return Differential: Impact of 5 Percent Annual Operating Expense Growth ..............................................................51 Figure 10. Peer Cities Hypothetical IRR Comparison.......................................52 Proposed Rent Stabilization Ordinance Analysis
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Introduction and Summary of Findings
Introduction
At the request of the City of Salinas’ (City) City Council (Council), Economic & Planning Systems, Inc. (EPS) was retained to provide due diligence by analyzing the potential economic effects of establishing a rent stabilization policy (Study).1 Please note that rent stabilization ONLY applies to residential land use with the following characteristics:
• Multifamily rental dwelling units (including duplexes and triplexes, unless one unit is occupied by the property owner).
• Built before February 1, 1995.
• Remodeled residential units converted from space long dedicated to residential.2
The following residential land uses are EXEMPT:
• Single-family dwelling units.
• Single-family rentals.
• Condominiums units.
• Condominium rentals.
• Multifamily dwellings units built after February 1, 1995. • Newly constructed dwelling units.3
1 The City Attorney retained the services of EPS to serve as an outside expert by conducting a Consultant’s study of the proposed rent stabilization ordinance intended to inform and support the City Attorney’s legal evaluation. As such, the following memorandum is subject to evidentiary protections under the attorney work product doctrine or attorney-client privilege, and all written communications should be appropriately marked to preserve those protections. 2 California Legislative Information Civil Code – CIV DIVISION 3. OBLIGATIONS [1427 - 3273.69] (Heading of Division 3 amended by Stats. 1988, Ch. 160, Sec. 14.) PART 4.
OBLIGATIONS ARISING FROM PARTICULAR TRANSACTIONS [1738 - 3273.69] (Part 4 enacted 1872.) TITLE 5. HIRING [1925 - 1997.270] (Title 5 enacted 1872.) CHAPTER 2.7. Residential Rent Control [1954.50 - 1954.535] (Title 5 added by Stats. 1995, Ch. 331, Sec. 1.) https://leginfo.legislature.ca.gov/faces/codes_displayText.xhtml?lawCode=CIV&division=3.&title =5.&part=4.&chapter=2.7.&article (accessed May 2024).
3 Ibid.
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NOTE: Rent stabilization provides landlords with the ability to increase rent by a fixed percentage year over year. This differs from rent control, which is defined as when a municipality locks in rental rates at a specific amount. Please note that while the distinction between these methods of regulating rent is important, the terms may sometimes be used interchangeably within the literature review and other parts of this analysis.
This Study was prepared to answer the following key questions related to a potential rent stabilization ordinance on multifamily residential rental units in the City:
• What socioeconomic and real estate trends led City officials to consider implementing a rent stabilization policy?
• How can the experiences of cities with existing rent stabilization policies inform the elements of the proposed policy requirements in Salinas? • What are the potential fiscal implications of a proposed rent stabilization ordinance on the City’s General Fund?
• What are the estimated impacts of different rent stabilization ordinance scenarios on housing supply in the City?
It is important to note that local rental markets are complex and influenced by a variety of factors that are external to the proposed Ordinance, including regional growth trends, State and federal policies and regulations, and business cycle considerations, among others. Thus, the identified economic and fiscal impacts of the proposed ordinance are informed by available evidence and not intended to be precise predictions, but to support discussion of potential policies and recommendations
Study Overview
This Study includes various research methods to help examine the economic and fiscal effects of rent stabilization including a literature review on rent stabilization, case studies of rent stabilization regulations implemented in jurisdictions in California, and a technical socioeconomic and financial analysis.
The technical analysis component of this Study comprises the following key analytic elements and addresses how they relate to and could be affected by rent stabilization:
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• Demographic and Socioeconomic Profile. Identifies trends in population and households, age, race & ethnicity, and household income. • Residential Market Profile. Examines the housing inventory and residential market trends in the City.
• Economic and fiscal impacts. Estimates the economic impacts of rent stabilization on housing supply and pricing, the City’s General Fund, and on landlord returns.
The purpose of this evaluation is to develop an understanding of the dynamics of socioeconomic and residential market trends in Salinas, to examine the economic and fiscal impacts of rent stabilization and address the key questions to help the City develop a rent stabilization ordinance that considers and balances the economic implications for both the tenants and building owners.
Supporting data tables underlying the findings and figures presented herein are included in appendices at the end of this memorandum.
Sources
This Study replies on publicly available data sources (e.g., 2012 and 2022 U.S.
Census American Community Survey, California Department of Finance, HUD, RedFin, Zillow, Nolo) and subscription-based data (e.g., CoStar, ParcelQuest) to document and evaluate trends in the City, the state, and other jurisdictions.
Background
As the County seat, the City of Salinas is both a center of agricultural production and an affordable residential center for service economy employees serving the Monterey Peninsula. The City has been making gains in its downtown, which has become a compelling and livable district. Recent years have shown Salinas’ economic base growing at a modest pace, with agriculture making up the largest portion of economic activity.
Salinas’ labor force is young, with a large proportion of workers lacking a high school or college education. Salinas also has a shortage of both agricultural production workers as well as health care and educational workers.
The labor force also has a sizable number of professionals and construction workers who commute to jobs outside of the City and Monterey County. The role of Salinas as a bedroom community for those workers has put upward pressure on housing prices, and the regional shortage of agricultural workers as well as the tourist-serving hospitality workers is an outcome of that trend.
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Salinas has a rare if not unfortunate status as an area of lower wage labor subject to very expensive land and development costs (similar to the greater Bay Area).
With very little new market supply added despite several major Specific Plans on the books, these forces have combined to create a high cost of living.
Communities to the south of Salinas on Highway 101 are actively seeking to compete for this labor force as part of their own economic development ambitions. While every effort is being made to diversify and train the local labor force and enable citizens to gain additional skills and command higher wages, these efforts take time. In the interim, rising costs, including the cost of housing, are important to understand and where possible, moderate through intentional policy efforts.
California Rent Stabilization
The California Tenant Protection Act established a statewide maximum allowable rent increase and just-cause evictions protections. The statewide policy caps rent increases at the lesser of 5 percent plus the increase in the regional consumer price index (CPI) or 10 percent of the lowest rent charged over the 12 months before the increase.4
Cities and counties may also enact their own rent stabilization with a lower rent cap than the statewide provision. However, any local ordinance is limited by the Costa-Hawkins Rental Act which exempts single-family homes, condominiums, and all housing built after 1995 from rent stabilization (but not just cause eviction). State law also dictates that all units covered by rent stabilization are subject to vacancy decontrol, which allows landlords to establish market rate rents for new tenants.5
There is currently a statewide ballot initiative set for the November 2024 ballot that would repeal Costa-Hawkins.6 If the initiative passes, any local ordinance not explicitly written to exempt single-family homes or provide vacancy decontrol will take effect. Therefore, if Costa-Hawkins is repealed, the City’s proposed rent stabilization ordinance, if approved, would apply to all rental housing including single-family units and rents would not reset to market for new tenants.
Various studies on rent stabilization in California suggest that approximately 30 cities in the State currently have some form of a program, or about 7 percent the total cities (accounting for 22 percent of the state’s population).7 4 Rent Control Is Here: California’s Tenant Protection Act of 2019 | Nolo 5 Costa-Hawkins Act • California Apartment Association (caanet.org) 6 California Prohibit State Limitations on Local Rent Control Initiative (2024) - Ballotpedia 7 California Rent Control Law | Nolo
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As illustrated in Table 1-1 most of these cities tie rent caps to a percentage of the CPI. A smaller number of cities cap rent at an annual percentage increase, ranging from two to ten percent, regardless of the CPI.
Table 1-1. California Cities with Rent Stabilization
City City
Bell Gardens 50% Gardena 5%
Antioch 60% Hayward 5%
Concord 60% Larkspur 7%
Oakland 60% Mountain View 2% - 5%
Richmond 60% Oxnard 4%
San Francisco 60% Sacramento 10%
Berkeley 65% San Jose 5%
Alameda 70% Average 6%
Los Gatos 70%
Fairfax 75%
Palm Springs 75%
Pasadena 75%
Santa Monica 75%
West Hollywood 75%
East Palo Alto 80%
Santa Ana 80%
Baldwin Park 100%
Beverly Hills 100%
Cudahy 100%
Culver City 100%
Inglewood 100%
Los Angeles 100%
Pomona 100%
Average 78%
Source: Nolo; EPS.
Allowable Annual
Rent Increase
(% of CPI)
Allowable Annual
Rent Increase
Flat %
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Rent Stabilization Concepts and
Discussion
Rent Stabilization and control is a controversial concept subject to divisive opinions and concerns.
Common concerns with this regulatory policy include:
• Reduced rental unit supply.
• Reduced residential mobility.
• Reduced property value.
• Decreased revenue leading to property disinvestment.
• Inflated rent as an effect of vacancy decontrol.
Conversely, positive expectations from rent stabilization include:
• Housing stability:
‒ Reduced worker turnover.
‒ Improved educational outcomes.
‒ Reduced demand for social services.
• Increased discretionary income to potentially help boost the local economy. • Protecting communities of color from historical housing cost burdens. • Increase in income equality.
Many of the concerns can be alleviated through education of the proposed rent stabilization policy, for example making sure the community understands which residential units qualify for rent stabilization, specifically clarifying it does not affect new development, as discussed in Chapter 2, and refuting some common misconceptions as discussed in Chapter 3.
Key Findings and Considerations
Key Question 1: What socioeconomic and real estate trends led City officials to consider implementing a rent stabilization policy? For decades, California has faced a housing crisis related to its significant unhoused population and housing affordability related to rising housing costs and lack of supply. For renters, especially those living in poverty, high rental rates have translated into large proportions of their income allocated to housing costs, leaving little remaining for basic living expenses, let alone bolstering savings Proposed Rent Stabilization Ordinance Analysis
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accounts to build wealth.8 Disparities in cost burdens persist among renters, particularly affecting households from a diverse racial background. These disparities are attributed to long-standing discrimination in housing,9 employment, and education.10 Black, Hispanic, and multiracial households face higher rates of cost burdens compared to white renters by 5 to 10 percent.11 Among the renters experiencing housing hardships, 4 in 10 renter households are Black and Latinx.12 This housing crisis is exacerbated for people of color, who often face additional barriers such as lower wages and fewer housing options in desirable neighborhoods. These communities are more likely to experience housing instability and are at greater risk of eviction. The socioeconomic factors and real estate trends discussed below have prompted the City Council to consider a rent stabilization policy within the City to help protect the vulnerable renter communities by helping to alleviate the pressures of increasingly high rents.
Characteristics of renter-occupied households in Salinas include:
• In Salinas, overcrowding in renter-occupied households has increased by more than 24 percent over the last decade, compared to only 6 percent statewide.13
• 53 percent of City renter-occupied households have 4 or more occupants, compared to 27 percent statewide.
• Mirroring a trend negatively affecting all of California, more than half of renter-occupied households in the City are considered rent-burdened and 26 percent are considered severely cost-burdened:
‒ Median renter household income: $64,509/year
‒ 30 percent of median income: $1,612/month
‒ Median MFR rent for units built before 1995: $1,994/month 8 Kimberlin, Sara and Esi Hutchful, 2019. New Census Figures Show More Than 1 in 6 Californians Struggle to Afford Basic Necessities. California Budget and Policy Center. [online] Available at https://calbudgetcenter.org/resources/number-of-californians-living-in-poverty-hasbeen-declining-but-more-than-1-in-6-residents-still-struggle-to-afford-basicnecessities/#:~:text=Approximately%207.1%20million%20Californians%20lived,Supplemental% 20Poverty%20Measure%20(SPM) [Accessed January 2021].
9 CBPC, Who is Experiencing Housing Hardship in California?, May 2022; 5 10 JCHS of Harvard University, America’s Rental Housing, 2024; 34-36 11 JCHS of Harvard University, America’s Rental Housing, 2024; 34-36 12 CBPC, Who is Experiencing Housing Hardship in California?, May 2022, 13 An overcrowded household is defined by the U.S. Census as having 1 or more persons per room (excluding bathrooms and kitchens).
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• Approximately 18 percent of families that are renters fall below the poverty level compared to 6 percent of owner-occupied families in Salinas, statewide 16 percent of renters fall below the poverty level and 4 percent of owneroccupied.14 • More than half (53 percent) of the City’s households are renter-occupied, in comparison to 44 percent statewide.
• Latinx population comprises 81 percent of the renter-occupied units in Salinas, compared to 30 percent countywide and 37 percent statewide. • 57 percent of renter-occupied households comprise householders ages 44 or younger compared to 37 percent countywide and 53 percent statewide.
The multifamily rental rate increase of 86 percent over the past decade greatly exceeds the increase in renter-household incomes which only increased by a total of 33 percent (in 2022 dollars) over the same period.15 In addition, the housing market in Salinas has become much more expensive, home prices have increased 203 percent since 2012 (2023 average median sales price is $675,000 for for-sale units) and rents in multifamily units built before 1995 have increased by 86 percent since 2012 (2023 average asking rent was about $1,980 for all unit sizes).
The housing market is considered tight with little room for movement with overall low vacancy of about 3 percent compared to the County’s 8 percent average, indicating the need for increased housing supply.
The City’s current overall vacancy rate of 3 percent falls below the 5 percent threshold that many housing experts believe to be an ideal vacancy rate.16 Higher vacancy rates provide prospective buyers and renters with more options when searching for homes, helping to stabilize prices. Below this 5 percent rate, those looking for housing have fewer options, allowing landlords or sellers to charge higher prices. Research has consistently found that a vacancy rate below this 5 percent threshold leads to increasing rents and sales prices.
The undersupply of housing most prominently affects underserved populations, including students, teachers, young families, low-income families and individuals, seniors, people with disabilities, and the unhoused population indicating the need 14 The US Department of Housing and Urban Development defines a household spending more than 30 percent of their income on housing as "rent burdened." Households spending more than 50 percent of their income on housing are considered "severely rent burdened." 15 This is based on the difference between 2012 and 2024 for multifamily rental units built before 1995.
16 Phillips, Shane. 2020. Does the Los Angeles Region Have Too Many Vacant Homes? UCLA Lewis Center for Regional Policy Studies Working Paper Series. https://escholarship.org/uc/item/87r4543q [Accessed October 2021].
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for focused strategies to increase access to a variety of housing types at various levels of affordability.
Key Question 2: How can the experiences of cities with existing rent stabilization policies inform the elements of the proposed policy requirements in Salinas?
A survey of rent stabilization ordinances in comparative jurisdictions was completed to examine established policy structures as well as program fee amounts. The full survey can be found in Chapter 3 Table 3-1.
The rent stabilized jurisdictions analyzed in the case study implemented varying levels of rent increase percentages as well as different fee amounts. One of the key takeaways is the emphasis on the importance of educating the community, property owners, and developers on the types of units subject to rent stabilization as well as the elements within the ordinance that can help both renters and landlords.
In addition, it is important to acknowledge that rent stabilization does not serve as a single “silver bullet” solution to such a pervasive problem. For it to alleviate some of the housing pressure, it must be combined with other policies that protect renters and encourage additional supply such as providing incentives to support the development of missing housing types in the City, encouraging infill development, streamlining the permitting process, create supportive housingrelated programs for underserved populations, etc.
Key Question 3: What are the potential fiscal implications of a proposed rent stabilization ordinance on the City’s General Fund? Property Tax
There may be positive fiscal impacts on property taxes and property transfer taxes if rental units are sold in response to a rent stabilization ordinance.
However, these fiscal impacts will be minor under current conditions as the ordinance only applies to multifamily units. The building would either be sold and continued to be occupied as rental units, or the property owner would have to go through the detailed process of converting to condominiums, which could then reduce the rental supply.
There is also the potential that limiting rent increases could reduce the assessed value of a rent stabilized property. However, because of the impact of Proposition 13 on assessed values, only properties that have been sold would be eligible for a reassessment in their taxable value. In these circumstances, some new property owners may ultimately file assessment appeals if the values of their properties do not keep pace with inflation because the real rental revenue is declining over time. The impact of this effect on property taxes will depend on the portion of Proposed Rent Stabilization Ordinance Analysis
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multifamily rental housing that was recently transacted. In the last 5 years only
5.5 percent of the City’s rental inventory that would qualify for the ordinance was sold.
In addition to property tax payments, any change in property values would also impact the City’s property tax in-lieu of vehicle license fee revenue received from the State. Therefore, if the proposed ordinance were to result in a decrease (or increase) in assessed values, the city would receive lower (or higher) revenue from the State.
Program Costs to the City’s General Fund
Salinas will incur both one-time and on-going costs to implement and administer a Rent Stabilization Program, costs that could potentially be covered through a per unit fee program specified in the Ordinance. Based on discussions with rent stabilization program staff in other jurisdictions, Salinas would likely need 4.2 to
11.4 Full-time employees equivalent (FTEs) to manage the proposed ordinance (excluding the Rental Registry FTEs). Preliminary EPS estimates suggest on-going program administration costs ranging from about $621,000 to $1.2 million per year, as detailed in Chapter 4 Table 4-12. A combined annual per unit fee for the Rental Registry and Rent Stabilization programs should be designed to recover the costs of the fully burdened costs of staff. An illustrative example using the estimated maximum annual costs of $1.2 million reflects a range s from about $20 for partially covered units and $115 for fully covered units. The actual fees will depend on the level of staffing and will decrease over time if not escalated to keep pace with inflation. This fee does not include the initial costs to implement the program and provides an estimated cost of hiring third party sources that may help with services such as legal counsel, tenant relocation assistance, and renter helpline, actual costs of third-party services will depend on what elements are included from each service type.
Key Question 4: What are the estimated impacts of different rent stabilization ordinance scenarios on housing supply in the City? Under current State law, the impact of the proposed Ordinance on City finances and economic trajectory is likely to be relatively modest. Because of the statewide exemptions for single-family homes and multifamily units built after 1995, the rent stabilization provisions of the ordinance would only impact about 19 percent of the City's total housing stock. The most significant economic impacts are likely to be distributional, with existing renters experiencing direct financial benefits at the expense of property owners. The rent and eviction protections may also limit displacement among lower income communities who tend to disproportionately occupy rental housing.
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Vacancy decontrol, which allows the rent for vacated units to be brought up to market rate, helps stabilize the potential financial effects for property owners reflecting only a slightly decreased Internal Rate of Return (IRR) depending on the rent cap. A financial sensitivity analysis shows that prototypical rent stabilized building would appreciate at a slower rate compared to a market rate building not subject to rent stabilization. In addition, rent stabilized buildings are considered low-risk investments requiring a stable IRR from about 8 percent to 12 percent compared to new construction which would need to range about 2 percentage points higher. See Chapter 4.
Operating expenses for multifamily buildings have been somewhat volatile in recent years, largely because of increases in utility costs and particularly insurance costs. Increases in operating costs impact the net operating income for owners of multifamily rental units that are unable to pass along the total increased cost to tenants. Correspondingly, the return on investment for landlords can be negatively impacted. At the most restrictive rent control rates, the rates of investor return can potentially dip close to levels that can be achieved with far less risk and effort through an investment account. Under such a scenario, there would be increased incentive for some landlords to exit the market. The inclusion of provisions for landlords to petition for rent increases to accommodate additional operating expenses is an important safety valve to prevent undue burden and potential loss of rental units.
Overall Conclusions
Rent regulations are increasingly prevalent in California. In cities like Salinas where apartments account for about 36 percent of the housing stock, the policy could have a range of potential impacts. As discussed previously, current state law limits the impact of rent stabilization by exempting single-family units, condominiums, and properties built after February 1995 and allowing for vacancy decontrol (the ability to raise rent back to market rate after a tenant leaves).
For applicable units (19 percent of the City’s housing), the proposed Ordinance is likely to stabilize rents and decrease displacement risk, which is an important equity concern in the City. Thus, existing City renters would be the direct beneficiaries of the Ordinance, accruing long-term financial benefits and reduced risk of eviction. This benefit would come at a cost to existing Salinas landlords who could experience reduced rental income and limitations on removing unwanted tenants. However, the effects on income appear to be relatively modest particularly as the ordinance has policies to help protect hardships by allowing a landlord to petition for rent increase beyond the allowed rent stabilized increase to obtain a fair and reasonable return as well as petition to pass through to the tenant specific capital improvements. Conversely there is a policy that allows a tenant to petition for a rent reduction if they believe that the Proposed Rent Stabilization Ordinance Analysis
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landlord has demanded, accepted, or retained any rent in excess of the rent permitted.
However, despite the clear and direct redistribution effects of the proposed Ordinance, the broader economic implications are likely to be modest absent the repeal of Costa-Hawkins, which would expand the incidence of rent control beyond the above-referenced 19 percent of the City’s housing.
While 19 percent of the City’s housing is not immaterial, the renter protections included in the Ordinance are likely to have both positive and negative impacts on the local economy and the City’s fiscal health. The positive impacts include reduced displacement as well as increased economic stability and disposable income for renters. The negative impacts may include reduced labor mobility and housing availability for new residents, as rent stabilization is shown to decrease turnover by about 20 percent, and with vacancy in the City experiencing an extremely tight market, this exacerbates the limited housing options for new residents and the ability for existing residents to move, as discussed in Chapter 3.
Rent stabilization is part of a toolkit that, along with other policies and incentives, can help alleviate some housing cost pressures. Taken in combination with other policies that encourage renter protections and additional supply, it can be part of a multi-pronged effort to improve the outlook for residents struggling to afford housing.
Recommendations
Based on the findings from the literature review, a survey of comparable cities, and the technical fiscal and economic impacts analysis, EPS recommends the City consider adopting a rent stabilization ordinance, limiting the maximum increase of rent between the following ranges to help stabilize rents and prevent displacement for the City’s most vulnerable populations:
• The lesser of 2.5 percent or 65 percent of the CPI for All Urban Consumers in the Urban West (CPI-U West)
OR
• The lesser of 2.75 percent or 75 percent of the CPI for All Urban Consumers in the Urban West
Using a percentage of CPI to calculate allowed annual rent increases maintains a logical basis because the CPI itself includes changes in housing prices to measure inflation. As of December 2023, rent of primary residences relative importance to the CPI-U West was 9.7 percent while owners’ equivalent rent’s relative Proposed Rent Stabilization Ordinance Analysis
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importance was 27.1 percent.17 Thus, using CPI to calculate allowable rent increases risks “double-counting” rent, in that exogenous rent increases in nonrent stabilized units could drive higher allowable rent increases that are larger than the increased costs of maintenance services captured in the CPI. Using either 65 percent or 75 percent of CPI to benchmark allowable rent increases helps to mitigate this potential issue.
The BLS does publish inflation measures that exclude housing costs, titled “CPI – Less Shelter.” However, this measure can be extremely volatile, as the large relative importance of shelter costs and their relative stability year-over-year mitigates more volatile consumer goods and services costs in unstable inflationary environments. For example, during the inflationary spikes of 2021 and 2022, which were driven by COVID-related supply chain issues for consumer goods, the CPI-Less Shelter was 26 percent and 12 percent higher than the overall CPI-U West, respectively. See Appendix A Table A-14.
The allowed rent increases strike a balance to benefit both the tenant and the property owner, preventing exorbitant increases in rent while still providing a reasonable rate of return for the property owner.
Figure 1. CPI Comparison
17 Owners’ equivalent rent is the amount that an owner-occupied home would rent for on the open market. Relative importance indicates the relative contribution of one category of items to the overall inflation measure. For example, with 9.7 percent relative importance, a 10 percent increase in rent of primary residences would increase the overall CPI by 0.97 percent, assuming all other items’ prices do not change.
-2%
0%
2%
4%
6%
8%
10%
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 [2]
60% CPI
80% CPI
CPI - Less Shelter
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The Rent Stabilization Ordinance should include strong tenant protections. Strong tenant protections include Just Cause eviction protections as well as No-Fault evictions protections such as requiring landlords to pay fair relocation costs. See Appendix A Table A-1 for no-fault eviction within the California cities that have rent stabilization ordinances. An additional protection the City could consider is setting a cap on the number of units that can convert to condos within a year and providing current tenants the right of first refusal to purchase condo conversions.
The City should consider merging the Rent Stabilization Fee into the Rental Registry Fee and charge this fee on a per unit basis. The fee amount should differ based on unit type: fully covered units (rental registry, tenant protections, and rent stabilization should be higher than partially covered units (rental registry and tenant protections). The fee is to help the City recover the costs to run the program including staffing, third party services and software, community education, and program enforcement and should provide financial neutrality.
Based on data from other cities, the additional staffing needed to establish, operate, and maintain the Rent Stabilization ordinance ranges from the equivalent of 4.2 to 11.4 net new hires (excluding the rental registry staff) or a percentage of existing employees’ time. With the minimum level of only 4.2 new staff members, or 5.1 FTEs total, Salinas would likely need to contract third party services for legal counsel, tenant relocation services, and mediation and dispute resolution. As staffing increases beyond 5.1, the number of third-party source contracts will decrease.
The City should consider including language in the ordinance establishing periodic reviews elements such as the rent increase caps, the number of petitions, staffing levels, fee amounts, etc. to ensure the program operates effectively for property owners, tenants and the City.
In addition, the City should take careful consideration to explicitly include any elements that would like to retain from Costa-Hawkins, such as exempting single-family homes, exempting new development, and providing vacancy decontrol. If these are not included in the City’s ordinance and the statewide ballot initiative set for the November 2024 ballot to repeal CostaHawkins passes the local ordinance would apply to all rental housing including single-family units and rents would not reset to market for new tenants.
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Regulatory Context
This chapter summarizes the existing California legal context relevant to evaluating the fiscal and economic impact of the proposed ordinance and the specific provisions of the proposed Ordinance in this context.
California Rent Stabilization
The California Tenant Protection Act established a statewide maximum allowable rent increase and just-cause evictions protections. The statewide policy caps rent increases at the lesser of 5 percent plus the increase in the regional consumer price index (CPI) or 10 percent of the lowest rent charged over the 12 months before the increase.18
Cities and counties may also enact their own rent stabilization with a lower rent cap than the statewide provision. However, any local ordinance is limited by the Costa-Hawkins Rental Act which exempts single-family homes, condos, and all housing built after 1995 from rent stabilization (but not just cause eviction). State law also dictates that all units covered by rent stabilization are subject to vacancy decontrol, allowing landlords to establish market rate rents for new tenants.19 There is a statewide ballot initiative set for the November 2024 ballot that would repeal Costa-Hawkins.20 If the initiative passes, any local ordinance not explicitly written to exempt single-family homes or provide vacancy decontrol will take effect, as would be the case for Salinas as described further below. Therefore, if Costa-Hawkins is repealed, the City’s proposed rent stabilization ordinance, if approved, would apply to all rental housing including single-family units and rents would not reset to market for new tenants.
Assorted studies on rent stabilization in California suggest that approximately 30 cities in the State currently have some form of a program, or about 7 percent the total cities (accounting for 22 percent of the state’s population).21 18 Rent Control Is Here: California’s Tenant Protection Act of 2019 | Nolo 19 Costa-Hawkins Act • California Apartment Association (caanet.org) 20 California Prohibit State Limitations on Local Rent Control Initiative (2024) - Ballotpedia 21 California Rent Control Law | Nolo
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As illustrated in Table 1-1 most of these cities tie rent caps to a percentage of the Consumer Price Index (CPI), similar to the approach in the proposed Salinas Ordinance. A smaller number of cities cap rent at an annual percentage increase, ranging from two to ten percent, regardless of the CPI.
Summary of Salinas’ Proposed
Ordinance
The City of Salinas Rent Stabilization and Tenant Protection Ordinance proposes to establish an annual rent increase cap of the lesser of a specified percentage or a percentage of the Consumer Price Index (CPI) (percentage amounts to be determined later) and establishing just cause eviction protections. As illustrated in Table 1-1, 60 percent of CPI threshold is the lower end (e.g., more favorable for existing tenants) than other California cities that have such ordinances (the average is 78 percent of CPI).
Like most rent stabilization programs, the proposed Ordinance applies to all covered units irrespective of household income (e.g., it is not means tested).
As in Costa-Hawkins the ordinance exempts the following properties:
• Any residential real property with a certificate of occupancy issued after February 1, 1995.
• Rental units in hotels, motels, and inns (for a period of fewer than 30 days). • Dormitories.
• Rental units in any hospital, convent, monastery, or extended care facility. • A rental unit that has been the primary residence of the landlord since the beginning of the tenancy, and where the landlord shares a bathroom or kitchen with the tenant.
• Rental units fully owned, operated, and managed by a County government unit, agency, or authority if applicable federal, state, or administrative regulations specifically exempt the units from local rent stabilization. • Mobile homes located in mobile home parks.
Notably, the Ordinance does not exempt single-family or vacated units. While these units are exempt from rent stabilization under Costa-Hawkins if voters repeal this law (as proposed in a statewide ballot measure) both single-family and vacated units would thereafter be covered by the proposed City Ordinance.
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In addition, the ordinance provides the following policy stipulations to protect both tenants and property owners:
• Reasonable rate of return
• Tenant protection for rent reduction
• Landlord petition for rent increase
• Petition for pass through for specific capital improvements • Rent increase ineffective (e.g. landlord fails to comply with the provisions of the ordinance)
• Notice requirements
• Violations and remedies
If passed, the City would fund the administration of the Ordinance through the Rent Program Fee charged to landlords per non-exempt unit per year. The amount of the fee has yet to be determined. Other complaint-driven enforcement jurisdictions charge fees that range from $59 to $144 per unit.
Additional Renter Protections
Rent stabilization is a single policy tool designed to protect renters, other rental protections and aid should be considered as well. For example, from March 2021 through the end of 2023, the City partnered with United Way to establish a funding agreement providing the City with $15 million to assist with over 3,800 rental payments. The program serves low-income residents throughout Monterey County who are at risk of becoming homeless. During this time, the City was able to help:
• 2,031 Rental Cases
• 1,705 Utility Cases
• 61 Motel Payments
The City is working with United Way to develop a Homeless Housing Navigation and Stabilization Program (HHNSP), which includes partnering with the Housing Authority of Monterey County as a subgrantee. Funding will be used by the City’s housing case navigators to provide case management, housing navigation referrals, and financial assistance with application fees, deposits, move-in fees, and storage fees to help residents obtain stable housing. These services are provided to individuals that are already a part of the City’s Emergency Motel Program (EMP) or the Salinas Outreach and Response Team (SORT).
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The City is not assisting with rental or utility services but helps provide referrals to outside services using the Smart Referral Network (SRN). The City is working on partnering with Monterey College of Law to assist tenants with tenant/ landlord mediation services.
Potential Options for Additional Renter Protection
In addition to or in place of a rent stabilization ordinance, the following renter protection methods can be considered:
• AB 1482: The California Tenant Protection Act of 2019. This law went into effect January 1, 2020, and expires on January 1, 2030. These are the two main aspects of this law:
‒ Requires a landlord to have a “just cause” to terminate a tenancy. ‒ Limits annual rent increases to more than 5 percent + local CPI, or 10 percent, whichever is lower.
This law applies to units that were constructed 15 years ago or more, which differs from Costa-Hawkins in that unit age is on a rolling basis. Another difference is it can apply to single-family homes and condominiums if those units are owned by a real estate trust, a corporation or and LLC with at least one corporate member.
• Additional renter protection programs provided by other cities include:
‒ Just cause eviction ordinances.
‒ Tenant protection ordinances.
‒ Legal assistance.
‒ Fair housing services.
‒ Emergency assistance programs.
‒ Housing stability assistance program.
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Literature Review and Case Study
The impact of rent stabilization ordinances on communities largely depends on the framework of the policy and the context of the local housing market. That said, there are common themes that can be gleaned from empirical and academic studies on the topic. Traditional economic analyses often focused on negative aspects of rent control, a much stricter form of rent regulation originating from World War II-era price controls that is now only applicable to approximately 24,000 rental units located exclusively in New York City.22 Under the rent control regime that was in place between 1943 and 1968 in New York City, landlords were required to apply to a rent commission for rental increases, with no allowances for automatic inflationary increases of rent.23 Although economic theory predicts that such a hard price ceiling, coupled with no exemptions for new construction, would significantly depress new construction of rental housing and investment in maintenance and upkeep of current units, such strict policies were only in place temporarily and are not reflective of the more nuanced policies in place in most jurisdictions.24 Nearly all rent stabilization policies currently in place now include significant allowances for automatic inflationary adjustments of rent, increases for capital improvements, vacancy decontrol, and exemptions for new construction, mitigating harmful effects on new construction and maintenance investment from the price control aspect of the policies.
Most empirical studies on more moderate rent stabilization policies indicate that the policy is effective in its intended goal of reducing rent for existing tenants.
However, rent stabilization policies have also been found to cause a range of other impacts on the housing market including increased rent for new residents and reduced housing mobility/displacement. Impacts on other factors are more ambiguous. A summary of the salient findings from a variety of empirical rent stabilization studies is provided below.
22 New York City Rent Guidelines Board, 2024. Frequently Asked Questions. Available at:
https://rentguidelinesboard.cityofnewyork.us/resources/faqs/. Accessed June 18, 2024. 23 Cavadias, M., 2017. A Brief History of Rent Regulation in New York. Hypocrite Reader.
Available at: https://hypocritereader.com/81/rent-regulation-nyc. Accessed June 18, 2024. 24 Jenkins, B., 2009. Rent Control: Do Economists Agree? Econ Journal Watch. Vol. 6, Issue 1.
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Impacts on Renter Displacement
Almost all academic research finds that tenants in rent stabilized apartments have longer tenures and are less likely to move than renters in non-rent stabilized units.25 In other words, households that are protected from rapid rent increases appear less likely to move. In a 2019 Stanford research paper, authors Diamond, McQuade, and Qian (DMQ) examined the impacts of San Francisco’s rent stabilization after a 1994 law removed an exemption for small multifamily units in the City. The paper concluded that San Francisco’s rent stabilization lowered renter displacement by about 20 percent.26 The authors note that rent stabilization had an especially significant impact in preventing the displacement of racial minorities. A summary of stabilization’s impacts by PolicyLink noted that tenants living in rent-stabilized units move less frequently and are less likely to experience forced moves.27
The “strictness,” as measured by the magnitude of rent increases allowed and the burden of proof necessary to raise rents beyond the standard allowed increases, of rent control policies is strongly correlated with longer tenancies.28 Under extremely strict rent control regimes, such as those that existed in New York City before 1968, the impacts on tenant mobility can be extreme, with a 1992 study finding that the typical tenant in a rent-controlled unit would remain in the same unit for 18 years longer than a similar tenant in a non-rent-controlled unit.29 Although economic analyses of strict rent control policies have often focused on the misallocation of rent control’s benefits (i.e. that most benefits accrue to upper income households) recent analysis of rapidly gentrifying neighborhoods in the San Francisco Bay Area finds that rent stabilization is uniquely effective in preventing displacement of extremely low-income households.30 In Salinas, increasing housing stability for the City’s rental community, specifically the 81 percent of renter-occupied units comprising Latinx residents, and other 25 Pastor, M.; Carter, V.; Abood, M. 2018. Rent Matters: What are the impacts of rentstabilization measures. Available at: https://dornsife.usc.edu/eri/wpcontent/uploads/sites/41/2023/01/2018RentMattersPERE.pdf. Literature reviews findings from 26 DMQ.pdf (stanford.edu)
27 OurHomesOurFuture_Web_08-02-19.pdf (policylink.org)
28 Crispell, M., 2016. Rent Control Policy Brief. University of California Berkeley Urban Displacement Project.
29 Ault, R.l Jackson, J.; & Saba, R. 1992. The Effect of Long-Term Rent Control on Tenant Mobility.
30 Hwang, J., et al., 2022. Who Benefits from Tenant Protections? The Effects of Rent Stabilization and Just Cause for Evictions on Residential Mobility in the Bay Area. University of California Berkeley Institute of Governmental Studies Policy Brief.
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vulnerable residents such as farmworkers, the elderly, and low-income households, is key to ensuring quality of life for these communities and the City as a whole. Research from San Mateo County shows that displacement, whether from formal eviction or an inability to afford rent, has disastrous impacts on families’ well-being. Renters displaced from their homes experienced extremely high rates of homelessness compared to other families and on average were forced to move to communities with worse environmental health outcomes and longer commutes.31 Additional research from Michigan conducted during the Great Recession shows that people who move due to an inability to afford rent or mortgage are more than twice as likely to report anxiety attacks or severe depression than people who move for other reasons.
Impacts on Rental Supply
Much of the economic literature critical of rent control policies’ depressive impact on new housing development examines strict rent control policies present in New York City and many European cities immediately following World War II.32 33 However, empirical evidence from more moderate rent stabilization policies with exemptions for new construction find little to no effect on the supply of new housing. An examination of the end of rent stabilization policies in Boston, where new construction was exempted, found that being in a zone of Boston exempt from rent stabilization led to an increase of only
0.2 percentage points in the quantity of new housing.34 Similarly, analysis comparing 76 cities in New Jersey both with and without rent stabilization policies found that moderate price control policies had no statistically significant effect on new construction.35
While moderate rent stabilization policies with exemptions for new construction may not depress new housing development, they may lead to the conversion of existing rental units to condominiums, generating a shift toward for-sale housing. Over the 36-year study period, DMQ found that impacted landlords reduced the supply of available rental housing by 15 percent by selling to owner31 Marcus, J.; Zuk, M., 2017. Displacement in San Mateo County, California: Consequences for Housing, Neighborhoods, Quality of Life, and Health. University of California Berkeley Institute of Governmental Studies Policy Brief.
32 Glaeser, Edward L. 2002. Does Rent Control Reduce Segregation? Harvard Institute of Economic Research Discussion Paper No. 1985.
33 Arnott, Richard. 1995. "Time for Revisionism on Rent Control?" Journal of Economic Perspectives, 9 (1): 99–120.
34 Sims, David P. 2007. Out of Control: What Can We Learn from the End of Massachusetts Rent Control? Journal of Urban Economics 61(1).
35 Gilderbloom, John I., and Lin Ye. 2007. “Thirty Years of Rent Control: A Survey of New Jersey Cities.” Journal of Urban Affairs 29(2).
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occupants and redeveloping buildings. As a result, rental properties made up a smaller portion of the City’s housing over time, which increased the cost of rental housing. The shift toward for-sale housing and the increased price of rental housing together directed the City’s housing stock toward higher income households.
Since the ordinance only applies to multifamily buildings, the property owners of apartment buildings that qualify for rent stabilization in Salinas would have to go through the legal process to convert the rental units to condominiums.
The conversion process is complex, with many detailed steps. The following steps are suggested:
1. Consult with a real estate attorney
2. Conduct a market assessment
3. Retain a licensed professional to examine the property
4. Talk to a mortgage broker
5. Understand the role of the title company
6. Tenant Notice or Vacancy Exemption
7. Application process:
‒ Application
‒ Tenant history and provisions
‒ Inspection
‒ CC&Rs
‒ Site plan and floor plans
‒ Utility plan
‒ Tentative Parcel Map
‒ Subdivision Map
‒ Preliminary Title Report
‒ Affordable housing proposal, if applicable
8. Recordation of applicable paperwork
9. Post-conversion refinance and sales transactions.36
While apartment to condo conversions would reduce rental inventory, several policies exist to mitigate the threat of these conversions, including the prohibition of condo conversions for buildings over a certain number of units, requiring that landlords pay fair relocation costs, or providing current tenants the right of first refusal to purchase condominium units in the converted building. 36 Old Republic Title, “Understanding the Condo Conversion Process,” December 14, 2022 , https://www.linkedin.com/pulse/understanding-condo-conversion-process-oldrepublictitle/ (accessed May 2024).
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Impacts on Economic Inequality
Economists have made varying conclusions on how rent stabilization impacts inequality.
While rent control does not directly decrease income inequality, the benefits of housing, rental expenditure, and neighborhood stability are much more impactful for low-income households. Because rent stabilization is a broadly targeted policy, benefitting tenants regardless of their incomes, many economists have noted that the majority of the aggregate benefits of cheaper rent accrue to middle- and upper-income households.37
However, analysis of the aggregate benefits of lower rent does not consider the relative effect of stabilized rents on household of different incomes. Lower income families spend a much larger proportion of their incomes on rent—in 2017, 80 percent of low-income households spent more than 30 percent of their income on rent, compared to only 16 percent of high-income households.38 39 Thus, the income saving aspect of rent stabilization policies is much more impactful for lowincome households than higher-income households, even if the nominal dollar benefit is the same.
However, rent stabilization (along with the robust tenant protections that often accompany these policies) allow lower-income families to remain in neighborhoods even as rental prices and neighborhood incomes rise. As noted in the study of San Francisco rent stabilization, allowing low-income families to remain in place while the average income of in-migrants rises actually increases income inequality on a city-wide scale as the incomes of existing tenants and new residents diverge. However, these families, and especially young children, strongly benefit from housing stability in an improving neighborhood.
As noted above, low-income families displaced from gentrifying neighborhoods are often forced to move to neighborhoods with lower opportunity and higher environmental health risks. In addition, as average neighborhood incomes rise, children raised in these higher-income, higher-opportunity neighborhoods grow up to have significantly lower incarceration rates, much higher employment rates, 37 Ault, R. & Saba, R., 1990. The economic effects of long-term rent control: The case of New York City. The Journal of Real Estate Finance and Economics. Volume 3. 38 Kimberlin, S., 2019. California’s Housing Affordability Crisis Hits Renters and Households With the Lowest Incomes the Hardest. California Budget & Policy Center. 39 Low-income is less than 200 percent of the federal poverty line, while high-income is 400% or more of the federal poverty line.
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and higher incomes, regardless of the household income of the family they were raised in.40
In an economy such as Salinas where many workers cannot afford to live and may struggle to afford rent and prices rice, with elevated levels of overcrowding in residential units and high percentages of households that are cost burdened, rent stabilization can allow low-income households to remain in their neighborhoods even as the housing prices and average incomes rise.
Impacts on Property Values
Classical economics holds that rent stabilization potentially impacts property values by limiting the income earning potential of rental properties and potentially by reducing investment on building maintenance, leading to building deterioration. Although studies of strict rent control policies do show that such policies lead to significantly lower property values compared to uncontrolled rental properties, moderate rent stabilization policies allowing for vacancy decontrol and allowances for capital improvements have been shown to have little to no effect on property values.
The unanticipated elimination of rent stabilization in Massachusetts in 1995 provided economists with an opportunity to study the price effects on decontrolled properties. MIT researchers analyzed the elimination of rent stabilization in Cambridge and found that previously rent-controlled properties rose in assessed value by approximately 13 percent to 25 percent over the 10 years following rent decontrol. However, Cambridge’s rent control policy and implementation was extremely strict, with very limited annual allowable rent increases for inflation and no vacancy decontrol.
Alameda County’s experience with rent stabilization in the 1970s and 1980s also allowed for studying the effects of varying degrees of strictness. Of the 13 incorporated cities in the County, 1 (Berkeley) had strict rent control, with minimal allowed rent increases and no rent control, 2 (Hayward and Oakland) had more moderate rent stabilization policies, and the remaining 10 cities had no rent control or stabilization policies during the study period (1970-88). Although property values in Berkeley were approximately 50 percent lower than would have been expected during the study period, property values in Oakland and Hayward were unaffected by their more moderate policies.41 A similar study in New Jersey examined property values in 74 cities with moderate rent stabilization polices and 87 cities without rent stabilization policies. With over 40 years of data captured, 40 Kramer, M. How the neighborhood you grow up in affects your future. Available at:
https://projects.publicsource.org/pittsburgh-neighborhood-success/ 41 St. John, M., 1990. The Impact of Rent Controls on Property Value. UC Berkeley Fisher Center Working Papers. Available at: https://escholarship.org/uc/item/8c9648s1 Proposed Rent Stabilization Ordinance Analysis
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this study found that the rent stabilization policies had no significant impact on property values, with property appreciation rates amongst the cities driven much more strongly by median household income and other demographic factors.42 Impacts on Building Quality
Research on rent stabilization and building quality is ambiguous, due in large part to the difficulty in measuring building quality and levels of maintenance on a large scale. However, empirical research has found that moderate rent stabilization policies which allow landlords a return on investments in building improvement do not depress the amount of building maintenance. In Boston, rent stabilization regulations were found to lead to a decline in cosmetic maintenance although the author notes that such regulations did not appear to lead to “catastrophic failures” and that the end of such policies did not lead to an increase in “functional maintenance” of building systems such as windows, plumbing, and climate control. 43 Similarly, experience in Cambridge showed that the strict rent control regime there, combined with the low likelihood that the City would approve rent increases for property improvements, reduced property owners’ incentive to maintain or improve their units.44 Conversely, several researchers have found that the increased length of tenure allowed by rent stabilization policy increases tenants’ willingness to maintain their own units.45 46 Importantly, a study of moderate rent stabilization policies in North American cities find that such policies which allow for capitalization of building improvements and/or increase enforcement of housing codes find that these policies do not negatively impact owner investments in property upkeep and improvements. A key finding from that study is that “allow[ing] increases in the level of housing services [i.e. building improvements] to be valued at their market price,” is critical to ensuring that the price control aspect of rent stabilization policies does not depress investment in building upkeep and improvement.47 42 Ambrosius, J., et al., 2015. Forty years of rent control: Reexamining New Jersey’s moderate local policies after the great recession. Cities. Vol. 49. 43 2007 Sims MA rent control study - DocumentCloud
44 Autor, D.; Palmer, C.; and Pathak, P., 2014.
45 Gyourko, J., and Linneman, P. 1990. Rent Controls and Rental Housing Quality: A Note on the Effects of New York City’s Old Controls. Journal of Urban Economics Vol. 27, Issue 3. 46 Moon, Choon-Geol, and Janet G. Stotsky. 1993. The Effect of Rent Control on Housing Quality Change: A Longitudinal Analysis. The Journal of Political Economy Vol. 101, Issue 6. 47 Kutty, N. 2007. The impact of rent control on housing maintenance: A dynamic analysis incorporating European and North American rent regulations. Housing Studies. Vol. 11, Issue 1.
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However, when coupled with strong just-cause protections, rent stabilization has been found to provide leverage to tenants to advocate for improved conditions.
A study in Washington DC found that the share of physically deficient units decreased after rent stabilization when most tenants said they were more willing to insist on repairs.48
This discrepancy may be explained by the type of investments being examined.
While tenants may have added leverage to request repairs related to basic building functionality and health and safety requirements, landlords may have less of an incentive to make more cosmetic investments or add amenities designed to appeal to new tenants.
If Salinas does implement a rent stabilization ordinance it will be important to include strong just-cause protections and support for tenants to advocate for the health and safety of their living conditions.
Other Potential Impacts
There are many potential impacts of rent stabilization that have not been significantly studied. A few impacts that have been noted by researchers but have less empirical support are listed below:
• Sales tax impacts: Sales taxes may be impacted both positively and negatively by rent stabilization. Rent stabilization increases the discretionary income of renters, allowing households to spend money and boost the local economy.
Conversely, if rent stabilization were to limit the influx of higher income residents it may reduce the number of households that spend the most money on local services.
• Workforce Impacts: A lack of available housing can be a barrier to attracting and retaining employees. While the proposed ordinance would help existing renters remain in place, it may reduce the availability of housing for people moving to Salinas. A potential spatial mismatch between employment and worker populations can limit access to jobs.49 On the other hand, rent stabilization and subsequent housing stability may provide economic benefits through reduced worker turnover. Displacement and housing instability lead to 48 OurHomesOurFuture_Web_08-02-19.pdf
49 Four Reasons Why Employers Should Care about Housing | Housing Matters (urban.org) Proposed Rent Stabilization Ordinance Analysis
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absenteeism from work, reduced productivity, and higher turnover—people who experience eviction are up to 22 percent more likely to be laid off.50 • Improved educational outcomes: Children who move frequently have more absences and a lower likelihood of finishing school. Reduced displacement can lead to fewer moves for students and as a result, improved overall educational outcomes. In addition, rent stabilization may help teachers who are rent burdened to continue in their profession at their local school. • Demand for social services: The benefits of improving financial stability for renters can be significant.51 All else equal, financially stable households are less likely to need public benefits. As a result, increased housing stability can potentially decrease the need for government spending on food and housing assistance. This has the potential to reduce a city’s expenditures.
Case Study Research
A survey of the rent stabilization programs in comparative jurisdictions was completed to help examine the current requirements and fee amounts in cities with a similarly sized population and/or socioeconomic elements. The communities surveyed include the cities of Oxnard, Antioch, Mountain View, Oakland, and San Diego. Examining the rent stabilization elements in these communities provides insight into ordinance elements that are working well in other communities as well as concerns from the community. Table 3-1 provides a summary of the survey of the rent stabilization ordinances in the comparative jurisdictions.
Both Oxnard and Antioch only recently adopted their rent stabilization ordinances in 2022 and while Oxnard established a straight percentage limit of 4 percent, Antioch limits rent increases to the lesser of 3 percent or 60 percent of CPI.
Oakland adopted an amendment in 2022 to their rent stabilization ordinance, which was originally passed in 1980, to the same limits as Antioch. Mountain View limits rent increases to no less than 2 percent and no more than 5 percent.
As shown in Table 1-1, cities in California with rent stabilization ordinances have allowed increases ranging from a low of 50 percent of CPI up to a maximum 10 percent increase, which is the maximum increase per state law. The City of San Diego has chosen to adopt the AB 1482 rent cap, discussed in Chapter 1, which limits the rent increase to 5 percent plus the percentage change in CPI or 10 percent, whichever is lower.
50 Housing and Employment Insecurity among the Working Poor | Social Problems | Oxford Academic (oup.com)
51 Thriving Residents, Thriving Cities: Family Financial Security Matters for Cities (urban.org) DRAFT
Table 3-1 Page 1 of 3Case Study Item [1] Salinas Oxnard Antioch Mountain View Oakland San Diego [2] Richmond SacramentoSocioeconomic Factors (2023) Total Housing Units 43,649 54,494 36,850 35,973 175,640 531,259 39,245 197,362Households 157,083 195,793 114,712 83,311 409,417 1,307,002 111,924 505,137 Persons per Household 3.60 3.59 3.11 2.32 2.33 2.46 2.85 2.56 Renter-Occupied Housing
Total 22,437 22,668 13,637 20,589 96,383 264,566 96,383 941 Persons per Household 3.93 3.99 3.25 2.23 2.21 2.45 2.89 2.45 Renter Median Household Income $64,509 $68,872 $61,411 $153,279 $68,434 $75,291 $62,537 $56,131 Median Rent $1,795 $1,907 $2,150 $2,855 $1,849 $2,080 $1,853 $1,592Estimated Average Rent Burden 33% 33% 42% 22% 32% 33% 36% 34% % Rent Burden Households 52% 57% 62% 37% 48% 52% 56% 51% Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Peer City_ Matrix_7.30.24.xlsx 28 DRAFT
Table 3-1 Page 2 of 3Case Study Item [1] Salinas Oxnard Antioch Mountain View Oakland San Diego [2] Richmond SacramentoRent Stabilization Factors Article Name N/A Rent Stabilization Ordinance
No.3013
Rent Stabilization Ordinance No. 2219-C-S
Community Stabilization and Fair Rent Act
Rent Adjustment Program O.M.C. Section 8.22.010 (RAP)
N/A Richmond Fair Rent, Just
Cause for Eviction and Homeowner Protection Ordinance Chapter 11.100 Sacramento Tenant Protection Act Ordinance. 2019-0025 § 2 Municipal Code N/A Chapter 1 of Title 11, Section 11-
1.01 Part 1 Article 17 Title 8 Chapter 8.22 N/A Chapter 11.100 Title 5 Chapter 5.156 Tenant Protection
Year Adopted N/A 2022 2022 2016 1980 (Ordinance No. 9980 C.M.S.) but it was amended many times from 1980 to 2023. Current Ordinance is O.M.C. Section 8.22.010 et seq.) N/A 2017 2019
Expiration Year N/A 2030 N/A N/A - N/A N/A 2024Increase N/A Limits rent increases to one rent increase per 12-month period not to exceed 4%
Limits rent increases to one rent increase per 12-month period not to exceed lesser of 3% or 60% of the most recent 12-month increase in the CPI for All Urban Consumers in the San Francisco OaklandHayward Area Limits rents to no less than 2%, no more than 5%
In June 2022, the City Council has adopted an amendment to change the formula used to calculate the annual allowable rent increase to 60% of the change in CPI, or 3%, whichever is lower. (per 12-month period) N/A On November 8, 2022,
Richmond Measure P limit rent increases for regulated units to 3% or 60% of the Consumer Price Index, whichever is less. (per 12-month period) Evert April 1st the annual rent adjustment is 5% plus the percentage of the annual increase in the cost of living adjustment, if any, but not to exceed a combined total of 10%. A tenant may not waive this limitation on the increase in rent.
Fees N/A Fee amount not yet established. The
City is currently performing a research study.
Fee amount not yet established. $108 per unit $101 per unit N/A $220/Controlled rental unit $125/Partially covered rental unit
$20 flat rate
Other N/A - N/A -minimum of 3+ units The Oakland Rent Adjustment Ordinance allows an annual rent increase based on the regional Consumer Price Index (CPI) without a petition.If the owner does not give a RAP notice, the landlord cannot increase the rent until 6 months after the tenant receives the notice.
N/A N/A Staff can impose
administrative penalties against landlords for violation of the ordinance which can range from $100 to $25,000 per violation.
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Table 3-1 Page 3 of 3Case Study Item [1] Salinas Oxnard Antioch Mountain View Oakland San Diego [2] Richmond SacramentoRent Stabilization Factors Legal Issues N/A Passed in a 5-2 vote.
-Concern of not enough affordable housing stock. Fear that the new ordinances may exacerbate the housing shortage.
City Counsel voted 3-2 for a Rent Stabilization Ordinance. Concerns for Mom-and-Pop renters and disagreement with limit percentages.-Organizers claim renters in apartments received rent increases between $200 and $700 per month threatening to displace them. -Other speakers believe Antioch should build more homes not focus on rent control. -Landlords protested and requested regulations that do not affect base rent.-April (2024), the Rental Housing Committee in Mountain View rejected a proposal related to rent reduction guidelines in a 2-4 vote.-Mountain View experienced an increase in the number of petitions filed by tenants and appeals from tenants and landlords challenging the decisions of hearing officers.
The City Council voted 6-1 for an ordinance to stabilize rents.-Despite amending their Rent ordinance multiple times, at the time of the most recent ordinance amendment renters were claiming to have 7% rent increases, which could force them out of their home (in 2022).
N/A N/A A significant number of
landlords objected to the wording in the act, which was approved with a 7-to1 vote. Low-income residents also voiced their concerns during the meeting, stating that a 10 percent cap on yearly rent increases is inadequate.
Additional Renter Protection Programs N/A -Mobile Home Park Rent Stabilization (MHRS)-Tenant Protection Ordinance 3012-Just Cause-No-fault Just Cause Evictions Ordinance 3042-Urgency Ordinance Regarding NoFault Just Cause Evictions Ordinance 3041 -Tenant Protection Ordinance No. 2232-C-S-Bay Area Legal Aid-Contra Costa Senior Legal Services-California Civil Rights Department -Tuesday Tenant Legal Clinic -Housing Help Center for Tenants (HHC)-Fair Housing Services-Mediation Program -Emergency Assistance Program -Just Cause for Eviction Ordinance (Measure EE) Section 8.22.300-Tenant Protection Ordinance Section 8.22.600 -Residential Tenant Protections Ordinance 21647 N.S.-Housing Stability Assistance Program (COVID-19)-California Western Community Law Project-Legal Aid Society of San DiegoAffordable Housing Advocates-San Diego Regional Alliance for Fair Housing (SDRAFFH) -Renter Assistance Resources-Renter Relief Program-Richmond Rapid Response Fund (R3F) -Tenant Protection Program-Emergency Rental Assistance Program Grounds for Landlord Rent Increase Petitions
Landlord must substantiate their claim that the Ordinance has impeded their ability to achieve a fair return. Explanation of claim and accompanying evidence must satisfy the following condition: "The 4% annual limitation imposed by the City of Oxnard Rent Stabilization Ordinance has prevented the petition owner from receiving a fair and reasonable return on the [identified] property". - Maintenance of Net-Operating Income (MNOI)- MNOI with Amortized Operating Expenses (includes Capital Improvement costs and legal expenses)- Other GroundsApplicable factors Hearing Officer may consider when determining outcome of Fair Return Petition: - Changes in CPI - Time since last Rent increase or Rent increase application - Capital Improvements (inc. materials, labor, construction interest, permit fees) amortized over period not less than 60 months - Rehab work amortized over period not less than 36 months - Changes in property taxes or other taxes related to the subject real property - Changes in utility charges - Changes in reasonable operating and maintenance expenses - Repairs caused by circumstances other than ordinary wear and tear - Amount and quality of services - Maintenance of Net Operating Income (MNOI): "provides for rent increases if necessary to ensure that the net operating income earned in the petition year is at least equal to the inflationadjusted net operating income earned in the base year."- Specified Capital Improvement Petitions: allows a temporary increase in rent for qualifying improvements. The maximum increased allowed under this petition is: - Capped at 5% of annual rent (not including the Annual General Adjustment) - Amortized over a specific time period for each type of improvement - Limited by the number of units on the property (associated values reflect the maximum percentage of costs that can be passed through to tenants) - 1-5 units on property: 90% - 6-20 units on property: 75% - >20 units on property: 50% - Capital improvements: Allows a 70% cost pass-through (plus interest) to tenants, divided among affected units and amortized over the improvement's expected life.- Uninsured repair costs: Allows passthrough of costs for compliance-related repairs from natural disasters, not covered by insurance.- Increased Housing Service Costs: Permits rent increases above CPI due to rising net operating costs. Replaces CPI increase for the current year and applies to all units.- Fair Return: Allows rent increases when NOI indicates the owner is denied a fair return, replacing CPI increases for all years.- Banking: Deferred annual rent increases can be carried over ("banked) for up to 10 years without prior approval, unless combined with other petitions.- Additional Occupant(s): Allows up to a 5% rent increase for occupants exceeding the base level, excluding covered family members, legal guardians, and caretakers.- Tenant Not Residing in Unit as Principal Residence: Allows for unrestricted rent increase For its Section 8 Housing Choice Voucher program, the San Diego Housing Commission permits landlords to increase rents if the requested amount is deemed "reasonable." The SDHC determines this by evaluating comparable units within the same complex and the broader market. - Maintenance of Net Operating Income (MNOI)- Increase in Number of Occupants: Allows an increase of up to 15% for each additional occupant above base occupancy level, in addition to any Maximum Allowable Rent adjustment to which the Landlord is otherwise entitled. Excludes family members, legal guardians and caretakers. - Change in Space or Services: Increase in usable space or in Housing Services. Rent increase request commensurate with the cost increase associated with the change in space or service. - Restoration of Denied Annual General Adjustments: Allows landlords to recover AGAs previously denied due to code violations, non-payment of Rental Housing Fees, or failure to comply with orders from a Hearing Examiner or Rent Board (or other reasons).- Increase in Security Deposit Due to Addition of Pet(s) Six options for valid claims:- Cap improvements (a) necessary for safety and health and are not routine maintenance/repair or (b) substantial repair outside of normal wear and tear (uninsured disaster or vandalism) - "Unavoidable" increases in operating expenses- Increases in Housing Services costs- Tenant number increase leading to operating or capital improvement expense increases- Property tax increases above standard 2%- Cost of debt service due to purchase of the rental property by new owner.
Does not include refi or variable rate loan
Source: Cities of Oxnard, Antioch, Mountain View, Oakland, and San Diego; EPS. [2] The City of San Diego adopted the California Assembly Bill 1482 rent cap, which the limits rent increases to 5 percent plus the percentage change of CPI or 10 percent, whichever is lower.[1] California Assembly Bill 1482 also known as the Tenant Protection Act of 2019, was signed into law in September 2019 and it was established to address the state's housing affordability crisis by imposing statewide rent control measures and provide just cause eviction protection for tenants. The bill caps annual rent increases at 5 percent plus the local rate of inflation, with a maximum limit of 10 percent. In response to AB 1482, some cities in California have established additional rent stabilization ordinances to further protect tenants. These local ordinances often provide stricter rent control measures and additional tenant protection beyond the statewide law. However, there are exceptional cities that enacted rent control ordinances before the California Assembly Bill 1482, such as City of Oakland.
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As discussed later in Chapter 4, enforcing the rent stabilization ordinance creates the need for additional staffing at a cost to the City even if enforced on a complaint driven basis. To help alleviate some of the financial burden some jurisdictions opt to charge a fee to the property owners of the rent stabilized units. The cities of Oxnard and Antioch have not established their fee amounts, but plan to at a later time, Mountain View charges $108 per unit, and Oakland charges $101 per unit.
Rent stabilization concerns from the city’s council members and the communities included:
• The ordinance will negatively affect smaller “mom and pop” building owners, and it should be directed more at corporate owners.
• The City should focus on building more housing, not focusing solely on rent stabilization.
• The ordinance will dive up landlord costs causing them to go out of business, accelerating housing shortage, or corporate owners take over the buildings. • California Apartment Association representatives argue that protections are already covered by state law, AB 1482.
• The question of the equity of the economic effects created by the potential policy: for example, the ordinance will affect a landlord’s income, but for tenants the ordinance affects both their discretionary income and their access to housing.
Literature Review and Case- Study
Conclusions
The literature review and case study findings indicate the potential for the following positive and negative outcomes.
Pros to Rent Stabilization
• Reduces renter displacement by about 20 percent and has a significant impact in preventing the displacement of racial minorities and other vulnerable renter populations.
• Increased benefits to low-income households:
‒ Housing
‒ Decreased rental expenditure
‒ Neighborhood stability
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Cons to Rent Stabilization
• Very little to no negative effect on property value.
• Slight reduction in rental supply through condo-conversions, building redevelopment, and reduced tenant turnover.
• May increase rents as landlords’ reaction to the policy. • If the policy does NOT allow for increases of housing services to be valued at their market price it may disincentivize building improvements and maintenance.
While the jurisdictions analyzed in the case study implemented varying allowed rent income percentages and fee program amounts, one of the key takeaways is the emphasis on the importance of educating the community, property owners, and developers on rent stabilization. In addition, acknowledging that rent stabilization is not the single solution, it is one part of a larger toolkit, that along with other policies and incentives, can help alleviate some housing cost pressures.
Taken in combination with other policies that encourage additional supply, it can be part of a multi-pronged effort to improve the outlook for residents struggling to afford housing.
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Economic and Fiscal Impacts of
Rent Stabilization
This chapter describes the composition of the City’s housing supply and renter population to shed light on likely fiscal and economic implications of the Ordinance if approved, followed by discussion of the potential economic implications for the property owners.
Housing Supply
The City has over 44,500 total residential units with a 97 percent occupancy (43,070 occupied units). Of the total inventory, 52 percent comprises rental units and 51 percent is occupied by renters, as shown in Table 4-1 and Appendix A Table A-1, Table A-2, Table A-3, and Table A-4. All the rental properties would be subject to the just-cause portion of the proposed ordinance, however, because of the Costa-Hawkins Rental Housing Act, single-family homes, condos, and all housing built after 1995 are exempt from rent stabilization. As shown in Figure 2 and Table 4-1, Appendix Table A-5 and Table A-6, these statewide exemptions would cover 35 percent of the City’s rental inventory and 81 percent of total housing inventory. More than half of the City’s occupied housing comprises renters (53 percent), a rental housing portion 7 percentage points higher than the state overall (44 percent). As a result, whether Costa-Hawkins is repealed or maintained, the proposed Salinas ordinance would have some impact on the City’s housing market.
As noted in the literature review section, research indicates that rent stabilization has the potential to cause landlords to sell off units. Single-family homes are most likely to be sold in response to rent stabilization since they are the easiest to convert to for-sale housing as opposed to shifting multifamily rentals to condos; however, given that State law currently exempts single-family units from rent stabilization, the scale of conversion is likely to be relatively small unless California voters overturn Costa-Hawkins. Single-family attached and detached homes account for 38 percent of the City’s occupied rental housing.
If this portion of rental properties were sold in response to the ordinance, it may lead to a significant reduction in rental supply. Conversely, this phenomenon would also lead to an increase in for-sale housing which could increase home ownership opportunities. The fiscal impact of housing stock being sold in response to the proposed ordinance could lead to a short-term gain in property transfer taxes and an increase in property taxes because of a realignment of the taxes with market value. Conversely, over the long term, this phenomenon could decrease overall affordability in the rental market by reducing rental supply.
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Table 4-1. Summary of Housing Inventory as it Relates to Rent Stabilization: City of Salinas (2022)
Figure 2. Housing Inventory as it Relates to Rent Stabilization: City of Salinas (2022)
Item Total
Residential Units [1]
Total Units 44,503 100.0% 52.0%
Total Rental Inventory 23,132 52.0% 100.0%
Total Renter-Occupied 22,794 51.2% 98.5%
Total Exempt Units 36,173 81.3% 35.3%
Total Units Qualifying for Rent Stabilization 8,330 18.7% 36.0% Source: American Community Survey 5-Year Estimates; CoStar; EPS. [1] See Table A-6.
City of Salinas
% of Total
Housing
Inventory
Rental
Housing
Inventory
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Affordable Housing Supply
As shown in Table 4-2 and Appendix A Table A-7, the City has approximately 3,240 deed-restricted affordable housing units, most of which were constructed after 1995. These units are essentially already rent-stabilized and likely would not be impacted by the proposed ordinance.
Table 4-2. Affordable Housing Inventory: City of Salinas Residential Property Tax
Property tax accounts for about 21 percent of Salinas’ total General Fund revenues.52 Thus, to the extent that rent stabilization materially affects the performance of the City’s housing markets, the proposed Ordinance could affect the City’s fiscal outlook through property-related taxes. Rent stabilization policies can potentially impact property-related revenues in multiple ways, as described below:
• Conversion of rental housing to ownership: To the extent that the Ordinance incentivizes landlords to sell rental housing, these properties would be reassessed to prevailing market values. Because of Proposition 13, the assessed value of most property that has remained under the same ownership 52 https://www.cityofsalinas.org/files/sharedassets/city/v/1/finance/documents/fy_2023_adopted_o perating_budget.pdf
Item
Median
Year Built
Total
Units
% of
Rental
Housing
Affordable Housing [1]
Apartment Units 2003 2,654 11.5%
Other Afford. Units 1998 587 2.5%
Total Affordable Units 2001 3,241 14.0%
[1] See Table A-7.
City of Salinas
Source: Costar; HUD National Low Income Housing Tax Credit 1987- 2022 Data; EPS.
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for multiple years is typically well below its true market value.53 This pattern is often more acute for rental property which tends to exhibit lower market turnover rates relative to owner-occupied units. Thus, any increase in housing sales attributable to the Ordinance would likely generate an at least temporary increase in property-related tax revenues such as property tax, property transfer tax, and motor vehicle in-lieu payments. • Reduced Assessed Value of Rent Stabilized Properties: By limiting rent increases to a specified percentage of the CPI, the proposed Ordinance essentially mandates a gradual decline in the real rents of affected properties over time. This effect will, in turn, limit the income generating potential of these properties and ultimately their economic and market values. However, because of the impact of Proposition 13 on assessed values, as noted above, it is likely that only a portion of residential rental properties would be eligible for a reassessment in their taxable value. Specifically, recently transacted multifamily properties, that is, those that have been recently purchased, are most likely to have assessed values that are most closely aligned with prevailing market prices. In these circumstances, some new property owners may ultimately file assessment appeals if the values of their properties do not keep pace with inflation because real rental revenue is declining over time.
The impact of this effect on property taxes will depend on the portion of multifamily rental housing that was recently transacted. In the last 5 years, 74 multifamily properties have been sold in Salinas according to CoStar.
Almost 96 percent of these properties (71) were built before 1995 and would therefore be subject to rent stabilization. These properties are most at-risk for assessment repeals under the premise that the income stream estimated at purchase will now be restricted. The 71 properties account for 1,277 units, or
5.5 percent of the City’s total rental housing inventory. The potential impact of reassessments is likely to be more pronounced if Costa-Hawkins is overturned.
In addition to property tax payments, any change in property values would also impact the City’s property tax in-lieu of vehicle license fee revenue received from the State. The State sends cities these funds based on the gross assessed valuation of taxable property in the jurisdiction. Therefore, if the proposed ordinance were to result in a decrease (or increase) in assessed values, the city would receive lower (or higher) revenue from the State.
The significance of the potential impacts of rent stabilization on housing values and in turn, property taxes, depends on the value makeup of Salinas’ rental stock.
Based on 2023 assessed value data, residential property accounted for 67 percent 53 California passed Proposition 13 in 1978 to limit property tax increases. Property taxes are based on a property’s purchase price, each year thereafter, the property’s taxable value increases by 2 percent or the rate of inflation, whichever is lower.
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of the citywide assessed value. As shown in Table 4-3 and Figure 3, singlefamily properties comprised almost 82 percent of the residential assessed value, while multifamily rental units, including duplexes and triplexes, accounted for about 13 percent of residential assessed value. As noted previously, under CostaHawkins, rent stabilization will only apply to the portion of multifamily units that were built before 1995. Therefore, any property value impacts caused by the proposed ordinance will impact properties accounting for less than 13 percent of the City’s residential assessed value.
Table 4-3. Real Estate Assessed Values: City of Salinas (2023) Figure 3. Breakdown of the City of Salinas Assessed Value by Land Use (2023)
Item Total % of Total
Residential Land Use
Single-Family $11,637,215,636 81.9%
Multifamily $1,804,679,180 12.7%
Condo $662,840,239 4.7%
Mobile home Park $101,282,848 0.7%
Residential Total $14,206,017,903 100.0%
Total Citywide Assessed Value $21,169,840,831 67.1%
Source: ParcelQuest, Monterey County Secured Tax Roll, 2023; EPS.
City of Salinas
Residential Assessed Value
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Rent Pressures and Displacement
Salinas’ low-income households have experienced significant overcrowding and displacement pressures caused primarily by rising house prices and the influx of higher income households. Although Salinas has experienced a 23 percent increase in median income over the past decade, the growth has come from households with annual incomes above $75,000; the City experienced a net decrease in households in every income category below $75,000. The increase in household incomes may be explained by the increase in persons per household or increased income disparity.
Average rents for multifamily units have continually increased at a higher rate compared with the increase in the median income for renter-occupied household, as shown in Figure 4, with the exception of 2018 and 2022, which both followed years with very large percentage increase gaps between rents and income. Rents in multifamily buildings built before 1995 in Salinas have increased by 117 percent between 2000 and 2024, with an average vacancy of only
3.3 percent, as shown in Appendix A Table A-8.
In addition, as an agriculture-based economy, Salinas has a bifurcated population with farm workers that serve the community not being able to afford to live there.
A 2018 study done for the Salinas Valley and Pajaro Valley regions indicated a farmworker housing shortage of more than 45,500 units.54 As a result of the disparity between increases in rents and household incomes, lack of farmworker housing, overcrowding and displacement have become pressing issues facing the City of Salinas community creating overcrowding by causing households to double up or move, redistributing demand to south County and other locations.
In addition to the influx of higher income households, the cost of living in Salinas has remained high, in line with the County overall. As shown in Figure 4, rents have increased an average of about 5 percent each year since 2012, with a spike in rent between 2020 and 2021, with an almost 13 percent increase, and then resuming regular increases over the past 2 years.55 A little more than half of the City’s renter-occupied households remain rent-burdened, paying 30 percent or more of their household income on housing, as shown in Table 4-4. Rent54 Farmworker Housing Study and Action Plan for Salinas Valley and Pajaro Valley, prepared by California Institute for Rural Studies, June 2018.
55 The years time trend between 2012 to 2022 was analyzed based on availability of ACS data at the time this study was completed for renter household incomes, rents are based on CoStar which provides more up-to-date data out to the most recent completed month of the current year.
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burdened households have less money to spend on other essentials like food, transportation, healthcare, and childcare.
Figure 4. Year-Over-Year Percentage Change in Median RenterOccupied Household Income versus Average MFR Rent for Apartments Built Before 1995: City of Salinas: 2012-2022/2024 [1]
Source: CoStar; ACS 5-year Estimates Table B25119; BLS; EPS.
1.9% 2.7%
4.0%
11.5%
7.9%
7.6%
5.0%
2.4%
6.9%
12.8%
(3.2%)
6.4%
0.81%
(1.0%) (1.5%)
0.9% 1.3%
3.3%
1.2%
5.3%
2.8%
5.6% 2.4%
4.9%
(10.0%)
(5.0%)
0.0%
5.0%
10.0%
15.0%
20.0%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 Average MFR Rent Median Renter HH Income
[1] See Appendix A Table A-8 and Table A-9.
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Table 4-4. Rent-Burdened Households: City of Salinas (2012 & 2022) Based on renter mobility/displacement data, it appears that other economic factors may be more significant than rent stabilization in impacting renter movement. Table 4-5 compares the percentage of renters living in the same unit as the previous year in Salinas compared to other communities with rent stabilization. Mountain View adopted their rent stabilization in 2017, but continually shows significantly lower rates of renters staying in the same units than the state overall. This may be caused by a prevalence of students and young professionals that stay for short periods, which may also be a factor in San Diego.
Salinas and four of the comparative cities experienced an increase in renters remaining in the same unit between 2017 and 2022, there is likely two contributing factors, first rent stabilization ordinances and amendments were approved in 2022 in both Oxnard, Antioch, and Oakland and a likely result from a State approved a rent stabilization ordinance in 2020 that limited rent increases and prevented evictions until September 2021 San Diego adopted AB 1482 in 2023, indicating that the increase in renters staying longer in San Diego and Salinas were a likely result from a State approved a rent stabilization ordinance in 2020 that limited rent increases and prevented evictions until September 2021.
The decrease in housing movement may also be contributed by the ever-rising housing costs.
Item
Total Renter
Households
% of Total Renter
Households
Total Renter
Households
% of Total Renter
Households
Rent as a Percentage of
Household Income [1]
Less than 30% of Income 8,908 39.4% 10,245 44.9%
30% to 50% of Income 6,934 30.6% 6,086 26.7%
More than 50% of Income 6,007 26.5% 5,837 25.6%
Total Renter Households 22,637 100.0% 22,794 100.0%
2022
Source: American Community Survey 5-Year Estimates, Table B25070; EPS. [1] The US Department of Housing and Urban Development defines a household spending more than 30% of their income on housing as "rent burdened." Households spending more than 50% of their income on housing are considered "severely rent burdened." Approximately 612 households were not computed. 2012
City of Salinas
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Table 4-5. Renter Movement by City
Renter Household Socioeconomics
Literature indicates that current renting residents benefit the most from rent stabilization and eviction protections. However, because rent stabilization policies are not means tested, a question arises about the socioeconomic status of the intended beneficiaries. As shown in Table 4-6, renter-occupied households in Salinas have lower incomes per capita than households who own their homes.
Therefore, although the proposed ordinance is not means-tested, it will on average benefit households with lower than median incomes.
Table 4-6. City Salinas Median Income, Average Household Size, and Income Per Capita by Household Tenure: City of Salinas (2022) Item Salinas Antioch Oakland San Diego
2022
Renting HH's 88,229 91,491 44,663 46,179 232,184 653,750 Renters Living in the Same Unit as Previous Year 78,316 83,432 37,351 33,083 194,535 509,207 % of Renters Living in the Same Unit as Previous Year 89% 91% 84% 72% 84% 78% 2017
Renting HH's 86,183 98,722 43,516 44,122 235,423 692,471 Renters Living in the Same Unit as Previous Year 76,550 84,213 32,785 31,914 190,430 519,901 % of Renters Living in the Same Unit as Previous Year 89% 85% 75% 72% 81% 75% 2012
Renting HH's 83,660 87,636 37,825 41,497 211,425 624,587 Renters Living in the Same Unit as Previous Year 67,496 69,937 23,987 29,128 163,262 450,068 % of Renters Living in the Same Unit as Previous Year 81% 80% 63% 70% 77% 72% Source: ACS 2022 5-Year estimate Table B07013; EPS.
Oxnard
Mountain
View
Item
Household Tenure
Owner-occupied $107,679 3.32 $32,433
Renter-occupied $64,509 3.58 $18,019
Total Households $84,250 3.46 $24,350
Source: ACS 2022 5-Year estimate Table B25010 and Table B25119; EPS.
Median
Household
Income
Average
Household Size
Income per
Capita
City of Salinas
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In addition, the affordability crisis disproportionately affects people of color because these communities are over-represented in the renter population.
As shown in Table 4-7, Latinx (Hispanic or Latino) and Some Other Race residents in Salinas make up larger shares of the renter population than in the city overall. The pattern of disparity of affordability for people of color is not unique to Salinas, its prevalent in most U.S. cities driven primarily by a history of racially restrictive housing covenants, redlining, and discriminatory lending.
Because of existing racial disparities in home ownership, policies that protect renters like rent stabilization and just cause eviction protections are most likely to benefit Salinas’ Latinx residents.
Table 4-7. Householder Race: City of Salinas (2022)
Item
RenterOccupiedOwnerOccupied Citywide
Householder Race
White 24.1% 41.0% 32.1%
Latinx (Hispanic or Latino) 80.4% 59.3% 70.5%
Asian 4.4% 9.2% 6.6%
Some Other Race 60.8% 35.4% 48.9%
Two of More Races 8.0% 11.7% 9.7%
Black 1.6% 1.3% 1.5%
Indigenous (Native American and Alaksa Native) 0.2% 0.1% 0.1% Source: American Community Survey 5-Year Estimates Table S2502; EPS.
City of Salinas Housing Units
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Salinas’ renter population also skews younger than the City’s population overall.
As indicated in Table 4-8, residents above the age of 65 account for approximately 12 percent of the City’s renters, compared to residents under 35 which accounts for almost 30 percent of the renter population. Although older renters may be one of the groups most positively impacted by rent stabilization since many seniors live on fixed incomes. Noting that not every renter lives in a unit that falls under the rent stabilization building qualifications, the effect of the proposed ordinance will impact less than total renter population.
Table 4-8. Householder Age: City of Salinas (2022)
Item Total % Total % Total %
Householder Age
Under 35 years 6,468 28.4% 1,572 7.8% 8,040 18.7%
35 to 44 years 6,576 28.8% 3,564 17.6% 10,140 23.5%
45 to 54 years 4,563 20.0% 4,664 23.0% 9,227 21.4%
55 to 64 years 2,561 11.2% 4,565 22.5% 7,126 16.5%
Over 65 years 2,626 11.5% 5,914 29.2% 8,540 19.8%
Total 22,794 100.0% 20,279 100.0% 43,073 100.0%
Source: American Community Survey 5-Year Estimates Table S2502; EPS.
City of Salinas Housing Units
Renter-Occupied Owner-Occupied Citywide
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A comparison of the median renter income compared with average monthly rents between 2012 and 2022 for the peer cities reflects a large disparity between the increases in rent compared to increases in income for the cities with recent adoptions or no rent stabilization in place. See Table 4-9. The cities with recent or no rent stabilization in place including Salinas, Oxnard, Antioch, and San Diego experienced high increases in average rent ranging from about 38 percent up to almost 50 percent compared to proportionally lower increases in renter median household income from 18 percent to 33 percent. Both Mountain View and Oakland have had rent stabilization policies in place and both cities experienced higher increases in rent household incomes compared to increases in average rent. This indicates rent stabilization policies do actually help control increases in rent, helping maintain a balance in inflation.
Table 4-9. Median Renter Household Income compared to Average Monthly Rent (2012 and 2022)
Economic Impact on Property Owner
The proposed ordinance also needs to consider the implications of reduced rents for the property owners resulting from rent stabilization. While a rent stabilization policy restricts annual rent adjustments, costs of operating and maintaining residential properties to their current standard will continue to increase. However, with vacancy decontrol, vacated units revert to the current market rate, helping to offset some of reduction in rental revenue to landlords.
Item Salinas Oxnard Antioch Mountain View Oakland San Diego Year RSO Adopted -- 2022 2022 2016 1980
Median Renter Household Income (2022$)
2012 [1] $48,547 $55,058 $52,256 $100,070 $45,906 $60,767 2022 $64,509 $68,872 $61,411 $153,279 $68,434 $75,291
% Change 32.9% 25.1% 17.5% 53.2% 49.1% 23.9%
Average Monthly Effective Rent [2]
2012 $1,070 $1,193 $994 $2,050 $1,318 $1,289
2022 $1,859 $1,942 $1,647 $2,675 $1,701 $2,093
% Change 73.7% 62.8% 65.7% 30.5% 29.1% 62.4%
Percentage Point Difference Rent Inc. to Income 40.9% 37.7% 48.2% (22.68%) (20.02%) 38.5% Source: U.S. Census Bureau ACS 2012 & 2022, Table S1901; CoStar; EPS. [1] The median household incomes reported by ACS are inflation-adjusted to constant dollars. [2] This data reflects market rate multifamily apartment units built before 1995 from CoStar.
Comparable Cities
AB 1482 as of
2023
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Rental Revenue Impact
Each year a share of units in rent stabilized buildings/complexes will be vacated by existing tenants and replaced by new tenants. As noted above, with vacancy decontrol, the vacated units will be eligible for rental at current market rates.
It has been found that the average length of tenure in units, or turnover, decreases with rent stabilization by about 20 percent. For Salinas, a 20 percent reduction in turnover translates to an average turnover of 11 percent.
For purposes of analyzing the effects of rent stabilization on property owners, EPS modeled rental revenue and operating expenses for a hypothetical 100-unit existing apartment complex, occupied at the current market average occupancy rate of 97 percent, with current rents at the market average for pre-1995 apartments.
Several scenarios were modeled to compare the impact of different rent stabilization thresholds: Base Case using the recent market rent growth rate of 3.35 percent; 100 percent of CPI (currently 3 percent); 80 percent of CPI; and 60 percent of CPI. Estimated rent rolls were developed for each scenario, assuming each year 11 percent of units are vacated, re-rented at current market rents under the vacancy decontrol provision, and escalated annually per the assumed rate for that scenario.
The effect of the vacancy decontrol provision is a lessening of the overall reduction in potential rental revenues collected by landlords, while maintaining rent stabilization for existing tenants and for future tenants after occupancy.
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The overall effect on rental income for the 4 scenarios described above is shown in Figure 5.
Figure 5. Rental Revenue Differential: Market Rate vs Stabilization Alternatives
As shown in the illustration above, after factoring in vacancy decontrol, the estimated reduction in rental revenue by the tenth year of rent stabilization ranges from a 2 percent reduction with a rent growth cap at 100 percent of CPI to an 8 percent reduction with a rent growth cap at 60 percent of CPI.56 56 Assumes annual turnover of 11 percent (20 percent lower than current turnover without rent stabilization) and annual market rate rent growth of 3.35 percent. -2%
-5%
-8%
Market Rate
100% of CPI
80% of CPI
60% of CPI
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Figure 6 provides a summary of the estimated effective annual growth rate in rental revenue for different rent stabilization rates, after factoring in vacancy decontrol.
Figure 6. Effective Rent Roll Growth with Vacancy Decontrol by Rent Stabilization Rate
In low or moderate inflation years, stabilized rents will typically increase based on the adopted percent of CPI growth. However, in years with higher inflation, the adopted maximum rate of rent growth provides a cap on the rent increases that would otherwise be allowed based on the percentage of CPI. Figure 7 provides a comparison of the allowable rent increases at different rates of inflation (CPI) under alternative rent stabilization rates (65 percent to 75 percent of CPI), to illustrate at what level of inflation the adopted flat rates would take effect. The proposed flat rate caps would take effect at about 3.5 to 4.0 percent inflation (CPI).
Figure 7. Inflation and Corresponding Allowable Rental Increases Measure 60% 65% 70% 75% 80% 85% 90% 95% 100%
Effective Rent Roll Growth Rate [1][2] 2.50% 2.58% 2.66% 2.74% 2.83% 2.91% 2.99% 3.07% 3.16% Source: US Census; Costar; EPS.
[2] Compound Annual Growth Rate (CAGR).
Rent Stabilization Rate - % CPI
[1] Assumes 11% turnover (20% reduction from current state due to rent stabilization), average CPI of 3%, and vacancy decontrol market-based annual rent growth of 3.35% (based on recent historic average).
Consumer Price Index 2.0% 2.5% 3.0% 3.5% 3.75% 4.0% 4.5% 5.0% Allowable Rent Increases at Alternative Stabilization Rates 65% of CPI 1.3% 1.6% 2.0% 2.3% 2.4% 2.6% 2.9% 3.3%
70% of CPI 1.4% 1.8% 2.1% 2.5% 2.6% 2.8% 3.2% 3.5%
75% of CPI 1.5% 1.9% 2.3% 2.6% 2.8% 3.0% 3.4% 3.8%
Source: EPS.
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Financial Feasibility Summary
The financial feasibility analysis uses multi-year cash flows to compare investment returns of the hypothetical 100-unit apartment complex under a market rate base case scenario and 3 alternative rent stabilization scenarios.
The metric used to compare the alternative scenarios is the Internal Rate of Rate (IRR). IRR is a standard measure used in real estate analysis that evaluates the potential project return over time against the investment required, accounting for risk and the time-value of money. Technically, the IRR is the discount rate that equates the present value of the future cash inflows with the initial cash outflow.57 IRRs typically include an initial investment (acquisition), ongoing revenues and expenses, and reversion (sale) in the final year of analysis. For this analysis, acquisition of a hypothetical, existing, occupied 100-unti building was assumed, with resale after 10 years of operation.
IRRs can be categorized as either “leveraged” (also referred to as “levered”) or “unleveraged” (also referred to as “unlevered”). A leveraged IRR measures return on equity and compares initial equity investment and debt service, while an unleveraged IRR, sometimes referred to as a project IRR, compares the costs with the anticipated future revenues, without regard to the financing structure.
While most of buildings in question in Salinas are not necessarily changing ownership, the IRR requires some form of initial investment to be compared to the following cash flow, so in the hypothetical scenarios, a cap rate was applied to the NOI to estimate the initial investment (building purchase). 57 Brueggeman & Fisher, Real Estate Finance and Investments, Tenth Edition, 1997, Page 321.
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Net Operating Income Sensitivity Analysis
Figure 8 illustrates the leveraged and unleveraged IRRs for the hypothetical 100-unit apartment under the market rate base case scenario and 3 rent stabilization scenarios.
Figure 8. Internal Rate of Return Differential: Market-Rate Base Case vs. Alternative Rent Stabilization Scenarios
7.5%
8.0%
8.5%
8.7%
9.8%
11.0%
12.2%
12.5%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0%
60% of CPI
80% of CPI
100% of CPI
Market Rate
Leveraged IRR Unleveraged IRR
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Table 4-10 presents the same IRR sensitivity results illustrated above in tabular form, along with a comparison of the average annual growth rate in property value for the hypothetical apartment complex under the different scenarios. Note that for each rent stabilization scenario, operating expenses are assumed to increase at the same rate as CPI.
Table 4-10. IRR and Property Value Growth Sensitivity Analysis Detailed cash flow analyses including assumptions and prototype characteristics can be found in Appendix B. The rent stabilization allowed increases based on percentage of CPI options were chosen based on the average low and high of the rent stabilization requirements in other jurisdictions as shown in Table 1-1.
In addition, as discussed in Chapter 3, rent stabilization impacts renter turnover, with estimates of turnover rates decreasing by about 20 percent.
The rates of return in the sensitivity analysis would be considered low for a new construction project, but for a relatively low-risk investment in an existing, tenanted asset, the returns for scenarios with rent stabilization at 80 percent of CPI and 100 percent of CPI appear adequate and are not too dissimilar to the market rate base case returns. Projects entailing substantial new development and or/upgrades to existing product entail speculative market risk suggesting higher rates of return needed (e.g., 10 to 15 percent leveraged; 15 to 20 percent unleveraged), the hypothetical scenarios included in this analysis assume the purchase, operation, and sale of a stabilized and operating asset, where acceptable returns may be much lower in the absence of development risk.
A strong IRR for a lower risk, stable property is estimated to range from around 8 percent to 12 percent.
Property Value
Annual
Item Growth Rate Unleveraged Leveraged
Scenario
Market Rate Building 3.4% 8.7% 12.5%
Rent Stabilized Building [1]
60% of CPI 2.3% 7.5% 9.8%
80% of CPI 2.8% 8.0% 11.0%
100% of CPI 3.2% 8.5% 12.2%
Source: EPS.
[1] Includes 20% lower tenant turnover.
Value Comparison
Internal Rate of Return
(IRR)
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Impact of Operating Expense Growth
Operating expenses have been somewhat volatile in recent years, largely because of increases in utility costs and particularly insurance costs. Increases in operating costs impact the net operating income for multifamily rental units that are unable to pass along the total increased cost to tenants. Correspondingly, the return on investment for landlords can be negatively impacted. Figure 9 summarizes the effect higher operating expense growth has on the potential investment return at different rent stabilization rates (modeled using a 5 percent average growth in costs).
Figure 9. Internal Rate of Return Differential: Impact of 5 Percent Annual Operating Expense Growth
Compared to Figure 8, with operating expenses increasing at the overall rate of inflation, Figure 9 illustrates the lower rates of return resulting from higher operating expenses under different rent stabilization rates. At the more restrictive rent control rates, the rates of investor return are not significantly higher than what can be achieved with far less risk and effort through an investment account.
Under such a scenario, there may be increased incentive for landlords to exit the market. The inclusion of provisions for landlords to petition for rent increases to accommodate additional operating expenses is an important safety valve to prevent undue burden and potential loss of rental units. See Appendix A Table A-15 and Table A-16.
6.4%
7.0%
7.5%
7.9%
7.1%
8.6%
9.9%
10.7%
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0%
60% of CPI
80% of CPI
100% of CPI
Market Rate
Leveraged IRR Unleveraged IRR
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Peer Cities Feasibility Comparison
To compare the scenarios discussed above to the identified peer cities, EPS developed similar investment and operating pro formas, using the adopted rent stabilization rates and actual local market data for hypothetical 100-unit apartment complexes in each city.
The results of the peer city rent stabilization financial feasibility comparison are illustrated in Figure 10.
Figure 10. Peer Cities Hypothetical IRR Comparison
Antioch and Oakland both have rent stabilization rates at 60 percent of CPI.
Both Oxnard (4 percent maximum) and Mountain View (2-5 percent) were estimated to be roughly equivalent to CPI, while San Diego, based on AB 1482 allowing 5 percent plus the rate of inflation, was assumed to be the equivalent of 167 percent of CPI.
San Diego’s much higher allowable annual rent increase, combined with relatively high rents and high turnover, results in the highest rate of return of the peer cities. Mountain View’s high acquisition cost and currently low rate of market rent growth results in the lowest rate of return, along with Antioch, which limits rent growth to 60 percent of CPI and has the lowest market rent among the peer cities.
0% 2% 4% 6% 8% 10% 12% 14%
San Diego - 167% of CPI (est.)
Oakland - 60% of CPI
Mtn View - 100% of CPI (est.)
Antioch - 60% of CPI
Oxnard - 100% of CPI (est.)
Salinas - 60% of CPI
Salinas - 80% of CPI
Salinas - 100% of CPI
Salinas - Market Rate
Leveraged
Unleveraged
Note: Based on purchase, 10-year operation, and resale of prototypical existing, occupied 100-unit building/ complex using current local market variables. Leveraged analysis assumes 30% equity, 25-year loan at 6%.
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Program Implementation Costs to the
City
EPS conducted research to help estimate the costs of implementing and administering rent stabilization programs. EPS reviewed financial information from other city programs and interviewed staff from 3 jurisdictions with varying levels of rent stabilization: Mountain View, Hayward, and Richmond. This research confirmed that implementing and administering these programs requires full-time staff and associated equipment and office space. However, costs can vary significantly based on the level of enforcement and complimentary support services. The City envisions that if adopted the Rent Stabilization Program would consolidate with the existing Rental Registry Program, combining the existing costs with the estimated costs to implement the Rent Stabilization Program.
The estimated implementation costs for Salinas depend on the level of enforcement and subsequent staffing. The City estimates that their Rent Stabilization Program will be a complaint-driven enforcement program. To illustrate this range, EPS estimated staff at a minimum, average, and maximum level of complaint-based enforcement, as shown in Table 4-11, please note that these totals exclude the rental registry FTEs. The ratio of units per staff are based on a staffing level analysis of rent stabilization jurisdictions completed by Mountain View in 2021.
Table 4-11. Estimate Range of Required Staff
Item Total
Staffing Level
Minimum 0.13 1.1 1.9 3.0
Average 0.20 1.7 3.0 4.7
Maximum 0.50 4.2 7.2 11.4
Salinas Rental Units 8,330 14,464 22,794
Source: City of Mountain View Memorandum to the Rental Housing Committee, dated January 25, 20 y
Covered
Units
Complaint-Driven Rest Stabilization Enforcement
Estimated City of Salinas
FTEs Equivalent by Unit Type
(Excluding the Rental Registry)
[1] Based on varying fee levels for complaint-driven rent stabilization jurisdictions across California, sourced
Required
Staff per 1,000
Units [1]
Fully Covered
Units
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Based on data from other cities, the required staff for the City of Salinas would range from the equivalent of 4.2 to 11.4 net new hires (excluding the rental registry staff) or a percentage of existing employees’ time. At these levels, the primary role of the City employees would be to monitor the rental registry and rent stabilization program, educate the community, manage third party services and software, and manage the petition process. Education occupies the most core part of the program.
Even in a complaint-driven enforced rent stabilization program, staff communicated that education is key to keeping people informed of their rights.
Education includes preparing materials in multiple languages, direct mailing, and tabling at community events. With the minimum level of only 4.2 new staff members, or 5.1 FTEs total, Salinas would likely need to contract third party services for legal counsel, tenant relocation services, and mediation and dispute resolution. These services along with third party software are estimated to cost approximately $360,000 annually.
In each increasing level of staffing level scenario estimated below, there is the potential that fewer services would be contracted out, with City in-house staff completing all tasks in the maximum staffing level scenario. Under maximum staff, Salinas would actively oversee the rental registry which would involve reviewing every rent increase submitted by landlords. The City of Richmond demonstrates a staffing level of full enforcement, and the City of Mountain View is approaching this level by adding additional staff. Both cities, however, did not start their programs at full capacity, rather they began by contracting portions of the program and hiring full-time staff over time. Richmond staff noted that the first six months of the program cost about $1.1 million.
The program fee should be designed to recover costs of all budgeted operations:
• Personnel costs of staff, benefits, and overtime.
• Risk management of general and supplemental liability insurance. • Charges allocated to City Departments to reimburse the General Fund for administrative services by central service departments (i.e. City Council, City Manager, City Attorney, City Clerk, Finance, HR, etc.). • Information Technology expenses associated with a property and renttracking database and maintenance of computer hardware and software. • Legal costs to support enforcement and defense of legal challenges to the Ordinance.
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• Cost of education and outreach, including the printing and distribution of print material and ho sting of community workshop and seminars. • Contracts for translation and other professional services. • An operating reserve to fun unanticipated costs and variations in collection of the fee.58
Table 4-12 estimates the range of staff when combined with the Rental Registry Program and the associated costs.59 The Rental Registry Program is budgeted for
2.1 FTEs with a total estimated staffing cost of about $290,000 plus $110,000 for other costs, totaling almost $400,000. Combined with the estimated range of required Rent Stabilization staff increases and third-party services and software the FTEs from 5.1 up to 13.4 and total costs from $1.1 million up to $1.8 million.
Table 4-13 illustrates the potential fee amount for all rental units, including fully covered units (rent stabilization, tenant protections, and rental registry) and partially covered units (tenant protections and rental registry), which are exempt from Rent Stabilization. These fees are calculated to allow the City to essentially “break even” in covering the estimated costs of the required staff needed for the administration of the proposed Ordinance combined with the Rental Registry Program, as well as third-party services and software.
Looking at each program separately the fee ranges from $28 for the 14,464 exempt units to be part of the existing rental registry program, $135 per fully covered unit for the minimum of 5.1 staff members up to about $220 per fully covered unit for 13.4 staff members. The fully burdened cost of staff shown includes salaries, taxes, and benefits. These fees are higher than what would actually be because they are looking at each program separately. Table 4-14 provides an estimate of the fees with the rental registry, tenant protections, and rent stabilization combined program. Please note that the fee for partially covered units should be less than the fully covered unit fee. Other cities have fees ranging from about $60 for all units in San Francisco up to $344 per fully covered unit and $212 for partially covered units in Berkeley as shown in Appendix A Table A-13. 58 City of Richmond Rent Program, Adopted May 31, 2002, FY 2022-23 Budget and Rental Housing Fee Study.
59 Estimated staff and staff costs are based on the proposed budget amounts for the rental registry program per the Residential Registry Community Development Council Staff Report dated April 4, 2023.
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Table 4-12. Estimated Staffing and Annual Costs Rental Registry and Rent Stabilization Program
Item Assumptions Minimum Average Maximum
CITY COST
Number of Staff
Planning Manager - 0.1 0.1 0.2 0.5
Community Development Analyst - 1.0 0.5 0.5 1.7
Administrative Analyst - Housing - 1.0 0.5 1.0 2.0
Subtotal - 2.1 3.0 4.7 11.4
Total Combined with Rental Registry 5.1 6.7 13.4
Total Staffing Costs Cost per FTE [2]
Planning Manager $229,947 $11,497 $34,492 $57,487 $126,471 Community Development Analyst $158,720 $158,720 $238,080 $238,080 $428,545 Administrative Analyst - Housing $119,489 $119,489 $179,233 $238,977 $358,466 Subtotal Staffing Costs - $289,706 $451,805 $534,544 $913,481 Other Costs
Software & Systems Supporters - $10,000 $24,825 $32,715 $65,595 Tenant/Landlord Services and Resource - $100,000 $248,254 $327,147 $655,951 Subtotal Other Costs - $110,000 $273,079 $359,862 $721,546 Subtotal Staff Cost $399,706 $724,884 $894,406 $1,635,027 Third-Party Software + Services Estimate - $400,000 $300,000 $200,000 Total Cost $399,706 $1,124,884 $1,194,406 $1,835,027
Source: City of Salinas; EPS.
[3] Total Rent Stabilization Program costs include the total for the Rental Registry Program. ------------------------------------- FTEs ------------------------------------------- --------------------------- Cost by Staff Level [3]-------------------------------- Rental Registry + Rent Stabilization
Program Level of Enforcement Range [1]
[2] Staff costs are based on the proposed budget amounts for the rental registry program per the Residential Registry Community Development Council Staff Report dated April 4, 2023. [1] See Table 4-11
---------------------- Other Costs by Staff Level [3] --------------------------- g
Rental
Registry
Program
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Table 4-13. Estimated Annual Cost Variations: Rental Registry and Rent Stabilization Program
Table 4-14. Current Rental Registry Fee Comparison
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For the Rental Registry Program fee, the City currently charges a fee based on the number of units within a range per parcel. The initial goal was to not overcharge owners of smaller buildings; however, this fee structure actually provides a monetary break for larger developments and creates a financial loss to the City.
As shown in Table 4-14, the total estimated revenue based on the City’s current Rental Registry fee structure is about $207,000 compared to if the City changed a fee on a per unit basis. For illustrative purposes EPS used the estimated minimum cost of about $1.1 million to estimate a fee for the 14,464 partially covered units of $20 per unit per year and $115 for the 8,330 fully covered units, which would create a cost recovery of over $1.2 million.
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Conclusions and Recommendations
Conclusions
Rent regulations are increasingly prevalent in California. In cities like Salinas where apartments account for about 36 percent of the housing stock, the policy could have a range of potential impacts. As discussed previously, current state law limits the impact of rent stabilization by exempting single-family units, condominiums, and properties built after 1995 and allowing for vacancy decontrol (the ability to raise rent back to market rate after a tenant leaves).
For applicable units (19 percent of the City’s housing), the proposed Ordinance is likely to stabilize rents and decrease displacement risk, which is an important equity concern in the City. Thus, existing City renters would be the direct beneficiaries of the Ordinance, accruing long-term financial benefits and reduced risk of eviction. This benefit would come at a cost to existing Salinas landlords who could experience reduced rental income and limitations on removing unwanted tenants. However, the effects on income appear to be relatively modest particularly as the ordinance has policies to help protect hardships by allowing a landlord to petition for rent increase beyond the allowed rent stabilized increase to obtain a fair and reasonable return as well as petition to pass through to the tenant specific capital improvements. Conversely there is a policy that allows a tenant to petition for a rent reduction if they believe that the landlord has demanded, accepted, or retained any rent in excess of the rent permitted.
However, despite the clear and direct redistribution effects of the proposed Ordinance, the broader economic implications are likely to be modest absent the repeal of Costa-Hawkins, which would expand the incidence of rent control beyond the above-referenced 19 percent of the City’s housing.
While 19 percent of the City’s housing is not immaterial, the renter protections included in the Ordinance are likely to have both positive and negative impacts on the local economy and the City’s fiscal health. The positive impacts include reduced displacement as well as increased economic stability and disposable income for renters. The negative impacts may include reduced labor mobility and housing availability for new residents, as rent stabilization is shown to decrease turnover by about 20 percent and with vacancy in the City already extremely tight this exacerbates the limited housing options for new residents and the ability for existing residents to move, as discussed in Chapter 3.
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Rent stabilization is part of a toolkit that, along with other policies and incentives, can help alleviate some housing cost pressures. Taken in combination with other policies that encourage additional supply, it can be part of a multi-pronged effort to improve the outlook for residents struggling to afford housing.
Recommendations
Based on the findings from the literature review, economic impacts analysis, EPS recommends that City consider adopting a rent stabilization ordinances limiting the maximum increase of rent to the lesser of 2.5 percent or 65 percent of the Consumer Price Index for All Urban Consumers in the West or
2.75 percent or 75 percent of the Consumer Price Index for All Urban Consumers in the West.
The Rent Stabilization Ordinance should include strong tenant protections as well as clearly providing guidance on the types of units that would qualify in the event Costa-Hawkins is repealed. Strong tenant protections include Just Cause eviction protections as well as No-Fault evictions protections such as requiring landlords to pay fair relocation costs. See Appendix A Table A-1 for no-fault eviction within the California cities that have rent stabilization ordinances. An additional protections the City could consider is setting a cap on the number of units that can convert to condos within a year and providing current tenants the right of first refusal to purchase condo conversions.
The City should consider merging the Rent Stabilization Fee into the Rental Registry Fee and charge this fee on a per unit basis. The fee amount should differ based on unit type: fully covered units (rental registry, tenant protections, and rent stabilization should be higher than partially covered units (rental registry and tenant protections). The fee is to help the City recover the costs to run the program including staffing, third party services and software, community education, and program enforcement and should provide financial neutrality. Based on data from other cities, the additional staffing needed to establish, run, and maintain the Rent Stabilization ordinance ranges from the equivalent of 4.2 to 11.4 net new hires (excluding the rental registry staff) or a percentage of existing employees’ time. With the minimum level of only 4.2 new staff members, or 5.1 FTEs total, Salinas would likely need to contract third party services for legal counsel, tenant relocation services, and mediation and dispute resolution. As staffing increases beyond the 5.1, the amount of third-party source contracts will decrease.
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The City should consider including language in the ordinance establishing periodic reviews elements such as the rent increase caps, the number of petitions, staffing levels, fee amounts, etc. to ensure the program operates effectively for property owners, tenants and the City.
In addition, the City should take careful consideration to explicitly include any elements they would like to retain from Costa-Hawkins, such as exempting singlefamily homes, exempting new development, and providing vacancy decontrol.
If these are not included in the City’s ordinance, and the statewide ballot initiative set for the November 2024 ballot to repeal Costa-Hawkins passes, the local ordinance would apply to all rental housing—including single-family units—and rents would not reset to market for new tenants.
APPENDICES:
Appendix A: Demographic and Socioeconomic
Analysis Support Tables
Appendix B: Financial Analysis Support Tables
APPENDIX A:
Demographic and Socioeconomic
Analysis Support Tables
Table A-1 Units in Structure: City of Salinas.................................. A-1 Table A-2 Vacant Housing Units by Usage Category........................ A-2 Table A-3 Total Vacancy Rate...................................................... A-3 Table A-4 Tenure by Units In Structure ........................................ A-4 Table A-5 Tenure by Age of Structure: City of Salinas..................... A-5 Table A-6 Residential Inventory Characteristics:
City of Salinas ............................................................ A-6 Table A-7 Subsidized Affordable Housing Units .............................. A-7 Table A-8 Multifamily Housing Market Summary ............................ A-8 Table A-9 Household Income by Range......................................... A-9 Table A-10 Household Size and Tenure ........................................ A-10 Table A-11 Year Householder Moved into Unit ............................... A-11 Table A-12 Units Permitted by Year ............................................. A-12 Table A-13 Comparable Rent Stabilization Programs
Staffing and Fees ...................................................... A-13 Table A-14 Inflation Method Comparison ...................................... A-14 Table A-15 Household Operations and Furnishings
Price Index Change ................................................... A-15 Table A-16 Median Operating Expenses by Property Type ............... A-16 DRAFT
Table A-1City of SalinasRent Stabilization AnalysisUnits in Structure: City of Salinas (2022)Item Units % of Total Type of Unit
Single Detached Units 25,252 56.7%Single Attached Units 2,517 5.7%2-4 Units 3,602 8.1%5+ Units 11,019 24.8%Mobile Homes 2,113 4.7%Total Housing Units 44,503 100.0% Source: ACS; EPS.
2022
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DRAFT
Table A-2City of SalinasRent Stabilization AnalysisVacant Housing Units by Usage Category (2022)Item Units % of Total Units % of TotalVacant Housing Units For Rent 265 18.5% 1,589 12.4%
Unoccupied Rentals 73 5.1% 302 2.4% For-Sale 162 11.3% 565 4.4% Unoccupied Sold Units 165 11.5% 501 3.9%
Seasonal, Recreational, or Occasional Use
123 8.6% 6,290 49.3%
For Migrant Workers - - 95 0.7% Other 642 44.9% 3,428 26.8% Total Vacant 100.0% 1,430 12,770 100.0% Source: American Community Survey 5-Year Estimates Tables B25004; EPS.
Monterey County
2022 VACANT HOUSING UNITS
City of Salinas
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Table A-3City of SalinasRent Stabilization AnalysisTotal Vacancy Rate (2010-2023)Item City of Salinas Monterey CountyYear 2010 5.3% 9.4%
2011 5.3% 9.6%
2012 5.3% 9.6%
2013 5.5% 9.9%
2014 5.5% 10.0%
2015 5.5% 10.0%
2016 5.6% 10.3%
2017 5.6% 10.3%
2018 5.6% 10.5%
2019 5.7% 10.6%
2020 2.8% 8.2%
2021 2.9% 8.2%2022 2.9% 8.1%
2023 2.9% 8.1%
Source: California Department of Finance E-5; EPS.
Total Residential Vacancy Rate
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DRAFT
Table A-4City of SalinasRent Stabilization AnalysisTenure by Units In Structure (2012-2022)Item OwnerOccupied Renter Occupied Share Renter Occupied % of Unit Type Owner- Occupied Renter Occupied Share Renter Occupied % of Unit Type Total % Total % Unit Type
Detached Single-Family 15,409 6,834 30.7% 55.2% 17,392 7,234 29.4% 57.2% 1,983 12.9% 400 5.9%Attached Single-Family 1,140 1,456 56.1% 6.4% 1,031 1,457 58.6% 5.8% (109) (9.6%) 1 0.1% Duplex 38 815 95.5% 2.1% - 891 100.0% 2.1% (38) (100.0%) 76 9.3% 3 to 4 unit building 116 2,654 95.8% 6.9% 255 2,301 90.0% 5.9% 139 119.8% (353) (13.3%)5 + unit building 200 10,368 98.1% 26.2% 124 10,288 98.8% 24.2% (76) (38.0%) (80) (0.8%)Other 752 510 40.4% 3.1% 1,477 623 29.7% 4.9% 725 96.4% 113 22.2%Total 17,655 22,637 56.2% 100.0% 20,279 22,794 52.9% 100.0% 2,624 14.9% 157 0.7% Source: American Community Survey 2018-2022 5-Year Estimates, Table B25032; EPS.
Owner-Occupied
2021-2022 Change
2012 2022 Renter Occupied
City of Salinas
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Table A-5City of SalinasRent Stabilization AnalysisTenure by Age of Structure: City of Salinas (2022)Item Total % Total % Total % Total %Year Built 2020 or later 22 0.1% 13 0.1% 35 0.1% 35 0.1%Built 2010 to 2019 216 1.1% 621 2.7% 837 1.9% 845 1.9%Built 2000 to 2009 2,499 12.3% 1,921 8.4% 4,420 10.3% 4,645 10.4%Built 1990 to 1999 3,344 16.5% 3,753 16.5% 7,097 16.5% 7,258 16.3% Est. of units built between 1990 and 1994 751 3.7% 843 3.7% 1,593 3.7% 3,187 7.2% Built 1980 to 1989 2,147 10.6% 3,803 16.7% 5,950 13.8% 6,221 14.0%Built 1970 to 1979 3,384 16.7% 4,636 20.3% 8,020 18.6% 8,213 18.5%Built 1960 to 1969 3,005 14.8% 2,860 12.5% 5,865 13.6% 6,074 13.6%Built 1950 to 1959 2,607 12.9% 2,387 10.5% 4,994 11.6% 5,231 11.8%Built 1940 to 1949 1,553 7.7% 1,657 7.3% 3,210 7.5% 3,257 7.3%Built 1939 or earlier 1,502 7.4% 1,143 5.0% 2,645 6.1% 2,724 6.1% Total 20,279 100.0% 22,794 100.0% 43,073 100.0% 44,503 100.0% Built Before 1995 14,949 73.7% 17,329 76.0% 32,277 74.9% 34,907 78.4% Built 1995 or Later 5,330 26.3% 5,465 24.0% 10,796 25.1% 9,596 21.6% Source: American Community Survey 2018-2022 5-Year Estimates, Table B25034; EPS.
CITY OF SALINAS AGE OF RESIDENTIAL STRUCTURE
Tenure of Occupied Housing Units
Total Housing Units
[1] ACS data only provides data within 10-year timeframes; the number of units estimated to be built between 1990 and 1994 is based on the average percentage of permits pulled between those years within the 1990 to 1999 time period. See Table A-12.
Owner-Occupied Renter-Occupied Total
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Table A-6
City of Salinas
Rent Stabilization Analysis
Residential Inventory Characteristics: City of Salinas (2022) Item Source/Table Formula Total
Housing Inventory
Total Single Family Residential (SFR) Detached Table A-1 A 25,252 56.7% 28.6% Total Multifamily (MFR) and Other Table A-1 B 19,251 43.3% 82.6% Total Units 44,503 100.0% 52.0%
Total Occupied Units
Owner-Occupied SFR Table A-4 C 17,392 39.1% -
Owner-Occupied MFR Table A-4 D 2,887 6.5% -
Renter-Occupied SFR Table A-4 E 7,234 16.3% 31.3%
Renter-Occupied MFR Table A-4 F 15,560 35.0% 67.3%
Total Occupied Units G = C + D + E + F 43,073 96.8% -
Vacant Units
Owner/For-Sale Table A-2 H 327 0.7% -
Rental/For Rent Table A-2 I 338 0.8% 1.5%
Seasonal, Rec. Use, Migrant Workers, Other Table A-2 J 765 1.7% - Total Vacant Units K = H + I + J 1,430 3.2% -
Total Rental Unit Inventory L = E + F + I 23,132 52.0% 100.0% Units Exempt from Rent Stabilization
Built 1995 or Later
Total Owner-Occupied M = C + D + H 20,606 46.3% -
Renter-Occupied Built 1995 or Later Table A-5 N 5,465 12.3% 23.6% Multifamily Built 1995 or Later [1] CoStar O 2,022 4.5% 8.7% SFR Renter-Occupied E 7,234 16.3% 31.3%
Seasonal, Rec. Use, Migrant Workers, Other [2] J 765 1.7% - Built 1995 or Later Table A-5 P 24% - -
Rental/For Rent [3] Q = I * P 81 0.2% 0.4%
Total Exempt Units R = M + N + O + E + J + Q 81.3% 54.9% 36,173 Units Qualifying for Rent Stabilization
Renter-Occupied Built Prior to 1995 Table A-5 S 17,329 38.9% 74.9% Built Prior to 1995 Table A-5 T 76% - -
Rental/For Rent [3] U = I * T 257 0.6% 1.1%
Less Renter-Occupied SFR E (7,234) (16.3%) (31.3%)
Less Multifamily Built 1995 or Later O (2,022) (4.5%) (8.7%) Total Units Qualifying for Rent Stabilization V = S + U - E - O 8,330 18.7% 36.0% Source: American Community Survey 5-Year Estimates Table S2502; EPS. [1] Per CoStar.
[2] To remain conservative, EPS assumes seasonal, recreational, occasional use, migrant worker housing, and other are exempt from rent stabiliz [3] To estimate the year built for vacant rentals, EPS applied the percentage breakdown for renter-occupied units from Table A-5.
City of Salinas
% of Total
Housing
% that is Rental
Housing
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Table A-7
City of Salinas
Rent Stabilization Analysis
Subsidized Affordable Housing Units (April 2024)
Item Address Type Year Built
Total
Units Studio
OneBedroomTwoBedroomsThreeBedroomsFour BedRooms
Apartment Units
Moon Gate Plaza 21 Soledad Street Apartments 2017 90 81 4 5 - - Haciendas 3 40, 50, 60 East Rossi Street Apartments 2016 50 19 - 16 15 - Gabilan Plaza 736 Williams Rd. Apartments 2013 200 36 - 74 90 - Harden Ranch Apts 1907 Dartmouth Way Apartments 2013 100 16 - 20 48 16 Haciendas Apartments II 275 Calle Cebu Apartments 2012 46 - 20 6 17 3 One Haciendas 233 Calle Cebu Apartments 2011 52 - 27 9 14 3 Salinas Gateway Apts 25 Lincoln Ave Apartments 2011 52 25 21 6 - - Tresor Apts 1041 Buckhorn Dr Apartments 2009 81 - 24 - 41 16 La Gloria Senior Apts 539 E Market St Apartments 2009 23 23 - - - - Sherwood Village 808 N Main St Apartments 2006 124 102 - 22 - - Jardines Del Monte Apartments 1259 Del Monte Ave Apartments 2004 28 - - - - - Salinas Pointe Apts 1260 John St Apartments 2003 219 91 61 3 8 - Salinas Bay Apts 920 Larkin St Apartments 2002 95 - 25 - 60 10 Plaza Grande 50 E Market St Apartments 2002 92 91 1 - - - Montecito at Williams Ranch 1598 Mesquite Dr Apartments 2000 132 107 - 25 - - Steinbeck Commons Apts 10 Lincoln Ave Apartments 2000 100 99 - - - - Nantucket Bay Apts 950 Nantucket Blvd Apartments 1999 160 - 70 - 70 20 Plaza Club Apts 100 Harden Pkwy Apartments 1997 208 - 28 7 8 - Shadowbrook Apartments 1115-1118 Alamo Way Apartments 1988 88 20 - 38 30 - Vista De La Terraza 165-177 Carr Ave Apartments 1984 40 - 15 - 10 15 Las Casas de Madera 510 E Market St Apartments 1982 75 - 22 - 28 25 Lakeview 58 Natividad Rd Apartments 1982 50 - 28 - 13 9 Parkside Manor 1112-1115 Parkside St Apartments 1971 48 - - - - - Tynan Village 323 Front St Apartments 172 - 65 - 60 35 12 Santanna Apartments 1235 Garner Ave Apartments 160 - - - - - - Tesoros del Campos 42 La Posada Dr Apartments 57 - - - 8 43 6 Del Monte Plaza 1415 Del Monte Ave Apartments 44 - - - - - - Ocean View Apartments 44 Natividad Rd Apartments 40 - - 19 8 13 - Mariposa Apartments 300 Casentini St Apartments 21 - - - - - - - 775 Elkington Ave Apartments - 7 - - - - -
Subtotal Multifamily Units 2,654
Other Affordable
East Salinas Family Rad Scattered Sites Townhomes 2016 202 35 - 86 63 18 Los Abuelitos Senior Apts 528 E Market St Senior 2004 25 25 - - - - Mountain View Townhomes 1580 Falcon Dr Townhomes 2000 68 - 20 - 40 8 Addington Way Homes 288 Addington Ln Special Needs 1999 2 - - - 2 - Roosevelt Street Townhomes II 504 Roosevelt St Townhomes 1998 22 - - - 22 - Regency Court Senior 472 Regency Cir Senior 1997 119 96 - 24 - - Gabilan Hills Townhomes 1051-1057 Paseo Grande Townhomes 1995 100 - 32 - 34 34 Roosevelt Townhomes 522 Roosevelt St Townhomes 1995 22 - - - - - Plaza Hotel 30 E Market St SRO 1992 27 - - - - -
Subtotal Other Units 587
Total 3,241 200 594 626 526 139
Source: Costar; HUD National Low Income Housing Tax Credit 1987-2022 Data; EPS.
City of Salinas
[1] Some properties do not include the number of rooms as Costar and the Department of Housing and Urban Development (HUD) do not provide this information.
The absence of data may occur due to various reasons, such as privacy policies, incomplete records, or the nature of the reporting systems of these organizations.
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Table A-8
City of Salinas
Rent Stabilization Analysis
Multifamily Housing Market Summary (2012-2024)
Item
Year
2000 $920 - 2.4%
2001 $963 4.7% 3.3%
2002 $955 (0.8%) 4.0%
2003 $947 (0.8%) 4.3%
2004 $948 0.1% 4.3%
2005 $979 3.3% 4.0%
2006 $1,015 3.7% 3.9%
2007 $1,046 3.1% 3.4%
2008 $1,068 2.1% 3.7%
2009 $1,027 (3.8%) 4.1%
2010 $1,041 1.4% 4.1%
2011 $1,050 0.9% 4.5%
2012 $1,070 1.9% 4.1%
2013 $1,099 2.7% 3.7%
2014 $1,143 4.0% 3.1%
2015 $1,274 11.5% 2.8%
2016 $1,375 7.9% 3.0%
2017 $1,480 7.6% 2.4%
2018 $1,554 5.0% 2.1%
2019 $1,592 2.4% 2.7%
2020 $1,702 6.9% 2.4%
2021 $1,920 12.8% 2.4%
2022 $1,859 (3.2%) 2.8%
2023 $1,978 6.4% 2.8%
2024 $1,994 0.8% 2.7%
Average/
Total Change $1,280 3.4% 3.3%
Source: CoStar; EPS.
[1] This data reflects market rate multifamily apartment units built before 1995 in the City of Salinas.
City of Salinas Multifamily Housing [1]
Monthly Effective
Rent
% Change, Rent
Asked Vacancy Rate
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Table A-9City of SalinasRent Stabilization AnalysisHousehold Income by Range (2012 & 2022)Item 2012 [1] % 2022 % % Change 2012 [1] % 2022 % % ChangeIncome Range <$15,000 3,981 9.9% 2,550 5.9% (35.9%) 10,761 8.6% 6,915 5.3% (35.7%)$15,000 - $24,999 4,992 12.4% 2,718 6.3% (45.6%) 12,012 9.6% 6,667 5.1% (44.5%)$25,000 - $34,999 4,831 12.0% 2,589 6.0% (46.4%) 12,012 9.6% 8,369 6.4% (30.3%)$35,000 - $49,999 6,080 15.1% 4,355 10.1% (28.4%) 16,766 13.4% 12,560 9.6% (25.1%)$50,000 - $74,999 7,974 19.8% 7,111 16.5% (10.8%) 24,524 19.6% 19,240 14.7% (21.5%)$75,000 - $99,999 4,871 12.1% 6,638 15.4% 36.3% 15,891 12.7% 18,454 14.1% 16.1%$100,000 - $149,999 5,153 12.8% 8,963 20.8% 73.9% 19,394 15.5% 25,658 19.6% 32.3%$150,000 - $199,999 1,527 3.8% 3,924 9.1% 157.0% 6,882 5.5% 13,739 10.5% 99.6%$200,000+ 882 2.2% 4,225 9.8% 378.9% 6,882 5.5% 19,371 14.8% 181.5%Total 40,292 100.0% 43,073 100.0% 6.9% 125,123 100.0% 130,973 100.0% 4.7% Median Household Income in 2022$ $68,364 $84,250 23.2% $81,279 $91,043 12.0%Source: U.S. Census Bureau ACS 2012 & 2022, Table S1901; EPS.[1] The median household incomes reported by ACS are inflation-adjusted to constant dollars.
City of Salinas Monterey County
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Table A-10City of SalinasRent Stabilization AnalysisHousehold Size and Tenure (2012 and 2022)Item Total % Total %Renter-Occupied Households 1-person 3,973 17.6% 3,821 16.8% (3.83%)
2-person 16.4% 3,773 16.6% 1.40% 3,7213-person 16.6% 3,093 3,750 13.6% (17.52%)4+ -person 11,193 49.4% 12,107 53.1% 8.17% Total 100.0% 22,794 100.0% 0.69% 22,637
Owner-Occupied
1-person 15.0% 3,082 15.2% 16.39% 2,648
2-person 26.3% 5,112 25.2% 10.05% 4,6453-person 17.1% 3,211 15.8% 6.64% 3,0114+ -person 41.6% 8,874 43.8% 20.72% 7,351Total 100.0% 20,279 100.0% 14.86% 17,655 Source: American Community Survey 5-Year Estimates Table B25009; EPS. 2012 2022 Change
(2012-2022)
City of Salinas
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Table A-11City of SalinasRent Stabilization AnalysisYear Householder Moved into Unit Item Min Max Avg. Total % Total %
Year Householder Moved Into Unit
Moved in 2021 or later 0 - 1 0.5 20.4% 472 5,141 2.3%
Moved in 2018 to 2020 2 - 4 3 29.3% 2,254 7,406 11.0%
Moved in 2010 to 2017 5 - 12 8.5 30.8% 6,036 7,775 29.3% Moved in 2000 to 2009 13 - 22 17.5 14.4% 5,867 3,641 28.5%Moved in 1990 to 1999 23 - 32 27.5 3.6% 3,211 918 15.6% Moved in 1989 or earlier 33 + 33 1.4% 2,736 358 13.3%
Total 25,239 100.0% 20,576 100.0%Weighted Average Years Lived in Unit 7.6 16.5 Source: ACS 2022 5-Year estimates Table B25038; EPS.
Renter-Occupied
City of Salinas Households
Owner-Occupied
Years Lived
in Unit
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Table A-12
City of Salinas
Rent Stabilization Analysis
Units Permitted by Year (2000-2022)
Item 1-Unit 2-Unit
3- and 4-
Unit 5-Unit + Total
Year
1990 194 8 3 - 205
1991 160 8 3 - 171
1992 197 10 - 16 223
1993 275 - 7 27 309
1994 585 10 46 6 647
1995 431 4 9 98 542
1996 413 2 11 253 679
1997 628 - - 207 835
1998 500 - - - 500
1999 809 22 - 531 1,362
2000 579 4 18 50 651
2001 268 - - 160 428
2002 442 14 9 92 557
2003 257 - 14 273 544
2004 231 - 6 25 262
2005 224 - - 21 245
2006 119 - - - 119
2007 72 2 - 170 244
2008 24 2 8 58 92
2009 19 - - 18 37
2010 35 - 16 88 139
2011 7 - 8 10 25
2012 11 2 - - 13
2013 3 2 3 51 59
2014 30 - - 36 66
2015 46 2 - 46 94
2016 2 2 - 48 52
2017 26 - - - 26
2018 57 - - 106 163
2019 80 4 - 12 96
2020 96 - - 109 205
2021 64 4 - 130 198
2022 59 2 - - 61
Total 1990-2022 6,943 161 2,641 104 9,849
Average per Year (1990-2022) 217 3 5 83 308
Total 1995-2022 5,532 102 2,592 68 8,294
Average per Year (1995-2022) 205 3 4 96 307
City of Salinas
Source: United States Department of Housing and Urban Development State of the Cities Database; EPS.
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Table A-13City of SalinasRent Stabilization AnalysisComparable Rent Stabilization Programs Staffing and FeesItemJURISDICTION Actively Enforced Rent Programs
East Palo Alto 2,500 2 1,250 0.80 $234 NA 50%
Berkeley 20,000 22 909 1.10 $344 $212 50%Oakland 65,000 11 5,909 0.17 $101 NA 50%Richmond 18,000 13 1,385 0.72 $238 $135 0% Santa Monica 28,000 26 1,077 0.93 $228 NA 50%Total/Weighted Avg. 133,500 3,449 74 0.83 $185 -- Complaint Driven Rent Programs
Mountain View 15,000 5 3,000 0.33 $120 NA NA
West Hollywood 17,000 9 2,000 0.50 $144 $144 50%
San Jose 39,000 16 2,438 0.41 $106 $34 NA
San Francisco 173,000 5,581 31 0.18 $59 $59 50%Los Angeles 600,000 7,500 80 0.13 $39 NA 50% Total/Weighted Avg. 844,000 6,682 141 0.20 $50 --
Source: City of Mountain View Memorandum to the Rental Housing Committee, dated January 25, 2021; City Web Sites; EPS.
Portion of the Fee
Passed Through
to Tenants
Number of
Qualifying
Units
Staff per
1,000 Units
Number
of Units
per Staff
Staffing
FTEs
Fully Covered
Unit
Partially
Covered Unit
Current Rental Housing
Fees per Fully Covered Unit
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Table A-14City of SalinasRent Stabilization AnalysisInflation Method ComparisonYear Total 60% CPI 80% CPI Total Change 2014 240.215 226.9762015 243.015 0.70% 0.93% 226.12 -0.38%2016 247.705 1.16% 1.54% 226.814 0.31%2017 254.738 1.70% 2.27% 230.467 1.61%2018 263.263 2.01% 2.68% 236.871 2.78%2019 270.350 1.62% 2.15% 240.92 1.71%2020 275.057 1.04% 1.39% 243.674 1.14%2021 287.494 2.71% 3.62% 257.523 5.68%2022 310.509 4.80% 6.40% 280.63 8.97%2023 323.834 2.57% 3.43% 288.792 2.91%2024 [2] 331.933 1.50% 2.00% 294.262 1.89%Total Change (2014-2024) 22.91% 30.55% 29.64%Source: Bureau of Labor Statistics; and EPS. [1] Consumer Price Index for All Urban Consumers (CPI-U), West Region.[2] Values for 2024 indicate calendar year average through June.
CPI [1]
Annual Change CPI - Less Shelter
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Table A-15City of SalinasRent Stabilization AnalysisHousehold Operations and Furnishings Price Index ChangeYear HIOC COICOP 05 CPI2014 -1.38% -1.45% -0.86%2015 -0.43% -0.74% 0.48%2016 -0.86% -1.16% -0.18%2017 -0.77% -0.90% -0.53%2018 0.72% 0.55% 1.25%2019 1.75% 1.75% 2.30%2020 1.50% 1.75% 3.08%2021 4.49% 4.41% 3.29%2022 9.03% 9.16% 8.82%2023 2.93% 2.63% 2.86%Total Change (2014-2023) 19.47% 18.38% 23.16%CAGR (2014-2023) 1.63% 1.55% 1.98%Source: Bureau of Labor Statistics; and EPS. [1] Consumer Price Index for All Urban Consumers (CPI-U), West Region.[2] Values for 2024 indicate calendar year average through June.
Index Change from Previous Year
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Table A-16City of SalinasRent Stabilization AnalysisMedian Operating Expenses by Property Type (2011-2022)Item 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022Mid Rise Administration $668 $647 $643 $602 $627 $720 $688 $813 $836 $785 $855 $887 Repairs and Maintenance $1,067 $1,042 $1,031 $1,135 $1,106 $1,259 $1,263 $1,349 $1,480 $1,481 $1,741 $1,829 Utilities $833 $782 $838 $923 $871 $919 $928 $927 $1,022 $1,103 $1,020 $1,202Payroll $1,298 $1,347 $1,360 $1,380 $1,299 $1,471 $1,429 $1,455 $1,553 $1,658 $1,655 $1,837 Management Fee $485 $460 $491 $497 $422 $535 $523 $629 $708 $764 $778 $695Property Insurance $288 $298 $306 $286 $262 $239 $224 $332 $324 $421 $560 $739Total Mid Rise [1] $4,639 $4,576 $4,669 $4,823 $4,587 $5,143 $5,055 $5,505 $5,923 $6,212 $6,609 $7,189 Low Rise
Administration $557 $620 $594 $580 $631 $612 $588 $711 $744 $755 $741 $852 Repairs and Maintenance $839 $838 $917 $964 $974 $1,037 $1,075 $1,103 $1,236 $1,202 $1,308 $1,650 Utilities $694 $725 $775 $811 $793 $804 $793 $844 $876 $946 $966 $1,043Payroll $1,075 $1,101 $1,132 $1,172 $1,239 $1,228 $1,274 $1,336 $1,423 $1,482 $1,489 $1,639 Management Fee $392 $406 $421 $431 $420 $436 $443 $519 $589 $673 $707 $672Property Insurance $229 $250 $265 $275 $272 $281 $282 $311 $346 $395 $515 $528Total Low Rise [1] $3,786 $3,940 $4,104 $4,233 $4,329 $4,398 $4,455 $4,824 $5,214 $5,453 $5,726 $6,384 Single-family. Duplex and Townhomes
Administration $505 $525 $575 $552 $595 $659 $657 $681 $769 $753 $737 $787 Repairs and Maintenance $840 $908 $961 $1,000 $1,022 $1,119 $1,145 $1,131 $1,243 $1,253 $1,375 $1,554 Utiiities $669 $694 $749 $758 $800 $780 $750 $891 $912 $995 $872 $972Payroll $1,006 $1,074 $1,116 $1,091 $1,280 $1,203 $1,376 $1,416 $1,473 $1,625 $1,461 $1,605 Management Fee $364 $335 $330 $328 $454 $438 $481 $679 $729 $762 $705 $683Property Insurance $258 $293 $329 $309 $262 $258 $243 $265 $348 $318 $497 $542Total Single-family. Duplex and Townhomes [1 $3,642 $3,829 $4,060 $4,038 $4,413 $4,457 $4,652 $5,063 $5,474 $5,706 $5,647 $6,143 Average All
Administration $577 $597 $604 $578 $618 $664 $644 $735 $783 $764 $778 $842 Repairs and Maintenance $915 $929 $970 $1,033 $1,034 $1,138 $1,161 $1,194 $1,320 $1,312 $1,475 $1,678 Utiiities $732 $734 $787 $831 $821 $834 $824 $887 $937 $1,015 $953 $1,072Payroll $1,126 $1,174 $1,203 $1,214 $1,273 $1,301 $1,360 $1,402 $1,483 $1,588 $1,535 $1,694 Management Fee $414 $400 $414 $419 $432 $470 $482 $609 $675 $733 $730 $683Property Insurance $258 $280 $300 $290 $265 $259 $250 $303 $339 $378 $524 $603Total Average All $4,022 $4,115 $4,278 $4,365 $4,443 $4,666 $4,721 $5,131 $5,537 $5,790 $5,994 $6,572 Year-Over-Year Change (Average All Types)
Administration 3.58% 1.12% (4.30%) 6.86% 7.45% (2.91%) 14.07% 6.53% (2.38%) 1.74% 8.27%Repairs and Maintenance 1.53% 4.34% 6.53% 0.10% 10.09% 1.99% 2.87% 10.49% (0.58%) 12.40% 13.77%Utiiities 0.23% 7.31% 5.50% (1.12%) 1.58% (1.28%) 7.73% 5.56% 8.33% (6.11%) 12.56%Payroll 4.23% 2.44% 0.97% 4.80% 2.20% 4.54% 3.14% 5.75% 7.10% (3.36%) 10.34%Management Fee (3.22%) 3.41% 1.13% 3.18% 8.72% 2.70% 26.26% 10.89% 8.54% (0.41%) (6.39%) Property Insurance 8.52% 7.02% (3.33%) (8.51%) (2.26%) (3.73%) 21.23% 12.11% 11.39% 38.62% 15.08%Total Year Over Year Change 2.30% 3.95% 2.03% 1.79% 5.02% 1.17% 8.69% 7.92% 4.58% 3.52% 9.64% Compound Annual Growth Rate (2014-2020)Administration 3.50%Repairs and Maintenance 5.66%Utiiities 3.53%Payroll 3.78%Management Fee 4.67%Property Insurance 8.01%Total 4.56% Source: Novogradac, 2023. Low-Income Housing Tax Credit Income and Operating Expenses Report.
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APPENDIX B:
Financial Analysis Support Tables
Table B-1 Rent Stabilized Annual Cash Flow Estimate—
Market Rate Base Case ................................................ B-1 Table B-2 Rent Stabilized Annual Cash Flow Estimate—
100% of CPI .............................................................. B-2 Table B-3 Hypothetical Rent Stabilized Gross Rent Roll Estimate— 100% of CPI .............................................................. B-3 Table B-4 Rent Stabilized Annual Cash Flow Estimate—
100% of CPI .............................................................. B-4 Table B-5 Hypothetical Rent Stabilized Gross Rent Roll Estimate— 80% of CPI ................................................................ B-5 Table B-6 Rent Stabilized Annual Cash Flow Estimate—
60% of CPI ................................................................ B-6 Table B-7 Hypothetical Rent Stabilized Gross Rent Roll Estimate— 60% of CPI ................................................................ B-7 DRAFT
Appendix Table B-1
City of Salinas
Rent Stabilization Analysis
Rent Stabilized Annual Cash Flow Estimate - Market Rate Base Case Item Assumptions Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 10 Market Rent Increase 3.35%
Allowed Rent Increase (% of CPI) na
CPI (Inflation) 3.00%
Operating Expense Growth 3.00%
Gross Rental Revenue $2,388,000 $2,468,043 $2,550,768 $2,636,267 $2,724,631 $2,815,957 $3,320,609 Less Vacancy Loss @ 3.00% ($71,640) ($74,041) ($76,523) ($79,088) ($81,739) ($84,479) ($99,618) Net Rental Revenue - $2,316,360 $2,394,001 $2,474,245 $2,557,179 $2,642,892 $2,731,478 $3,220,991 Less Operations & Maintenance [1] @ 30.00% ($694,908) ($715,755) ($737,228) ($759,345) ($782,125) ($805,589) ($933,898) Net Operating Income (NOI) - $1,621,452 $1,678,246 $1,737,017 $1,797,834 $1,860,767 $1,925,890 $2,287,092 Capitalization Rate 6.00%
Building Value $27,024,200 $27,970,769 $28,950,289 $29,963,899 $31,012,782 $32,098,158 $38,118,207 Annual Change in Value 3.50% 3.50% 3.50% 3.50% 3.50% 3.50% 10-Year Average Annual
Appreciation Rate
3.50%
Return on Investment (ROI) 10-yr = 41.05% 3.50% 7.13% 10.88% 14.76% 18.78% 41.05% Hypothetical Acquisition
(Plus Acq. Cost)
@ 4.00% ($28,105,168)
Net Operating Income $1,678,246 $1,737,017 $1,797,834 $1,860,767 $1,925,890 $2,287,092 Reversion Value
(Less Marketing Cost)
@ 4.00% $36,593,478
Net Cash Flow ($28,105,168) $1,678,246 $1,737,017 $1,797,834 $1,860,767 $1,925,890 $38,880,571 Unleveraged IRR 8.84%
Leveraged IRR
Initial Equity Investment @ 30% -$8,431,550
Net Operating Income $1,678,246 $1,737,017 $1,797,834 $1,860,767 $1,925,890 $2,287,092 Debt Service - Principal (25-yr) @ 6.00% -$358,585 -$380,101 -$402,907 -$427,081 -$452,706 -$605,823 Debt Service - Interest (25-yr) @ 6.00% -$1,180,417 -$1,158,902 -$1,136,096 -$1,111,921 -$1,086,297 -$933,180 Reversion $36,593,478
Less Remaining Principal -$14,947,176
Net Proceeds to Developer Equity ($8,431,550) $139,244 $198,015 $258,831 $321,764 $386,887 $22,394,392 Leveraged IRR 12.88%
Source: CoStar; EPS.
[1] For market-rate base case example, op ex as percentage of rental income applied across all years.
Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Salinas_Cash_Flow_06_19-24 B-1
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Appendix Table B-2
City of Salinas
Rent Stabilization Analysis
Rent Stabilized Annual Cash Flow Estimate - 100% of CPI Item Assumptions Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 10 Market Rent Increase 3.35%
Allowed Rent Increase (% of CPI) 100.00%
CPI (Inflation) 3.00%
Operating Expense Growth 3.00%
Gross Rental Revenue $2,388,000 $2,460,562 $2,536,178 $2,614,897 $2,696,778 $2,781,881 $3,258,336 Less Vacancy Loss @ 3.00% ($71,640) ($73,817) ($76,085) ($78,447) ($80,903) ($83,456) ($97,750) Net Rental Revenue - $2,316,360 $2,386,745 $2,460,092 $2,536,450 $2,615,874 $2,698,425 $3,160,586 Less Operations & Maintenance [1] Yr 0 @ 30.00% ($694,908) ($715,755) ($737,228) ($759,345) ($782,125) ($805,589) ($933,898) Net Operating Income (NOI) - $1,621,452 $1,670,990 $1,722,864 $1,777,106 $1,833,749 $1,892,836 $2,226,688 Capitalization Rate 6.00%
Building Value $27,024,200 $27,849,834 $28,714,406 $29,618,425 $30,562,487 $31,547,270 $37,111,462 Annual Change in Value 3.06% 3.10% 3.15% 3.19% 3.22% 3.35% 10-Year Average Annual
Appreciation Rate
3.22%
Return on Investment (ROI) 10-yr = 37.33% 3.06% 6.25% 9.60% 13.09% 16.74% 37.33% Hypothetical Acquisition
(Plus Acq. Cost)
@ 4.00% ($28,105,168)
Net Operating Income $1,670,990 $1,722,864 $1,777,106 $1,833,749 $1,892,836 $2,226,688 Reversion Value
(Less Marketing Cost)
@ 4.00% $35,627,003
Net Cash Flow ($28,105,168) $1,670,990 $1,722,864 $1,777,106 $1,833,749 $1,892,836 $37,853,691 Unleveraged IRR 8.54%
Leveraged IRR
Initial Equity Investment @ 30% -$8,431,550
Net Operating Income $1,670,990 $1,722,864 $1,777,106 $1,833,749 $1,892,836 $2,226,688 Debt Service - Principal (25-yr) @ 6.00% -$358,585 -$380,101 -$402,907 -$427,081 -$452,706 -$605,823 Debt Service - Interest (25-yr) @ 6.00% -$1,180,417 -$1,158,902 -$1,136,096 -$1,111,921 -$1,086,297 -$933,180 Reversion $35,627,003
Less Remaining Principal -$14,947,176
Net Proceeds to Developer Equity ($8,431,550) $131,987 $183,862 $238,103 $294,747 $353,834 $21,367,513 Leveraged IRR 12.20%
Source: CoStar; EPS.
[1] After Year 0 for rent stabilization examples, operations and maintenance expenses increase at the rate of CPI.
Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Salinas_Cash_Flow_06_19-24 B-2
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Appendix Table B-3
City of Salinas
Rent Stabilization Analysis
Hypothetical Rent Stabilized Gross Rent Roll Estimate - 100% of CPI Item Assumptions Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Assumed Units 100
Year 0 Average Rent $1,990
Year 0 Vacancy Decontrol Rent $1,990
Average Number Years in Unit 9.11
Turnover 11.0%
Market Rent Increase 3.35%
Allowed Rent Increase (% CPI) 100.00%
CPI Inflation 3.00%
Gross Units by Occupancy Date
Year 0 (or before) 100.0 89.0 79.3 70.6 62.8 55.9 49.8 44.3 39.5 35.1 31.3 Year 1 - 11.0 9.8 8.7 7.7 6.9 6.1 5.5 4.9 4.3 3.9
Year 2 - - 11.0 9.8 8.7 7.7 6.9 6.1 5.5 4.9 4.3
Year 3 - - - 11.0 9.8 8.7 7.7 6.9 6.1 5.5 4.9
Year 4 - - - - 11.0 9.8 8.7 7.7 6.9 6.1 5.5
Year 5 - - - - - 11.0 9.8 8.7 7.7 6.9 6.1
Year 6 - - - - - - 11.0 9.8 8.7 7.7 6.9
Year 7 - - - - - - - 11.0 9.8 8.7 7.7
Year 8 - - - - - - - - 11.0 9.8 8.7
Year 9 - - - - - - - - - 11.0 9.8
Year 10 - - - - - - - - - - 11.0
Total Units 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Average Rent by Occupancy Date
Year 0 (or before) $1,990 $2,050 $2,111 $2,175 $2,240 $2,307 $2,376 $2,447 $2,521 $2,596 $2,674 Year 1 - $2,057 $2,118 $2,182 $2,247 $2,315 $2,384 $2,456 $2,529 $2,605 $2,684 Year 2 - - $2,126 $2,189 $2,255 $2,323 $2,392 $2,464 $2,538 $2,614 $2,693 Year 3 - - - $2,197 $2,263 $2,331 $2,401 $2,473 $2,547 $2,623 $2,702 Year 4 - - - - $2,271 $2,339 $2,409 $2,481 $2,555 $2,632 $2,711 Year 5 - - - - - $2,347 $2,417 $2,490 $2,564 $2,641 $2,720 Year 6 - - - - - - $2,425 $2,498 $2,573 $2,650 $2,730
Year 7 - - - - - - - $2,507 $2,582 $2,659 $2,739
Year 8 - - - - - - - - $2,591 $2,668 $2,748
Year 9 - - - - - - - - - $2,677 $2,758
Year 10 - - - - - - - - - - $2,767
Gross Rent $2,388,000 $2,460,562 $2,536,178 $2,614,897 $2,696,778 $2,781,881 $2,870,277 $2,962,038 $3,057,244 $3,155,980 $3,258,336 Source: US Census; Costar; EPS.
Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Salinas_Cash_Flow_06_19-24 B-3
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Appendix Table B-4
City of Salinas
Rent Stabilization Analysis
Rent Stabilized Annual Cash Flow Estimate - 80% of CPI
Item Assumptions Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 10 Market Rent Increase 3.35%
Allowed Rent Increase (% of CPI) 80.00%
CPI (Inflation) 3.00%
Operating Expense Growth 3.00%
Gross Rental Revenue $2,388,000 $2,447,807 $2,511,406 $2,578,768 $2,649,874 $2,724,718 $3,155,573 Less Vacancy Loss @ 3.00% ($71,640) ($73,434) ($75,342) ($77,363) ($79,496) ($81,742) ($94,667) Net Rental Revenue - $2,316,360 $2,374,372 $2,436,064 $2,501,405 $2,570,377 $2,642,976 $3,060,905 Less Operations & Maintenance [1] Yr 0 @ 30.00% ($694,908) ($715,755) ($737,228) ($759,345) ($782,125) ($805,589) ($933,898) Net Operating Income (NOI) - $1,621,452 $1,658,617 $1,698,836 $1,742,060 $1,788,252 $1,837,387 $2,127,007 Capitalization Rate 6.00%
Building Value $27,024,200 $27,643,618 $28,313,934 $29,034,334 $29,804,206 $30,623,123 $35,450,120 Annual Change in Value 2.29% 2.42% 2.54% 2.65% 2.75% 3.09% 10-Year Average Annual
Appreciation Rate
2.75%
Return on Investment (ROI) 10-yr = 31.18% 2.29% 4.77% 7.44% 10.29% 13.32% 31.18% Hypothetical Acquisition
(Plus Acq. Cost)
@ 4.00% ($28,105,168)
Net Operating Income $1,658,617 $1,698,836 $1,742,060 $1,788,252 $1,837,387 $2,127,007 Reversion Value
(Less Marketing Cost)
@ 4.00% $34,032,115
Net Cash Flow ($28,105,168) $1,658,617 $1,698,836 $1,742,060 $1,788,252 $1,837,387 $36,159,122 Unleveraged IRR 8.01%
Leveraged IRR
Initial Equity Investment @ 30% -$8,431,550
Net Operating Income $1,658,617 $1,698,836 $1,742,060 $1,788,252 $1,837,387 $2,127,007 Debt Service - Principal (25-yr) @ 6.00% -$358,585 -$380,101 -$402,907 -$427,081 -$452,706 -$605,823 Debt Service - Interest (25-yr) @ 6.00% -$1,180,417 -$1,158,902 -$1,136,096 -$1,111,921 -$1,086,297 -$933,180 Reversion $34,032,115
Less Remaining Principal -$14,947,176
Net Proceeds to Developer Equity ($8,431,550) $119,615 $159,833 $203,057 $249,250 $298,385 $19,672,944 Leveraged IRR 11.02%
Source: CoStar; EPS.
[1] After Year 0 for rent stabilization examples, operations and maintenance expenses increase at the rate of CPI.
Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Salinas_Cash_Flow_06_19-24 B-4
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Appendix Table B-5
City of Salinas
Rent Stabilization Analysis
Hypothetical Rent Stabilized Gross Rent Roll Estimate - 80% of CPI Item Assumptions Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Assumed Units 100
Year 0 Average Rent $1,990
Year 0 Vacancy Decontrol Rent $1,990
Average Number Years in Unit 9.11
Turnover 11.0%
Market Rent Increase 3.35%
Allowed Rent Increase (% CPI) 80.00%
CPI Inflation 3.00%
Gross Units by Occupancy Date
Year 0 (or before) 100.0 89.0 79.3 70.6 62.8 55.9 49.8 44.3 39.5 35.1 31.3 Year 1 - 11.0 9.8 8.7 7.7 6.9 6.1 5.5 4.9 4.3 3.9
Year 2 - - 11.0 9.8 8.7 7.7 6.9 6.1 5.5 4.9 4.3
Year 3 - - - 11.0 9.8 8.7 7.7 6.9 6.1 5.5 4.9
Year 4 - - - - 11.0 9.8 8.7 7.7 6.9 6.1 5.5
Year 5 - - - - - 11.0 9.8 8.7 7.7 6.9 6.1
Year 6 - - - - - - 11.0 9.8 8.7 7.7 6.9
Year 7 - - - - - - - 11.0 9.8 8.7 7.7
Year 8 - - - - - - - - 11.0 9.8 8.7
Year 9 - - - - - - - - - 11.0 9.8
Year 10 - - - - - - - - - - 11.0
Total Units 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Average Rent by Occupancy Date
Year 0 (or before) $1,990 $2,038 $2,087 $2,137 $2,188 $2,241 $2,294 $2,349 $2,406 $2,464 $2,523 Year 1 - $2,057 $2,106 $2,157 $2,208 $2,261 $2,316 $2,371 $2,428 $2,486 $2,546 Year 2 - - $2,126 $2,177 $2,229 $2,282 $2,337 $2,393 $2,451 $2,510 $2,570 Year 3 - - - $2,197 $2,250 $2,304 $2,359 $2,416 $2,473 $2,533 $2,594 Year 4 - - - - $2,271 $2,325 $2,381 $2,438 $2,496 $2,556 $2,618 Year 5 - - - - - $2,347 $2,403 $2,461 $2,520 $2,580 $2,642 Year 6 - - - - - - $2,425 $2,483 $2,543 $2,604 $2,667
Year 7 - - - - - - - $2,507 $2,567 $2,628 $2,691
Year 8 - - - - - - - - $2,591 $2,653 $2,716
Year 9 - - - - - - - - - $2,677 $2,742
Year 10 - - - - - - - - - - $2,767
Gross Rent $2,388,000 $2,447,807 $2,511,406 $2,578,768 $2,649,874 $2,724,718 $2,803,306 $2,885,654 $2,971,789 $3,061,747 $3,155,573 Source: US Census; Costar; EPS.
Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Salinas_Cash_Flow_06_19-24 B-5
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Appendix Table B-6
City of Salinas
Rent Stabilization Analysis
Rent Stabilized Annual Cash Flow Estimate - 60% of CPI
Item Assumptions Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 10 Market Rent Increase 3.35%
Allowed Rent Increase (% of CPI) 60.00%
CPI (Inflation) 3.00%
Operating Expense Growth 3.00%
Gross Rental Revenue $2,388,000 $2,435,051 $2,486,771 $2,543,027 $2,603,707 $2,668,724 $3,056,973 Less Vacancy Loss @ 3.00% ($71,640) ($73,052) ($74,603) ($76,291) ($78,111) ($80,062) ($91,709) Net Rental Revenue - $2,316,360 $2,361,999 $2,412,168 $2,466,736 $2,525,596 $2,588,662 $2,965,264 Less Operations & Maintenance [1] Yr 0 @ 30.00% ($694,908) ($715,755) ($737,228) ($759,345) ($782,125) ($805,589) ($933,898) Net Operating Income (NOI) - $1,621,452 $1,646,244 $1,674,940 $1,707,391 $1,743,471 $1,783,073 $2,031,366 Capitalization Rate 6.00%
Building Value $27,024,200 $27,437,403 $27,915,664 $28,456,517 $29,057,852 $29,717,886 $33,856,095 Annual Change in Value 1.53% 1.74% 1.94% 2.11% 2.27% 2.85% 10-Year Average Annual
Appreciation Rate
2.28%
Return on Investment (ROI) 10-yr = 25.28% 1.53% 3.30% 5.30% 7.53% 9.97% 25.28% Hypothetical Acquisition
(Plus Acq. Cost)
@ 4.00% ($28,105,168)
Net Operating Income $1,646,244 $1,674,940 $1,707,391 $1,743,471 $1,783,073 $2,031,366 Reversion Value
(Less Marketing Cost)
@ 4.00% $32,501,852
Net Cash Flow ($28,105,168) $1,646,244 $1,674,940 $1,707,391 $1,743,471 $1,783,073 $34,533,217 Unleveraged IRR 7.49%
Leveraged IRR
Initial Equity Investment @ 30% -$8,431,550
Net Operating Income $1,646,244 $1,674,940 $1,707,391 $1,743,471 $1,783,073 $2,031,366 Debt Service - Principal (25-yr) @ 6.00% -$358,585 -$380,101 -$402,907 -$427,081 -$452,706 -$605,823 Debt Service - Interest (25-yr) @ 6.00% -$1,180,417 -$1,158,902 -$1,136,096 -$1,111,921 -$1,086,297 -$933,180 Reversion $32,501,852
Less Remaining Principal -$14,947,176
Net Proceeds to Developer Equity ($8,431,550) $107,242 $135,937 $168,388 $204,469 $244,071 $18,047,039 Leveraged IRR 9.79%
Source: CoStar; EPS.
[1] After Year 0 for rent stabilization examples, operations and maintenance expenses increase at the rate of CPI.
Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Salinas_Cash_Flow_06_19-24 B-6
DRAFT
Appendix Table B-7
City of Salinas
Rent Stabilization Analysis
Hypothetical Rent Stabilized Gross Rent Roll Estimate - 60% of CPI Item Assumptions Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Assumed Units 100
Year 0 Average Rent $1,990
Year 0 Vacancy Decontrol Rent $1,990
Average Number Years in Unit 9.11
Turnover 11.0%
Market Rent Increase 3.35%
Allowed Rent Increase (% CPI) 60.00%
CPI Inflation 3.00%
Gross Units by Occupancy Date
Year 0 (or before) 100.0 89.0 79.3 70.6 62.8 55.9 49.8 44.3 39.5 35.1 31.3 Year 1 - 11.0 9.8 8.7 7.7 6.9 6.1 5.5 4.9 4.3 3.9
Year 2 - - 11.0 9.8 8.7 7.7 6.9 6.1 5.5 4.9 4.3
Year 3 - - - 11.0 9.8 8.7 7.7 6.9 6.1 5.5 4.9
Year 4 - - - - 11.0 9.8 8.7 7.7 6.9 6.1 5.5
Year 5 - - - - - 11.0 9.8 8.7 7.7 6.9 6.1
Year 6 - - - - - - 11.0 9.8 8.7 7.7 6.9
Year 7 - - - - - - - 11.0 9.8 8.7 7.7
Year 8 - - - - - - - - 11.0 9.8 8.7
Year 9 - - - - - - - - - 11.0 9.8
Year 10 - - - - - - - - - - 11.0
Total Units 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Average Rent by Occupancy Date
Year 0 (or before) $1,990 $2,026 $2,062 $2,099 $2,137 $2,176 $2,215 $2,255 $2,295 $2,337 $2,379 Year 1 - $2,057 $2,094 $2,131 $2,170 $2,209 $2,249 $2,289 $2,330 $2,372 $2,415 Year 2 - - $2,126 $2,164 $2,203 $2,243 $2,283 $2,324 $2,366 $2,408 $2,452 Year 3 - - - $2,197 $2,236 $2,277 $2,318 $2,359 $2,402 $2,445 $2,489 Year 4 - - - - $2,271 $2,311 $2,353 $2,395 $2,438 $2,482 $2,527 Year 5 - - - - - $2,347 $2,389 $2,432 $2,476 $2,520 $2,566 Year 6 - - - - - - $2,425 $2,469 $2,513 $2,559 $2,605
Year 7 - - - - - - - $2,507 $2,552 $2,598 $2,644
Year 8 - - - - - - - - $2,591 $2,637 $2,685
Year 9 - - - - - - - - - $2,677 $2,726
Year 10 - - - - - - - - - - $2,767
Gross Rent $2,388,000 $2,435,051 $2,486,771 $2,543,027 $2,603,707 $2,668,724 $2,738,005 $2,811,499 $2,889,170 $2,970,997 $3,056,973 Source: US Census; Costar; EPS.
Prepared by EPS 8/14/2024 Z:\Shared\Projects\SAC\242000\242050 Salinas Rent Stablization\Model\242050_Salinas_Cash_Flow_06_19-24 B-7