Proposed rent stabilizationOrdinance
City of Salinas
content
Introduction and Background
Who does Rent Stabilization affect?
California Rent Stabilization
Local effects
Literature Review
Key Topics and Findings
Overall Conclusions and Recommendations
Introduction and background
Data sources
EPS used the most up-to-date and reliable data sources including, but not limited to:
US Census ACS, HUD, CoStar, ParcelQuest, County of Monterey, DOF EPS surveyed other cities with rent stabilization programs to help inform:
Recommended rent limit percentages
Tenant protections
Staffing amount and costs
Fee recommendation ranges
Introduction to rent stabilization
ONLY applies to the following residential units:
Multifamily Rental dwelling units
Must be built BEFORE February 1, 1995
Remodeled residential units converted from space long dedicated to residential The following residential units are EXEMPT:
Single-family rentals
Condominium rentals
Multifamily dwelling units built AFTER February 1, 1995 Newly constructed dwelling units
Government Subsidized Affordable Units
Rent stabilization protects tenants from unaffordable rent increases while providing landlords a reasonable return on investment through a maximum annual rent increase
State law
Statewide policy adopted in 1995 and amended in 2018:
Caps rent increases at the lesser of 5% plus the increase in regional consumer price index (CPI) OR 10% Local jurisdictions can enact a rent increase cap but are limited to the unit types listed on the previous slide Subject to vacancy decontrol, which allows landlords to set the rent back up to a market rate for new tenants Statewide ballot initiative for November 2024 would repeal Costa-Hawkins Local ordinance must clearly state which units are exempt and provide vacancy decontrol for landlords, if not The City’s rent stabilization policy would apply to all rentals Landlords would not be able to bring a vacated unit back up to market rent costa-Hawkins (The RENTAL HOUSING and California Tenant Protection Acts)
Local housing inventory
52% of housing supply comprises rental units
18.7% of total housing units (36% of rental units) qualify for Rent Stabilization City of Salinas housing supply
Potential pros and cons
The empirical evidence dispels many of the concerns listed below
Literature review
Key findings on rent stabilization
Tenants in rent-stabilized apartments have longer tenures and are less likely to move than renters in non-rent stabilized units.
Moderate rent stabilization policies with exemptions for new construction find little to no effect on new housing supply.
May generate a minimal shift toward for-sale housing.
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.
Empirical evidence
Key findings on rent stabilization
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.
Moderate rent stabilization policies which allow landlords a return on investments in building improvement do not depress the amount of building maintenance.
Positive impacts:
Sales tax
Workforce benefits
Educational benefits
Decreased demand for social services
Neighborhood and community
Empirical evidence
City of Salinas
Socioeconomic and real estate trends
Renter-occupied households in Salinas
Households and housing in Salinas
Extremely low residential vacancy of about 3% compared to the County’s 8% average – very little room for new residents or existing residents looking to move Median renter household annual income: $64,500
30% of median renter household income (per month): $1,612 Median rent for Multifamily apartments built before 1995 (per month): $1,994 Difference of almost $400 per month
Annual Percentage Change in Rents vs. Renter HH Income
Increases in Rent versus income
Unbalanced increases in rent compared to incomes in cities with recently adopted or no Rent Stabilization Ordinance
Rent pressures and displacement
Displacement due to:
Disparity between rent increases and household incomes, Estimated farmworker housing shortage of more than 45,500 units Overcrowding
Housing Cost-Burdened
The affordability crisis disproportionately affects people of color and other vulnerable communities because these populations are over-represented in the renter population economic implications
City of Salinas’s general fund
Fiscal implications of rent stabilization
Property tax
Property tax accounts for about 21% of City’s General Fund Revenue Rent Stabilization may affect the City’s general fund:
Increased revenue through conversion of rental housing to ownership + Reduced revenue due to reduced increase in assessed value of rent-stabilized property Increased sales taxes due to increased discretionary income Affected units comprise less than 13 percent of City’s residential assessed value Fiscal implications
feasibility testing
Economic Impacts on housing supply
Economic impact for property owners
Rental Revenue
Over a 10-year timeframe, rent stabilization reduces rental revenue by 2% to 8% Vacancy decontrol brings vacated units back up to market rate, mitigating the reduction in rental revenues.
Rental Revenue Comparison
Over a 10-year period
Economic impact for property owners
Increases in operating costs
Source: Novogradac, 2023. Low-Income Housing Tax Credit Income and Operating Expenses Report.
Operating Expenses
Significant increase in costs of goods associated with apartment operation starting in 2020. Cost increases in this category minimal prior to 2020.
LIHTC operating expenses increased 5% on average from 2012 -2022. LIHTC operating costs likely higher than market-rate due to higher compliance and administrative costs.
Economic impact for property owners
Internal Rate of Return (IRR)
Measures the potential project return over time against the investment required Leveraged IRRs include debt
Unleveraged IRRS do not
Existing buildings are considered a low-to-moderate risk investment – a stable IRR ranges from 8% to 12% Elevated operating expense inflation erodes investment return Over a 10-year period
IRR Comparison (3% OpEx Inflation)
IRR Comparison (5% OpEx Inflation)
Economic impact for property owners
San Diego’s high IRR due to higher allowable rent increase, high rents, and high turnover Peer Cities feasibility comparison
Staffing and fees
Costs to the city
Cost to the City
Program implementation costs
Staffing ratios based on cities with complaint-driven enforcement Costs based on City data
Cost to the City
The City’s current fee structure is based on the number of units within a range per parcel This fee structure provides a monetary break for larger developments and creates a net loss to the City The annual fee for partially covered units (rental registry + tenant protections) should be less than the fully covered unit fee (rental registry + tenant protections + rent stabilization) Goal of the fee is cost recovery (fiscally neutral program) Rental program fees
Illustrative Cost recovery
Rental program Fee comparison
Conclusion and recommendations
conclusion
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
The City should consider adopting a rent stabilization ordinance to help stabilize rents and prevent displacement for the City’s vulnerable populations EPS has determined an optimal rent cap range providing a minimum and maximum for the City to choose within. Percentages within this range will provide a balance for both the renters and property owners with more positive and negative leanings for one or the other in either direction The City should consider adopting a rent stabilization ordinance capping annual rent increases to the lesser of:
2.5% to 2.75% - OR
65% to 75% of the Consumer Price Index for All Urban Consumers (CPI-U) Series Title: All items in West urban, all urban consumers, not seasonally adjusted
recommendations
The ordinance should include strong tenant protections including:
Just-cause eviction protections
Just-cause curable violation that allows reasonable accommodation No-fault eviction protections including relocation assistance and payment (e.g. owner intent to occupy, withdrawal of property from the rental market, intent to demolish or substantially remodel) Consider merging the Rent Stabilization and the Rental Registry programs and adopting a per-unit fee. The amount will differ based on unit type:
Fully Covered Units (Rental Registry, Tenant Protections, Rent Stabilization) Partially Covered Units (Rental Registry and Tenant Protections)
Q & A
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