Bernie’s Law

So is the Alameda City Council ever going to enact a rent control ordinance?

Well, after watching the video of the seven-and-a-half hour special meeting held last Wednesday, we confess that your guess is as good as ours (or anyone else’s).

In the wee hours of Thursday morning, Council directed staff to prepare an amendment to existing law to require a landlord who wants to raise rents by 8% or more to submit a request to the Rent Review Advisory Committee, which will then conduct some sort of hearing.  But, as is the case now, the RRAC will not have the authority to rule on whether the proposed rent increase is permissible, only to “recommend” whether it is.  If “mediation” by the RRAC fails, some sort of “binding arbitration” procedure will be set up to decide whether the landlord actually gets to charge what it wants.

As with other post-midnight decisions by the current and former Council, this outcome lacked both clarity and simplicity.  Let’s assume, for the sake of argument, that rent control is a good idea.  Surely, there must be a way to write a clear and simple ordinance that would penalize the greediest – i.e., those landlords who impose the most “egregious” rent increases – and protect the neediest – i.e., those tenants who can least afford to bear those increases.

The Merry-Go-Round thinks there is.  So we offer for your consideration what we’ll call “Bernie’s Law”:

1. No landlord owning a building containing 50 or more rental units shall raise rents by more than the annual increase in the Consumer Price Index.
2. No tenant who is age 65 or older shall have his or her rent increased by more than the annual increase in the Social Security cost-of-living adjustment (which is also based on the CPI).
3. Any landlord who believes that the foregoing provisions deny him or her a fair return on investment shall have the right to an evidentiary hearing and a decision by a neutral party. (We need to include this provision to make the law constitutional).

We call our ordinance “Bernie’s Law” in honor of Vermont Senator and Democratic presidential candidate Bernie Sanders.  (Whom did you think we meant – Bernie Madoff?)  The Senator goes after the Big Guys – the “billionaires and corporate leaders, on Wall Street and elsewhere, whose policies and greed are destroying the middle class of America” – and looks after the Old Folks – the senior citizens whose interests he believes the major parties, including his own, have ignored.

So does our ordinance.

The first part of Bernie’s Law imposes rent control on the landlords who own the largest apartment buildings in the City.  Our reason is not simply a Sanders-inspired desire to stick it to the fat cats or even adherence to our own mission statement to afflict the comfortable.  Rather, we’ve chosen this group because they purportedly are the ones responsible for inflicting the most pain on Alameda tenants.

Or so, at least, the speakers at Wednesday’s Council meeting – on and off the dais – claimed.

The anecdotal evidence distinguished between what the speakers called “mom-and-pop” landlords – we, of course, would never use such a heteronormative term – who own buildings with only a handful of rental units, and the corporations and investment partnerships who own large apartment complexes.  The former seldom raise rents, and then only modestly.  The latter routinely sock tenants with annual rent increases of 10% or more.

Councilman Tony Daysog made this distinction most explicitly.  “To me, the problem is out-of-town landlords charging excessive rents,” Mr. Daysog said in his prepared remarks.  Based on what he heard during his town hall meetings, the Councilman concluded that local “mom-and-pop” landlords don’t raise rents every year, and, when they do, they’re content with 4-to-8% rent increases.  By contrast, “the out-of-town landlords have gone off the deep end in charging excessive rent increases.”

Councilwoman Marilyn Ezzy Ashcraft expressed a similar sentiment.  She had “hounded” landlords and their representatives for information on rent increases, she said.  Based on this fact-gathering effort, she concluded that small landlords had “really tried to keep tenant burdens down.”

Not surprisingly, the landlords who spoke during the public comment period, primarily local owners of rental properties, corroborated the two Council members’ opinions.  And so did even some tenants.  “Maybe it isn’t the small mom-and-pops [who are imposing “excessive” rent increases],” Catherine Pauling of the Alameda Renters Coalition told Council.  “I thank them for what they’re doing.  But the large complexes are coming in with 50% rent increases, 30%, higher.”

Ordinarily, we would hesitate to propose any legislation in reliance solely on anecdotal evidence.  But, in this case, we don’t have to.

After months of dallying, Council authorized staff last May to hire a consulting firm to prepare a report on the state of the local rental market.  Staff picked a nationally prominent outfit – “I just got back from New York City working on a project for the mayor,” the firm’s spokesman (and founder) told Council in listing her credentials – to do the job.  Most of the data in the report came straight out of the American Community Survey published by the U.S. Census Bureau, which is available online to anyone.  But there were a couple of interesting slides based on data from a company called “real ANSWERS,” which the report described as a “private vendor that tracks rents for 50+ unit rental projects.”

According to this source, there are 20 apartment buildings containing more than 50 units in Alameda.  These buildings account for 2,157 of the 16,518 rental units in the City.  Only four of them are owned by Alamedans; the rest are owned by out-of-towners.  And here’s the key statistic:  for these large apartment buildings, average market-rate unit rents rose from $1,412 to $2,152 per month from 2011 through the 3^rd quarter of 2015.  This represents a 52% jump in just over four years, “far outpacing the rate of inflation (less than 6% between 2011 and 2015).”

So maybe Council members Daysog and Ashcraft and the public speakers are right:  it is the owners of large apartment buildings who’ve raised rents the most.  If so, they’re the perfect target for Bernie’s Law.

(One technical note:  We’ve chosen to tie the permitted rent increases to increases in CPI rather than to set a fixed percentage.  This is the way it’s done in cities such as San Francisco and Berkeley.  We prefer this approach to a fixed percentage, since who knows what the “fair” percentage is?  If the theory is to allow rents to rise in order to cover increases in costs, CPI strikes us as the best measure to use).

We realize that, by imposing rent control only on the owners of the largest buildings, we’re giving everyone else a pass.  This group includes not just the “mom-and-pop” landlords but also the landlords owning mid-size buildings.  Unfortunately, the City’s consultants didn’t find any data breaking down rent increases for buildings containing fewer than 50 units.  Absent such data, we’ve chosen to make Bernie’s Law under-inclusive.  Like the politicians, we’ll just have to trust mom and pop and their siblings who own smaller buildings not to get greedy.

Even though the first part of Bernie’s Law covers only the largest apartment buildings, it still would benefit a significant number of tenants.  Under the Costa-Hawkins Act, not all rental units are subject to rent control.  Community Development Director Debbie Potter told us that, of the 2,157 rental units in buildings with more than 50 units, she estimated that as many as 564 units consist of subsidized housing exempt from Costa-Hawkins.  Subtract the latter from the former and you get 1,593 units to which the first part of Bernie’s Law would apply.  If buildings with 20-49 units are made subject to the ordinance, too, add another 2,550 units to the number being protected.

The second part of Bernie’s Law shifts the focus from landlords to tenants.  The renters who spoke Wednesday included people from, as they used to say, all walks of life who told stories of being unable to afford annual rent increases in any significant amount.  In coming up with Bernie’s Law, we sought to identify, if we could, the group who could tolerate these increases the least – and thus who would benefit the most from a rent control ordinance.

Our choice – which we hope Bernie would approve – is people age 65 or over.  According to the consultants’ report, of the 16,518 “renter households” in Alameda, 3,057 had a householder over age 65 (and 1,345 with a householder over age 75).  Of this total, nearly half fell into the “extremely low,” “very low,” or “low” income categories.  Most significantly, the report found that 610 of the senior households with very-low income were spending more than 50% of their income on housing (and another 225 were spending between 30% and 50%).  For these “cost-burdened” seniors, the current rent represents a challenge; a significant rent increase would result in a catastrophe.

Although only a few speakers addressed the issue Wednesday, the plight of senior renters hasn’t escaped notice.  Indeed, the very first time Council discussed the “rental crisis” two years ago, Audrey Lord-Hausman, chair of the Commission on Disability Issues, identified the “large, underlying problem” of “how to provide for the increasing need for affordable and accessible housing for those with disabilities and the society’s aging population.”  She implored the politicians to “embrace the challenge of exploring how to implement some types of caps on rent increases so that those aging in place and those who have disabilities and limited incomes are not forced out of our community due to exorbitant rent increases.”

The second part of Bernie’s Law accepts (on Council’s behalf) Ms. Lord-Hausman’s challenge.  If seniors who depend on Social Security to pay their bills don’t get an increase this year in their monthly checks, they won’t get a rent increase, either.  This doesn’t make it any easier for them to bear their existing housing cost burden – but it ensures that the situation won’t get any worse.

Like the first part of Bernie’s Law, this part is under-inclusive, since it doesn’t help all “cost-burdened” renters.  (The consultants’ report estimates that there are a total of 1,200 very-low income households spending more than 50% of their income on housing).  But one can defend treating seniors differently than other renters feeling the squeeze.  A young or middle-aged household usually has the option, unpalatable as it is, of moving out if the landlord raises the rent to an unaffordable level.  A household consisting of one or two seniors on a paltry fixed income may have nowhere to go.

(We note that this part of Bernie’s Law also is over-inclusive, since it gives the same benefits to all renters over 65 regardless of their income.  But we’re willing to admit even well-off seniors into the fold in order to be able to pick a simple criterion that gives a break to many of those who truly need it).

We began with the assumption that, as a policy matter, rent control is a legitimate means of achieving a valid objective.  This assumption is open to debate.  The staff report presented to Council set forth the policy arguments, pro and con, for rent control, and the negative case shouldn’t be dismissed cavalierly.  It may well be true, as several of the landlords who spoke Wednesday contended, that rent control creates a disincentive for landlords to maintain, repair, and improve their properties.  If so, we are troubled by the prospect that the large apartment building owners subject to Bernie’s Law would use it as excuse to let their buildings run down.

Moreover, as a Jeffersonian democrat, we’re congenitally uncomfortable with governmental intrusions into private affairs.  But we’re also realists.  The politicians act at their peril when they refuse to use the power of government to redress the grievances of their constituents.  The issue then becomes how to exercise that power most effectively.

To us, a phenomenon like the “rent crisis” calls for bright-line rules.  Forget about turning City Attorney Janet Kern loose to draft an opaque “rent stabilization” ordinance.  (We know she can do it).  Instead, adopt standards that are clear, simple, and easy to administer so that people can adjust their conduct accordingly.  Bernie’s Law may not be flawless.  But we suggest it’s far better than a muddled process that lets “mediators” and “arbitrators” make up the rules as they go along.

If I’m a real estate investor considering buying a large apartment building, tell me I’ll only be able to raise rents by the annual CPI increase, and I can do the math to see if the deal works for me.  Tell me I can raise rents by the amount a mediator believes, or an arbitrator determines, is “fair,” and I’ll pass.

By the same token, if I’m a tenant looking for a place to live, tell me my rent will be capped if I move into a large apartment building or if I’m 65 or older, and I can make an informed judgment.  Tell me that my rent will depend on the result of “binding” arbitration, and I’ll throw up my hands and go back to Craig’s List.

Any bets on what our City staff and Council will end up doing?

Sources:

Staff report: 2015-11-04 staff report

Rent study: 2015-11-04 Ex. 1 to staff report – rent study