Now that the initiative drafted by the Alameda Renters’ Coalition has qualified for the November ballot, how should one evaluate the merits of the proposed Charter amendment?
One could take an emotional approach. Pass the initiative, proponents might say, so that parents won’t be forced to yank their children out of local schools. Defeat it, opponents might respond, so that mom-and-pop landlords won’t be forced to scrape by on their Social Security checks.
Or one could take a polemical approach. Pass the initiative, proponents might say, to preserve renters’ “right” to stay in their homes as long as they pay their rent. Defeat it, opponents might say, to protect landlords’ “right” to manage their property without governmental interference.
The benefit of these strategies is that neither requires any analysis to back up the conclusion. All that’s needed to support the former is to post a few videos. All that’s needed to support the latter is to bandy about a few buzzwords. Alameda is full of commenters adept at either or both.
At the Merry-Go-Round, we lack the ideological self-righteousness to take the latter approach and the video-editing skills to take the former. So, consistent with our suggestion last week to focus on the goals the competing rent ordinances/Charter amendments are trying to achieve, let us offer an alternative approach.
We’ll adopt as our model the mode of legal analysis known as “strict scrutiny.” Under that methodology, a court charged with deciding the constitutionality of a statute asks whether it is “narrowly tailored” to achieve a “compelling” governmental interest. We’ll tweak the formulation a little and, for the renters’ initiative, frame the issue this way: is the Charter amendment well-tailored to achieve a legitimate policy goal? Call it the semi-strict scrutiny test.
From the beginning, the renters’ advocates have made clear that their mission is to rein in “excessive” rents and to prohibit “arbitrary” evictions. Stated this broadly, these objectives surely constitute legitimate policy goals. The issue then becomes how the renters’ initiative attempts to achieve them.
The proposed Charter amendment contains two principal operative provisions. First, it limits annual rent increases to 65 percent of the annual increase in the Consumer Price Index–Urban for the San Francisco Bay Area. (To comply with due process, it also allows a landlord to apply to raise rent above this limit if necessary to obtain a fair return on investment.) Second, it allows evictions only where the tenant has committed one of five enumerated wrongful acts or the landlord seeks to recover possession for one of three enumerated reasons. So-called “no-cause” evictions are banned.
As an initial matter, we confess that we are uncomfortable with the premise that any rent increase greater than 65 percent of the increase in the CPI-U should be deemed “excessive.” We suppose the underlying theory is that rents should not be allowed to rise faster than consumer prices generally. But if so, why not permit rent increases equal to the full amount of the increase in the CPI-U? Why only 65 percent? The only explanation we’ve read is that other cities, like Santa Monica and Berkeley, base permissible rent increases on a percentage of the CPI-U increase. But the “everybody else is doing it” argument doesn’t persuade us any more than it did our mother when we tried to use it on her years ago.
Our skepticism is heightened when we consider how the limitation imposed by the proposed Charter amendment would have played out in the recent past. We compared the annual rent increase that would have been permitted under the amendment during the last four years with the median annual gross rent increase that actually occurred during that period (according to the American Community Survey data). Here are the results:
|Actual median gross
As the table shows, for every year, the actual median gross rent increase exceeded the hypothetical permissible rent increase. To put it another way, in each of those years, a landlord who raised rents by only the median percentage would have violated the standard set by the proposed Charter amendment. Yet it’s hard for us to characterize a mid-range rent increase as “excessive” or a landlord who implements such an increase as “greedy.”
Moreover, even if the undiscounted median is used as the threshold for determining “excessiveness,” we haven’t seen evidence that the practice of gouging tenants had become endemic. When Renewed Hope, the housing advocacy group, presented the results of its renters’ survey to Council in January 2015, the data showed that 38 percent of the 223 respondents had received no rent increase at all in the last 12 months and 27 percent had received a 1-to-5 percent increase. Depending on where the rents in the 1-to-5 percent category fell, it appears that a majority of landlords already – without the mandate of any new law – were increasing rents only modestly, if it all.
This is not to say that no case can be made for rent control in any form. But it requires us to dig deeper into the data.
The ACS rent data covers units in all rental properties. But the consultants who prepared the rent study submitted to Council last November obtained statistics specifically for properties containing 50 or more units.
Here’s what they found about average monthly rents:
|Year||Average monthly rent||Annual increase|
This table shows that, between 2011 and 2014, average monthly rents in large apartment buildings increased by 38.2 percent. Now go back to the ACS gross median rent data. Between 2011 and 2014, gross median rents increased by 13.67 percent. The increase for the 50+-unit buildings thus is almost three times the median increase. We’d regard this as extraordinary, and maybe even “excessive.”
If one takes our approach of tailoring the remedy to fit the problem, this evidence would justify an ordinance – we don’t like Charter amendments, which are difficult to fine tune – restricting permissible rent increases for tenants in large apartment buildings. Indeed, when the rent study was first published, we suggested just that. Moreover, although sympathy for “mom-and-pop” landlords doesn’t necessarily equate to antipathy toward large landlords, we suspect Councilman Tony Daysog might agree.
Now let’s look at the issue another way.
To us, the vice of “excessive” rent increases (however one defines that term) lies in the impact of such increases on what is called the “affordability gap.” The rule-of-thumb is that housing costs should not consume more than 30 percent of a person’s income. For renters, if rents go up even though income declines or stays flat (or both), the rent-to-income ratio rises and the “gap” widens.
Again, the rent study prepared for Council provides the relevant data. Of a total of 15,275 rental households, 6,444 spent more than 30 percent of their income on rent. (The data covers the period from 2008 through 2012). This meant that 44.2 percent of Alameda renters were suffering what the consultants called a “cost burden.”
And the study shows that this burden was not equally distributed among income levels. To the contrary, the poorer households were the worse off. According to the study, 76.4 percent of rental households in the “extremely low” income category, 86.6 percent in the “very low” income category, and 60.6 percent in the “low” income category were “cost-burdened.” The percentage dropped dramatically for better-off renters: only 12.2 percent of households in the “moderate” or above categories spent more than 30 percent of their income on rent.
Again, if one takes our approach of tailoring the remedy to fit the problem, this evidence would justify an ordinance restricting permissible rent increases for renters whose income fell into one of the three lowest categories. Such an ordinance wouldn’t eliminate the “affordability gap” for those people. But it would prevent it from getting worse.
We would have liked to perform a similar data-centric analysis of the provision of the proposed Charter amendment prohibiting “no cause” evictions, but, unfortunately, the relevant statistics aren’t available. So a few comments instead.
The clamor for a ban on “no-cause” evictions took off as a result of the infamous case of 470 Central Avenue, where the landlord served 60-day notices of termination on 33 (or 34) tenants. The landlord claimed that the tenants needed to leave so that he could undertake “substantial rehabilitation” of the building; the tenants alleged that the real reason was that the landlord wanted to bring in new tenants at a higher rent.
Other than this example, we are not aware of any other case in which a landlord, even allegedly, engaged in a “no-cause” eviction for the purpose of boosting rental income. But if 470 Central was truly a one-off, a Charter amendment prohibiting all “no-cause” evictions can be seen as reacting to a crisis that didn’t exist. Without more data, we can’t say for sure.
But let’s take a more jaundiced view and assume that a host of landlords have been itching to serve 30- or 60-day notices of termination so that they can charge higher rents to new tenants.
The ordinance passed by Council contains two provisions intended to prevent that from happening. First, for buildings with five or more units, it limits the number of units where tenancy can be terminated by statutory notice to no more than 10 percent in any one month, and 25 percent over 12 months. Under this provision, it would have taken the 470 Central landlord four years to “empty the building,” if that was his intent. In addition, the ordinance prohibits the landlord from charging the new tenant rent more than five percent higher than the rent the current tenant was paying. This provision would have dashed any prospect of immediate windfall profits for the 470 Central landlord, if that was his hope.
We certainly would agree that it is a legitimate policy goal to prevent landlords from throwing “faultless” tenants out of their apartments simply so that the landlords can make more money. But if that’s the goal, the remedy chosen by Council arguably fits the problem. And if so, the absolute ban on “no-cause” evictions imposed by the proposed Charter amendment seems like overkill.
The ballot arguments on the renters’ initiative aren’t due until August 17, and it’s entirely possible that we’ve missed the most compelling justification for the proposed Charter amendment. We’ve also chosen not to evaluate yet any of the counter-arguments opponents might make against the proposal – because we don’t want to speculate about what they might be.
But be forewarned: we intend to apply the semi-strict scrutiny test to both sides. And we urge our readers to do likewise. They can leave it to others to employ the politics of demonization.
City “rent stabilization” ordinance: City rent stabilization ordinance
ARC initiative: ARC ballot measure
Appendix to City of Alameda Rent Study: 2015-11-09 Appendix A Alameda Rent Study
Renewed Hope survey: 2015-11-04 Ex. 2 to staff report – Other Data Received
American Community Survey data: American FactFinder – 2010 Selected Housing Characteristics; American FactFinder – 2011 Selected Housing Characteristics; American FactFinder – 2012 Selected Housing Characteristics; American FactFinder – 2013 Selected Housing Characteristics; American FactFinder – 2014 Selected Housing Characteristics
CPI-U data: CPI-U data (12-month annual)