Is the rent stabilization ordinance working?

The results of our study conclude that Alameda’s rent stabilization ordinance appears to be having the desired effect on the rental housing market, namely to discourage relocating existing tenants to gain higher rent from new tenants, provide financial assistance to tenants whose tenancy is terminated for no cause/no fault, and provide a forum under which landlords and tenants can resolve rent increase disputes.

Thus reads the “executive summary” of the report prepared for the City – at a cost of $30,000 – by a consulting firm about the ordinance adopted by Council two years ago that requires landlords to submit proposed rent increases greater than 5% for official review and to pay “relocation benefits” to renters whose tenancies terminate without any fault on their part.

The Merry-Go-Round wouldn’t blame those who labored to draft the ordinance – or those who voted to confirm it in November 2016 – from taking satisfaction from this conclusion.  Hell, if the ordinance is working so well, why not make it part of the City Charter?  Or so might say the proponents of the ballot measure that would do just that.

The report didn’t get quite such a positive reaction from the current Council.

Take Councilman Jim Oddie.  When Council decided in July 2016 to put the ordinance on the ballot for confirmation, Mr. Oddie declared he was “very proud” of the new law.  He then went on to sign the ballot argument urging a yes vote.

But that was before Mr. Oddie re-invented himself as “Just Cause Jim.”  At Tuesday’s Council meeting, he dismissed any suggestion that the ordinance was achieving its goals.  “The conclusion that [the ordinance] is working?” he asked rhetorically.  “Well, it isn’t working for the folks who lived or still live at 470 Central [where tenants have received a series of statutory 60-day notices of termination].”  Mr. Oddie’s usual comrade-in-arms, Vice Mayor Malia Vella, likewise took pains to disassociate herself from the consultants’ positive evaluation.

But the rest of the Council members weren’t exactly ready to stand up and applaud, either.

Seconded by Councilman Frank Matarrese (as well as by Ms. Vella), Mayor Trish Spencer asserted, as she often does, that the consultants hadn’t offered sufficient evidence to support their conclusions.  There was no proof, she complained, that conditions in the residential rental market now were better than they were before the ordinance was adopted.  Absent such proof, handing out a favorable review was unwarranted.

Ms. Spencer had a point.  But the problem is that the data required to compare pre- and post-ordinance conditions doesn’t exist.  Staff only began collecting statistics about terminations, and the reasons therefor, after the ordinance went into effect, Community Development Director Debbie Potter told Council.  Later, Ms. Potter confirmed to us that the same was true for data about rent increases.

Nevertheless, it is possible, using the annual and monthly reports published by the Alameda Housing Authority, to get a picture of the scope and extent of rent increases and terminations occurring after the ordinance was passed.  Today, we’ll look at that data – which Council never referred to – and see what conclusions, if any, can be drawn.

The rent stabilization ordinance requires a landlord to file a notice of any proposed rent increase of 5% or more with the AHA.  Tenants (or landlords) also may voluntarily submit lesser rent increases for review by the Rent Review Advisory Committee.

Here’s a summary of the data compiled by the AHA on rent-increase notices filed during the first two years the ordinance was in effect:

Rent increase April 2016 –
March 2017
April 2017 –
March 2018
0 – 5%           22           18
>5% – 10%           71           42
>10%          78           47
“Dual option”*         285           45

* “Dual option” refers to offering tenants a choice of a 12-month lease or a month-to-month agreement, with different rent increase amounts for each.

Since this data shows a decline from the first year to the second in the number of rent increases exceeding 5%, it’s tempting to conclude that the ordinance in fact has held down rents.  Facing the prospect of having to defend a rent hike before the RRAC, landlords may be deciding to limit the amount of the increase, either to keep it below the 5% threshold or, if it is more than 5%, to make it easier to justify.  But this hypothesis isn’t the only possible explanation for the decline.  The rental market is, after all, a market, and competitive factors undoubtedly come into play.  Lacking evidence of landlords’ actual motivations, we would be reluctant to draw a causal connection between the ordinance and the drop in the numbers.

The rent stabilization ordinance also requires a landlord to file a notice with the AHA when she terminates a tenancy for “no cause” or for a reason other than the “fault” of the tenant.  In these situations the landlord must provide “relocation assistance,” including a cash fee, to the tenant.

Here’s a summary of the data compiled by the AHA on termination notices filed during the first two years the ordinance was in effect:

Reason for termination April 2016 –
March 2017
April 2017 –
March 2018
“No cause”           32           34
Owner move-in           22           38
Withdrawal from
rental market
           8           13
Other            5

N.B. For purposes of comparison, the chart includes only those notices of termination deemed “valid” by AHA.

This data shows that owner move-ins and withdrawals from the rental market went up from the first year to the second, so the necessity of paying a relocation fee doesn’t appear to have deterred landlords from terminating tenancies for these reasons.  But it could be argued that the growth in these categories suggests that more landlords now are deciding to get out of the rental business entirely rather than continue to comply with the restrictions imposed by the ordinance.  If so, one effect of the new law – surely unintended – was that it reduced the supply of available rental units in the midst of a housing shortage.

The data also shows that no-cause terminations have remained essentially flat over the two-year period.  One might have expected that, were landlords truly as greedy as some of the more ardent tenants’ advocates say they are, there would have been more than an average of 33 no-cause terminations per year out of the 17,166 renter-occupied units in Alameda.  Since there were not, the ordinance may indeed have had a deterrent impact on no-cause terminations because of its requirement for payment of a relocation fee.  Or – perish the thought – maybe “no-cause evictions” just aren’t that common hereabouts, and the 470 Central case so often cited by Mr. Oddie and his newfound friends represents an outlier.

The annual and monthly reports also contain data on the disposition of the rent-increase notices filed with the AHA.  The rent stabilization ordinance sets up an extensive system for reviewing proposed rent increases.  After a notice is filed, if the parties can’t come to an agreement on their own, they can seek assistance from a mediator, either an AHA staff member or a third party.  If mediation doesn’t result in a settlement, the parties go to a hearing before the RRAC.  The RRAC decision ordinarily is binding in disputes involving multi-family rental units built before February 1995, but in such a case a dissatisfied party may file a petition to have a hearing officer make the final determination.  In other cases, the RRAC decision is advisory only.

Here’s a summary of the data compiled by the AHA about the disposition of rent-increase notices filed during the first two years the ordinance was in effect:

Disposition April 2016 –
March 2017
April 2017 –
March 2018
Agreement reached before RRAC hearing          248          71
Request for review withdrawn           44            2
Tenant decided to move           62          47
Agreement reached at RRAC hearing           11            7
Tenant did not attend RRAC hearing          40          33
RRAC recommendation           12           11
Hearing officer decision            0            0

The high percentage of rent disputes that settle, either before the hearing or “on the courthouse steps,” will not surprise any litigator.  But what did these cases settle for?  The AHA data provides a partial answer:  according to the annual report for the period from March 2016 through April 2017, of the 259 disputes settled before or at a hearing, 132 resulted in rent increases of 5% or less, 89 in rent increases of 5.1%-to-10%, and 38 in rent increases of more than 10%.  The monthly reports slice the data a little differently, but, according to the March 2018 report, of the 71 disputes settled before a hearing after April 2017, 20 resulted in a rent increase lower than the one originally proposed and 51 for the same amount.  These statistics would support, but not compel, a finding that the desire to avoid the time and expense of going through the RRAC review process has itself placed some downward pressure on rent increases.

The AHA data also provides information about the RRAC decisions.  According to the annual report, of the 12 cases decided between March 2016 and April 2017, the RRAC recommended rent increases of 5% or less in five, 5.1%-to-10% in another five, and more than 10% in two.  Notably, in three cases in which a landlord requested a rent increase of greater than 5%, the RRAC reduced the amount to below 5%.

Unfortunately, due to a change in the data presentation format, a direct comparison of these outcomes with the results in the following year can’t be made.  The March 2018 report reveals only that, of the 11 RRAC decisions rendered after April 2017, five were binding and six were non-binding.

Despite this problem, we think it’s fair to say that the data on decisions, taken as a whole, undermines any allegation that the RRAC is “rubber-stamping” a plethora of “excessive” rent increases.  By the same token, considering the paucity of decided cases, it would be foolish to claim that the committee is either “pro-landlord” or “pro-tenant.”

We would have been more pleased with our Council had its members analyzed the AHA data before rushing to condemn the consultants for a lack of evidence supporting their conclusions about the impact of the rent stabilization ordinance.  Nevertheless, for the reasons we’ve discussed, the elected officials – even those with no constituency to cater to – may not have had grounds for giving the ordinance an unqualified thumbs up or down in any event.

Given the range of interpretations to which the data on rent increases, terminations, and RRAC review is subject, we hope that, on the campaign trail, the public doesn’t hear candidates assailing the rent stabilization ordinance as an abject failure (or, for that matter, hailing it as an unalloyed success).  That kind of bombast should remain the province of the sort of partisans who, untethered by any allegiance to provable facts, insist that the Alameda rental market is controlled by “Chinese investors” or “international conglomerates.”

Sources:

AHA April 2017 annual report: 2017-04-04 Ex. 2 to staff report – Annual Report

AHA March 2018 monthly report: Alameda Rent Program monthly report (March 2018)

Consultants’ review: 2018-07-10 Ex. 1 to staff report – Rent Stabilization Review

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
This entry was posted in City Council, Housing and tagged , , , , , , . Bookmark the permalink.

6 Responses to Is the rent stabilization ordinance working?

  1. Mike McMahon says:

    Yes the world of the policy making is fraught with making decisions with incomplete data and competing sides claiming to have “the answer”. All we can hope in the world of unintended consequences is the decision makers implement solutions that do not make the problem worse. In this matter it appears to have done so.

  2. Paul S Foreman says:

    The statistic that worries me is the loss of rental inventory in the past year. It may not be a large enough statistical sample, but it is a serious concern. It is also possible that a least some of the no-cause evictions were actually withdrawals from the market in disguise. Last year an analysis done by realtors indicated that this was the case. Landlords give a no-cause notice and then don’t re-rent the property but avoid the restriction on later putting it back on the market.

    While rent control is definitely required in this market, there is a tipping point where the restrictions of rent control outweigh the financial incentive for owning residential income property. I am not saying that this point has been reached, but that amending our current Ordinance should occur only when there is compelling evidence of the need for the same.

    Even changes that seem reasonable can disrupt the market. For instance, the consultant recommends basing relocation payments on the fair market value of a unit as established by federal guidelines, rather than on the actual rent paid by the tenant. This makes sense because the current system leaves evicted tenants who are paying below market rent in a very bad place because the relocation payment does not come close to meeting market conditions. However, if a mom and pop landlord with below market tenants sees such a recommendation, they might start thinking about leaving the rental market before relocation costs double.

    As long as landlord and tenant groups insist on doing battle through the political process the health of the rental market will be at great risk. These groups need to come to their senses, realize that they need each other, and seek a win – win resolution of their differences through a mediation process. Of course they will have to do something very radical in today’s world, compromise.

  3. Jeff Cambra says:

    What is not reflected in the data from the Alameda Housing Authority is the subset of no fault terminations resulting from owners of rental units (primarily single family homes) who asked their residents to leave because they were selling the property. If my memory serves me, about 50% or 16 of the no fault terminations in 2016-2017 were attributed to property sales. When one considers there are 15,000 plus rental units located in Alameda, 16 terminations is an unbelievably small number.

    Since the Council elected to implement relocation assistance as a way of preventing property owners from just terminating the tenancy of the existing resident and raising the rent on the new renter, one could conclude that the Ordinance has been successful in significantly reducing the number of economic evictions, even in units that are normally exempt from rent control such as single family homes, townhouses, and condos.

  4. Mike McMahon says:

    Given your legal background, I am hoping you can provide your analysis of Tony Daysog’s lawsuit against the City related to the rent stabilization ordinance and its attendant costs to defend the lawsuit by the city of Alameda.

  5. Jeanne Allen says:

    Basing the relocation fees on the section 8 standards is not fair. Section 8 is not subject to rent control. A large number of “Mom and Pops” have kept their rents affordable and well below section 8 standards. Now it is recommended that they be punished by requiring the relocation fees to be increased to Section 8 standards. Not Fair.

  6. Barbara Thomas says:

    Independence Plaza (owned by the City) has notified the seniors that live there, of increases in the range of 10% to 20% per year for 5 years will be forthcoming. This is due to the loss of the subsidy paid by the developer in exchange for overbuilding beyond zoning standards in exchange for this senior housing. (Note: All the newly approved developments getting additional denisty due to the inclusion of “affordable housing”, that housing is a temporary illusion.) The City pays no property tax, and no insurance premium fees, yet cannot manage on its income of over $1 million per year for this property, to run this property. The 80 and 90 year olds who live there are the most frail and susceptible of all our citizens. For the City Council and rent control supporters to stand back and do nothing, shows they are nothing but ignorant or hypocrites. Or both. Rent control advocates should take a long hard look at what they are allowing the City to get away with. The truth is that the supporters of rent control on the Council are just giving lip service to the poor, avoiding the truth while they are raising the regressive sales tax which will hurt the poor the most, and looking forward to getting all the support they need to win their next elections from the Fire Fighters and other “progressive” pacs.

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