Housing & Community Development Commission
Transcript of Housing & Community Development Commission
1
CityofSanJoséDepartmentofHousing
Apartment Rent Ordinance
Housing & Community Development Commission
September14,2017
City of San José Department of Housing
What is the Apartment Rent Ordinance (ARO)?
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• Purpose:Topromotestabilityandfairnessincluding– Preven:onofexcessive&unreasonablerentincreases– Allevia:onofunduehardshipupontenants– Opportunityforlandlordstoearnafairreturn
• AppliestoapartmentsrentedorbuiltbeforeSeptember7,1979– 44,283apartments– 3,188owners
• 3ormoreapartments
Buildings Not Covered
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Duplexes Singlefamilyhomes&secondunits
Condosforsale Townhouses
What does the ARO not do?
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• Increasethesupplyofhousing
• SolveallofSanJose’saffordablehousingproblems
• Impactthedevelopmentofmarketrateunitsthatare
notsubjecttotheARO
Balancing the Concerns
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Landlords Shared Tenants• Economicreturnon
investment-re:rement,educa:on,income
• Constraintonrentwillresultindisrepair
• Cannotruntheirbusiness
forlessthan5%
• Noincen:vetoinvestandmaintainproper:es
• Qualityofhousing
• Neighborhoodstability
• Limitedwageincreases,rentincreaseeveryyear
• Needforstabilityandpredictability
• Inabilitytofind
replacement/alterna:vehousing
City Council Actions on the ARO
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• September7,1979–ApartmentRentOrdinance
established
• 1985–MobilehomeRentOrdinanceo 75%CPI(3%floor–7%ceiling)
• 2003–No:cingrequirementsextendedforno-causeno:ces
• May10,2016–5%nodebtservice&capitalimprovements
• August30,2016–InterimOrdinanceRegula:onso Fairreturnprocess
• April18,2017–PrepareaCPI-Uwithbankingop:on
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CPI-U 5% AnnualAllowableIncrease
ü 100%ConsumerPriceIndex(CPI-U)(floor2%-ceiling5%)
ü 5%fixedallowablerentincreaseevery12monthswithnobanking
Banking ü MaximumAllowableRent ý NoBanking
CapitalImprovementPass-through
ü Sustainability,safety,&seismicupgrades(100%foramorYzaYonperiod)
ü MajorSystemUpgradesthatimproveHousingServices
(100%foramorYzaYonperiod)
ü MajorMaintenanceReplacements(50%foramorYzaYonperiod)
Sunsetsa]er5years
ü Sustainability,safety,&seismicupgrades(100%foramorYzaYonperiod)
ü MajorSystemUpgradesthatimproveHousingServices(100%foramorYzaYonperiod)
ý NoMajorMaintenanceReplacements
SharedFees ü 50%ofsharedprogramfees ý Nosharedprogramfees RentIncreaseforAddiYonalOccupants
ü 5%RentIncreaseforoccupantsotherthanatenant’sspouseorchildren
ý NoRentIncrease
RentRegistry ü Required ü Required FairReturn ü Landlordfairreturnpe::onsaccepted ü Landlordfairreturnpe::onsaccepted
PeYYonProcess ü Revisedpe::onprocess ü Revisedpe::onprocess Staffing ü 22employeesfortheprogram ü 21employeesfortheprogram
Policy Consideration – CPI-U OPTION Annual Allowable Increase
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EconomicRoundtableStudy• Combina:onofCPI-Uannualincreaseandvacancydecontrol
resultsinafairreturnforlandlords• OtherCAjurisdic:onsusedastudytodetermineincreased
costsformanagingrentalproper:esanddeterminedCPI-Uwasabederalterna:ve
CityAuditor’sReport• 5%annualincreasesexceedsmarketrents
SPUR’sHousingAgendaforSanJose–August2017• SantaClarahasseenthelargestgapbetweenthegrowthinits
medianrentandgrowthinitsmedianincome.
Most Cities use CPI
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• CPIofOtherCiYes
• Pass-through• Vacancydecontrol
City YearlyIncrease Berkeley 65%ofCPI-U SantaMonica 75%ofCPI-U EastPaloAlto 80%ofCPI-U LosAngeles 100%ofCPI-U,3%min,8%max WestHollywood 75%ofCPI-U SanFrancisco 60%ofCPI-U,7%max
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FeedbackReceived:
• Providesgreaterrateofreturntoowners
• Increasesarepredictableforownersandtenants
• Simpletoimplement
• 1fewerstaff• Nolimi:ngeffectperCityAuditor’sReport
Policy Consideration – 5% OPTION Annual Allowable Increase
Policy Consideration – Annual Allowable Increase
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FeedbackReceived
With5%• Flat5%issimpleandstraightforward,easierforbothlandlords&
tenantstounderstand• Yearoveryear5%rentincreasesmayleadtodisplacementfor
tenantswhocannolongeraffordtopaytheirrent
WithCPI-U• CPI-Uisafamiliar,reliable,andaccessiblesourceofdata• UsingCPI-Uasagrowthrateforrentsconstrainsgrowthinrevenue
over:me
Policy Consideration – CPI-U Banking
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MaximumAllowableRent(MAR)
Example:Originalleaseamountis$1,500
Year CPI-U AddiYonalIncrease
MaximumAllowableRent
ActualRentCharged
1 2% $30 $1,530 $1,530
2 3% $46 $1,576 $1,530
3 2% $32 $1,608 $1,5004 3.5% $56 $1,664 $1,6505 1% $17
*Flooris2%=$33$1,697 $1,697
Policy Consideration – CPI-U Banking
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StandardBankingExample:Originalleaseamountis$1,500
Year
CPI-U %Used BankBalance
AddiYonalIncrease
RentCharged
1 2% 0% 2% $0 $1,500
2 3% 0% 5% $0 $1,500
3 2% 2% 5% $30 $1,5304 3.5% 8% 0.5%
*Ceilingis8%$122 $1,652
5 1% 2%
*Flooris2%2.5% $41 $1,693
Policy Consideration – Banking
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FeedbackReceived
NoBankingwith5%• Nobankingrequireslessadministra:vecosts.• Ifnobankingisallowed,landlordswillmorelikelyraiserent
everyyear.
WithBankingwithCPI-U• Availabilityofabankingprovisionallowslandlordsto“catchup”
theirrentswhentherearedeclinesindownmarkets.• MARissimpletoimplement.• Tenantsmayfacethepoten:alforlargerincreasesinthefuture
iflandlordsexercisethebankingprovision.
Policy Consideration – Capital Improvements Pass-through
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• Createacapitalimprovementprogramallowingthepass-throughofcoststotenants
• Threetypesofimprovements:
a. Sustainability,Safety,&Seismicupgrades(100%foramor:za:onperiod)
b. MajorSystemUpgradesthatImproveHousingServices(100%foramor:za:onperiod)
c. MajorMaintenanceReplacements(50%foramor:za:onperiod)Sunsetsa)er5years
Policy Consideration – Capital Improvement Pass-through
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FeedbackReceived
No“MajorMaintenanceReplacements”with5%• Moresimplerecordkeepingforthelandlordswithoutthecalcula:ons
ofa50%pass-throughlimita:on.• Landlordswouldbeabletoincreaserentsupto5%annuallywithout
makinganyinvestmentintheapartmentbuilding.“MajorMaintenanceReplacements”withCPI-U• Maintenancetoupkeeptheagingapartmentswouldbeincen:vized.• “Majormaintenancereplacements”shouldnotbeusedasan
alterna:vetorou:nemaintenanceandreplacements.CapitalImprovementsPass-through• Allowpass-throughamounttobepartoftherent.
Policy Consideration – CPI-U Program Fees
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50%ofsharedprogramfeeswouldbeallowed Fees Landlord’sShare Tenant’sShare
$100 $50 $50
Policy Consideration – Program Fees
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FeedbackReceived
Nosharedprogramfeeswith5%• A5%annualincreasewouldbesufficienttocoverthecoststo
administertheARO.• Landlordswouldbeartheburdenoftheadministra:vefees.
50%sharedprogramfeeswithCPI-U• Landlordswouldbeabletosharetheburdenofthe
administra:vecostswithtenantswhoalsobenefitfromtheprogram.
• Tenantswouldexperienceanaddi:onalburdenoftheprogramfees.
Policy Consideration – CPI-U Additional Occupants
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JointPe::onagreedbybothtenantandlandlord:5%RentIncreaseforoccupantsotherthanatenant’sspouseorchildren
AddiYonalOccupant(s)
CurrentRent
AddiYonal%Increase
AddiYonal$Increase
NewRent*
1
$1,500 5% $75 $1,575
2 $1,500 10% $150 $1,650
*Thisaddi2onalrentincreaseisaddedtotheAnnualAllowableIncrease.
Policy Consideration – Additional Occupants
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FeedbackReceived
Norentincreasewith5%• Landlordswouldnothavetoaddresstheaddi:onalcostsofmore
occupantsintermsof“wearandtear.”• Landlordswouldnothavetheflexibilitytochargeforaddi:onal
occupants.5%foroccupantsotherthanatenant’sspouseorchildrenwithCPI-U• Tenantsandlandlordswouldbeabletobenefitfromhavingan
addi:onaloccupant.• Landlordswouldhavetoconstantlymonitortheoccupancystandards.
Policy Consideration – Ratio Utility Billing Systems (RUBS)
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DrapordinancerecommendsnoRUBSpass-throughFeedbackReceived
NoRUBS• Causesfrequentrentincreases• Limitedtransparencytotheactualu:litycosts• U:litypaymentsforcommonareasaredifficulttotrack
AllowRUBS• Encouragesconserva:on• Increasesinu:litycosts(i.e.water,electricity)• Alleviatestheburdenforlandlordstopayaddi:onal
u:litycosts
Policy Consideration – Rent Registry
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• Submitregistra:onforeachRentStabilizedUnit• Registra:onwillincludethefollowing:
PublicFacingü Addressofunitü Occupancystatusofunitü Rentchargedü RentchargedintheBaseYear(2014)Internalü Landlord’snameandaddressü Dateoccupied
Policy Consideration – Petition Process
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TenantPeYYons LandlordPeYYons JointPeYYons
Chapter6 Chapter7 Chapter8 Chapter9 Chapter10 ImproperRent,ImproperPass-Through;or
ViolaYonofARO
HousingServiceReducYonsorHousingCodeViolaYons
FairReturn SpecifiedCapitalImprovements
RequestsforAddiYonalHousing
Services
Pe::on&Response
Pe::on&Response Pe::on&Response
Pe::on Pe::on&Response VoluntaryMedia:on
(Op:onal)
Pre-HearingMee:ng(Op:onal)
Pe::onExaminerProvides
Administra:veDecision
Hearing:HearingOfficerprovidesHearing
Decision
Hearing:HearingOfficerProvidesHearing
Decision
Pe::onExaminerProvides
Administra:veDecision
FormReviewandApproval/Denial Appeal
Administra:veDecisiontoDirector
AppealHearingDecisiontoDirector
AppealHearingDecisiontoDirector
AppealAdministra:veDecisionin
Hearing;HearingOfficerProvidesFinalDecision
Policy Consideration – Duplexes
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Thereareapproximately11,000duplexunitsintheCityofSanJoséFeedbackReceived:
• Duplexesareanentranceintothehousingmarketforsmallerlandlords
• Outreachhasnotincludedduplexowners
Policy Consideration – Staffing
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Policy Consideration – Staffing
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Phase #ofStaff TotalCost Fee
Current 6.0FTE0.7FTE(Support)
$1,345,321 $30.30
PhaseIaddiYons 2.0FTE $1,345,321 $30.30Phase2addiYons 5.5FTE $2,486,570 $56.00Phase3addiYons 7.5FTE $3,526,996 $79.50
Policy Consideration – Staffing
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StaffingImpactswith5%• Lowerratesoflandlordpe::onsfiledduetomoreflexibilitywith5%annualrentincreases.
• 21.0FTE–OneAnalystposi:onfromthePe::onUnitmaynotbenecessaryduetothelowerrateofpe::onsfiled.
StaffingImpactswithCPI-U• Higherrateoftenant’spe::onsfiledduetothelimi:ngeffectoftheannualallowableincrease.
• 22.0FTE–FullstaffingwillberequiredforthePe::onUnitandComplianceUnit.
Preview of policy changes
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AnnualAllowableIncrease-Floor&CeilingChangerangefrom2%-5%to2%-8%TenantBuyoutAddbuyoutprovisionthatcansa:sfythevoluntaryvacancy
SecYon8AllowlandlordstoraisetherentsbyHousingAuthority’sstandardsTenantProtecYonOrdinanceRestrictoccupancylimitsandrela:onshipsallowed- OccupancyStandard:twoperbedroomplusone(studio=two)- RelaYonshipsAllowed:spouse,domes:cpartner,children,foster
children,parents
Timeline
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MeeYng Topic Time LocaYon
September14,2017 Housing&CommunityDevelopmentCommission
5:45PM SanJoséCityHallWingRooms
September22,2017 Endof30-dayreviewperiodfordrapAROextendedfromSeptember15,2017toSeptember22,2017.
5:00PM
October5,2017orOctober18,2017
Housing&CommunityDevelopmentCommission–SpecialMee:ng
5:45PM SanJoséCityCouncilChambers
September22–October2017
Staffwillconsiderrevisions&preparefinaldra)forCouncilac2on
November14,2017 CityCouncilMee:ngTBDSanJoséCityHall
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Recommendations
Ini:alreviewanddiscussionofDrapApartmentRentOrdinanceandRegula:ons,StaffingPlanandFeeAnalysis,andaddi:onalitems.Acceptstaffreportandproviderecommenda:onstoStaffon:1. NewApartmentRentOrdinance(ARO)andRegula:onsincluding
considera:onofOp:onA(CPIbasedrentincreasesandotherprovisions)vs.Op:onB(maximum5%rentincreasesandotherprovisions)
2. StaffingPlanandFeeAnalysis3. Addi:onalitemsnotcurrentlyincludedintheARO
a. AddingDuplexestotheAROb. Addingaone-yearleaserequirementtotheAROc. Establishingaseparatevoluntarymedia:onprogram