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)?

2 City of San José Department of Housing

•  Purpose:Topromotestabilityandfairnessincluding–  Preven:onofexcessive&unreasonablerentincreases–  Allevia:onofunduehardshipupontenants–  Opportunityforlandlordstoearnafairreturn

•  AppliestoapartmentsrentedorbuiltbeforeSeptember7,1979–  44,283apartments–  3,188owners

•  3ormoreapartments

Buildings Not Covered


Duplexes Singlefamilyhomes&secondunits

Condosforsale Townhouses

What does the ARO not do?


•  Increasethesupplyofhousing

•  SolveallofSanJose’saffordablehousingproblems

•  Impactthedevelopmentofmarketrateunitsthatare

notsubjecttotheARO

Balancing the Concerns


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


•  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


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


EconomicRoundtableStudy•  Combina:onofCPI-Uannualincreaseandvacancydecontrol

resultsinafairreturnforlandlords•  OtherCAjurisdic:onsusedastudytodetermineincreased

costsformanagingrentalproper:esanddeterminedCPI-Uwasabederalterna:ve

CityAuditor’sReport•  5%annualincreasesexceedsmarketrents

SPUR’sHousingAgendaforSanJose–August2017•  SantaClarahasseenthelargestgapbetweenthegrowthinits

medianrentandgrowthinitsmedianincome.

Most Cities use CPI


•  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


FeedbackReceived:

•  Providesgreaterrateofreturntoowners

•  Increasesarepredictableforownersandtenants

•  Simpletoimplement

•  1fewerstaff•  Nolimi:ngeffectperCityAuditor’sReport

Policy Consideration – 5% OPTION Annual Allowable Increase

Policy Consideration – Annual Allowable Increase


FeedbackReceived

With5%•  Flat5%issimpleandstraightforward,easierforbothlandlords&

tenantstounderstand•  Yearoveryear5%rentincreasesmayleadtodisplacementfor

tenantswhocannolongeraffordtopaytheirrent

WithCPI-U•  CPI-Uisafamiliar,reliable,andaccessiblesourceofdata•  UsingCPI-Uasagrowthrateforrentsconstrainsgrowthinrevenue

over:me

Policy Consideration – CPI-U Banking


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


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


FeedbackReceived

NoBankingwith5%•  Nobankingrequireslessadministra:vecosts.•  Ifnobankingisallowed,landlordswillmorelikelyraiserent

everyyear.

WithBankingwithCPI-U•  Availabilityofabankingprovisionallowslandlordsto“catchup”

theirrentswhentherearedeclinesindownmarkets.•  MARissimpletoimplement.•  Tenantsmayfacethepoten:alforlargerincreasesinthefuture

iflandlordsexercisethebankingprovision.

Policy Consideration – Capital Improvements Pass-through


•  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


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


50%ofsharedprogramfeeswouldbeallowed Fees Landlord’sShare Tenant’sShare

$100 $50 $50

Policy Consideration – Program Fees


FeedbackReceived

Nosharedprogramfeeswith5%•  A5%annualincreasewouldbesufficienttocoverthecoststo

administertheARO.•  Landlordswouldbeartheburdenoftheadministra:vefees.

50%sharedprogramfeeswithCPI-U•  Landlordswouldbeabletosharetheburdenofthe

administra:vecostswithtenantswhoalsobenefitfromtheprogram.

•  Tenantswouldexperienceanaddi:onalburdenoftheprogramfees.

Policy Consideration – CPI-U Additional Occupants


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


FeedbackReceived

Norentincreasewith5%•  Landlordswouldnothavetoaddresstheaddi:onalcostsofmore

occupantsintermsof“wearandtear.”•  Landlordswouldnothavetheflexibilitytochargeforaddi:onal

occupants.5%foroccupantsotherthanatenant’sspouseorchildrenwithCPI-U•  Tenantsandlandlordswouldbeabletobenefitfromhavingan

addi:onaloccupant.•  Landlordswouldhavetoconstantlymonitortheoccupancystandards.

Policy Consideration – Ratio Utility Billing Systems (RUBS)


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


•  Submitregistra:onforeachRentStabilizedUnit•  Registra:onwillincludethefollowing:

PublicFacingü  Addressofunitü  Occupancystatusofunitü  Rentchargedü  RentchargedintheBaseYear(2014)Internalü  Landlord’snameandaddressü  Dateoccupied

Policy Consideration – Petition Process


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


Thereareapproximately11,000duplexunitsintheCityofSanJoséFeedbackReceived:

•  Duplexesareanentranceintothehousingmarketforsmallerlandlords

•  Outreachhasnotincludedduplexowners

Policy Consideration – Staffing




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



StaffingImpactswith5%•  Lowerratesoflandlordpe::onsfiledduetomoreflexibilitywith5%annualrentincreases.

•  21.0FTE–OneAnalystposi:onfromthePe::onUnitmaynotbenecessaryduetothelowerrateofpe::onsfiled.

StaffingImpactswithCPI-U•  Higherrateoftenant’spe::onsfiledduetothelimi:ngeffectoftheannualallowableincrease.

•  22.0FTE–FullstaffingwillberequiredforthePe::onUnitandComplianceUnit.

Preview of policy changes


AnnualAllowableIncrease-Floor&CeilingChangerangefrom2%-5%to2%-8%TenantBuyoutAddbuyoutprovisionthatcansa:sfythevoluntaryvacancy

SecYon8AllowlandlordstoraisetherentsbyHousingAuthority’sstandardsTenantProtecYonOrdinanceRestrictoccupancylimitsandrela:onshipsallowed-  OccupancyStandard:twoperbedroomplusone(studio=two)-  RelaYonshipsAllowed:spouse,domes:cpartner,children,foster

children,parents

Timeline


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


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

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