RSO Study Session #1: Council Gets to Work!

City Council held its first rent stabilization ‘study session’ last Thursday. This is the latest step in a 18-month policy process to amend the rent stabilization ordinance. The session suggested what a final rent stabilization ordinance might look like: relocation fee schedule, exempted properties and more. However key issues — and the process itself — is still up for negotiation!

The second-round facilitated dialogues held this summer established the scope of the changes to the city’s rent stabilization ordinance: eight key policy topics analyzed by the city’s consultant, including the allowed annual rent increase; relocation fees eligibility and amounts; possible exemption from rent stabilization for smaller properties; the end of no-just-cause tenancy terminations and more. (Read about these options and our recommended positions.)

The staff report for this study sessions added a new set of options: four “cross-cutting policy options.” These were grouped much like a restaurant’s prix fixe menu: a policymaker could choose from ranges of options rather than mix-and-match specifics. From greater protections for tenants on one end of the scale to a slate of options more beneficial to landlords on the other, there was plenty to choose from!

Consultant Paul Silvern introducing the policy options 2018-10-11
Consultant Paul Silvern from HR&A Advisors introduces the “cross-cutting policy options” packages…but Council didn’t bite!

But crafting public policy via prix fixe menu does a disservice to the complexity of the rent stabilization issue, Council suggested as it sidestepped the prix fixe menu and instead staked out some general views on many of the key topics. These effectively signposted their positions going into the coming second study session next week.

The Consensus Issues

The staff report had teed up six issues on which Council direction was requested. For City Council these were the easy questions and they found consensus:

Strong YES on the continued registration of rents that are key to maintaining a rental unit registry;

Strong YES on the creation of a rent board or commission comprised of both tenants and landlords;

YES on qualified status for some tenants though councilmembers differed on purpose and benefit;

Strong YES on a seismic pass-through (that was pre-cooked in an earlier meeting); and,

YES on a program fee cost-sharing pass-through to tenants (as is done in other cities) at about $178 per unit per year with half paid by tenants.

An additional question found consensus:

Yes on looking at expanding our Mills Act historic preservation program in order to incentivize some owners to preserve and maintain their ‘character-contributing’ buildings.

In our view, the greatest threat to tenants is displacement through redevelopment. Indeed the city encourages it. But this could at least be a band-aid to suggest the importance of preserving our smaller multifamily housing stock.

On seismic Council had already agreed to pass some costs to tenants. The question is how much to pass-through and for how long. The good news is there was no unanimous consent to force tenants to bear the whole cost because (as was pointed out) tenants will see no material return; instead that benefit flows only to the owner.

The remainder of the policy questions are more challenging. Issues like the maximum rent increase, relocation fees, exemptions and no-just-cause require analysis. They resist easy consensus in some instances. Moreover, grappling with them is akin to Council changing a tire while driving the car: there is no real agreement on what the next steps in this process should be. Council is feeling its way though.

Staking Out Positions

Bob Wunderlich, Councilmember

Councilmember Wunderlich noted his objectives for rent stabilization (RSO) include maintaining resident stability and maintaining the quality of the housing stock. He asked how current rents paid compare with the market rent for any category of unit; how quickly 50% of units, say, turned over as a way of understanding how close aggregate rents in a property were to market rent at any time; and if rents were tied to consumer prices (which he favored) why 100% of the increase in consumer prices is not the right formula. (That Chapter 6 formula of 100% of CPI produces the current 4.1% allowable increase. He thought both a floor and a cap on the allowed increase would be appropriate.)

Councilmember Bob Wunderlich stakes out his positions 2018-10-11
Councilmember Bob Wunderlich stakes out his positions on RSO.

CM Wunderlich was also interested in a qualified class of tenants to which the city may directly provide a subsidy. He used the example of a subsidy that would take a 1% or 2% off the allowed increase only for that qualified class. Interestingly he ballparked the cost of such a program based roughly on about a quarter of the tenant base (225M in gross rent citywide x .25 x 2% subsidy = $900,000 for an annual program to shave the impact on those qualified tenants of an allowed increase. Mayor Gold seemed cool to the idea. Wunderlich suggested tying the cost of the program to, say, the change in business tax receipts so as to effectively cap the outlay.

On the key issue of ending no-just-cause termination, he is prepared to end it but (like other councilmembers) seemed inclined to refer cases to a rent board for adjudication. For example in cases of retaliation: presumably a board would not allow that termination to go forward. (The alternative is a statutory end to no-just-cause like in our neighboring cities.) He also was open to allowing the board to decide when a relocation fee may not be appropriate.

On the other key issue of exemptions, Wunderlich wondered whether the argument for exempting small-properties because operations costs are higher is actually true. “Are they different for a smaller property?” And even if so, he wanted a narrow exemption — “not a blanket exemption” — perhaps for owner-occupied duplexes and maybe triplexes. And finally to relflect his priority to maintain the rental stock, he was also interested in exploring a pass-through for substantial unit upgrades. That could go to a decision-making body like a rent board, he said.

Lester Friedman, Councilmember

CM Friedman identified his priorities as residential stability and providing RSO protection “to those who need it.” He suggested the ‘mom-and-pop’ case for special consideration might not resonate. “These are defacto business owners – and it is a business and they have to keep up with [habitability] standards.” (By the same token, “those who need it” could mean a limit on the reach of rent stabilization to fewer than the households that get it today.)

On the issue of ending no-just-cause termination he was direct: two-thirds of the 83 evictions between January 2017 and September 2018 were for no-just-cause. (And that may not account for all such terminations.) “That’s troubling. I’ve heard ‘few or no no-cause evictions.’” That needs to be discussed (though he did not commit to ending no-just-cause termination).

On the maximum increase he said “should be a number with variations contemplated” but it is not clear if that meant a percentage with floor and ceiling or something tied to CPI (as tenants have asked). He supported considering a ‘qualified’ tenant class but was not specific.

Lili Bosse, Councilmember

Where Bob Wunderlich threw out a bunch of ideas only to get the conversation going, Lili was more reticent. “For me I feel more comfortable listening.” She wanted to take public input first and then (presumably) suggest her positions in the second study sessions. “I want to allow for the public process.”

On exemptions, during public comment she did question several landlords who had asked for an exemption. Where would they draw the line? At 2 units, 3 units or 4 units? She followed the theme in the discussion. Mom-and-pop is a business, she said, but also she understands the value of owner-occupation. Duplexes fetch the highest rents, so did they need to be exempted on the basis they are more expensive to maintain? Were duplexes something like a single-family renting out their back unit? Again they are a business.

As for no-just-cause, “I do have concerns but some [problem] tenants need to go. She envisioned a board making a determination to terminate and deny fees “if it would fit under just-cause [law].”

Councilmember Lili Bosse 2018-10-11
Councilmember Lili Bosse mostly listened but was most committed to an exemption from RSO for owner-occupied duplex properties.

John Mirisch, Vice-Mayor

Councilmember Mirisch was not so reticent about sharing his perspective. On no-just-cause termination he was in favor of prohibiting no-just-cause with a rent board to mediate. “Obnoxious tenant? The board can say, OK, go with no fees.” He alternately suggested a trial period for a tenant. “The lease year would be a trial period.” After that the tenant could be terminated without fees. (Currently the city requires fees.)

CM Mirisch likes an empowered rent board — “one tenant, one landlord, maybe a neutral person but no hearing officer” — suggests as a model the city’s water penalty appeals board. As for maintaining the housing stock, he advocates for an extension of the Mills Act preservation incentive to keep smaller ‘character-contributing’ properties from the redevelopment bulldozer.

As for a ‘qualified’ tenant, he seemed open to a means test to exempt some households from RSO provisions. But he cautioned against a “two-tier” system and said any provision must not incentivize landlords to rent to wealthier households so that they are exempted from city RSO. “It’s unintended consequences…”

On the maximum rent increase he likes where it is now (which is 100% of CPI or 4.1% for Chapter 6). He would accept some pass-throughs. CM Mirisch also appeared open to rent-banking but with tight limits. Councilmember Friedman argued for predictability for the tenant who may be surprised by an additional ‘banked’ increase. Mirisch replied, “I’d like some flexibility but not a shock” to the tenant.

His bottom line is maintaining the stock but protecting tenants who live here. That includes restricting RSO to full-time tenants (part-timers aren’t really using the housing stock) and prohibiting AirBnB in rental units.

Julian Gold, Mayor

The Mayor has consistently questioned the economic rationale for rent control. As he has before, he’s wondered aloud why some cities have “backed away” from an established rent control policy or program. City Consultant Paul Silvern from HR&A Advisors observed that he is aware of no city in the country that has “deliberately undid their system.” Gold also has asked whether tenants paying the highest rents really need rent control — “a threshold [rent] beyond which RSO would not apply.” He did not get more specific.

He’s not interested in a subsidy to tenants. He might consider a ‘qualified’ tenant class, but not for subsidy purposes. “Some clearly have to be protected but I have a concern about a long-term subsidy.” IT suggested his ongoing concern about the reach of rent stabilization. For example he expressed support for exemptions for owner-occupied properties (“it deserves different consideration than a rental unit to the public”). However he did not appear to favor a blanket exemption by property size and questioned whether costs are indeed higher for smaller properties. (If so he would consider it he said.)

He supports a rent board “especially related to no-cause” terminations which, he said, could be handled by the board “to fit the circumstance” though this too falls short of the strict for-cause standard under state law. (Reference footnote #4.)

He supports rent banking (property owners have asked for “flexibility” and he called it a “good idea”) but on the allowed rent increase he betrayed no allegiance to CPI or any specific percentage. This is important: he suggested that his approach to deciding the allowable increase may be more concerned with the end return to the landlord than any conceptual approach (as is taken in other rent control cities). The increase would depend on how the other policies are decided. “It gets answered last [and] that number goes up or down,” he said.

Our Take

Interestingly there was not a single question asked of city RSO staff! This was very much the Council’s discussion. Aside from the issues covered above, there are a few important things still hanging out there.

The rent board. It received Council support but the path is unclear. Tenants and landlords differ about the role of such a body and whether it should adjudicate tenant terminations. That question may get addressed only after the ordinance is finalized.

Habitability standard. The key question is not so much whether to have one but whether city inspectors should enforce it. Should we allow landlords to swear ‘scouts honor’ that they meet it? No. Should inspectors be code enforcement officers or dedicated housing inspectors? These questions may get kicked down the road.

Our current mayor may want to wrap this up ASAP, but the policy discussion looks likely to extend into the next mayor’s term come March. That’s OK: cities with rent stabilization have incrementally crafted their policies over decades. That our city would wrap it up in just a couple of study sessions was always a long shot. Tenant protections is the long game. Renters Alliance will be there every step of the way!