City Council Rent Stabilization Session #4 (recap)

City Council will revisit rent stabilization at its upcoming February 5th meeting wherein agreement could be reached on the next rent stabilization ordinance. Key policy choices lie ahead. But behind us have been some hasty decisions by Council, though, which is why some tenants at the December 18th meeting urged councilmembers to press the ‘pause’ button. At that meeting City Council agreed, but continued to discuss several issues. Some consensus emerged but other issues were set aside for further analysis and debate. This is our recap of that December 18th meeting.

At the December 18, 2018 City Council meeting there were three items on the agenda: a draft rent stabilization ordinance (for Council amendment and approval); a proposal to add six staffers to the rent stabilization office; and an administrative change to convert several part-time temporary positions to permanent part-time. Of those Council only agreed to the last in order to keep part-time customer service workers on the job. Building out the office with more hires would wait until the next meeting.[1]

The draft ordinance did not find support. Despite Mayor Gold’s deliberate haste to bring it to Council and wrap-up the rent stabilization policy process, some tenants said that many loose ends remained and there were unintended consequences that would flow from decisions made in the November meeting (read our recap). The draft ordinance also contained some ‘Easter eggs’ that merited discussion rather than hasty adoption.

Among the Easter egg surprises was an unexpected expansion of ‘owner’ (for the purpose of landlord use of an apartment) to now span now five generations – an expansion beyond the current policy of three generations including the owner. Another was an entirely new means of calculating the proposed luxury exemption that could expand its reach. Most worrisome was a provision related to seismic retrofit that would have had tenants pay “cost of interest” over the very long 27-year amortization period even if landlord didn’t borrow any money to fund the retrofit. For these and other reasons we recommended pressing the pause button… and Council did.

Problems With the Process

Councilmember Bob Wunderlich was first to support a pause. “I don’t think we’re ready to adopt an ordinance tonight,” he said. “The [draft] ordinance is long and there’s lots of language to be looked at and to be vetted. We need to have multiple eyes look at it to raise issues and concerns.” That was exactly right: through two successive rounds of facilitated dialogues and much written and oral comment from the public, there was a shared sense among tenants and landlords that we still didn’t have a seat at the policy table.

Coming into the December meeting, tenants and landlords all felt we didn’t have a place at the table at the prior sessions. While we are guaranteed our three minutes at the microphone, there were perhaps ten major policy options on the table. We could only watch as councilmembers riffed on policies without much reference to past public comment (or even established rent stabilization programs elsewhere).

Despite concern over the widely-panned ‘lightning round’ format in November, once again Council began to policy options in what appeared to be a reprise. Some were valuable points to raise. Councilmember Wunderlich questioned how broad the definition of ‘owner’ should be when a renting household would be displaced by owner move-in. He asked why relocation fees should be prorated for those displaced households instead of paying the full fee.

Councilmember Les Friedman had proposed the ten-percent prorated fee and here he indicated some flexibility. Mayor Gold said, “I feel like ‘Let’s Make a Deal’” as he turned to Wunderlich on the prorated fee question: “Could you live with 20%?”

Councilmember Lili Bosse blanched at that quick return to horse-trading after it had been criticized the last time around. “From my perspective I will not vote for this ordinance at all if we go down this path,” she said.

I think it’s probably one of our darkest moments… there are people who live in these homes and they will have to pay for moving, to pay for first and last month, et cetera. We all recognize we want to allow for an owner to bring in a family member. But the individual in the other unit has a family as well, and can be moved out of their unit. It is absurd: 10%, 20% [of the fee]. They deserve to have a home just like a family member. — Councilmember Lili Bosse

Bosse thought the city was taking a step backward from the progress made with changes to the rent stabilization ordinance in early 2017. Indeed why should the city enact a prorated relocation fee? She said that the full fee should go to any displaced household and Council agreed. (That issue and others are summarized below.)

For Councilmember Bosse, who has emerged as a tenant’s most consistent (and vocal) supporter, the horse-trading over the prorated relocation fee was moving the process in the wrong direction. The prorated relocation fee in itself was her ‘deal-breaker.’

For Councilmember Mirisch, the deal-breaker was the lack of substantive discussion about preserving our relatively affordable rental housing. In earlier meetings he proposed the city offer landlords financial incentives to keep their properties maintained and on the rental market. The mechanism is the state’s Mills Act, an historic preservation program in which the city shares some of the cost of the tax incentive.)

Councilmembers had indicated some interest in expanding the Mills Act program but it had not yet been addressed in detail. So time was up for Councilmember Mirisch: “For me the key is having a Mills Act program, otherwise I ain’t going for it,” he said of the rent stabilization ordinance. “I’ve spoken about it but it’s been ignored.”

As his was the third objection to the draft rent stabilization ordinance, Mayor Gold’s push to wrap-up rent stabilization stalled. Action would have to wait for a future Council meeting.

But the discussion did continue, and councilmembers took positions on other issues such as the definition of ‘owner’ for the purposes of landlord use of an apartment; probationary tenancies; the range in which the allowed annual rent increase could float with inflation; and the proposed ‘rent commission.’

Left unaddressed, though, were several important issues, such as how the rent stabilization program fee (estimated at $197 annually) should be shared by tenants. And to what extent should the seismic retrofit cost, and water reliability charge, be passed-through to tenants? What should the rent or other threshold be for a ‘luxury exemption’? Should a ‘qualified tenant’ rent subsidy even be offered — and if so, how would eligibility for that be determined?

The latter issues — the ‘luxury exemption’ and the ‘qualified tenant’ subsidy — implicate another question for Council: should tenants submit to a ‘means tested’ (reporting their household income)? That might be necessary in order to qualify for a subsidy (at least those at the lower rungs of the ladder). On the upper rungs of the ladder, a tenant could be forced to report income if they wanted to escape the luxury exemption. (Yet landlords have steadfastly resisted reporting anything about their operating income.)[2]

Consensus Issues

City Council nevertheless in its discussion more-or-less arrived at consensus on several important issues.

The proposed duplex exemption stays. As described in our November meeting recap, move-in by a beneficial owner could trigger an exemption from rent stabilization for a duplex property. A household renting in a duplex today could be harmed because: 1) tenant protections (including the CPI cap on the allowed annual rent increase) would go away if an ‘owner’ occupied the adjacent unit; and 2) if no owner is resident now, when one moves in then either of the two households renting in that duplex could be displaced. (However a Chapter 5 tenant could not be bounced out.) Council unanimously agreed on this duplex exemption in November.

Council said that anyone from four generations related to the beneficial owner would qualify as an ‘owner occupier.’ That would mean a renting household could be displaced for the landlord’s use when a grandchild, say, moves in. (As mentioned above, that could trigger a duplex exemption so expect this provision to be applied liberally!) Under the current ordinance the allowance is three-generations; Council appears ready to expand that to include grandchildren, too, in addition to an owner’s parents, siblings, or children. (As it happens, the expansion was championed by Councilmember Les Friedman who counts five grandchildren in his family, he told the Weekly in 2014.) Any would satisfy the ‘owner’ requirement, as would Again, Chapter 5 tenants could not be bumped and under a previously-agreed provision, no teacher, nor a family with kids in a Beverly Hills school, could be terminated during the school year.

Probationary tenancy is alive and well. As envisioned by Councilmember Mirisch, the first year of any new tenancy would be a ‘trial year’ after which the landlord could choose to discontinue renting to a ‘problem tenant.’ But no reason is needed for that decision and no finding need be made to invoke it. Nor is any relocation fee required to be paid. As Councilmember Wunderlich correctly asked, “We have the process for [terminating] a disruptive tenant, so why do we need a process beyond that?” Indeed the probationary tenancy would return no-just-cause termination to our books. The proposal divided City Council (Wunderlich and Bosse dissented) as it did in November. Mayor Gold quickly assented, though, and with the concurrence of Councilmember Friedman and Mirisch it gained a 3-2 vote.

The range for the maximum allowed annual rent increase remains unchanged: a floor of 3.5% and a ceiling of 7.5%. As explained in earlier post, Good News and Bad News on the Allowed Annual Rent Increase, this allows a landlord to hit the tenant with a 3.5% increase even when inflation is near zero (as it was for much of the past quarter-century). That’s exactly how Councilmember Wunderlich presented it:

The concept is that landlords, even if CPI was below 3.5%, could still raise the rent by 3.5%… [because] it gives those landlords who say that their expenses rise more rapidly than CPI the ability to have a modestly higher rent increase in a low CPI environment.

Never mind that no landlord has substantiated any claim for needing a higher-than-CPI increase. Never mind that no landlord has provided financials to support their claim to need a higher rent increase. And never mind that Renters Alliance has seen financials for several example properties in Beverly Hills and each shows a net operating income (profit) in the vicinity of 70% — a margin many businesses could only dream about! Still, according to Councilmember Wunderlich the extra bottom-line padding was necessary to preserve the housing stock. (Never mind that we have seen the degradation of our rental housing despite allowing landlords a 10% rent increase for decades!)

Relocation fees for tenants displaced by landlord use will be paid in full. This is a reversal from the November meeting, wherein Council agreed to prorate fees at 10% for each year of tenancy. Today Councilmember Bosse pushed hard to reverse it. “Our intention is to provide relocation fees,” she said several times. “The full fee.”

However a landlord can bring a hardship claim to the (future) rent commission if they need relief from paying the relocation fee. Now it is not clear what criteria or guidelines the commission would use; none has been formulated. The landlord can request a reduction in the fee — or even no fee at all — but the required 6-month notice to tenants is not negotiable, Council said.

Tenants and landlords would be outnumbered by homeowners on the ‘rent commission’ under the current proposal. Though homeowners have no interest in multifamily issues, they will outnumber both tenants and landlords by three-to-two as the commission adjudicates tenant-landlord issues. That includes matters like relocation fees and terminating a ’disruptive tenant’ and more. However that wasn’t the kind of body that was proposed (and agreed) by tenants and landlords. Now we are a minority on our own commission! Council clarified that an alternate will be appointed for the tenant and landlord seats and terms will be staggered. (How the staggered-term concepts works when only one member each will represent tenants and landlords is an open question.)[3]

Preservation is on the Rent Stabilization Agenda

Perhaps the most interesting issue discussed was preservation: Councilmember John Mirisch stood his ground on Council discussing a means to preserve the relatively affordable rental housing that exists in the city. This mostly concerns the smaller properties, generally under 11 units, many of which will soon turn a century old. Most are in need of maintenance and few have been upgraded at all. (Many of us live with kitchens and even appliances that are fifty years old.)

The threat to these small and medium multifamily rental properties comes not so much from the market as from our own City Hall. You see, the state requires every city to identify sites appropriate for future housing. But city officials in Beverly Hills have historically been reluctant to earmark land for housing. Instead, to satisfy the requirement our Community Development Department provides developers with a list of “underutilized residential sites” consisting of older fourplexes, triplexes and duplexes. Instead of seeking to preserve these properties (some of which are included in potential historic districts, according to a city historic resources survey), City Hall points developers to knock-down opportunities. That is simply outrageous and Renters Alliance is pushing for a change in that approach.[4]

The impact of the knock-down first approach is that existing affordable apartments  are lost to newer, more expensive, and larger apartments that will likely never be rent controlled. Those new units cannot help the city hold the line on housing costs. Because Beverly Hills has no policy requiring any one of those redevelopments to include even a single ‘affordable’ unit, the supply of relatively affordable rental housing will only diminish — and prices will rise.

”We don’t have a program in place to specifically target multifamily residences,” Councilmember John Mirisch correctly noted. Referring to the city’s limited Mills Act Tax Incentives program, he continued:

We need to do outreach to encourage [landlords to participate] so we can 1) hopefully bring down rents; and 2) to keep the housing stock we have. …The goal has to be to preserve as much affordable housing as possible – and this is our affordable housing.

He framed it as a tax benefit that would encourage owners not to redevelop their property but to pass it on to a subsequent owner along with the tax break; or else to reinvest the tax savings into maintaining the property. Either way the public wins because rental housing is not taken off the market.

(Ironically, no landlord has ever mentioned the Mills Act. Instead they like to threaten razing their property to build condominiums if they don’t get their way.)

Councilmember Mirisch asked, “Are we in agreement that we should take as broad a stroke – all eligible buildings – and actively encourage owners to apply to protect their buildings?” But Mayor Gold was a bit cool to expanding the city’s program. Councilmember Bosse supported more discussion and suggested it be considered in the context of rent stabilization at the next step in the process.

Next Steps

On February 5th at its evening meeting, City Council will again reconvene to discuss rent stabilization. This will likely be the final substantive discussion on the issue. Now we don’t know what will be on the agenda. Likely Council will want to take care of some unfinished business: pass-throughs, percentage of seismic retrofit paid by tenants, specifics on sharing the rent stabilization program fee with tenants, the ‘luxury exemption,’ and perhaps the ‘qualified tenant’ subsidy.

Those are central aspects of the rent stabilization ordinance and enabling processes, but we have many, many more issues important to tenants that have not been addressed. How to address them in the context of Council lightning rounds is the key challenge.

Will we see more horse-trading? Or will we have a voice in a process that is more accepting of meaningful public input on specified policy decisions? Mark your calendars and plan to attend on February 5th. Please contact Renters Alliance with any concerns you have.

  1. The staffing measures are a reminder that two years after the city got serious about the rent stabilization ordinance and a year after creating the office, the city’s program is still understaffed. It is making due with part-time workers and the City Hall office space dedicated to the program was about the size of a small one-bedroom apartment. Earlier in January City Council did agree to double the floor area and after some reconfiguration the program will have its own dedicated office space.  ↩
  2. It is ironic that landlords have cited tenant privacy in their objection to adoption of a rental unit registry — and they even sued the city to stop it on that basis — yet no landlord spoke up to object to tenants having to report their income. And it is beyond ironic that landlords have completely resisted providing their own operations financials whether individually or aggregated as a group. Means testing is fine for tenants, they seem to feel, but out-of-the-question if it means owners have to divulge their net income from apartment rentals.  ↩
  3. The proposed rent commission signals questionable progress when compared to the city’s prior rent commission, which was charged with hearing landlords’ hardship appeals. That body was disbanded twenty-five years ago. Neither tenants nor landlords even had a seat on that commission. As for staggered terms, Council indicated that meant the two tenant and landlord members would serve an initial term of three years while homeowners would be appointed to an initial term of two years. Thereafter appointments would be for four years.  ↩
  4. Find the list of parcels teed up for demolition in the Housing Element Sites Inventory. Be warned though: a tenant won’t find her address there. All vulnerable properties are referred to only by Assessor parcel number (AIN). That makes it easy for developers to map and target fourplex-and-smaller properties but difficult for you and I to know if our home is on that list!  ↩

Comments are closed, but trackbacks and pingbacks are open.