Rent control rising? San Jose councilman says it's time to expand regulations, add teeth

Silicon Valley Business Journal May 12, 2015

Relentless increases in residential rents have finally brought the issue of rent control to the fore in Silicon Valley’s largest city.

San José Councilman Raul Peralez is proposing modifying the city’s relatively weak rent-control ordinance — possibly extending it to thousands of rental units while clamping down on the annual amount landlords can hike housing costs.

“Housing and homelessness have been the priority concern literally for our entire city,” Peralez, who represents District 3, told me on Monday. “We’re not going to resolve (the housing crisis) with supply and demand soon enough. So how do we look at the housing stock we have and make this a place where we can afford to live?”

It’s unclear whether Peralez’s proposal — which he admits is just a conversation starter — will gain traction or would even pass legal muster. But it comes as concern is growing that housing costs have escalated out of control, discouraging qualified job applicants from moving here, displacing longtime residents and forcing people to live farther from the jobs.

In the first quarter, a two-bedroom, two-bath apartment in San José was $2,601 per month, up 11.5 percent in a year. And as I have written, those increases have continued even as thousands of new units have come online — suggesting the region's supply and demand is in no way reaching equilibrium.

Most politicians are still reluctant to endorse even exploring rent control, which opponents say drives down property values and hurts the quality of rental housing. But grassroots discussions on the topic are growing in cities such as Burlingame, San Mateo and Redwood City.

So far, they haven’t taken root; in San Mateo, county supervisors chose not to study the issue after it toyed with the idea in the early spring.

Still, there are increasing signs that the landlord community is taking such talk seriously.

“Concern about rental affordability has rekindled rent-control proposals in several cities in which we own property,” said Michael Schall, president and CEO of Essex Property Trust, one of the region’s largest publicly traded apartment owners, on a recent earnings call, according to SeekingAlpha.

Essex voluntarily avoids raising rents on existing renters by more than 10 percent, Schall told analysts, in part to avoid instigating political backlash at what he called "egregious rent renewal" imposed by others in the marketplace.

“Obviously, they're concerned about the affordability of the rental stock within their communities and the ability of people to live and work within the same community,” Schall said on the call. “And with all the rent growth we've had, it's obvious some of those issues are going to become more extreme.”

Peralez believes San José may have reached the point where it's time for regulations. He wants to explore amending San José's rent-control law to include units constructed between 1979 and 1995 (it currently only affects units built before 1979). In addition, Peralez wants to look at preventing annual rent increases in rent-controlled units of more than than 4 percent. (The cap is currently 8 percent.)

He notes that other Bay Area cities with rent control, such as San Francisco, limit rent hikes to a localized cost-of-living index that has stayed well within 8 percent over the last few years.

"Landlords actually really like San José's rent control," Peralez told me, adding that he grew up in a rent-controlled unit in West San José. "That tells you where it’s weighted. The problem we have is that it’s so favorable to the owners that they’re not arguing about it. You have 8 percent you can go up year after year. In a traditional market that’s not booming, maybe that’s fine — but in a market we’re at right now, they’ll take advantage — they’re going up 8 percent year over year."

Peralez's memo drew a differing housing proposal from Mayor Sam Liccardo, incorporating Peralez's recommendations while asking city staff to assess the effectiveness of the current ordinance and the legality of expanding it. Liccardo's recommendation, co-signed by Councilmembers Magdalena Carrasco, Chappie Jones and Margie Matthews, also would study strengthening legal protections for evictions "as a result of price-gouging" and explore creative ways of expanding the housing supply, he said.

The proposals were submitted to the council's Rules & Open Government Committee, which sets the city council's agenda and will meet on Wednesday.

In a phone call on Monday, Liccardo told me he understands the concern over housing costs, but doesn't think rent control is the answer.

"No one can dispute that we’re in a crisis of affordability in our housing market," Liccardo said. "The question is whether City Hall does something to really address the issue or to make it worse. There’s ample evidence of City Halls throughout the Bay Area making it worse."

(Liccardo has shown a willingness to clash with property interests before; he was a vocal advocate for increasing developer fees to pay for affordable housing, successfully spearheading a new fee last year on market-rate rental housing.)

Joshua Howard, executive director of the California Apartment Association Tri-County Division, noted that cities with rent control actually tend to have much higher rents. He said what's needed is simple: More housing supply.

"Hopefully City Hall can recognize that failed policies of the past may be counterproductive to the goal of providing more quality housing that’s affordable and available to local families," Howard told me in a phone call late Monday. "We need housing opportunities for all residents in our economy — nurses, teachers, police officers, firefighters, high-tech employees and those serving our community in retail. What we need to recognize is to lower the price of housing, we need to thoughtfully increase the supply."