Santa Cruz Rent Control Initiative – Top Frequently Asked Questions (FAQ)

  

1. Please summarize the initiative. Why does it exist and what would it do?

The Initiative is driven by “The Movement For Housing Justice”. From their preamble to the Initiative: This measure is a city charter amendment that prohibits landlords from evicting a tenant except for specified reasons and limits the amount that landlords can increase the rent. For all rental units in the City subject to the measure, a landlord may terminate a tenancy only for the reasons specified in the measure. Landlords can continue to terminate a tenancy for reasons such as failure to pay rent, a breach of the lease, or conducting criminal activity in the unit. However, landlords are restricted from terminating a tenancy when the tenant is not at fault for the eviction, subject to a few exemptions, such as owner move-in and substantial renovations. In the case of these “no-fault” evictions and specified large rent increases that result in displacement, landlords must pay relocation benefits to the displaced tenants. Tenants who are disabled, seniors, or who live with minor children are entitled to increased relocation benefits

The measure sets base rents for those rental units covered under the measure at the rent in effect on October 19, 2017. If the tenancy began after this date, the base rent is the rent charged upon initial occupancy. A landlord is allowed to raise the rent annually by the percentage increase of the Consumer Price Index, with the annual rent increase capped at 5%.


2. Does this initiative affect single family rental housing units or just multifamily units?

The Tenancy Protection sections will apply to both. 

Currently a state law (Costa-Hawkins) dictates that Rent Controls cannot be applied to single family units so those would be exempt from Rent Control. However rent control advocates are also moving to get a measure on the state ballot that would do away with the Costa-Hawkins protections. If both pass, then under the term of the Initiative all rentals including single family rentals and Accessory Dwelling Units (ADUs) would automatically be rent controlled without any further legislation or ballot measures, and in addition landlords would no longer be able to reset rents to market rates even after tenants move out voluntarily.


3. How will this initiative affect the number and availability of rental units in Santa Cruz?

Proponents argue that it will not affect the number of affordable rental units available in Santa Cruz. The Initiative is written to make it difficult and costly for landlords to remove rental units from the market for any reason. In most cases the landlords must pay the tenants six or more months’ current market rent or more as relocation expenses. The authors took care and advantage of knowledge gained from successes and failures with similar initiatives in an effort to reduce the significant reduction of rental units usually seen when rent controls are imposed. 

There is no doubt that Santa Cruz renters face an affordability problem. However history and extensive studies have shown the effect of rent control to be a significant reduction in rental stock. A 2017 Stanford study on SF rent control shows that the biggest side effect of rent control to be a significant shift of rental units to gentrified units, leading to a reduction of rental housing. From study: “We find that landlords actively respond to the imposition of rent control by converting their properties to condos and ICs or by redeveloping the building in such a way as to exempt it from the regulations. In sum we find that impacted landlords reduce the supply of available rental housing by 15 percent. Consistent with this evidence we find that there was a 20 percent decline in the number of renters living in impacted buildings relative to 1990-1994 levels and a 30 percent decline in the number of renters living in units protected by rent control.”


4. How will it affect the affordability of rental units in Santa Cruz?

One of the major points of the measure is to ensure continued affordability of rental units. Rents are (re)set to October 2017 levels and can only be raised at .8% of the Consumer Price Index each year, subject to a 5% annual max. Recent CPI numbers have been in the 2%/yr range which would yield a 1.6% annual rental rate increase. Additional rent increases must be justified on a case-by-case basis according to defined limited standards through petitions to the rent control board. 

While affordability is a critical need and the intent is good, other communities have found the effect of rent control being to limit future availability of rent controlled units as they are occupied by longer term tenants or handed off under the table to family and friends. And rent levels and rent increases for non-rent control unit are accelerated. According to the study on the effects of rent control in San Francisco “as a side effect rent control results in a 7% total increase in cost to renters” (all rental units, controlled and non-controlled summed). 

Historical research shows that the effect of rent control is to decrease rental units currently available, while providing only a few long-term mostly affluent tenants with protection against rent increases down the road. Meanwhile, new renters of all types including all the new UCSC students who arrive every year and become new tenants will still have to pay market rates for housing – and market rates will likely rise as the number of available units decreases.


5. How will this initiative impact our neighborhoods?

It will benefit them by allowing some long term residents to remain in the neighborhood preserving neighborhood character and comradery. 

It will also degrade them for rentals by removing the master tenant’s ability to remove a problem housemate, or for a landlord to remove a problem tenant. Landlords also lose the right to limit the number of sub-tenants up to the 'state defined max occupancy level', often well more than the current occupancy level.  This will affect household and neighborhood harmony and local parking density.  


6. How will this initiative affect you if you are a student? 

If you have or can find a rent controlled unit it will benefit you through lower rent. It may also benefit you because landlords would be incented to rent to short term tenants and discouraged from renting to long term or older tenants.

For others going forward the measure will reduce the number of available rental units, and dampen the rate of building new ones. For students, this means that unless they find a sub-let in a rent controlled unit (which since they are valuable they will be increasingly taken already), as a result of this measure there will be fewer available, they will pay more, and most likely commute a longer distance, i.e. from south county or the San Lorenzo Valley.


7. How will this initiative affect you if you are in your 50s or older?

For existing renters of covered units it provides substantial protections and benefits for those 62 and over. Tenant protection prevents eviction except for owner-occupation, and even that requires 1 year notice and a minimum of 7 months current market rate relocation payment. 

However it will introduce a disincentive for new rentals to anyone in their mid 50s or older, because of the well intentioned costly benefits landlords will owe to over 62 age tenants and also their being limited in their ability to ever evict over 62 age tenants, even for owner move-ins. So although age discrimination is illegal, it will make it much more difficult for anyone mid 50s or older to find a rental apartment or house.


8. If for work or other reasons I need to leave town for a while, can I rent my house out for the period with a limited term lease and then reclaim it when I return?

Maybe. For periods less than a year, yes. For periods over a year, not without difficulty – your house will be subject to the terms of the Initiative which means going through the rent control board’s eviction process and paying 6 months or more relocation expenses to the tenants.


9. I have or am considering adding an ADU. Will my ADU be subject to the terms of the initiative?

Yes.


10. Economists say that rent control does not work. Why not?

Economists, both left leaning and right, are almost uniformly against rent control because they argue it will have the opposite effect to the one intended – it reduces the supply and availability of rental housing because it causes landlords to repurpose or sell rentals, discourages building new rentals, and ultimately increases the overall cost of rents. They also argue it removes incentives to maintain and improve rental housing and causes degradation of neighborhoods and rental housing stock.


11. It guarantees landlords a ‘fair return’ on their investment? How does it define ‘fair return’, and is that fair to landlords?

Proponents say the measure guarantees landlords a ‘fair return’ on their investment. It states as an assumption that the rents as of October 2017 give landlords a fair return on their investment, and sets future yearly increases at 80% of the CPI each year, which is presumed to maintain that fair return. In order for a landlord to achieve a fair return it is assumed the landlord will sell the unit at a profit.

The problem is the Initiative makes no actual effort to determine a fair rate of return for a unit, relying on assumptions and presumptions instead. Because landlords are not in a uniform state with their investment it treats many unfairly. Broadly they fit into three classes: (1) They purchased the house or apartment long ago and have kept raising rents to market rates, (2) They purchased long ago but have not kept raising rents and are currently somewhat or substantially below market rent rates, and (3) They purchased in the last decade and are currently losing money each month in hopes for future return. The assumptions the measure states are only fair to landlords in class (1). Landlords in class (2) often historically raise rents only when the tenants leave and new ones come in and with the measure will now never achieve a fair return. Landlords in class (3) will likely not be able to sustain yearly losses indefinitely and will likely sell their units, in the case of single family units most likely to affluent over the hill buyers who intend to remove it from the rental market and occupy the property themselves.

There is also an ironic logical fallacy for a measure which is supposed to help renters depending on the sale of the rental (for single family units most likely taking it out of the rental market) before the landlord gets a fair return.