BILL ANALYSIS
SENATE JUDICIARY COMMITTEE S
Charles M. Calderon, Chairman B
1995-96 Regular Session
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SB 1257 (Costa)
As introduced
Hearing date: April 4, 1995
Civil Code
GWW:md
RESIDENTIAL RENT CONTROLS
-PRE-EMPTION OF LOCAL ORDINANCES WITH VACANCY CONTROL-
-CATEGORICAL EXEMPTION FOR SINGLE-FAMILY DWELLINGS-
EXEMPTION FOR NEW CONSTRUCTION-
HISTORY
Source: California Apartment Association; California Association
of Realtors; California Housing Council
Related Pending Legislation: None
(THIS ANALYSIS REFLECTS AUTHOR'S AMENDMENTS TO BE OFFERED IN
COMMITTEE.)
KEY ISSUES
1. SHOULD LOCAL ORDINANCES WHICH LIMIT OR DO NOT PERMIT RENT
INCREASES FOR RESIDENTIAL HOUSING UNITS WHEN THE UNIT IS VACATED BE
PRE-EMPTED BY STATE LAW?
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(A) SHOULD THE ISSUE BE LEFT TO LOCAL CONTROL?
(B) DO VACANCY CONTROL LAWS BENEFIT THE PEOPLE THE LAWS ARE
INTENDED TO PROTECT?
2. SHOULD ANY NEW TENANCY OF A SINGLE FAMILY-TYPE DWELLING CREATED
AFTER JANUARY 1, 1996, BE EXEMPT FROM LOCAL RENT CONTROLS, AS
SPECIFIED?
(A) SHOULD LOCAL "JUST CAUSE" PROTECTIONS BE PRESERVED TO
PROTECT AN EXISTING TENANT FROM AN "UNJUST" EVICTION OR FROM
BEING PRESSURED INTO VOLUNTARILY VACATING A TENANCY?
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3. SHOULD NEW CONSTRUCTION BE EXEMPTED FROM LOCAL RENT CONTROLS,
INCLUDING ANY NEW CONSTRUCTION THAT IS ALREADY EXEMPT FROM LOCAL
CONTROLS PURSUANT TO A LOCAL EXEMPTION?
PURPOSE
Existing statutory law makes no provision for but does not prohibit
the adoption of local rent control ordinances. Case law, Birkenfeld
v. Berkeley (1976) 17 Cal.3d 129, has held that cities have within
their police and regulation powers the authority to enact rent
control laws so long as a fair return is assured to property owners.
This bill, in Section 5, beginning on page 8, line 18, would
establish statewide guidelines for any local regulation of rental
rates for residential accommodations. It would pre-empt more
restrictive controls. Specifically, the bill would:
1. Enact vacancy decontrol for residential dwelling units which are
vacated by the former tenant, except where that termination was
caused by a landlord's service of a notice changing the terms of the
tenancy or evicting the tenant upon 30 days notice. (Proposed
Section 1954.53, beginning on page 9, line 18.) Local "just cause"
eviction protections for tenants in non-single-family type dwellings
would not be affected. Subdivision (g) of Section 1954.53 provides
that the section would not affect any authority of a public entity
to regulate the grounds for eviction.
The exemption would also not apply if the rent control is
pursuant an agreement between the local public entity and the
owner for a "direct financial contribution" or other specified
assistance from the locality. It would also not apply to impair
any obligation of contracts entered into prior to January 1,
1996.
2. Exempt from local controls any new construction which is issued
a certificate of occupancy after February 1, 1995, and exempt from
local controls any residential real property which is already exempt
from local controls as of February 1, 1995 pursuant to a local
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exemption for newly constructed units. Hence, a new unit exempted
from local rent controls pursuant to a local exemption would be
exempt under state law. (Proposed Section 1954.51(a) and (b),
beginning on page 8, line 38.)
3. Exempt from local controls a new tenancy created after January
1, 1996 in a single family home, condominium, townhouse, specified
community apartment projects and stock cooperatives, and any
dwelling unit which could be sold or transferred separately.
(Proposed Section 1954.51(c), on page 9, line 9.) This provision
would not "apply until the termination of a
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tenancy in effect on January 1, 1996, or to a tenancy that has been
terminated by the owner pursuant either to a 30 day notice of
termination or a change in the terms of the tenancy. The provision
is intended to preserve existing protections for existing tenants.
Upon that person leaving voluntarily, however, the unit would then
be permanently exempt from local rent controls. (As introduced, the
new construction exemption would not "apply to the termination of a
tenancy in effect on January 1, 1996. This meaning is not intended
and author's amendments will be offered in committee to correct the
error.)
The bill, in Sections 1 through 4, would also renumber without
substantive change certain provisions of the Civil Code relating to
local rent control ordinances.
The purpose of this bill is to pre-empt local rent controls which
limit or do not permit the rent on a unit to be raised upon a
vacancy.
COMMENT
1. Pre-emption of local vacancy controls on rent
(a) The state of the State
Presently, 14 cities apply local rent controls to
residential rental housing. (Another 90 or so jurisdictions
have adopted controls relating to mobilehome park spaces.)
12 of the ordinances contain "just cause" provisions to curb
arbitrary or retaliatory evictions and 13 provide an
exemption for new construction. A majority of the
jurisdictions allows vacancy decontrol (which allows the
property owner to raise the rent upon a voluntary vacancy of
the unit), or vacancy decontrol/recontrol (which takes the
unit out from rent controls when it is voluntary vacated and
allows the landlord to set a new rental rate for a new
tenant; controls are then reimposed on the new rental rate
for the length of the new tenancy.) Four jurisdictions
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provide an exemption for single family homes.
Five jurisdictions have adopted "vacancy control" ordinances
which do not allow a rent increase when a rental unit is
vacated and a new tenant moves in.
Vacancy decontrol or vacancy decontrol/recontrol ordinances
have been enacted by Los Angeles, San Francisco, and
Oakland. "Vacancy control" ordinances are in place in
Berkeley, Santa Monica, Cotati, East Palo Alto, and West
Hollywood.
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(b) Elimination of local rule on vacancy control
Proponents view this bill as a moderate approach to overturn
"radical" vacancy control ordinances which unduly and
unfairly interferes into the free market. They say that
these strict vacancy control laws deter construction of new
rental housing and discourage new private investments. They
also assert that strict rent control laws encourage some
owners to take their units off the market or to sell the
property. Further, vacancy control laws are extremely
burdensome and expensive to administrate. For example, the
Santa Monica Rent Board has a budget of $4.7 million to
regulate about 27,000 units. In contrast, the City of Los
Angeles's Rent Board budget of $7 million is for 500,000
units. In all, they believe vacancy control laws have
resulted in the availability of fewer affordable housing
units to tenants.
Opponents argue that SB 1257 is an inappropriate intrusion
into the right of local communities to enact housing policy
to meet local needs. Opponents point out that SB 1257
primarily affects four jurisdictions: East Palo, Berkeley,
Santa Monica, and West Hollywood. In each of those cases,
involving built-out communities surrounded by higher-priced
housing markets, opponents argued that local officials and
residents made deliberate choices to address the needs of
their own community. Moreover, opponents contend, rent
control jurisdictions already provide a "blend" of laws.
West Hollywood, one of the jurisdictions affected, allows
for a 10% increase upon a vacancy instead of total vacancy
control. Other jurisdictions have decontrol/recontrol or
just controls on existing rents for existing tenants,
depending of the perceived needs of the communities.
SHOULD RENT CONTROL LAWS BE LEFT TO LOCAL CONTROL?
Opponents also dispute assertions that rent controls have
caused massive reductions in the number of available rental
units in rent control jurisdictions, and contend instead
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that reductions are due to factors such as property owners
choosing to sell their single family houses when prices were
extremely high, owners choosing to "go out of business"
under the Ellis Act or selling to the existing tenants as
"tenants-in-common" pursuant to local ordinances.
Proponents of SB 1257 reply that census data show that
between 1980 and 1990, the total of renter-occupied housing
units decreased in Berkeley, Santa Monica and West Hollywood
while the number of rental units in the surrounding counties
increased. Proponents also respond that extreme vacancy
control laws are a factor in a
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property owner's decision to sell the property rather than
maintaining it as a rental unit, and re-iterate their view that
extreme vacancy control laws deplete the rental housing supply and
discourages owners from developing new affordable rental housing.
Finally, opponents assert that SB 1257 would cause housing
prices to spiral, with the result that affordable housing
would be available to fewer households. In fully built-out
communities such as Santa Monica, West Hollywood and
Berkeley, opponents contend that there will not be enough
new construction to ensure affordable housing.
Proponents respond that a competitive marketplace will
ensure that property owners do not gouge prospective
tenants; tenants will not rent if the rents are too high.
Proponents assert Berkeley's 5% vacancy rate should provide
tenants a wide choice of options.
(c) Impact of vacancy controls: Benefit to yuppies or to senior
citizens, the poor and minorities?
Proponents also contend that strict vacancy control laws
have operated to the benefit of "yuppies" and harmed the low
and moderate income households which the controls were
designed to protect.
Proponents state: "[A]ccording to census studies, vacancy
controls have hurt most those it was supposed to help -
families with children, lower-income, less educated
residents and college students. In Berkeley and Santa
Monica, the number of rental housing units available for
these people significantly decreased between 1980 and 1990.
Meanwhile, rental households with higher income, higher
educated professional workers have increased. This is
contrary to the original purpose of restrictive rent
control." (The study cited is a 1994 study by the Real
Estate and Land Institute (RELUI), of the School of Business
Administration at California State University, Sacramento,
which was commissioned by the proponents of SB 1257. A copy
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of the report. "Rent Control Issues and Impacts, is
available from the committee office.)
Opponents write: "The RELUI study [concluded that rent
controls do not benefit minorities based on data which]
showed that Santa Monica had far less rapid growth in its
Hispanic population than LA County as a whole, 7.35%
compared to 46% in the county. Would a 46% growth of
Hispanics in Santa Monica be expected, given a built-out
housing stock and intense gentrification pressures?"
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Opponents also question the RELUI study's conclusion that
rent controls have not helped the population it was intended
to help. Opponents contend that the study inappropriately
uses inconclusive income data and the attainment of higher
education levels by the tenants as proof of the
gentrification effects of rent controls (i.e., displacement
of lower economic and less educated renters) and that it
protects the wrong people. Opponents point out that
Berkeley is a university town; therefore, a more educated
group of tenants can be expected. Moreover, opponents
contend, the data relied upon by the study ignores student
housing trends. In 1980, many renters were low-income
students. During the eighties and extending into the
nineties, more and more students moved into congregate
quarters, such as dormitories and cooperative living
arrangements. This circumstance operated to take out a
large number of students from the 1990 census, leaving a
larger proportion of "more" educated and affluent renters.
Based upon their own 1994 study, "Rent Control without
Vacancy Control - An Analysis of Four Cities," prepared by
Associate Professor Alan Heskin and Lecturer Ned Levine,
both of the UCLA Graduate School of Architecture and Urban
Policy, opponents contend that rent controls have indeed
protected the populations intended to be served. They claim
that the four communities of East Palo Alto, West Hollywood,
Berkeley, and Santa Monica all saw an increase in the
non-white renter population between 1980-1990. In that ten
year period, the percentage of white households that were
renters dropped from 66.9% to 57.9% in Berkeley, from 46.1%
to 25% in East Palo Alto, from 83.7% to 81.6% in Santa
Monica, and from 88.8% to 87.3% in West Hollywood.
Opponents also claim that the percentage of households
headed by seniors in the four communities were generally
stable in Berkeley (9.5% in 1980 vs. 9.6% in 1990) and Santa
Monica (19.0% VS. 18.9%), but with some decline in West
Hollywood (23.5% in 1980 vs. 20.8% in 1990.). The
percentages of tenant families with children also remained
relatively stable. Opponents assert: "Rent control has
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achieved the intended effects of stabilizing those
communities of renters who were most at risk of being pushed
out by those [gentrification] pressures." Finally,
opponents argue that local governments should retain the
ability to preserve affordable housing and diversity in
their community through the use of rent control laws.
Proponents respond that the RELUI study and its census data
support their conclusion that rent control laws may cause
biases against certain age groups and racial groups. While
the census data shows that elderly and minority populations
significantly increased in adjacent counties, the
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percentages of elderly and minority tenants in the vacancy control
jurisdictions did not increase significantly. Thus, proponents
argue, vacancy control laws may not benefit the populations they
were intended to benefit.
2. Single family/separate dwelling exemption
SB 1257 would exempt from local rent controls any dwelling unit
which could be sold or transferred separately from any other
dwelling unit. This would exempt all single-family homes,
condominiums, townhouses, or any subdivided interest in a community
apartment project, stock cooperative, or limited-equity housing
cooperative.
Proponents assert that single-family rental units are an
important source of lower cost rentals, and that owners of these
units should be encouraged to keep them in the rental market
rather than to sell them for owner-occupied housing. Further,
because these owners are usually small investors and not
sophisticated in the ways of the rental market and complex
regulations, rent control creates a greater burden and
disincentive.
Opponents say that this bill could greatly encourage condominium
conversions of existing apartments and discourage the
construction of apartment buildings in favor of single-family
units.
Proponents of SB 1257 dispute the contention that the measure
would encourage condominium conversions, contending that most of
the current housing stock is in too poor of a condition for a
conversion project.
(a) Protection of existing tenants intended, but no express
preservation of just cause protections
Proponents assert that SB 1257 presents a fair balance by
protecting existing tenants and applying the single-family
dwelling exemption from rent controls only to new tenancies
created after January 1, 1996. Moreover, to protect
against arbitrary evictions of existing tenants to make
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room for a new tenant, the bill would not apply to a
tenancy that has been terminated by the owner on a 30-day
notice or pursuant to a change in the terms in the tenancy.
Opponents allege that pre-emption of rent controls on
single-family type housing may encourage some landlords to
harass tenants in these units into vacating and to sue for
a tenant's immediate eviction upon any breach of a rental
agreement. Opponents contend that the "voluntary vacancy"
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requirement offers no real protection as it can easily be
circumvented by a landlord who coerces or induces the vacating
tenant to sign a "voluntary vacancy" statement. Further, the bill
fails to preserve "just cause" protections for these tenants. SB
1257's preservation of local "just cause" protections in Section
1954.53(g) would not apply to evictions of single family-type
dwelling tenants who fall under Section 1954.51.
SHOULD NOT JUST CAUSE PROTECTIONS BE PRESERVED FOR THESE
EXISTING TENANTS AS WELL?
An amendment is necessary to correct a drafting error in
the bill. As introduced, the new construction exemption
would not "apply to the termination of a tenancy in effect
on January 1, 1996. (See page 9, line 13.) This meaning
is not intended as it would result in the unit staying
under rent control until the tenant after the existing
tenant voluntarily vacates. An author's amendment is
expected to correct the error to exempt the rental until
the termination of a tenancy in effect on January 1, 1996.
(b) Impact of proposal
Depending on the local ordinance in place, many
single-family/separate dwelling units could be impacted by
SB 1257. In East Palo Alto, the bill would reportedly
affect 26% of the available rental units. About 12% of the
units in Santa Monica and West Hollywood would be affected,
while about 27,000 units (8% of the total) would be
affected in San Francisco.
3. New construction exemption
This bill would prevent rent controls from being imposed on
units which receive a certificate of occupancy after February 1,
1995. Local rent control ordinances usually contain a similar
exemption for new construction. Proponents argue, however, that the
provision would ensure that local ordinances would not be modified
to eliminate the exemption.
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The bill would also "grandfather" into the exemption those units
which are exempted from local rent controls pursuant to a local
new construction exemption.
Proponents contend that a statewide new construction exemption
is necessary to encourage construction of much need housing
units, which is discouraged by strict local rent controls. In
support, the California Bankers Association states that from a
lender's perspective, extreme vacancy control ordinance have a
negative impact on the qualification of prospective borrowers
who wish to secure a loan with residential property subject to
the rent control law. The property owner/borrower cannot
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adjust rents to meet market conditions and obtain a sufficient
revenue stream to properly maintain or improve the property, which
can adversely affect the borrower's ability to repay the loan. CBA
contends that under strict vacancy control ordinances, there is no
incentive for the construction of much needed new multi-family
residential housing.
Support: Black Property Owners Assn. of Berkeley; Minority
Property Owners Assn; ACTION Apartment Assn.; Apartment
Assn. of Greater Fresno; Apartment Assn. of Monterey
County; Apartment Association of Orange County;
Apartment Assn. of San Fernando Valley/Ventura County;
Apartment Assn. of Northern Alameda County, Inc.;
Berkeley Property Owners Assn.; Central Coast Rental
Housing Assn.; Foothill Apartment Assn.; Kern County
Apartment Assn.; Marin Income Property Assn.; North Coast
Rental Housing Assn.; North Valley Property Assn.; Rental
Housing Assn., Contra Costa County; Rental Housing Owners
Assn. of Southern Alameda County; Rental Property Assn.
of Central California; Rental Property Assn. of Merced
County; Sacramento Valley Apartment Assn.; San Diego
County Apartment Assn.; San Francisco Apartment Assn.;
San Joaquin County Rental Property Assn.; Santa Barbara
Rental Property Assn.; Solano-Napa Rental Housing Assn.;
Tri-County Apartment Assn.; Apartment Assn. of Greater
Los Angeles; California League of Savings Institutions;
California Building Industry Assn.; California Land Title
Assn.; California Mortgage Bankers Assn.; Taube
Investments, Inc.; Pacific Plaza Venture; California
Bankers Assn.; California Chamber of Commerce; Santa
Monica Chamber of Commerce; Woodmont Companies; Real
Estate Marketing and Management
Opposition: Western Center on Law and Poverty; G.S.M.O.L.; CRLA; CA
Labor Federation, AFL-CIO; AARP; Housing Committee of San
Francisco; Santa Monicans for Renters' Rights; San
Francisco Neighborhood Legal Assistance; City of Santa
Monica; City of West Hollywood; City of Berkeley; Saint
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Elizabeth's Parish (Oakland); Inguilinoa Unidos;
Coalition for Low Income Housing; Berkeley Gray Panthers;
Glendale Tenant Association; Rural California Housing
Corporation; Community Housing Opportunities Corporation;
California Legislative Council for Older Americans; San
Franciscans for California; West Contra Costa
Conservation League; Real Estate Broker, Ruth K. Vurek;
Eden Council for Hope & Opportunity; Sr. Simon and Jude
Church; Rent Stabilization Commissioner, City of West
Hollywood; Sonoma County Mobilehome Owners Association;
Nonprofit Housing Association of Northern California;
Burbank Housing Development Corporation;
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Gospel Justice Resource Center, Diocese of Sacramento; Northern
California Land Trust; Legal Aid Foundation of Los Angeles; Campaign
for Economic Survival; Peoples' Self-Help Housing Corporation; First
San Jose Housing; California Council of Churches; Santa Rosa Mobilehome
Association; Burbank Housing Development Corporation; Coalition for
Economic Survival; Old Mission Santa Barbara; California Corporation
for Caring Communities; Rent Stabilization Board, City of Berkeley; Los
Gatos Unitarians Fellowship, Affordable Housing Committee; Pajaro
Valley Housing Corporation; G.S.M.O.L. - Chapter 640, Region 2;
Alliance for the Mentally Ill - Lake County; Rancho Grande Home Owners
Association; Gray Panthers of San Francisco; Yolo Housing Alliance;
Jericho; Housing California; Southern California Association of
Non-Profit Housing; East Palo Alto Legal Project; Sacramento Housing
Alliance; Asian Law Caucus; Los Angeles Housing Partnership; Los
Angeles Community Design Center; Dunbar EDC; Charo Housing Development
Corporation; West Hollywood Community Housing Corporation; East Palo
Alto Council of Tenants; East Palo Alto Community Law Project; Senior
Action Network; Saint Peter's Housing Committee; California Federation
of Teachers; Skid Row Housing Trust; Southern California Assn. of
Non-Profit Housing; The Housing Committee; Community Tenants Assn.;
Diocese of Sacramento; Rent Stabilization of West Hollywood; Community
Housing Improvement Program.
Prior Legislation: AB 1320 (1994) - Held in this Committee
AB 1294 (1989) - Held in this Committee
SB 1646 (1987) - Held in this Committee
AB 483 (1985) - Held in this Committee
AB 3808 (1984) - Held in this Committee
SB 1067 (1983) - Held in this Committee
SB 1796 (1979) - Held in the Assembly Housing
& Community Development Committee
SB 2146 (1978) - Held in this Committee
AB 2979 (1979) - Held in Assembly Housing and
and Community Development Committee
AB 3788 (1976) -Vetoed
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