San Jose City Council to Vote on Linking Rent Hikes to Inflation

With housing costs growing far faster than wages, San Jose officials are considering whether to link rent control to the rate of inflation.

The City Council on Tuesday will consider a proposal to tie the annual allowable increases for rent-controlled units to the region’s consumer price index (CPI), which has ticked up from 2.1 percent to 2.8 percent in the past five years and reached nearly 6.6 percent during the Dot Com bubble of 2001.

The city’s current rent control ordinance applies to fewer than 45,000 apartment units and caps annual rent hikes at 5 percent. San Jose’s rent control law governs about a third of the city’s rental housing stock—only units built before 1979, when the ordinance was first enacted. But the council this week will also consider whether to expand its rent control ordinance to 11,000 duplex units.

In 2016, San Jose electeds lowered the city’s rent control ceiling from 8 percent to 5 percent and prevented landlords from banking unused increases—some went as high as 21 percent in a single year. But tenants and their supporters have argued that 5 percent is still too much.

IMG_20171109_105805On Thursday last week, a few-dozen tenants and activists crashed the 18th floor of City Hall—where the mayor and council’s offices are located—to demand a meeting with Mayor Sam Liccardo, claiming he had been unresponsive to their requests for a face-to-face conversation.

They held up signs underscoring the connection between high rents and the fate of the homeless, the elderly and immigrants.

“Mayor Liccardo,” one banner read, “will you commit to keep seniors and children in their homes by supporting strong rent control?”

The activists sang hymns and chanted, “Drop the rent down low, drop the rent down low, you know you wanna, you know you gotta …”

Liccardo was in Washington D.C. at the time. His policy director, Ragan Henninger, stepped into the hall and offered to meet with the group, but the activists told her they wanted to speak with the mayor in person and receive the same opportunity that apartment lobbyists and developers had.

“We’re very upset with his attitude,” Salvador “Chava” Bustamante, head of Latinos United for a New America, told Henninger beside the reception desk of the top floor. “He needs to understand that he cannot just ignore renters, he can’t ignore the advocates.”

In a new report titled “Soaring Rents, Falling Wages,” labor think tank Working Partnerships USA found that the gap between income and housing costs nearly tripled since 2009. Renters now need to make upward of $3,000 a month to afford a typical apartment in San Jose, according to U.S. Census Bureau data.

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For seniors on fixed incomes, inflation-adjusted monthly Social Security benefits fell by more than 5 percent from 2009 to 2015, leaving them even further behind as rents continue to climb. The report notes that the number of homeless seniors in the area soared by 175 percent during that same timeframe.

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In an interview with the Mercury News, California Apartment Association spokesman Joshua Howard dismissed the findings as “propaganda.”

Ninety-one-year-old landlord Joseph Bommarito urged the council to reject the idea of tying price caps to inflation because of the high costs of repairing the predominantly older rent-controlled apartments.

“These expenses are rising at a fast pace,” he wrote in a letter to the city’s elected leaders. “My annual cap is greater than the CPI [consumer price index]. Going to the CPI is not the answer.”

The proposal to connect rent control to the CPI would allow landlords to pass some of the maintenance costs on to tenants, however. It would also let them bank unused rent increases, a practice that was banned last year.

About a dozen other cities throughout the state have similar ordinances that base rent caps on the consumer price index, including Oakland and San Francisco. Some of the cities limit rent hikes to only a fraction of the rate of inflation.

The council is divided on the proposal, with Liccardo and his allies favoring a fixed-rate and the pro-tenant counterparts leaning toward the inflation-based measure. The swing vote apparently comes down to Councilman Tam Nguyen, who told the Merc that he’s still studying the issue.

More from the San Jose City Council agenda for November 14, 2017:

  • With Prop. 64 going into effect in 2018, the city will vote on whether to allow its 16 licensed collectives to dispense non-medical cannabis. The sales would only be allowed for people over the age of 21 and deliveries would have to be made in cars equipped with GPS monitoring. The city’s police department would oversee the program. Matthew Mahood, director of the Silicon Valley Organization (the rebranded Chamber of Commerce), wrote a letter in support of non-medical sales. “We urge mayor and council to support staff recommendations to allow the 16 existing, registered cannabis collectives to conduct non-medical, recreational [and] adult-use cannabis activities,” he said in his letter. “The local cannabis industry generates an estimated $105 million in annual revenue that supports the regional economy. During the fiscal year 2016-2017, registered cannabis collectives in San Jose have served approximately 245,000 patients and completed over 1.5 million transactions.”

WHAT: City Council meets
WHEN: 1:30pm Tuesday
WHERE: City Hall, 200 E. Santa Clara St., San Jose
INFO: City Clerk, 408.535.1260

Jennifer Wadsworth is a staff writer for San Jose Inside and Metro Newspaper. Email tips to [email protected] or follow her on Twitter at @jennwadsworth.

8 Comments

  1. I forgive our councilpeople. It’s not their fault that they’re unable to think logically. The neural pathways that, in the normal human brain, would recognize the connection between our policies of attracting needy people and the problems that are the inevitable result, have withered away from lack of use in the brains of our local progressaticians.
    They are unable to see that it is themselves that cause the problems that they spend their careers trying to solve.

  2. In an interview with person on street when asked about rent control, Everyman Smith said, “Rent control makes rent higher, it’s economic 101, just look at San Francisco.”

    • Do you even have common sense. Rent control doesn’t make rent go higher. If there is no rent control, landlord could raise as much as 35%. If you don’t accept their raise, you have to move. Even with rent control, where I live, I still get price out eventually. My salary doesn’t increase every year, but rent increase every year at 5%- before rent control, it was 8%. You can say find another job, still price out. Your comment is very ignorant.

      • Mr/Ms Tran,

        I, like all people, are ignorant of many things. This is the reality of life. The law of supply and demand and game theory does give us ignoranamouses some visibility past our limited ability to see reality. It does seem on the face of it that coercing a property owner to rent their property at a low rate, say 35% of your salary, regardless of your wage it a just and good idea. This is fair, why should you be the only one to suffer, right?

        Well you see, the value of a rental property is a function of the revenue and NOI it creates. In San Jose, at the same time there are people buying condos and townhouses, if the demand is great enough, the price of owner occupied homes grows much faster than the price for rent controlled units, If the spread is big enough, the owner will convert the property and sell is as a set of condos. This happened in NYC by the millions, otherwise known as co-ops, by the 10000s in San Francisco, and in most European cities in totality. This so far has not happened in San Jose, but it will. How much do you think someone would buy your apartment for if they could own it and live there? $400,000, $500,000, or more? Do you think your rent competes with that?

        Additionally, there is a natural vacancy rate in any rental market. It is around 5%, where some people move jobs, breakup, divorce, upsize, downsize, want a change of scenery, etc. This allows renters to make property owners compete for thier business. San Jose hasseen move-in concssions at many properties this year. When strict rent control is in place, people no longer move at the same rate, it is much lower. The longer they stay the better the payoff for rent control. Some stay forever. This abnormally drops the natural vacancy rate and when looking for an apartment, since there is less supply, rents are much higher.

        So San Jose will have a lower natural vacancy rate along with fewer units on the market due to conversion. This will result in higher rent, permanently.

        The argument back of course is, yes everyone else will have higher rent, just not me! Do you really think so? Do you think your rent would go up 5%, 8%, or more if the market you lived in had cheaper alternatives? I lived, as a renter in Mountain View, through 25% drop in rent in ne year. A property owner would rather keep you in the unit at 10-20% below market just so they don’t lose 2 months rent and the cost of turning it. You would be shocked how low average rent paid in San Jose vs market rent was. in 2015 average rent for any sized unit paid was $1445 on these ARO units. Or let’s say something happens to the building, or the unit is converted, or you need a bigger place, smaller place, get divorced, maybe your kids need a place of thier own. Have fun finding an affordable unit in a rent controlled market. By hoping to solve your problem today, you really are not, just creating a castrophe in your future.

        Rent control will only make your life more difficult, more stuck, more unmanageable, more out of control. San Jose needs more housing, not more rent control.

  3. Rent control is a simple-minded short-term solution to the SYMPTOM of high rents.

    The smarter course of action would be to work on trying to solve the PROBLEM, which is that California as a state has a housing shortage of 25% (meaning that across the state, we need 25% more housing units to bring prices down to “only” 80% greater than the rest of the country – currently prices are ~150% greater than the rest of the country, and as we keep adding more jobs than housing units, prices and rents keep going up.)

    The smart (and long term) way to fix this problem is to push cities like San Jose to ALLOW more housing units to be built.

  4. These slides are propaganda.

    They show rents from the bottom of the market during the crisis to the current peak. Show the numbers from peak to peak or trough to trough to get a real view. They are also for market rents for all units, not paid rent on ARO units, and there is a huge difference. If you look at the ARO average rent paid in the consultants report the city did when this public drama began, the average rent paid, adjusted for inflation from the peak in 2001, where it was $1400, to the peak in 2015, which was $1445. So property owners, over the long haul increased rents roughly equivalent to inflation. Costs were not inline with inflation as cap rates (ratio of profitability) dropped 50%.

    This article is so misinformed it should really not be called news.

  5. Last year the San Jose passed a sales tax increase. but the measure also included another money grab. Effective this year ANYONE who rents out a room in their house must get a $150 business license. That won’t increase rent? and then just the idea they have the right to collect a fee/tax for what you do in your own home! What about an adult child who moves home and helps out financially? What about a couple who are saving for a wedding and one helps the other w/ mortgage payments? But here’s the kicker. Does having a “Business License” mean that you are a commercial operation now? if Prop 13 ever gets changed to restructure the commercial tax rate – thousands could lose their homes to higher taxes. How will they enforce this? Come into your home and count beds? Why not a tax on how many shirts or TVs you have? where does it stop once they’ve broken down the door to your castle? so the city while telling people how to run their business, because they can efficiently run the city, are adding to the increased rental prices. Can someone point this out to them?

    • Dismantle the idea of rent control. It doesn’t do any good for the landlord and tenants. Landlord should be able to protect their investments. The business license tax San Jose is becoming a money grabbing scheme.

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