Santa Monica Rents Double Under Full 'Vacancy Decontrol', Report Finds

Monday, March 26, 2018
Niki Cervantes
Lookout News

A typical two-bedroom apartment at market rates in Santa Monica required a yearly income of $111,000 last year, according to an annual update on the state of the City’s troubled rent control system.

It also shows dramatic rent differences in apartments that haven’t been vacated under the 1995 Costa-Hawkins Rental Housing Act and are still pegged to the 1979 caps on rent.

Median market rates are about double the monthly rent paid by tenants who occupied their units before the law -- which allows landlords to charge market rates for most vacated units -- went into full effect in 1999.

Median monthly rents for units occupied before Costa-Hawkins were $786 for a studio (compared to $1,498 under market rates), $900 for one bedroom (compared to $1,907), $1,143 for two bedrooms (compared to $2,505) and $1,460 for three bedrooms (compared to $3,200).

The report from the City Rent Control Agency tracks, among other renting patterns, the plummeting number of units affordable to low-income earners -- as well as the middle-class -- in the nearly two decades since the state legislature approved rent decontrol.

In 1998, the year before full decontrol went into effect, 83 percent of the City’s housing stock, still fully rent controlled, was affordable to those considered to be extremely low income to low income, the March 22 report said.

Another 12.5 percent was affordable to “moderate” income earners, and four percent to those who were considered high earners.

Two decades later, the number of those who can afford Santa Monica rents has dropped significantly for all but high-income earners, the analysis says.

Those earning well above the 2017 area income for Los Angeles County (or more than 110 percent higher than the $64,800 median household income) comprised almost 88 percent of the households, or 16,731 units.

Units affordable to middle-class renters dropped by 34 percent, or from 2,417 units in 1998 to 1,591 in 2017, the report said.

In all categories of the lowest earners, affordability dropped almost 100 percent, it said.

Housing is “affordable” if no more than 30 percent of a household’s income is spent on it, under federal standards.

Housing providers argue that Costa-Hawkins gave landlords an incentive to upgrade dilapidated units they couldn't afford to fix or, in some cases, even rent under full rent control ("Santa Monica Provides Lesson as Interest in Rent Control on the Rise," September 21, 2017).

Many fully controlled units, they also contend, are often occupied by tenants who can easily afford to pay market rates.

Santa Monica is one of a handful of California cities, including West Hollywood and Berkeley, to enact full rent control, doing so in 1979, as voters rebelled against soaring hikes in rent.

Two decades later, the state legislature approved the Costa-Hawkins Rental Housing Act.

The law allowed all newly built or re-rented units to charge reach market rates, escaping the smaller rent hikes allowed by rent control. Newly rented units are then subject to rent control’s annual adjustment limits.

But as of 2017, “not even a studio in Santa Monica is affordable to a household making the area’s median income,” Tracey Condon, the agency’s executive director, said in the report.

According to the report, a family would need an income of at least $85,600 to “afford” a studio apartment -- or 32 percent higher than the AMI, she wrote.

For a two- or three-bedroom unit rented in 2017 to be considered “affordable,” a household would need a six-figure income, the report said.

“By contrast, had vacancy decontrol not been implemented, any household earning the median household income would have been able to afford any sized unit last year,” it said.

The report also looks at the impact of the Ellis Act.

Enacted in 1986, the Act allows landlords to leave the residential rental business by evicting tenants and withdrawing units from the housing market.
They can return after at least five years and rent again, this time at market rates.

The law has resulted in a net loss of 2,206 units, according to the report.

In the last six months, Ellis filings nearly tripled with 11 notices filed, affecting 36 units.

By year end, a total of 15 notices to withdraw were received affecting 56 units, including 35 renters, almost evenly divided between long-term renters and those at market rate.

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