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SR-11-A (45) \ lA FED - 2 1999 SANTA MONICA RENT CONTROL BOARD ADMINISTRATION MEMORANDUM DATE: TO: FROM: FOR BOARD MEETING OF' RE' January 12, 1999 Rent Control Boord Staff January 14, 1999 Report on Ellis Activity Because of the recent upsurge in Ellis activity, this reports reviews the activities of properties withdrawn under the Ellis Act, including re-rental and redevelopment. The report also summanzes the procedural requirements for Ellis withdrawal. As of December 31, 1998,230 properties remain withdrawn from the residential rental housing market by way of the Ellis Act. This represents the withdrawal of 1,102 units. Four properties with a total of 20 units hove filed the Intent to Withdraw, and are expected to complete the process by the end of February 1m. Thirty-nine formerly withdrawn properties, comprised of 193 units, have retumed to the rental housing market under rent'control. Two properties with a total of 12 units are expected to return to the controlled rental housing market by the end of January. By the end of February, once the pending withdrawals and re-rentals are completed, a total of 232 properties with 1,110 will have been withdrawn. Based on 44 properties which have obtained Certificates of Occupancy since their Ellis withdrawals, 220 controlled rental unIts, most of which had been affordable to low and moderate Income households have been replaced with 250 condominiums units and two Single family dwellings Only seven of the replacement units are restricted for use by low Income households and 18 are restncted for moderate income households ThiS represents a net loss of 195 affordable housing units. Among the 19 properties that filed for withdrawal beginning in May 1998, eleven hove begun re-development activity. ~ These numbers are a clear indication of the future for units which have been withdrawn under Ellis. Withdrawn units, some of which were the most affordable units for very low income households, are being replaced by high end condominiums units, not affordable to low or moderate income households. itA Report on Ellis ActiVity -~ 1/12/99 1 FED - 2 1999 Birth of the Ellis Act In the late 1970's, Santo Monica experienced what came to be called a "demolition derby." During a 15 month period, over 1,300 residential rental unIts were razed, and hundreds of others were converted to condominiums. It has been estimated that 5% of the City's residents were displaced as a result Partly In response to this "demolition derby," in April 1979 the voters of Santo Monica passed the Rent Control Law Among other provIsions, that law prohibits landlords from removing rental units (by demolition, conversion, or other means) unless they obtain a removal permit from the Rent Control Board. The law also prohibits landlords from evicting tenants without just cause. In 1978, Jerome Nash, a 17 year old student, acquired an apartment building in Santa Monica. Nash brought a lawsuit against the City in which he challenged the removol permit requirement In that suit, Nash admitted that his property provided a fair retum on Investment. However. he contended that the removal permit requirement interfered with his constitutional right to "go out of business." Although Nash did not Identify any particular constitutional provision, he asserted that the right to go out of business was a fundamental aspect of personal liberty. In 1984, the Califomia Supreme Court rejected Nash's claim. The court recognIZed that the removal permit requirement implicates personal liberty interests deserving a high degree of constitutional protection. However, it found that the actual limitation imposed on a property owner by the removal permit requirement was minimal, and not significantly different from other govemmentallimitations on the use of private property. The Court pointed out that Nash could go out of business simply by selling his property. It also noted that he could minimize his personal duties as a landlord by hiring a property manager. Finally, the court emphasized that the City's government had an extremely important--perhaps even 0 constitutionally "compelhng"-- interest In protecting the hOUSing supply and preventing eVIctIons Nash appealed this decision to the Supreme Court of the United States. In 1985, the Court dismissed the appeal for want of a substantial federal question. At the behest of the real estate lobby, State Senator Ellis introduced a bill in the state senate which was designed to legislatively override the Califomia Supreme Court's decision in Nash. It was ultimately adopted apd codified at Government Code Section 7060 et seq. The "Ellis Act" became effective on July 1. 1986. The Ellis Act gives landlords the right to "go out of business" by evicting 011 of their tenants. This process is commonly called "withdrawal" of a property from rent or lease. Report on Ellis ActiVity -- 1/12/99 2 The Ellis Procedure Details of this procedure were mandated by the Ellis Act and incorporated Into the Board's regulations. Prior to filing the Ellis wrthdrawal. the owner must. . Complete and sign a Notice of Intention to Withdraw Accommodations from Rent or Lease (called the Notice of Intent) and a Memorandum Summarizing Non-Confidential Terms of Notice of Intention to Withdraw Accommodations from Rent or Lease (called Memorandum). . Have signatures on the Memorandum notarized and have the Memorandum recorded by the County Recorder. The filing occurs when the owner: · Submits the original Notice of Intent and a conformed copy of the recorded Memorandum to the Rent Control Office. Once the withdrawal has been filed, the owner must complete all other procedures within 30 days and terminate all tenancies within 60 days. Wrthin 30 days of filing, the owner must: . Serve all tenants with a completed Notice to Tenants of Pending Withdrawal. . Serve Notices of Termination of Tenancy on 011 tenants. Prior to serving the notice, the owner must determine if the tenant is entitled to relocation assistance under the Santa Monica Relocation Assistance Ordinance passed by the City Council. The Notices of Termination of Tenancy must indicate whether or not the owner believes the tenant is eligible for relocation assistance. · SeNe on the Rent Control Board a Certification that Actions Have Been Commenced to Terminate Tenancies. During the completion process, Rent Control stoff contacts all the affected tenants and works with them to answer questions and resolve any problems that can be helped. Stoff also conducts a title se,arch on the property. If the chain of title is unclear, the process may be delayed. Staff may also visit the property to make sure that all tenants hove actually left. Report on Ellis ActiVity -- 1/12/99 3 The Board then records a Notice of Application of Restrictions In the chain of title This gives notice to and binds future owners. The restrictions include: 1 Uability for monetary damages if the property is re-rented within one year; 2 Right of first refusal for displaced tenants if the property is re-rented within ten years; 3 If the unIts are ever re-rented, they are subject to the Rent Control Law just as if they had never been withdrawn; 4. If the units are demolished, and new accommodations are built and rented within 5 years, they will be subject to rent control. Attached is a complete packet of information given to landlords who are interested in withdrawing their properties. The information packet includes details of: . which rental units can be wtthdrawn; . the requirement that all "accommodations. be withdrawn; · 0 summary of tenant rights; · monetary damages and the right to re-rent within one year - monetary damages are specified os actual damages as a result of displacement and punitive damages not to exceed six months rent. CfJanaes 'n Withdrawal Acflvltv Over Time The greatest amount of Ellis activity occurred in the first few years of the law's existence. By June 30,1990, 174 properties comprised of 853 units had withdrawn or were expected to complete withdrawal The hIghest fiscal year was 1989/90 when 86 properties with 368 units withdrew Eighteen of those properties with 73 units later re-rented again under rent control. and two more properties with 12 units will be re-rentals by January 1999. Between July 1993 and May 1998, the number of withdrawals dropped dramatically. The number increased significantly again in 1998/99 when 19 properties filed for withdrawal in just 8 months, between Maya'ld December. Report on' Ellis Activity n 1/12/99 4 The graph below shows the pattern of withdrawals and re-rentals by units over the years the Ellis Act has been In effect. Note that in 1992/93 and 1993/94, more units returned to rent control than were withdrawn. UNITS WITHDRAWN AND RE-RENTED 350 BASED ON YEAR OF WITHDRAWAURE-RENTAL 300 ~ 250 c: 2 200 o ... .8 150 E ~ Z 100 rJ UNITS WITHDRAWN . UNITS RE-RENTED 50 o 86/87 88/89 90/91 92/93 94/95 96/97 98/99 87/88 89/90 91/92 93/94 95/96 97/98 The chart below shows the number and percentage of units that remain withdrawn by Area of the City1. By way of comparison, the first left-hand column shows the percentage breakdown of controlled units city-wide. Area % of Rental Withdrawn Units Re-Rented Units Unrts In Crfv Number Percent Number Percent (l.l02) (193) A 17% 144 13% 22 11 % B 12 E8 5 18 9 C 5 224 LO 5 3 D 10 17 2 4 2 E 18 300 27 (Q 32 F 17 100 9 34 18 G 21 2$ 24 48 25 As shown by the charts, withdrawals represent a much lower percentage than units in areas B, D and F. while withdrawals are proportionately much higher in areas C, E and G. Of the 19 properties which completed or are pending withdrawal since May, 1998, three are in area E and nine in area G. 1 Generally speaking the seven Areas conform to the following descriptions; A~. Ocean Park; B -- Sunset Park; C -- downtown; 0 -- PICO Neighborhood; E --between Wilshire and Colorado. east of Lincoln; F .. North of WilShire. west of Lincoln; G -- North of Wilshire. east of Lmcoln. Report on Ellis ActiVity n 1/12/99 5 Re.Rental Thirty-nIne properties with 193 units have elected to re-enter the controlled housing stock, at least temporarily. To re-rent withdrawn units, the owner must file a Notice of Intent to Re-Rent Units. An owner whose property has been withdrawn less than one year must notify the evicted tenants of their right to return to the unit. When the property has been withdrawn more than one year, the Rent Control office notifies the tenants. Six of the re-rentals later went through the TORCA (Tenant Ownership Rights Charter Amendment) procedure to convert the property to condominiums. This was the case for many of the earliest re-rentals. The option was severely restricted when the TORCA law was amended in November 1990. Only properties that were withdrawn before 1989 and retumed to rent control before 1993 converted to condominiums through TORCA. Had the TORCA law not been changed, it is likely that many more properties would have taken this option. At least five other properties had taken some steps in the City's permit process toward condominium development during the time the property was withdrawn. It is likely that the downturn in the economy in the early and mid-90's discouraged these and other owners from completing their projects. In spite of the fact that re-rentals are not entitled to Costo-Hawkins increases upon retum to the housing market, there are indications to suggest that some owners hove withdrawn properties recently with the intention of immediately gaining market rents, even at the cost of paying a penalty of six times the MAR to the evicted tenants to prevent them from returning. Post.Ellis Activitv AccordIng to Crty records, forty of the properties withdrawn under Ellis have received Certificates of Occupancy for new hOUSing developments. Two properties (one which had four rental units and one with o(\e rental unit) ore now single family dwellings. Two properties are now exclusively non-controlled rental units with deed restrictions for low-lncome (2 units) and moderate-income (15 units) tenancies. The remaining 36 properties are condominium developments, two of which include deed restrictions for a total of three moderate-income tenancies. Four other properties have permits for commercial uses including office bUildings and parking lots. Report on Ellis Activity -- 1/12/99 6 The net resutt of this activity is that 220 controlled rental units, most of which had been affordable to low and moderate Income households have been replaced with 250 condominiums units and two single family dwellings. Only seven of the replacement units are restricted for use by low income households and 18 are restricted for moderate income households. This represents a net loss of 195 affordable housing units. These numbers are a clear indication of the future for units which have been withdrawn under Ellis. Withdrawn units, some of which were the most affordable units for very low income households, are being replaced by high end condominiums units. not affordable to low or moderate income households. Staff is monitoring development activity on Withdrawn properties and will Issue a detailed report in the near future. Recent UDsurae In Ellis Activltv In May 1998 the number of Ellis filings dramatically increased. Since May 1 withdrawals have been filed for 19 properties consisting of 90 units. The months with the highest number of filings were May (6) and August (5). These properties are: Filing Development Dat~ Address Area Units Evictions AclM1y 5/5/98 811 18th Street G 4 4 5/14/98 2126 3rd Street A 7 6 remOdel/combine units 5/15/98 2712 2nd Street A 1 0 demo permrt pending 5/18/98 1724 Washington Ave. G 4 3 substantial remodel pendIng 5/26/98 911 7th Street G 2 0 demo permit pendIng 5/28/98 2726 Montana Ave. G 4 1 CUP pendIng. 5 unit condo 6/29/98 1252 Euchd Street E 4 4 demo permrt pendIng 7/6/98 911 Califomla Ave. G 4 3 remodel 7/8/98 1315 Lincoln Blvd E 4 0 demo permrt pending 7/30/98 838 19th Strc0t G 5 4 8/11/98 2226 Wilshire Blvd. E 1 1 8/18/98 1719 Ocean Front Walk C 13 12 8/20/98 1411 Cloverfleld Blvd. E 3 0 8/21/98 844 3rd Street F 4 3 CUP/demo pending. 5 unrt cond 8/21/98 933 15th St:-::et G 5 4 CUP/demo pending - 5 unit cond 10/2/98 823 5th Stre~ G 10 10 10/15/98 2021 Montana Ave. G 5 5 12/21/98 420 Palisades Ave. F 4 4 12/21/98 1111 10th St. G 5 5 CUP pending - 5 unit condo Among the 19 properties that filed for withdrawal beginning in May 1998, eleven have begun re-development activity. Report on Ellis ActiVity -- 1/12/99 7 THE ATTACHMENTS TO THE ELLIS REPORT IS AS FOLLOWS: 1 Landlord Information Packet for Ellis WIthdrawals. 2. Notice of Intention to Withdraw Accommodations from Rent or Lease. 3 Memorandu m Summanzl ng Non-Confidential Provisions of Notice of Intention to Withdraw Accommodations from Rent or Lease 4. Certification that Actions have been Commenced to Terminate Tenancies 5 Owner's NotIce to Tenant of Pending Withdrawal. 6 Notice of Tenant Relocation Assistance and Statement of Rights 7 Payment of Fees Required Pursuant to Santa Momca Municipal Code Section 4854. 8. Notice of Determmatlon of Ineligibility for Relocation Assistance. 9 Memorandum to Owners Withdrawing Property Pursuant to Ellis Act. This packet of mformation is referenced on page 4 of the Ellis Report for the Rent Control Board meeting of January 14, 1999 as an attachment and IS available at the Rent Control office at 1685 Mam Street, Room 202. SANTA MONICA RENT CONTROL BOARD ANNUAL REPORT 1997/1998 Adopted DECEMBER 10, 1998 ( (A FES - 2 1999 .f (lA FEB - 2 1999 TABLE OF CONTENTS INTRODUCTION SIGN I F I CRNT DEUELOPME~TS I,.. 1991/98 Limited Uacancy Increases Update on Impact of Uacancy Increases Impact of Vaconcy Increases on Median MAR's Impact of Vacancy Increases on Affordability Impact of Other Factors on Affordability Impact of Vacancy Increases on Fee Waivers Summary of Earthquake-Damaged Housing Stock Public outreach Tracking Complaints of Harassment CHRNGES IN THE HOUSING STOCK Tracking Residential Development Completed Construction The Ellis Act T enent Ownership Rights Charter Amendment Removal Permits Exemptions Unit Summary PROGRRM. pOLICIES RND HDMINISTRRTION Significont Legal Decisions Regulations Incentive Housing Program Annual General Adjwifflent Individual Rent Adjustments Fee Waivers THE WORK OF THE RENT CONTROL BORRD BY DEPRRTMENT 2 3 3 4 6 9 10 12 12 13 14 14 15 15 16 16 17 17 18 18 ~ 19 19 19 20 23 24 Santa Monica Rent Control Board Rnnual Report July 1997 Through June 1998 I NTRODUCTI ON The Rent Control Charter Amendment provides that the Rent Control Board sholl report annually to the City Council on the status of controlled rental housing. During Fiscal Year 1997/98 the Agency was primarily focused on implementation of the state low that mandated vacancy decontrol/recontrol on January 1, 1999 which was preceded by 0 3-year phose-in periOd during which an owner could increase the rent up to 15% upon vacancy. · The Costa-Hawkins Act, passed by the State Legislature and signed by the Govemor, took effect on January 1, 1996. In most cases it allows rent increases of 15% upon vOluntary vacancy of a unit. Units may be eligible for two increases prior to January 1. 1999. Through June 30, 1998, 9,699 unit vacancy registrations (R's) had been filed, 2,843 in the past year. 1.714 of those filed were second filings for the same unit. Costa-Hawkins is expected to continue having a substantial long-range deleterious effect on the affordability of rental housing in the coming years, · The vacancy increases authorized by state law continued to erode the affordability of units. While one vacancy Increase greatly diminished the affordability of units for very low income households, the second increase virtually eliminated them. This report updates the impact of increases on median MAR's, the affordability of units and the number of low-income fee waivers. . The provisions of the TORCA low ended on June 30,1996, although units already approved for conversion continue to be sold. By June 30. 1998, TORCA conversions had been approved for 321 properties contOlnlng 3,381 units 1,664 units had been sold on 210 properties; 546 units on the same properties hod not been sold. On 110 projects, none of the 1,030 units had been sold. An application remained pending for an additional 141 units located In a mobile home park . During the 1997/98 fiscal year, five properties containing 28 residential rental units were withdrawn from the residential rental housing market under the Ellis Act. In the same period, owners of two properties which had previously b~en withdrawn rescinded the withdrawal and re-rented the units. The 12 units on these properties are again under Rent Control. The net loss of units during the fiscat year was 16. Seven properties with a total of 26 units had begun the process of withdrawal, indicating that the rate of withdrawals may be increasing rapidly. In addition to the increase in withdrawals, which has continued in 1998/99, nearly 50% of the recent withdrawals are by new purchasers. This suggests that the properties are being purchased for withdrawal and re-development, not to be operated as residential rental property, despite the owners' ability to obtain market rents on vacancy after January 1,1999. Annual Report -- FY , 997/98 - December' 0, , 998 2 SIGNIFICRNT DEUELOPMENTS IN 1997/98 Limited Uacancy Increases The $tate LegISlature passed Assembly a,lf 1164. known as the Costa-HawkinS Act. effectNe January 1, 1996 After a three year phas~in penod. the law reqUires vacancy decontrol/recontrol In apartments and complete decontrol of houses and condominiums rented after Jauary 1, 1996 The Board adopted regulations Implementing the new law affecting tenancies that occurred on or after October ,. 1995 During the period of this report. the law allowed an owner to increase the rent on a voluntarily vacated unit by up to 15% of the previous rent or up to 70% of a market level determined by HUD (Deportment of Housing and Urban Development), whichever was greater. Owners were eligible for up to two such increases. 2,843 unit vacancy registrations (R's) were filed in the past year. Twenty-three were rejected as duplicate filings, and In 134 cases the units were ineligible. Eighteen of the ineligible units resulted in a petition for an evidentiary hearing. Three hundred fifty-nine R's were in progress at the end of the fiscal year. Through June 3D, 1998, a total of 9,699 unit vacancy registrations (R's) had been filed of which 7,057 were for the first vacancy, Within thiS category, MAR's on 466 units (7% of first vacancies) were raised to 70% of fair market. During the some period of time, between 11% and 15% of units had MAR's low enough to be eligible for 70% of FMR. The remaining 6,591 units with a first vacancy increase collected up to a 15% increase. Because the regulation changed in April 1997, it is not possible to report on the number of units for which the owner could not collect the full 15% increase. 1,714 petitions were for the second vacancy, which allows up to a 15% increase in all cases. Of those, 686 were filed In the last year. Two hundred thirteen of the 1,714 units (12%) were not able to collect the full 15%. Update on I mpact of Uacancy Increases A major portion of the 1996{97 Annual Report was devoted to an in-depth analysis of the impact on rents and affordability from the earthquake and its resulting earthquake-related rent increases as well as from vacancy incre~es. Though a few additional earthquake increases were implemented in 1997/98 by way of addenda for completed work and a small number of new decisions, the overall impact of earthquake increases was established in lost year's report. This report focuses on the impact of vacancy increases, particularly the 8.771 new increases, both first and second, which hove occurred since October 1995. Annual Report - FY 1997198.. December 10,1998 3 Vacancy increases were Implemented since 1992 through the Boord's Threshold Rent Program. However, the Costa-Hawkins Act had the potential of a substantially greater Impact. The table below indicates median rents, by number of bedrooms in the unit, that were in effect on the day before the Costa-Hawkins Act was implemented. As the Threshold Rent program was repealed when Costa-Hawkins increases were Implemented, the direct effect of Threshold Rents and a significant amount of earthquake increases were already reflected in September 3D, 1995 rents. IMPRCT OF URCRNC'I tNeRERSfS DN MEDIRN MRR'Sl Number of Bedroorps o 1 2 3 9/30/95 Median MAR's <iust orior to Costa-Hawkins) S445 -82.7 676 8f(J Chanaes In Median MAR's bv June 30. 1997. The annual general adjustment was $9 or 1.6% in 1996, The left-hand column below lists what MAR's would have been on June 30,1997 applying the annual general adjustment alone. The right-hand column lists actual city-wide median MAR's on June 30,1997. Number of Bedrooms o 1 2 3 6/30/97 Median MAR's Based on General Adjustments $454 536 687 e64 6/30/97 Median MAR's Actual $474 551 700 8e6 The actual Increase in median MAR's over what would have been expected from the general adjustment alone was 2-3% over a period of 21 months, This Increase can, for the most part, be attributed to Costa-Hawkins increases. For example, In the category of one-bedroom units, the median would have increased by $11 as a result of general adjustments. The actual Increase was $30 - therefore $19 of the increase may be attributed to Costa-Hawkins. ~ 1 Penochcally the Agency deterrnnes median MAR's from units In Its database The untts include only those on propenles With four untts or more and only those units for which the number of bedrooms listed is conSidered accurate. The number of Units used in the determination IS tYpically between 26,000 and 29,000. The median IS used because It IS more representatIVe of the Maverage" than IS the mean It IS denved from Isting all MAR's In order from lowest to highest. the mechan IS the mtd6pomt In analyzing rents, this method is preferable to adding up the MAR's and dIVIding by the number of units because MAR's at the high end have too much w9Ight and tend to skew the result Annual Report - FY 1997/98 - December 10.1998 4 Chances in Median MAR's bY June 30, 1998 The annual general adjustment was $ 15 or 2.0% In 1997 The left-hand column below lists what the MAR's would have been on June 30.1998 ofter increasing the 6/30/97 median MAR's based on general adjustments in the table above by the annual general adjustment alone. The right- hand column lists actual median MAR's on June 30, 1998. Number of Bedrooms o 1 2 3 6/30/98 Median MAR's Based on General Adiustments S@ 551 702 881 6/30/98 Median MAR's Ach..Ja1 $494 579 7~ 915 The actual increase in median MAR's over what would have been expected from the general adjustment alone was 4-5% during the 33 month period since Costa- Hawkins went into effect. Median MAR's have risen between 8-11% overall. Approximately half of the increase is attributable to annual general adjustments, and the other half is attributable to vacancy increases. For example, in the category of one-bedroom units, the median would have increased by $24 as 0 result of general adjustments. The actual Increase was $52 - therefore $28 of the increase may be attributed to Costo-Hawkins. The fact that the median rose less in the past year than the year before is that 1.991 increases were taken in the past year compared to 3,625 the year before. Although other factors could influence the data, they are statistically insignificant. These include increases and decreases granted by the Board, exemptions, removals, changes of bedroom verification, and reassignment of parcel numbers due to TORCA conversions. The data indicates that vacancy increases have seNed to increase the median rent by 1% to 2% per year. Two elements of the Costa-Hawkins Act indicate that thIS Increase Will be accelerated in the coming years. First, before January 1999 more units will be eligible for the second vacancy Increase, resulting in cumulative increases per unit of 33%, rather than the 15% allowed on the first increase. Second, beginning January 1999 I increases upon vacancy will no longer be restricted to 15% each or to two increases maximum. Each time the unit is vacated, rent may be set anew. Presumably I this will result in increases larger than 15%. Annual Report -- FY 1997198 - December 10, 1998 5 IMPIICT OF DRCIINCV INCRERSES ON RFFORDRB/LITV The impact of the increases is particularly meaningful when placed in the perspective of affordability, one of the most important factors affected by the recent Increases. In the first 16 years of rent control, the stability provided by vacancy controls resulted in a large percentage of units that were affordable to households with a wide range of incomes, from very low to moderate, thereby enabling Santa Monica to maintain an economically diverse community. The following discussion uses definitions established by the federal Housing and Urban Development (HUD) program: Very Low Income - households whose income is 50% or less than the median household income for a family of four in Los Angeles County2. Affordable - paying no more than 30% of gross income for rent. On September 30, 1995, the day before Costa-Hawkins was implemented, and in spite of the prior impact of the Threshold Rent Program, 48% of D-bedroom units, 46% of l-bedrooms, 33% of 2-bedrooms, and 20% of units with 3 or more bedrooms were affordable to "very low income" households, those at 50% of median income. Cumulatively, 39% of all units were affordable to households at 50% of median income, Also on the some day: . 80% of Q-bedroom units, 77% of 1-bedrooms, 61% of 2-bedrooms, and 43% of units with 3 or more bedrooms were affordable to "low income" households at 60% of medion income. Cumulatively, 68% of all units were affordable to households at 60% of median income. . 91% of O-bedroom units, 95% of 1-bedrooms, 90% of 2-bedrooms, and 75% of units with 3 or more bedrooms were affordable to "low income" households at 80% of median income. Cumulatively, 91% of all units were affordable to households at 80% of median income. The numbers below detail the effect on rents affordable to households with Incomes at the top of the income group. Households with lower incomes will find even fewer units affordable For example. In 1994 the maximum income for a family of four to be considered very low income was $25,200; in 1997 and 1998 it was $25,650 Of the 6,489 units with Costa-Hawkins increases, 2,092 units (32.2%) w~re affordable at 50% on September 30,1995, and by June 30,1998 only 332 (5.1%) were affordable. Similarly,4,437 units (68.4%) were affordable at 60% on September 30, 1995 (including all the units affordable at 50%), and by June 30,1998 only 1,664 (25.7%) were affordable at that level. 95 units were not affordable even at the 100% level on September 30,1995. By June 30, 1998,437 units were unaffordable even at the lc:o% level. 2 For example. for a famly of four. the median IOcome at 50% was $25,650 10 the years In QuestIOn. Income for a family of four at 60% was $30,780, at 80% It was $41,040, and at 100% It was $51,300 Annual Report -. FY 1997198 - December 10, 1998 6 Chanc;'les in Affordabilitv for VerY Low Income ~ou$eholds -- 50% of Media., Income (all col"ttrolled unifsl. By June 30, 1998, less than three years after Costa- Hawkins began, 0 large number of units once affordable to the very low income group were no longer affordable to them. The chart below shows the changes in affordability between September 30,1995 and June 3D, 1998 for all controlled units3, Amt. of ~ ChanQe -38.4% -395 -22.0 -22.4 25.9% -33.4% No. of Units In Affordable Affordable Bedrooms Report4 Sept. 1995 ~ June 1998 0 1255 773 1 6fiJ7 3,674 2 3208 2.&:l4 3 or more EQ3. 437 Total 28,537 1l~3 38.9% 7.388 The major factor in the loss of units affordable to very low income households was a vacancy increase. Though some loss of affordability is attributed to the intervening annual general adjustments, the table below details the major loss of affordable units resulting from vacancy increases. Chanaes in Affordabilitv for VerY Low Income Households -- 50% of Median Income (at least one Costa-Hawkins Increase). The chart below shows changes in affordability levels of all units with at least one vacancy increase after September 30, 1995. Affordable units decreased from 2,092 to 332, a loss of 84%. No. of Bedrooms o 1 2 3 or more Total Affordable Seot. 1995 328 1298 432 ~ 2[112 Units in Report 6,489 Affordable ~ June 1998 87 225 2J o 32.2% 332 %. Amt. of Chanae -73.5% -82.7% -95.4% -100 0% -84. 1 % 5.1% 3 The analysiS measures effects of Increases on very low Income households as If all households In the group had the maximum quahfy'lrlg Income In fact, most households had even lower Incomes. Because affordabllrty IS based on a percentage of Income, households With lower Incomes Will find even fewer urnts affordable 4 The units Include only those on properties'Mth four umts or more and only those units for which the number of bedrooms listed IS considered accurate. It also excludes units that had a MAR of 0 In either 1995 or 1998 In the case of thiS report, the total number of units was 28.537 Annual Report .. FY 1997/98 - December 10, 1998 7 While one vacancy increase greatly diminished the affordability of units for very low income households. the second Increase virtually eliminated them. Of the 1 .694 units that had two vacancy increases. 435 had been affordable at 50% before the first vacancy increase. 117 were still affordable at 50% after the first vacancy increase, but by the second increase only six units were affordable. Four of the six units affordable units did not toke the full Increase upon each vacancy. Chanaes In Affordabllltv for Very Low Income Housaholds n 50% of Median Income (all units with second vacancy Increase): No. of e,edrooms o 1 2 3 or more Total Units in Affordable Reoort before 1st Inc. 69 28) 78 2 1.589 435 Affordable ~ after 2nd Inc. 4 2 o Q 27.4% 6 12. Amt. of ChanQe -94.1 % -99.3 -100.0 -100.0 -98.6% .4% The impact of vacancy increases was seen as well for very low income households at 60% of median income. Though the percentage units lost is smaller, the number of units lost increased from 1.700 (2,092 - 332) at 50% of median to 2.773 (4,437 - 1,664) at 6f1fo of median: Chanaes In Affordabllltv tor VerY Low Income (60". of Median Income) Households Cat least one CostcJ~Hawklns Increase), The chart below shows changes in afford ability of all units with at least one vacancy increase after September 30, 1995 No. of Units in Affordable Affordable Amt. of Bedrooms ReDort $eDt. 1995 ~ June 1998 ~ Chonoe 0 702 251 -64.3% 1 2fX:B 1007 -CO. 8 2 1~ ;f;7 -62.7 3 or more 1a2 9 -91.2 Total 6.489 4.437 68.4% 1.664 25.7% -62.5% Annual Report - FY 1997198 -. December 10.1998 8 1/'rtfIlRCT OF OTHER FRCTDRS ON RFFORDR,'LITP Some loss of affordablli1y is attributed to the intervening annual general adjustments that occurred in September 1996 and 1997. Because the HUD affordability levels did not change those years. and the general adjustment increased rents by 1.6% or $9, whichever was higher in 1996 and 2% or $15. whichever was higher in 1997. some attrition occurred. Chanaes in Affordabilitv for VerY Low Income Households (no Costa.Hawkins increases), The chart below shows changes in affordabili1y of all units with no vacancy increase after September 30, 1995. loss of affordability for these units was due to causes other than Costa-Hawkins vacancy increases. No. of Bedrooms o 1 2 3 or more Total Units in Report Affordable Affordable Sept. 1995 ~ June 1998 fl2.7 (:i!iJ 4,7t:B 3,449 2,776 2A84 522 437 9.001 40.8% 7/Jf:JJ Z2,048 Amt. of ~ ChanQe -26.0% -27.7% -10.5% - 17.4% 33.0% -21.6% The direct cause of the loss of affordability among these units was probably the annual general adjustment. The largest loss of affordable units was in the 1- bedroom category. The number was unusually high because September 1995 MAR's that became unaffordable at 50% of median income by June 1998 generally had 1978 base rents in the range of $249-$263. Over 1,100 units had base rents in this range. In fact at least 600 1-bedroom units had the popular base rent of $250. The accumulation of annual general adjustments, culminating in a $15 increase in September 1997, raised those rents above the level of offordability at 50% of median In addition, units In areas B. C and E that previously received Threshold rent Increases were In the affected range of rents. Q-bedroom units affected were those that had base rents between $209 and $223 and units in areas AI Band D which had previously received Threshold Rent increases. Over 200 2-bedroom units affected were those that had base rents between S303 to $314 and more than 100 3-bedroom units affected were those that hod base rents be1w~~:1 $348 to $359. While some of the loss of affordability can be traced directly to annual general adjustments alone, for other units, it was a combination of Threshold Rent or other increases compounded by the annual general adjustment. Annual Report -- Ff 1997/98 - December 10,1998 9 IftrfPRCT DF URCRNCV INCRERSES ON FEE WRIUlRS The loss of very low income households dUring this period can also be seen by the changes in low income fee waivers. The number of fee waivers typically rises and falls during the year. Generally, however, they decrease in June and increase again by December. Senior fee waivers were consistently in the 9OO's through December 1993. one month before the earthquake. One year later, December 1994, the number was still 895. However, from that point on the number continued to decline until by June 30, 1997, it was down to 766. On June 30,1998 the number had declined further to 719. The impact resulting from vacancy increases is clear. In September 1995, there were 163 senior fee waivers and 28 disabled fee waivers on 6,935 units which subsequently received vacancy increases. On June 30, 1998, these same units had only 18 senior fee waivers and 9 disabled fee waivers. The numbers of Section 8 fee waivers on units with vacancy Increases have declined since July 1, 1997. In September 1995 there were 748 Section 8 fee waivers. One hundred and fifty-four of those were on units which subsequently received vacancy increases. In June 1998 there were 731 Section 8 fee waivers, only 85 of which had had vacancy increases, including the four that previously had other low income fee waivers. The table below details the changes of fee waiver status for units with vacancy increases: Type of Change Senior Disabled Section 8 from 1995 to 1998 1915 1 <;Q8 1995 1998 1995 1998 Dropped fee waiver 157 0 25 0 128 0 Added fee waiver 0 12 0 8 0 ff} Replaced fee waiver 0 -2 -3. 1 24 26 Total 163 18 28 9 152 85 Of 1.713 units with two Costa-Hawkins increases. 41 units had senior fee waivers on September 30, 1997; four had them on June 30,1998. Four units had disabled fee waivers in 1995 and one in 1998. In September 1995 there were 46 Section 8 fee waivers on units whieh subsequently received two Costa Hawkins increases. In June 1998 only 12 units that had two Costa Hawkins increases continued to have Section 8 fee waivers, Annual Report - FY 1997198 -- December 10.1998 10 ~ ~ > ~ 3: ~ ~ "5 ... .8 E :J Z Senior and Section 8 Fee Waivers June 1990 to June 1998 1 1 ! ! f I 1000 1.r1\ .;I : . Sentor Fee Waivers '- .JI ) ~ . See 8 Fee Waivers 900 [ 1 ( , ........ V " i '\ .......I 800 I / r-..... """ 700 .-..-.. --- .JI" ~rr """"lIr- 600 I ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ 8 ~ ~ ~ ~ uJ 0 wow Ow W oLlJ W OuJ uJ 0 uJ 0 uJ 0 w Z w z W z z z z W Z uJ Z w z ~ 0 ~ 0 ~ 0 ~ 0 ~ 0 ~ 0 ~ c ~ 0 ~ ~ ~ ~ ~ ~ , , , ~ Vacancy Renllncreasss for TORCA Units u In December, 1995, the Boord created a new program alloWing owners of eligible owner-occupied TORCA unITS to rent the" untfs at market rate upon authonzatlon by the Board The program. Vacancy Rent Increases for TORCA Units. was modeled offer the Board's exemption which is granted to single family dw'ellings that are owner-occupied for two consecutive years An owner-occupant who has INed In a TORCA und for two years may apply to the Rent Control Board for authonzatlon to establish a new maximum allowable rent for the unit, The authoriZation gives the owner pre-approval to set a new MAR when he rents the unit to a tenant If the Board authonzes the vacancy rent Increase. the owner fS required to regISter the unit and Its new MAR and amend/es Between July 1, 1997 and June 30,1998,37 applications for Vacancy Increase for TORCA units had been filed. Of those, 36 were granted and one was withdrawn. Three applications filed in the prior fiscal year were also granted, During FY 1997/98, 15 owners rented their units and re-registered the new MARs. Of these fifteen, nine re-reglstrations were for vacancy Increase authonzations granted in FY 97/98. Among the seven one-bedroom units, the pre-Increase MAR's ranged from $461 to $742 and the post-increase MAR's ranged from $975 to $1,500. The median pre- increase MAR was 575 (affordable at 60% of median income) the median post- increase MAR was $1,213 (unoffordable at 100% of median). Among the seven -two-bedroom units, the pre-increase MAR's ranged from S391 to $1 ,428 and the post-increase MAR's ranged from $1,150 to $ 11600. The median pre- increase MAR was S7SO (affordable at 80% of median income) the median post- increase MAR was $ 1.404 (unoffordable at 1 CXJ% of median). The MAR on the one 3-bedroom unit went from $542 to $3,950. The results are generally consistent with those reported for 1996/97. Annual Report.. FY 1997198 -- December 10,1998 11 Summary Of Earthquake-Damaged Housing Stock: Data collected soon after the January 17, 1994 earthquake indicated that approximately 218 multi-family residential buildIngs containing 2,252 units had some units which were made uninhabitable, either red or yellow-taggedS by the earthquake. Many other properties sustained varying degrees of damage, particularly those in the northwestern part of the city Of the tagged properties, through June 30, 1998, 163 properties with 1.634 units have been repaired and are now hobitable. Thirty-six properties containing 394 units hove been demolished as 0 direct consequence of earthquake damage. Included ore 178 units at the Sea Castle which was damaged in the earthquake. The Sea Castle obtained a removal permit and has begun rebuilding. Twenty-five properties (242 units) remain tagged as uninhabitable. This includes 1221 Ocean Avenue, with 120 units, that has begun the process of repair. Public Outreach This fiscal year, the Board published three issues of its newsletter "Rent Control News.. The fall 1997 issue included articles on: determining legal rent levels (explanations of maximum allowable rent levels and surcharges); remedies for rent overcharges: the Boord's expanded mediation service; and Community Corporation, a neighborhood-based non-profit organization that buys, renovates and builds affordable housing in Santa Monica. This issue included a postcard that tenants could return to the Board to ask about the maximum allowable rent for their units. Approximately 1,000 tenants returned postcards and received personalized written responses explaining the legal rent levels for their units. The newsletter mailed in February 1998 highlighted a new state law that requires landlords to install and maintain security or locking devices on certain doors and windows It also included articles on when owners may enter rental units and proper notice requirements, the Importance of having landlord/tenant agreements in writing, and Police Department services to help residents improve personal safety and security measures in their homes. The spnng issue, mailed in April 1998, emphasized the continuation of Rent Control beyond January of 1999 when vacancy decontrol/recontrol is fully implemented. It also Included articles on when owners need to register with Rent Control, earthquake preparedness and the City of Santa Monica's sustainable city programs. Additional public outreach efforts included creation of an information sheet for new owners, staffing information booths at numerous community events and neighborhood meetings, and continuing development of an expanded World Wide Web page. 5 BUildings that were reel or yellow-tagged Immediately folloWing the earthquake but had already been upgraded to green status by February 10, 1994 are not Included In these numbers Ann ual Report -- FY 1997/98 u December 1 0, 1998 12 Tracking Complaints of Harassment In 1997/98 the Agency began systematically tracking complaints of harassment. There are two primary reasons the department undertook this task: 1) the Rent Control agency was receivIng many complaints, and there was a recognition that a tenant's first interaction with the City would most likely be with Rent Control; 2) the Rent Control Board has an interest in seeing that vacancy increases under the Costa-Hawkins Rental Housing Act are being obtained fairly. The Public Information Department maintains a problem report log. This log tracks a complaint from the time it comes into the Agency until its ultimate disposition or outcome. The Agency will track a complaint that is either received in written format or is conveyed verbally. If it is conveyed verbally, a staff member then writes up a problem report. In Fiscal Year 1997/98, the Agency received 178 complaints of harassment. The predominant issues in these complaints related to lack of repairs and habitability, bad faith eviction, verbal threats, unauthorized entry, and rent payment. Following discussion in rent control staff meetings, 65 complaints necessitated further action by the Agency (legal letter, mediation. or telephone call) over and above routine information and referral. The Rent Control staff regularly shares information about the complaints its receives with the Ctty Attorney's office. At times, the staff meets directly with the Deputy City Attorney and the staff who prosecute under the anti-tenant harassment ordinance. OccasIonally, the Rent Control staff will meet to discuss problems with tenants and/or owners at meetings that occur outside normal working hours. Annual Report - FY 1997/98 - December 10. 1998 13 CHANGES IN THE HOUSING STOCK In order to follow changes in the housing stock in different areas in the City, severol years ago the Rent Board divided the City into seven areas, whIch parallel neighborhoods and census tracts Removals, Ellis withdrawals, demolitions, development, TORCA statIstics and other data are identified and analyzed by area. The City areas and approximate percentage of rental units in each are shown below: Area A 17% Area B 12% I G I Area C 5% J ~ Area D 10% I E 1 41ft 51 Area E 18% I F i Area F 17% j 5th St. Area G 21% TRIICK/N6 RESIDENT/ilL DfUELDPMENT The Rent Control Board tracks residential development in the City using Planning and Building Department records and permits as well as Rent Control records6 The small amount of development in the two years that are the subject of this report reflects a continuing trend which began several years earlier. Several conditions, some loco! and some national. resulted in a slow rate of development. The slowdown in development has been seen since the early 1990's not only in Santa Monico, but in Southem Califomia generally. Nevertheless. the development that has been completed indicates that there has been on intensification of use of land, that is. more units have been built than have been removed. 6 All Informabon related to new construction comes from the City's PERMIT system. Annual Report -- FV 1997198 - December 10. '998 14 COMPL fTED CONSTRUCTION Six projects contaIning 82 units were completed, replacing 23 residential units: Condominiums . Two properties received certificates of occupancy for 21 units, 5 units on one property and 16 on the other. One of the developed parcels was formerly vacant. the other property contained two units. In lieu fees were paid to the City on the vacant land. . Two properties that were formerly vacant land were developed with 16 units (14 units at market rate, 1 deed-restricted to low income tenants, and 1 deed-restricted to tenants of moderate income). . Two separate properties with 21 units received CQ removal permits. The properties were developed with 45 units, 13 market rate units, 21 moderate income units and 11 low income units. Residential development was completed in four of the seven areas in the City: Units completed Rental Units previously n FY 97/98 removed from these sites 28 A 16 0 (vacanlland) 33 17 ....A ....% 82 23 Rentals CIIv Area C D F G Total THf ~LLIS II.ll When the E/ljs Act became law in July 1986. If ai/owed landlords to go out of the rental business, eVICt tenants, and wrthdraw unrts from the houslflg market During 1997/98, five properties containing 28 residential rental units were withdrawn from the residential rental housing market under the Ellis Act The owner of a one-unit property began the withdrawal process but did not to complete it In the same period, owners of two previously withdrawn properties rescinded the withdrawals and re-rented the units; the 12 units are agaIn under Rent Control. The net loss of units during the fiscal year was 16 As of June 3D, 1998,218 properties comprised of 1,070 units had b~cf\ withdrawn What is particularly noteworthy and alarming is that 7 properties with a total of 26 units began the process of withdrawal in May There are indications thot~the rate of Ellis withdrawals is increasing rapidly. In addition to the increase in withdrawals, which has continued in 1998/99, nearly 50% of the recent withdrawals are by new purchasers. This suggests that the properties are being purchased for .withdrawal and re-development, not to be operated as residential rental property, despite the owners' ability to obtain market rents on vacancy after January 1,1999. The Rent Control Board will continue to monitor the withdrawal of properties under the Ellis Act. Annual Report -- FY 1997198 - December 10. 1998 15 TENRNT OWNERSHIP RIGHTS CHRRTfR RMENDMENT lTORCII' In 1984 Santa Monica voters approved the Tenant Ownership RJQhts Charter Amendment (TORCA) through which an apartment bUilding could be converted to condominiums If a suffiCient number of tenants approved the conversion and agreed to purchase thelf units Protections were bUilt In for tenants who did not Wish to purchase their units. Not 011 converted units are lost from the rent control hOUSing stock Immed/Qtely Current tenants may continue to occupy them, However, once a tenont moves and the unit IS bought and owner-occupied, rt IS unlikely that rt Will again be available on the rental market The provisions of the TORCA law ended on June 30, 1996. Applications filed prior to the deadline are still processed, but no further applications ore accepted by the City. As of June 30, 1998, TORCA conversions had been approved for 321 properties containing 3,381 units. Of those, 1,664 units had been sold on 210 properties; 546 units on the same properties had not been s~d. On 110 of the projects, none of the 1,030 units hod been sold. One additional property (Mountain View mobile home park - 1930 Stewart Street) containing 141 units was pending conversion at the end of the fiscal year. REMOURL PERMITS To protect the controlled rental hOUSing stock the Rent Control Board applies the provisions of the Charter to deCide whether or not to grant removal permits There are several types of removals which the Board may gront- . Category B - if the Board finds that the MaXimum Allowable Rent does not provide a fa/( retum and that the landlord cannot rent the unit at the rent necessary to proVide the landlord wrth a fair return . Category C -If the Board finds that the unit is uninhabitable and cannot be made habltoble In an economically feaSIble monner . Category 0 -If the permit IS being sought so that the property can be developed with multifamily rental units, the demolIShed rent controlled units will be replaced With the same number of rent controlled units. and at least 15% of the controlled unrts to be bUilt Will be ot rents affordable to low Income people. The Boord also adopted speCial regulations for the removal of earthquake-damaged properties (coIled CQ and DQ removals) In the penod July 1, 1997 through June 30, 1998, the Board granted a Category C permit for one property with one unit and Category D permits for the removal of a two properties totaling 11 units. ~ Two properties which had received Category CQ removal permits retumed 45 non-controlled units, 32 of which have deed-restrictions limiting them to low and moderate income tenants. Annual Report -- FV 1997198 - December 1 0, 1 998 1 6 EHEMPTIONS The Rent Control Law applies to all residentIal rental Units In Santa MOnica. except those the Charter exempts under a number of different crrtena There are two kinds of exemptions 1) use exemptiOns which the owner retains os long as the cntena for which the exemptIon is granted remain In effect. ond 2) permonent exemptions Permanent ExemptlOfl$ -- Permanent exemptions ore granted for smgle family dwellings not used os rentals (9 1815) and for new constructIOn (9 780 1) In this fiscal year, there were 43 declarations submitted for single family dwellings stating that the structures were not rented on July 1, 1984. Five other single family dwellings were exempted under 91815. Use Exemptions -- Use exemptions are granted for umts used as follows' . Rental untts In bUlldmgs having two or three uOItS. one of whICh is occupied by the owner: . Resldentlol unIts which hove never been rented or for which rent has never been collected since the beginnmg of rent control (non-rentals), . Residential units used for hOUSing as 0 necessary port of a social service program on a non- profit basIS. The following use exemptions were granted: Tvoe of exemption Number of units affectedNumber of orooerties affected owner-occupied ~ 36- non-rental --1 --1 Total 95 37 These exemptions do not all represent a loss of controlled rental units from the housing stock in 1997/98. Nine properties with a total of 24 units received owner- occupied exemptions for the first time. The balance of the owner-occupied properties had previous exemptions. UNIT SUMMRRV Reduction In Increase In Net change in ActM1y controlled units controlled units controlled units Ellis activity -30 +12 -18 Category C -1 -1 Removals Category D -11 -11 Removals New use exemptions ::24 :24 Total 066- +12 -04 Annual Report -- FY 1997198.- December 10, 1998 17 PROGRRM. POLICIES RND RDMINISTRRTION SIGNIFICRNT LEGRL DECISIONS Four significant cases were decided during 1997/98. Two cases, Action Apartment ASSociation v. SMRCB and Apartment Association of Los Angeles County v. SMRCB considered the some issue, whether the Boord's registration fees are covered by Proposition 218. In addition, Kavanau v. SMRCB and Santa Monica Beach, Ltd. v. SMRCB considered constitutional takings issues in connection with an increase decision of the Board and the Santa Monica Rent Control Law itself, In the Proposition 218 cases, which were consolidated during most of the proceedings, ACTION and the Apartment Association (along with the Howard Jarvis Taxpayers Association) contended that the Board's registration fee is subject to the requirements of Proposition 218 (Articles XIII(C) and XIII(D) of the Califomia Constitution). These new constitutional provisions require government entities to obtain affected property owners' approval in two separate votes before levying certain kinds of assessments and fees on real property. ACTION and the Apartment Association argued that the Boord's 1997 registration fees were invalid because the Board did not comply with these requirements, The trial court held that the Boord's registration fee is a regulatory fee, not the kind of fee covered by Proposition 218, and that it is not subject to the requirements of the proposition. ACTION and the Apartment Association appealed the trial court's decision. The appellate court's opinion affirming the trial court judgment was issued on August 5, 1998, shortly after the fIScal year covered in this report. ACTION filed a petition for review with the California Supreme Court, which was denied October 21, 1998. These cases are now fully resolved in the Board's favor. Kavanau v. SMRCB was an "unconstitutional taking" case based on an earlier appellate court decision in which the court decided that the Board's regulation phasing In rent Increases at a maximum of 12% per year denIed the property a fair return Mr. Kavanau filed a second case seeking damages from the Board for a claimed unconstitutional taking. He sought to recover damages from the Board In an amount which was the difference in rent Increases between the amounts allowed by the Board and the higher amounts required by the appellate court for the period between the Board and the appellate court decisions. The California Supreme Court held that Mr. Kavanau was not entitled to maintain an inverse condemnation (takings) action for this claimed loss. He petitioned the U S. Supreme Court for a writ of certiorari. The Supreme Court declined 10 take the case. In Santa Monica Beach, Ltd. v. SMRCB the trial court concluded that Santa Monica Beach Ltd. could not assert a takings claim simply by citing changes in census data purporting to show that the Rent Control Law failed to meet its objectives. It held that the deferential "rational basis. standard of judicial review applied to regulatory takings. The appellate court reversed, holding that heightened judiciol scrutiny applies to regulatory takings. The California Supreme Court accepted the case for reView, and oral argument was held in early October, 1998. The parties await the court's opinion in the case. Annual Report - FV 1997198 - December 10.1998 18 RE6ULRTIONS In 1997/98 the Board adopted, amended or repealed five regulations, including the 1998/99 annual general adjustment (Reg. 3020) and regIstration fee (Reg. 11019) The other three revisions entailed minor housekeeping changes and updates. INCENTIUE HOUSING PRf)G/fflM Tn 7984. as part of a Charter Amendment. Santo Monica voters passed a proVISion (978050)) which authonzed the Board to -enact regulations to provide for Increases of rents on units vOluntarily vacated where the landlord has dedicated a percentage of unrfs to be rented 'at affordable rates to {ow-Income tenants. - In 1989 the Board passed Chapter 17. -Regulations for InclUSlonary HOUSing Pilot Program. - During the eight years the program has been in effect, 42 contracts have been approved by the Rent Control Board. Five of the contracts were subsequently withdrawn. Thirty-seven properties with 227 units remain active. As of June 30, 1998 there are 113 inclusionary sets in place. There are 114 dedicated units. Eigh1y-four of these are rented to households qualifying as "very low income" (55% have HUD subsidies); the remaining 30 units are rented to households qualifying as "low income." IINNYRL SENEIRL RDJUSTMENT The annual General ActJustment is a determination made yearly by the Boord whfCh allows 011 landlords to raise rents by 0 specified amount to keep pace with the increase in operating expenses Over the years the Board has used vanous methods to arn\le at the General Adjustment. For the 1997 Annual General Adjustment, the Board used the "pie method" to analyze the increases in operating costs by the various components of the rent dollar. The Board also took into consideration the findings of a consultant hired by the Board to assess the impact of increases in the costs of Insurance. The impact of recent increases in water bills and the water surcharge were also reviewed The Board adopted a general adjustment in rent levels of 2.0 percent or $15. whichever was greater. The S 15 was set to prOVide a minimum increase to apartments with the lowest rents. Since these units have many of the same expenses, such as trash collection increases, as the higher rent units, the $15 assured owners of the minimum necessary to cover their actual co~s. Annual Report-- FY 1997198 - December 10,1998 19 INDIYIDURL RENT RDJUSTMENTS Increase Peffllons - - Property owners may petrtlon the Rent Control Board for rent Increases above the yearly general adjustment due to completed or planned caprtallmprovements, lack of a falf retum or Increased operating expenses not covered by the general adjustments In FY 1997/98, 14 increase petitions were received by the Hearings Deportment Hearing examiners issued decisions in 16 cases (including eight filed the prior year). Eleven increases (69%) were granted and five cases were denied. One petition was withdrawn. At end of the fiscal year, five petitions were pending. Professional ExpfInses Addenda - - Professional expenses addenda are ISSued by heanng examiners In response to requests from owners and tenants In relation to the owner's pursUIt of ConstItutIOnal nghts with regard to the Rent Control Law The profeSSIonal expenses category was added In 7994195 In response to the State law whICh required It In 1997/98, eight professionaf expenses addenda were issued. All eight addenda, which hod been requested by landlords, were approved. Hardship Addenda -- Low Income tenants may apply for hardship addenda when increases granted exceed 72% of the MAR or $50. whichever IS greater. The addenda schedules out the Increase over a penod of tIme. not exceeding 60 months Three hardship addenda were issued for six tenant applicants. Three of the applicants qualified as low income, Decrease Petitions -- Tenants whose rental units need repairs or maintenance, or whose housmg sefVIces have been reduced, may pentlon to hove their monthly rent decreased. The tenant's first step is to request that the owner repair the problem or restore the service If the owner does not meet thIS request, the tenant may petition for 0 rent decrease When the owner makes required repairs or restores services for which a decrease was granted, the decreased amount Is reinstated to the rent When Q decrease petition IS filed. a seftlement conference IS scheduled to resolve the Issues Without Q heanng, If pOSSible Received for Mediation 117 Successful Fully Resolved .39 Resolutions: Partially Resolved MediatIon on-going 28 Withdrawn or Dismissed 2 Pending at end of year ...J ~~ !D Partial resolution-referred to hearing 23 No resolution-referred to hearing 2? Declined mediation-referred to hearing ~ 67 Success rate based on 98 cases (total less pending and declined): Overall success rate - 72% Fully successful - 39%; partially successful -- 33% Annual Report -. FV 1997198 -- December 10. 1998 20 Received for Heorina from Medla"on 82 Decreases granted ~ Decreases denied 6 Dismissed 2 Withdrawn 12 Pending 13 Additionally, 20 petitions pending from prior fiscal years were closed in 1997/98 Decisions were issued in 11 of those cases, and the remaining 9 petitions were withdrawn or dismissed. Decreases were granted in 8 of the 11 approved petitions. ReinstatelTltH1t of DecfflOSfM -- Reinstatement of decreases occurs upon receipt of a Request for Proposed Addendum and venficatlon that the conditions were corrected. In FY 97/98 the decreases in ten of the 49 approved petitions were fully reinstated and partially reinstated in another 18. For the cases decided in 1997/98 which had been filed In prior years, decreases were fully reinstated in two of those cases and partially reinstated in another two. Reinstatements also occurred in 37 decisions that had been issued in prior years. Decreases were fully reinstated for 27 of those decisions and partially reinstated for the remaining 10. Adminislrollvtl Petition, - - AdminIStrative petitions may be filed when an Individual decrease petition cites a common area problem such as a leaky roof. dangerous stairs. loss of laundry room. etc Administrative petrtlons are filed on behalf of all tenants not covered by the Individual decrease petition If a decrease IS warranted for the common area problem. 011 affected units may then be aufhonzed to take such a decrease. In FY 97/98 five administrative common area decrease petitions in conjunction WIth Individual decrease petitions were received. Three decisions were issued, one was Withdrawn and the other one is pending, The three petitions were granted, authOrizing decreases which affected 37 units All common area decreases were reinstated by the end of the year, Base Ren' PeIIIIons -- Any owner, former owner. tenant or former tenant of a properly, or any Board CommISSioner or the Board's AdmmlStrator may petition for a heanng to establish a correct rent or apartment/bUilding amenities. In 1997/98 13 base rent petitions were received by the Hearings Department Twelve base rent decisions were issued by the Hearings Deportment. and one was withdrawn. Nine of the petitions were filed in prior years. Of the 9 petitions that concerned base amenity issues, seven were granted and two were denied. Of the two petitions that concemed both base rent and base amenities issues, one was granted and one denied. The one petition that concemed base rent only was denied. Three cases were pending at the end of the year. Annual Report - FY 1997198 -- December 10, 1998 21 Excess /lent Complaints u Board regulatIons provIde for a settlement phase pnor to a hearing In excess rent complaints. The purpose of the settlement phase is to provide an expedfflous mechanISm for tenants and owners to meet and resolve thelf differences Informally, wffh the assistance of a skIlled IntermedIary Unresolved cases are decided by 0 heoflng During the fiscal year, 44 complaints alleging excess rent were submitted and 2 complaints were submitted for non-registration. Complaints are submitted but not filed for a variety of reasons including: the tenant has not shown a valid claim of excess rent; the property is not under the jurisdiction of the Rent Control Law, i.e., It has an owner-occupied exemption; or the tenant withdraws the complaint prior to filing in favor of going to court. Of the 46 complaints submitted, 7 were withdrawn, 2 were rejected and there are two for which the status is pending. Of the 35 complaints accepted for filing, 5 were resolved prior to formal mediation when owners paid tenants the amount of overcharge claimed by the tenant; 9 were resolved through the settlement/mediation process; and 6 were withdrawn prior to hearing. A total of 57% of the complaints were resolved without the necessity of a hearing. At the close of the fiscal year, 9 cases were in the settlement/mediation process. Twelve cases were sent to the Hearings Deportment to be resolved through hearing. The cases included ten for excess rent, one for excess rent and non- registration, and one for non-registration. Three cases were dismissed and one was withdrawn. Three cases were settled after hearings were scheduled but before a hearing was held. Six decisions (one of which was filed the prior year) were issued by the Hearings Department this year. Excess rent violations were substantiated and rent withholding was authorized in four decisions; two claims were not substantiated. Three cases were pending at the end of the year. Vacancy Increase Petitions -- ThIS year the Heoflngs Deportment began to receIVe cases concerning vacancy Increases In these cases, the unit dId not appear eligIble for t he increase Parties who disputed the facts filed petitIons for an eVIdentiary heanng on the matter Eighteen petitions were received. of which six were later withdrawn. Seventeen decisions were issued, including five which had been filed during the prior fiscal year. The decisions found that seven were qualifying vacancies; ten were denied as not qualifying. Annual Report -- FY 1997198 - December 10.1998 22 fU UJIfl.JlEJU The Rent Control Board provides waivers of Rent Control registration fees to units: occupied by their owners, subsidized by HUD (Section 8), or occupied by low- Income tenants who are over 62 or disabled. There are also fee waivers in mobile home parks for units where tenants have signed long-term leases. M of Change from FV 1997/98 Prior Year 719 ~7 1~ +5 2.7OS + 16 731 -20 278 +6 43 -2 4 +4 4,634 --38 Type of Fee WaNer low-income senior low-income disabled owner-occupied HUD subsidized (Section 8) administrative mobile home seismic safety Total fee waivers Annual Report - FY 1997198 - December 10.1998 23 THE WORK OF THE RENT CONTROL BORRD BY DEPRRTMENT Rdmlnlstratlon and PUblic Information Deoartments . Rent Board meetIngs convened and staffed regular meetings special meetings . Newsletters produced and distributed . Q-Petition addenda issued . Clearance forms to submit development applications . Demolition Permits processed . Building Permits processed · Utility adjustment applications processed . Number of people helped seeking information Number at counter (20%) Number by phone (80%) . Excess rent complaints processed . Excess rent mediations conducted . MAR reports generated . Petitions processed on in-toke . Property Registrations processed . Registration fees processed . Fee waivers processed . Small Claims litigation fees collected collection actions token settlements entered registration fee suits filed . S-Petitions (soft story) processed Annual Report -- FY 1997/98 - December 10. 1998 24 38 31 7 3 21 146 lllS 127 0 27.7f{J 5.663 221J87 ~ JJ 139 215 354 4A08 374 $48,559 14 15 17 13 Hearlnos DeDartment . Heanngs held 142 on rent increases 17 on decreases 79 on base rents and amenities 14 on earthquake petitions 6 on complaints 7 on vacancy increases 79 . Written decisIons issued 131 · Addenda issued 96 . On-site investigations conducted 283 upon scheduling decrease petitions 122 in response to compliance requests 7C12 regarding unit identification conflicts 14 Ellis investigations 7 research and measuring 13 other, i.e., occupancy, umt use, etc. 25 · MARs updated due to decisions/addenda 4.012 . Site file pages copied to fiche by contractor 67223 · Interpreter services provided 10 Spanish 5 Persian, Egyptian 5 Legal Department . Staff reports on appeal prepared 73 base rent cases 3 decrease cases 15 increase cases 9 earthquake increase cases 41 excess rent complaints 2 vacancy increase 3 . ElliS property withdrawals processed 5 . Miscellaneous staff reports 7 . New or amended regulations prepared 3 . Litigation 11 · Officer of the Day requests responded to 62.5 . Vacancy rent increase matters re-registration inquiries 84 TORCA increase petition reviews CO . . Exemption cases written or reviewed 35 owner-occupied ~ single family dweJJings 7 non-rental 2 . Administrative Records prepared 6 Annual Report - FY 1997/98 - December 10.1998 25