July 26, 2017

Growing Rental Housing in California is a Tough Bet Without a Realty Check on Policy

As the state of California grapples with a very obvious housing shortage; cities have been very busy implementing their fix to local individual housing problems. The million dollar question is: do these new add-on ordinances help the current shortage, add new units, or encourage the prospect of building more projects within a realistic financial plan?

In rent controlled cities like Oakland, Richmond, Alameda, and Berkeley, the general understanding of rent control only touches a surface layer, in what is a very complicated web of price controls and restrictions that make it difficult for any owner to navigate without assistance. Oakland, for example,which has older, rent-controlled construction as the bulk of its inventory, has experienced, at a micro level, a unique and critical set of circumstances. The local ordinances, which dictate annual allowable rent increases for established residents are level one, with subsequent levels going into newly created  programs, or astronomically increased annual fees, that provide detailed tenant protections, which restate much of what has existed in state laws for years but add onerous gray areas that entrap rental property owners with high legal fees.

With the inventory of housing in Oakland being primarily older units, owned by smaller property owners who are into their second or third generation of ownership, it paints a bleak story. The fear that current rules entrap those owners who are, in good faith and majority, doing the right thing, making the right choice is very real. As an owner, you are on your own, and the playbook reads that renters receive city assistance tapping into local and state funds. 

For someone to have the opinion that all these restrictions will not hamper new construction is misguided. A city that restricts, and unfairly holds a bias against rental property owners, who indeed do provide a service, and if in rent controlled jurisdictions, provide the only means for affordable housing, really need to be understood and acknowledged. Further a city that implements price restrictions without creating a criteria of qualifiers like income, but solely bases it on length of tenancy never serves the most needy just the lucky. At some point this scenario is unsustainable and it comes at a cost to all.

Cities carry much of the regional responsibility in ensuring units are built and meet the needs of the growing population, however many of these annual reports issued by paid consultants, are put on a shelf and forgotten. And we are back to the same set of solutions that include restriction on all properties that are built before a certain year. Fairly short sighted and this mindset does not even touch on the lack of inventory as a whole.  

What is required is a hard look by our local and state legislators at the current state of housing, and advocating for metrics and baselines. Cities should not be allowed to further restrict and penalize private property owners if they have not done their share of solving the housing shortage. Let us hold our cities accountable for contributing in solving this housing shortage, force them to address why the picture isn't any brighter with the policies and fee structures they have supported and passed. Surely, over 30 years of restrictions is plenty of time to evaluate the success of current policy.

The legislative goal of California and local municipalities should detail the future of where we want to be as a state  or city, support ideas for the greater good not the smaller few, and preserve the success and future of all residents and businesses.