Santa Rosa's big rent control debate heating up

Late last October, Jen Schallert got a notice slapped on the door of the two-bedroom Santa Rosa apartment where she lived with her children. Her lease was up, and if they wanted to stay in the Rincon Valley complex, they’d have to move to a new unit and pay nearly $2,000 per month, a $300 increase.

The 34-year-old divorced mother of two figured for that kind of money, she and her kids ought to at least be able to rent a house with a yard instead of a 900-square-foot apartment.

Ten months after moving out, Schallert, who works in marketing for a telecommunications startup in Santa Rosa, is still sleeping on an air mattress in her mother’s Larkfield home.

“I’ve never had this kind of trouble finding a home before,” Schallert said last week. “My kids had to start school without being able to sleep in their own beds.”

After months of searching and spending more than $600 on rental applications, most of which never even resulted in her credit being checked, Schallert thought she’d finally found a home in Sebastopol that she and a friend could rent for $2,600.

The real estate agent initially told Schallert the place was theirs. But later that evening the agent left her a troubling voice mail message. The property owners had changed their minds and decided to increase the rent to $3,500 per month, she said. She and her friend, along with the 45 other applicants for the unit, were free to submit a new application, plus a new $35 fee.

“I just lost it,” Schallert said.

Incensed and determined to do something about it, Schallert started an online petition demanding the City Council enact rent control in Santa Rosa. It quickly received more than 2,500 signatures.

After a hasty foray into the subject earlier this year, the City Council on Tuesday will convene an in-depth exploration of rent control, or rent stabilization, as modern versions are known.

Few issues facing the city are as complex or polarizing.

Dorothy Beattie, who owns or manages several rental properties in Santa Rosa, has lived in cities with rent control and says she knows firsthand the challenges it can create.

Years ago she lived in a rent-stabilized unit in New York in a building where she said the landlord would look for any reason to evict tenants. The way the rules were structured, landlords could increase rents more on new tenants than existing ones, creating a perverse financial incentive to rent out units as often as possible, she said.

“They terrorized tenants,” Beattie recalled. “It’s extraordinary what happens when you put these types of false limitations on the market.”

Beattie owns an older but well maintained property in the Santa Rosa Junior College neighborhood that is divided into four separate units, most of which haven’t seen rents increase in years. She has kept rents stable through the ups and downs because she values her longtime tenants and wants them to take pride in the property, she said.

The idea that the city might now cap annual rent increases means she’d be penalized for being a responsible landlord and prevented from raising revenue to meet ever-increasing costs, such as water, property taxes and maintenance, she said.

She has called the 3 percent annual increase limit proposed by Councilwoman Julie Combs “outrageous.”

“A property owner has to be able to get some return on their investments,” Beattie said.

Tuesday’s forum will outline the legal framework for rent control in the state, the number of housing units it could cover in the city, the bureaucracy needed to manage it and what other approaches the city might consider.

“It’s complicated - technically, legally and politically,” Assistant City Manager Chuck Regalia said. “It’ll be a real challenge to communicate all this and to help the council choose what it wants to do.”

With rents in the city increasing nearly 40 percent in the past four years, council members are under tremendous pressure to act. They are considering a variety of remedies, such as encouraging the construction of more affordable and market-rate units and protecting people from housing voucher discrimination.

But housing advocates argue that rent control is an essential tool to protect people from soaring rents that are stressing, displacing and, in some cases, making homeless the city’s working people and families. In recent months, high-profile examples of Sonoma County landlords hiking rents so sharply that tenants are effectively evicted en masse have added an air of urgency to the issue.

No policy decisions will be made during Tuesday’s study session, which also will explore updating the city’s rent control ordinance for mobile home parks. But the meeting likely will offer important insights into how the leaders of the city with the largest number of rental units in the county plan to tackle the problem.

“I do believe the council wants to do something,” Mayor John Sawyer said. “We will do something.”

Rent control and rent stabilization are terms often used interchangeably, though in some communities they refer to separate programs. In either case, both involve regulating how much owners of older units can increase rent per year.

For example, in San Francisco, renters of units built before 1979 - which is most of the city’s rental stock - had their rent increases capped at 1.9 percent this year. Landlords can petition the rent board for higher increases to recoup the costs of major capital improvements, or if they can demonstrate that operating expenses exceed the annual rent increase, which is tied to inflation.

When tenants leave or are evicted, the rent can be increased to market rates.

Just 13 of the state’s 482 cities have rent control ordinances. They are Beverly Hills, San Jose, Los Angeles, San Francisco, Santa Monica, Oakland, Palm Springs, Hayward, West Hollywood, Berkeley, East Palo Alto, Los Gatos and, most recently, Richmond, which passed its ordinance in July.

Most of those cities also have “just-cause eviction” laws that only allow tenants to be evicted for specific reasons, such as failing to pay rent or violating terms of their lease. Such provisions aim to prevent landlords from evicting tenants for the sole purpose of raising rents faster than allowed by the ordinance.

The stakes are high for Santa Rosa, the county’s largest city and one with a higher percentage of renters (47 percent) than the county overall (40 percent), according to U.S. Census figures.

At $1,359 per month, the city has the third-highest average rents in the county after Petaluma and Rohnert Park, according to the data firm CoStar. It is also third in the county in occupancy, with 98.8 percent of its rental units occupied as of the end of June, behind only the much smaller communities of Sebastopol and Cloverdale, which each had 99.3 percent occupancy.

Overall, Sonoma County’s 98.6 percent occupancy rate is the highest in the Bay Area, according to CoStar.

Other data firms peg the area’s occupancy rate somewhat lower. RealFacts, for example, lists the occupancy rate for the Santa Rosa-Petaluma metropolitan service area as 95 percent and average rents as $1,652, up 37 percent in 4 years. The average two-bedroom, one-bath apartment in the Santa Rosa MSA rented for $1,180 in 2011, but $1,640 in 2015, a 39 percent increase, according to RealFacts. The firm tracks apartment complexes of at least 50 units.

The city estimates that of the nearly 68,000 housing units in Santa Rosa, about 20 percent, or 13,386, could be covered by rent control. The majority of those that would not be covered (68 percent) are single-family homes or detached units, which are exempt under the Costa-Hawkins Rental Housing Act.

The law also exempts any apartments built after Feb. 1, 1995, from rent control. That means any new apartments built in the past 20 years, under construction now or built in the future cannot ever be subject to rent control.

That fact, however, has not prevented critics of rent control from asserting that rent control will make it less likely investors and developers will choose to build in Santa Rosa.

It’s a potentially powerful argument. The council has expressed a strong desire to find ways to encourage developers to help increase the supply of rental housing - such as by reducing red tape - and it’s unlikely to support an initiative viewed as counterproductive to such efforts.

But it’s an argument that rings hollow for Combs. One look at the apartment construction boom in San Francisco belies the claim that rent control stifles investment, she said.

“The decision whether or not to build apartments is going to be made on whether or not it pencils out,” Combs said. “I’m certainly seeing cities that have rent control and rent stabilization, and have had them for a long time, continue to have building booms.”

Keith Becker, president of DeDe’s Rentals, told the council earlier this year that rent control would, among other things, “inhibit new construction.”

Asked in an interview how a law that wouldn’t affect new construction would inhibit it, Becker explained that it has more to do with the just-cause eviction laws that would accompany rent control than rent control itself.

Just-cause eviction would force a landlord to have to document issues and justify evictions, potentially making it harder to deal with problem tenants swiftly and effectively manage properties, he said.

Facing such an environment, investors and developers might very choose another community to build in over Santa Rosa, he said.

Combs doubts that would happen, but if it did, she said she wouldn’t shed too many tears. Requiring landlords to have good reason to evict people strikes her as a no-brainer.

“I think this industry can continue to survive and thrive without arbitrary and discriminatory and retaliatory evictions,” she said.

Becker is far from the only one warning of the risks of rent control. Sonoma State Professor Robert Eyler authored a report for the North Bay Association of Realtors arguing that it would be a net drain on the local economy.

He estimates that limiting the rents on pre-1995 units would transfer about $11 million a year from the pockets of landlords into the hands of tenants. Tenants would have more money to spend, which would have a positive impact on the economy and sales taxes.

But landlords would make less, too, reducing the amount they would spend on property upkeep, reducing the value of their properties and reducing property taxes collected, he concludes.

Eyler bases his estimates, however, in part on housing numbers from the 2000 census that differ significantly from the city’s. He estimates rent control could affect 22,906 units, 71 percent more than the city’s estimate. Whatever the proper figure, the conclusion is the same, just on a different scale, Eyler said in an interview.

Using the higher figures, Eyler estimates that total business revenue in the city would drop by $4.4 million annually and property tax revenues to the city would fall by $171,600.

“Rent control is an economic loser, but does have a social gain and political gain,” Eyler said.

The City Council will need to decide whether those gains are worth the drag on the economy they create, he said.

Another key consideration is the cost of administration. Regalia said he was surprised to see the size of the staffs required to manage rent control in some communities. Richmond estimates that it will need 14 to 25 people and a budget of $2.2 million annually to administer the program. Santa Monica, which has had rent control since 1979, has a staff of 26 people and a budget of $4.8 million. Santa Monica’s program is funded almost entirely by fees paid by landlords, according to the city.

The council is unlikely to come away from Tuesday’s meeting with a uniform view on the wisdom of rent control. Combs is a vocal supporter who proposed an emergency moratorium to prevent rent hikes while the council debates the issue. The measure failed.

Sawyer, a former longtime businessman, said he is uncomfortable when the government meddles with market forces and would rather see the city focus on building more housing, especially downtown.

The council has other options open to it, such as a voluntary measure asking landlords keep rent increases below certain levels, similar to the one adopted by Healdsburg. It also could impose the just-cause eviction law without rent control.

It’s possible neither Beattie, who owns the property on Slater Street, nor Schallert, who faced the $300 rent increase, would be impacted by rent control even if approved. Beattie’s property could be exempted from the law if the council decides to not have it apply to smaller complexes. And Schallert, who grew up in Santa Rosa, recently “got lucky” through a friend and found a home with a yard in Rincon Valley she’ll be moving into for the same $2,000 she was facing at her former apartment building.

Schallert said the rent control decision will show whether the council is more influenced by the arguments of those with money than those without.

“I guess we’ll find out who our City Council really works for,” she said.

You can reach Staff Writer Kevin McCallum at 521-5207 or kevin.mccallum@pressdemocrat.com. On Twitter @srcitybeat.