Measure M1’s Tenant Bias is Showing

 

If I had anything to do with it, Measure L1 would read 
differently:

1. The definition of “maximum increase” would be changed from 5 percent to the annual increase in the Consumer Price Index, which is currently under 3 percent. L1 already adopts this standard when it provides that a landlord at a hearing must overcome a presumption that maintaining the same inflation-adjusted net income as the prior year is a fair return. Why not apply the same standard as the dividing line over which a tenant is able to go to the Rent Review Advisory Committee (RRAC) for binding arbitration?

2. City Council rightly preserved no-fault evictions in order to give landlords the ability to terminate a tenancy at the end of the lease term. Otherwise a monthly or yearly lease really becomes a lease for as long as the tenant wishes to stay; regardless of how bad a relationship he has with the landlord or other tenants. To discourage landlords from using no-fault eviction as a device to raise rents, L1 requires the payment of substantial relocation costs to the current tenant ($1,500 plus four months’ rent) and limits the increase charged to the new tenant to 5 percent. I would discourage this practice even more by prohibiting any increase in rent charged to the new tenant until the beginning of the second year of tenancy.

3. Almost all the landlord horror stories originate with large corporate-style landlords who are solely concerned with their bottom line, not preserving a community. All of the information that the City Council relied upon to write this ordinance came from a consultant who only had data on landlords owning 50 or more units. Yet, the same standards are being applied to “mom-and-pop” landlords who have real human relationships with their tenants and are invested in their neighborhoods. I think Hayward was wise to exempt owners of four or fewer units. It has been in effect there for many years.

So, why am I supporting L1?  This is a work in progress by a city that has never addressed this problem before. I am sure that changes will be made by City Council. M1 is only amendable at the ballot box. It will be very difficult to change. It is an extremely tenant-biased measure that will drive many landlords out of the rental business; paradoxically exacerbating an already dire rental housing shortage that will dislocate many more of our current tenants. In San Francisco, 31,000 rental units were lost over about a 30 year period. 

Here are some examples of the extreme tenant bias in M1:

  • M-1 caps rent increases at 65 percent of the annual increase in the CPI. (Currently about 1.7 percent) Why 65 percent instead of 100 percent--because the framers of M-1 estimate that 65 percent of a landlord’s gross rental income goes to expense and 35 percent to profit. M-1 allows the 65 percent representing expenses an annual inflation adjustment. No inflation adjustment is allowed for the 35 percent profit. It is fixed to one base year, 2015, forever.  In 10 years, at an inflation rate of 3 percent, a landlord’s profit will buy him 30 percent less than it did in 2015! Meanwhile, the percentage of gross income that goes to expenses will rise. (Assume a $1,000 dollar gross rent in 2015 yielding a $350 profit and a 3 percent annual CPI increase. 

The rent is increased 1.95 percent annually to cover inflation in expenses (65 percent of CPI). By 2025 gross rent is $1,219, including $350 profit that buys 30 percent less than in 2015 and expenses that have increased by $219 so that they eat up over 71 percent of  gross rent, yet the landlord still is stuck with the same 65 percent limit each year! 

  • L-1 requires RRAC mediation or a binding hearing before a hearing officer only if there is a dispute. In the first four months of applying this Law 100 percent of the cases were settled by the parties without the need for a binding hearing. M-1 requires that every request for an increase over the cap must go to a hearing before a hearing officer and also provides for an appeal of that decision to the Rent Board. There is no provision allowing the parties to settle without a hearing. 

The supporters of M-1 justify this by maintaining that tenants will be intimidated into making unwise settlements, so that a hearing is needed protect them. The City estimates that hearing officer fees under either Measure will average about $4000 per case. If all 52 cases that were settled under L-1 through July had gone to hearing under the requirements of M-1, the average cost would have been $208,000. Surely there are better ways to insure against intimidation than completely precluding landlords and tenants from coming to a mutually agreeable settlement.

  • Both measures and state law state that at the end of a lease term the lease may be terminated, subject to the payment of relocation costs, in order to provide housing for a member of the landlord’s close family or if the property is withdrawn from the rental market. However M-1 contains the requirement that if the landlord or any subsequent landlord ever returns the unit to the rental market, he must search for the original tenant and offer him the unit at the same rent as he was paying when he left! 

 As an example, you move your mom into a unit in 2016 and pay your tenant thousands of relocation dollars. Mom passes on in 2026. The tenant has the right to move back at 2016 rental rates. Can there be a better example of blatant and extreme tenant bias?

Vote “yes” on L-1 and “no” on M-1, and make L-1 an even better ordinance to protect tenants while balancing the landlords’ legitimate interests.

 

 

Paul Foreman lives in Alameda.