The San Jose city council recently denied an appeal by tenants to save their rent-controlled units from demolition and redevelopment into market-rate units at The Reserve Apartments on 881 S. Winchester Boulevard.

The city council claimed the redevelopment is a necessary part of replenishing the drastic shortage of rental housing inventory in the Bay Area. The new project will replace the current 216 rent-controlled units with:

  • 640 mid-tier, market-rate units;
  • 8,000 square feet of retail space; and
  • 960 basement garage parking spaces.

Nearby residents complained the tripling of units — and coinciding multiplication of tenants’ vehicles — create hazardous traffic conditions for children attending nearby schools. Residents also made the usual not-in-my-backyard (NIMBY) complaints, such as obstructed views and limited water supply.

The most sincere opposition, of course, came from the current tenants at The Reserve, most of whom cannot feasibly extend their income to make the leap into mid-tier housing. They are the locals most affected, followed by the adverse effect on their employers and businesses they favor.

Tenants displaced by the new development will be given three months’ worth of market-rate rent for relocation costs, if their income is low enough to qualify. Current tenants at The Reserve pay an average of about $2,245 a month in rent, give or take a few hundred dollars for the specific unit type (studio to 2-bed/2-bath). This rent is limited to a maximum 5% increase annually.

The project developer will also refer tenants to any of its 8,000 other rental units in San Jose — all of which charge higher rent without rent control’s cap. For example, Park Kiely apartments — another complex owned by the same developer — charges an average of about $2,136 for just a 1-bed/1-bath unit.

To some, the difference of a few hundred dollars doesn’t seem like much; but to tenants at The Reserve, it might be the difference between a five-mile drive to the office and a 60-mile commute from another city.

Rent control vs. more housing supply

Rent control isn’t the great housing solution it’s purported to be when undertaken (unless it’s exploited by NIMBYs to preserve their unrelated lifestyle). Rent control stymies economic growth in several ways, one being a limitation on the infusion of higher-income residents with moderate- and low-income residents.

Rent control also restricts business startups, reduces fertile turnover of both residential and business occupancies, and perpetuates the balkanization of “rich” versus “poor” neighborhoods.

In the Bay Area’s case, rent control is a short-term solution used to address the failure to foresee and zone for today’s rapidly worsening housing shortage. High rents push San Jose residents of both low- and mid-income tiers out of the city, but rent control’s limitations at the moment might be the single factor keeping many of The Reserve’s tenants from joining the herd. Neighboring Bay Area cities Alameda and Oakland have also turned to rent control or similar rent limitations to overcome the institutionalized lack of housing starts.

On the other hand, the San Jose city council is right to notice that more housing is crucial to the city’s sustenance of its moderate- and low-income population. According to the Q1 2016 San Jose Housing Market report, San Jose is approximately 38,539 below-market units behind in accommodating its low-income residents. Further, average rent for a two-bedroom, two-bath apartment in San Jose requires a tenant to earn $54 an hour to meet the $2,792 monthly sticker price.

The trick is in balancing a forward increase in housing to produce a diversification within the city reflecting its residents’ pocketbooks. Housing of all kinds needs to be built to retain a flourishing community. Regardless, replacing existing apartments actually available for low-income tenants with solely more expensive apartments excluding low-income units entirely is a step backward in the long-run growth of a well-rounded city, despite its immediate net positive number of units.