East Palo Alto’s city council recently approved an annual rent increase ceiling of 2.4% to adjust rents for an increase in the U.S. Consumer Price Index (CPI). The 2.4% allowable increase period begins July 1, 2016 through June 30, 2017.
Landlords under the city’s rent stabilization ordinance may raise a tenant’s rent with 30 days’ notice. [See RPI Form 570]
Landlords are allowed to bank up to three years’ rent increases if they have not raised rents the full amount permitted in prior years. Thus, the approved increase for 2016 gives East Palo Alto landlords the potential to raise rents up to 6.4%, since rent increases for 2014 and 2015 were 2% each. However, total rent increases in any 12-month period brought on by “banking” may not exceed 10%.
The newly approved CPI increase is not the highest in East Palo Alto’s history, although it is the highest since 2012. The city initially adopted its rent stabilization ordinance following an early 2000s acquisition of more than half the city’s rental units by a large management company and the devastating 16.7% spike in rental prices which followed.
However, the ordinance may not be enough to protect the city from the Bay Area’s rampant rent escalation and subsequent expulsion of mid- and low-income earners. The median rent in East Palo Alto hovered around $1,393 for the years 2010-2014, according to U.S. Census data. Accordingly, local tenants may see their monthly rent rise about $27 — or up to $84 if banking is involved.
As rents rise, tenants who do not get wage increases to cover the additional monthly expenditure will abandon their longtime abodes. Rent increases which may seem almost minimal to other, wealthier Bay Area residents — think of the tech elite mere yards away in Palo Alto proper — can devastate East Palo Alto’s lower-income residents.
East Palo Alto and other San Mateo County residents need to earn approximately $56,480 annually to rent a studio apartment without spending more than 30% of their income, according to the National Low-Income Housing Coalition. For a two-bedroom apartment, residents need to earn $44.02 an hour, or $91,560 annually. However, the average household income remains around $52,700 as of 2010-2014, according to U.S. Census data.
Gentrification is another huge concern for the traditionally diverse East Palo Alto. Established in 1983, East Palo Alto is still fluttering wet wings on its way to becoming a self-supporting city. Hardly more than two decades ago, the city boasted the worst crime rate per capita in the U.S.; now, its reformed image residents worked to achieve is about to be usurped by the influx of wealthy entrepreneurs bleeding in from larger neighboring cities.
Situated in the center of the Silicon Valley tech universe, East Palo Alto is quickly becoming a prime location for Bay Area techies to invest in real assets as they are pushed farther away from San Francisco’s borders. The strict rent stabilization ordinance may deter developers (for the time being), but it won’t stop buyers from investing in backup residences in case they can no longer manage the cost of living in larger cities.
Despite the recent increase, East Palo Alto rental rates are significantly lower than the rest of the Bay Area — meaning locals pushed out of housing they already struggled to manage have nowhere local to turn.
Thus, the small city is stuck in a catch-22 between the benefits to tenants and the adverse consequences to availability delivered by rent control (and the lack of zoning allowing more units per acre in the city). Loosened rent restrictions open the gates for gentrification by wealthy Bay Area residents seeking less demanding costs of living within reach of their daily commute.
East Palo Alto either needs to determine how to accommodate the incoming investors while preserving housing for locals, or build more housing with sufficient reservations for low- and moderate-income buyers (on the local scale).
East Palo Alto may simply be another hapless victim of the Bay Area housing crisis. Until rents in major cities like San Francisco fall to manageable levels for mid- and low-income earners, fringe cities like East Palo Alto have little defense other than to build, build, build as advance planning for their future.