San Jose landlords have enjoyed the ability to increase rent by up to 8% annually since 1979 under the city’s lax rent control ordinance, far in excess of income inflation. However, the San Jose city council voted to reduce the rent increase cap to 5% on April 19, 2016.

The reduction resulted from a series of proposals in favor of rent control changes, one of which proposed tying the allowable increase in rental rates to the Consumer Price Index (CPI). The San Francisco-Oakland-San Jose CPI increased approximately 3.5% from 2014-2015.

There’s no arguing that 5% is preferable to overburdened renters presently faced with an untenable 8% increase, especially when considering the city’s allowance of up to a 21% rent increase if the landlord hasn’t increased rent in the past 24 months. [San Jose Municipal Code §§17.23.180, 17.23.210]

In an effort to further protect tenants at risk of losing their shelter, the city council also:

  • approved an anti-retaliation ordinance to protect tenants who report landlords and property managers who violate the new rent increase limit; and
  • eliminated landlords’ ability to pass debts on to their tenants through increased rental costs.

Further, the council will consider in May additional policies, such as:

  • an emergency ordinance to halt last-minute rent spikes while the 5% increase cap plans are finalized;
  • a policy to limit the demolition and condo conversion of existing rent control apartments in order to protect tenants.

Rent control’s many obstacles

San Jose’s rental rate increased by 11.4% from 2014-2015, despite a slight slowdown in California’s overall rent increases. Thus, the lowered rent control cap might assist San Jose renters more than expected.

However, even with the reduction in rent increases, renters in the Bay Area are still under the heavy thumb of their incomes — which, despite the jobs recovery, have yet to catch up with exorbitant rental rates in this highly desirable location. Earnings which allow renters to obtain decent accommodations in suburbs and less impacted cities only go half as far in cities like San Jose and San Francisco.

Worse yet, and the basis for the present rental rate crisis, overzealous zoning restrictions limit the construction of new units of any type, whether for high-, low- or moderate-income renters. Factor in rent control, and builders have little incentive to construct new units when landlords can only expect the rate of inflation to adjust their rental income.

Rent control is also problematic for tenant turnover rates. A lucky tenant who manages to rent a unit over time for below-market or competitively priced rent is highly unlikely to give it up to rent another unit at higher rates or buy a home. Once the tenant has their foot in the door, they lay anchor and forfeit the option to relocate to other areas to pursue opportunities and more prosperous employment. This stagnant turnover rate leaves leasing agents and single family residence (SFR) sales agents suffering from the declining volume of prospective tenants and buyers.

In turn, landlords hoping to get rid of these barnacle tenants often deliberately slack in property maintenance as they lack the motivation to maintain, much less improve, the property.

Landlords also attempt to sidestep rent control limitations by falsely claiming they are moving into a tenant’s unit, then renting the unit to a new tenant for a steeper rent when the original tenant “voluntarily” vacates. Thus, turnover of reasonably priced units decreases, while landlords of overpriced units continue their aggressive eviction schemes.  Already, landlords have begun threatening to sell their income properties in response to the city council’s rent increase reduction.

Another opponent of rent control is the issue of gentrification. Although rent control may provide stability for long-term urban residents, it limits economic growth cultivated by more affluent residents moving into and improving residential areas – and the local tax base of assessed valuations.

Regardless, the Bay Area is starved for low- and moderate-income housing, for both renters and buyers alike. This new reduction has the potential to convert nearly a third of San Jose’s rentals into reasonably priced accommodations, a step forward in the tenants’ struggle to combat fierce demand for housing, woefully inadequate zoning and the resulting shift in wealth due to the pricing of shelter. However, it does not address the governing council’s need to correct the cause of the housing shortage. A study by an advisory committee might be instructive.

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