Grappling with soaring housing costs, San Jose again enacts new rules for apartment landlords

 Jody Meacham| Sillicon Valley Business Journal| Link to Article

 The San Jose City Council has once again tweaked the city's apartment rental regulations in hopes of protecting residents most vulnerable to the vicious market without encouraging landlords and developers to take their businesses elsewhere.

The San Jose City Council has once again tweaked the city's apartment rental regulations in hopes of protecting residents most vulnerable to the vicious market without encouraging landlords and developers to take their businesses elsewhere.

As San Jose struggles with its piece of Silicon Valley’s housing crisis, its City Council tinkered Tuesday night with the city’s apartment rental regulations in hopes of protecting residents most vulnerable to the vicious market without encouraging landlords and developers to take their business elsewhere.

It’s the third time in 13 months the council has made changes to the city's rental laws.

As frustrated Councilmember Johnny Khamis — who acknowledged that he comes across as heartless because he views the conundrum from what he calls “a business point of view” — told his colleagues: “We keep creating new laws, we keep creating new regulations, but what we’re not creating is affordable housing. I think our (housing) department is tasked to work on … ways that we can micromanage businesses and we don’t focus as hard on creating new housing.”

The legislation that emerged from a meeting that began after lunch and ended a minute short of the council’s self-imposed midnight curfew did three things:

1) Changed the rules about how owners of apartments built before 1979 can take those apartments off the market and then bring them back. 

The old rule said if apartments built before 1979 — units that are subject to the rent control ordinance — come back on the market within five years, they will be subject to rent controls again. The new rule is that only half the apartments returned to the market will be subject to rent control. 

  • The rationale: Experience in other California cities like Santa Monica is that some apartment owners can afford to wait out the full period and free all their units from rent control. 
  • Tenant objection: The new rule can result in fewer rent-controlled units.

    2) Changed the Tenant Protection Ordinance to prohibit landlords from disclosing or threatening to disclose a tenant’s immigration status to harass, intimidate or evict a resident. 

    The City Council also clarified rules about evictions based on certain kinds of felonies so that only the alleged perpetrator — not an entire family — is removed. The council also directed staff to come up with language to include duplexes in the ordinance. 

  • The rationale: The city wants to take away methods some landlords use to clear an entire unit and raise the rent.
  • 3) Explicitly banned the Ratio Utility Billing System, or RUBS.

    The new laws ban the practice of spreading utility costs over all units in a development and instead asks property owners to install meters on individual units.

  • The rationale: Avoid penalizing tenants who conserve utility usage. 
  • Owner objection: Individual unit meters cost $5,800 to nearly $16,000.
  • Consideration of a fourth agenda item to write an ordinance banning discrimination against tenants based on the source of their income, which involves renters who get financial support under government programs, was postponed.

    The council’s debate largely focused on legal technicalities. There is little disagreement among the 11 members that rental housing is a big part of the region's housing crisis or that government has an important role in solving it.

    But among the hundreds in the audience, there was a clear divide. On one side were apartment owners, some of whom are mom-and-pop operators, but all in a position to profit substantially in this hot market.

    “At the moment, you control my income, who I can and can’t evict, how I can develop my property and you’re seeking to control what expenses I can and can’t pass through,” one apartment owner said. “We’ve got to be bordering on property right infringement here. … We’ve got to balance that out somehow and I don’t know what the solution to that would be. Maybe waiving my property taxes.”

     

    On the other side were tenants like the man with a government housing voucher whom one speaker described as having been evicted from his duplex, a type of multifamily property not currently covered by “just cause” eviction rules, and had to rely on donations from her church and Sacred Heart Community Service to come up with the deposit for a new home.

    The tenant side found more support from the homeowners who spoke.

    “We need to continue to protect them to the fullest extent that we possibly can,” said Willow Glen homeowner Nicholas Hurley, who said he makes almost $250,000 a year in tech but needed an inheritance to buy a house. “I have seen my property values skyrocket, and landlords are seeing the same.”

The San Jose metro area's median first-quarter home price soared 33 percent year-over-year to $1.15 million, leading the nation in price gains, according to recent data from from the real estate database Attom Data Solutions.  The owner of a house in San Jose realized an average paper profit of $208,000 last year from appreciation alone. 

 

The median rent in San Jose is $3,300, according to Zillow, more than double the national median.

San Jose Mayor Sam Liccardo last year unveiled a plan to add 25,000 housing units in the city within five years, saying the region’s housing crisis is poised to “define our generation."