Rental signs outside of an apartment building on Seventh Street Monday afternoon. (photo by File Photo)

CITYWIDE — Renters in Santa Monica will have to pay their landlords as much as $57 more a month under a plan being considered by the Rent Control Board.

The annual general rent adjustment, which the board is charged with setting using a complex formula that takes into account rising costs for property owners such as heftier insurance and utility bills, would amount to a 3.5 percent increase under the plan, allowing landlords with rent-controlled units to raise rents by that amount on those who moved in before Sept. 1 of last year.

A public hearing has been scheduled for June 9, at which time the board could approve the increase and a cap or “ceiling” of $57. If approved, landlords can raise rents starting Sept. 1, 2011.

Rent Control Board staff this year altered the formula used to calculate the adjustment, incorporating a business license fee that was adjusted to reflect current costs as well as including property assessments that were previously not passed on to renters.

The change was the result of a settlement reached in April after the Action Apartment Association, an advocacy group representing property owners in Santa Monica, sued the board, claming the old formula did not accurately reflect actual costs and was in violation of the rent control law, which calls for landlords to receive no more than a fair return on their investment.

The legal team for the Rent Control Board felt the board was providing a fair return, but was concerned about how the “black letter of the law” would be interpreted in court and chose to settle, said Michaelyn Jones, general counsel.

The increase comes as the cost of living in Santa Monica continues to be a burden for many residents, with rents much higher here than in neighboring communities, according to the Rent Control Board’s annual report, released last week, on the impact of vacancy decontrol, which allows property owners to increase rents to market rate when a tenant moves out.

Although market rents have fallen slightly over the past two years because of the sputtering economy, a family of four still needs an annual income of nearly $85,000 — exceeding the area median income of $63,000 — to afford a one-bedroom apartment without being considered rent poor under federal affordability guidelines, which state that a person should not be dedicating more than one-third of their income on rent.

The report also pointed out that since 1999, the median market-rate rent has gone up 39 percent in Southern California, while the increase in Santa Monica has been 150 percent.

“These figures continue to amaze and depress,” Commissioner Marilyn Korade-Wilson said.

Despite the changes to the formula used to calculate the rent adjustment, some landlords are not satisfied. They believe the formula still does not accurately reflect their costs and should be more in line with the consumer price index (CPI), which measures the prices paid for goods and services. Landlords said the board historically has set rent increases roughly 75 percent of the CPI, coming close but not going far enough.

“[The proposed increase] is a good start but it doesn’t come close to covering the increases that we are seeing in operating expenses in our buildings,” said Bill Dawson of Sullivan-Dituri, which managers over 160 buildings in Santa Monica.

Dawson said the fire and life safety inspection fee charged by City Hall jumped significantly, along with water and sewer service. He would like to see the board approve a 5 percent rent increase.

To determine the rent increase, staff uses a pie method developed in 1983 in which the rent dollar is cut up like a pie into different slices representing where a landlord’s money goes. Some slices like maintenance and cash flow represent a greater portion of the pie.

The majority of costs (roughly 65 percent) are determine by the changes in CPI, which measures the costs for goods and services. Roughly 20 percent is based on actual changes, such as fee increases for services provided by City Hall, said Tracy Condon, who manages the Rent Control Board staff.

Condon said periodically new rent dollar components have to be added, as was the case this year because of the lawsuit. She feels confident in the formula as it stands now.

“It does more accurately reflect owners’ expenses,” Condon said.

Rent Control Board commissioner Robert Kronovet, a landlord himself who is barred by the Fair Political Practices Commission from voting on the rent adjustment, said he believes the revised formula is more equitable than it has been in the past but more work needs to be done. He echoed Dawson’s call for a straight CPI formula that he believes could save the board money by not having to hire a consultant to provide guidance.

Fellow commissioner Todd Flora said he was interested in examining the formula further, but more so that he could understand why certain components carry more weight than others. He said the erosion of rent control’s impact due to vacancy-decontrol, and the profits gained by landlords because of it, could be a component to consider adding to the formula.

No matter what the percentage increase approved (some have wondered if commissioners will approve a smaller percentage out of fear of being voted out of office by the powerful renters lobby), Wes Wellman, president of Action, said many landlords will not raise rents because of the current rental market where demand is lower than supply. Units are vacant longer and landlords are willing to reduce rents for those paying market rate. Most will raise rents only on those paying below market rate.

“The vast majority [of rent-controlled tenants] are paying half or a third of market value,” he said. “Their cries of hardship [created by the rent increase] are really not legitimate.”

In the end, no one wants vacancies, only a fair process, Dawson said.

“A landlord without a tenant is bankrupt,” he said “and a tenant without a landlord is homeless.”

kevinh@www.smdp.com

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