Santa Monica’s rent-controlled units are following a downward trend, according to a recently released annual report.
The city’s units are experiencing more turnover, higher prices and less affordability over time, with officials pointing to a rebounding economy and overall greed as the causes.
The Consolidated Annual Report documents the status of rent-controlled housing produced by the Rent Control Board. Discussion at the March 10 meeting included updates on the number of units, price of housing and the ongoing need for more affordable units.
Santa Monica has 27,542 rent-controlled units, and another 9,012 units could be subject to rent control but have been removed from the system due to Ellis Act withdrawals (2,019), permit removals (1,707), owner occupancy (1,451) or other “use” exemptions (3,837). Of the rent-controlled units 11 percent are studios (3,079 units), 47 percent are one-bedroom (12,968 units), 34 percent are two-bedroom (9,529 units) and 7 percent are three-bedroom (1,966 units). Downtown has the lowest concentration of rent-controlled units, with the remainder distributed throughout the city.
The bulk of Santa Monica’s rent-controlled units have reset to market rates at least once since the passage of Costa Hawkins Rental Housing Act in 1999. The law allowed landlords to set rent-controlled units to market rate one a tenant voluntarily vacates the unit. In Santa Monica, 18,417 units (67 percent of the total) have reset at least once. Currently, about 7,985 units (29 percent) are still at pre-1999 rents. The remaining units are either owner-occupied, paid for with government vouchers or deed-restricted.
The cost of all units continues to increase. The report provides the median rent, meaning half of all units are higher than the listed price and half lower. The median rent for a studio unit increased by 10.5 percent to $1,600, one-bedroom rents increased 8.6 percent to $2,050, a two-bedroom increased by 10 percent to $2,750 and a three-bedroom increased by 10.6 percent to $3,595.
The median rent for new renters is at least double that of longtime tenants, but Dan Costello, an information analyst with the Rent Control Board, said everyone covered by rent control benefits over time because the rent increase is capped by the Rent Control Board, not market forces. The value of a rent-controlled unit increases over time but even renters that have taken occupancy in the last two or three years are saving hundreds of dollars per month over their open-market counterparts.
According to the report, most turnover of controlled rental units is among market-rate tenants and 75 percent of market rate tenants moved in since 2009.
The report uses federal standards for housing affordability that say tenants should spend no more than 30 percent of their income on rent. By those calculations, it requires an annual salary of $76,514 to afford a studio apartment, $86,900 for a one-bedroom, $103,067 for a two-bedroom and $118,840 for a three-bedroom.
Costello said using federal affordability standards, only 4 percent of rent-controlled units are actually affordable for families that make 80 percent or less of the average income.
“Given that the area median income for a four person household in the greater Los Angeles areas was no more than $64,800 in 2015, no household would be able to afford even a studio in Santa Monica,” he said.
The other state law impacting local rent control rules is the Ellis Act, allowing landlords to evict tenants if they remove the property from the rental market. If the units remain off the market for at least five years, the property can return at market rate.
Ellis Act evictions have continued to increase and the report said 22 Ellis notices were filed in 2015, affecting 153 units, 86 of which were occupied. The report said 85 units were removed from the market in 2014.
“Clearly this increase is tied to economic opportunities,” said Costello. “There are high property values here and the opportunity to develop condominiums on properties that may have had rent-controlled rental housing exist and even if owners didn’t demolish the buildings and waited five years, they could command much higher rents than perhaps the properties are generating now.”
Of the total 2,785 units withdrawn from the market in total only 766 have returned to the market under rent control. Units taken off the market that have not returned have been converted to non-residential uses, single-family homes or are vacant.
Commissioner Todd Flora lamented the current status of affordable housing.
“What we’re doing is, we are pricing out the working-class people that work in Santa Monica from living here,” he said. “Those of you that are watching that are on this ideological bent that we not build any more housing in Santa Monica, that we not construct a single unit because we should have no net new people in Santa Monica are out of your minds, because what that is actually doing is it is freezing out people that actually work here from being able to possibly afford a unit. So all that traffic that you’re talking about is in part workers that can’t afford to live here.”
Flora said the City needs an “all of the above” approach to more affordable housing.
“This is a real crisis,” he said. “What this report clearly shows is that, despite our good intentions, despite all of our strong rent controls, provisions and protections, despite being a rent-control city, the owners still have all the cards.”