This week the Rent Control Board (RCB) will begin discussions to potentially change the way the city calculates rent in controlled units in anticipation of changes at the state level that would radically alter landlords’ ability to increase rents on new tenants.
No action will be taken at the Sept. 13 meeting but the Board will begin initial deliberations regarding the potential repeal of the Costa Hawkins Act, a state law that allows rent control units to be set to market rates when a new tenant moves in. While the RCB has authority over year-to-year increases, it does not have authority to set rents for new tenants that move into a unit when an old tenant leaves. Voters will be asked to repeal Costa Hawkins this November and doing so will create confusion over how to set base rents (the amount first charged when a lease begins) due to the language contained in the City Charter.
The Charter only provides two ways to define base rent: either as 1978 levels with annual adjustments or as market rate if the tenancy qualifies for rent decontrol under state law. Costa Hawkins is the only state law related to decontrol so its repeal would only leave the 1978 definition. However, The RCB’s General Counsel J. Stephen Lewis said in the staff report that a strict rollback would not happen.
“First, (the Board) has expressed the view that it would be simply unfair to roll back rents for new tenancies to levels based on 1978 conditions when the real estate market has shifted so dramatically since then,” he said. “Second, and relatedly, it has expressed a desire to avoid the serious constitutional violations that could arise if base rents were rolled back to what they would have been if Costa-Hawkins had never occurred and (at least arguably) adjusted owners’ reasonable investment-backed expectations.”
While a full rollback is out of the cards, Lewis said something needs to be done in order to govern the rental market pending a rewrite of the City Charter. Such a revision can only occur with a vote of the public and the next opportunity would occur in 2020. He said any solution needs to balance the need to maintain Constitutional integrity with limitations imposed on the RCB’s authority by the City Charter.
“More than once, the California Supreme Court has struck down government actions that were in violation of statutory authority, including actions taken to avoid constitutional violations,” he said. “But the Board’s potential inability to comply with both the existing Charter and the state and federal constitutions over the long term need not prevent it from threading a narrow course between the two in the short term until the Charter can be amended, if need be, at the 2020 general election.”
Lewis said any solution shouldn’t restrict voters choices when the Charter comes up for changes in two years.
“The Board must be mindful that it is not, in this interim period, creating the long-term solution to all problems, or taking full advantage of all opportunities, that a Costa-Hawkins repeal may present; it is preventing upheaval and economic dislocation, for landlords and tenants alike, until the people of Santa Monica, who are the Charter’s author, can amend it,” he said. “The Board’s goal, in other words, should be to maintain the status quo until a long-term solution (i.e., a Charter amendment) can occur.”
According to Lewis the “status quo” actually has two definitions if Costa Hawkins is repealed: legal and practical with neither being entirely preferable. Legally, the Board shouldn’t maintain full vacancy decontrol as the City Charter will no longer allow for it but practically, they shouldn’t freeze rents because doing so would create an unfair advantage for landlords with more recent tenants. He said the solution could come from a hybrid system that recognizes some kind of recent market rate minimum amount plus a potential percentage increase based on current rents.
While Lewis provides some starting points for discussion, no recommendation is being presented to the board at this time and staff said the Board’s Thursday discussion will be the first of several needed to examine the issue.
Anyone with input into the proposal can attend the meeting (7 p.m. on Sept. 13 in City Hall, 1685 Main Street) or provide input via, firstname.lastname@example.org, (310) 458-8751 or https://www.smgov.net/rentcontrol/.