In the latest pitched skirmish of the rent control wars being waged across the San Francisco Bay Area in the past couple of years, the City of San Jose has just passed two pieces of legislation, each with the professed purpose of providing help to tenants in their relationships with their landlords. After a seven-hour hearing on April 18 that included more than four hours of testimony from landlords and tenants, the San Jose City Council approved two laws, each by a divided vote of 6-5, that will (1) mandate that all landlords have “just cause” to evict a tenant, and (2) require that all landlords of rent-controlled property exiting the residential rental market pursuant to the Ellis Act (a California law barring local governments from requiring property owners to rent or lease their property) provide their tenants with additional notice and relocation assistance.
Generally, in the absence of other requirements, landlords are allowed by state law to give month-to-month tenants 60 days’ notice of eviction without having to state a reason. Until enacting its new “just cause” ordinance, San Jose was the last of the Bay Area’s three largest cities, and one of the last major cities in California, not to impose this requirement for eviction on landlords. Unlike San Jose’s existing rent control ordinance, which applies only to those 43,000 rental units built before 1979, the new law includes all San Jose rental properties having three or more units, estimated to include at least 100,000 rental units with approximately 450,000 renters. The following are the “just cause” grounds set forth in the ordinance that landlords must demonstrate in order to evict a tenant:
- Nonpayment of rent
- Material or habitual violation of the terms of the tenancy
- Damage to the rental unit
- Refusal to agree to a new rental contract
- Nuisance behavior
- Refusing access to the rental unit
- Unapproved subtenants holding over after the end of the term
- Substantial rehabilitation of the rental unit
- Removal of the tenant under the Ellis Act
- Owner move-in
- Governmental order to vacate
- Vacating an unpermitted rental unit
Together with adopting this “just cause” ordinance, San Jose also approved an ordinance to impose certain restrictions on the rights granted to landlords under the Ellis Act to redevelop rent-controlled rental housing. This new enactment requires San Jose landlords of rent-controlled property to give tenants at least 120 days’ notice of their intention to take their property off the rental market in order to allow those tenants to find new housing. Further, when those tenants vacate, those landlords must provide them with financial assistance consisting of first and last months’ rent, a new security deposit, moving expenses, and application fees for new housing. Lastly, in the event the landlords bring their property back into the rental market within five years, the departed tenants must be provided with the opportunity to move back into the units that they vacated at their old rental rate, plus a maximum increase of 5% per year since the property was taken off the market.
Along with approving these two new laws, the San Jose City Council took the opportunity at its April 18 meeting to begin exploring two possible changes to its existing rent control ordinance. First, the Council asked city staff to study whether the annual cap on rent increases for rent-controlled units could be set according to inflation, rather than the current 5% ceiling. Second, the Council asked city staff to study the possibility of including duplexes under the rent control ordinance.
While the intent of this new legislation was to provide San Jose residential tenants with advantages in connection with their dealings with their landlords, these laws have a substantial potential for triggering unintended negative consequences for San Jose’s rental housing market. One major concern with these new laws is the chilling effect they may have on future housing development in San Jose. If developers have concerns about their return on investment for San Jose housing, they may decide to build in other places. If that occurs, the chronic shortage of housing in San Jose will not be remedied, and unless the demand for housing in the area falls, market forces will continue to drive rents up. Without increased housing supply, this vicious cycle will proceed unabated.
San Jose has insured that multi unit properties under rent control (3 units or more, built in 1979 or older) will slowly turn into delapidated housing. What owner, with Rents capped at CPI, Relocation fees due tenants that get evicted and no method to recover capital investment in their building would spend $$ improving it? With returns on investment capped by the City, owners are trapped in an properties that, without rents at market value (which go up and also DOWN) will no longer appreciate, but likely lose $$.
The City has mistakenly attempted to fix a Housing Supply problem with restrictive laws that in the end will cause decay in neighborhoods and further stifle development. The answer is MORE housing. Supply has not even approached demand in recent years, and in fact, we are falling behind every year. If the City Council pushed for easier pathways to building residential projects in urban areas, high density, close to transportation (as they say they want) the issue solves itself over time. We need more housing here, not more laws that resrict investment.