Rental Registries and Rent Control - Facts and Failures

Background:

Rental registries have been utilized in many municipalities in California, and the US. A citywide rental registry is the first step in a four-step process towards implementing increased regulation of a local rental market. Collected data is used to levy fees and fines from property owners, set caps on rent increases, and to even fine property owners for having vacant properties.

The city council of Monterey enacted a rental registry, representing it as a solution to affordability and quantity. However, no claims or promises have been made that the ordinance  will lead to lower rents, or increase availability of rental units. As of May 2024, there has been hesitancy on the part of property owners to register their rental properties.  Many that have registered have filed for exemptions from the fee, which they are entitled to do if they have less than four rentals 

Even after hearing much opposition to the proposed ordinance during public meetings from property owners, managers and renters alike, the city council forged ahead with drafts, revisions and approval votes for the ordinance. It went into effect on January 1, 2024. 

The council did not heed the warnings from the public about the negative unintended consequences that the ordinance would have on both renters and property owners.

The City of Salinas also enacted a rental registry, and is currently laying plans for "rent stabilization", in spite of having very low compliance for registration. 

It is noteworthy that, in both Salinas and Monterey, property owners have been very hesitant to comply in registering their properties.  In fact, there are property owners who are selling their properties, or occupying their rentals, removing them from the rental market.

Summary:

In short, rental registries lead to rent control, which leads to increased rents, lower quality units, and a more limited supply of available rentals. Ultimately, neither the renters, nor the owners benefit from government intervention in the rental market. It is sufficiently self-regulated by the mutually beneficial relationships that exists between renters and owners, as well as existing codes that protect renters.

‘Rent stabilization’

A negative effect on affordable housing.

It limits new supply and prohibits owners from maintaining and updating

quality affordable housing.

The unintended consequences of rent control:

“With rent control in effect, housing providers say they are faced with the difficult financial strain of absorbing essential maintenance costs and are forced to reduce investments in improvements and nonessential maintenance. As a result, 54% said they expect to or would consider selling some assets. This is particularly alarming for the apartment industry, as the nation faces housing supply challenges and must build 4.3 million new apartments by 2035 to meet current shortages and address future demand.”

~Forbes: The Pros And Cons Of Rent Control For Landlords And Tenants

Brenda Richardson March 23, 2023

Adam Pinterits
Monterey County Association of Realtors 5 Harris Court, Building A,
Monterey, CA 93940

Tuesday, September 5, 2023

Monterey City Council City Hall
580 Pacific St Monterey, CA 93940

Honorable Mayor and City Councilmembers,

While we continue to believe the rental registry is problematic because it uses City resources at taxpayers and renters expense but does not contribute to any growth housing inventory, we appreciate that some feedback has been incorporated. We appreciate the clear need for tenant- landlord mediation and education, and we are glad to see that has been included in this ordinance.

Although we believe other policies would do more to help renters, it’s become clear in the course of discussing this proposed ordinance that a majority of the council members feel this is necessary. We ask that you consider three changes to reduce the negative unintended consequences of overregulating rental housing.

First, please make it mandatory to register rental units under either the owner or the property manager, rather than requiring both. Owners who hire property managers do so to hand off day to day responsibilities for the property to professionals who are well versed in maintaining healthy properties, being attentive to tenant needs, and administering the units in accordance with fair housing standards. Owners who wish to remain private may choose to sell or redevelop their properties rather than comply with this requirement. Or, owners wishing to remain private can move their properties into a trust or LLC, and incorporate the legal and administrative costs of doing so into

rent increases. As long as there is an emergency contact person for a given property, that should be sufficient.

Second, please make disclosure of the amount of rent and rent changes optional. In many ways this ordinance is modeled after the Salinas rental registry ordinance, and they made this change too. As we have discussed previously, a rent cost survey could easily be conducted for a fraction of the cost of the rental registry. Requiring disclosure of rent and rent changes will contribute to property owners deciding that being in the rental housing business isn’t worth it. When the information is readily available through other means, is it worth displacing a single renter to require this? We believe it is not, and we will help conduct a rent cost survey freely if you make disclosing this information optional.

Third, please make disclosure of occupancy status optional. Again, the City of Salinas considered this exact same question and ultimately decided to make it optional rather than risk its requirement displacing tenants. There are many reasons why unit occupancy status may change, such as renovations and upgrades including energy and water efficiency, health and safety improvements, or a death in the family to name just a few. Property owners faced with the administrative burden of reporting each change twice, once for vacancy and once again for re-occupancy, are further disincentivized being rental housing providers.

These requests, and the unintended consequences we have described, are not a matter of fear mongering as some have asserted, they are a matter of fact. Following the implementation of a rental registry and other rental housing regulations, the City of Seattle lost almost 10,000 rental units, or 6.14% of their total inventory. Subsequently the average rent in Seattle went up 25%, because fewer units were available to meet the same needs. 6.14% of Monterey’s rental housing would be approximately 550 units. At an average of 2 tenants per unit, as per the 2020 US Census, that means 1,100 tenants may face displacement if the City proceeds with overregulation.

Sincerely,

Adam Pinterits
Government & Community Affairs Director

Apr 8, 2022, 6:04 AM | Updated: 1:02 pm

BY KIRO NEWSRADIO NEWSDESK -- MYNorthwest

Seattle has lost nearly 3,000 rental properties between May of last year and January of 2022. Those properties constitute roughly 10,000 units in total. Since May, only 27 rental units were added.

Jim Henderson with the Rental Housing Association of Washington attributes the loss to a growing number of rental protection laws, making it harder and more expensive to own rental property in Seattle.

Henderson says instead of improving conditions for renters, all the laws are limiting options and raising rental prices.

The Seattle Department of Construction and Inspections (SDCI) tells KIRO Newsradio the number of rentals has declined, but the office says it would need to do more analysis to identify a reason.

“At this time we can’t confirm these exact numbers or their magnitude, but they appear to be directionally correct with regard to a decline in rental properties. Calculation of these numbers is complicated and multi-faceted, and we can’t draw conclusions on why the numbers are changing without more a complete analysis of changes in the rental housing supply,” Christina Postlewait, relations manager with SDCI, wrote in a statement to KIRO Newsradio.

https://mynorthwest.com/3427627/seattle-loses-nearly-3000-rental-properties-in-less-than-a-year/

(Seattle’s Rental Property Registration database; compiled by Rental Housing Association of Washington)

In recent years, the Seattle City Council has passed tougher eviction laws, required landlords to pay to register properties, increased inspections, and created new laws about rent increases and rejecting tenants.

‘We’re so far behind on this’: Seattle council looks to catch up on affordable housing data

It’s difficult for landlords to comply, can be expensive and mistakes open them up to lawsuits, according to Henderson.

Henderson says many Seattle landlords are getting out of the business or investing in rentals outside the city.

Seattle loses nearly 3,000 rental properties in less than a year

San Francisco:  Rent Control Data

Significant data has been gathered and examined since San Francisco passed its rent control ordinance in 1979.

One of the key findings has been that, while some pre-existing tenants did avoid displacement for a time, in the long run rents overall rose higher on all renters. It was effectively one generation of tenants' costs partially dumped onto future generations of tenants. (Diamond, et al., 2019)

Further key findings were the unintended consequences of law that incentivised rental turnover and exiting the rental business altogether. Tenants of rent controlled housing were 240% more likely to be evicted each year (Gardner, 2022). Tenant mobility was reduced by 20%, and supply of rent controlled housing shrunk 15% (Diamond, et al., 2019).

How this relates to Monterey County

Tenant mobility in Monterey County is already severely limited due to vacancy rates generally staying under 3% in the three largest cities. A similar 15% decrease in rental inventory would mean losing approximately 1,216 units in Monterey, displacing about 2,590 people, or approximately 3,934 units in Salinas, displacing about 13,768 people (calculations based on 2020 US Census housing data).

Study from:

Diamond, Rebecca, Tim McQuade, and Franklin Qian. (2019). The Effects of Rent Control Expansion on Tenants, Landlords, and Inequality: Evidence from San Francisco. American Economic Review, 109 (9): 3365-94.

https://doi.org/10.1257/aer.20181289

Gardner, M. (2022). The Effect of Rent Control Status on Eviction Filing Rates: Causal Evidence From San Francisco. Housing Policy Debate, 1–24.

The Effects of Rent Control

“Economists are virtually unanimous in concluding that rent controls are destructive. In a 1990 poll of 464 economists published in the May 1992 issue of the American Economic Review, 93 percent of U.S. respondents agreed, either completely or with provisos, that “a ceiling on rents reduces the quantity and quality of housing available.”1 Similarly, another study reported that more than 95 percent of the Canadian economists polled agreed with the statement.2 The agreement cuts across the usual political spectrum.”