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Controlled Rents in Santa Monica Highest in 14 Years, Report Says

Santa Monica Real Estate Company, Roque and Mark
By Jason Islas
Staff Writer

April 8, 2013 -- The median Santa Monica rent for a controlled apartment topped $3,000 a month for the first time since landlords were allowed to charge market rates for vacated units 14 years ago, according to a Rent Board report.

Since the Costa-Hawkins Rental Housing Act went into full effect in 1999, more than 63 percent of Santa Monica's rent-controlled units have had their rates raised at least once to a market-rate value. That, combined with ever-increasing property values in the beachside city, has lead to the median maximum allowable rents (MARs) permitted by the board to be reach record levels.

“A 14-year review of median Maximum Allowable Rents (MARs) at the time of the rental reveals median MARs in 2012 were the highest ever for 1-, 2- and 3-bedroom units,” according to the report.

The average MAR for a three-bedroom unit in 2012 was more than $3,000 a month, compared with roughly $1,750 a month in 1999. The average MAR for a two-bedroom unit was about $2,700 a month, up from less than $1,500 a month in 1999.

One-bedroom units saw the smallest increase in average MARs, jumping from an average of $1,000 a month in 1999 to around $1,600 a month.

“Tenancies begun in 2012 had rents that on average were 13 percent higher than tenancies begun in 2011,” the report said.

“The median market-rate rent for three-bedroom units increased 26 percent from 2011, very likely a result of demand for a scarce commodity,” it said, adding that only seven percent of Santa Monica's rent-controlled units are three-bedroom units.

“The high rents are a perverse consequence of vacancy decontrol,” said Santa Monicans for Renters' Rights co-founder Dennis Zane. Since market-rate rents keep going up in Santa Monica, vacancy decontrol “gaurantees that the median rent is constantly rising,” he said.

But proponents of vacancy decontrol maintain that it is essential for the economic well-being of the City.

“Without vacancy decontrol, the housing stock would have deteriorated significantly because the owners wouldn't have been able to afford upkeep,” said realtor Joseph Fitzsimmons.

“Landlords pay a business license fee, based on their revenue,” he said. “City revenues increase as landlord revenues increase.”

In 1999, 10 percent of formerly-controlled units saw an increase in their rents due to tenant vacancy.

That number has steadily climbed, though slower than anticipated. When the law went into full effect, Rent Board officials predicted that by 2009, all rent-controlled units would have been subject to vacancy decontrol at least once.

“In the fourteen years since Costa-Hawkins came into effect, new rents for market-rate units have significantly outpaced both inflation and the increases authorized by the Rent Control Board on an annual basis,” the report said.

The result has been fewer lower- and middle-class families are renting in Santa Monica. In 2000, families making less than $35,000 -- identified as lower-class -- made up 35.2 percent of Santa Monica's renters. In 2010, they made up 29.5 percent.

Middle-class households -- those making between $35,000 and $99,999 a year -- followed the same trend, dropping from 41.2 percent of renters in 2000 to 37 percent in 2010.

Households making $100,000 or more now make one-third of renters, up from 23.6 percent in 2000.

When Santa Monica passed its rent control law in 1979, it was widely considered the strongest in the country, partly because it did not allow landlords to raise rents when units were vacated.

From 1979 until 1999, landlords could only raise rents based on the Rent Board's General Adjustment (GA) formula. In 2012, the GA permitted landlords to raise rents by 1.5 percent on controlled units with a $26 cap.

Vacancy decontrol has meant that the City has had to look elsewhere to bolster its pool of affordable housing units, investing roughly $15 million in Redevelopment Agency (RDA) money annually in affordable housing, the majority of which is constructed by Community Corporation of Santa Monica.

However, the City lost that money in February 2012 when Govenor Jerry Brown closed down RDAs throughout the State as part of a plan to balance the budget.

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