/'J (Peter Noonan, Rent Stabilization and Housing, Manager)VW

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1 CITY COUNCIL CONSENT CALENDAR OCTOBER 17, 2016 SUBJECT: INITIATED BY: INFORMATION ON PROPERTIES REMOVED FROM THE RENTAL MARKET USING THE ELLIS ACT, SUBSEQUENT NEW CONSTRUCTION, AND AFFORDABLE HOUSING HUMAN SERVICES & RENT STABILIZATION DEPARTMENT (Elizabeth Savage, Director) q4!/}' /'J (Peter Noonan, Rent Stabilization and Housing, Manager)VW STATEMENT ON THE SUBJECT: The City Council will receive a report on rental properties removed from the housing market using the Ellis Act and subsequent new construction. Information on affordable housing development in West Hollywood is also provided. RECOMMENDATIONS: Receive and file the report. The report will be returned at the November 7, 2016 City Council meeting for discussion. BACKGROUND I ANALYSIS: Since city incorporation, rent stabilization and the preservation of affordable rental rates and rental housing has been a goal for the City of West Hollywood. Addressing this goal, one of the City Council's priorities for several state legislative cycles has been to support legislation that would eliminate or amend the Ellis Act to better protect renters' rights. There have been attempts to reform the Ellis Act, which West Hollywood has supported. To date, however, no reforms have passed the state legislature. The July 20, 2015 staff report detailing actions taken by the City to reform the Ellis Act is attached. There is a chronic shortage of housing, and a lack of housing affordability throughout California. The California Housing Partnership Corporation, created by the state legislature in 1988 to address affordable housing issues, estimates that median rent in California has increased 24-percent since 2000, while median renter household income has declined seven-percent when adjusted for inflation. The California Housing Partnership Corporation also estimates California's lowest income renters' spend a median of 68-percent of income on rent. When demand for rental housing exceeds supply, rents tend to escalate beyond what is considered affordable. In areas with low vacancy rates, tenants have limited ability to negotiate rents, and landlords have an unfair advantage to set rents above what households can realistically afford. Social equity and the risk of displacement increase, Page 1of8 AGENDA ITEM 2.N.

2 especially for low wage earners. When housing is not affordable, individuals and families must dedicate more income toward rent, which increases risk for poverty or never leaving it. Community members are forced to seek housing elsewhere or share housing with others, increasing overcrowding and other problems. Further, extreme low wage earners, seniors on fixed incomes, and other vulnerable community members often must decide between paying rent and paying for groceries, medications, or other necessities. To protect tenants from extreme rent increases, unjustified eviction, overcrowding, and displacement, West Hollywood regulates the housing market. The City does this by regulating rent increases through the Rent Stabilization Ordinance (RSO). The RSO also offers tenants a means of requesting and receiving a rent reduction if a housing service is lost, limits evictions to instances such as failing to pay rent or causing a nuisance, and requires landlords to provide relocation fees to tenants displaced by nofault eviction. The State Legislature has limited the RSO and the City's ability to control rents. Specifically, the state Ellis Act prevents cities and counties from requiring property owners to remain in the rental market. The Ellis Act (California Government Code ) was adopted by the California Legislature in 1985 after the California Supreme Court ruled that landlords do not have the right to evict tenants to go out of the business of being a landlord. That case was Nash v. City of Santa Monica ( 1984) 37 Cal.3d 97. Under the Ellis Act, a property owner can go out of the rental business and tenants have 120 days to find new housing. Cities and counties can require landlords to pay relocation fees, and can require the termination date be extended to one year for tenants 62 years and older or disabled. West Hollywood does both of these, and recently updated the relocation fee amounts landlords must provide tenants. Housing Unit Count West Hollywood's population is established and only slightly increasing. The California Department of Finance estimated in 2015 that the population had grown only about 0.4% since the year The American Community Survey in 2014 estimated West Hollywood had 24,432 total housing units. Additional housing information is provided from the 1980, 1990, 2000, 2010 Census in the chart on the following page. Page 2 of 8

3 Estimated Housing Units in West Hollywood Total* Rented Owned Total Rented Owned Total Rented Owned Total Single Family 3,278 1, 171 1,238 2,409 1,094 1,210 2,304 1, 191 1,362 2,553 Multi-Family 18,894 15, ,013 17,038 3,778 20,816 16,367 3,913 20,280 Condominiums 2, ,268 4,162 N/A** N/A** Total Housing 24,299 17,539 5,045 22,584 18,132 4,988 23,120 17,558 5,275 22,833 Percent Single Family 48.6% 51.4% 100% 47.5% 52.5% 100% 46.7% 53.3% 100% Multi-Family 81.1% 18.9% 100% 81.9% 18.1% 100% 80.7% 19.3% 100% * Rental and Ownership information was not available for the 1980 Census. ** In response to Congressional guidance to minimize reporting burden, the Census Bureau included on those 1990 census subjects that had a strong legislative or judicial justification. As a result, subjects that appeared in the 1990 census long form where dropped including Condominium Status. The number of total units estimated in West Hollywood decreased between 1980 and 1990 and again between 2000 and This is due in part to changes in how information was collected by the Census Bureau. Also, between 1980 and 1990 the number of condominiums in West Hollywood increased from 9% to 19% as a result of conversion permits approved by Los Angeles County prior to incorporation. The City did not do a residential unit count when it first incorporated. From early estimates, however, there were approximately 16,500 rent stabilized units (April 23, 1989 City Council report). The number of rent stabilized units in the city changes based on the number of owner occupation exemptions. Also, tenants in single family homes and condos were in the rent stabilization count prior to After Costa-Hawkins, single family homes and condos were exempted by the State. Thus, inventory unit counts are not directly comparable year to year. The number of rent stabilized units on December 31, 2015 was 16,832. Page 3 of 8

4 Ellis Act Since 1986, 203 properties with 764 rent stabilized units have been removed from the West Hollywood rental market using the Ellis Act. Properties Removed from the Rental Market Using the Ellis Act(*) Property Status Properties Ellised Change of Use 16 Converted to SFR 37 New Construction 45 New Construction Pending 21 Off Market (No Changes to Property) 68 Returned to Market 16 Total 203 Units Ellised Current Units * The "Change of Use" category includes properties converted to uses such as bed and breakfast lodging, non-profit affordable housing, and commercial or hotel uses. Proposed Units The "Proposed Units" category includes projects currently under construction, approved for construction, and currently under review by the City. The chart above provides information on how properties have been used following removal from the market. Property owners are not required to indicate their intentions when removing property using the Ellis Act. Oftentimes, properties are converted to other uses; smaller properties are converted to single family homes. Larger properties are removed, and then later put back on the market. Properties Removed from the Rental Market Using the Ellis Act Percentage of Subsequent Uses Status Off Market Converted to Single Family Residences, or off market (owner occupied) Percent 51.7% New or pending 32.5% construction Returned to Market 7.9% Change of Use 7.9% (Bed&Breakfast,etc) Total 100% Approximately fifty-two percent of properties have since remained off the market, with no changes or the number of units has been reduced - typically from two or three units to a single family home. Therefore, the most common use of property after removal from Page 4 of 8

5 the rental market is for private residential purposes, either through reducing the number of units to a single family home, or by owner occupation of the property as is. New residential construction and pending construction accounts for approximately thirty-two and a half percent of properties removed. Effect of Costa-Hawkins on Rents While the Ellis Act has led to a loss of rent stabilized properties, the consequence of Costa-Hawkins 1 is that landlords are not limited to what they can charge for rent at the start of a new tenancy. Since Costa-Hawkins, 64-percent of rent stabilized units in West Hollywood have turned over2, followed by an increase in market rents for new tenants moving in. In 2015, the average move in rent for a 1-bedroom rent stabilized unit was $1,777; in contrast the average rent for a tenant who moved into their rent stabilized unit prior to 1996 was $919. The difference between rents make it challenging for low wage earning long-term West Hollywood tenants to move to other housing when their needs change. It is important to consider that anyone can live in rent stabilized housing regardless of income. Rent stabilized housing and affordable housing are different in this aspect. Affordable Housing Explained To make sure housing options for affordable wage earners continue to be available, the City's inclusionary housing program requires 20-percent of new market rate units built to be rented or sold to qualifying affordable households. Additionally, to provide housing for those in most need, the City partners with non-profit housing providers to build affordable supportive needs housing, such as senior or family housing, and housing for persons living with disabilities. The two key differences between rent stabilized housing and affordable housing are: 1) Affordable housing is targeted and restricted to households earning a percentage of the local Area Median Income (AMI), and 2) Initial rents can be controlled in affordable housing. Affordable housing is for those most in need, including households living on fixed incomes, persons living with a disability or HIV/AIDS, single mothers, and seniors, at rates that are affordable to their incomes. Typical income limits for affordable housing are 30%, 50%, and 80% of the Area Median Income (referred to as "Extremely-Low", 1 The Costa-Hawkins Rental Housing Act (1996) deregulates rents on tenancy turnover and limits rent control to structures in West Hollywood built before July 1, The prior tenant has moved out and the landlord, pursuant to the state Costa-Hawkins Act, has reset the new rent to what the market will bear. Page 5 of8

6 "Very-Low", and "Low", respectively). Using the West Hollywood calculated median one person household income of $59,232; this translates to maximum incomes of $17,770, $29,616, and $47,386 respectively for a one-person household. Affordable housing is provided through a variety of approaches, including partnerships with non-profit developers, federal programs such as Section 8, the Housing Authority of Los Angeles County (HACoLA), and through the City's inclusionary housing program which requires market-rate developers to provide lower income units in new housing development. The number of affordable units in West Hollywood, currently in operation, under construction and approved to be built are provided in the following chart Affordable Housing Units O Approved, To Be Built ~ Under Construction Affordable Non-Profit lnclusionary Housing HACoLA/HUD 1222 Fairfax Rent Stabilized Section 8 Section 8 Non-Profit Affordable-Supportive Needs Housing Non-profits use local, state, and federal funds to build affordable housing for the most vulnerable. Non-profit affordable housing is typically programmed to provide support for specific populations, such as seniors, formerly homeless, people living with disabilities including HIV/AIDS, and transition age youth. The funding sources specify maximum rent and qualifying household income, and commonly follow the limits set by HUD or the California Department of Housing and Community Development (HCD). West Hollywood supports affordable housing development by providing local funds, offering development incentives and zoning concessions, and waiving development fees and expediting plan review. Page 6 of 8

7 lnclusionary Housing Local jurisdictions can require developers to set aside a percentage of new housing units as affordable to income-qualifying households. Such programs are known as inclusionary housing programs since affordable units must be "included" in the development. Developers may take advantage of some funding programs, such as federal and state tax credits (LIHTC), but oftentimes developers will construct the inclusionary units using private dollars. This means that inclusionary units are rented to qualifying households based solely on household income. The number of inclusionary housing units in West Hollywood has been increasing and will continue to do so in the next coming years primarily in mixed-use buildings being constructed in the commercial areas along Santa Monica Boulevard 3. lnclusionary Units in West Hollywood Increase Total Local inclusionary requirements work with the state density bonus law and units required by a local requirement also count as the units that must be provided in order to qualify for a state density bonus. A state density bonus allows additional market-rate units to be built in a project in exchange for providing the affordable units. A state density bonus also allows the developer to request development incentives, concessions, and waivers in order to make construction of the affordable units feasible. Based on a 2010 court case, there are certain limits on when inclusionary units can be required, and affordable housing advocates and jurisdictions are actively lobbying the state legislature to remove the limits. CONFORMANCE WITH VISION 2020 AND THE GOALS OF THE WEST HOLLYWOOD GENERAL PLAN: This item is consistent with the Primary Strategic Goal(s) (PSG) and/or Ongoing Strategic Program(s) (OSP) of: OSP-11: Community Education. OSP-12: Actively Participate in Regional Issues. 3 In 2015, permits for 475 new residential units were issued. This included 371 units at Santa Monica Boulevard between and North Formosa and Poinsettia Streets, and 48 units at Santa Monica Boulevard and North Kings Street. Both projects include 20-percent affordable housing. Page 7 of 8

8 In addition, this item is compliant with the following goal(s) of the West Hollywood General Plan: H-5: Provide for a government environment that facilitates housing development and p reservation. EVALUATION PROCESSES: The Rent Stabilization and Housing Division conducts analysis and provides periodic reports on housing programs. ENVIRONMENTAL SUSTAINABILITY AND HEALTH: Housing that is affordable is a major component of environmental sustainability and health, particularly in a dense, transit-oriented, urban community like West Hollywood. COMMUNITY ENGAGEMENT: The Rent Stabilization and Housing Division conducts two community meetings annually and offers an online survey as opportunities for the community to share whether the City's housing programs are on track to meeting housing needs. The Division also provides seminars on various aspects of housing and rent stabilization throughout the year. All seminars are free and provide helpful information to help tenants know their rights and landlords know their responsibilities. OFFICE OF PRIMARY RESPONSIBILITY: HUMAN SERVICES & RENT STABILIZATION DEPARTMENT I RENT STABILIZATION & HOUSING DIVISION FISCAL IMPACT: There is no fiscal impact ATTACHMENT: 1) July 20, 2015 City Council Staff Report Regarding City's Legislative Response to the Ellis Act. Page 8 of 8

9 Attachment 1 July 20, 2015 Staff Report

10 CITY COUNCIL CONSENT CALENDAR JULY 20, 2015 SUBJECT: INITIATED BY: UPDATE REGARDING CITY'S LEGISLATIVE RESPONSE TO THE ELLIS ACT MAYOR LINDSEY HORVATH (Andi Lovano, Project Development Administrator)~ STATEMENT ON THE SUBJECT The City Council will receive an update on the City's legislative response to the Ellis Act, a California law that allows property owners to remove rental properties from the rental market. RECOMMENDATIONS Receive and File. BACKGROUND ANALYSIS The City Council's Legislative Priorities for the State Legislative Session include: Support legislation to eliminate, or reform, the Ellis Act Support legislation that amends the Ellis Act to better protect renters' rights Support legislation that authorizes cities to increase relocation benefits for those who are displaced under the Ellis Act The Ellis Act is a state law enacted in 1985 that allows property owners to remove rental properties from the rental market. A property owner may do this for any reason. Oftentimes rental buildings are removed for development or repurposing; however if a property is "Ellised", the state does not require the owner to report the purpose of its removal and jurisdictions cannot prohibit owners from removing rental buildings from the private market. Incidentally, in the same year that the Ellis Act was made California law, the City of West Hollywood established the City's lnclusionary Housing Program and Affordable Housing Trust Fund, and participated in the creation of the West Hollywood Community Housing Corporation to expand the supply of affordable housing. Recently the City analyzed the effect the Ellis Act has had on rental properties in West Hollywood. For the period between January 1, 1986 and December 31, 2014, 684 units in 161 buildings in West Hollywood were removed from the rental market using the Ellis Act. This represents about four-percent of the rent stabilized apartment units in the City. AGENDA ITEM 2. BB

11 Supporting Legislation to Amend the Ellis Act Since city incorporation, rent stabilization and the preservation of affordable rental rates and rental housing has been a goal for the City of West Hollywood. Addressing this goal, one of the City Council's priorities for several state legislative cycles has been to support legislation that would eliminate or amend the Ellis Act to better protect renters' rights. In March 2012, the City Council directed the Rent Stabilization and Housing Division to work with the City's legislative lobbyist to request that the State Senator and State Assembly Member representing the City of West Hollywood introduce legislation to repeal the Ellis Act. The intention of this directive was to eliminate the adverse effects of the Ellis Act and provide the City with the ability to maintain stable rental rates and ensure the availability of affordable housing for all segments of the City's population. City staff and the City's legislative lobbyist have met with legislators to stress the impact the law has had locally and on all rent controlled jurisdictions throughout the state. Although legislative staff indicated little desire to reopen such a controversial issue, the City recommended that the Legislature convene informational legislative hearings to review the evolution and the impact of the Ellis Act since its passage 30 years ago. Recently, legislators from San Francisco have proposed Ellis Act reforms; however due to lack of interest from the state legislature as a whole the bills proposed have been unsuccessful. In 2014, the West Hollywood City Council adopted a resolution supporting AB 2405 (Ammiano, 0-San Francisco). AB 2405 would have given local jurisdictions more control in regulating the Ellis Act if removing rental units from the market would result in an overall decrease in the number of affordable rental units. The bill did not gain enough support to pass as introduced. However, the bill was subsequently amended to be narrower and protect tenants' credit histories if they were evicted. Senator Mark Leno (0-San Francisco) introduced SB 1439 into the 2014 legislative session and SB 364 into the 2015 legislative session. These bills would have applied specifically to the City and County of San Francisco, and would have established a five year waiting period after purchase before a new owner could use the Ellis Act to remove the rental property from the market. The intent of the bills was to limit land speculation in the San Francisco rental market. City of West Hollywood sent letters to Senator Leno expressing support of SB 1439 and a request to expand the bill to apply to all California jurisdictions. Even with the focus limited to San Francisco, these bills did not gain enough legislative support to be approved and both bills died in the legislative process. Looking forward, staff and the City's legislative lobbyist will continue to monitor and support legislation that would eliminate or reform the Ellis Act as well as other legislation that would increase tenant protections and limit land speculation. CONFORMANCE WITH VISION 2020 AND THE GOALS OF THE WEST HOLL YWOOO GENERAL PLAN This item is consistent with the Vision 2020 Primary Strategic Goal of Affordable Housing.

12 This item is consistent with the following goals of the West Hollywood General Plan 2035: H-1: H-2: H-3: H-6: Provide affordable rental housing. Maintain and enhance the quality of the housing stock and residential neighborhoods. Encourage a diverse housing stock to address the needs of all socioeconomic segments of the community. Promote equal access to housing for all. EVALUATION The Rent Stabilization and Housing Division and Legal Services and Legislation Division along with the City's legislative advocate will continue to monitor and advocate in Sacramento for legislation amending or eliminating the Ellis Act. The Rent Stabilization and Housing Division will continue assisting tenants being displaced by the Ellis Act, and the Division will continue to ensure that property owners strictly follow all requirements for removing rental properties from the market. ENVIRONMENTAL SUSTAINABILITY AND HEALTH Housing that is affordable is a major component of environmental sustainability and health, particularly in a dense, transit-oriented, urban context. Maintaining the existing housing stock is environmentally responsible. OFFICE OF PRIMARY RESPONSIBILITY Human Services and Rent Stabilization Department, Rent Stabilization and Housing Division. FISCAL IMPACT None.