DATE: SUBJECT: PROPOSED ORDINANCE NO. 1368 AN ORDINANCE OF THE CITY OF PALMDALE, CALIFORNIA, AMENDING CHAPTER 5.44 OF THE PALMDALE MUNICIPAL CODE RELATIVE TO MOBILE HOME SPACE RENT CONTROL ISSUING DEPARTMENT: Economic Development SUMMARY Issues: Shall the City Council Approve the First Reading of Proposed Ordinance No. 1368 Amending Chapter 5.44 of the Palmdale Municipal Code Relating to Mobile Home Space Rent Control? Recommendation: Approve the first reading of proposed Ordinance No. 1368 and set it over for second reading and adoption. Fiscal Impact: None. DISCUSSION Under Chapter 5.44 of the Palmdale Municipal Code, rents for mobilehome spaces are controlled to protect mobilehome park residents from excessive rents, while at the same time providing a just and reasonable return to owners of mobilehome parks. Section 5.44.110 of the Palmdale Municipal Code authorizes the City Council to periodically
Page 2 of 8 review the provisions of Chapter 5.44 to consider: whether mobilehome space rent control continues to be necessary to protect the public health, safety and welfare; whether the implementation of the provisions of Chapter 5.44 have been adequate; and whether the provisions of Chapter 5.44 should be amended to provide more effective regulation or to avoid unnecessary hardship. A. Mobilehome space rent control continues to be necessary to protect the public health, safety and welfare. When initially adopting the Mobile Home Rent Control Ordinance, the City Council found that the following conditions existed in the City of Palmdale: Mobilehome owners, unlike apartment residents or residents of other rental stock, are in the unique position of having made a substantial investment to purchase a mobile home for which they must rent a space in a mobilehome park. They have also made investments in maintaining and improving those homes, as well as landscaping and exterior improvements to the mobilehomes and the rental spaces on which they are located. Alternative sites for the relocation of mobilehomes are difficult to find due to the restrictions on the age, size, or style of mobilehomes permitted in many parks, and requirements related to the installation of mobilehomes, including permits, landscaping and site preparation. Additionally, the cost of moving a mobilehome is substantial and the risk of damage in moving is significant. Thus, moving a mobilehome is not a feasible option if rent becomes excessive. The result of these conditions is the creation of a captive market of mobilehome owners and residents. Their immobility creates an imbalance in the bargaining relationship between park owners and mobilehome park residents. Because mobilehomes are often owned by persons on fixed incomes, and persons of low and moderate income, excessive rent increases fall upon these individuals with particular harshness. In August 2008, city staff entered into an agreement with Dr. Ken Baar, an attorney and expert in urban planning, to conduct a rent control study of the mobilehome parks within the City of Palmdale. He has researched and published extensively on housing policy issues. Over the past 15 years, he has served as a consultant to numerous California jurisdictions on issues related to mobilehome park space rents. His publications have been cited frequently by California Courts of Appeal and the State Supreme Court. There are 10 mobilehome parks within the city limits of Palmdale, providing 1,941 homes. Three of those parks are City-owned and not included in the study because they are governed by a regulatory agreement, are non-profit and therefore exempt from the Ordinance. The purpose of this study is to provide information on mobilehome park residents and mobilehome park space rentals in the City of Palmdale, including information on trends in rents, mobilehome prices, income levels of park residents, and trends in park values.
Page 3 of 8 In reality, mobilehomes placed in mobilehome parks are actually immobilehomes. They are manufactured homes that generally are comparable in size to small houses. The majority of homes are doublewide structures that consist of two 10 or 12 foot wide sections that are joined together when they are installed on a lot on top of a simple foundation. Typically mobilehomes are improved with carports and porches. Mobilehomes are rarely moved after they are placed in mobilehome parks. When mobilehome park residents move they sell their mobilehomes in place. Dr. Baar notes in his report the unique circumstances surrounding mobilehome investment: 1. The historical investments of the mobilehome owner (tenants) in mobilehomes in mobilehome parks generally exceed those of the landlord parkowners. 2. The physical relocation of mobilehomes is costly. 3. Relocation within metropolitan areas is practically impossible because there are virtually no vacant spaces in mobilehome parks. 4. Park owners generally will not permit older mobilehomes to be moved into their parks when they do have vacant spaces for rent. 5. The supply of mobilehome park spaces in urban areas in California is either frozen or declining. Mobilehome park construction in urbanized areas of California virtually ceased by the early 1980's as alternative land uses became more profitable and land use policies continually tightened restrictions on the construction of new mobilehome parks. The investments of mobilehome park residents in their mobilehomes are sunk costs. The benefits of these investments can only be realized by continuing occupancy in the mobilehome or by an in-place sale of the mobilehome. Mobile home park residents generally have very limited economic bargaining power concerning rents charged for mobile home lots, due to their limited incomes, their large investment in their mobile homes, and the immobility of mobile homes. A substantial portion of those mobilehome owners have made a substantial financial investment in their mobilehomes. From 2004 to 2008, the following number of mobilehome sales and prices were reported in the parks subject to this ordinance. 2004-117 sales - average price - $38,821; 2005-81 sales - average price - $37,358; 2006-100 sales - average price - $$50,430; 2007-59 sales - average price - $43,060. After surveying the residents of Palmdale s mobilehome parks, Dr. Baar s findings were that, A significant proportion of mobilehome park residents are senior citizens, many of whom live on incomes that are below the very low income level and the level necessary to afford a moderately priced apartment rental unit. In responses obtained
Page 4 of 8 from the tenant survey fifty-five percent (55%) of the mobilehome owner households reported that their household income is under $20,000 per year. Half of the 187 mobilehome owner households that have obtained grants from the City reported that their household income was under $15,000 per year. In 2008, under federal HUD standards, the income level for households classified as very low income in the Los Angeles metropolitan area (50% of Area Median income or under) was $26,550 for oneperson households and $30,300 for two person households. The income level for households classified as extremely low income in the Los Angeles metropolitan area (30% of Area Median income or under) was $15,590 for one-person households and $18,200 for two- person households. In the absence of rent regulations it is possible for park owners to raise rents to such high levels that mobilehome owners are forced to abandon their mobilehomes or sell them at nominal prices. These conditions make it necessary to continue mobilehome space rent control to protect the public health, safety and welfare. Dr. Baar s complete study is attached to this staff report. B. Implementation of the amended provisions of Chapter 5.44 While the implementation of Chapter 5.44 has generally been successful, time has revealed certain problems with the mobilehome space rent control process and areas for potential improvement. Some changes will be administrative to clarify language more commonly used by California codes and standards, and other changes will be updating to statutory changes. 5.44.011 Purpose and Findings. Describes the need for an ongoing ordinance and the purpose of the Ordinance for tenants and owners of mobilehome parks. 5.44.020 Definitions: More clearly defines existing meaning and introduces terms necessary for the provision of the Ordinance. 5.44.030 The Mobile Home Park Rental Review Board. Administrative changes to coincide with current procedure and changes term to two-year term. 5.44.041 Lease Regulations: Adds provisions that an owner cannot misrepresent their rent increase application before the City or threaten prospective residents regarding rent increases not permitted under the Ordinance as an inducement to cause a prospective resident into signing a long-term lease, or otherwise withhold or conceal the existence of the rent control ordinance upon inquiry by a prospective resident. 5.44.50 Registration: Requires all mobilehome parks to file an initial registration and
Page 5 of 8 an annual registration containing information about the owners and rents, and an updated registration within 30 days of change of ownership of the park. 5.44.60 Rent increase upon vacancies. Vacancy decontrol section that required a technical addition. 5.44.70 Annual Permissive Rent Increases. This provision will allow parks a simplified venue for an annual rent increase based upon the lesser of (i) seventy-five percent (75%) of the increase in CPI over the prior 12 months or (ii) five percent (5%) of the current space rent. This type of annual rent increase is common in many rent control ordinances throughout California. The benefit to residents is that the increase is small instead of the larger amounts when the parks apply for larger increases every few years. The benefit to owners is a return that helps with park maintenance and upkeep. The applicable CPI is the CPI Index All Items for All Urban Consumers, most recently reported by the U.S. Department of Labor, Bureau of Labor Statistics, for the Los Angeles-Riverside-Orange County Metropolitan Area. An Annual Permissive Rent Increase cannot be implemented more than once every twelve months and only on spaces that have not had any type of rent increase in the prior twelve months. If a space has just come under rent control following expiration of a long-term lease, or if a space has been re-rented to a new resident under vacancy decontrol, or if the park received a special rent increase for a particular space within the last twelve months, an Annual Permissive Rent Increase will not be allowed for the space until the calendar year that commences at least twelve months after the space comes under rent control. The owner will not be allowed to bank an annual permissive increase; if the owner does not charge the full amount of the approved rent increase within the calendar year in which it was granted, the uncharged amount is lost. Parks will not be allowed to take advantage of the Annual Permissive Increase unless their registration is current. This provision provides a simplified process for providing park owners with the ability to raise rents. As noted, the Annual Permissive Rent Increase is based on 75% of CPI for the previous 12 months or 5% of the base rent for that space, whichever is lesser. Within 45 days of the effective date of this provision, and by January 31 of each year thereafter, staff will notify the owners of the applicable percentage increase determined permissive rent increase. Park owners must notify residents of the increased rent in accordance with the notice provisions of State law. The provision provides the residents with a protest process for the permissive increase. The Housing Manager can deny or sustain a protest based on seven criteria, and the Housing Manager s decision is final. An owner does have the ability to apply for a Special Rent Increase even if they have received an Annual Permissive Rent Increase, but the permissive increase will be taken into consideration when analyzing the Special Rent Increase application.
Page 6 of 8 5.44.080 Special Rent Increase by application to the Board. This provision modifies the prior provision dealing with rent increases as contained in current Section 5.44.060. An owner may seek a Special Rent Increase in addition to those permitted by Sections 5.44.060 (vacancy decontrol) and 5.44.070 (permissive) after meeting the procedures and requirements of this section. The owner bears the burden of proof and must provide the evidence to justify a Special Rent Increase. A Special Rent Increase cannot be granted unless supported by the preponderance of the evidence submitted at the hearing. It is the intent of this section to establish rents at a level, which will provide owners with a fair and reasonable return while protecting the residents from excessive rent increases. This type of rent increase may only be imposed if approved by the Mobile Home Park Rental Review Board, or by a outside hearing officer if the Board s decision is appealed. This section includes a rent increase provision commonly known as the Maintenance of Net Operating Income (or MNOI ) rent increase methodology. Courts have approved the use of the MNOI methodology for granting rent increases, and have ruled that the MNOI approach provides park owners with a constitutional fair return. Under the MNOI formula, the park s total gross income and operating expenses for the base year are determined; total operating expenses are subtracted from total gross income, and the difference is known as the net operating income (or NOI ). The base year NOI is increased by a specified percentage of the increase in the CPI between the base year and application year. The total gross income, total operating expenses and NOI for the application year are then determined. If the application year NOI does not equal or exceed the base year NOI increased by that CPI percentage, a hardship rent increase is granted. This section initially establishes calendar year 2005 as the base year for the purpose of determining an MNOI rent increase. As proposed, Subsection H allows a park owner to apply for an increase based on seventy-five percent (75%) of the increase in CPI between the base year and the application year (the 12-month period preceding the date of submittal of a complete application). The presumption in this section is that the maintenance of net operating income ( MNOI ) formula provides a fair or just and reasonable return. Subsection I allows for modifications and adjustments to the base year if the owner can show proof that they cannot receive a fair and just return otherwise. Subsection J allows for a Special Rent Increase when an owner contends they cannot receive a fair return notwithstanding the MNOI rent increases allowed under subsection H or Subsection I, commonly referred to as a Fair Return Analysis. Once an initial Special Rent Increase is granted, the base year becomes the application year for purposes of future rent increases sought under this provision. This is because once a Special Rent Increase is granted, that increase provides the owner with a fair return in the application year. The Twelve Factors that were previously used by the Ordinance have been modified in their application. The Ordinance now requests the same basic information in a
Page 7 of 8 different format that can be more effectively used based on objective data, in analyzing the financial picture of the mobilehome park. Additionally, the Ordinance now calls out information that must be provided for a Special Rent Increase application to be considered and without the information the application does not have to be considered. This language formalizes the staff practice that has been used by the City under the current ordinance provisions. Staff and consultants have struggled with mobilehome park owners in the past to provide requested information and the owners would point to the twelve factors and the belief that was the only information that staff was entitled to. The MNOI methodology provides an objective basis for determination whether a park owner is entitled to a rent increases in addition to the Annual Permissive Rent Increases. One area of confusion for some park owners and some board members is the topic of market value. Courts have affirmed that rent control and market value are inconsistent, because market value is what drives the need for rent control in the first place, and use of market value in determining rent increases under rent control ordinances is inconsistent with the purposes of rent control. The Ordinance now points out that market value is not to be taken into consideration. 5.44.090 Hearing Procedures. This section expands the responsibility the park has to notify the residents that they have applied for a special rent increase. In the past residents often didn t know about an application till the city housing staff notified them of a hearing date. Now the parks have to place notices informing the residents that they have filed an application with the city. This gives the residents a lot more advanced notice. The park will also have to provide a copy of the application for residents to view. 5.44.100 Appeal to Hearing Officer. Either party may, and before filing any action in court shall, appeal any final decision or order of the Board to a hearing officer by filing written notice of the appeal, a written summary of the basis of the appeal and any documents supporting the appeal with the Housing Manager no later than ten (10) days after the decision of the Board. After going through the outlined appeal process and paying the associated fees with a hearing officer, should the party who filed the appeal still not be satisfied then and only then can they seek relief in Superior Court. 5.44.110 Fees. Small clerical changes for clarification. 5.44.120 Permissible reasons for termination Clerical changes for clarification. 5.44.130 Refusal to pay illegal rent Clerical changes for clarification. 5.44.140 No Retaliation. No resident shall be subjected to retaliation for the exercise of his/her rights under the provisions of this chapter. 5.44.150 Posting of Ordinance. A provision is added that this Ordinance shall be posted in two places within each park so that all residents can be aware that rent control is in affect for mobilehome spaces and what their rights are.
Page 8 of 8 5.44.150 Remedies. Adding to this section the provision of the appeal of the hearing officer s decision granting or denying an appeal. 5.44.170 City Council review of this chapter. Unchanged. 5.44.180 Exemptions. Text unchanged, numerical changes. 5.44.190 Park inspections and audits. Adding text to include documentation and courtesy inspections by the Code Enforcement Division of the City, which is used for the special rent increase applications. 5.44.200 Regulations and Forms. A provision allowing the city to add regulations and forms as needed to implement this chapter. CONCLUSION Citing Dr. Baar s study of the city s mobilehome parks, the various and numerous court decisions, and the new laws since the initial implementation of the rent control ordinance, the revisions to the Ordinance are extensive and necessary. Staff recommends that the City Council approve the first reading of proposed Ordinance No. 1368 and set it over for second reading and adoption. Submitted by: Reviewed by: Terri-Lei Wheeler Housing Coordinator Laurie Lile Assistant City Manager Danny R. Roberts Assistant Executive Director/CRA Stephen H. Williams City Manager ATTACHMENTS TO THIS STAFF REPORT MAY BE VIEWED IN THE OFFICE OF THE CITY CLERK OR THE MAIN LIBRARY