When it comes to Berkeley rental property owners, the more things change the more they remain the same. At the council meeting of March 24, the agenda included a proposed increase in the yearly fee landlords pay to maintain the Rental Housing Safety Program. Other agenda items covered discussed a common theme, the state of the economy, local unemployment and how it affects small businesses. The council went as far as helping developers allowing the deferral of permit fees up to $200,000. This is essentially an interest-free loan to large developers for the duration of a project. One member of the public objected and claimed the city ran the risk of never collecting these fees as had been the case with a large developer. One council member eloquently defended a local electrical contracting business which threatened to leave its Berkeley location. The councilperson added how the city must be willing to work with the business community in these rough economic times.
However, when it came time for the 53 percent increase in the RHSP fee that only landlords pay, the gloves came off. The statistic that the average Berkeley landlord owns fewer than 2.5 units was ignored. The arguments about the recently passed and proposed fee and tax increases that cannot be passed on to tenants had no effect on the council. A member of the HAC heartily endorsed the increase; a member of the rent board cited the handout prepared by his board stating that rents on average had increased $2,200 per month since 2003. The only voice of sanity came from Gordon Wozniak in the form of a challenge to this last preposterous claim by the rent board. He correctly pointed out that in order for this to be true, then the average tenant must be paying a $100,000 a month rent. A representative of the Housing Department explained the increase is needed to hire an extra inspector. What she omitted was the starting salary of this inspector: $110,000 per year including benefits. Given the high rate of unemployment in the city, I am sure this position could be filled for half that price. The proposal for the increase was approved nevertheless without further debate.
Most people will say, who cares if taxes are increased on landlords. But renting is like any other business where costs are just passed to the consumer. In this case the consumers are mostly students who are facing massive increases in registration fees.
In the face of a weak economy, rent control, and a wave of tax increases, landlords are holding out for higher rents on available apartments to cover these increases on rented units where the additional fees and taxes cannot be passed on. Vacant units mean revenue loss for the city and the need to raise taxes on homeowners to cover the shortfall.
Berkeley's vacancy rate is 6.5 percent according to a recent survey of 600 units. One property manager of over one thousand apartments reports that vacant units that previously took up to six weeks to rent now require three months.
This is the first time that Berkeley experiences a high vacancy deflationary period under rent control with a possible inflationary period in the horizon. The danger posed by this toxic perfect storm is embodied in the Rent Ordinance itself: it states that if the vacancy rate increases above five percent, then the rent board can request the council to rescind rent control. As rental demand spirals downward, owners are reluctant to lower rents because of rent control. Once a rent is established and the tenant becomes long term, additional costs such as the increased RHSP cost or the upcoming refuse collection fee increase cannot be passed on. The annual increase allowed is only sixty percent of CPI, so that with time the erosion of income is self-evident.
The head of the rent board (who must have approved the above mentioned flyer claiming the preposterous $2,200 average monthly increase in rents) understands income erosion perfectly well: his salary of $11,000 per month has an automatic yearly increase of $5,000 dollars through 2011.
In the absence of rent control, owners would charge less rent knowing it could be recouped later when the economy improved. Students would benefit most of all. The city of Berkeley needs to rethink its approach to rental housing and allow the market to operate unhindered by this economic dinosaur (rent control) that has never worked anywhere it is tried according to most economists. By the way, at the same meeting the council raised parking tickets 17 percent. The typical expired meter citation goes from $30 to $35 dollars.
Robert Cabrera is the president of the Berkeley Property Owners Association.