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Berkeley Rents Reach All-Time Highs but Reinvestment Lags

From Lisa Stephens and Stephen Barton, Ph.D.
Friday March 08, 2013 - 05:10:00 PM

Market rents in Berkeley’s rent stabilized apartments reached all-time highs in 2012 according to the latest “Quarterly Market Median” rent report by Berkeley’s Rent Stabilization Program. The median rent for a two-bedroom apartment was $1,850 a month, up 8.8% from 2011, and the median rent for a one-bedroom was $1,325, up 6.0% from 2011. These rents surpass the previous highs, which were registered in 2007 and 2008 just before the nationwide financial crisis and recession fully hit the Bay Area. The report is based on the market rents charged to the 4,416 new tenants who moved into one of Berkeley’s 19,000 rent stabilized apartments in 2012. 

A Rent Board review of the effects of fifteen years of “vacancy decontrol” finds that with rents reaching unprecedented levels property values have doubled. However, no more than 10% of the increased rent is being reinvested in the community through building renovations or higher tax payments. Most of the owners of “soft-story” buildings that are not safe in the event of an earthquake have failed to reinforce them and thousands of tenants continue to have unresolved maintenance issues despite the higher rents. Vacancy decontrol, imposed on the City of Berkeley by the State of California beginning in 1999, allows landlords to raise the rent without limits when a new tenancy begins, although subsequent rent increases are limited until the tenant moves out. 

Both the full Quarterly Market Median Report and the new report on Rent Stabilization and the Berkeley Rental Housing Market 15 Years After Vacancy Decontrol are available on the City of Berkeley Rent Board’s Research Reports webpage at: 

In brief summary, the Board finds that since vacancy decontrol began in 1999 fully 85% of Berkeley’s 19,000 rent stabilized apartments have turned over and had the rent increased to an amount close to the current market level. “Real” (meaning inflation-adjusted) rents have increased by more than 50% and tenants in Berkeley now pay an additional $100 million more annually in rent over and above what they would have paid if rent increases had been held to the rate of inflation. Meanwhile, only 10% of the increased rent has been reinvested in the community, with about 6% going to building renovations and 4% to increased tax payments. 

With increasing rents, the value of rent stabilized properties has more than doubled, increasing by at least $1.2 billion, but 70% of these properties still have old assessed values, saving owners more than $10 million annually in property taxes. Meanwhile 2,000 apartments in “soft story” buildings remain unsafe in the event of an earthquake and one quarter of all tenants in a recent survey reported persistent maintenance problems. 

A recent Rent Board study reviewed a random sample of 68 properties with 10 units or more, containing a total of 1,455 units. Fully 81% of the units in the sample had received a vacancy increase and this increased the average rent per unit by $534 a month or $6,400 a year over and above the annual inflation increases that Berkeley’s former strong rent control system would have allowed. Building permit data indicates that the owners’ total average reinvestment was less than 6.0% of the increased rent. Another economic study found that less than 4% of the increased rent was going to local governments in the form of increased taxes, largely because under Proposition 13 the property tax cannot increase by more than 2% annually until the property is sold no matter how much the property value increases. 

“It is unconscionable that Berkeley’s tenants must pay such extraordinary increases in rents due to our dysfunctional housing market.” says Lisa Stephens, Chair of the elected Rent Board. “Even worse is that so little is reinvested in the community, either through improvements in the buildings or in taxes on these windfall increases in property values. Low income workers and students from low-income families are being hit from two directions at once with rents going up and incomes going down. Berkeley has always been a center for writers, intellectuals, musicians and people concerned with social justice and the environment rather than just how much money they can make. Berkeley is one of the most supportive places for people with disabilities to live. All that is at risk as the cost of housing goes up.” 

“The real estate industry expects that Berkeley will become a destination for people priced out of the San Francisco rental market because it offers excellent restaurants, theaters and music venues within easy walking distance of BART. As this strategy takes hold it is likely to bring higher-income people into the market for older rental housing as well as for new housing, and continue the upward trend in rents in the coming years” said Deputy Director Stephen Barton, who oversees research and policy analysis for the Rent Board. 

Lisa Stephens is Chair of the Berkeley Rent Stabilization Board. Stephen Barton, Ph.D, .is Deputy Director of the Berkeley Rent Stabilization Board.