News from the Mountain View Rental Housing Committee June 2017

Background:

On November 8, 2016, the residents of the City of Mountain View voted to adopt Measure V, also known as the Community Stabilization and Fair Rent Act (CSFRA), to stabilize rents and to provide just cause eviction protections for certain rental units in Mountain View.

Effective April 5, 2017, rent levels and rent increases for covered rental units, built before February 1, 1995 must comply with the CSFRA. Single family homes, condominiums, and duplexes are not covered by the CSFRA.

For more background go to the Mountain View website:

http://www.mountainview.gov/council/rental_housing_committee/default.asp

Rental Housing Committee Meeting, 6/8/2017

The meeting was called to order at 7:00pm

The RHC listened to input from tenants and landlords. Key outcomes from the meeting include:

There will be individual stakeholders meeting for the tenants and landlords next week.  The Rental Housing Committee Staff will attend and will summarize these forums at the June 19th RHC meeting.

RHC Staff will continue to work on the Regulations for the Petition Process for Individual Rent Adjustment.

RHC Staff presented beginning criteria for a Hearing Officer and a Mediation Officer.

The person will be an independent contractor

A third party ‘Project Sentinel will be used to facilitate this process.

Cost of position – Further information from staff to be forthcoming

Meeting adjourned around 11:00pm

Stakeholders Meeting ‘Fair Return Standard’

Meeting for Landlords held 6/12/2017

Meeting for Tenants held 6/14/2017

As established in the RHC Meeting of 6/8/2017 a Stakeholders Meeting for both the tenants and the landlords was to take place separately to create a methodology for determining a ‘Fair Return Standard’ that could be used during the landlord’s petition process for modifying rents upward if necessary.  These meetings took place on 6/12/2017 and 6/13/2017.

This methodology for a ‘Fair Return Standard’ should include the following:

Could be objectively applied

Is understood by both parties so that decisions can be based on predictable outcomes

Is consistent with the current CSFRA established guidelines

Three (3) potential ‘Fair Return Standards’ were offered. See staff report online at:

http://mountainview.gov/civicax/filebank/blobdload.aspx?BlobID=22966

    • Maintenance of Net Operating IncomeMNOICPI Adjustment – Most commonly used standard in California.  Once establishing the NOI, (Property Income minus the operating expenses for the base year of 2015), this number is then increased by an inflationary index which increases with changes in the Consumer Price Index, CPI, or some portion there of between the base year and the petition year.

Issues

Confirmation of the operating expenses for base and petition years

Landlords may have incomplete records of operating expenses

Operating Expenses do not always vary with inflation indexes.  Example –  a one-time expenditure of a new roof can impact the determination for a rent increase

    • Maintenance of Net Operating IncomeMNOI – Ratio Adjustment – Allows for rent increases in proportion to increases in qualified operating expenses. The Base year factor however is different in that it can be any year including the 12 months prior to the petition year.
    • Fixed Return on Investment – This is a variation on the fair return standard that was developed to regulate utilities and later adopted by some mobile home parks. A ‘deliberative body’ identifies a Minimum standard rate of return for the landlord’s investment of between 4-12%.  The chosen number is then multiplied by the value of the property resulting in the Minimum NOI. To determine whether the landlord is receiving a fair return, the Property Expenses are subtracted from the Property Income resulting in Net Operating Income excluding debt service.  If the Minimum Annual NOI is lower than the Net Operating Income the landlord would be entitled to increase the rents.

Issues

Different rates of return lead to disparities in the rents that can be charged

Determining valuation of property could be ‘fair market value’ which would require an appraisal, which would increase administrative cost and subject rent increases to market swings.

Landlords – preferred ‘Fixed Return on Investment’, must have universal definitions, use standard formulas to determine Operating Expenses, provide a list of items with their lifespans

Tenants – preferred ‘MNOICPI Adjustment, what process will be used to evaluate property…should it be a standard formula, if a rent increase is required for a one-time expense example new roof once it is paid for should the rent return to its’ previous value?

The Rental Housing Committee staff will summarize these meetings for discussion at the Monday June 19th RHC meeting.

Rental Housing Committee Meeting, 6/19/2017

The meeting was called to order at 7:00pm

The Rental Housing Committee Staff presented a summary of the two separate Stakeholder Meetings, one for the Tenants and one for the Landlords that were held last week.  These meetings were to determine one standard out of a potential of 3 options, to be agreed upon for a ‘Fair Rate of Return’ for the Landlords in accordance with Measure V.  The Tenants chose ‘MNOICPI Adjustment’ and the Landlords chose ‘Fixed Return on Investment with modifications.

After reviewing the summary of the meetings the RHC Staff recommended the MNOICPI Adjustment standard as it is widely used in nearly all the California rent controlled cities and when a petition is presented, offers the simplest calculations for the hearing officers and the RHC.

The landlords disagreed and felt very strongly about their position and their chosen option in that the MNOI-CPI only allows for a minimal (this year 3.4%) yearly percentage rent increase.  With the roll back of rents to 2015 levels, increasing operating costs, extra repairs or maintenance issues some of the landlords will no longer be turning a profit and then a Fair Rate of Return is no longer applicable.

Most of the RHC members could not all agree after listening to the very passionate discussions on both sides however one member encouraged the committee to adopt the option that the staff had recommended so that this process could continue to move along without further delays.  There is no perfect option but he argued that this is a good choice and changes can and probably will be made as the procedure unfolds.

The vote was taken and by 3-2 the MNOICPI Adjustment option was chosen as a standard for the ‘Fair Rate of Return’.  The RHC Staff will draft a full policy of this standard and bring it bring it back to the committee to the next meeting early in July.

For more detailed information on Fair Return Standard from the public:

http://www.mountainview.gov/civicax/filebank/blobdload.aspx?BlobID=23110

Meeting adjourned around 11:30pm

—Tamara Lewis, Observer