Table of Contents

Summary 2

Market Rent Increases – 1/1/99 – 6/30/99 3

Loss of Affordability 5

Translating Affordability into Income 6

Loss of Affordable Units by Income Level 7

Conclusion 9

Impact of Market Rate Vacancy Increases

Preliminary report

On January 1, 1999 vacancy decontrol-recontrol began as owners were allowed to raise the rents on vacant units to market rate.

Between January 1 and June 30, 1999, 1,961 vacancy market increase forms were filed. Excluding multiple registrations on the same unit, 1,746 units have been impacted. The impact of the increases on rents and tenants is explored below.

Vacancy increases on these 1,746 units resulted in the loss of 1,110 units affordable to low income households (80% of median income) including 716 units affordable to very low income households (60% of median income) units and 307 units affordable to very low income households (50% of median income). In other words, 63% of the vacancy increases resulted in units that previously were affordable at 80% of median income becoming affordable only to households whose income is 100% of median or higher.

Affordable units were lost at every affordability level and every bedroom size.

Market increases are the most recent variation on vacancy increases mandated by the Costa-Hawkins Act. Limited vacancy increases began impacting rents October 1, 1995.

During the three years and nine months that vacancy increases have been in effect:

• Units affordable to very low income households (50% of median income) decreased from 10,920 to 6,558, a decrease of more than 39%. More than half of the loss is the direct result of vacancy increases.
• Units that were affordable to very low income households (60% of median income) decreased from 19,247 to 13,906, a decrease of more than 27%. Three-fourths of the loss is the direct result of vacancy increases.
• Fee waivers held by very low income seniors decreased from 895 to 660, a loss of more than 25%, between December 1994 and July 1999.
• Very low income fee waivers on Section 8 units decreased from 793 to 686, a loss of more than 13%, between December 1994 and July 1999.

This report projects that if vacancy increases continue at the same rate through 1999, there will be a loss of 2,359 units that had been affordable at 80% of median on December 31, 1998. That is a citywide loss in one year alone of 10% of the units affordable to a household making 80% of median income or less.

Market Rent Increases – January 1 - June 30, 1999

This report analyzes the 1,746 units that received vacancy increases between January 1 and June 30, 1999. It compares these units to units of the city as a whole, and details the impact of increases on rents and affordability.

The chart below summarizes median rent information:

Vacancy Increases 1/1 - 6/30/99 (1,746 units) Citywide

For the 257 0-bedroom units receiving a market increase, the median pre-increase MAR was $556 – 10% higher than for the city as a whole. The median of the increased rents is $775. The change between the pre-increase and post-increase medians is $219, an increase of 39%.

For 947 1-bedroom market rent units, the median pre-increase MAR was $641, 9% higher than the city as a whole. The median of the increased rents is $995. The change between the pre-increase and post-increase medians is $354, an increase of 55%.

The median pre-increase MAR for the 478 2-bedroom market rent units was $782, 4% higher than the city as a whole. The median of the increased rents is $1,385. The change between the pre-increase and post-increase medians is $603, an increase of 77%.

The median pre-increase MAR for the 64 market rent units with 3 or more bedrooms was $1,009, 8% higher than the city as a whole. The median of the increased rents is $1,800. The change between the pre-increase and post-increase medians is $791, an increase of 78%.

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Pre-increase MAR's of units with vacancy increases were significantly higher than median rents citywide by bedroom category. The likely reason is that a larger proportion of these units had received prior Costa-Hawkins increases.

Citywide, 20% of units had one 15% vacancy increase; 8% had two prior 15% increases. This contrasts significantly with units with market increases – of those, 26% had one 15% vacancy increase, and 19% had two prior increases.

Smaller units were more likely to have had a prior 15% increase. Among both selections, citywide and market increase units, the percentage of prior increases went up as the number of bedrooms went down.

Though 3+-bedroom market rent units had rates similar to the city as a whole – 20% and 9% compared to 20% and 8%; the rate was twice that of 3+ bedroom units citywide.

On the other hand, 0-bedroom market rent units had rates of prior increases of 31% and 22%, significantly higher than the city as a whole, and also higher than the citywide 0-bedroom rates of 25.7% and 14.5.

This characteristic may be significant for two reasons:

1. It explains why the average pre-increase MAR’s of the market rate units are higher than citywide average MAR’s. Further, it explains why the comparative difference in pre-increase MAR’s is greatest for the smaller units.
2. It may explain why 0- and 1-bedroom units are a higher percentage of the market rate units than of units citywide. Units with a vacancy after September 1995 were more likely to have additional vacancies.

Affordable units were lost at every affordability level and every bedroom size as a result of market rent increases since January 1.

For the 1,746 units with market increases, prior to the increase, the median MAR's at all bedroom sizes were affordable to a household whose income is 80% of the adjusted County median. None of the post-increase medians were affordable at 80% of median income.

After the increase, the median MAR's of 0- and 1-bedroom units were affordable only at 100% of median and above. Even more significantly, the median rents of units with 2 or more bedrooms were no longer affordable even at 100% of median income. In fact, the median rent of 3-bedroom units is $400 above the amount affordable at 100% of median income.

This information is shown in graph form below :

The bars depict median MAR’s by number of bedrooms for controlled units citywide, market increase units prior to the increase, and market rent units after the increase. The lines/symbols show the rent affordable for the 60% (very low), 80% (low) and 100% (moderate) of median income levels.

Using HUD affordability calculations, which include a factor for bedroom size and assumes 30% of gross income can be used for rent, the following changes in minimum incomes are required for the median rents listed to be affordable.

The charts below indicate the minimum total household income needed to pay for the median rents without being rent burdened, both before and after the market rate increases.

0                          $504                         $28,800

1                            586                           29,300

2                            750                           31,579

3 or more                930                           34,286

As the chart above shows, depending on size of a unit, the household income needed to "afford" the median market rent is $12,500 - $29,000 higher than the income needed to afford the pre-increase median rent of the same size unit.

Further, a household that could afford the median citywide MAR (top chart) would need an additional $15,500-$32,073 to afford the median market rent of a unit of the same size.

Only 52 of the 478 post-increase 2-bedroom units were affordable at 100%. Only four of the 64 post-increase 3-bedroom units were affordable at 100%.

The chart below details the loss by bedroom-size of the 789 units that had been affordable at 100% of median and the return of the five units that are now affordable at 100%.

The table above shows that 1,623 of the 1,746 units with market increases (93%) were affordable at 100% of median income on December 31, 1998. After the increase, only 839 are affordable at 100%, a loss of 48% of the affordable units.

When the State Legislature mandated vacancy decontrol to all cities with rent control, predictions were made as to the potential impact on rents and affordability. Unfortunately, the direst predictions appear to have been the closest.

The loss of affordable units is occurring at a rapidly escalating rate.

The loss of affordable rent controlled units in Santa Monica increases the demand for affordable housing in this city and the surrounding area. Low income households will no longer be able to relocate into affordable housing within the city, nor will housing be available to new low income populations. The stable and diverse community that Santa Monica has prided itself on will change.

The lack of affordable low income housing may have many potential indirect effects. If workers cannot find housing locally, they may relocate to more affordable, but more distant communities. This could represent either a loss in the work force or an added burden on the commuter transportation system.

Finally, for the lowest income households, the diminishing supply of low income housing may result in more over-crowding and homelessness.

More rapid production of permanently affordable housing is essential.