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Why Is Rent So High?

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Rent Control On Ballot

California Proposition 10, the Local Rent Control Initiative, will be on the Nov. 6 ballot. It would repeal the 1995 Costa-Hawkins Rental Housing Act, which limited when rent control measures could be applied to single family homes, condos, and duplexes. If the proposition is successful, local communities will be able to install strong rent control measures.

“People are hungry for rent control and ... to see solutions to the housing crisis that can provide immediate relief to themselves and their neighbors,” says Anya Svanoe, a spokeswoman for the Alliance of Californians for Community Empowerment, which is behind the campaign. The motivation pushing rent control measures is to keep rents from being raised; opposition groups say the measures are disincentives to the building of long-term rental units. They ask, “Why would you add a law that would make building long-term housing units less attractive?”

“It would be an absolute nightmare,” says John Falk, Legislative Analyst for the Tahoe Sierra Board of Realtors. He says the reason the Costa-Hawkins Rental Housing Act was put into effect back in 1995 was that “we saw very aggressive rent control jurisdictions that were so oppressive, the people were getting out of the rental business. It hurt renters, and made people not want to be property managers.”

Many in the region wonder why long-term rental rates are as high as they are. As Heidi Hill Drum, CEO of the Tahoe Prosperity Center, says, “rent has gone up significantly in our region in the past few years, and in my opinion it is simply supply and demand. Fewer rental homes are now available to long-term renters, so prices for what is left have gone up.” The follow up question is, of course: Why is the supply-and-demand equation so out of whack?

“No one is building apartments and long-term rental housing,” says John Falk, legislative analyst for the Tahoe Sierra Board of Realtors. “We did a proforma on doing an apartment complex, and we couldn’t pencil it out, even with donated land. It doesn’t play out that you can achieve the same return on your investment as you can selling homes. You really need to find a nonprofit who is willing to forego the cushion needed.”

Some long-term renters express frustration that a huge inventory of homes in the region sits vacant much of the year. “The thing that is missed is that well over 80 percent of second homes are occupied at least a few times a year,” Falk says.

People who rent their homes as vacation rentals do so because it is a way for them to get a return from their investment while still being able to enjoy time in Lake Tahoe. In fact, for many buyers, vacation rental income was a primary part of their decision process when they purchased their home.

Local groups are working hard to convince second home owners to add their homes to the long-term rental market. “We applaud efforts by Placer County, Mountain Housing Council, and the Tahoe Home Connection, who are all working to encourage second homeowners to rent to local residents,” Hill Drum says. “These programs are working to find incentives for them to rent to longer-term locals, or seasonal managers and traveling nurses. Our data shows that renting long-term is financially beneficial to the homeowner.”

Converting some vacation rental properties to long-term rentals will certainly help, but there is clearly also a need for newly constructed smaller apartments as well as in-law units, tiny homes, and cohousing properties geared toward folks who want to rent long-term without roommates.

“Public agencies are helping look for ways to incentivize new long-term housing by lowering permitting-related fees as well as exploring opportunities to re-zone land to allow for increased housing density,” says David Tirman, an architect with JMA Ventures who specializes in project management on mixed-use developments. “Getting more long-term housing built is going to take continuing partnerships between developers and public agencies. Key criteria for multi-family long-term rental projects to be economically feasible include lower land costs, efficiency in design, higher unit density, market rental rates, and collaboration with public agencies on permitting and development impact fees.” In other words, it’s going to take a lot of hard work and ingenuity on the part of both government agencies and private partners to create more long-term rental units in our region. Perhaps everyone should take note of Hill Drum’s self-proclaimed personal motto, and get on board with “getting things done.”

 
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September 13, 2018