Sometime in the next three weeks, Berkeley renters and landlords will learn how much next year’s rents will increase, after the city’s rent board negotiates its way through a legal and political minefield to pick a number almost certain to make someone unhappy.
At the heart of the problem are two numbers: a hike of nearly three percent tenatively arrived at earlier by rent board members themselves and a one percent figure set by a formula agreed to earlier by landlords and the board.
As the final arbiter of annual rent hikes—known as the Annual General Adjustment (AGA)—the Berkeley Rent Stabilization board has until the end of the month to make what they admit will be a difficult judgment call.
After settling a lawsuit brought by a landlord group that claimed the board’s past rent hikes were too low, this was to be the first year that the unabashedly pro-tenant board skirted the political and legal pitfalls of setting the rent increase.
The rent board-landlord pact signed in February called for scrapping the current system—which gives the popularly elected nine-member board discretion over rent hikes—in favor of a fixed formula granting owners 65 percent of the annual Consumer Price Index (CPI).
Other rent-controlled California cities, including San Francisco, Oakland, West Hollywood and Santa Monica, use similar formulas based on the CPI.
Voters must approve the agreement on next November’s ballot, but both sides consented to instituting the formula this year so long as the formula didn’t vary too far from the rent board’s detailed report that factors in numerous owner expenses.
But a large discrepancy is exactly the case this year, said representatives of the Berkeley Property Owners Association (BPOA), which struck the deal with the rent board.
The rent board study recommended a 2.8 percent rent hike for tenants in Berkeley’s estimated 19,000 rent-controlled units, whereas the CPI-based formula would authorize only one percent. Tenants who moved into private homes after 1996 or live in buildings constructed after 1980 are not covered under rent control.
Higher energy bills, unforeseen costs from the city’s new rental housing safety program and a $12 per unit increase in rent board fees raised the price of renting in Berkeley, but did not register on the CPI.
“We absolutely insist that the new fees have to be addressed [in the AGA],” said BPOA Secretary Stephanie Hayes.
Most onerous to owners was the rental housing safety program, which requires property owners to pay a $17 annual fee and get a gas heater inspection every three years.
The inspections were to be done free of charge by PG&E. But Berkeley Housing Director Stephen Barton told the rent board last week that PG&E couldn’t meet the demand to perform all the inspections so about half of Berkeley landlords had to hire independent contractors to do the inspections at a cost of roughly $75 per unit.
The PG&E district manager told Barton that while Berkeley comprises about one-fifth of the district’s population, the city accounted for about two-thirds of all inspection requests.
The BPOA has threatened to sue the city over the program, but Wilson said that if the fees were passed along equitably to tenants, the BPOA would be less inclined to go to court.
“We don’t want to sue anyone,” Wilson said. “If [the fees] are passed along to tenants that means the whole community can conclude that it’s a pointless program.”
While the dollar differences between the two proposed rent increases seem relatively minuscule—a tenant paying $700 per month would see a $7 per month increase if the board enacted a one percent hike and a $19.6 per month increase with a 2.8 percent increase—both sides say that more is at stake.
“If you’re just thinking this is a few dollars per month and, say, $48 bucks a year, is that worth a lot of fighting about, the answer might be no,” said Rent Board member Matthew Siegel. “But if you add up all the rental units you’re talking about $500,000 going from tenants to landlords and then it becomes a larger issue.”
Wilson said failure by the rent board to pass along fees to tenants would again poison relations between the two sides, after the settlement in February offered hope of constructive relations.
The AGA has been mired in politics and litigation since Berkeley instituted rent control in 1980. After a decade of complaining that the pro-tenant board denied them fair rent hikes, landlords won a lawsuit in 1989 granting them retroactive rent increases.
Two years later, the first ever pro-landlord board majority instituted 26 percent rent hikes.
Since tenants regained a board majority in 1994, they have argued the need for keeping rent increases lower to compensate tenants for the high rent hikes of the early 90s.
Rent Board members indicated they were open to a compromise.
“We want to be fair to landlords that have had big increases in expenses,” said Rent Board Commissioner Paul Hogarth. He proposed a two-tier rent increase based on whether the landlord had utilized a 1995 state law, the Costa-Hawkins Act, which ended rent control on vacant units beginning in 1999.
Hogarth said landlords whose units had remained occupied since Costa-Hawkins—and therefore received below market rent—should get the 2.8 percent increase, while those landlords who raised rents to market rates after their units became vacant should be limited to one percent.
More than half of Berkeley’s rentals have been brought to market rates since Costa-Hawkins went into effect.
“I’ve been proposing this for the past few years; this might be the one year people are going to listen to me,” Hogarth said.
Siegel said he had not yet made up his mind, but seemed inclined not to veer too far from the one percent raise called for under the CPI formula.
“If you follow the terms of the settlement agreement, it’s one percent. That’s what everyone agreed to,” he said, adding that he might vote to raise it above one percent to cover cost increases from the rental safety program.
Landlords who want the 2.8 percent increase face an obstacle built into board rules: Any rent increase above 45 percent of CPI must be approved by six of the board’s nine members.
“I think there are enough votes on the board to keep [the increase] under 2.8,” Siegel said. “But we’ll have to wait, it could be interesting.”
The rent board will hold a public hearing on the AGA at the beginning of their next meeting scheduled for Oct. 20. The board could decide on a rent increase during the meeting, and must reach a decision by the end of the month.