Can Santa Barbara Control Crazy Rents?

For eons, the prospect of rent control has been utterly unthinkable in Santa Barbara politics. But with sky-high rents chasing city residents out of town and a brand new City Council just getting into gear, the unthinkable now appears thinkable. Last week, in fact, the council voted 4-to-3 to spend $200,000 to at least study the question. What new information that money might unearth and whether there are any minds left to be potentially changed remains a debatable point. But pushing the hardest, the longest, and perhaps the loudest was Councilmember Kristen Sneddon, now starting her second term in office. To better understand what this study hopes to achieve, Independent Executive Editor Nick Welsh conducted an email interview with Councilmember Sneddon. The following is an edited — for length, not content — version of that back-and-forth. 

Most economists say rent control is a slow-moving train wreck that typically makes a bad situation even worse. Can you point to a city comparable to Santa Barbara where rent control worked well, and why? Santa Barbara isn’t a typical city. We need good data and information, which is why I supported funding a study to look at our particular economy and needs. A city where rent stabilization works well is the City of Beverly Hills. It has had an updated rent stabilization program in place since 2017. Incidents of exorbitant rents and deviations between market rents compared to stabilized units have all lessened. The idea is for there not to be a big difference in stabilized units from market rate, so that tenants know what to expect and property owners can still benefit from a reasonable return on investment. 

Why 2 percent as opposed to 3 percent? This seems like a number snatched out of thin air. This is why we need a study — the 2 percent plus CPI was just a starting point. We need to tailor this number to our specific community details. 

California currently has a 5 percent cap with cost of living on top. How has that worked out in Santa Barbara? Again, this is why I am asking for a study. What we have now is anecdotal information — from both tenants and landlords. We need actual data and details so we can focus any future ordinance where it may be needed. What we do know, based on the recent census, is that many community members who were living on the edge are now leaving: our seniors, single-parent families, and our workforce. 

Walk me through the math. If a 2 percent cap were actually imposed, how much money would that save the average tenant living in the average apartment getting the average rent increase? We’ll be able to make these calculations when we have accurate information on the average rents and the average rent increases for what types of units.

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We hear that rent control or stabilization will have a disproportionate impact on the so-called Mom-and-Pops who — we are also told — tend to charge less and be more responsive to the needs of their tenants. Mom-and-Pops traditionally tend to keep rents lower and work more closely with tenants to negotiate to resolve issues, and they are often not operating with large profit margins. Moderate regulations are not likely to affect these small-scale rentals. Any ordinance we contemplate needs to not disproportionately burden them. If it does, we run the risk of these units being sold to larger investors and taken off the market — another reason we need a study.

In cities with successful rent stabilization, there is not a large discrepancy between regulated units and market rate. The goal of rent stabilization is not to prevent rents from increasing, but to smooth exorbitant rent hikes, which Mom-and-Pops don’t typically do. 

A big concern we hear is that a Mom-and-Pop won’t have the capital to repair or replace a roof, or other needed maintenance, when needed. By allowing a pass-through of these expenses, the small rental provider can still benefit from a reasonable return on investment. Another consideration might be only applying the cap to rentals that are being rented at or above market rate. If a Mom-and-Pop is renting below market rate, as many do, they should not see a big difference in how they operate. We need input from the small rental providers to address these concerns and any unforeseen consequences in any ordinance. 

What kind of data are you looking for from the study? What don’t we know now that we need to know before deciding on rent control?  I would like to see solid data on: What are current average rents? What is the range of prices? Are there differences between small-scale rentals (Mom-and-Pops) and larger rentals? What is the average rent increase? What are the outlier spikes in rents? How many people, on average, are living in a single market-rate unit? Is there overcrowding? What proportion of a renter’s income is going to rent? What is the average increase of a renter’s wages compared to average increase of rent? Are they comparable? What percent cap plus CPI would lead to stability while still ensuring a reasonable rate of return on investment, and how do we determine what that is? How many renters are we losing from the community yearly due to rent increases? Over five years? What would be the cost to the city of running a Rental Registry program? What would be the cost to the city of running a Rental Stabilization program? How can we structurally and sustainably build the cost of the program into our budget?

The staff report indicated that the Beverly Hills model would cost $5 million to implement. The city is already facing a deficit of about $3 million this year. Where do you think the funds should come from?  The cost of a rent stabilization program is potentially substantial. The study will address what this number might be and how the funds might be structurally and sustainably addressed in the city budget. One economic impact of rent stabilization tends to be increased spending in other sectors of the local economy and fewer economic impacts from homelessness. These cost savings could be applied to the program. It may also be time to assess higher fees to vacation rental violations, which remove valuable housing stock and contribute to our less than one percent vacancy rates. The study will be looking at ways for a program to be self-sustaining. 

How do you target rent relief for the people who need it most without creating a windfall for people who need it less or not at all?  In a successful rent stabilization program, there would not be windfalls or extremes. The idea is to smooth discrepancies so that stabilized units are not much different from market rate units. That is different from traditional rent control. Again, I would look to scientific data of what would and wouldn’t work in our specific community — another reason for a study.

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