THE NEW ELEVEN DOLLAR GENERAL RENT ADJUSTMENT

For many months the Santa Monica Rent Board Commissars have been trying to figure out ways to reduce the annual general rent adjustment for property owners who benefited from vacancy decontrol. This is not an easy task because the general rent adjustment applies to everyone while vacancy rent increases come to different owners at different times. Therefore, the Board hired Dr. Kenneth Baar (rent control expert) to write a report and make recommendations (apparently Dr. Fidel Castro was too busy visiting with Jimmy Carter to accept the job).

At the Rent Board meeting of May 23, 2002, the new "Baar Report was presented, and it is fill of interesting facts and half-truths. To cite a few examples, of ten California cities that have rent control, only the rent boards of Santa Monica and Berkeley determine the amount of the general adjustment to grant each year without set guidelines. Most index rent adjustments at the full change in the CPI (consumer price index), which indicates the change in the inflation rate.

The Baar Report also establishes that since April 1978 (the "base rent date" for Santa Monica) the change in the inflation rate has been 172%. The Report does not mention that the total annual adjustments granted by the Board since that date equal 119%. To illustrate this, the Rent Board determined that the average rent for a hypothetical rental unit was $300 in 1978. (That is the average rent, midway between one-bedroom and two-bedroom unit rents). If rents had been indexed at the full inflation rate, $300 rent in April 1978 would be $816 now. However, a $300 rental unit receiving only general rent adjustments allowed by the Rent Board has a current lawful rent of $659 per month. Therefore, those units are have lost $157 per month in actual dollars adjusted for inflation.

The latest Baar Report also makes some interesting comparisons between prices now and those from several years ago. The report compares current refuse collection rates to those of April 1996. It compares current building insurance rates to those of 1994 (the earthquake hit Santa Monica in January that year.) Gas and electric rates make reference to 1978 levels but only as baseline percentage points, not as dollar amounts, which would show the change since 1978.

Fortunately, I saved the Baar Report he issued in 1983 so the changes in expenses can be compared. The following figures are based on average costs per unit/month for a non-master meter apartment unit.

As was explained above, the general inflation rate has been 172% since 1978, while rent adjustments have permitted rents to "increase" by $119 since that date. However, the expenses that are actually measured by the Board in its general adjustment process indicate that apartment expenses have increased far more. But the Board is not concerned about that. The Board is more concerned that apartment owners are receiving unfair profits as a result of vacancy decontrol. The Baar Report at page 6 includes the following table to demonstrate how rich the landlords are getting as a result of vacancy decontrol.

In order to prevent landlord profiteering resulting from participation in a free and unregulated market, the Baar Report proposes that the rent increase should be stated as $11 per month rather than a percentage. The $11 is based upon the hypothetical average rent of the hypothetical unit without vacancy decontrol. That $11 is equal to 1.7% for the average regulated unit with a current rent of $659. Dr. Baar reasons that by granting rent increases as a dollar amount rather than a percentage, the "landlords' who received vacancy rent increases will not be able to receive additional benefits by higher general rent adjustments. (For example, 1.7 % of $1,600 = 27.20.)

The Baar general adjustment report will be available at the Rent Board meeting of June 13, 2002, when the Rent Board will set the next general adjustment, so if you have any questions, you can ask them at that time. Kenneth Baar will probably be there too, so you might ask him why he sued the Berkeley Rent Control Board about 15 years ago to get his condominium rental units exempt from rent control.

Of course, that would be a rhetorical question because it is obvious that Dr. Baar does not wish to be the victim of his own advice.