BILL ANALYSIS AB 761 Page 1 Date of Hearing: June 8, 2009 ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT Norma Torres, Chair AB 761 (Calderon) - As Amended: May 28, 2009 SUBJECT : Mobilehomes: rent control. SUMMARY : Allows the management of a mobilehome park in a jurisdiction with a mobilehome rent control ordinance to set the initial rental rate upon a new tenancy at either market rate or up to twice the last-charged rent, whichever is less. Specifically, this bill : 1)Provides that, upon the sale, assignment, transfer, or termination of an interest in a mobilehome or a mobilehome tenancy in a mobilehome park, the management may offer a new rental agreement containing an initial rent in excess of the maximum rent established by an ordinance, rule, regulation or initiative measure adopted by the local jurisdiction. 2)Specifies that beginning January 1, 2011, a mobilehome park owner may establish the initial rental rate for a new mobilehome tenancy at the lesser of the following: a) Market levels, as defined in an appraisal conducted in accordance with nationally recognized professional appraisal standards; or b) The following amount: i) Beginning January 1, 2011, a rate that is up to 14.285% higher than the last-charged rent for the space; ii) Beginning January 1, 2012, a rate that is up to 28.57% higher than the last-charged rent for the space; iii) Beginning January 1, 2013, a rate that is up to 42.85% higher than the last-charged rent for the space; iv) Beginning January 1, 2014, a rate that is up to 57.14% higher than the last-charged rent for the space; v) Beginning January 1, 2015, a rate that is up to 71.425% higher than the last-charged rent for the space; AB 761 Page 2 vi) Beginning January 1, 2016, a rate that is up to 85.71% higher than the last-charged rent for the space; and vii) Beginning January 1, 2017, and thereafter, a rate that is up to 100% higher than the last-charged rent for the space. 3)Prohibits the initial rental rate from exceeding market levels, as defined in an appraisal conducted in accordance with nationally recognized professional appraisal standards. 4)Specifies that after the initial rental rate is set, the rent shall be subject to the local rent control ordinance, rule, regulation, or initiative measure, if one exists. 5)Specifies that the rules for setting the initial rental rate do not apply when a tenancy is exempt from rent control, when the local rent control ordinance allows a higher rate, or when the park is not subject to a local rent control ordinance. 6)Exempts the following from the rules described above for setting the initial rental rate: a) Changes in ownership or tenancy due to the death of a mobilehome owner or tenant where the deceased homeowner's or tenant's spouse takes ownership and occupancy of the mobilehome; b) An assignment of any existing lease that specifies the amount of rent applicable to the assignee upon a transfer of the interest in the mobilehome; and, c) A park that has common facilities or improvements that constitute an unreasonable risk to life, health, or safety for which a citation has been issued that remains unabated for six months or longer preceding the vacancy. EXISTING LAW : 1)Under the Costa-Hawkins Rental Housing Act (Costa-Hawkins), prohibits "vacancy control" rent control laws for residential real property, excluding mobilehome parks. Costa-Hawkins requires a local rent control law for residential real AB 761 Page 3 property to permit the owner to raise the rent upon the termination of a prior tenancy and the creation of a new one, where the prior tenancy was "voluntarily vacated." (Civil Code Section 1954.50 et. seq.) 2)Exempts from local rent control all newly constructed mobilehome spaces held out for rent after January 1, 1990 (Civil Code Section 798.45). 3)Exempts from local rent control mobilehomes that are not the principle residence of the homeowner and that are not rented to another party (Civil Code Section 798.21). 4)Prohibits a park owner from requiring the removal of a mobilehome when it is sold (Civil Code Section 798.73.) FISCAL EFFECT : None COMMENTS : Background : There are approximately 4,822 mobilehome parks and manufactured housing communities in California, with an estimated 700,000 residents living in these parks. In the majority of parks, mobilehome residents own their homes but rent the spaces on which their homes are installed. "Mobilehome" is something of a misnomer in that once installed in a park, it is very rare for a mobilehome to be moved. This is due to both the difficulty and cost involved, and also because the supply of mobilehome spaces is very limited, vacancies are rare, and most park owners do not allow the installation of older mobilehomes in their parks. Birkenfeld v. Berkeley (1976) 17 Cal. 3d 129, provides that cities and counties have within their police power the authority to enact rent control laws so long as property owners are assured a fair rate of return. Under existing law, local governmental entities are free to enact rent control for mobilehome parks. Mobilehome park rent control is not subject to the Costa-Hawkins Act, which restricts permissible rent control ordinances for other types of residential real property. However, the Mobilehome Residency Law (MRL) does limit the application of rent control in certain cases. Under existing law, rental agreements of twelve months or longer are exempt from local rent control. Additionally, if a mobilehome is not the homeowner's principle residence and is not being rented to another party, then it is exempt from rent control. The MRL AB 761 Page 4 also exempts from local rent control any mobilehome space constructed after January 1, 1990. Over 100 jurisdictions in California have some form of local rent control ordinance limiting the amount of rent or establishing a maximum amount of rent that the management of a mobilehome park may charge a tenant. Under rent control, the space rent is set upon a change in tenancy through vacancy control, vacancy decontrol, or partial vacancy decontrol. With vacancy control, rent increases are generally prohibited when a mobilehome is sold and a new tenant occupies the space. Under vacancy decontrol, the park owner can set the rental rate upon a new tenancy without limit. The new rental rate is then controlled by the local rent control ordinance going forward. Some jurisdictions have partial vacancy decontrol, allowing for some rent increase upon turnover but limiting the increase to a specified amount, usually a certain percentage of the current rent. Most California jurisdictions with mobilehome rent control use either vacancy control or partial vacancy decontrol to regulate the initial rental rate; only about 20% allow for full vacancy decontrol. All rent control ordinances allow the owner to seek rent increases through an administrative process if the owner does not feel that he or she is getting a fair rate of return. They commonly also provide for automatic annual rent increases tied to the Consumer Price Index or some other index. Purpose and scope of the bill : According to the author, severe and inconsistent local rent control regulations have had a significant negative impact on the investment in mobilehome parks and have resulted in a reduction in the quantity and quality of parks. AB 761 prohibits local governments with mobilehome rent control ordinances from using vacancy control as a means of regulating rents upon changes in tenancy in mobilehome parks. Instead, the bill requires a form of partial vacancy decontrol starting in 2011 under which park owners can set the initial rental rate for a space upon a new tenancy at the lesser of market rate or a rate that is a specified percentage increase over the last-charged rent as follows: an increase of up to 14.285% over the last-charged rent in 2011, up to 28.57% over the last-charged rent in 2012, up to 42.85% over the last-charged rent in 2013, up to 57.14% over the last-charged rent in 2014, up to 71.425% over the last-charged rent in 2015, up to 85.71% over the last-charged rent in 201, and up to 100% over the last AB 761 Page 5 charged rent in 2017 and beyond. Market rate would be determined by an appraisal conducted in accordance with nationally recognized certified appraisal standards, and the initial rent could not be set higher than market rate, unless the local rent control ordinance allows for greater increases. The bill's provisions do not apply in jurisdictions that do not have mobilehome rent control ordinances. Arguments in suppor t: In background materials provided to the Committee, the author states: "Over the last twenty years the Legislature has stepped in on at least two occasions to address and ameliorate the negative impacts of rent control at the local level. In 1987 it outlawed commercial rent control (controls on retail, office, industrial and other non-residential uses). In 1995 the Costa-Hawkins Rental Housing Act established guidelines for local apartment rent control ordinances. The guidelines principally require that local ordinances permit vacancy decontrol, the ability of an owner to raise rent to market when a tenant voluntarily vacates (in the mobilehome context the sale of a coach)?. In the cases when the Legislature stepped in to modify local rent controls the Legislature and Governor balanced the general preference for local land use controls with the overriding issues of statewide importance-the need for investment in new and existing housing to add to the stock and preserve the existing stock by stabilizing its financial viability. In effect the Legislature was saying that when local control either does not work, or worse, causes negative local and extraterritorial impacts, which stringent apartment rent control was found to have caused, it is time to step in. For mobile home parks it is time, indeed well past time, to restore some semblance of regulatory balance and stability." According to the sponsor, the Western Manufactured Housing Communities Association (WMA), vacancy decontrol is necessary in order to help stabilize and preserve the long-term financial viability of the manufactured housing community industry. WMA further writes that in strict vacancy controlled jurisdictions, "there is no balance between what price the homeowner may set in AB 761 Page 6 selling the home and what the park owner may rent the land for. You have many instances where the 'rent' value of the space may be 'affordable' but the resale price of the home is not. Local government jurisdictions have essentially created a false value for homes in severely rent restricted communities. New homeowners are paying a 'premium' to occupy a rent controlled space, value that is inherent to the land and not the home." The California Mobilehome Parkowner Alliance argues, "In theory, local rent control ordinances are designed to maintain affordable housing. Ironically, they have the opposite effect. Artificially low rents for mobilehome park spaces have significantly increased the sales prices for the homes on those rent-controlled spaces. In many cases this has eliminated affordable housing otherwise offered by mobilehome parks because the purchase price of the home increases beyond the reach of many potential buyers." Arguments in opposition : The Golden State Manufactured-Home Owners League, the California Rural Legal Assistance Foundation, and the Western Center on Law and Poverty argue that "AB 761 ignores the complexities of property rights within mobilehome parks. Despite the claims of some anti-rent control advocates that property ownership is some sort of absolute with all of the rights vested in only one party, for centuries the law has recognized that property ownership is a bundle of rights that can vary. Mobilehome ownership illustrates this concept: the homeowner has certain property rights-the ownership interest in their home, the right to keep the home in place, and the rights in his or her leasehold interests-while the park owner retains the right of reversion in the park space. The value of the homeowner's property rights, which they have paid for, are lost if state-imposed vacancy decontrol forces a homeowner to sell at a fraction of what they paid. This is not simply a theoretical argument over the nature of property ownership. The consequences for homeowners are the loss of essentially most/all of their equity in what is most likely their greatest single asset." The Bay Federal Credit Union writes that AB 761 will "devastate our industries' mobilehome mortgage portfolios, very likely making it impossible for our industry to continue to offer affordable mobilehome mortgages in California. It will also AB 761 Page 7 result in our primarily low- and moderate-income members losing almost all of their investments in their mobilehomes, which they simply cannot afford." Bay Federal further argues that AB 761 will have a devastating impact on affordable housing and financing in California, creating a deeper economic crisis for the state. The committee additionally received hundreds of letters from individual mobilehome owners expressing concern for their own financial stability should AB 761 become law. The League of California Cities argues that once a mobilehome is placed on a space within a park, the homeowner is at an unfair bargaining position because the coach cannot be moved easily if rents are increased. As a result, local agencies have adopted regulations to control rents during and between transfers of ownership between coach owners. This bill interferes with these locally adopted solutions. With one act, this bill sets aside local regulations that have been developed over decades to address issues within the community and balance the affordability of pad rentals with the overall profitability of the park itself. The point of transfer is an important element of these regulations, and should not be erased unilaterally." Staff Comments : The committee may wish to consider that the landlord-tenant relationship in a mobilehome park is very different than in an apartment situation. Mobilehome owners are a captive audience in that their home is fixed to the space and cannot reasonably be moved. Whereas an apartment tenant has a choice of all other similar apartments on the market, a mobilehome owner effectively has one choice of space-the one the home is already on. Absent regulation, this gives the park owner extraordinary bargaining power over residents. If the rents rise beyond their ability to pay, mobilehome owners' only option is to sell the home. If rents are so high that mobilehome owners cannot find buyers, they effectively are forced to abandon their homes, losing their entire investment. The Legislature recognized the differences between mobilehome tenancies and apartment tenancies when it passed the Costa-Hawkins Act, which required vacancy decontrol for apartments but not for mobilehome parks. The special situation at play in mobilehome parks is further evidenced by the fact that over 100 jurisdictions in California have passed mobilehome rent control ordinances, yet only about a dozen have rent control for apartments. AB 761 Page 8 When it was introduced, AB 761 imposed full vacancy decontrol, allowing park owners to set the space rent without limit upon a new tenancy. The bill has since been amended to allow park owners in rent control jurisdictions to charge either market rate or up to double the prior rent upon a new tenancy, whichever is less, starting in 2017. The committee may wish to consider how potentially doubled space rents upon sale will affect the ability of current mobilehome owners to recoup the investments they have made in their homes. According to the opponents, AB 761 will immediately cause a disastrous drop in equity for thousands of homeowners. Supporters do not necessarily dispute that there will be some level of equity loss, but argue that vacancy control has created false value for these homes and that the equity is artificial paper value that is not related to the true value of the home. Although it is unclear to committee staff how many mobilehome owners will be affected by AB 761 and to what extent, it is clear that in jurisdictions that currently have strict vacancy control or some form of limited vacancy decontrol, there will be a financial impact. Given the current state of the housing market and the economy in general, the committee may wish to consider whether Legislative action that would place an unknown number of people in a negative financial situation is appropriate at this time. The committee may wish to consider if it is better to leave decisions about mobilehome rent control to local officials, who are best equipped to assess what is happening in the mobilehome parks in their community and determine what controls need to be in place to ensure that park owners are able to profit from their business while also ensuring that the investment of homeowners is protected. In background provided to the committee, the author states, "It is beyond question that rent controls in general, particularly the risk that stringent rent control could be enacted at any time on any park, has resulted in virtually no investment in new parks in years." A number of the support letters received by the committee make a similar argument-that rent control prevents investment in new parks. Given that state law expressly prohibits rent control on any mobilehome space constructed after 1989, and that only about 20% of jurisdictions have mobilehome space rent control, it is unclear how rent control poses a barrier to the development of new parks statewide. AB 761 Page 9 Prior legislation AB 1309 (Calderon, 2007) would have allowed mobilehome park owners to set the initial rental rate at market levels for a new tenancy (i.e., full vacancy decontrol) starting in 2011. AB 1309 passed out of this committee on May 9, 2007, with a vote of 4-2. The bill was never heard on the Assembly floor. REGISTERED SUPPORT / OPPOSITION : Support Western Manufactured Housing Communities Association (sponsor) Apartment Association of Greater Los Angeles California Association of Realtors California Chamber of Commerce California Mobilehome Parkowners Alliance Santa Barbara Rental Property Association 7 Individual letters Opposition AARP California Bay Federal Credit Union California Alliance for Retired Americans Californians for Resident Ownership California Rural Legal Assistance Foundation City of Oceanside City of San Juan Capistrano City of Santa Rosa Coalition of Mobilehome Owners-California County of Ventura Golden State Manufactured-Home Owners League League of California Cities Santa Monicans for Renters' Rights Senior Action Network Western Center on Law and Poverty Alimur Park Homeowners Association, Soquel Besaro Mobile Home Park Homeowners' Association, Fremont Blue & Gold Star Mobilehome Park Homeowners' Association, Santa Cruz Blue Pacific Mobile Home Park Homeowners' Association, Aptos Cabrillo Mobilehome Estates Homeowners Association, Capitola California Hawaiian Mobile Home Park Homeowners Association, San AB 761 Page 10 Jose Capitola Mobile Home Owners Association, Capitola Carriage Acres Homeowners' Association, Soquel Chateau La Salle Mobile Home Park Homeowners' Association, San Jose Chatsworth Mobile Home Park Homeowners' Association Contempo Marin Homeowners Association, San Rafael Country Mobile Home Homeowners' Association, Santa Rosa Cypress Square Mobilehome Park Homeowners' Association, Marina El Nido Mobile Home Park Homeowners' Association, San Juan Capistrano Galt Mobile Estates Homeowners Association, Galt Greenbrier Gardens Mobile Home Homeowners Association, Santee Hayward Mobilehome Owners Association, Hayward Heather Estates Mobilehome Park Homeowners' Association, Hemet Imperial Oxnard Mobilehome Park Homeowners' Association, Oxnard Lazy Wheel Mobile Home Park Homeowners' Association, Marina Le Sage Riviera Mobile Home Park Homeowners' Association, Grover Beach Marina Del Mar Homeowners Association, Marina Marina Mobilehome Owners Coalition Monterey Vista Mobile Estates Homeowners' Association, Watsonville Oaks Mobile Home Park Homeowners' Association, Oroville Olympia Glade Home Owners Association, Grass Valley Pacific Cove Mobile Home Park Homeowners Association, Capitola Pleasure Point Mobile Park Homeowners Association, Santa Cruz Preston Park Tenants Association, Marina Rancho Santa Paula Mobile Home Park Homeowners' Association, Santa Paula Sandalwood Estates Mobile Home Park Homeowners' Association, Petaluma San Lorenzo Mobile Home Park Homeowners' Association, Felton Santa Rosa Village Mobile Homeowners Association, Santa Rosa Sea Oaks Mobile Home Park Homeowners' Association, Los Osos Sequoia Mobile Home Park Homeowners' Association, Santa Rosa Seven Flags Homeowners Association, Sonoma Sierra Homeowners Association, Cotati Shoreline Estates Residents' Association, Santa Cruz Summit Mobilehome Park Homeowners' Association, West Hills Sun Valley Estates Mobile Home Park Homeowners' Association, Livermore Surf and Sand Mobile Home Park Residents Association, Capitola Tahitian Terrace Mobile Home Park Homeowners' Association, Pacific Palisades AB 761 Page 11 Trailer Haven Mobile Home Homeowners' Association Vista Del Lago Homeowners' Association, Scotts Valley Westlake Village Mobile Home Park Homeowners' Association, Visalia Whispering Pines Mobile Home Park Owners Association, Scotts Valley Woodcrest Mobile Home Park Homeowners' Association, Santa Rosa 454 Individual letters Analysis Prepared by : Anya Lawler / H. & C.D. / (916) 319-2085