Imagine you're a tenant in Mountain View whose apartment falls under the city's rent control ordinance. A year ago, you signed a yearlong lease for $1,000 a month with a 25% discount. The pandemic market led your landlord to offer this discount, and you took it.
For the last year, you’ve been paying $750 a month. But now, your landlord is trying to raise your rent by 25%, saying it's simply restoring your rent to its pre-pandemic rate. Is this allowed?
According to a clarification passed by the Mountain View Rental Housing Committee last month, it’s not. Mountain View landlords who offer a discount to renters, a practice that increased dramatically during the pandemic, aren’t allowed to raise those rents higher than what’s allowed under the city’s rent control law, which is currently 2% and starting Sept. 1 will rise to 5%.
“Last year due to the pandemic, there were a lot of vacancies, and in some cases landlords lowered their prices,” RHC member Emily Ramos told the Voice. “In other cases, some of them got people to rent out their units with these concessions.”
Fast forward to one year later, with rents rapidly increasing across the country. Ramos said the city was receiving an increasing number of calls from local tenants whose landlords were increasing their rents by far more than what’s allowed under rent control. These landlords argued that the base rent is the original price, not the discounted rate.
“Based on staff’s reading of the CSFRA, they told tenants that landlords couldn’t do that,” Ramos said. “But they started to get a lot more calls,” prompting the RHC to clarify the rules.
According to a California Housing Partnership report, the average monthly rent in Santa Clara County is $2,848, which is considered affordable for renters making nearly $55 an hour. Based on this ratio, a person making Mountain View’s minimum hourly wage of $17.10 could afford a rent of $890.
Using the example of a $1,000 rent discounted by 25%, the base rent becomes $750, according to the clarification established at the committee’s June 20 meeting. Tenants making Mountain View’s minimum wage could afford this, and thanks to rent control, they could continue to afford it even if their rent increases at the end of the lease.
At the committee’s July 18 meeting, members further clarified the rules for the first-month-free incentives that became even more prevalent during the pandemic: Landlords do not need to recalculate base rents to include this discount. But if the discount offers two or more months rent-free, then the base rent does need to be adjusted. In the case of an $1,000 per month rent with two months free, the base rent would be averaged out to $833 across 12 months.
Why it matters
The base rent is “probably the most important aspect of our rent control law,” Ramos said. That’s because it’s the starting point for how much landlords are allowed to increase rents annually.
Each year, the RHC sets the Annual General Adjustment (AGA) for existing tenancies of rent-controlled units. The calculation is based on the percentage of change in the cost of living (also known as the CPI) from the previous year. Using the AGA, property owners can increase rents from Sept. 1 through Aug. 31 of the following year.
Due to the pandemic, the city’s AGA was 2% in 2021 – the lowest it's been since rent control was established in Mountain View. This was great news for tenants in rent-controlled units, because rents couldn’t rise by more than 2%.
But beginning Sept. 1, the AGA will rise to 5%, the highest it's ever been in the city. The CPI was actually a bit higher at 5.2%, Ramos said, but the rent control law doesn’t allow the AGA to exceed 5%. The last time the CPI was over 5 percent was in 2001, she said, right when the dot-com bubble was about to burst.
What’s important for tenants to know is that they might see some painful rent increases over this next year, due to inflation driving up the CPI. But without rent control, those increases probably would have been higher, Ramos said.
Asking rents in the county, according to the report from the California Housing Partnership, increased by 6.3% between the last quarters of 2020 and 2021. But in Mountain View, under the CSFRA, rent increases maxed out at 2.9% (the 2020 AGA) from Sept. 1, 2020 to Aug. 31, 2021 for rent-controlled residences.
“Before rent control, landlords could raise their rent to as much as they can extract from the tenant,” Ramos said. “By putting a limit on it, you’re not forcing the landlord to raise the rent. You’re just limiting what the landlord can raise up to.”