Steve - I like your comment that this is a regional, not Palo Alto problem. I would love to see some both the surrounding "bedroom" communities such Atherton, Woodside, Portola Valley and Los Altos Hills shoulder some of the dense housing burden. I would also love to see more public transit from the East Bay, can we use the tracks that run next to the Dumbarton?

How about moving?

Cities like Palo Alto and Menlo Park could start just by allowing smaller units. In both cities, the zoning code limits the size of the buildings and it also restricts how many units it can have - so you have a de facto minimum density at about a two-bedroom.

It's no surprise all new construction is luxury construction when it's illegal to build studio apartments! Then you see threads saying that building new housing just makes things more expensive. Well, yeah, you all set up the zoning that way in the 1970s. If you wanted to make the Peninsula expensive, it's working.

EPA has rent control and offers an attractive housing option for both tech and service workers. What are their regulations RE: density?

Can we use the tracks that run next to the Dumbarton?

No, for 2 reasons:

1) the existing tressel is not anywhere near fit for train activity. I needs to be entirely rebuilt.

2) The MTC took away all funding (92 million) for the Dumbarton Rail project, in violation of Regional Measure 2 requirements. The MTC does not consider cross-bay transportation issues a priority.

I love all the comments advising people to move away or move to crime ridden EPA as a solution to the problem. Why don't you build a giant wall while you're at it. Keep those people out! (Sarcasm)

I do agree more affordable housing has to be allowed, and by affordable I don't mean section 8, but affordable for the avg person or family. Inlaw units, studios, shared housing, etc.

You have to admit (word deleted) landlords are really cashing in on the crisis.... Charging 5000-8000 to rent houses that have a 1500 mortgage, or 3000 for apts that rented for 1500 a couple years ago. I have no sympathy for most landlords

For all the people who are now complaining about the high rents and want their city to pass rent control, from 2001 thru 2008 you did not have one landlord go to their city council and demand rent control in reverse for falling rental prices, or to prohibit tenants from moving out of their unit until it was rented again. During that time frame rents fell from $1,500 to $850 for a one bedroom in my area, and with a vacancy factor of 30% to 35%, many owners filed for bankruptcy protection and banks took back properties because they could not pay the mortgage or refinance their property because they could not meet the qualifications set by the banks. Many landlords lost millions - yes millions of dollars on apartments that they just purchased a few years prior.

The economic cycle runs about every 9 years when we go back into a recession. It happened in the 1980's, 90's, and 2001. Apartments are just like any other business in that they have to save money when the economy is good so that they could weather thru the hard times, if they can't do this, they go out of business and lose their property.

Renters are shielded from all the price increases that property owners face. They have no idea how much the prices are going up for labor,gardeners, painters, flooring guys, plumbers, carpenters, tile installers, roofer, property insurance, liability insurance,etc.

The biggest threat that is coming is the ballot measure that the politicians from Sacramento will be putting on the ballot next November to repeal Prop.13 for commercial properties, which includes apartment buildings. This measure passed in the 1970's to protect property taxes increases that harmed property owners, and severely harmed the seniors and low income people. If people vote to pass this measure, you will see yearly rent increases higher than now just to pay for the property taxes.

The reality is that the Bay Area has mostly been built out and there is no more room to grow. With more and more people moving here, it is simply a supply and demand situation that forces prices up on ALL real estate.

Steve, I love that you put forward a variety of ideas because, like our energy crisis, there is no one approach that is going to solve this. The missing components in this analysis, however, is impact and outcomes. Impact on the short term in response to the massive run-up in rents and impact in the long term to have enough supply on hand to meet our massive spikes in demand. I have not heard of a single jurisdiction that has seriously recognized, or tried to quantify, impact and outcomes. We will not meet the incredible need for affordable housing simply with using density bonuses. While you may feel that rent stabilization may "discriminate" against pre-1995 apartment owners, this approach will have IMPACT of a significant scale. It will benefit thousands of residents TODAY. Thanks to the Costa-Hawkins Act people renting post-1995 apartments and single family homes will not be helped by this, but that is where we begin our real search for long term, sustainable solutions. Ultimately, we will not build our way to affordability, but doing nothing is not an option.

1. How many people live in or very near to the city they work in?

2. The primary reason, I believe, that people right now want to live as close to the city they work in, is the horrible and untenable traffic situation, caused by most people traveling individually by car. The car transportation system is totally clogged, so let's unclog it!

3. Invest in an effective and efficient public transportation system (where train and bus schedules are synchronized), so that people can live farther away, but can get to work in an easy and comfortable manner.

4. When I was young and a student, living in The Netherlands, I used to travel a full hour to get to my destination. I used that hour to study (thank God we did not have people speaking on their cell phones all the time,) and it worked wonderfully well.

5. Another benefit.....people less stressed, and fewer car accidents.

What's your informed economist's prediction, Steve? What will rents be if we build 100, 1,000, and 10,000 additional rental units in Palo Alto. Show your work.

@ Anneke and Curmudgeon

I will leave your posts up for a bit to give you a chance to read what I wrote and respond to the regional rent rise and solutions issues.

But currently your posts are off point are not responsive to the question of whether you acknowledge a REGIONAL RENT INCREASE CHALLENGE and what you would do about it.

@ Einstein

How does moving address the region wide rent increase challenge? And particularly how does your seemingly unsympathetic plea address the hiring challenges of the non profit organizations I talked to on Thursday or the school districts struggling to hire substitute and regular teachers.

Steve - the answer is in your very first comment. Incomes must rise faster to fall in line with costs. Market forces should drive employers to raise salaries or disperse their facilities.

Anything else is a subsidy from the residents and workers to the large companies that get disproportionate benefits from doing business here and yet do not bear the full costs for things like transportation infrastructure, schools and civic services.

Google, Yahoo, Facebook and Apple do not need to put 1,000s of people in condensed facilities and then require their employees to commute long distances. We have the technology to collaborate and work remotely or in regionally distributed locations.

We should not demonize homeowners, builders, workers or government officials when they are not the source of the problem. The large corporations have a choice and they need pay the true costs when locating large employment centers in a geographically limited area.

Hi Steve,

I like responding to your well thought-out articles.

Somehow, the free market is an important consideration. I tried to approach your article from a different point of view. Right now, demand and supply are setting the high rents in the area. There is by far not enough supply and at the same time there is an enormous demand that far outstrips the supply.

The question is: Why? Why are rents and housing so extremely expensive in this area, and why should we put in regional rent controls? Will that be the solution? Any time you start putting in more controls, the follow-up situation will become more complex and more contentious.

Again, I strongly believe that an outstanding and flexible transportation system allows people to comfortably work in the area without living close to it. That means that the demand for living here will decrease, and according to the notion of supply and demand, the rent prices will also decrease.

We should at least start with the transportation system, and see what the results are. We might be pleasantly surprised.

Stephen,
I have been thinking about the impact this has on truly the unfortunate in our society, like the non-profits and teachers, etc, and have came up with a rough concept of, this is an regional area issue, so

Arizona charges a sales tax from rents that renters pay, it's roughly .o2 percent of the rent. Landlords collect it and mail it in to the state.
What if we had a regional rental tax of .01% on every occupied rental property and a flat monthly fee of $25 for every owner occupied property and from business properties as well, seniors and low income people could be exempted. My thoughts are that it would be better to hand out housing vouchers from this fund to those who need it as part of their employment compensation, that way they can chose where they would like to live.

I obviously do not know how much this could bring in, this might even be to high of a tax rate, but it might be interesting to run some numbers. This is also a rough thought with a detailed plan that would need to be worked out. But what ever we do, any type of solution must be addressed by everyone, and not just one group of individuals.

People who cannot afford to live in Palo Alto, according to market values, need to move to where they can afford to live. For instance, Salinas, Modesto, Manteca, Tracy. If the jobs are to their liking, they can organize van pools to work in Palo Alto.

I certainly won't argue that more housing stock is definitely needed as we add more and more jobs. But what will happen to current residents who rent their homes during the 5-7 year period required for the first of these new units to be available for occupancy?

The "...increasing discussion of mandatory measures to limit the rights of property owners with regard to rents" derives not from rapidly escalating market rents per se, but from the frequency at which current rents are being increased by $500 to $1000/month for existing tenants. In other words, the rent that was apparently satisfactory to both landlord and tenant last year or last month suddenly must be increased at an annual rate that is more than an order of magnitude greater than the growth in CPI! Yes, the free market is a wonderful thing, but so are the relationships within a community.

"...but I do not favor mandatory rent limitations, particularly when under current law they benefit renters only in old units (a decreasing share of renters) and leave similar renters in a unit built after 1995 discriminated against."
The City of Mountain View estimates that the restrictions under current state law would still allow the city to set limits on how existing tenants should be treated in more than 90% of the applicable rental housing stock. Is it really a moral position during a period of crisis to ignore the 90% for the several years that might be required to amend state law, in one's zeal to protect the additional 10%?

"I will leave your posts up for a bit to give you a chance to read what I wrote and respond to the regional rent rise and solutions issues."

Thank you.

Perhaps my earlier posting was insufficiently clear. I am challenging you to provide a quantitative analysis of one of the options mentioned in this posting's header, and which is implicit in all of your bloggings on this subject: what is the effect on housing prices (including rents) of supplying more dwelling units at various levels? You surely must know that we need this result to conduct informed planning.

'But keep the blog about solutions, not blame', is similar to an attempt to find a solution to a problem without identifying its root causes. (portion deleted)
There is no solution (portion deleted) in a market driven society. Those who can't afford to rent in the Bay area will have to find (word deleted) housing elsewhere. Companies will have to move operations to areas that are less expensive and have more available and easier to obtain housing.

I'm a huge proponent of an increased amount of housing on the Peninsula - including in my own neighborhood in Menlo Park. I would be happy to see more second units in the Willows - I know there are a few within a couple of blocks of me already, and the Willows is such a great, vibrant neighborhood.

That said, I think Anneke's suggestion of a vastly improved transportation system is spot-on when we are thinking about other solutions that can come into play immediately. Although Palo Alto currently seems to be planning to build as little housing as possible, other cities like Menlo Park and Mountain View are transforming office parks into mixed-use neighborhoods with lots of new apartments and condos. Unfortunately, Belle Haven and North Bayshore are very poorly served by transit - even though there's an unused rail line running through Belle Haven! Similarly, apartments are cropping up along El Camino all the way from Redwood City to Santa Clara, although it looks like the trend will skip Atherton and Palo Alto.

We need a better way to connect our job centers to the new, denser housing that can serve the middle class, while our neighborhoods of single-family homes become affordable only to old-time residents and billionaires. Single-family homes are likely never going to be middle class housing on the Peninsula the way they were in the 60s, 70s, and 80s. But the starter homes that were built then were often about 1400 square feet, and there's plenty of room to build more homes of that size for families as long as we are willing to build up a few stories.

The trick is traffic - we just need to connect those thriving, middle-class dense neighborhoods with thriving, middle-class dense jobs centers. Fortunately, that's an easy problem for transit to solve, if our region were to actually try to do it well.

(deleted)

SL: I am happy to put your post back up if you answer the questions posed by the blog--

Do you think rising rents are a problem for people and employers and

What solutions do you propose and where do you think mandatory rent limitations figure into solutions.

Complaining about growth does not answer these questions.

@ Anneke and others suggesting better transportation (I agree) or just telling people to move (I do not agree)

please address the desirability of having people live reasonably close to where they work as a quality of services and hiring issue.

People working in non profits, my San Francisco example, have enough trouble finding housing but not it seems you want them to spend a lot of time traveling even if not by car. The same issue for teachers or firefighters.

I do not see how telling people to move helps school districts or non profits or public safety departments compete well for talented people to serve us.

To that end I think downtown worker has it right--better transit AND making better use of density in and near our existing job centers.

And it would be nice for the "tell them to move" posters to acknowledge or dispute with evidence that there is not a regional rising rent problem.

@ Mauricio and Jack and anyone I missed in the "let them move" and "it is the companies problem"

A couple of points

So for the companies that would like to provide land or support housing development like around Facebook or in North Bayshore, they can only do this if the cities allow the housing.

So are you in favor of Menlo Park and Mountain View, for example, changing zoning to allow thousands of more units near these company facilities?

If not, your claim that it is the company responsibility rings false to me.

And I have not heard a good answer to the hiring challenges facing smaller companies, non profits and public agencies to attract people to provide the high quality services we want.

I am reading that Jack and Mauricio do not think there is a problem caused by rapidly rising rents and want to give them a chance to clarify their position.

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Mauricio--most posters here understand the guidelines for this blog, disagree if they like but without put downs and answer the questions posed by the blog.

If you want to post here, follow their lead.

My daughter moved out of Mtn.View in 1998, along with her husband. Combined they made $55,000 annually. They rented apartments their entire adult life's when they moved out from home, but realized they could not build a future here. They moved to Colorado, rented a house, had their first child, bought a home, she was a stay at home Mom for several years. Bought a brand new house, had their second child, and are doing very well for them self's on what is not a lot of money for our area.

To say we must find a way for everyone to stay here is wrong, that is part of the problem. We need less people here to use up what available resources that exist here, but I will not tell them to leave, that is a decision that they need to make. People have to evaluate where they can best achieve their life goals both for now, and for retirement, and then make it happen.

The problem with the "people should move" argument is that most people who make it don't get a clear enough picture of who will actually move.

Let's look at companies first. Any particular office building is going to be occupied by the company that is willing to pay the most for it, and that company will be the one who gets the most economic value from the location. So, what companies get the most economic value of being in the Peninsula? Well, tech companies, because they can hire from the whole workforce from SF to SJ. So as office prices rise, companies will move out until it's nothing but tech companies left. (This is kind of happening.)

If you look at workers, any home is going to be occupied by the person who can pay the most for it, and that will be the person that gets the highest additional wage from being located in this area or who have some other reason to really want property here. Ummm... yep, tech workers and independently wealthy investors.

So not building housing is a recipe for the Peninsula becoming a place where only tech workers can live (along with the remnant retirees who own their own home and don't want to move.) Similarly, not building office space is a recipe for a Peninsula where every business focuses on the technology industry.

I work in tech, but I don't want to see the Peninsula as 100% tech-focused. It wasn't 20 years ago. More to the point, there are no good options for people of middle and lower incomes (taking tech workers as affluent, for the time being.) If tech workers move out to the East Bay or to South San Jose, then they'll push service workers commuting from there even further.

All the daycare centers are struggling to find staff because non-profits can't pay enough for people to commute 1.5 hours each way. San Francisco has a huge shortage of teachers. As the population ages, where will the home care workers live? Antioch?

This is the real question about living in a desirable area where the housing supply is fixed. Where are the service workers going to live? The tech workers who are complaining that all their paychecks go to the landlords are just the canaries in the coal mine.

Well if we're going to talk supply and demand, then you have to bring in the employers as part the problem and the solution.

I have no doubt that the employers know about the housing costs and/or shortage in the Bay Area. If the employers believe that they need to add headcount so that their businesses expand and thrive, then perhaps they should take a proactive role in solving that problem - at least for themselves.

- new locations... inside and outside of the Bay Area
- pay employees more $$$ so they can pay the cost to live here

I think the solutions proposed during these online debates have always been about the cities (residents) accommodating the businesses. To be frank, businesses are far more agile when it comes to planning for the future and making investments that will benefit their short and long term goals.

An obvious example is Facebook. Their PA digs were too small. They move to MP, build a second campus and now are looking at building housing. They are solving their own problems. Google - they are looking at developing a whole new concept campus over off Shoreline - where employees can live work all over there. Both of these developments required some work and negotiations with the respective host cities. But - zoning wasn't blown up, height limits stayed the same, etc. And the companies put their own financial resources in the game.

A more established company made a smart/strategic move a couple of decades ago. Chevron moved from SF to Concord. Readily available housing and BART. And the vacant SF space was taken up happily by other businesses.

HP already does this - PA HQ. Sunnyvale, Mountain View site. Vancouver WA. Idaho. Texas. Etc.

Switching gears...we already have many political candidates campaigning on "Income Inequality". My preference is that they should re-phrase to Income Gap. The bottom line is that businesses have been squeezing their lower level employees for several decades now. I don't want to politicize this observation - but data shows that relative pay for the average American has not kept up with costs of living - especially in California. Please no finger pointing here or demonizing, moralizing, etc. If we can just agree that pay has not kept up with California living costs - then let's agree to agree on that one point.

So...if employers are having trouble filling open positions --- then step up and change the pay scale so that people will want to work for you and afford to live in the area.

I know I'm simplifying many economic factors. But I think you get my point. Instead of us residents having to step up and change our lifestyle or "college town" feel of our city, why not the employers fix the problems that they are generating?

The title of this discussion is "Addressing the Rapid Rise in Regional Rents".

Toward that end, I do believe it would be possible to craft an ordinance that would moderate steep increases, offering relief to tenants *and* return for landlords.

Let's say that for *all* existing tenants of *all* rental units, landlords could only raise rents once per 12 month period and the increase could be no greater than 10%*

This would protect tenants from those devastating 30-40% rent hikes and provide landlords with reasonable profit.

This type of measure would not solve all issues, but would provide a greater level of stability to the community. Also, it would be fair, applied to all landlords and tenants and not based on some arbitrary qualification such as the age of the property.

*Note. I'm using 10% as an example. The actual rate required to make the program successful might be higher or lower.

@Crescent Park Dad - for both Google in North Bayshore and Facebook in Belle Haven/Bayfront, both the zoning allowances and height limits were increased by about 50%, in exchange for public benefits from the companies along with new housing and retail. In both cases, the city had to change zoning to allow housing where it wasn't previously allowed before.

The best analogy for Palo Alto would be if the city where to substantially increase density and heights in SRP in exchange for a large amount of public benefits from Stanford along with the transformation of SRP into a mixed-use neighborhood with retail and housing.

I actually agree with you that it's an excellent model for Palo Alto, although there's no need to change height restrictions. You could easily get a 50% building size increase plus housing plus retail all in under four stories if you want. SRP is very big but most of it is two stories or parking lots.

TO people who think rent control is the answer to this problem, let me bring this issue to your attention.
Most of the rental properties in the Bay Area are 60 plus years old. Within 10 to 15 years insurance company's will start to require that buildings be upgraded with new electrical, heating and plumbing to continue with insurance coverage.
If building owners do not have the rental income to continue with ongoing upgrades, it will financially be a better option that buildings be razed. That old $2,000 apartment will now be replaced with non rent control units for $4,000, or sold as condo's or townhouse's.
Either a solution is found so everyone will share this burden, or property owners will take the same view as others and only look out for themselves.

Steven I think the high rents are a problem as you point out and I think it is a regional problem as well. Apartment and multifamily housing construction has just begun to revive with new projects in Redwood City, Mountain View etc. Significantly more units need to be built as I would guess the vacancy rate is less than 3% . Clearly a lot of pent up demand has driven rental rates upward by 10% or more annually for the past 3 or 4 years (my numbers)

Has anyone researched how much our municipalities have SPENT of the "In Lieu" fees paid by developers. I have said this several times on a variety of topics, but if there were a mandate for them to in fact SPEND those collected funds on a regular basis there might be just a little less pain...we don't need housing home runs, we need steady spending to help as many as we can at the moment of collection.

How about not only putting rent control in place but mandating a decrease in rents periods by 5% per year for about five years. Also, we could mandate the subdivision of current mega-houses (>2,000 square feet) and have home sharing. After all we are in the 'sharing' economy. Yes, our government can solve this 'problem' with just a few strokes of the pen. Let us get Governor Brown to make the political case which he is very good at.

While it's the combined elephant in the room and third rail of California politics, the root if the problem is at least partially prop 13.

If property taxes reset to reality on a regular basis, it would encourage more equitable taxation (instead of soaking recent purchasers), and encourage turnover which should decrease prices and help the supply / demand balance.

A phase out would of course have to be reasonably gradual, with some grandfathering - but it's time to end the insanity and have the boomers pay their fair share of property taxes.

Most urban economists blame land restriction imposed by city councils as the main reason for restricting supply and making it more inelastic so that demand shifts result in steeper price increases. Relaxing some land control measures would allow for smaller and more diverse housing options. Our area will never be a cheap place but we should have more housing diversity to allow for more income diversity

The suggested solutions of increased density and smaller units will work if the quality of construction is such that people don't have to listen to the noise from their neighbors and from traffic. Dense housing creates its own issues such as social stress due to proximity of other people. There has been considerable research over the years about the effects of density in housing on the people living there.
I recall the research models of a few decades ago that used rat populations housed in differing population densities. The more dense the living areas, the more stress and aberrant behavior rats exhibited. Therefore, I hope significant research be done before we leap on the bandwagon of dense housing as a good solution.

I agree with Gladys. Why not just let the business cycle play itself out? Rents go up; they also come down. They went down in 2001 and 2008. It will happen again...likely soon.

Could someone explain why people keep moving into the Bay Area when they cannot afford the rents?

Perhaps knowing the cause we could then address the effects.

If you believe in free economy, capitalism, blah, there should be no such thing as "rent far outpaced income". The landlords raise rent because of demand, and the strong demand most likely comes from either more workers coming into the area, or higher average salary, or both.

If the income didn't catch up with the rent, either the demand would soften, or the hiring companies would be forced to raise their offers to attract people! If the companies say "no thanks", or the renters refuse to pay the hefty price, the landlords would have to reduce the price.

So everything will work just fine on its own.

Then why do you feel this is a problem? Maybe a problem for the low-income people that happen to want to live close by, too? I don't want to discuss that aspect because it could take a long time and we have to talk about tax, benefit, how to make the whole society more fair (or just more humane).

My point is just that, the high rent is caused by a high density of high income people. Very simple. It is because "income far outpaced historical rent".

In reality, this is too simple though. If enough speculators (China buyers?) push housing price higher, and attract a bunch of local speculators (aka home owners?) push the price even higher, the landlord would happily increase their price, too.

Clearly, if you don't like it, you can raise property tax instead of the notorious rent control..

But I still prefer let the market settle the matter on its own.

I like MP resident's following comment:

"If property taxes reset to reality on a regular basis, it would encourage more equitable taxation (instead of soaking recent purchasers), and encourage turnover which should decrease prices and help the supply / demand balance."

But, no worry, no need to change any law. Prop 13 looks absurd only because the bay area has gone through such profound change in the past 30-40 years. Just like a small harbor growing into New York City. It is reaching a plateau. After the current owners die (they will die, right?), there's slim chance that their heirs can hold on to those properties for long - they are generally very poor with regard to the house value (1M+ cash is too hard to resist for a few 50k income persons). So they will sell the houses, effectively killing prop 13 in a natural way.

Give it another 20 years. There will be almost no houses with a few hundred $ property tax anymore.

I think even supporters of Prop 13 are surprised at how long people are holding on to their housing, and despite the ability to transfer the cost basis to a another house in most counties in California, few people do so. How many 3,4 bedroom houses are occupied by 1 or 2 people? It is surely their right, but doesn't help with the housing crisis.

I am still for some amount of rent control that stems the tide of 4-10k a month rentals when the mortgage/costs are a tiny fraction.

Before I bought my first house a couple years ago, I used to live in a rental that the landlords owned outright, and rarely did any maintenance/upgrades on for several years. When I moved, they charged triple to the new renters, and also to the other units in my building as they turned over. Pure cash cow to them, and the units were never empty during any of these previous recessions in the 15 years that I've been in town. It's their right too, I guess, but should it be? Does the answer change if the landlord is a local resident or out of state/country owner?

Have you looked at the bay area using Google earth? We are 2/3rd green space, maybe more. It's lovely and all, but the bay area is not nearly as dense as it could be.

We all want to keep the majority of the green space, but a few high density apt options in non-traditional locations would help alleviate the pressure and spread out the traffic.

Extend Bart down 280 with adequate parking options and it would get a ton more riders. I can never take bart because the lots fill up before I can get over there... and it's not like people can drop off their kids at school at 5am to get to the BART when there is still a parking spot.

First, on regionality. Cooperative play among the cities and towns is problematic, but must evolve. I think housing is too tough for the transient nature of mayors and councilpersons. CalTrain upgrade is the ideal case study because it is real, immediate, expensive and cost of procrastination is devastating. Locally there are several well-informed, articulate leaders. Pat Burt, Peter Carpenter and others seem ready to step up. The narrow neck of Peninsula could be the catalyst to push action minded leaders.
Second, you implied one reality. The lag time for meaningful increases in housing supply is quite long. I dont see how wages can lag as long. So Adam Smith's invisible hand will have impact for mission-critical lower paid service workers such as child care, long term care workers, et al. In this painful scenario, unionism may become a reality.
Third, I remember the angst when Applied Material and other mainstay companies struggled with their move to Austin, Research Triangle, etc. But move they did. I understand the mindset of today's highly competitive, well-funded CEOs but you Steve as an economist can question their policy of what seems like single-minded focus on Bay Area labor supply.

TO: "renter turned owner, a resident of Menlo Park: Downtown,"


"Before I bought my first house a couple years ago, I used to live in a rental that the landlords owned outright, and rarely did any maintenance/upgrades on for several years. When I moved, they charged triple to the new renters, and also to the other units in my building as they turned over."

You are the example of how Prop.13 protects renters. If there was no Prop.13 your rent would have had to been raised to near market rate for every year so that the taxes could be paid. Instead you enjoyed only paying 1/3 market rent and you where able to save money and buy your own home.

I have been here since 1960, I remember what is was like before Prop. 13, seniors and lower paid people like teachers where losing their homes because of the ever rising and not knowing the year before what next year taxes would be. By repealing Prop. 13 you will be only making the problem worse for everyone, INCLUDING RENTERS!!

I think Jeff is right. All the fuss about the apparent tax inequities caused by Prop 13 will get flushed out for the reason he stated. First to go will be the homes protected longest, 30-40 years, because those owners will die first. But the cycle will continue with flushing out over and over with time. That won't stop fussing by the newest buyers, however. The next door neighbor of the new owner will be scorned because he bought his house 10 years ago and his taxes will be much lower. Be patient new owner, put your time in. Ten years later and you will be the scorned one when you get a new neighbor.

"You are the example of how Prop.13 protects renters. If there was no Prop.13 your rent would have had to been raised to near market rate for every year so that the taxes could be paid. Instead you enjoyed only paying 1/3 market rent and you where able to save money and buy your own home."

@Jim you logic escapes me.

If a landlord triples the rent, but the underlying property taxes don't change, then the stabilized property tax doesn't lower rents.
I have not seen any evidence that low property tax rental properties ask demand lower rents. The market charges the maximum it can get away with.

The effect of low property taxes combined with renting out families with kids is placing an increasing strain on PA's basic aid school funding system.
The problem will only worse as long time residents avoid capital gain taxes and bequeath their home to their kids, who subsequently rent them out rather than sell, based on the odd theory that home prices will continue to rise at they rate they did in the past. Profits on rental need to be taxed at a local level an added back to the schools rather that being sent to Sacramento or Washington.

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SL: apparently you are having trouble groking what I asked you to do if you wanted to continue posting.

Look above if you do not remember and put some skin in the game by sharing your ideas on the questions I posed.

To: Hadleyburg, a resident of another community,

"If a landlord triples the rent, but the underlying property taxes don't change, then the stabilized property tax doesn't lower rents.
I have not seen any evidence that low property tax rental properties ask demand lower rents. The market charges the maximum it can get away with."

Please re-read "renter turned owner" comments, he is the evidence, and countless others like him, like those that rented in his building. Do you not think that when the new tenants move into that building that those same landlords will do the same thing to them as with the previous tenants and not, or by very little, raise their rents. His landlord had the choice to keep his rent 1/3 that of market rent. If there was no Prop. 13 then his landlord would have had no choice but to raise the rents every year to cover the expenses thereby making it harder, and longer, for "renter turned owner" to save the money to buy his own place.

If the goal is to get houses and properties in play, one reason people
in Palo Alto are not moving out is that many have owned their houses
for a long time and would have to pay huge taxes on the appreciation/
profit if they sell those houses ... but costs are much higher so the
profit in selling doesn't make sense.

Prop. 13 is good for people in a certain budget space that do not have to
move as long as they stay put they pay very low taxes, but if they think
about moving then they have an asset that has appreciated but they
do not benefit from as much in selling as they do in keeping.
If the tax is low ... it doesn't pay to sell or move in most cases.

I believe the the rule is that you can sell your house and move to one of
the following 9 CA counties and retain your old tax basis after the
age of 55 ?? :

Alameda,
El Dorado,
Los Angeles,
Orange,
San Diego
San Mateo
Santa Clara,
Ventura,
Riverside

That's not all of California, and ...

The problem is the cost of living has gone up so much that
you may be able to find a lower priced home in one of these
places, but you lose about 1/3 of the price you sell your house
for to taxes ... and who is going to do that, even if they would
like to move?

If we want to encourage people to move and open up space in
Palo Alto or other high demand area, it would seem more sensible
to give people who have owned their homes the longest like a
depreciation schedule so they pay less in taxes the longer they
have owned their houses. Then they could afford to move and
free up their houses for remodeling or redevelopment which would
bring in more tax money anyway in the long run .... I think ... and
helping everyone.

It is an artificial logjam that is creating this bubble. Some benefit
but it is not that comfortable of a benefit because it does not help
the overall city and county or the overall market.

This is how it seems to me, but I also could me missing something,
which is another reason people do not move, they do not really
know if they are doing the right thing they are so many odd factors
at work here ... easier to sit tight and let things appreciate.

@Plane Speaker
Re the tax issue: I'm sure each case is different but if you have a trust it's possible you wouldn't have to pay any, or very little,
tax. If for some reason your property had to be reappraised recently, then that becomes the new basis. That was the case when my wife died last year.

Gale Johnson,

You are talking about an inheritance tax issue, that has nothing to do with property taxes.

We have a group of people who want rent control so as to protect renters from moving out from their apartments because of high rents.

Then we have many of these same people say that property taxes need to be raised so the low income and seniors could be forced out of their homes so as to open up more housing for others.

Sigmund Freud has a name for this, but I can not recall what it is.

If any local community wants to vote on a bond to raise taxes so as to provided "housing voucher assistance" to the non-profit or to public agency officials, then let each community decide if that is right for them.

@Mark
Yes I am, and I know the difference between property and inheritance taxes. I was responding to Plane Speaker because he referred to both types of taxes and specifically mentioned the big tax hit if someone were to sell to downsize. Sorry I strayed from the main subject.

To Jim

My rent was market rate for most of the time I was there. The landlord did raise rent almost every year, even though their costs were nil and the place was slowly falling apart with no maintenance. When we moved, the landlord raised the price way over market... and was able to get a couple takers. It only takes 1 uneducated person to take the bite, but many of those people took the same chance and now rents are crazier than they've ever been (and that's saying a lot around here).

Prop 13 for home owners is a tangent from the real story: how businesses have skirted the system to transfer ownership using legal maneuvers so they never get a tax increase... now homeowners pay a majority of property taxes, and businesses pay a smaller and smaller portion every year, to the detriment of state coffers and the educational systems that rely on them. That trend needs to be stopped. Vent your outrage where there is an opportunity to improve things for the state and state schools.

To "renter turned owner"

This is what you wrote,
"When I moved, they charged triple to the new renters, and also to the other units in my building as they turned over"

Then you wrote,
"My rent was market rate for most of the time I was there".
"When we moved, the landlord raised the price way over market... and was able to get a couple takers. It only takes 1 uneducated person to take the bite,"

Lets assume you paid market rate rent, lets say $2,300, then the landlords found a couple of takers to pay triple market rate $6,900. Really???
You can not pass that story onto anybody and be credible.

Schools in each city, for the vast majority of times pass school bonds, that means higher property taxes and more money for schools. You do not have to repeal Prop. 13 for that reason. The community can decide on a case by case bases if that bond is appropriate for higher taxes.

No outrage here, the discussion is about high rents and its effect, go ahead and pass the repeal of Prop. 13 lets have even higher rents.
Can we get your address so these low income people who can not afford their rent, can move in with you.

This rent cost discussion lacks data. I wonder if this a blog or just a series of rhetorical questions geared to drive emotional reactions.

The median household income in Santa Clara County is about $90K. The average apartment rent is about $3K/mos in Palo Alto. Just using gross numbers the housing cost ratio is about 40%. That is not ideal but certainly not a crisis that would require us to completely transform the city.

A diverse community has a benefit. If certain populations are blocked out based on those rates then identify them (elderly, poor, teachers, police/fire etc.), put it to a vote and subsidize them. Many of those groups already have existing programs to help them. Why not just expand the funding a little if you want more?

The reason is most of the densifiers and expansionistas have a philosophical agenda. They never talk in specifics on which people, how many and at what cost because want to force their vision of a particular way of life on everybody else.

How does moving out of my house now that I'm a senior help reduce housing prices? Based on recent sales near my home, I am certain that my property would end up in the hands of a spec developer who would scrape a perfectly serviceable home and replace it with something that is more than twice as large as ours (Menlo Park doesn't count basements towards the maximum allowed). And if current trends continue, the new spec house would sell for more than double what the spec developer would pay, and the house would not provide housing for any more people than it does now.

We fully intend to do what others in our neighborhood have done, which is to rent rooms in our "old" house to grad students. Now that is a way to provide less expensive housing.

Those who want to help schools with property taxes need to jump on the bandwagon to increase property taxes on commercial properties. Because of Prop 13, those rarely "technically" change hands and so are not reassessed. The burden of support for schools has shifted from commercial to personal property. That is unfair.

"ousting seniors won't help"

Apartment buildings are commercial properties, repeal proposition 13 and you will have higher rents as expenses are always passed on to consumers. Not to mention all the small Mom and Pop shops that we have in every city that will be effected.

Commercial properties bring far more in property value and taxes than does residential properties. It is the residential properties that are tax losers to the city, not commercial. Just look up any commercial building or land that is for sale, then compare it to the residential, they are not even close.

It is very interesting in reading this blog, the vast majority seem to say tax the other guy but not me. To be fair and to stand for moral and civil justice means to treat EVERYONE the same and not take away the rights from any minority group.

Before you say what others should do, please state what you will contribute to help out.

Mr. Levy: In Denver, for the first time in history, the rents and leases are also jumping to historic highs!
Even outside Denver local communities are seeing the rents jump. Aspen and Winter Park Ski Areas have had to remove long term renters from the seasonal workers dorms and chase out RVs.
You're local problem is being mirrored all over the U.S. Other areas are watching to see how the SFBA and Palo Alto in particular handle these " growing pains ".
My discussion about Senior Housing is a valid solution. Think about it.

@ the punnisher

Hi, if you are referring to the idea of more assisted living developments that you posted on the previous blog, I agree they are part but not all of the solutions to expanding choices for seniors who wish to remain in the area.

To all of the recent posters arguing about Prop 13, capital gains taxes and the like. I do not see how that discussion much helps the problems I mentioned.


For one, unless the people selling their single family homes leave the region, they will buy or rent near here and no new supply is created.

And more important I think apartments, their size and number, are a major key to the challenge of rapidly rising rents, not the stock of very expensive single family homes.

"I am reading that Jack and Mauricio do not think there is a problem caused by rapidly rising rents and want to give them a chance to clarify their position."

I can only speak for myself, and I already give the answer: Move to where you can afford to live. I you still want to work here, then you or your corporation can organize commuter vans. Special lanes for commuter vans and buses should be built. When such lanes get beyond capacity, it is then time to build a commuter railroad. This has been going on for decades.

Police and Fire are ABOVE the median income for both San Mateo and Santa Clara county.

The average Public School teacher is below the median (barely). where they choose to live is based on the economic value they place on home ownership (which is difficult at the median income) vs. renting.

Many public service employees choose to live far away from their jobs due to the cost of housing in Menlo Park, to get more bang for their buck. This is simply an Micro Economics problem around marginal utility of time (commute) vs. comfort (house size).

John Von Neumann would be proud of the experiment we are running here on Economic Models. The basis of the Marginal Utility Theory dictates that at some point people will STOP accepting a certain price as it rises when a suitable substitute becomes available. In this case we have not seen the peak....but it's out there.

My thesis was on the marginal modeling of edge substitutes as the marginal price reaches it's peak.

Roy Thiele-Sardina

"Keep the blog about solutions, not blame;" great line Steve! I didn't read all the comments but can we really fit many more people? Maybe people without cars. The roads are too packed. It's stressful just riding El Camino. The tech industry can work from anywhere and they need to start doing that in other areas of the country.

"And more important I think apartments, their size and number, are a major key to the challenge of rapidly rising rents, not the stock of very expensive single family homes."

This is a symptom, apartments are not the cure!

Yes single family homes are very expensive, so are apartment buildings and all property in the Bay Area.

Let's continue with that same thought as you first quoted.

You have 1 to 7 family homes on a single acre. Lets ban all single family homes and build 40 to 60 units per acre in their place.

Let's ban all income in the area to $60,000 annually with no stock options.

Let's cap all property values at 1980 levels.

All of the above would drastically lower rent levels in the area, after all, that is what you want.

You can not say apartments need to be addressed, that is not the cure.

Silly argument that because a current state law does not allow rent control on newer units, there should never be local rent control on older units. Units have no "rights." But the distinction does point to another issue. Which persons are most harmed by soaring rents? It is persons who cannot afford to stay in the area. They occupy older units with lower rent. Still, controlling rent levels in any (or all) rented housing is an imperfect way to address problems. Rent control benefits persons lucky enough to be covered. They are mainly renters currently - not others who might be more in need or more deserving. The best argument for rent restrictions is that the profit available to landlords in this "market" is a function of government regulation of building and the profit is a windfall that the government creates and can limit in the public interest. The public interest is both helping those who need help to stay and maintaining population and job diversity. But landlords will always argue that they have a "right" to profit from any government regulation (and subsidies) and government itself should further pay landlords if the government wants landlords to charge less in rent than the rigged "market" will bear. Los Gatos and San Jose have had rent control for decades. With what results? Anyone? The truth is that rent control can "work" to help some existing residents and future residents who are at least protected from sky-high increases after moving in. But no rent control, however generous, will likely ever be adopted by a city council whose members have been screened and endorsed by landlord groups. That is the situation in Mountain View. Six of 7 Councilmembers listed at least one endorsement by a landlord group on their own campaign websites. Naturally, landlord groups do not use the name "landlord." Try "housing council" and "apartment association."

I believe that many people, including Steve Levy, are uninformed about the situation that faces many people. I will supply this information to those individuals in the hopes that they will better understand the situation of apartment owners.

This is a very typical example, middle of the road in terms of upkeep, of a 24 unit apartment building in Mountain View.

Property Value-------------------------------------------------$10,080,000
(1) 60% loan at 4.5% fixed for 30 years, yearly payment --------$393,996
(2) Property taxes----------------------------------------------$123,660
Utility's--------------------------------------------------------$18,000
Property Insurance-----------------------------------------------$10,000
General Maintenance, pool, landscape, etc,-upkeep-repairs--------$40,000
Property management firm-----------------------------------------$60,480
Total Expense's-------------------------------------------------$646,136
100% occupied for 12 months at market rent for 1 year, income---$604,800
Net Loss for the year-------------------------------------------$-41,336

That is the rough idea of a profit and loss statement for this property.

There are major capital expense's that money will need to be saved for, like new roof, copper re-pipe, earthquake retrofit should the city mandate this., kitchen and bath remodel, new windows,RECESSIONS, etc. All of this together is around $600,000.

Now, please tell me if rent control was passed, and Prop. 13 was repealed, who will step up and own these properties and put money into them so as these buildings can continue to stand and provide housing to people. If you say San Francisco has rent control, yes they do, they also have fewer rent controlled properties now than they did when they first passed that ordinance, and ever more expensive rentals that any where else in the valley.

(1) Commercial properties can go no longer than a 10 year fixed rate loan, where as residential properties can continue with their original 30 year note, commercial has to refinance every 10 years. The negative side to this is in the later years of the loan where most of the payments start to pay down the principal, the early years are mostly interest payments. It takes a very long time to pay off a commercial loan.

(2) Steve Levy says that property taxes are not the issue, then you have to assume that voters will repeal proposition 13 and these apartments will be reassessed higher taxes each and every year, so that cost will be increasing.

Think about it.

Sir:

I've got around to reading all the commens & knowing a bit more about things like HP in other states.

I'm opening this comment about built senior housing. There are chains building affordable senior housing in lesser property values and tax areas. They even advertise on MeTV. I know of several in the Denver Metro Area. One " Assisted Living Center " is being built next to the city center of Englewood, CO and next to Swedish Hospital. These places have their own " community " and the outside benefits are obvious.

HP employees located in Loveland, CO tends to snub the local population. I know, I did contract labor there. Being an " HP-TITE " was considered " better " than a local CO citizen. I ran into that behavior constantly. Most of the area was still rural and several HP sites nearby were surrounded with farms and ranches.
What was odd is that HP brought in specialized workers and supported Loveland with the money it paid workers which in turn supported Loveland's economy. That area grew to be more urban and local farmers had to deal with the growth; It wasn't their idea of what Loveland should be.
Me, I found it odd when HP offered me a job in their Test Machine facility. They must have Looked at my Monster resume and did a facepalm; this after I listened of one of the HP-TITES talking about how good his job was and he was lucky to be hired by HP.
I declined the offer. I WAS a Test Engineer and I wanted a Robotics related job.

I'm talking about these personal matters so you get the " feeling " of how companies USED to contribute to communities and the public response when they get change they don't want.

For seniors, there must be Assisted Living Centers built in local communities. That will probably mean a zoning change.
The monetary risk is too much for a chain to build in the SFBA. That will mean having locals able to create the senior housing they want.

It gets down to MONEY and ZONING to get the senior housing you want.

That works in other communities.

One possible consequence of rent control in PA --- condo conversion. Look at SF and what is happening up there.