Having a place to call home is one of life’s most basic needs. It is the nexus of well being and central navigation point from where we begin and end each day. Home is where we head at the end of the workday, while we review grocery lists, plan children’s activities, and remember to pay the bills. More importantly, home is where we convene with our families, share meals, divvy up chores, laugh, cry, live.
We need this basic foundation, both literally and figuratively.
This column focuses on rental housing as part of a larger conversation we are having in the County about balance. Many are worried that the collective challenges comprise a zero sum game between meeting the demands of our tourism economy and preserving the quality of life for our community. Balance is possible, but it takes a concerted effort from all of us.
How? We must consider what our neighbors need, our community requires to thrive, and what we can do both individually and together to sustain a quality of life unequaled anywhere. This call is about investing in a long-term vision of Sonoma generations from now will call home – the place they will come after college to find jobs, raise children, and reconnect with old friends. At the core, life is about relationships, both personal and community wide.
Some of us are fortunate enough to own homes and have dependable incomes that allow us to feed, clothe, recreate, and raise our families. Indeed, homeownership has long been the basic tenet of the American Dream – a dream predicated upon cherished self-determinism. Others of us are dependent upon landlords, therefore they are at the mercy of business decisions made with regard to their home. Owning a rental home is a business, uniquely so, and the price can dramatically change the lives of the tenant, who doubles as a customer.
I am hearing about families being evicted without cause and having to leave the Valley or find a new rental, often at higher rates. I am seeing multifamily units for sale and rents raised dramatically after sales have completed. I hear about construction being done within units, leaving families without working kitchens and bathrooms, sometimes for weeks on end. I am hearing despair, anger, and frustration.
There are many reasons for our current housing crisis in both the County and the Valley. It is not simply vacation rental conversions, although that is one facet. There is a national story, a county story, and a Sonoma Valley story. While they all intertwine and reflect the other, each is not identical.
In the 1990s, the federal government embarked upon a policy-driven plan to increase American homeownership and, in less than a decade, the number of mortgages granted to new homeowners reached historic highs. In 2005, national home ownership reached 69 percent; 76 percent of whites, 49.5 percent of Hispanics, and 48 percent of African-Americans owned their homes. On the surface, the rates appeared to signal the success of the American Dream. However, underneath the sheen of success lurked a seeping river of sewage that would soon permeate the global market and send those numbers crashing back to the beginning of the push. By 2011, home ownership rates were less than in 1998. In 2015, even with interest rates 35 percent below 2008, we have intense barriers to home ownership for a large sector of the population.
Most Americans suffered from the effects of the Great Recession and Sonoma County was no exception. Foreclosures became common among friends, families and coworkers. The stress was palpable. Former homeowners moved into a rental market with a viable amount of inventory and rental rates increased, but nothing like the past three years.
In 2011, Sonoma County began feeling the real effects of an economic recovery, including a reduction in unemployment. Foreclosures slowed to a trickle and today, the rate is 2.5percen in the Valley. The middle class who traditionally acceded to home ownership no longer have this option available with tightened rules for lending and a competitive real estate market that favors cash and a perfect credit rating – two requirements wiped out for many in the crash. Both the middle and lower income households are competing in a rental market with a vacancy rate in the Valley of less than 1 percent and in the county at around 1.5 percent (the “normal” rate is 5 percent). Despite a marked increase in the number of jobs, wages overall are stagnant at 1.5 percent, primarily because job growth is concentrated in the service sector, spurred by increased tourism. The Sonoma Economic Development Board (EDB) reports in 2014, tourists spent an estimated $1.6 billion dollars in Sonoma County and Transient Occupancy Taxes have increased 60 percent in the past five years.
The median income in Sonoma County is $64,000, therefore the largest mortgage the average person can qualify for is approximately $325,000 while the average sale price of a home in the 95476 zip code is $605K as of July 2015. It is unsurprising that investors in vacation rentals and those looking for a second home dominate the Sonoma Valley market. Approximately 50 percent of homes purchased in the County are not for primary residences, and it is even higher here in the Valley.
Sonoma Valley is the focal point of interest for investment due to our natural beauty, proximity to San Francisco, and overall quality of life. Sonoma is an incredible investment opportunity, so money is migrating into the Valley at a furious rate. Homes that used to be rentals are often being purchased as second homes or converted into vacation rentals. As a result, rental stock has diminished while demand has increased and many landlords are seeking a maximum return.
I am hearing about rents that have doubled in the past few years; some rents are raised as much as 40 percent in one hike, often without the required 60-day written notice for increases over 10 percent. The workforce is being pushed into less expensive areas, such as Solano County, and leaving the area with a shrinking pool of applicants to fill the jobs just as demand is exploding due to the increase in tourism. Beyond the loss of friends, family, and student populations, employers too are struggling and “Help Wanted” signs are springing up everywhere.
While one can certainly understand the desire to increase investment return, we need to stop and ask ourselves “What is the long-term effect on our community? How can we sustain a service-based economy without homes for this workforce to live?”
A large swath of our population is now not only priced out of the home ownership market, they are also being priced out of the rental market. I know a woman who has resided here for over 25 years. She raised her children and started a business here. At one time, she owned a home. Her investment in the community is unquestionable, both emotionally and financially. Unfortunately, she lost her home at the beginning of the downturn, but never her optimism. She went through a divorce and rented a home with her two children. She took a management job in a service-based industry and earns a middle class income. For several years, she resided in the same place and has been a perfect tenant. One month ago, she was served an eviction notice without cause – which is legal in this county. Panicked, she began searching for a new place, but quickly realized she is priced out of the market. She recently relayed this story to an acquaintance. His response was to tell her she should move away and make more room for the people who can afford to live here. This response is not uncommon. But is this who we want to be? A community of Haves only? Diverse only in platitudes?
Even if this was a moral option, it is not a practical one.
Go through one day and notice all of the people who provide services to you. Whether rich, poor, or somewhere in the middle, we depend on the services of others. Now imagine every service person gone. Every one. Including your favorite server, grocery clerk, winery worker, small business owner. Your brother. Your friend. Your child’s teacher. Gone.
And then who will we be? Neighborhoods with mostly empty homes? Or primarily populated with rotating neighbors weekly? Who will teach the children? Who will serve your wine? When we yell “Fire!” who will come?
What actions is the County taking?
On August 25 the Board of Supervisors committed to investments in eradicating homelessness and increasing Affordable housing. But in between are members of the workforce who will either not qualify for Affordable Housing or be fortunate enough to secure any home because the costs are untenable. One element that can assist is updating the Vacation Rental Ordinance to prohibit further conversion of single-family homes into short-term rentals. This item is controversial and will come before the Board of Supervisors in early November.
Since 1985, Sonoma County has had a Mobile Home Rent Stabilization Ordinance to protect those residents, often elderly and low income, from unfettered rate increases. We are reviewing current practices to see if they are as effective as they are meant to be.
Other programs in place are primarily administrated through the Community Development Commission (CDC), such as Section 8 Vouchers, funds for Legal Aid to assist renters, financial assistance for affordable housing developments and more. Please see the Housing Information list in this issue of the Sun for contact numbers and descriptions of programs. I am thankful to the CDC for compiling this valuable resource in Spanish and English upon request.
Our County’s Zoning Ordinance requires all new development to contribute to affordable housing by either constructing affordable housing on-site or paying a fee to the County Fund for Housing. The Permit and Resource Management Department (PRMD) further encourages affordable housing by offering significant incentives to developers to include more affordable units than are required by the ordinance.
Some people have called for the County to enact government regulations to prevent unreasonable evictions and rate hikes. Opponents contend that rental regulation may discourage people from purchasing real estate in the county, building new work force housing, or maintaining existing property.
We are currently reviewing many policy options for addressing this crisis, including landlord-tenant regulations. Three potential options include a just cause eviction ordinance, a rent stabilization ordinance and a rental mediation board. In general, a just cause eviction ordinance ensures that renters can stay in their homes so long as they have not violated the lease. A rent stabilization ordinance restricts annual rent increases by a certain percentage, and a rent mediation board provides a forum for resolving landlord-tenant disputes.
There are several laws that come into play when looking at just cause eviction and rent stabilization ordinances. First, the Ellis Act confirms that landlords always have the right to get out of the rental business altogether. Then, Costa-Hawkins Rental Housing Act places significant limits on the scope of any local rent stabilization ordinance. While Sonoma County has authority to adopt rent stabilization, Costa-Hawkins would limit its reach to multi-family developments constructed before February 1, 1995. Further, landlords remain free to set the initial rent for new tenants and rent increase restrictions must still ensure the landlord a fair rate of return.
What can be done outside of regulation? Those who own current long-term rentals are primary partners in our community. We appreciate their investment and want them to continue in this vein. But perhaps this is a moment to consider not raising the rent astronomically, but instead investing in the human capital that makes Sonoma viable for the long term, both culturally and economically. Rental units are a business that provides housing, but what happens when a business practice is inadvertently harming the larger community in pursuit of maximum profit? I urge you to consider what the overall economy will bear as opposed to what this specific market will pay.
Sonoma is an incredibly generous community. We donate millions of dollars at wonderful events and volunteer for non-profit boards and services. But the person who invests in their community through reasonable business practices in the form of rental rates is a hero to the family that sleeps, loves, eats, and works here, thus sustaining our economy.
Let’s all become heroes together by committing to keep this community viable for all members. I am committed to you as your county supervisor, but I cannot do it alone. We have to work together.