COUNTY OF SAN MATEO

ENVIRONMENTAL SERVICES AGENCY

Date:

October 21, 2002

Set Time:

To Be Noticed

Hearing Date:

November 5, 2002

To:

Honorable Board of Supervisors

From:

Marcia Raines, Director of Environmental Services

Tom Casey, County Counsel

Subject:

Rent Control and Related Issues at El Granada Manufactured Home Park (EGMHP)

RECOMMENDATION

1.

Receive the attached report from the County Planning Commission.

2.

With regard to management issues at EGMHP, which staff and the Planning Commission believe would best be addressed by processing of a new use permit for EGMHP,

a.

Determine whether to draft and adopt new mobile/manufactured housing park regulations before seeking a new use permit from EGMHP.

b.

Direct staff to seek a new use permit application from EGMHP and process it under existing or revised regulations as a means of addressing management issues at EGMHP.

3.

Review the information in this report and the attachment from the County Planning Commission and provide direction to staff with regard to rent control at EGMHP.

4.

Provide direction with regard to any possible County role in the conversion of EGMHP to public, non-profit or tenant ownership.

BACKGROUND

On December 18, 2001, your Board referred the issue of rent control at EGMHP to the Planning Commission for evaluation and report. On May 8, the Commission received a report from County Counsel and held a public hearing on rent control at EGMHP and related issues and possible options for addressing those issues.

At the conclusion of the May 8 hearing, the Commission continued the item to an unspecified date in order to allow for further review and public input, with a subsequent meeting and hearing to be held during evening hours on the Coastside. A supplemental staff report was prepared and that meeting occurred the evening of July 10, 2002 at the El Granada Manufactured Home Park. At the conclusion of the July 10 meeting, the Commission continued the matter to August 28, 2002, for final deliberation and action on it's report and recommendation to the Board of Supervisors, which is attached.

DISCUSSION

1.

The issues.

As things currently stand this matter presents three issues: (a) park management, (b) rent control and (c) park ownership, discussed below.

2.

Park management.

Residents allege mistreatment by EGMHP owners and managers. Issues include lack of maintenance or slow response to maintenance problems, reduced availability of certain park facilities and friction over administrative issues such as the processing of rent payments. The owners say they have taken these issues to heart, have met with residents to better understand them and have taken steps to resolve all outstanding management issues. Nonetheless, residents seem dissatisfied. The ability of the County to intervene and resolve all of the potential sources of friction between a landlord and tenants is limited. It would appear that the most effective way to do that, however, would be to take steps to require a new use permit for the facility and take that opportunity to develop practical and enforceable conditions of approval to address as many of the management issues as possible. This is the intent of recommendation 2, above.

County Counsel has reviewed this issue and has determined that, while a new use permit could be required under current regulations, the County's position would be strengthened by the development and adoption of revised mobile/manufactured housing park regulations to replace the County's current trailer camp regulations, together with appropriate corresponding revisions to the County zoning regulations. This would make the periodic requirement of a new, revised or updated use permit explicit and would allow the County to add standards to the regulations dealing explicitly with the types of management issues that have been a problem at EGMHP. Development and adoption of such regulations would, however, be time-consuming, could require a Local Coastal Program (LCP) amendment and would likely trigger similar use permit processes at other parks where management has not been an issue, adding to the workload in the Planning Division, and possibly creating controversy where none now exists.

3.

Rent control.

We believe that the Board is generally familiar with the basic debate over rent control in general. Tenant advocates see it as a way to protect tenants from unjustified rent increases, which lower income persons have difficulty absorbing. Owners argue that rent control discourages long term investment in housing construction and maintenance by reducing the ability to obtain a reasonable return on such investments, leading to deterioration in housing conditions.

In discussing mobile/manufactured housing park rent control, it is important to understand the unique nature of this portion of the housing stock. The housing "package" in such a park typically consists of a plot of land rented from the park owner and a housing unit owned by the occupant, typically via a mortgage with monthly payments. There are also related costs such as taxes, utilities and upkeep. A resident's monthly housing costs thus consist of both a mortgage payment determined by the value of the unit when purchased and a rent payment set by the park owner under terms of the lease agreement. This is different from most other housing arrangements and leads to some unique issues.

Tenants can be limited in their ability to sell a unit or move it to a new location because of limitations in their agreement with their landlord or other circumstances and argue this places them, to some degree, at the mercy of the park owner when it comes to rents. It is not as simple as moving to a new apartment or rental house if you are dissatisfied with your current arrangement. Owners argue that this is governed by the lease agreement, which the tenant accepts when they move into the park and that the terms are known, and accepted, up front. In any event, tenants see the unique nature of their housing package (they are both owners and renters) as justification for rent control because if their rents are changed unfairly they don't have straightforward options in terms of relocation and their investment in the ownership portion of their housing package can be compromised.

This leads to another aspect of this problem that should be understood: the relationship between ground rents and unit values. The market places a certain value on the total mobile/manufactured housing package. A prospective occupant would look at the unit and the land on which it sits and come to a market-based conclusion about what it is worth in comparison with other available housing packages. For discussion's sake, let's say that value is $1500 per month. If the ground rent at that location is low, then the prospective tenant would be willing to pay a higher price for the unit. If the ground rent is high, then the prospective tenant would expect a lower price for the unit, so that the total cost does not exceed the value of the total package. If the ground rent was $700, then this prospective tenant would, theoretically, be willing to pay an amount for the unit that equated to an $800 mortgage payment, for a total monthly cost of $1500. If rent was $800, then the amount "available" for a mortgage on the unit would be $700, and the unit sales price would have to come down accordingly. This inter-relationship between ground rents and unit values means that tenants and owners are, in essence, competing for their portions of the housing package and the equity it represents. Reaching a fair compromise seems to be what the rent control debate is all about.

There is another important aspect to this for anyone contemplating rent control, if the purpose of the rent control is to preserve affordable housing. If you control only part of the package (ground rents), the other part of the package (unit values/costs) can be expected to change over time to keep the total cost at the market value for the total package, possibly compromising the goal of preserving the affordability of this housing. This is why rent control in these circumstances is often argued in terms of rent stabilization for current owners (protecting them from unmanageable rent increases) rather than preservation of affordable housing. Simply controlling ground rents will not necessarily keep the total package affordable. Since the park owners and the park occupants share the equity in the total housing package, rent control will shift that share in the tenants' direction, raising the value of their units at resale. A new occupant will still pay market rate for the total package and the local jurisdiction would still be relying on the market to keep this housing affordable because rent control would affect only the rental portion of the housing package.

The Planning Commission concluded, however, that the circumstances with regard to rents and recent rent increases at EGMHP warranted rent control, to protect existing residents from unmanageable rent increases. New tenants may pay market rates for the total package when they decide to buy a unit, execute a lease agreement and move in, but their housing costs will be relatively stable and predictable from that point forward. Presumably, their mortgage payments would be fixed and their ground rents would increase only in accordance with the provisions of the rent control ordinance.

Finally, staff's analysis, presented in Attachment D, shows the combination of rents and mortgage costs at EGMHP to fall within the range defined as affordable by federal, state and local agencies. This does not mean that individual tenants at the park do not have affordability problems. Testimony before the Planning Commission shows that they clearly do. It just means that this housing does qualify as affordable according to government guidelines.

Taken together, staff believes the above would argue for an approach to rent control based on the combined goals of rent stabilization and rent predictability for tenants and a fair return to owners, rather than the goal of preserving affordable housing. If the latter is the goal, then a rent control ordinance should control the resale price of units that remain in the park as well as ground rents.

As to whether rent control should be implemented on an urgency basis, as recommended by the Planning Commission, that would depend on the Board's ability to make the required findings with regard to public health and safety (see Attachment A). Finally, there is the issue of targeting rent control at a specific park. That, too, would require specific findings as discussed in Attachment A. If your Board chooses to move forward with rent control, staff recommends that you provide guidance on the purposes of the ordinance (rent stabilization vs. preservation of affordable housing), the nature of any urgency and the basis for any distinction between parks and then direct staff to draft an appropriate ordinance and the findings to support it.

4.

Park ownership.

A strategy that could address both of the above problems and presumably provide other benefits to the tenants would be a change in ownership of the park to a public agency, non-profit organization or, perhaps best, the tenants themselves. This would change the dynamics of the tenant/landlord relationship from that of competition over the value of the two portions of the housing package to a more collaborative, cooperative relationship. A public agency or non-profit would not have the same concerns about park equity that a private landlord would have and, of course, if the tenants purchased the park they would be their own landlords through some sort of cooperative arrangement.

These sorts of change in ownership have occurred elsewhere in California and there are organizations and consultants available to assist with this approach. Attachments E and F contain information to help with an analysis of these options.

Both staff and the Planning Commission recommend pursuit of this option as perhaps the best long-term solution for EGMHP and other parks experiencing similar problems. While tenants elsewhere have organized to accomplish this on their own, they have also received public assistance in some jurisdictions. This could range from staff assistance with analyzing and implementing this option, to funding for consultant assistance, to possible use of the power of eminent domain to force a sale by an unwilling park owner.

VISION ALIGNMENT

Mobile home rent control and associated issues relate to the County Commitment, Offers a full range of housing choices, and County Goal Number 9, Housing exists for people at all income levels and for all generations of families. Rent control could facilitate housing choice by keeping housing costs affordable. Others would argue that rent control discourages investment in the development and maintenance of housing, thereby reducing housing choice.

ATTACHMENT

Report from County Planning Commission.

Tlbm1362_wkdr.doc