Proposition H - Relocation Benefits

What it does

Proposition H would provide additional relocation benefits to eligible tenants who are evicted in a "no-fault eviction." No-fault evictions are when a landlord evicts a tenant for reasons that are not the tenant's fault. Examples include the owner moving in to the unit, the need to undertake substantial rehabilitation of or capital improvements to the unit, demolition of the unit, or permanently removing the unit from rental use under the provisions of the state law known as the Ellis Act.

Current law requires $1,000 in relocation benefits per eligible tenant for several types of no-fault evictions. The proposed ordinance increases relocation benefits to $4,500 per eligible tenant (up to a maximum of $13,500 per unit). It also provides a new additional benefit to seniors, the disabled or households with children: $3,000 per tenant, with no limit on the number of eligible tenants. For each eligible tenant receiving $4,500, 50 percent must be paid when the eviction notice is served and the other 50 percent when the unit is vacated. The legislation proposes that all benefits be annually adjusted in accordance with regional urban residential housing indexes provided by the U.S. Department of Labor.

Additionally, the measure adds relocation benefits for three categories of no-fault evictions that do not currently require relocation benefits:

(1) Demolition or permanently removing the rental unit from housing use
(2) Capital improvements
(3) Substantial rehabilitation

For the purposes of this measure, an "eligible tenant" is defined as someone who has occupied his or her rental unit for 12 months ore more. "Disabled" means a person with a disability, as defined by California Government Code as someone with "chronic or episodic conditions such as HIV/AIDS, hepatitis, epilepsy, seizure disorder, diabetes, clinical depression, bipolar disorder, multiple sclerosis and heart disease."⁸

The legislation contains a retroactive clause that anticipates the passage of the legislation in November. The effective date of the legislation is Aug. 10, 2006, the date this proposition was placed on the ballot. This measure requires only a simple majority for passage.

Why it is on the ballot

The current tenant benefit for an owner move-in-evictions and capital improvements were set between 8 and 20 years ago. There have been no new adjustments since these benefits were first established.

An earlier form of this legislation was sponsored by Supervisor Matt Gonzalez more than two years ago. After Gonzalez left office, Supervisor Tom Ammiano chose to sponsor the legislation, although it never received enough votes to leave committee. The current measure before the voters was placed on the ballot with the signatures of four supervisors, although eight supervisors now have endorsed the measure.

San Francisco is one of the most expensive rental markets in the country. Although rents have flattened in recent years, they are beginning to climb again as the San Francisco economy recovers. Rental units make up almost two-thirds of the housing stock in San Francisco, creating a stark contrast with the national housing picture, where 60 percent of households are homeowners. Over the past decade there have been a number of ballot measures that have successfully asserted the rights of tenants. These include restrictions on owner move-in evictions, restrictions on passing through the costs associated with new taxes or bond repayments to tenants, limitations of rent increases per year on allowable pass-throughs, expansion of the protected-tenant status and limitations on condominium conversions. Supporters of these measures assert that tenant protections help preserve affordable housing without government subsidy and protect low-income renters who are being priced out of San Francisco.

The high cost of housing has many consequences for the overall diversity of San Francisco - Additionally, according to data from the U.S. Census Department's American Community Survey, 75 percent of people who are evicted relocate out of the city⁹ and particularly its racial and economic diversity. For example, over the past five years there has been a significant drop in the proportion of African-Americans living in San Francisco. Given that the high cost of housing provides an incentive to transition rental units to ownership units, many argue that tenant protections help to prevent or slow the loss of San Francisco's economic and racial diversity.

Since the late 1990s, the number of Ellis Act applications has steadily increased. The Ellis Act creates a legal mechanism that enables owners of rental property to withdraw their properties from the rental housing market by asserting that they are "going out of business." Under the Ellis Act, the property owner must then evict all tenants from the development and may not re-rent the units for five years after the eviction, unless the units are rented at the same price as that offered prior to the Ellis Act evictions. Since the Ellis Act was enacted, San Francisco has seen an increase in Ellis Act evictions leading to tenancy-in-common ownership conversions. Tenant-rights advocates have raised concerns that the overall number of rental units available in the city has continued to decline due to the fact that TICs provide a loophole to enable rental housing to convert to ownership housing. Additionally, due to a variety of factors, the vast majority of newly constructed units are ownership units, not rental units.

Pros

Those who support this measure claim:

• Tenants who are evicted are forced to move through no fault of their own and therefore deserve some compensation to mitigate the negative impact of their evictions.
• For many tenants, the costs of relocation are extremely high. Landlords typically require first month's rent, last month's rent and a security deposit before occupancy. For an apartment renting for $1,800, the move-in cost at a new apartment would be $4,400, not including the actual costs of moving. In addition, prior landlords have 21 days to return the deposit. Relocation benefits provide evicted tenants with the resources they need to secure a new apartment.
• Relocation benefits help protect vulnerable tenants from homelessness. In a hot housing market, if tenants are unable to find new housing, they are at risk of becoming homeless.
• Relocation benefits reduce the incentive for owners to use the Ellis Act to evict tenants in order to convert buildings to TICs, thereby protecting the city's rental-housing stock.
• In relation to the total cost of buying a new unit of housing, the additional amount of relocation benefits is a relatively small amount of money - whether it is borne by the seller or the buyer.

Cons

Those who oppose this measure claim:

• This provision would increase the cost of entry-level home ownership. Due to the fact that San Francisco does not encourage the construction of new ownership housing, converting existing rental units to ownership through the use of TICs is one option for providing relatively affordable ownership housing.
• The relocation benefits provided by this measure are not tied to the real cost of moving. Instead, they are set by an inflexible formula that assigns benefits based on the number of tenants being evicted and not the number of bedrooms in the unit from which the household is being evicted.
• The amount of the increase in benefits proposed by this ordinance far outweighs the increases in the consumer price index since the time the original relocation-benefit measures were passed.
• Relocation benefits should be provided to those who are the most economically vulnerable, not to any renter regardless of income. This measure does not include any means testing.
• Owners might try to avoid paying relocation benefits by keeping units vacant prior to selling their buildings, thus reducing the number of rental units on the market and thereby increasing the price of rental housing citywide.
• By characterizing families with children as a protected class along with seniors and the disabled, San Francisco is charting new territory. It is unclear what the implications of creating a new protected class would be. This could result in landlords not renting to families.

SPUR's analysis

The proposed ordinance confronts the rising number of evictions and the impact of high housing costs by increasing the cost to landlords for no-fault evictions and the benefit earned by tenants. However, the calculation for the benefit amount is not based on a consistent or clear methodology and is not tied to the actual cost of relocation. Although relocation benefits have not been adjusted for a number of years and may be undervalued, this measure ties the calculation of the relocation benefit to the average rent burden for a market-rate replacement unit in San Francisco. Proponents of this measure argue that move-in costs to a new unit often exceed $6,000, not including moving costs (because of the cost of first and last months' rent, and a security deposit). They also argue that relocation benefits being proposed should not be tied to the number of bedrooms in the unit but to the number of tenants in the unit. However, this particular formula does not resemble traditionally accepted formulas of calculating relocation expenses that take into account unit size and the distance between the old unit and the relocation unit.

Further, the increase in relocation benefits proposed in this measure is not means tested, meaning that increases in relocation benefits are provided both to those who can afford to relocate and those who cannot. The size of the relocation benefits presumes that tenants have little savings and cannot afford the relocation costs for an average San Francisco apartment. Some argue that implementing a fair means test would be very difficult, if not impossible.

The Board of Supervisors had more than two years to take action on this measure but chose not to do so. Using the ballot box as a means to pass this legislation now is an inappropriate use of the ballot process. Some feel that the supervisorial endorsements for this measure constitute political posturing by some supervisors to gain favor with their constituents, allowing supervisors to support the measure without having to take responsibility for actually passing it through normal legislative means.

SPUR is also concerned about the methodology for calculating relocation benefits and the potential for over-subsidizing certain recipients. The relocation benefit does not take into account the financial situation of an evicted family or household. Some households could see relocation benefits of up to $30,000, an amount that far outweighs the real costs of relocation. This is because there is no limit to the number of eligible tenants receiving relocation benefits who are seniors or disabled, or who reside in a household with a child younger than 18.

Although SPUR believes there is a need to update and increase the City's existing relocation-benefit requirements, we feel this measure employs a faulty methodology that creates far-reaching consequences that could ultimately prove to be detrimental to San Francisco.

The real question we are facing as voters is about whether the amounts of relocation benefits laid out in this ordinance are reasonable. Our analysis is that by assessing relocation costs per tenant, as opposed to per unit, benefits potentially add up to far more than the real costs of moving. This measure would impose excessive costs on new homeowners and goes too far. Some would say that it is necessary to impose these excessive costs to reduce the incentive for speculation and evictions. But simply increasing relocation benefits does not solve the basic problem of competition between tenants and would-be owners (which is based on an imbalance between housing supply and demand). This measure sets those relocation benefits too high.

SPUR recommends a "No" vote on Prop. H.

⁸See State of California Government Code 12926.1. http://www.leginfo.ca.gov/calaw.html
⁹The American Community Survey is an annual survey that will be replacing the Census long form.