The Property Owner’s Cheat Sheet: Berkeley, CADoug Brien
March 27, 2017
It is best known for its world-renowned university, but Berkeley has so much more to offer than a top-notch education. The picturesque city is one of California’s bayside gems. Historic architecture, arts and culture, boutique shops, gourmet restaurants and spacious parks are just a few reasons why people continue to be drawn to Berkeley.
Berkeley is a city of many neighborhoods, each with its own distinct character and flavor. Residents can choose from stunning homes high in the hills, charming Victorians or Craftsman bungalows. Single family homes consist of 43.3% of Berkeley’s housing stock, and are scattered seamlessly between the multifamily apartment buildings that make up the bulk of the rest – or roughly 52.8%. Two-thirds of the multifamily units are located in large apartment complexes with five or more units. Despite its varied housing inventory, Berkeley is home to very few townhouses or mobile homes.
The majority of Berkeley homes (50.3%) were built prior to 1940. Nearly 30% of homes were built between 1940 and 1969; another 15% were built between 1970 and 1999. Only 5% of the city’s total housing stock was built between 2000 and the present day.
Berkeley’s charm and abundance of amenities make it a consistently desirable place to live. Yet as more people have discovered Berkeley (often after being priced out of San Francisco), housing prices have skyrocketed. The median home value in Berkeley tops out over $1,000,000. Although the city’s median family income ($103,000) is higher than the national average, most people cannot afford to buy their own homes. More than 62% of residents live in rental housing, making Berkeley an especially strong rental market for investors.
According to real estate website Trulia, as of February 2017, the average Berkeley apartment was renting for $4,000 per month. Naturally, rents vary depending on size and location. Here’s a glimpse of what landlords currently command in rents:
- One-bedroom apartment: $1,495
- Two-bedroom apartment: $2,950
- Three-bedroom apartment: $4,500
- Four-bedroom apartment: $5,575
- Median, all apartments: $4,000
Despite the high rents, the Berkeley rental market appears to be softening. In February 2015, the average Berkeley rent was up 32.4% year-over-year. Since then, rental price growth has tapered but rents are still up 3% annually. To be sure, the slower rental growth in Berkeley is not unique to Berkeley; this trend can be seen in communities throughout the Bay Area. And rental prices in Berkeley (and the Bay Area) remain significantly higher than state and national averages.
With rental prices so steep, many are often surprised to learn that the majority of rental units in Berkeley are subject to rent control. Under the Costa-Hawkins Rental Housing Act of 1999, landlords can establish initial rents for new tenancies at whatever price the market will bear. The Berkeley Rent Control Board cannot prescribe how much a landlord charges at the beginning of a tenancy. That becomes the “rent ceiling”. Each year, the Rent Control Board authorizes an Annual General Adjustment to the ceiling. Any other increases to the rent ceiling must be approved by the Rent Control Board through a petition process.
WHAT LANDLORDS NEED TO KNOW:
- There are two city ordinances that Berkeley landlords should be familiar with: (1) the Berkeley Rent Stabilization Ordinance; and (2) the Eviction for Good Cause Ordinance. While these ordinances are often lumped together, they should be thought of as distinct. Some units do not have limitations on rent increases but have eviction protection; and vice versa. A few have neither protection.
- Buildings with two or more units built on or before June 30, 1980 have both eviction protection and rent increase limitations.
- Buildings with two or more units built after June 30, 1980 have eviction protection only but not rent increase limitations.
- Single family homes and condos rented after January 1, 1996 have eviction protection only but not rent increase limitations.
- Single family homes and condos that have been occupied by the same tenant since before January 1, 1996 have both eviction protection and rent increase limitations.
- Berkeley Housing Authority and Section 8 voucher tenants have eviction protection only.
- Rental units in a two-unit property do not have eviction protection or rent increase limitations where one unit was, on December 31, 1979, and one unit still is the principle residence of an owner of at least 50% of the building.
- All rental units covered by either of these ordinances must be registered annually by July 1 otherwise the landlord faces fines and penalties.
- Landlords who own residential property with three or more dwelling units on any parcel are required to obtain a business license. Business licenses and taxes on rental property income are administered by the city’s Finance Department.
- Berkeley landlords can only evict for one of 12 reasons, known as “just causes”. See ordinance for more information.
- Under the Temporary Relocation Payments for Repairs of Code Violations section of the ordinance, effective December 2011, Berkeley landlords must pay relocation expenses for tenants, which includes a per diem hotel and meal cost allowance. Landlords may also be required to reimburse tenants for pets that need to be boarded during the relocation period.
- Berkeley’s rent control ordinance – when combined with the city’s already steep home prices – can make it difficult for new investors to break into the market. ASK Rentals broker Kimmi Kataria explains that there’s a “fundamental misconception” that private property owners are cashing in on Berkeley’s hot demand. “If somebody’s got a four-plex, and half the building is under rent control, they may be just breaking even.”
- The city’s rental market is somewhat seasonal, with April through September considered the peak season. Rents near UC Berkeley tend to fluctuate based upon student demand, with the highest vacancy rates occurring in May as students leave campus for the summer.
WHAT’S NEW: There’s growing concern over the city’s affordability, an issue of heightened concern around UC Berkeley. In response, UC Berkeley Chancellor Nicholas Dirks established a task force aimed at increasing student housing around campus. The task force has recommended a campus goal of housing approximately 50% of its undergraduate students and 25% of its graduate students on campus. To reach that goal, the university would need to double the number of beds on campus – from less than 8,700 beds today to 15,600 beds in the future, a figure that does not account for growth in campus enrollment. UC Berkeley has expressed its willingness to partner with private sector developers to deliver this new student housing, which presents an opportunity for highly-qualified and well-financed developers. It also presents a risk for smaller-scale landlords who currently own off-campus units and rent to students.
The race for a special election in Berkeley’s City Council District 4 has heated up, with the battleground focused again on the issue of affordable housing. Housing Advisory Commissioner and activist Kate Harrison has promised to deliver a strong, holistic approach to the city’s housing crisis. She’s pledged to increase funding for affordable housing, to streamline the permitting process for new housing developments, and to fight for the use of cooperative housing to create permanently affordable housing. Harrison is up against Ben Gould, a UC Berkeley graduate student who ran for mayor in the November election. Gould has advocated for the development of new market-rate housing as a way to increase the overall housing stock – a strategy that would, theoretically, fulfill demand. The special election is scheduled for March 7, 2017.
Finally, effective July 1, 2017, Berkeley landlords will be subject to a new bedbug law. Under the regulation, landlords must give notice to prospective tenants about bed bug infestation and prevention. Such notice will be required for all other (existing tenants) by 2018. Tenants who report bed bugs will now be protected from landlord retaliation.
BY THE NUMBERS:
- Berkeley is a community of nearly 120,000 people. The population has increased 7.5% since 2010, and is up 17.1% in total since 2000. Berkeley’s population growth is a leading contributor to the year-over-year rental price increases.
- A lack of new construction has also constrained Berkeley’s rental market. The city only issued building permits for 1,190 new units from 2007 to 2014 – well below the number of units needed to make up for the city’s increased housing demand.
- The city’s median apartment rent was $4,000 as of February 2017. This puts the median rent in Berkeley above the median rents in nearby Richmond ($2,500), Oakland ($2,900), and Emeryville ($3,050) but slightly less than the median rent in San Francisco ($4,200).
- Nearly two-thirds of Berkeley homes consist of studio, one-, or two-bedroom units. Larger units are hard to come by and often command a premium. Only 9.5% of Berkeley homes have 4 bedrooms; only 4.4% have 5 bedrooms or more.
Berkeley Rent Stabilization Board: http://www.ci.berkeley.ca.us/rent/
City of Berkeley Landlord Resources: