Project Home: Small Bay Area Landlords Keep Properties Vacant Because of Rent Control

SAN JOSE (KPIX 5) -- Vacancy rates are well into the double digits in cities across the Bay Area, but not all landlords are willing to drop rent prices to meet demand. Some small property owners say because of rent control, they're choosing to keep some apartments empty.

"This is far more of a tenant market than a landlord market and we haven't seen that for quite some time," Jim Castellanos said.

Castellanos has been a property owner and manager for 40 years in San Jose. Pre-pandemic, he couldn't rent his units fast enough. Now he's dealing with vacancy rates near 10%.

"We're tapping every possible resource we can to get a flow of new residents because we just have so many leaving right now," Castellanos said.

"It stings hard already and it's going to sting harder the longer it goes," Jeff Zell said.

Zell owns property in San Jose and Mountain View, He says turnover is constant, but if possible, he doesn't want to drop the monthly rent.

California is one of two states to have statewide rent control, because of AB 1482 rent increases cannot go beyond 5% plus the cost of living or 10% each year, whichever is higher. This new law only applies to older buildings built before 2005.

Some cities have stricter caps, like in San Jose, where rent increases are capped at 5% a year. In San Francisco this year, increases are capped at .7%.

"For every $200 a month essentially, that we drop a rent in San Jose, it takes us about one to two years to recover. In Mountain View, that's going to be three to four years. And in some place where it's really strict, like San Francisco, that might be five or six years before we recover," Zell said.

Instead of a monthly decrease many owners are offering a free month or two of rent, which still means revenue loss and can even increase vacancies.

"It's very difficult to market that. Because the minute it gets out and the other residents find out that there's a month or two free, then everybody gives notice," Castellanos said.

"It's politics versus reality," said Todd Rothbard, an eviction attorney in San Jose.

Rothbard proposed a solution to the state legislature that he thinks can help fill these units.

"For those landlords who rent vacant units now for under what they last rented at market rate, come next January, they should be allowed to raise the rent to whatever the market will bear, irrespective of rent control," Rothbard said.

Regardless, for many small property owners 2020 was a financial blow. 2021 isn't looking much better, and surviving a long-term downturn will be difficult for the little guy.

"We can handle it for a short period of time, but over a long period of time, we're just not set up for it," Zell said.

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