2011 Study of Economics of Mobilehomes - HCIDLA
Transcription
2011 Study of Economics of Mobilehomes - HCIDLA
The Economics of Mobilehome Ownership and Mobilehome Park Ownership in the City of Los Angeles and a Comparison of Local Regulations of Mobilehome Park Space Rents Kenneth K. Baar, Ph.D. May 2011 This report was commissioned by the City of Los Angeles. The opinions and conclusions herein are those of the author and do not necessarily represent the views of the City. Table of Contents I. Executive Summary ii..The Author (I " .. .,." " i " ""''''''' " " ",,"'' '<0'' <0 ill .. 'iii 'iii <!I "''''''' "'''lI(JiII.g.''lI-g.''lo .. e e e e o$o .,. .. .,..,..,. .. ~.,.'''~'''l)l)''''II-''tI-''d .. '' ''d'' '' .. ''''" GOG" "'" I. Introduction vi 1 U. The Supply of Mobilehome Park Spaces and Rent Levels A. The Current Supply B. The Construction of Mobllehome Park Spaces: From Boom in the 1960's and 1970's to Frozen Supply by 1980 Co Mobllehome Park Space Rent Levels and Utility Costs Paid by Mobilehorne Owners Current Space Rents and Utility Costs D. Increases in Rents 5 7 III. The Special Nature of the Parkowner-Mobilehome Owner Relationship 8 IV. Mobilehomes, Mobilehome Owners, and the Economics of Mobtlehome Ownership A. Characteristics of Mobilehomes B. Mobilehome Costs and Trends in Mobilehorne Values C. Length of Occupancy-Rate of Turnover in Ownership D. The Characteristics of the Residents of Mobilehome Parks 12 13 22 22 V. The Economics of Mobtlehome Park Ownership A. Mobllehome Park Operating Costs B. Historical Investments and Trends in Park Values 24 27 VI. Comparison of Los Angeles Mobilehome Space Rent Stabilization Ordinance. with Other Local Ordinances A. Overview B. Annual Rent Increase Standards C. Allowances for Cost Pass-throughs of Specific Cost Increases D. "Just and Reasonable" (Fair Return)............................. E. Allowable Rent Increases Upon In-Place Sales of Mobilehomes F . Exemptions from Local Rent Regulations............................................................... 32 32 35 36 38 40 VII. Comments on Submissions of Coalition of Park Owners 41 VIII. The Impacts of the Vacancy Control 42 2 3 Appendices: A. List of Mobilehome Parks in the City of Los Angeles B. Park Survey Form Co Summary of Rent Increase Standards in Local Rent Stabilization Ordinances - "'" D. Author's Resume A-I B-1 C-l D-l Executive Summary The City of Los Angeles has 57 mobilehome parks with a total of 6,526 mobilehome spaces. Under the City's Rent Stabilization Ordinance (RSO), owners of residential rental property are permitted annual rent increases equal to the percentage increase in the Consumer Price Index (CPI), with a floor of3% and a ceiling of 8% on these automatic increases. In addition, mobilehome park owners are permitted to increase space rents by 10% when a mobilehome is sold in-place to a new mobilehome owner. This provision governs virtually all changes in tenancies in mobilehome parks, because rnobilehomes are sold in-place to incoming tenants, rather than being moved upon a change in tenancies. The 10% ceiling under the mobilehome space rent regulation is in contrast to the regulations of apartment rents which permit unlimited rent increases upon a change in tenancy. This study was requested in the context of the City Council's consideration of the 2009 Economic Study of the RSOJ and proposals by a coalition of mobilehome park owners to modify the 10% ceiling on rent increases upon in-place sales of mobile homes. Subsequently, the coalition proposed rent increases allowances upon in-place sales ranging from 50% to 100% depending on the length of occupancy of the departing mobilehome owner. The purposes of this study are to provide information on the economics of mobilehorne ownership and mobilehome park ownership in the City of Los Angeles, to provide a comparison between the mobilehome park space rent provisions ofthe Los Angeles RSO and the mobilehome park space rent stabilization ordinances of other cities, and to provide a perspective on the impacts of the ordinance provision that limits increases in rents upon in-place sales. Mobilehome Owners' Rental and Ownership Costs Currently, the average monthly rent of mobilehome park spaces in the City of Los Angeles is about $615.2 Rent levels among parks vary substantially above and below the average. In addition to space rents, a majority of mobilehome home park tenants reimburse park owners or directly pay for sewer, water, and/or trash collection expenses, each of which average in the range of$15 to $19. Space rents and utility costs are apart from the costs associated with purchasing and maintaining the "mobile"homes which as a practical matter are immobile manufactured housing structures. Most of the mobilehomes (about 80%) are doublewide, comparable in size to a modest two bedroom bungalow home. A majority of the mobilehomes in parks were manufactured before 1980. About I Economic Study of the Rent Stabilization Ordinance (RSO) and the Los Angeles Housing Market (2009, Los Angeles Housing Department, report prepared by Economic Roundtable, Los Angeles). 2 Source: Rents reported by mobilehome parks responding to City survey, spring 2011. 20% were manufactured within the last 20 years. The original costs of the mobilehomes manufactured in the 1960's and 1970's were in the range of $15,000 to $20,000. The pre-1980 homes increased in value substantially during the 1980's to an average of$49, 767, but then declined in value in the 1990's. In the middle of the last decade, their average values climbed to about $70,000; since then they have gone down in value about 20%. The vacancy rate in the parks is 1.6%. About half of the mobilehome owners purchased their homes during the last decade. The purchase prices of pre-1980's homes were mostly in the range of$30,000 to $70,000. The prices of newer mobilehomes in parks were typically in the range of$1 00,000. In the course of owning their mobilehomes, owners typically invest in making necessary replacements and upgrades to their units. Mobilehome Park Space Rent Regulations in California Under state law, apartment rent ordinances must permit unlimited rent increases upon vacancies; however, this provision is not applicable to local regulations of the rents ofmobilehome park spaces. The rationale for the limit on rent increases upon a turnover in mobilehome park space tenancy is that mobilehome owners are captive tenants in the sense that they have large investments in structures that are, as a practical matter, immovable. If there is no limit on allowable increases in park space rents, then rents may be raised to a level which causes the mobilehome owner to lose part or all of the value of the mobilehome, which is commonly the primary asset of low income mobilehome owners. The special situation of mobilehome owners has been recognized in state legislation that provides specific protections for mobilehome owners apart from the protections that are available to apartment tenants, including the right to sell mobilehomes in place. In addition, this special situation has been recognized by the adoption of approximately ninety local ordinances in California which regulate mobilehome park space rents, but do not regulate apartment rents. (Nine jursidictions in California regulate apartment rents.) In a recent federal Ninth Circuit Court of Appeal opinion, upholding Goleta's mobilehome park space rent rent regulation, the majority opinion commented: Because the owner of the mobile home cannot readily move it to get a lower rent, the owner of the land has the owner of the mobile home over a barrel." On May 16, the U.s. Supreme Court will announce whether or not it will review this decision." 11 3 Guggenheim v. Goleta, No. 06"56306, p. 20423 (Dec. 2010). (www.ca9.uscoufts.gov/datastore/opinions/201 O/12122/06-56306.pdf).The dissenting measure we deal with here is a wealth transfer, pure and simple." (Id. at 20441) opinion commented: "The 4 Petition for hearing ("certiorari") before the U.S. Supreme Court currently pending. The Supreme Court grants a small percentage of the petitions that are made. The limits under the RSO on mobilehome park space rent increases upon in-place sales are in keeping with the ninety local ordinances throughout the state,' most of which which limit annual increases to either the full the CPI increase or a fraction of the CPI increase and either do not permit any additional rent increases upon in-place sales or limit additional increases upon in-place sales to amounts usually in the range of 5% to 10%. Allowable Annual Increases under Local Mobilehome Park Space Rent Stabilization Ordinances Allowable Annual Rent Increase as Percent of CPI lncrease'" No. of Ordinances None 7 50% .2 60%·74% 9 75%·90% 3.2 100%* 35 100% Los Angeles * Standards with 100% of CPI up to a cap of 5% or more are considered full CPI increase standards since the CPI has increased by more than 5% in only two years since 1983 (when the increases were 5.1% and 5.9%). **Two standards with an annual minmum of 5% or more are counted as 100% of CPI standards; actually they usually permit increases of more than 100% of CPI. Allowable Rent Adjustments Upon In-Place Sales of Mobilehomes under Local Mobilehome Park Space Rent Stabilization Ordinances No. of Ordinances No increase Upon In-Place Sale limited Increase Permitted 43 30 (including los Angeles) 12 No limit on Increases (Vacancy Decontrol) iii 5 There may be one hundred ordinances or a few more. This author was able to locate ninety ordinances. Eighty-five ordinances were reviewed for the purposes of the analysis in this report Mobllehome Park Rents, Operating Costs, and Values The operating costs of mobile home parks usually are in the range of30% - 40% ofrental income, a level comparable to the ratio for apartments." Mobilehome park operating costs include more infrastructure expenditures than apartments, but do not necessitate the maintenance of the actual structures that the mobilehome owners occupy, Rent levels have increased from an average of $248 in 1984 to a current average of about $615. This increase in space rents, from 1984 to the present of about 148% compares with the increase in the Los Angeles area all-items Cl'I of 118% and the increase in the area rent index of 161 % during this period, In order to place the growth in mobilehome park income in perspective it must be noted that it has occurred within a special framework; unlike apartment owners, mobilehome park owners have not faced any vacancy risk once their parks become fully occupied, due to the immobility of mobilehomes. Original costs of developing the parks in the 1960's and the first half of the 1970's, when most parks were developed, were in the range of $3,000 to $6,000 per mobilehome space, In 1984, park values were in the range of $20,000 per space, Current values are in the range of $40,000 to $100,000 space, with an average in the range of $70,000 to $80,000, The increase in values is attributable to the increases in net operating income and the sharp decline in capitalization rates since 2000 (from about 9% to about 6%). A large portion of the increases in value may be attributed to the decline in the capitalization rate, which is an outcome of the sharp decline in the cost of capital (mortage interest rates) and steep decline in the rates of return provided by alternate investments (e.g, bonds and bank deposits.)? Discussion of Amendments to the Vacancy Increase Provision The current rent increase provisions have been adequate to provide park owners with a fair return, defined as a net operating income increasing by the same rate as the CPt Authorization of 50% to 100% increases upon in-place sales of mobilehomes, especially for parks with above average rents, would constitute an allowance to charge more than the maximum that would be possible in the absence of any regulation. Such increases in mobilehome park space rents would far outstrip increases in apartment rents. While, in theory, apartment owners may be permitted unlimited rent increases upon vacancies, they could not obtain tenants willing to pay a rent iv 6 However, in mobilehome parks water, sewer, and refuse costs are much more likely to be passed through to the residents, See discussion on pp. 25-27, 7 For discussion of this phenomena see p, 29, which is 50% to 100% higher than the rent of the departing tenant. In contrast, if a mobilehome park owner demands a high space rent, potential tenants can offset the higher rent with a lower offer for the attached mobilehome. While 50% to 100% increases in space rents would be exceptional, rationale for some modification of the current standard for rent adjustments on in-place sales are noted here. It may be appropriate to take into account the length of occupancy of the prior tenant in a for standard setting the allowable rent increase upon an in-place sale. For example, the ordinance could provide for an allowable increase of x% upon an in-place sale with an additional y% for each year that the prior tenancy exceeded a certain number of years. v The Author The author's articles on rent regulation issues have been cited frequently by California Courts of Appeal and the California State Supreme Court and in the decisions of five other state supreme courts. The author has a Ph.D in urban planning and is an attorney. He has researched and published extensively on housing policy issues. Over the past 30 years, he has served as a consultant to twenty California jurisdictions on issues related to mobilehome park policies. Apart from his consulting on rent regulation issues, he has served as a consultant for the World Bank and U.S. A.LD. on public policy issues outside of the U. s. The author's resume is attached as Appendix D ofthis report. The author gratefully acknowledges the assistance of Jay Tharp for assistance in the preparation of this report. vi I. Introduction Currently, there are 57 mobilehome parks in the City of Los Angeles with 6,526 mobilehome rental spaces (excluding resident owned parks). Virtually all of those spaces are occupied by mobilehome owners who purchased their homes, but rent the underlying park spaces. Sixteen parks with 150 or more spaces contain over half of the spaces. About eighty percent of the spaces are occupied by doublewide mobilehomes, which are comparable in size to smaller two bedroom houses. About eighty percent of the mobilehome spaces are in parks with pools and clubhouses. This study was requested in the context of the City Council's consideration of the 2009 Economic Study of the RS08 and subsequent proposals by parkowners to modify the provisions in the rent regulations governing allowable rent increases when mobilehomes are sold in place. Under, the current provisions, the rent "may be increased by am amount not to exceed the rent on any existing comparable site in the park, or ten percent, whichever is lower.?" The purposes of this study are to provide information on the economics of mobilehome ownership and mobilehome park ownership in the City of Los Angeles, to provide a comparison between the provisions ofthe Los Angeles RSO and the rent stabilization ordinances of other cities, and to discuss the ordinance provision that limits increases upon in-place sales. In the course of attempting to provide information that will be useful, this study is certain to also raise questions that would require further study. In conjunction with the City's request for this report, the Los Angeles Housing Department conducted a mail survey of park owners requesting information about park size, number of spaces, number of singlewide and doublewide mobilehomes, vacant spaces, rent levels, utilities provided by the park owner, and exempt leases. Responses were obtained from parks containing 60% of the spaces in the City." 8 Economic Study of the Rent Stabilization Ordinance (RSO) and the Los Angeles Housing Market (2009, Los Angeles Housing Department, report prepared by Economic Roundtable, Los Angeles). 9 Municipal Code Sec. 151.06.F. 10 The statistical was destroyed by per space for this would have been 2. analysis in this report does not include one very large park which has 600 spaces (Oakridge) which fire in 2008 and still has an abnormal vacancy rate of 56% (315/600 spaces). Also, the land area park is exceptionally large, 1/3 acre. If the data from this park had been included the average rent higher and the city-wide vacancy rate in mobilehome parks would have been higher. 1 In this report, current data is compared with data obtained from a detailed study of mobile home parks and the characteristics of their residents, which was commissioned by the Rent Stabilization division in 1984. II Il, The Supply of Mebilehome Park Spaces and Rent Levels A. The Current Supply In California, there are 4,754 mobilehome parks with 365,418 mobilehome spaces. Mobilehome Parks and Park Spaces Statewide, Metropolitan Area, County and City Mobileilome Parks Area California Los Angeles Metro Area (LA, Orange, Riverside, and San Bernardino Counties) los Angeles County Los Angeles Ciiy Source: See footnote Mobilehome Park Spaces 4,754 365,418 1,861 158,695 589 47,907 57 6,526 1 Within the City about 80% of the mobilehome parks are concentrated in Council Districts 6, 7, 12, and 15th. Mobilel'iome Park Spaces in ccuncll Districts 6, 7,12, & 15 (82% of the Mobilehome Park Spaces Within the City) Area Mobilehome Parks Mobilehome Park Spaces Council District 6 10 850 Council District 7 16 2368 COl.!ncil District 12 10 1389 COl.!neil District 15 8 944 11 "Mobile Home Parks Under Rent Stabilization", Rental Housing Study (1984, Rent Stabilization (hereinafter referred to as "1984 Mob ilehorne Study"). 2 Division) Appendix A contains a list of the mobilehome parks in the City with their addresses and the number of spaces in each park B. The Construction of Mobilehome Park Spaces: From Boom in the 1960's and 1970's to Frozen Supply by 1980 Most of the mobilehome park construction in California took place in the 1960's and 1970's. From 1960 to 1975, the number of mobilehome park spaces in California increased from abut 150,000 to about 370,000. In the past three decades, few parks have been constructed. Since 1990 the overall supply of mobile home park spaces in California has changed only slightly, with few new additions and some park closures. Statewide Inventory Moi:.lilehome Parks and Spaces 1961 to 201012 Year 1961 1965 1970 1975 1980 1984 No. of Parks 3,961 4,212 4,828 6,401 5,850 5,812 (RV spaces excluded 1990 1996 2005 2011 No. of Spaces 148,662 178,652 229,649 369,626 414,981 432,066 from totals after 1984) 5,817 5,698 4,868 4,754 377,149 372,647 368,150 365,148 During the 1960's and 1970's, land was relatively cheap and mobilehome parks could be developed as the most profitable use. Typically, this development took place in the less developed portions of metropolitan areas (such as Riverside and San Bernardino counties and northern San Diego County) or outside of metropolitan areas. 12 Sources: 1961,1965,1970,1975 and 1984 data - California Department of Housing and Community Development, "Mobilehome Parks in California", p.4 (Table 1) (February 1986). 1990 data: HCD, statistical report, Aug. 8,1990.1996,2005, and 2011 data: Computer Printouts provided by HCD, Division of Codes and Standards, Mob ilehorne Parks Program. 3 As house and condominium prices and rents increased substantially in the later 1970's, mobilehome park development ceased to be as profitable as other types of potential development in metropolitan areas. Also, as the outer portions of urban areas became more developed, neighborhood resistance to mobilehome park construction became widespread. Most local jurisdictions require use permits for projects of a significant size, such as mobilehome parks. Review standards for use permits are usually subjective, directing a local commission to consider environmental, economic, and social concerns without setting forth specific standards. In effect, the use permit requirements give local commissions virtual carte blanche to reject any proposal. Furthermore, it became more difficult to locate vacant plots of land that were large enough to develop mobilehome parks. Minimum acreage requirements of ten to twenty acres for mobilehome parks became common and standard density restrictions (e.g. eight mobilehomes per acre) required much lower densities for mobilehome parks than condominium and apartment projects. In 1986, the State Department of Rousing and Community Development described the panopoly of land use tools that were commonly used to exclude parks: As for mobllenome parks, the surveys indicate that localities have many ways to discourage park development without violating the law: set allowable densities too low (six/acre or less); set minimum acreage too high; require developerprovided sewerage to otherwise feasible sites; require conditional use permits or PUD-type ameniiies.13 In 1990, a regional director of the Western Mobilehome Association, an organization of California mobilehome park owners, commented on the difficulties for mobilehome park development posed by land use regulations and a shrinking supply of land: The question Is always asked, "With rising land values in Southern California, is mobltehome park development still an option?" The answer is "yes" . ... The process IS definitely more difficult, since the amount of available land is shrinking ... Most m obllehorne parks in Southern California were developed during the late 1950's through the early 19705 .... They faced relatively few government reg ulatlons. Since the early 19705, however, the number of mcbtlehome parks being developed has decreased drastically. Only a handful of parks have been developed in the m ore populous reg ions of California in the last 15 years. Most of these have been confronted with increased government regulations, extended completion times and high development costs-a distinct difference since the building of earlier parks. • n 13 California Department of Housing and Community Development Parks, p. 21 (June 1986). 4 (RCD), Incentives for Family Mobilehome As you can imagine, finding cumbersome and costly,14 10 to 20 acres of vacant land in to day's market is In Los Angeles, the trends in park construction have mirrored the trends in California, No mobilehome parks have been constructed within the City since the 1980's, The City's 1984 Study noted that no land in the City was zoned for mobilehome parks and that they were only permitted under use permits. A variety of factors inhibit establishment of new parks. Currently the City of los Angeles has no land zoned for new mobtlenome park use. New mobile home parks would only be permitted under use permits obtainable after individual scrutiny by the City of the site and the potential placing of a variety of development and usage conditions on the granting of the use permit. Representatives of park owner associations say that zoning. government requirements that add to cost, the high cost of land, high interest rates, and limited profitability because of rent control are factors inn !biting additional park development 15 In Los Angeles County, the supply of mobilehome park spaces has declined by about ten percent since 1986, from 53,496 to 47,907,16 While the lack of new mobilehome park construction since the 1980's has been attributed to rent controls, since 1992, state law has exempted newly created mobi1ehome park spaces from local rent regulations. 17 C. Mobilehome Park Space Rent Levels and Utility Costs Paid by Mobilehome Owners 1. Space Rents The 35 mobilehome parks which responded to the City survey contain approximately sixty percent of the mobilehome spaces in the City. The average space rent in those parks was about $615,18 It should be noted that there were large variations among the parks in average space rents and often among the rents within parks. Overall, average monthly space occupancy costs are in the range of$650 when taking into account water, sewer, and refuse collection costs. These costs do not include the costs of purchasing and maintaining mobilehomes, 14 Brooks, "Mobilehome Park Development: Vo1.l6,No.6,p.19 (June 1990). I 5 1984 Mobilehorne 16 Source: Study, p, 57 See footnote 17 California Can It Still Happen in Southern California?", 1, Civil Code Sec. 798.45 (1992) 18 See note 8, supra, 5 WMA Reporter, Four parks had average monthly space rents within the range of $350 to $450.19 Those lower rents tended to be in parks with more singlewide rnobilehomes and fewer amenities. A few parks had average monthly space rents of $800 per month or higher. 2. Share of Utility Costs Paid by Mobilehome Owners a. Gas and Electricity As in apartments, park tenants generally pay for their gas and electricity costs. In virtually all mobilehome parks, gas and electricity systems are submetered (as opposed to separately metered). Under submetering systems, park owners pay the gas and electricity supplier and charge the mobilehome owners at a rate which is regulated by the Public Utilities Commission. The allowable rates that can be charged to the mobilehome owners include an allowance for a differential above the amount that the park owner pays to utility company, for the purpose of providing park owners with the funds to maintain the gas and electricity infrastructure within the park. The survey results indicated that gas expenses are passed through to mobilehome owners for 84% of the spaces and electricity expenses are passed through in 96% of the spaces. Estimated average gas expenses for each space are $31 month and average electricity expenses are $21 month. (See p. 26 for a discussion of the basis for this estimate.) b. Other Utilities - Water, Sewer, and Refuse Collection The responses to the park owner survey indicated that about two-thirds of the mobilehome owners pay for sewer and refuse costs and about forty percent pay for water costs. Typically, the park owner pays the utility supplier and obtains reimbursement from the residents. (See page 26, for the basis for the estimates of the costs for the provision of each of these utilities, which are set forth below.) 1. Water Water costs average about $18 per mobilehome space per month.In the responding parks these costs are passed through to 39% of the mobilehome owners. 2. Sewer Sewer costs average about $15 per mobilehome space per month. In the responding parks these costs are passed through to 62% of the mobilehome owners. 19 Two parks with a total of 23 spaces had average space rents of approximately 6 $200. 3. Refuse Collection Refuse collection costs average about $14 per mobilehome space per month. In the responding parks these costs are passed through to 76% of the mobilehome owners. utility Expenses Paid by Park Residents Expense Paid by Residents Pet, of Park Spaces Among Parks Responding to Survey Estimated Avg. Monthly Cost (based an regional data) Gas 88% $31.27 Electricity 96% $21.09 Sewer 62% $15.37 Refuse 76% $14.74 Water 39% $18.77 Utility D. Increases in Space Rents In the City's 1984 study, the average space rent was $248. Since then the average space rent has increased by 148% (from $248 to $615). In comparison, the allowable annual rent increases under the ordinance have totaled 139%. The total of the allowable annual Cl'I increases under the ordinance since 1984 have exceeded the Cl'I increase because in eight different years the three percent floor for allowable annual increases in the RSO exceeded the Cl'I increase. The 148% increase in space rents, from 1984 to the present compares with the increase in the all-items Cl'I of 118%.and the increase in the Los Angeles rent index of 161% during this period." 20 U.S. Bureau of Labor Statistics, CPI-all urban consumers (Los Angeles-Riverside-Orange County) - All items index - annual average, 1984 = 103.6,2010 = 225.9 (Series CUURA421SAO); Rent of primary residence - 1984 = 106.9, 2010 = 279.8 (Series CUURA421SEHA). The increase in Los Angeles area rents was exceptional compared to the national average. The U.S. rent index increased by 137% during this period. 1984 = 105.3,2010 = 249.4 7 HI. The Special Nature of the Mobilehome Park Space Rentals At the expense of reciting information that is commonly but far from universally known, some explanation of the nature of the parkowner-mobilehome owner relationship is essential to provide a perspective on the information provided in this report. As a practical reality, mobilehomes that are placed in mobilehome parks are actually "immobilehomes." They are prefabricated houses, that generally are comparable in size to small houses. The majority of homes are "doublewide" structures that consist of two 10 or 12 foot wide sections. Typically, mobilehomes are improved with supporting foundations, carports, and porches. After mobilehomes are placed in mobilehome parks they are rarely moved, unless they are "discarded" for a nominal value because they are replaced by a new mobilehome. When mobilehome park residents move they sell their mobilehomes in place. Special characteristics of mobilehome park tenancies in urban areas generally include the following: Special Characteristics 1. The "historical" mobtlehcrnes parkcwners. of Mobilehome Park Tenancies investments of the mobllehome owner (tenants) in in mobllehorne parks generally exceed those of the landlord 2. The physical relocation of mcbtlenomes is costly. 3. Relocation within metropolitan areas is practically impossible are virtually no vacant spaces in mobllehorne parks." because there 4. Parkowners generally will not permit older m obllehomes to be moved into their parks when they do have vacant spaces to offer to rent. 5. The supply of mebttehome park spaces in urban areas in California is either frozen or declining. MObilehome park construction in urbanized areas of California virtually ceased by the early 1980's as a result of changing economics of land use development and land use policies that have curbed the construction of new mobllehome parks. As a practical matter, the benefits of investments in rnobilehomes can only be realized by continuing occupancy in the mobilehome or an "in-place" sale ofthe mobilehome. They cannot be preserved by moving the mobilehome to another park. 21 Exceptions to this pattern occur when there are exceptional 8 rent increases. In 2001, the California Supreme Court explained: BACKGROUNO;THE RELATIONSHIP MOBllEHOME OWNER/MOBilEHOME PARK OWNER This case concerns the application of a mobllahome rent control ordinance, and some background on the unique situation of the mobnenorne owner in his or her relatlonsh ip to the mobllehom e park owner may be useful. "The term 'm obile home' is somewhat misleading. Mobile homes are largely immobile as a practical matter, because the cost of moving one is often a significant fraction of the value of the mobile home itself. They are generally placed permanently in parks; once in place, on Iy about 1 in every 100 mobile homes is ever m oved. [C ltation om ltted.] A mobile home owner typically rents a plot of land, called a 'pad,' from the owner of a mobile home park. The park owner provides private roads within the park, common facilities such as washing machines or a swimming pool, and often utilities. The mobile home owner often invests in site-specific improvements such as a driveway, steps, walkways, porches, or landscaping. When the mobile home owner wishes to move, the mobile home is usually sold in place, and the purchaser continues to rent the pad on which the mobile home is located." (Yee v. Escondido (1992) 503 U.S. 519, 523, 112 S.Ct. 1522, 118 L.Ed.2d 153.) Thus, unlike the usual tenant, the moblleherne owner generally makes a substantial investment in the home and its appurtenances-vtyplcally a greater investment in his or her space than the mobllehcme park owner. [Cite omlttedl The immobility of the mobilehome, the investment of the mcblleheme owner, and restriction on rnobllehome spaces, has sometimes led to what has been perceived as an economic imbalance of power in favor of mobtlehome park owners. 22 Other courts have noted the captive nature of mobile home park tenancies. For example, the Florida Supreme Court commented: Where a rent increase by a park owner is a unilateral act, imposed across the board on all tenants and im posed after the initial rental ag reernent has been entered into, park residents have little choice but to accept the increase. They must accept it or, in many cases, sell their homes or undertake the considerable expense and burden of uprooting and moving. The "absence of meaningful choice" for these residents, who find the rent increased after their m obile homes have becom e affixed to the land, serves to meet the class action requirement of procedural unconscionability.23 In 1994, a federal district in California stated: Mobila homes, despite their name, are not really mobile. Once placed in a park, few are moved. This is principally due to the cost of moving a coach which is often equal to or greater than the value of the coach itself. Also, many mobile home parks will not accept older coaches so that after a time, the coach may be rendered effectively lm mobile ... the park owner, absent regulation, theoretically has the power 22 Galland v. Clovis, 24 Ca1.4th. 1003, 1009-1010 23 Lanea Homeowners, U.S. 964 (1989) (200]) Inc. v. Lantana Cascade of Palm Beach, Ltd., 541 So. 2d 1121, 1124 (Fla.), celt. denied, 493 9 to exact a premium from the tenant who, as a practical matter, cannot move the ccach." Likewise, real estate industry appraisal guides have noted the captive or monoplistic nature of the landlord-tenant relationship in the context of mobilehome park space rentals. As early as 1966, an "Appraisal Guide for Mobilehome Parks" published by the Finance Division of the Mobile Homes Manufacturers Association described how land use restrictions provide park owners with "monopolistic" value. The guide states: Monopolistic Value Generally, the cost approach of a proposed park represents the upper limit of value, This is not always true, for this approach frequently cannot include the monopolistic value of a limited or restricted area use. Nor is It true in the case of older parks in areas which no longer permit the construction of parks and which frequently have this monopolistic value. Under these circumstances, when competition is strictly curtailed, the value of thls interest, plus the value ofim provements, and the normal value of the land, may exceed the accepted application of the cost approach .... the land with this legal use should be credited with the premium value of the monopoly interest.25 In 1988, a nationally prominent real estate newsletter explained that: With today's parks having virtually no vacancies and tenants with limited options you get a base cash flow that is as predictable as the first of the month.26 The following passage authored by an expert in the mobilehome park industry, which touts mobilehome park investments as having low risks, is typical in contemporary real estate industry literature discussing this type of investment. Reasons for success The primary reason that land-lease communities perform so well is their ability to prod uce positive operating leverage by increasing rents faster than expenses go up. Manufactured home communities have historically been able to do this because of the higher barriers that discourage competitors from entering the market. Difficulties in :zoning, as well as the extensive time required to fill up communities are powerful disincentives to competitive development. This not only prevents most markets from being overbuilt, but it in fact insulates them from competition. This state of affairs will probably not last forever. But in the meantime, 24 Adamson Companies v. City of Malibu, 854 F.Supp. 1476,1481 (1994, U.S.D.C. Central Dist. Cal.), Also see Baar, "The Right to Sell the 'Im'mobile Manufactured Home in Its Rent Controlled Space in the'Im'mobile Home Park: Valid Regulation or Unconstitutional Taking?", Urban Lawyer Vol. 24, 107·171 (Winter 1992, American Bar Ass'n) 25 Randall, Appraisal Guide for Mobilehome 26 "Mobile Home Parks: A Profitable Gorham, and Lamont). Parks, (1966, Mohilehorne Niche for Partnerships," 10 Manufacturers Association), 11 Real Estate Outlook (No.3) p. 31. (1988, Warren, investment in manufactured home communities can provide compared to other types of real estate investment.27 superior returns Relocation Impact Reports prepared in conjunction with park closures in the Los Angeles area note a virtual absence of spaces where existing mobilehomes can be moved. (Under state law, relocation impact reports must be prepared before mobilehome parks can be closed.) A survey conducted in conjunction with a park closing in 2009 in in an unincorporated area of Los Angeles (in Sylmar) found that less than one percent of all park spaces were vacant in 52 parks with 6962 spaces within a 20 mile area." A relocation impactreport associated with the closing of a mobilehome park in Thousand Oaks in 2009 noted the unavailability of spaces where mobilehomes can be moved within the four county area. It states that: There are very few, if any, parks in Ventura, Santa Barbara, Los Angeles, Orange, and San Diego Counties thai will accept used homes onto theirspaces. The housing market in these counties has produced a condition where spaces are a at a premium, and older homes must. be purchased with the intent of removing them from the space in order to accomodate the installation of a new home. In this circumstance, the parks will not accept new homes.29 V. Mobilehomes, the Economics of Mobilehome Ownership, and Mobilehome Owners The data in this section on the size ofmobilehomes and trends in mobilehome prices is mainly based on information in mobilehome sales reports to the California Department of Housing and Community Development (HCD) All transfers of mobile homes within mobilehome parks and their sale prices must be reported to HCD ..The sales reports contain the original sale price of the mobilehome, its current sale price, its manufacture date, and whether it is singlewide, doublewide, or triple wide. Several private firms compile this data and provide reports to appraisers on comparable sales, that are used for apprasing purposes ..This author obtained sales information for 3,500 mobilehome sales from 1980 to the present, which was compiled by one of the vendors. The data provides a very large sample, which provides for a wealth of valuable statistical information. At the same time, it is not a record of all of the sales from 1980 to the present. Before 27 George Allen, Why Mobile Home Communities Are Superior Investments (www.mobilebomeparkstore.comfarticies/article4.htm), accessed May 9, 2011) 28 Sky Terrace Mobilehcme Park Closure Impact Report (Overland, Pacific, & Cutler, Long Beach, CA (2009)) 29 Mohilehome Park Closure Impact Report, for Conejo Mobile Home Park, Newbury Park, California (Star Management, Santa Ana) (The park is within the City limits of Thousand Oaks and the report is on the City's web page.) 11 1997, the provision ofHCD data was less systematic and 1997 is much smaller. Also, the data is limited by an unknown rate of sales which are not reported to HCD. In recent investigations in Northern California, HeD has found that the rate of non-reporting is substantial among some parks. The data provides a large sample to project trends in sales prices from the 1980's to the present. However, in regards to turnover in mobilehome ownership, it cannot be used as a measure for the periods before 1997, since it contains only a portion of the sales prior to 1997. A. Characteristics of Mobilehomes 1. Size In this year's survey, the park owners reported that about 80% of the mobilehomes are doublewides. This compares with the results of the 1984 survey of mobilehome owners in which about two-thirds of the respondents indicated that they lived in doublewide mobilehomes." 2. Age The majority of the rnobilehomes in parks were installed when the park was opened and have been purchased in-place by subsequent occupants. Among the 3,012 mobilehomes for which purchase data was obtained for the period from 2000 to the present, half were manufactured before 1980; 18.8% were manufactured in the 1980's, 8% were manufactured in the 1990's; 22% of the mobilehomes were manufactured during the last decade. Certainly among the mobilehomes that were not sold in the past decade the proportion of pre-1980 mobilehomes would have been higher since none of those mobilehomes would have been manufactured in the last decade, as opposed to 22% of the mobilehomes which were sold. Year Mid. Manufacture Year of Mobilehomes S0 Id From 2000 tn rougl h 2010 Doublewlde All Singlewide Triplewide (n=3012) (n=518) (n=2215) (n"279) 1960·69 19.7% 50.8% 14.9% 0.0% 1970-79 31.2.% 28.8% 32.1% 23.7% 1980·89 18.8% 14.3% 16.5% 45.5% 1990-99 8.0% 2.5% 9.0% 10.8% 2000-03 7.1% 1.9% 9.0% 1.4% 2004·07 9.3% 1.5% 12.0% 2.9% 6.0% 15.8% 5.9% 0.2% 2008·10 Source: AnalYSIS under the supervision of author usmg data from mobltehome sales reports to California Dept. of Housing & Community Dev, 301984 Mobilehorne Study, p. 7. 12 Draft Report, April 29, 2011 B. Mobilehome Costs and Trends in Mobilehome Values Mobilehomes Manufactured before 1980 The average original prices ofthe doublewide mobilehomes that were manufactured before 1980 was in the range of $15,000. By the 1980's, their average value had increased to approximately $47,000. (In the City's 1984 survey of mobile home owners, the average reported original purchase price was $21,979 and the estimated current value was $38,693.31) During the 1990's, mobilehome values declined to an average of about $31,000, consistent with overall trends in the housing market. Then, their average values increased to $73,182 for the period 2004 to 2006, and then declined to an average of$55,641 in 2010. The values of the last decade are comparable to the average off-site cost of new mobilehomes. Overall, the increase in mobilehome values between the 1980's and the present, of about 50%, has been very modest, when compared with overall real estate trends. When examining trends in the values of mobilehomes, it should be understood that the the investments by mobilehome owners also include remodeling and upgrading costs as well as reported purchase prices. Therefore, a comparison of the average sales prices in the 1980's and the present may overestimate appreciation, because it does not take into account additional investments not included in the original purchase price. In contrast, to the increase in average mobilehome values of about 50% from the 1980's to the present, mobilehome parks increased in value by an estimated 250% (from an average value of about $20,000 per space in 1984 to a current average of about $70,000), apartment values increased by over 200% between 1983 and 2007 (from an average value of$38,500 in 1983 to an average of$121,000 in 2007. Mobilehomes Manufactured before 1980 Average Purc hase P'nee sin~lewide Year of purchase [n) doublewide Average Purchase Price (insufficent 1980·1989 sam pie) (n) Average Purchase Price 58 $46,650 1990·1999 116 $11,248 236 $30,917 2000-2003 176 $16,074 350 $44,177 2004·2006 123 $31,275 338 $73,182 2007·2010 158 $28,277 365 $66,289 2010 92 $24,384 92 . , $55,641 Source: AnalYSIS under the supervrsron of author using data from moblleheme sales reports to California Dept of Housing & Community [lev. 31 Supra n.9 13 Mobilehomes Manufactured between 1980 and 1989 The values of mobilehomes manufactured between 1980 and 1989 have increased by about 60% since the 1980's. Mobilehomes Manufactured 1980-1989 Average Purchase Price smqlewlde doublawlda Average Purchase Price (n) Average Purchase Price 1980·1989 24 $58,946 1990-1999 83 $38,317 Year of purchase (n) 2000·2003 27 $23,302 133 $59,156 2004-2006 24 $25,458 134 $103,892 2007-2010 23 $27,096 99 $92,815 .Source: Analysis under the supervision of author using data from mobllehome sales reports to California Dept. of Housing &. Community Dev. During the past decade, the price of mobilehornes installed in mobilehorne parks which were manufactured since 2000 has increased from about $81,825 to $139,447. Mobilehomes Manufactured 2000-2010 Average Purchase Price dnublawlde" >1< Year of purchase (n) Average Purchase Price 2000-2003 113 $81,825 2004·2006 207 $111,832 2007·2010 277 $139,447 2010 79 $127,582 Only a few singlewides were manufactured after 2000. Source: Analysis under the supervision of author using data from mobllehome sales reports to California Dept of Housing &. Community Dev. 14 A full recount of the debate over the causes of appreciation in mobilehome values is beyond the scope of this report. However, in light of the continual debate over whether the appreciation is simply an outcome of rent regulation or other factors, some comment is in order." Experts who have testified on behalf of park owners. have contended that mobilehome prices normally depreciate in value in the absence of rent regulation and that the value mobilehomes manufactured before 1980 would be in the range ofNADA (bluebook) values in the absence of rent regulation. (E.g. about $15,000 to $20,000 on the average). However, the average sales prices of mobilehomes in mobilehome parks in cities in California major metropolitan areas without rent stabilization ordinances have been well in excess ofNADA (bluebook) values." The appreciation in mobilehome values may be attributed to a number of factors. Increases in the cost of housing alternatives (home purchase or renting) push up the price that households are willing to pay for other alternatives. The trends in the values of mobilehomes manufactured before 1980 and between 1980 and 1989 (See charts on previous page). paralleled trends in the balance of the housing market. Values of homes, apartments, and mobilehomes declined in the 1990's, sharply increased after 2000, and then leveled off or declined in the past few years from peak levels of20042006 in the past few years. Also, increases in the cost of newly manufactured mobilehomes push up the value of existing mobilehomes. According to one economic model, a mobilehome depreciates in value by virtue of becoming older. However, the value of a product is partly hinged on what it would cost to legally replace it. In the case of a mobilehome constructed before 1980, it may have only a nominal value if it is not sitting on a mobilehome park space, because virtually no parks in urban areas would accept it. On the other hand, if it is sitting in a mobilehome space, it provides an alternative to the cost of purchasing a new mobilehome, While pre-1980 mobilehomes may not meet the current code requirements for new mobilehornes, they still provide a valuable and safe alternative to having to construct a new dwelling. The dwelling can have a value approaching the cost of a new replacement simply by virtue of the fact that it has already secured a location where vacant mobilehome park spaces are a rare commodity. Trends in the Costs of Mobilehome Ownership for New Entrants The average purchase prices of mobile homes in Los Angeles (including homes manufactured in the past two decades as well as older homes) have doubled between the 1980's and the past seven years, from an average of$49, 767 in the 1980's to an average of about $90,000 during the past seven 32 For a view that is contrary to the view set forth in this section see Quigley, "The Curious Institution Home Rent Control", Journal of Housing Economics, Vol. 16, No.2, 189-208 (June 2007). of Mobile 33 See reports of James Brabant, an appraiser who has prepared numerous reports for California cities in mobilehome park space rent stabilization cases. Jan 14, 2010 letter - re: Carson Harbor Village Mobilehome Park, Application for Rent Increase FY 2006/2007 and June 21,2004 letter re: Rental Adjustment Application, San Juan Mobile Estates, San Juan Capistrano. 15 years. This increase, however, is not a measure of increases in value of existing mobilehomes because it reflects a combination of increases in the value of pre-existing mobilehomes and the higher prices of new mobilehomes, During the same period, as noted, the other component in the costs of mobilehome ownership, space rents, have increased from an average of $284 to about $615, from 1984 to the present. Trends in Average Purchase Price of Mobilehomes Year of purchase (n) Average Purchase Price 1980·1989 107 $49,767 1990·1999 581 $33,569 2000·2003 961 $51,335 2004·2006 1009 $88,728 2007·2010 .2010 1108 $92,059 295 $82,256 Source: Analysis under the supervision of author using data from mobllehorne sales reports to California Dept. of Housing &. Community Dev. Investments of Mobilehome Owners who Purchased Their Homes During the Past Decade The previous subsections discuss trends in the costs and values of mobilehomes manufactured during different time periods. This section presents data on the purchase prices of mobilehomes purchased during the past decade, according to their characteristics in terms of size and age. The following charts show the purchase prices paid by mobilehome owners who have purchased their mobilehomes since 2000, with a breakdown according to the size and age ofthe mobi1ehome. Three-quarters of the purchases during the past decade were of doublewide mobilehomes, 16 Purchase Prices 2000-2010 Singlewide Mobilehom,es 25 ..0% 20 ..0% 15.0% - - 1------1 10 ..0% - - 1--' I-- 5.0% - -I f--- f--- 0.0% -r-0 0 ill 0 Sl ill' a a m' ~ orl a ....,'V'> .... (1j "0 !;; ::::! ill ill m ai- ill ill m m- m m ill ill' a ~ 'I.Q- -<.{> ; :5 0 Cl 0 0 Lr, 0 0 0 0' 0 0 1./1. 0 0' orl 1./1. I"J 0' I"J 'V'> M a o· M 'V'> 0 <::t V\- • • ill m m s:.f ~ 0 Cl 0 o· ...., V\- m m m m- -ill ill ill <D ill ill' I"'- 'I.Q0 0 0 o· <D 'V'> ill m m g]' gf ffi q ""0- 'I.Q- ""0- ~ orl 0 0 0 'V'> Cl 0 6 0 0 0 V\- 0 m a 0 o· I"'V\- m 0 0 o· 00 V\- m 0 orl 'V'> ~ ~ 0 E ... 0 0 0 ~ I"J .-I V\- (total in sample: 563) Source: Analysis under the supervision of author using data from mobilehome sales reports to California Dept. of Housing & Community Dev. 17 Purchase Prices 2000-2010 Doublewide .Mobilehomes 20.0% 15.0% 10.0% 5.0% 0.0% - • • I. s .. ~ m m6 0 en G\ G\ ui .-IA .--! '1:1. ::l L1"\ c 0 0 m m G\ m' 0 0 0 <II 0 V} M G\ (J) G\ m ", "1- '!J'I. '!J'I. 0 0 0 0 0 0 0 ci .... '!J'I. ci M V) 6 0' m -IA G\ m m 3:6 (J) (J) G\ .if!. '11' 5!l' .:, 0 0 0' 0 '<t U"I V} V} m cn q 0 m :B 0 0 0 ci <.0 V} Cl'\ m en ~ V} .:, 0 0 ci r"- -IA G\ m m m to G\ G\ G\ m m 11\ en G\ '<t' M ~ .:, '11' '11' V} o· to o· 0 0 0 0 0 V} 0 0 0 m V} o' 0 .-I ~ 0 E ~ 0 0 0 0 ui M .-I V} V} (total in sample: 2215) Source: Analysis under the supervision of author using data from mobilehome sales reports to California Dept. of HOUSing & Community Dev. 18 The following two tables contain data on purchase prices since 2000 of mobilehomes manufactured before 1980, approximately half of the purchases during this period. Purchase Prices 2000-2010 Singlewide Mobilehomes Manufactured before 1980 30.0% .25.0% 20.0% - r-- r-- - 10.0% r-- r-- - - 5.0% r-- r-- - - 15.0% 0.0% 0 0 0 LI"I' ... <.t> Q) "C C ::J 0\ 0\ 0\ 0\' <{\" 0 0 0 LI"I' <.J> 0 0 0 ~ ~ 0 0 0 0' .-i i/). 0\ ffi 0\' N 0\ 0\ 0\ O\~ t'I'l <.J> <.t> 0 0 0 0 6 0' N ¢ 6 0' r<'l <.t> •0\ 0\ 0\ C1\ O:t ~ 0 0 0 d '<t <.J> 0\ 0\ 0\ 0\LI"I 0\ 0\ <.J> I 0 0 0 <{\" <{\" 0 0 0 0 0 0 0' I"<.t> ffi ai' ffi ai' 1.0 I"- ~. s' <.J> <.t> 0\ 0\ 0\ ~' ~ 0 8 0' co <.J> 0\ 0\ 0\ ai' m ~ 0 8 0' 0\ <.J> ffi 0\ '<t' N .-i <.J> 0 0 0 0' 0 .-i • 2: ~ ... 0 0 0 0 ""1' N .-i <.J> <.t> (total in sample: 457) Source: AnalYSis under the supervision of author using data from mobilehome sales reports to California Dept. of Housing & Community Dev. 19 About two-thirds ofthe pre-1980 mobilehomes that were purchased during the past decade were doublewides. Their average purchase price was $61,152. Purchase Prices 2000-2010 of D,oubl,ewide Mobilehomes Manufactured before 1980 20.0% 150% 10.0% 5.0% 0.0% 0 0 0 0\ 0\ u;' al VI- .... (JJ "=' c ::l m "'1" 0 0 0 ..,,' ....... 0 0 0 (rI (rI (J\ ill en O"l O"l m' al en' en' """ 0 8 N al ('fl '{> '{> <.Q- 0 8 0 0 0 0 0 0 0 0' ("'II ('fl '<it "V'> "V'> o'{> 0 .-! "V'> en (rI (rI (J\ '<t 0 ....... en en en en 0'1 0\ al al 6 ~ 6 VI- o· 0 R .." .<J'i. 0 0 LI') oW \0 8 <.D W f'. 6 8 "V'> 0'1 :il en :il '{> m '{> 0 0 8 0' 8 gj IX) -<.I'J. 0 en V)- en (JJ 0\ 0 O"l .... .; E N ..... ....... 6 0 0 0' 0 ..... ~ 0 0 0 0 LI')' N ...... V)- VI- (total in sample: 1053) Source: Analysis under the supervision of author using data from mobilehome sales reports to California Dept. of Housing & Community Dev. Among the mobilehomes that were purchased since 2000, 18.8% were manufactured between 1980 and 1989. Only 73 of those homes were singlewides. The doublewides had widely ranging purchase prices. About half of mobile home purchase prices were in the range of $30,000 to $70,000.28% cost more than $100,000. The average price was $84,639. 20 Purchase Prices 2000-2.010 Doublewide Mobilehomes Manufactured 1980-1989 20.0% 15.0% 10.0% 5.0% 0.0% • 0 0 0 en en en 0 u-l ai ai en en en m- <.I( ~ ... V1Q) "0 c: :::I <.I( 0 0 0 u-l V} 0 0 .-I N en en m 0'1M 'I{'> :5 0 0 0 0- 0 0 0 .-I N m 0 a 'If) V'J. o' V1- en en en en en 0'1 m- en en en en- en en en m- en g: en ,... m- ~ en en m IoI"l '\11- '\11- 'If) 'If) sf o:j"- 'If) .-I 6 6 6 6 0 6 0 'If) ff- a o' 0 0- 6 0 0_ 0_ 0 '\11- 'Ill- * 0 0 V} 0 0 LJ') '\11- ID 0 0 ID ,... 00 s V} en '\11- N 6 0 0 o' 0 .-I Q) 0 E 0 0 0 0 LJ')- N .-I V} V} (total in sample: 366) Source: Analysis under the supervision of author using data from mobilehome sales reports to California Dept. of Housing & Community Dev. 21 Only 8% of the mobilehomes were manufactured between in the 1990's. 22% were manufactured since 2000. Most of these sales involved original purchases of new mobilehomes, rather than resales. The average cost of the newly manufactured $118,809. mobilehomes (maufactured since 2000) was Purchase Prices 2000-20 0 Doublewide Mobilehomes 'Manufactured after 1999 20.0% 15.0% 10.0% 5.0% 0.0% 0 a 0 ..,' ... "III- 11! '1:l I:: :::r 0) 0) m 0) "III- 2> a 0 r.ri' VI- 0 a 0 aI ,-j ~ 0 0 0 c:i ,-j <VI- en 0) en en g: a\ a\ GI G'I !jI' 0) aI .<;1)- 'VI- aI aI (Yl <VI- <VI- ~ 0 0 0 0 0 0 0' <VI- ~ M 2> 0 0 0 N <VI- 6 r<'l I G) m .., 0) a\ 0) l' 0) en to GI GI' 0) -{/'!. ,-j a '" 6" 0 g g c:i 0' 0' 00 VI- VI- I 0 0 VI- I 0 0 0 a '" " m 0) m mm g: "10 Vl- m 6 0 0 0' en -{/'!. !jI -.:Jr' :::0 E !"I '- "lli- a 6 0 0 0 0 ,-j 0 0 0 r.r1' N ,-j VI- VI- (total in sample: 597) Source: Analysis under the supervision of author using data from mobilehome sales reports to California Dept. of Housing & Community Dev. C. Length of Occupancy - Rate of Turnover in Ownership There is no systematic data on the length of the tenancies of mobile home owners. However, the HCD sales data on sales since the year 2000 contains sales reports for about 3,000 mobilehomes out of6,526 spaces in the City; thereby indicating that approximately half of the mobilehome spaces in the City were purchased since 2000.34 34 The survey of park owners included questions about the number of mobile homes in the park that had been purchased in recent years. However, a substantial portion of the respondents did not have this information and some estimates seemed too low (e.g. only one sale, within a year, out of 100 spaces). 22 D. The Characteristics of the Residents of Mobllehome Parks The 1984 City study included a survey of 200 mobilehome park residents. Most of the respondents -77% - were 62 or older and half were from very low or low income households. The average household income ofthe mobilehome owners was about 80% ofthe average for all renters. 35 Numerous surveys have been conducted of mobile home owners in other jurisdictions, since the 19801s. Many of these studies were performed in conjunction with muncipal consideration of whether or not rent regulations should be adopted. These studies have consistently shown that on the average mobilehome owners have very low incomes compared to the general population and that they are low compared to apartment dwellers. Two recent surveys document the characteristcs of park tenants in Carson and Palmdale. A 2005 survey of Carson mobilehome park residents which yielded 655 responses to household income questions revealed that 49% of the households were in the "very low" income category." Another 29% were in the "low" income category." A 2008 survey of Palmdale mobilehome park residents which obtained 227 responses yielded the following results for household income: under $15,000 - 37%; $15,000 - $19,999 -18%; $20,000 - $39,999 - 32%; $40,000 + _ 13%.38 35 1984 City Study, p, 7 ($19,937 average household income for mobilehome owners compared with an average of $23,364 for renters The census reports provide data on residents of mobile homes. However, that data doses not distinguish between mobilehomes in parks and mobilehornes outside of parks. According to the 2000 census there were 8,222 mobilehome residences in the City, compared to 6,496 mobile home spaces in mobilehome parks. Therefore, the data set for all households living in mobilehomes cannot be used as a measure of the characteristics of mobile home park residents. 36 $22,950 or less - for one person households, $26,250 or less - for two person households. 37 $22,950 - $36,701 for one person households, $26,250 - $41,901 for two person households. 38 Baar & Pojani, Mobilehome City of Plamdale) Park Tenancies in Palmdale, 23 p.l 0 (November 2008, report commissioned by the V. The Economics of Mobilehome Park Ownership A. Mobilehome Park Operating Costs There is no systematic source of data on average operating costs of mobilehome parks in California. However, a combination of industry commentaries, estimates of park owner experts, data from sales reports, data from appraisal reports, all support the conclusion that mobilehome park operating costs are generally in the range 0[30% to-40% of space rental income. (However, a portion of these costs - water, sewer, and refuse - are much more likely to be passed through to residents than in apartments.) The following estimates are based on data from mobilehome parks outside of the City of Los' Angeles. However, this author is not aware of any reasons why the costs of operating mobilehome parks in Los Angeles would differ substantially from industry averages in the state. In addition, some national data is presented, which is based on larger more systematic samples. National Data For a number of years a leading source of mobile home park financial data in the U.S .., (George Allen, author ofthe Allen Reports") has published reports onpark operating costs nationwide based on samples of data voluntarily submitted by park owners. In his operating cost study in 2002, Allen found that the median operating expense ratio for responding mobilehome parks, which had a median rent of $283 was 8.1%.40 In 2007, the Allen letter reported that the average operating cost ratio was 41.1 %.41 A recent report by a company that holds about 42,000 mobilehome park spaces in the Eastern portions of the U.S .., indicates that operating costs in 2008 and 2009 were about one-third to forty percent of income." The average monthly space rent of its spaces was about $400. Apart from operating expenses, annual costs for major replacements were $162 per space per year." 39 George Allen, CPM, GFA Management Inc., Indianapolis, Indiana 40 Allen Survey VI (1982) 41 18th Annual Allen Report (January-February 42 Sun Communities, 30,2009). Inc. Supplemental 2007). Operating and Financial 43 Id., at p. 9. 24 Data, pp. 4 &6. (For the Quarter Ended September Operating Cost Estimates Based on Survey by Expert in Mobilehome Appraisals One California appraiser, who has specialized in mobilehome park appraisals for many years and has frequently appeared on behalf of park owners, as an expert, in rent stabilization hearings, John P. Neet, has prepared projections of mobile home park operating expense ratios based on data from 60 mobilehome parks in his appraisal files. His sample consisted of parks in the western United States, which were predominantly in California. (The results of his analysis were submitted in February 2011, in a rent increase hearing in the City of Calistoga.") Total operating costs excluding utilities averaged $148.75/space/month.45 According to Neet's data professional management expenses averaged $28.58/ month. The average amount for on-site management was a little lower, $26.87. Repairs and maintenance averaged $42.11!space per month. Average Operating Expenses (Excluding Utilities) Derived from Neet Analysis Expense Category No. of parks ill Neet's sample reporting this expense Month Space* Taxes 49 $25.58 Prof. Mgmt. 23 $28.83 On-Site Mgmt. 43 $26.87 Administrative/Miscellaneous 51 $16.64 Insurance RepairsiMaintenance 49 52 $8.72 $42.11 5 $5.01 Security Total >I< Expense/ $148.75 The actual amounts set forth in the analysis by Neet are annual amounts which are converted to monthly amounts in this table. 44 Rancho de Calistoga Rent Increase Application (Calistoga, CA). Report submitted on Feb. I, 20 J 1. (N eet notes that: "The reader should be aware that there are no reliable institutional data sources that report statistics on operating expenses for this property type such as exist for other, more commonly held investment properties, ... ) Id. at p. 43, fn. 12. 45 Neet presented annual figures; in this report the annual figures are divided by twelve months. 25 Neet notes that professional management expenses usually average 3 to 6% of rents and states that typically, the ratio is lower than 6% for larger parks. In Neet's study, average water, sewer, and trash expenses totalled approximately $49. However, as noted, the parks responding to the City's survey reported that in a substantial portion of parks one or more ofthese types of costs are passed through to the residents. Average Water, Sewer, and Trash Expenses Derived from Neet Analysis no. of parks in Neet's sample Expense/Monthl Space* reporting this type of expense >I< Water 37 $18.77 Sewer 17 $15.37 Trash 34 $14.74 Neet's annual amounts are converted to monthly amounts Gas and electricity costs, in Neet's sample, averaged about $50/space/month. However, in most of the parks in Los Angeles these costs are recovered through submetered distribution. Average Gas and Electricity Expenses Projections in Neet Analysis Electricity no. of parks Expense/ reporting this type Month / Space*' of expense 35 31.27 27 21.09 Natural Gas >I< Neet's annual amounts are converted to monthly amounts Comparable Sales Reports and Industry Projections Comparable mobilehome park sales reports prepared by a leading vendor of sales information, (Costar Camps) which are based on reports by brokers, typically project a 35% operating expense ratio for mobilehome parks in the absence of actual data. 26 Real estate industry reports consistently note that the operating expenses of mobilehome parks are lower than for apartments and that there is far less risk and a much lower rate of vacancy losses. The following analysis which was published by National Association of Real Estate Trusts (NAREIT) in 1999, set forth the positive attributes of mobilehome park investments, including low turnover, low operating expenses, and barriers to entry of competitors . ...Second, low turnover and low levels of rent default provide cash flow atablllty. Manufactured home community operators benefit from an annual tenant turnover rate under 10 percent and an average tenant dellnqulncy rate of 1 percent to :2 percent, su bstantlally below the com parable rates for investment grade apartments . ... Third manufactured home communities have extremely low break-even occupancy compared to other real estate classes, which limits investor risks while enhancing investment returns. With the exception of self-storage properties, ... the 35 percent average break even occupancy rate of manufactured home com m unities is lower than any other REIT real estate class . .... Fourth, manufactured home communities require minimal capital expenditures, which reduces risk on the property revenue stream and makes cash flows more predictable. Again, with the exception of self-storage facllitles , manufactured home communities require lower non-revenue generating capital expenditure expense than any other form of investment grade real estate. On average, non-revenue capital expenditure compromises (sic) 1 percent to 3 percent of annual rental revenues, which equates to about $120 to $220 per site per year, compared to 5 percent to 8 percent for apartments ... Fifth, high barriers to entry limit new supply. Both financial and regulatory forces continue to create substantial barriers to an influx of new manufactured home community developments." B. Historical Investments and Trends in Park Values 1. Original Investments in Developing Parks In the 1960's and 19701s, in outer sections of urban areas, mobilehome park development was often among the most profitable uses of the land. Land was cheap. The County's 1970 Housing Element projected average land costs in the range of$7,000 for single family dwellings. Parks could be developed at a density of eight mobilehome spaces per acre. Reports and surveys indicate that average park development costs were about $6,000 per space in the 19701s and that monhtly space rents were in the range 0[$80 to 100. (In current dollar terms, 46 NAREIT, Jay Leupp) Investor Outreach, Dec. 10, 1999 (National Ass'n of Real Estate Investment 27 Trusts, summary of speech the costs were in the range of $30,000 to 36,000 per space and rents were in the range of $480 to 600.) The Small Business Reporter of the Bank of America estimated that development costs of mobilehome parks averaged about $2,625 per space in 1970 and ranged from $3,500 to $6,500 per space in 1976.47 These amounts do not include the costs of holding a Park after its has been constructed but before it has filled up. A 1974 report by the Western Mobilehome Association projected that the total cost of onsite improvements average $2,600 to $4,000 per lot, exclusive of land. "This includes installation of all underground utilities, utility services, sewers and sewer connections, landscaping, paving of parking areas and streets, and construction of services, swimming pools, and recreation buildings.":" The report projected land costs in the range of $5,000 to $25,000 per acre, with permitted densities of 8 112 spaces per acre. This translates into land costs of $600 to $3,000 per space. 2. Trends in Park Values There is no systematic source of information on trends in the values of Los Angeles mobilehome parks. However, because values are a function of rents and the net operating income from mobilehome parks, trends in values can be estimated, based on trends in rents and data on prevailing capitalization rates. The Central Role of Capitalization Rates in Determining Value An explanation of the role of capitalization rates in determining trends in value is a prerequisite to describing the trends that have occurred during the past decades. Capitalization rates play an enormous role in determining trends in the value of income producing real estate. The capitalization rate is the ratio of net operating income to value. For example, if the capitalization rate is 6%, properties with a net operating income of$60,000 will be worth ($60,000 1.06) or $1,000,000. Over time, capitalization rates have widely varied, depending on mortgage interest rates (the cost of capital), rates of return from alternate investments, and expectations about appreciation. In the past five years, prevailing capitalization rates have been in the range of 5 to 7%, compared with a range of7.5% to 10% during the prior fifteen year period. 47 Bank of America, "Mobile Home Parksv., Vol, 9, No.7, Business Reporter, Vol. 13, No.6, p.10. 48 Western Mobilehome Association, Mobilehome p.7i Bank of America, Park Development, 28 "Mobile Home Parks", Small 2.4 p973-74 edition) .. The following hypothetical table illustrates the impacts of capitalization rates on values. It sets forth the variations in the value of a fixed net operating income stream of$5,000 associated with average capitalization rates over a twenty year period. 14% f The Impacts of Variations in Capitalization Rates 011 the VaJueof a Fixed Stream of Income $120,000 1;2% 10% 4% -J 2% 0% 0 en m ~ cn (J) $20,000 -<t- Average Cap Rate --.i<-- Value of Annual Net Operating income (S5,OOO,Vniti .! i rN rn m <') ill OJ .". ill 0> 0> c» (J) ~ <£> 0> 0> ~ r-, m m ~ co Cf> m m 0> (J) {0 !~ 0 'tr 0 0 lD 0 0 <,) 0 0 0 0 0 0 a 0 N N N N N N N 0 0 0 0 N N $- As noted, average development costs of mobilehome parks in the first part of the 1970's were in the range of $3,000 to $6,000 per space. The City's 1984 Mobilehome Study reported that owners paid about $6,000 per space on the average." However, this sample is of'limited analytical value because it covered over nine parks with purchase years varying from the 1950's to the time of the study. The respondents indicated that the current (1984) average value oftheir parks was $18,000. 49 Supra note 10, p. __ 29 In 1984, the average rent was $248. Using a typical operating expense ratio of 40%, the typical operating expense level would have been about $100/space/month and the typical net operating income would have been $150/ space/month. Using the prevailing capitalization rate 0 f that time, the average value per space would have been about $20,000, an amount consistent with the average value projected by the small group of owners who responded to the City's survey in 1984. There is not sufficient available data and annual sales of parks are not of an adequiate volume to project trends in mobilehome park values within the City or even the metropolitan area. A private service that is widely used by real estate appraisers (CoStar) provides reports on trends in sales prices for selected categories of real estate. Reports covering parks of 50 or more spaces within the state indicate that average park values per space declined from about $32,000 in the early 19901s to a level of about $25,000 in the mid-19901s, and increased to about $50,000 in the last few years. The following chart provides data on average annual prices and average capitalization rates in each year. Trends in Catifornia MobHehome Park Values (per space) ., --Avg Price.IUnit --f9--Cap Rate $60,01)0 12.0 $50,000 10,0 MO,OOO 3.0 $}O.OOO 6,0 $20,000 4"0 $10,000 2.0 <=> ... $ .t;; C'I e= N c; .,.. .<::,> <') m ~ ... ~'" 'Q"l ;.: .~ os:; m ~ I-- 00 .Q"l co '" -e- <;;) C'I .~ co C'I e- 0 <:> Q 'N Source: CoStar Comps . ., Reported transactions ranoec from B to 45 per veal' 30 ~ <:> Q N N S "" .~ <:> <::) N <ot Q Q N .1f> Q 0:> N <&> Q Q N I-Q e N 00 e <::> N Q"l Q Q N i: Q N Appraisals would be required to make precise estimates of the current value of the mobilehome parks in the City. However, some estimate of the "scale" of the values of mobile home parks in Los Angeles can be made. In the current market, capitalization rates for mobilehome park purchases are in the 6 to 7% range. (This means that the formula for appraising value based on net operating income is: Value = NO! /.06 or .07.) Using the average space rent of about $615 in the City and assuming that average operating expenses (excluding reimbursed expenses) are about $215 space/month (35% of space rents), in tum net operating income/space/month would be $400 and an annual net operating income per space would be $4,800 (12 months x $400). Using prevailing capitalization rates market values per space would be $68,571 to $80,000. ($4,800/.07 or $4,800 /.06) Much ofthe increase in park values can be attributed to the significant decline in capitalization rates (from a typical rate of 8 to 9% to 6 to 7%). (If the capitalization rate had remained at the former levels of 8% or 9%, a park with the foregoing annual net operating income per space would have a value $53,333 to $60,000 per space.) The limited data on sales of Los Angeles mobilehome parks within the past five years indicates a wide range in sales prices, consistent with the wide range in rents. Two substantial sized parks sold for about $100,000/mobilehome space since 2005. Other parks sold for about $30,000/mobilehome space. 31 VI. Comparison of Los Angeles Mobilehome Space Rent Stabilization Ordinance (RSO) with Other Local Ordinances A. Overview Like most states, California has adopted extensive regulations of the terms and conditions of mobilehome park space rentals, which provide that mobilehome owners can be evicted only for just cause and that they have a right to sell their mobilehomes in place. In addition, in California, about ninety localities 50 have adopted mobilehome park space rent regulations in response to the special circumstances surrounding mobilehome park space tenancies. 51 (Most of those jurisdictions only regulate mobilehome park space rents without any apartment rent controls.) Typically, the local rent control ordinances in California tie annual allowable rent increases to the percentage increase in the Consumer Price Index (CPI)-all items. Most of the ordinances do not permit additional rent increases or limit additional rent increases when a mobilehome is sold in place. Under all rent control ordinances, park owners are entitled to petition for additional rent increases in order to obtain a fair return. In contrast to the unlimited increases that are authorized under the Los Angeles Rent Stabilization Ordinance (RSO) when apartments are voluntarily vacated, increases upon changes in mobilehome space tenancy are limited to the lesser of 10% or the lowest rent in the park for a comparable space. The City's 1984 study of mobile home parks states that "The mobile home sector requires separate treatment because some aspects of occupancy, ownership, and regulation distinguish it from the apartment sector.,,52 The following sections describe the rent adjustment provisions ofthe ninety ordinances and the differences among them in more detail. 50 There may be one hundred ordinances or a few more. This author was able to locate ninety ordinances. Eighty-five ordinances were reviewed for the purposes of the analysis in this report. 51 Mcbilehome park space rent regulation 52 1984 City Mobilehome is very limited outside of California. Study, p. i 32 B. Annual Rent Increase Standards TheRSO Under the RSO, as in the case of apartment rents, annual allowable rent increases are equal to 100% of the percentage increase in the CPl, with a floor on the allowable increase of 3% and a ceiling of 8%. Increases on changes in tenancy connected with in-place sales of mobile homes are limited to the lesser of 10% or the lowest rent for a comparable space in the park. Since the incorporation of the ceiling into the annual rent increase provisions, the eight percent ceiling has not had any impact. In 1979, 1980, and 1981, prior to the adoption of the 8% ceiling, the annual increase in the Cl'I substantially exceeded 8%. However, since the ceiling was adopted, the annual increase in the CPI has never exceeded 6%. However, the three percent floor has had a notable impact. During eight years since 1995, the annual increase in the CPI has been less than 3%, thereby triggering the 3% minimum provision in the ordinance. Impact of 3% Minimum on Allowable Annual Rent Increases Under Los Angeles Rent Stabilization Ordinance Year Allowable Annual Increase in Absence of 3% Minimum 1995 2% 1996 2% 1997 1% 1998 2% 1999 1% 2000 2% 2009 0% 2010 0% 33 Local Mobilehome Park Space Rent Ordinances in California 1. Annual Adjustment Tied to CPI The vast majority of ordinances provide for annual rent adjustments tied to the increase in the Cl'I, ranging from 50% to 100% of the percentage increase in the CPr. 35 of the 85 ordinances reviewed authorize increases equal to 100% of the Cl'I increase, and 32 authorize increases equal to 75 to 90% of the Cl'I increase. Under some ordinances, there are no provisions for automatic annual rent increases and park owners must petition for all rent adjustments. In 1983, the California Supreme Court rejected a challenge to the constitutionality ofthe Carson ordinance based on its lack of an annual rent increase provisi on. 53 Allowable Annual Increases under local MObiiehome Rent Stabilization Ordinances Allowable Annual as Percent Rent Increase No. of Ordinances of CPI Increase None 7 50% 2 60%-74% 9 75%-90% 32 100%* 35 100% Los Angeles * Standards with 100% of CPI up to a cap of 5% or more are considered 100% of CPI increase standards since CPI has increased by more than 5% in only two years since 1983 (when the increases were 5.1% and 5.9%). Two standards with an annual rninrnum of 5% or more are counted as 100% of CPI standards; actually they usually permit increases of more than 100% of CPt 53 Carson Mobilehome Park Owners' Assn. v. City of Carson, 35 Cal.3d 184 (1983) 34 2. Declining Percentage of CPI Increase Under some ordinances, the allowable increase is tied to 100% of the percentage increase up to a specified Cl'I increase and declining percentages of additional amounts of the increase in the CPI. (E.g. 100% of the Cl'Lincrease up to 5% and 75% of the CPlincreaseabove 5%.) In fact, under these standards the maximum initial rate has been the only rate that has been applicable because the percentage ceiling on the initial rate has been higher than the percentage increases in the CPI. 3. Minimums and Maximums for Annual CPI Increases Ten of the ordinances contain floors on the annual rent increases. Five of those ordinances contain a 3% floor. Thirty-two ordinances contain ceilings. The typical ceiling is 5, 6, or 7%. These provisions were adopted largely in response to the exceptional inflation of the late 1970rs and early 1980's, when annual increases were in the range of 10%. Floors for Allowable Annual Increases No. of Ordinances Floor for Annual Increase None 75 2% 2: 3% 5 3% los Angeles 3.5% 1 5% 2: Ceilings on Allowable Annual Increases Ceiling in Annual Increase No. of Ordinances None 53 5% 8 6% 14 7% 7 8% 2: 8% los Angeles 1 9% 35 C. Allowances for Cost Pass-throughs of Specific Cost Increases Some ordinances allow for pass-throughs for specified types of cost increases in addition to the annual allowable increases tied to the increases in the CPl. Categories of allowable passthroughs include rent adjustments to compensate for 1) increases in government fees or tax assessments, 2) increases in the costs of certain utilities, and/or 3) the amortized costs of capital replacements. (Generally, but not in Los Angeles, increases for the construction of new improvements (as opposed to replacements) may not be passed through without the consent ofthe majority of the residents.)" In viewing these provisions, they should be considered within the context of the otherwise allowable annual rent increases. For example, an ordinance which provides for annual increases equal to 75% ofthe percentage increase in the CPI plus a passthrough may provide smaller or greater increases than a provision of annual increases equal to the full increase in the CPl. D. "Just and Reasonable" (Fair Return) Under the City's ordinance, apart from rights to annual rent increases and 10% increases when a mobilehome is sold in-place, park owners have a right to apply for a rent adjustment in order to obtain a rent which will provide them with a "just and reasonable" return. "Just and reasonable" return is defined as a net operating income which is equal to a base year net operating income adjusted by 100% of the percentage increase in the CPl. In other words, rent increases must be adequate to cover operating cost increases and permit net operating income to keep up with the increase in the CPr. Under this type of standard debt service is not considered as an operating cost. Instead, the growth in net operating income that must be allowed provides an increasing source of income that is available to cover debt service and/or provide additional cash flow return on the cash investment. Only three "just and reasonable" (fair) return applications have rarely been filed under the Los Angeles ordinance, Numerous fair return applications have been filed in some other jurisdictions. The purpose of the "Just and Reasonable" return standard and the inclusion of fair return provisions in all rent ordinances is to insure park owners oftheir constitutional right to a fair return, The fair return issue has been extensively litigated in mobilehome cases. Cities have the authority to select the fair return standard to be used under their ordinances. However, regulated property owners are protected by the right to obtain judicial review in order to determine if the application of the standard results in a fair return in their case. 54 One ordinance provides for a passthrough of increases in property taxes triggered by the sale of a property. 36 Under most mobilehome park space rent control ordinances, a maintenance of net operating income (MNOI) standard is used and in virtually every case, when the MNOl standard has been challenged, the courts have ruled that this type of standard provides a fair return, A majority of the ordinances with an MNOl standard "index" the base period net operating by a portion of the increase in the Cl'I (ranging from 40% upwards), rather than by 100% of the percentage increase in the CPl, as in the case of Los Angeles. The courts have upheld standards which provide for indexing by 40% of the percentage increase in the Cl'I and have rejected the argument that 100% indexing is constitutionally required." Under some ordinances, a return on investment standard is used. However, this type of standard also suffers from circularity. (The investor determines the investment which in tum determines the allowable rent.) Furthermore, there is no consensus about what rate should be considered fair and courts have reached differing conclusions about how the rate base may be measured - historical investment reduced by depreciation, actual historical investment, or historical investment adjusted by the increase in the cpr since the time of the investment. The differences among the outcomes under these alternate measure of the base investment have a very large impact on what rent will deemed to yield a fair return on investment, largely depending on the length of ownership of the property. Return on "value" standards have been rejected as "circular," for decades" and are no longer used. Base Rent Adjustments and/or Comparability The courts have held that in the context of maintaining a base period net operating income (cpi adjusted) park owners are entitled to a base period net operating income that is based on rents that "reflect" market conditions. The underlying concept is that a regulated property owner should not 55 See H..N. & Francis Berger Foundation v. City of Escondido, Ventura ,147 Cal. App, 4th 1170 1181-1182 (2007) 127 Cal. App.4th. 1, 15 (Jan. 2005); Stardust v. 56 See e.g. Fisher v. City of Berkeley, 37 CaL3d. 644,680, n.33 (1984, State Supreme Court); Cotati Alliance for Better Housing v. City of Cotati, 148 Cal.App.3d.280, 287-289 (1983, Court of Appeal); Palos Verdes Shores Mobile Estates, Ltd. v. City of Los Angeles, 142 Cal.App.3d. 72, 86 (1983, Court of Appeal). In Fisher, the State Supreme commented: The Cotati Alliance court thus rejected a landlord's claim that a return on value standard is mandated for an ordinance to be facially constitutional: The fatal flaw in the return on value standard is that income property most commonly is valued through capitalization of its income. Thus, the process of making individual rent adjustments on the basis of a return on value standard is meaningless because it is inevitably circular: value is determined by rental income, the amount of which is in turn set according to value. Use of a return on value standard would thoroughly undermine rent control, since the use of uncontrolled income potential to determine value would result in the same rents as those which would be charged in the absence of regulation. Value (and hence rents) would increase in a never-ending spiral." (148 Ca1.App.3d at p. 287; accord, Helmsley,[N.J. Supreme Court], 394 A.2d at pp. 71-72; Niles v. Boston Rent Control Administrator (1978) 6 Mass.App. 135 [374 N.E.2d 296, 300·303].) 37 Ca1.3d. 644, 680, n.33. [bracketed items added by this author for clarification purposes.] 37 be locked into abnormally low rents as a starting point for the basis of future allowable rent calculations, which depend on indexing a base period return by the CPI. Some ordinances also provide for the consideration of comparable rents, either within the same city or within the area, as one factor that should be considered when reviewing fair return applications. However, no particular weight is assigned to this factor.. E. Allowable Increases Upon In-Place Sales of Mobllehomes As noted, about half ofthe mobilehome rent stabilization ordinances do not permit any additional rent increases upon in-place sales of mobile homes. About a third of the ordinances allow limited rent increases at the time of an in-place sale, and about fifteen percent provide for unlimited rent increases. Allowable Rent Adjustments in Mobilehome Ordinances Upon In-Place Sales of Mobilehomes No. of Ordinances No Increase Upon In-Place Sale Lim ited Increase Perm itted 43 30 (including No Limit on Increases L.A.) 12 (Vacancy Decontrol) Source: Review of 85 by this author The provisions authorizing limited increases upon the sale of a mobilehome have a variety of forms. Some, like Los Angeles, contain percentage ceilings. Other contain dollar ceilings. Others provide for percentage increases with a dollar ceiling on the amount. Limits on the frequency of these types increases (e.g. only once every three or five years) are common. 38 Standards Authorizing Limited Increases Upon in-Place Sales of Mobilehomes Jurisdiction Increases Azusa Chino Clovis Fairfield Fresno Goleta on In-Place Muhilehome Sales 8% 20% 5% 4%** 10% 10% once time in five years 5% greater of $34 or 7% 10% 5% once in 12 months 15% Grover Beach LaVerne Los Angeles Lompoc Malibu Modesto 10% limit one time in 5 VIS 5% limits once in I yr., twice in 5 vrs. diff between CPI increase since '87 & actual increases Moorpark Moreno Valley lesser of 15% or $80, limit one time in 5 vears 10% one time in 3 vears $25 above maximum in park Oxnard Pismo Beach Pomona 8% 10%, limit one time in 36 months 10% 10%, San Jose San Luis Obispo (city) San Luis Obispo (county) Santa Clarita limit once in 12 months 10%, limit one time in 12 months Santa Paula Sonoma 10%1 Thousand Oaks Tuolomne County limit one time in 36 months ]0% greater of $34 or 7% 10% Upland 39 F . Exemptions from Local Rent Regulations Under state law, spaces covered by leases of one year or more which meet specified conditions are exempted from local rent regulations. Park owners may not require that current tenants enter into such leases and most local rent ordinances, including the Los Angeles ordinance, provide that prospective tenants cannot be required to enter an exempt lease as a condition for approval to move into the park. Such leases usually provide park owners with more favorable terms than the applicable rent regulation. From the mobilehome owner's perspective, they may offer the benefit of terms that remain in place for the life of the agreement rather than being dependent on the continuation of a local rent regulation. In some rent controlled jurisdictions, there are parks with a substantial proportion of spaces covered by exempt leases. In some jurisdictions, residents have reported that park owners pressure prospective residents into signing exempt as a condition for obtaining park owner approval for residency. Most of the parks responding to the survey, 28 out of 35 parks responding did not have any exempt leases. There are 137 exempt spaces in four of the responding parks. In Oakridge Mobilehome Park, 170 space rentals are covered by exempt leases. Overall, less than 10% of the spaces in the responding parks are covered by exempt leases. 40 VII. Comments on Submissions by Coalition. of Park Owners' The coalition of park owners has made several submissions, which include a proposal authorizing vacancy increases (increases upon in-place sales of mobilehomes) ranging from 50% to 100% depending on the length of occupancy ofthe departing tenant." (0-5 years - 50%; 6-10 years60%; 11-19 years -75%; 20 years -100%). A brief comment on those submissions is provided here. A. Market Rents The coalition projects a gap between current rents of about $700 and "market" rents of about $1,700, which it contends should be corrected over time. While the park owners contend that a "market" park space rent would be about $1,700 (an amount well-above the average rents for apartments), no evidence is presented to support this contention. Although such rents may be obtained for prime coastal locations, information available through brokers indicates that the high end of park space rents in neighboring cities without rent regulations are in the range of $1,100 to $1,300. In the case of mobilehome park space rentals, the "market" is not characterized by the supply and demand mechanisms and the ability of renters to choose to move that characterize a classical market. In the case of mobilehome park space rentals, there is a virtual absence of vacancies and in reality there is no possibility that the supply of rnobilehome spaces can be increased in response to the shortage. Demand can increase, but the supply will not increase no matter how much the demand increases. Also, the tenant has an asset that is virtually attached to its present location. Under the rent stabilization ordinance, the CPI price index is used to set allowable rent increases. This mechanism provides for increases in rents comparable to increases in prices in the balance of the market economy. B. Operating Costs The coalition notes that mobilehome parks, unlike apartments, have an extensive infrastructure to maintain, upgrade, and replace. An engineers report submitted by the coalition projects the extensive length of the infrastructure systems in mobilehome parks and projects typical costs for 57 Letters from Richard H. Close, Gilchrist and Rutter (Santa Monica) Division Director, Nov. 22, 2010; Jan. 19, 2011; and, March 8, 2011. 41 to Council Members and/or Rent Stabilization replacing these systems." However, the Coalition does not submit data which indicates typical costs that parks actually incur for maintaining these systems. The coalition also submitted an income and expense analysis, based on data from three mobilehome parks, which indicated that operating expenses had increased by 38.1 % over the past five years." However, this size sample is very small and the increases it reports are not in keeping with the fact that the CPI has only increased by about only 10% in the past five years. In any case, under the "Just and Reasonable" return standard under the RSO park owners have a right to petition for rent adjustments that will provide for rent adjustments that will cover operating cost increases and for growth in net operating income by the rate of increase in the CPI. Under the standard, the amortized cost of capital improvements is considered as an operating cost. C. Projection of Mobllehome Values The submission of the coalition also projects an average sales price for mobilehomes of $146,894, based on data from five mobilehome parks. However, one of those parks had an extraordinary average of $221,060 and another had an average of $287,599.60 The data in this report, which is based on 1108 sales from 2007 through 2010 indicates that the average for 2007 through 2010 was $92,059. VIII. The Impacts of Vacancy Decontrol The proposal of the Park Owners Coalition for 50% to 100% increases upon in-place sales approaches a vacancy decontrol proposal, because the increases that would be authorized may not differ substantially from the increases that could be imposed in the absence of any rent regulation. In the case of most in-place sales, the allowable increase, which would be tied to the length of occupancy of the departing mobilehome owner, would be 75% to 100%. (75% increases are proposed upon in-place sales following tenancies of 11 years or more and 100% allowances upon 58 Lawrence O. McDermott (Civil Engineer), "Mobilehorne Park Operational Cost Analysis & Apartment Comparison" (Dec. 30, 2010), submission accompanying letter of January 19, 20011 from Richard Close, Gilchrist & Rutter to Director Rent Stabilization Division. At the suggestion of the park owners' coalition, the City's survey of park owners included a question about the length of the infrastructure lines in the park. Very few respondents reported this information. 59 Clarke Fairbrother, Newport Pacific (Irvine California), Dec. 7, 2010. submission accompanying 19,20011 from Richard Close, Gilchrist & Rutter to Director Rent Stabilization Division. letter of January 60 Id., Attachment 2. Also, the average original prices in the data indicate that the sample is largely for new mobilehornes, while most of the mobilehornes in the parks are at least twenty years old and a majority were manufactured before] 980. 42 in-place sales following tenancies of20 years or more. The submission ofthe Coalition indicates that 20 years is the average length of tenancy. The allowable space rents that would commonly result from such provisions (e.g. $1,000 to $1,400) would be comparable to or above the high end ofspace rents in neighboring localities without rent regulations. Over the years there has been extensive discussion, debate, and litigation over the impacts of vacancy control and vacancy decontrol from a fairness and housing policy perspective. The issue of whether or not there should be a vacancy decontrol provision has probably been debated every time a locality has adopted a mobilehome park space rent stabilization ordinance. Numerous local mobilehome park rent stabilization ordinances include findings that vacancy control is necessary in order to preserve the investments of mobilehome owners and other ordinances are clearly based on that premise. These policies are based on a concern that unlimited rent increases upon in-place sales of mobilehomes would drastically reduce the values of mobilehomes. When mobilehome parks were constructed, it was clear that investments by mobilehome owners substantially exceeding the investments of the park owners would be an essential ingredient for the success of the park enterprises and would create a type oftenancy that would provide mobilehome park owners with a particularly secure flow of rental income. As one federal trial court decision noted, park owners fully understood and encouraged mobilehome owners to make substantial investments in their mobilehomes: It is clear that most, or even all, of the tenants have invested more than the value of the coach itself to move into the park. New tenants have paid for placement value held by previous tenants. Therefore, tenants have an expectation thai they will be able to substantially recoup that tnvsstrn ant upon sale of the coach. While that expectation many not be altogether wise, it is not unreasonable. The park owners are business people who understand that the operation of a mobllehome park involves an economic relationship in which both park owner and the tenant must make a substantial investment-Indeed, they have encouraged the tenants to make the investment and to expect a return on it.51 The viability of mobilehorne ownership depends on incentives for mobilehome owners to continue to invest in maintaining and upgrading their homes, which in tum depends on the existence of the ability to recoup these investments. If there is no limit or a limit of 50% to 100% on the amount that the rents may be increased when a mobilehome is sold in place, this viability will be drastically diminished. In cases of exceptional rent increases, rnobilehome values have plummeted and have been reduced to nominal levels. In terms of mobilehome park income, when a fixed percentage adjustment is authorized, parks typically will realize an additional increase in rental income every ten years which would be equal to at least half of the amount of the fixed vacancy allowance. For example, if 10% increases were 61 Adamson Companies v . City of Malibu, 854 F.Supp. 1476, 1489 (1994, U,S.DistCl" 43 Central Dist. California) authorized upon turnover, park income would be increased by an additional 5% over a each ten year period, because the rent of half of the spaces could be increased by an additional 10%, in the case of an average rate of turnover. The survey data for Los Angeles indicates that the increases in mobilehome park space rents have exceeded the increase in the CPl, due to the combination of the full Cl'I annual increases and the allowable vacancy increases. Such increases allow net operating income to increase at a faster rate than the Cl'I if expenses increase at the same rate as the CPt At the same time, park owners are not facing the vacancy risks that are now standard in the balance of the real estate market. 44 Appendix A· L: Mobile . of Mobile Home Parks in the City Los Angeles Home Parks in the Citv of Los Anaeles Park Name AM TRAILER HOME ESTATES ELM LANE TRAILER PARK MONTE VISTA MOBILE ESTATES OAKDALE MOBILE-HOME PARK SHERMAN GROVE M/H PARK SIERRA SPRINGS (VICABOB Trailer Village) SUNLAND TRAILER PARK RESEDA M/H PARK BIRMINGHAM TRAILER VILLAGE FASSLER TRAILER PARK FOOTHILL PALMS M/H PARK LAUREL CANYON MOBILE ESTATES PARK ROYALE SHADY GROVE TRAILER PARK SUN DOWN TRAILER PARK ,/ALENCIA TRAILER GROVE VALLEY VILLAGE M/H PARK WOODLEY TRAILER LODGE BERMUDA M/H COMMUNITY BLUE STAR PARK, INC ~ GLENOAKS MOBILE MANOR GOLDEN TRIANGLE LOS OLIVOS M/H PARK LUMARK TRAILER PARK MISSION MOBILE MANOR MONTEREY MANOR OAKRIDGE MOBILE-HOME PARK RANCHO HERMOSA SANTIAGO ESTATES ISHADOW HILLS MOBILE HOME PARK SHELTER ISLE SYLMAR. MANOR TAHITIAN MOBILE·HOME PARK WARD'S MOBILE HOME PARK PALISADES TRAILER BOWL TAHITIAN TERRACE CANOGA MOBILE ESTATES CASCADE MOBILE CILLA •• CHATSWORTH M/H PARK ETON MOBILEHOME PARK INDIAN HILLS VILLAGE r<.ONA KAI NORTHRIDGE MOBILE·HOME PARK RIVIERA MOBILE ESTATES SUNBURST MOBILE-HOME PARK VALLE VERDE COURTYARD EAGLE ROCK SPRINGS TRAILER MONTEREY TRAILER PARK A-1 TRAILER PARK ARROW TRAILER PARK EL RANCHO VERDE HARBOR CITY M/H PARK IIViERLES MANOR MOBILE PARK 2 ~ALOS VERDES RANCHO M/H PARK PALOS VERDES SHORES MOBILE ESTATES WILMINGTON M/H LODGE ABC WISHING WELL Address 660 SAN FERNANDO ROAD LOS ANGELES, CA 90065 7337 ETHEL AVE. NORTH HOLLYWOOD, CA 91605 8100 FOOTHILL BLVD. SUNLAND, CA 91040 10799 SHERMAN GROVE AVE. SUNLAND, CA 91040 10711 SHERMAN GROVE AVE. SUNLAND, CA 91040 7560 WOODMAN PLACE, VAN NUYS, CA 91405 10444 SHERMAN GROVE AVE. SUNLAND, CA 91040 6545 WILBUR AVE. RESEDA, CA 91335 7740 BALBOA BLVD. VAN NUYS, CA 91406 11167 PENROSE ST. SUN VALLEY, CA 91352 12001 FOOTHILL BLVD. LAKE VIEW TERRACE, CA 91342 9051 LAUREL CANYON BLVD. SUN VALLEY, CA 91352 7650 BALBOA BLVD. VAN NUYS, CA 91406 16811 SATICOY ST. VAN NUYS, CA 91406 8391 SAN FERNANDO SUN VALLEY, CA 91352 7800 BALOA BLVD. VAN NUYS, CA 91406 8250 LANKERSHIM BLVD. NORTH HOLLYWOOD, CA 91605 7936 WOODLEY AVE. VAN NUYS, CA 91406 10812 LANGDON AVE MISSION HILLS, CA 91342 12401 FILMORE ST. SYLMAR, CA 91342 10471 GLEN OAKS BLVD. PACOIMA, CA 91331 10811 COLUMBUS AVE. MISSION HILLS, CA 91345 15831 OLDEN ST. SYLMAR, CA 91342 12301 SAN FERNANDO ROAD SYLMAR, CA 91342 15300 BRAND BLVD. MISSION HILLS, CA 91345 10900 SEPULVEDA BLVD. MISSION HILLS, CA 91345 15455 GLENOAKS BLVD. SYLMAR, CA 91342 16079 YARNELL ST. SYLMAR, CA 91342 13691 GAVINAAVE, SYLMAR, CA 91342 12600 VAN NUYS BLVD. PACOIMA, CA 91331 10965 GLENOAKS BLVD. PACOIMA, CA 91331 13120 BRADLEY AVE. SYLMAR, CA 91342 15445 COBALT AVE. SYLMAR, CA 91342 12245 SAN FERNANDO ROAD SYLMAR, CA91342 16321 PACIFIC COAST HWY PACIFIC PALISADES. CA 90272 16001 PACIFIC COAST HWY PACIFIC PALISADES, CA 90272 8811 CANOGA AVE. CANOGA PARK, CA 91304 14748 SAN FERNANDO ROAD SYLMAR, CA 91342 21500 LASSEN ST. CHATSWORTH, CA 91311 8901 ETON AVE. CANOGA PARK, CA 91304 11401 TOPANGA CANYON BLVD. CHATSWORTH, CA 91311 8800 ETON AVE. CANOGA PARK CA 91304 19120 NORDHOFF ST. NORTHRIDGE. CA 91324 8801 ETON AVE. CANOGA PARK, CA 91304 21001 PLUMMER ST. CHATSWORTH, CA 91311 20652 LASSEN ST. CHATSWORTH, CA 91311 5051 ARGUS DRIVE EAGLE ROCK, CA 90041 6411 MONTEREY ROAD LOS ANGELES, CA 90042 1280 PACIFIC COAST HIGHWAY HARBOR CITY, CA 90710 1523 WEST 259TH ST. HARBOR CITY, CA 90710 1501 PALOS VERDES DRIVE HARBOR CITY, CA 90710 760 WEST LOMITA BLVD. HARBOR CITY, CA 90710 1000 NORTH FIGUEROA ST. WILMINGTON CA 90744 26200 FRAMPTON AVE. HARBOR CITY, CA 90710 2275 WEST 25TH ST. SAN PEDRO, CA 90732 900 EAST DENNI ST. WILMINGTON, CA 90744 20315 DENKER AVE TORRANCE CA 90501 - Blue Star MHP contains 186 spaces; only 30 spaces are located within the City of Los Angeles. # of Spaces CD APN 1 5453-010·006 2327 -001-056 2559·001 ·026 2555-001-007 2555-001-005 2328-001-006 2560-004-008 2128-003-017 2205-007-015 2408-023-002 2531-016-017 2629-032-005 2205-008-023 2205·008-008 2632-002-001 2205-007-026 2311-001-001 2206-006-003 2664-015-032 2526-023-049 2537 -001-025 2615-001-006 2603-015-028 2611-008-008 261 5·001·001 2615-001·003 2582-002-017 2603-009-014 2580-017-007 2532-008-008 2536-013-007 2501-008-051 2501-005-008 2611-008-020 4414-021-025 4414-021-024 2779-019-025 2601-004-009 2746-005-006 2779-017-020 2723-021-084 27 32 75 86 76 135 52 108 187 12 94 60 145 23 44 63 196 26 194 30 70 29 81 105 95 71 600 93 303 2779·016·015 2784-001·136 116 168 151 118 185 31 15 15 15 2779-016-009 2746·007 -003 2748-004-025 5686-009-004 5312-003-029 7411-019-016 7411-007-047 7411-015-028 15 15 15 15 7413-022-011 7416-004-017 7411-022-030 7563-006-019 15 15 7425-007-017 7351-017 ·020 2 2 2 2 2 2 3 6 6 6 6 6 6 6 6 6 6 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 7 11 11 12 12 12 12 12 12 12 12 12 12 14 14 96 260 66 236 39 173 158 199 5 19B 111 138 22 91 15 131 192 87 93 242 59 34 6526 r Appendix B Ro/.'lt .stc:t::i~.:;t~cn nf.n~i,')n ";2DC ~/-l_ 1:~·S:t~2~. FK':~::'·· Lcs ~.i1~,e~e-d. CJ\ £<·:'C';7 s: C:lt FAX2:3 oDB.8c1~ tment SURVEY OF CITY OF LOS ANGELES Antonio R~ViliaraigoXl. Maym' MOBILE HOME PARKS ~\~~~-~,~~:"":~'~(~">:':: ,·i;:. .... ><\: ':.'/';'. ' ;i:'~': :.,. ~;...'. ,.' .'.:- ,.'; '" ."', . ::.' Man~~, Dcugl<ls '~~Ih{ie, G8n"ral :,.:. "~:'<c~'.':"\""::: "~ .c' ..,: ':i'!');:~::,L:~; " :,:. 1. Park Name: 2. Park Address, City, State, Zip: 3. Contact Person: 1 4, Year Park Constructed: 1 I Email: Phone No.: -- 5. Number of Acres: I 6. Total Number of Spaces: ! 7. How many spaces in the Park are vacant? 8. Number of mobile home spaces occupied by homes that are: Singlewide? g, Streets: Ml1esif known: 12.Water lines: Miles if known: 15, Fire Hydrants: No.if known: Yes 0 NoD Doublewide Spaces? 10. Gas lines: Miles if known: 13, Sewer lin es: Miles if known: Yes 0 16.Club House: 17, Pool: Yes 0 19, Allowable Age Groups: Seniors Only: Yes 0 No 0 T riplewlde? NoD NoD 11. Electric Hnes: Miles if known: 14.Landscaping: Acres if known: 18. Other facilities: Type? All Ages: Yes 0 Yes 0 NoD: Yes0 NoD· . No 0 20, What is the average rent for occupied spaces? (Exclude separate charges for utllities.) ~ __ .__ . ----~~~~------~------------------_4 21,What is the range of rents? If most rents are in a certain range, please indicate. 22. What uHlities are included in the rent? Gas: Yes 0 No 0 Sawsr: Yes 0 No.O Electric: Yes 0 No 0 Refuse: Yes 0 No D Water: Yes 0 No 0 List any other utllities included In the rent: 25, What are \he requirements for mobile homes being moved into'the park? (e·9. only new, up to a certain aqe-size or condition) 26. If known, how many homes in the Park were sold to new tenants in: 2010? 2009? 2008? 2007? 2006? Please return the survey in the enclosed envelope by March 25, 2011. For questions, please contact Rosa Benavides at 213-808-8837. Thank you for yourhelp! B-1 Appendix C Southern CaU'omia Mobile Home Park Snaee Rent Control..... ,. Annual Increases Jmisdictioil Amount Floor Ceiling PassThrougbs Bees Increases {gIll InPlace Mobitehome Sales special tax, assessments.go v services Azusa IOO%CPI Beaumont IOO%ofCPJ to highest for comparable spaces Calimesa 80%of CPI unlimited 7% 8"10 in "mY - none camarillo Carpinteria Carson unlimited 75%ofCPI none none cap imp. none up to park avg. for comparable spaces 75%ofCPI Cathedral City 6()'l.l"ofCPI 20% Chino 60%ofCPI unlimited Colton 60% CPI unless tenants request Escondido unlimited ... unlimited one time only loo%ofCPI Fontana none S% Gardena gov't required cap. Imp ?)%ofC?! 10% once per five years Goleta lOO% of CPI up to 50/<>, 75%ofCPI Grover Beach none Hemet Indio Lancaster LaVeme Los Anaeles none up ?5%ofCPl comparable none lOO%ofCPI 7% lO(}Q1o of CPI 3% specified assessments 7% greater of $34or7% 10% 5% 50"/0 of CPI inc> 10% 100'/0 of CPI once in 12 months 2% Malibu Moorpark to seaces in Dark 6O%ofCP! 75% ()fCPI Lompoc 5% ~~-"QI. 5% gov't fees & necessary cap, 15% 1""" lOO%CPl <7% 5% 2/3 CPI 7>18% once in 1 yr., m"" 1411% twl"-,, in'" """ C-1 · --- Annual Increases J urlsdlctlcn Amount 65%ofCPI Floor Ceiling 5% PassThroughs ~;'I"~ 8% increased cost gov't services diff'between CPI increase since '87 & actual increases 8% gov't assessments none Moreno Valley 7S%ofCPI Oceanside IfCP! <4'%-100'% CPr. If CPI 4-9% ... 4% 01' 75% of CPt IfCPl > 90/(>" 6.75% or 67%CPI Oxnard Palm Desert Pismo Beach Pomona ~ ho Mirage Increases on InPlace Mobilehome lesser of 15% or $80, limited to one time in 5 years 75%ofCPI none 10% once in 3 vears $25 above maximum in Dark up to average in Dark 75%ofCPI 1000/0ofCPI 5% 75%ofCPI 100% of CPI up to 4%,75% ofCPI 4% to 90/0,25% of CPlover9% none Redlands prop.tax increase on sale.capital 80%ofCPI unlimited Riverside up to highest rents necessary cap. comparable spaces Imp. in park necessary cap. none , lOO%ofCPi Riverside County San Bernardino San Juan Capistrano 80"hofCPl Imp. lOO%ofCPI 100% of CPI up to 50/0,75% of en San Luis Obispo (city) over 5% 60%ofCPI San Luis Obisoo (count Santa Clarita San Marcos Santa Barbara County Santa Paula Thousand Oaks Upland Ventura Citv west Covina Yucaipa lOO%CPI none service cost increase nassthronzh 3% 6% govt services utility costs none 75%ofCPI 7% 7% 75%ofCPI 75% ofCPI 100;" 100/<>, limit once in 12 months none lO%, limit once in 12 months none unlimited r- 80%ofCPI Increase up 8.750/0, 50%ofCP! increase over 8.75% lOO%CPI 100%ofCPI 800hofCP] 10%, limit one increase/36 months pre-existing land lease, gov't fees 5% 5% 9% greater of $34 or 7% none unlimited none C-2 Northern) California Mobile Home Park Space Rent Control Ordinances #of Spaces Jurisdictiml Annual Increases Amount Floor PassThroughs CellinI!: Increases 00 In- Place Mobilehome Sales 6,315 Alameda County Uninc. American Canyon Beneda Calistoga Capitola Cloverdale - 843 266 555 677 175 Clovis Concord 1,412 Contra Costa Ctv Uninc, Cotati Fairfield 6,350 Fremont Fresno Gflrov Hayward Healdsburg Merced Milpitas 112 851 732 Rocklin Rohnert Park Salinas San Mateo County Uninc, San Jose San Rafael 3% 60% ofCPI cap.imp.up to 5% of rent 6% utilities, prop. Taxes, gov, fees, assessments up to 5% of rent 349 2,397 75 624 566 Modesto agreement option Morgan Hill Novato Pacifica Petaluma Pleasanton 5% 90% CPI up to 3% 80% CPI 3 to 4% 700/0 4 to 6% 6% any rent increase may be challenged in a hearing lOO%ofCPI 6% 100%ofCPI 5% none up to 80%CPI 5% 52%of5-10% 25%> 10% 60%ofCPI 2% 6% new cap. imp. 75% ofCPI lOO%ofCPI 6% lOO%ofCPI 6% 816 654 93 874 2,684 10,756 Scotts Valley Sebastopol 5,797 3,754 529 205 median None None None 5% None None" None 4%** None 10% Unlimited None 75%ofCPI 100%ofCPI 75% ofCPI 100010ofCPI 6% None None Unlimited None 8% permanent vd None Unlimited 100% ofCP! - 1/2% 75%ofCPI 75%ofCPI 75%ofCPI 3% 7% legal challenge 500100fCPI 100% ofCPI 100"/0 of lJ tax inc. cap. rep 6% 3.5% 100".4ofC?I C-3 7% 6% None 10% once/ 5yr:s ndine: 112 cer None - None 8% 5% prop Santa Cruz County Uninc Santa Rosa below park 75% ofCPI 80% ofCPI 5% 3% 6% 60%ofCPI 6% 100"10ofCP! any rent increase may be challenged in a hearing 5% 50%.ofCPI prop tax inc. on 6% sale 100% ofCPI 100% of CPI < 5%, 75% ofCPI Inc 5 to 10"/0, 66% of CPI > lO"lo 1,316 1,467 up to $25 if prop tax inc, 112 CSlJ. rep None None } 00/01 36mol'lths None Jurisdiction Sonoma Sonoma County Uninc, # of Spaces 1,119 2,637 Annual Increases Amount Floor 80% ofCPI 100% ofCPI Cellini!': PassThroughs Increases Oil InPlace 10% or up to minimum rent None 5% 6% gov't assess Tuolomne County Union City 896 1,085 100% ofCPI 90%ofCPI Vacaville 1,244 100% ofCPI Vallejo Watsonville 1,254 75%ofCPI amortized cost correct code violations 7% 5% Capital Replacements Capital Replacements 70% ofePI 10% None None None None Gov't Woodland lesser of CPI or 3% C4 assessments None Appendix D ~ Author's Resume Kenneth Kalvln Baar Urban Planner & Attorney 2151% Stuart St. Berkele~, Ca. 94705; Tel.: (510) 525-7437 Education: B.A., 1969, Wesleyan University, Middletown, Conn. Major: Government J.D., 1973, Hastings College of Law, Univ. of California, San Francisco, Ca. '" M.A., 1982, Urban Planning, University of California at Los Angeles Ph.D., 1989, Urban Planning, University of California at Los Angeles (Dissertation topic: "Explaining Crises in Rental Housing Construction: Myth and Schizophrenia in Policy Analysis") Foreign languages: French and Italian Teaching: Visiting Professor (Fulbright Scholar), Technical University, Tirana, Albania (Introduction to urban planning) (2002-2003) Visiting Assistant Professor, Urban Planning Department, School of Architecture, Planning, and Preservation, Columbia University, New York (1994 - 1995) (courses: planning law, introduction to housing, comparative housing) Visiting Professor (Fulbright Scholar). Budapest University of Economic Sciences (Sept. 1991- June 1993) Instructor, San Francisco State University, Urban Studies Program (1983-1984) Short Courses, Series of lectures Polis UniverSity, Tirana, Albania, urban planning studios (two week courses, 2009 & 2010) Netherlands Ministry of Housing (1997) Kiev University law School, real estate law (1992, one week course) Technical University of Budapest, Planning Department Series of lectures Professional Extension Courses and Undergraduate Courses (1991-1992) D-1 Projects: 198()-2(l1() Study of Performance of Rental Housing Investments for the City of Los Angeles {in association with Economic Roundtable, Los Angeles)(2007-2009} Consultant to California cities and counties on rnobllehorne park rent control policies, drafting of ordinances, fair return issues, and/or mobilehome ownership characteristics and market studies (19852010) (American Canyon, Azusa, Capitola, Carpinteria, Carson, Ceres, Chula Vista, Citrus Heights, Clovis, Cotati, Escondido, Fremont, Fresno, Healdsburg, Milpitas, Marina, Modesto, Montclair, Oceanside, Palmdale, Palm Desert, Perris, Riverbank, Rohnert Park, Salinas, San Marcos, Santa Cruz County, Santa Rosa, Santee, Simi Valley, Sonoma, Thousand Oaks, Vallejo, Ventura, Visalia, Watsonville, Yucaipa) Consultant to Takoma Park, Maryland, Drafting Rent Stabilization ordinance (2006-2007, 2009~2010) Institute of Transportation and Development Policy (New York City), Study on European policies governing location of shopping malls (2001-2002) Open SOCietyBudapest (Soros Foundation), Study on contracting out of public services and freedom of information in Hungary, Czech Republic, Romania, and Slovakia (2000-2001) .r Consultant to World Bank (Budapest office), Studies on municipal contracting out of public services, policies for the provision for the provision of district heating, and land use policies in Hungary (1998-1999) Urban Institute, U,s. Aid for International Development (A.LD.) funded technical assistance, Hungarian Subnational Development Project (1998 & 1999) Consultant, Institute for Transportation and Development Policy, to East European Organizations on Transportation Policies (1997-98) U.SALD. funded technical assistance to Albanian Ministry of Construction (Sept. 1993- March 1994) Study of Hungarian Land Use Regulations (1992, publication and technical assistance sponsored by Urban Institute, Wash. D.C.) Report for Hungarian Ministry of Justice, Comparison of Landlord-Tenant law in France, United States, and Hungary (1992, funded by Urban Institute, Wash. D.C.) Consultant, City of Santa Monica, Cal., Incentive Housing Program Preparation of a Guide for New Jersey Rent Control Boards on Fair Return Standards and Landlord Hardship Applications (National Housing law Project, 1981) Research and Writing Articles on Inequalities in Property Tax Assessments (Legal Services Corporation, Washington, D.C., 1982-83) Preparation of apartment operating cost studies for the cities of Berkeley, Santa Monica, and Cotati, California) 0-2 / Publications Articles "Fair Return under Mobilehome Park Space Rent Controls: Conceptual and Practical Approaches; 29 Real Property Law Reporter 333 (Sept. 2006) "Legislative Tools for Preserving Town Centres and Halting the Spread of Hypermarkets and Mans Outside of Cities" published in Etudes Foncieres (land Studies) No. 102, pp, 28~34 (March~ApriI2003, Paris, translated into French); also published in Falu, Varas, €IS Regio (Village,Town, and Region), issue no. 2, pp. 11-22 (2003), (Budapest, translated into Hungarian) "Contracting Out Local Public Services in a Transition Economy," Review of Central and Eastern European Law, Vol. 25, No. 4, 493~512, September 2000, (Leiden, Netherlands) "Contracting Out Municipal Services: Transparency, Procurement, and Price Setting Issues", Hungarian Public Administration, Vol. 49, No.3, May 1999 (translated into Hungarian) "laws Protecting Mobilehome Park Residents", Land Use and Zoning Digest Vol. 49, 3-7 (Nov. 1997, American Planning Association) "The Anti-Apartment Movement in the U.S. and the Role of Land Use Regulations in Creating Housing Segregation", Netherlands Journal of Housing and the Built Environment, Vol. 11, no.4, 359-380 (1996) "La resistance au logement collectif', Etudes Foncieres, Vol. 67, 4448, (June 1995, Paris, Association des Etudes Foncieres) and "II Movimento Contro Gli Edifici Multifamiliari Negli Stati Uniti, Storia Urbana, Vol 66, 189-212 (1994, Milan, Italy) (translated versions of "The National Movement to Halt the Spread of Multi-family Housing (18901926)", JournaloftheAmerican Planning Association, Vol. 58, no. 1, 3948, Deo.1991) "lrnpacto del precio del suelo y de las normae sobre su uso en ei precio y la dlstribucion de las viviendas en USA", La Vivienda, no. 23,43-51 (1993, National Mortgage Bank of Spain) ["The Impact of Land Costs and Land Regulations on the Cost and Distribution of Housing in the United States"] "A Terutefrendezes Dilemma! a Demokratiku5 Piacqazdasaqokban", Ter es Tarsadalotn, Vo1.6, no. 1-2, 89-99 (1992, Budapest) ["Dilemmas of Land Use Planning in a Democracy with a Market Economy", Space and SOCiety] "The Right to Sen the 'lrn'mobile Manufactured Home in Its Rent Controlled Space in the 'Im'mobile Home Park: Valid Regulation or unconstitutional Taking?", Urban Lawyer Vol. 24, 107-171 (Winter 1992, American Bar Ass'n) "The National Movement to Halt the Spread of Multi-family Housing (1890-1926)", Journal of the American Planning Association Vol. 58, no. 1, 39-48 (Dec. 1991) "EI Control de Alquileres en Estados Unidos" Estudios Territor/ales, Vol. 35, 183-99 (1991, Madrid) ["Rent Control in the United States"] "Would the Abolition of Rent Controls Restore a Free Market?", Brooklyn law Review, Vol. 54, 1231-8 (1989) "A Choice of Issues" (Introduction to articles on the impact of rent controls on the property tax base), Property Tax Journal Vol. 6, no. 1, 1-6 (March 1987, International Ass'n of Assessing Officers). "Facts and Fallacies in the Rental Housing Market", Western City, Vol. 62, no.s, 47 (Sept 1986, California League of Cities) "California Rent Controls: Rent Increase Standards and Fair Return", Real Property Law Reporter, Vol. 8, no. 5, 97 104 (July 1985, California Continuing Education of the Bar) a "Rent Control: An Issue Marked by Heated Politics, Complex Choices and a Contradictory Legal History", Western City, Vol. 60 (June 1984) "Rent Controls and the Property Tax Base.The Political-Economic Relationship", Vol. 3, no. 1, 1-20 (March 1984) Property Tax Journal "II Dibattito Sui Controllo Degli Affiti Negli Stati Uniti", Bolletlno Daest (Sept 1984, University of Venice) ["The Debate Over Rent Controls in the United States"] "Guidelines for Drafting Rent Control Laws: Lessons of a Decade", Rutgers Law Review, Vol. 35, 723885 (1983) "Defining 'Fair Return' For Rent Controlled Landlords», 59 New Jersey Municipalities (no. 3) 24 (1982) "Property Tax Assessment Discrimination Against Low-Income Neighborhoods", Urban lawyer, Vo1. 13, 333-405 (1981, American Bar Ass'n) abridged versions: Clearinghouse Review, Vol. 15,467-486 (1981), Property Tax Journal, Vol. 1, (no. 1) 1-50 (March 1982) (Coauthors Saar and Keating) "Controlling Rent Control", 2 New Jersey Reporter (no. 4) 19-25 (October 1981) "land Banking and Farm Security Loans", Economic Development law Project Report, Vol. 8, no. 4, 1978) "Rent Control in the 1970's: The Case ot the New Jersey Tenants' Movement", 28 Hastings Law Journal 631-683 (i977) (Coauthors Pearlman and Saar) "Beyond the Uniform Relocation Act: Displacement by State and Local Government. Clearinghouse Review, Vol. 10, 329-345 (i976) (Coauthors Baar and Keating) "The last Stand of Economic Substantive Due Process: The Housing Emergency Requirement for Rent Control", Urban Lawyer, Vol. 7,446-509 (1975) Chapters in Books Baar, "Contracting Out Municipal Services: Transparency, Procurement, and Price-Setting Issues," (ch, 15), "land Use Regulation" (ch.21), and "Financing and Regulating District Heating (ch 26) Intergovernmental Finance in Hungary (2005, World Bank) "Open Competition, Transparency, and Impartiality in Local Government Contracting Out of Services" (Chapter 2), NavigatiDn to the Market Regulation and Competition in local Utilities in Central and Eastern Europe, ed. Peter; and Horvath (2001, local Government and Public Service Reform tntltiative, Open Society Institute, Budapest) "New Jersey's Rent Control Movement" (Chapter 10) and "Controlling "lm"Mobile Home Space Rents", (Chapter 13), ed. Keating, Tietz, 8. Skaburskls, 'Rent Control: Regulation and the Rental Housing Market (1998, Center for Urban Policy Research, Rutgers University. Hungarian Land Use Policy in the Transition to a Market Economy with Democratic Controls", Land Tenure and Property Development in Eastern Europe (1993, Association des Etudes Foncieres, Paris) "Rent Control", California Residential Landlord-Tenant Practice, Chapter 9 (1986, California, Continuing Education of the Bar) Books Editors Baar and Pojani, Urban Planning in a Market Economy, (Tirana, Albania 2004); author of chapters: "Decentralization in Service Provision and Urban Planning - An International Perspective, Private", "Property Rights, Public Expropriations, and Public Rights to Undertake Urban Planning "Contracting Out Public Services in Hungary - Regulatory, Contracting and Transparency lssues", Coauthor of chapters: "Urban Planning in a Democracy with a Market Economy', "local Service Provision in Albania". H , Reports "Impacts of the Rent Stabilization Ordinance on the Outcomes of Apartment tnvestrnents" (Ch. 4) and "Rent Increase Standards: Los Angeles Rent Stabilization Ordinance (RSO) and Comparison with Ordinances in Other California Cifies" (Ch. 5), Economic Study of the Rent Stabilization Ordinance and the los Angeles Housing Market, prepared for City of Los Angeles Housing Dept 2009) Court Opinions Citing Mobilehome Owners law Review Articles by Kenneth Baal" on Rent Regulation andlor Helmsley v. Borough of Fort lee, 78 N.J. 200; 394 A.2d. 65 (1978) New Jersey Supreme Court Fisher v. City of Berkeley, 37 Cal. 3d. 644; 209 CaLRptr. 682 (1984) California Supreme Court; affirmed, 475 U.S. 260 (1986) Oceanside Mobile Home Park Owners Association v. City of Oceanside, 157 Cal.App.Sd. 887 (1984) California Court of Appeals Mayes v. Jackson Township, 103 N.J. 362; 511 A.2d. 589 (1986) New Jersey Supreme Court; cart. denied, 479 U.S.1090 (1987). Yee v. Mobilehome Park Rental Review Board, 17 Cal. App. 4th 1097 (1993) California Court of Appeals Palomar Mobilehome Park v. City of San Marcos, 16 Cal.App.eth 481 (1993) California Court of Appeals Kavanau v. Santa Monica Rent Control Board, 16 Cal.4th. 761 (1997) California Supreme Court); cert. denied, 522 U.S. 1077,118 S.Ct. 856, 1391.Ed. ze, 755'(1998) Quinn v, Rent Control Board of Peabody, 45 Mass. App.Ct, 357, 698 N.E.2d.911 (1998, Massachusetts Court of Appeal) Galland v. City of Clovis, 24 Cal. App. 41h1003, California Supreme Court (2001) MHC Operating Limited Partnership v. City of San Jose, 106 Cal. App.4th {2003} California Court of Appeal Berger Foundation v. Escondido, 127 Cal.App.sth 1 (2005) California Court of Appeal TG Oceanside, L.P. v. City of Oceanside, 156 Cal. App.4th 1355 (2007) California Court of Appeal D-5