1. Economic Overview of Berkeley’s Rental Housing Affordability Crisis and Proposed Increase in Business License Tax on Residential Rentals Stephen Barton, Ph.D. November 17, 2015

2. S.F. Bay Area is a High-Rent Regional Market November 17, 2015Economic Overview - Stephen Barton, Ph.D.2

3. High Bay Area Rents Created Over Decades November 17, 2015Economic Overview - Stephen Barton, Ph.D.3

4. High Rents Are Not Economically Necessary National average is under $800 month. Non-profit housing typically costs $550 - $750 per unit per month for operating expenses, reserve set-aside and resident services. In a fully competitive market, rents are minimum necessary to profitably operate and maintain rental housing. November 17, 2015Economic Overview - Stephen Barton, Ph.D.4

5. Why Rents Are So High Desirable place to live Natural beauty Diverse creative culture Quality public services – City, BUSD, County, EB Parks, BART, AC Transit, etc. Strong regional economy – In Berkeley University has increased students & staff Difficult place to build Bay, ocean & hills limit land to build on Redeveloping urbanized land at higher densities costs more, requires high rents to be profitable Land use regulations make apartment development difficult November 17, 20155Economic Overview - Stephen Barton, Ph.D.

6. High Rents Reflect Value of Land/Location A large part of the rent is simply an “admission charge” for privilege of living here in Berkeley Long-standing real estate cliché: “the three main factors in whether real estate will go up in value are location, location and location”. The value of the location comes from public investment, public services, the culture & livability of the community and the larger economy. The public is entitled to regulate or recapture the value the public has created instead of allowing real estate investors to take it all for private profit. This applies to both new development & existing rentals. November 17, 20156Economic Overview - Stephen Barton, Ph.D.

7. Berkeley Rents Rose Much Faster Than Inflation after Vacancy Decontrol November 17, 2015Economic Overview - Stephen Barton, Ph.D.7

8. A Major Transfer of Income from Tenants to Real Estate Investors Annual rents for 19,000 rent stabilized units rose from $164 million in 1998 to $342 million in 2014. Berkeley rents now $100 million a year over and above the inflation adjustment needed for a fair return. Results in tenants paying a higher percentage of income for rent, overcrowding and fewer low income tenants living in to Berkeley Increase in value of rental properties more than one billion dollars. November 17, 20158Economic Overview - Stephen Barton, Ph.D.

9. Proposed Tax Increase Current business license tax for residential rental properties with 3+ units is 1.081% of gross receipts. A 1.8% increase (average cost $30 per unit per month) to a total of 2.88% yields about $4 million annually with proposed exemptions, rising as rents increase. A 2.8% increase to 3.88% (average cost $45 per unit per month) yields $6 million annually w/proposed exemptions. The tax increase would not be passed on to tenants. Not subject to pass-through in rent stabilized units Owners of uncontrolled rents may claim would pass it on, but they will raise rents anyway if market allows Tax would come out of windfall profits from rising rents. November 17, 2015Economic Overview - Stephen Barton, Ph.D.9

10. Possible Exemptions from Tax Increase All 1 and 2 unit & non-profit owned properties are fully exempt under the current ordinance. “Old rent control” units with pre-1999 tenants. “Inclusionary” and “density bonus” units. Current small, low- and moderate-income landlords. Hardship exemptions. New construction temporarily exempt for 10 years after certificate of occupancy. Units with Section 8 and Shelter + Care tenants. November 17, 2015Economic Overview - Stephen Barton, Ph.D.10