Jane Tyska/Bay Area News Group
OAKLAND — With its crumbling popcorn ceilings, cracked tile and worn carpeting, the apartment Rafael Luna and Evelia Cruz have called home for nearly a decade has outlived its youthful prime by any measure but one: California’s rent control law.
Though built in 1989, the family’s apartment in Oakland’s gentrifying Fruitvale neighborhood will forever be deemed “new construction” under the state law, making it immune from local rent control. So there was nothing the city could do about the $1,000-plus hikes that hit the Luna family and their neighbors as the complex of four apartments changed hands last year.
For these families with modest means, the rent sought by a 32-year-old Silicon Valley investor all but guaranteed they would be forced out — not just from their apartments, but a city where the median rent for a 2-bedroom apartment is $2,750.
“We love it here. We love Oakland,” Luna said. “It’s very hard because we don’t know what we’re going to do.”
Luna, an electrician with two children attending high school a few blocks away, is one of many renters lending their wrenching stories to a statewide initiative campaign aiming to repeal California’s restrictions on rent control. If the proposal qualifies for the November ballot and passes, cities reeling from the housing crisis would instantly gain far more latitude — and face more pressure from activists — as they consider protections for renters in an overheated market that has displaced working-class tenants across the Bay Area.
California’s law, known as Costa Hawkins, makes it illegal for cities to impose rent control on single-family rentals, condominiums or “new construction” — apartments built after 1995, when the law was passed, or in some cases earlier. If a city previously approved its own ordinance but exempted new construction, as Oakland, Berkeley and San Francisco did in the late 1970s and early 1980s, those earlier dates cities defined for “new construction” are set in stone under Costa Hawkins, pushed by the state trade group representing landlords.
Rent-control critics, including many economists, argue that if cities adopt measures regulating prices on more units, it might only make matters worse by discouraging rentals, further tightening a short supply and driving up prices for newcomers. They also note that rent control keeps prices lower for everyone, even high earners who can afford to pay more. But amid a wave of evictions, the initiative — along with local rent-control campaigns in at least eight cities, including Santa Cruz, Sacramento and Long Beach — is gaining momentum.
The trouble for the Luna family and their neighbors began shortly before real-estate investor David Lawver scooped up the four-unit complex in Oakland’s historically working-class Fruitvale neighborhood for $1.1 million. What happened in the sale and its aftermath is both convoluted and revealing, exposing the vulnerability of tenants who — given the scarcity of affordable alternatives in the Bay Area — find themselves at the mercy of their landlords.
Luna said the seller — their landlord at the time, Efren Villalpando — stopped him in the parking lot and urged him to sign a document saying the rent on the three-bedroom apartment was $2,300 when he actually was paying just $1,500, assuring him that it wasn’t going to be the actual rent. In a court document filed by Luna’s attorney, Luna wrote he didn’t understand what he was signing and that he feels that Villalpando tricked him.
Efforts to reach Villalpando were unsuccessful. A woman who answered the phone at Villalpando’s home asked who was calling and hung up after learning it was a reporter inquiring about the property.
The sale was finalized last fall, and Luna continued paying his usual rate. In January, he received a letter from his new landlord saying that his rent — listed in the letter at $2,300 — would go up even higher in April, to $2,650. Lawver has since sent letters telling the families they need to pay thousands in back rent or move out.
Reached by phone, Lawver argued the case boils down to a contract dispute and said he hired a mediator to sort out the truth in a meeting next month. He said he bought the property based on legal documents declaring that the tenants were paying well over $2,000 per month. Receipts show that Luna, for example, never paid more than $1,500, but Lawver said he didn’t ask for such documentation.
If it’s proved the tenants were tricked into signing the documents Villalpando used in the sale, Lawver said, “I’m fine with taking lower rent, but the seller needs to give me some money back because the building was obviously overpriced.”
The Luna family’s predicament has darkened an otherwise joyous time: Their 18-year-old son David graduates from Life Academy next month and plans to enroll at UC Berkeley in the fall. He was among the small percentage of in-state hopefuls selected for a seat at the prestigious university and now wonders if all will be lost if his family moves out of state — possibly, to Las Vegas, where housing is cheaper.
“Instead of focusing on him and his graduation,” his mother said in Spanish, “we are thinking, `What is going to happen today? What is going to happen?’ ”
Also coping with the threat of eviction are Consuelo Cazares, who cleans houses, and her husband, David, who works at an East Bay factory. They have lived in their apartment for almost 26 years and have two school-age children, 13 and 16. Consuelo laughed when asked whether her family could afford the new rent — roughly twice what they had been paying.
“The truth is that we can’t imagine where we would go after so many years here,” she said in Spanish. “I knew we would leave someday, but I never thought it would happen like this.”
Luna and Cazares were among the protesters organized by Alliance of Californians for Community Empowerment — one group behind the initiative to repeal the state’s rent control law — who confronted Lawver in February at his San Jose mortgage brokerage firm, Kal Financial.
Lawver says activists casting him as the villain are misinformed. “Just because I’m an investor and buy real estate doesn’t mean I’m a bad guy,” he said.
“I didn’t buy the building for charity, right?” he added. “I donate money to charity. I bought it based on the leases. Maybe someday I’ll do low-income housing for charity, I don’t know. But that’s a different conversation.”
The case points to an ethical problem in the industry, said Greg Morrow, executive director of the Institute of Real Estate at Pepperdine University. Without stronger state policy, he said, some investors will see an apartment building “as just another investment vehicle like a stock, and `I’m going to extract as much out of it as I can.’ ”
Morrow is worried a full repeal of the state’s rent-control restrictions will have unintended consequences, but he thinks the law is overdue for an update. Cities should be allowed to have apartments “roll into” rent control after a certain number of years, he said. Otherwise, the supply of rent-controlled housing will just continue to shrink.
But the polarizing debate has left little appetite for compromise in Sacramento. Even now, with the ballot initiative looming, there are no proposals to revise Costa Hawkins.
“The story you’re telling,” Morrow said, “is the collateral damage from the collective lack of action to come up with common-sense solutions.”
CALIFORNIA’S RENT CONTROL LAW, EXPLAINED
What is Costa Hawkins? It’s a decades-old California law that makes it illegal for cities to adopt certain kinds of rent control ordinances.
What are the restrictions? Single family homes and condominiums are exempt from rent control under this state law. So is any apartment built after 1995, when Costa Hawkins was passed, or in some cases much earlier. If a city adopted rent control in the late 1970s or early 1980s, for example — as Oakland, San Francisco and Berkeley did — then that date is the cutoff in that city. Everything built afterward is exempt from rent control. Costa Hawkins also prohibits cities from regulating how much a landlord can raise the price after a tenant moves out, a policy known as vacancy control.