Rent Control to Save Street?

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By William Smithers

In a recently-published article describing a conference of business owners, citizens and local government officials brainstorming ideas as to how to improve the economic outlook for Santa Barbara's State Street, where currently there are 34 vacancies, one idea in particular struck me as innovative and interesting.

It's well-known that skyrocketing rentals along the city's main thoroughfare are causing increasing business closures and/or business flight from that scene.

The latest UCSB Economic Forecast Project reports retail sales increased everywhere in the county except in the cities of Santa Barbara and Carpinteria, where they dropped 1.1 and 3.5 percent, respectively.

Landlord explanations for large rental increases are always that they are simply market-driven: if you want a desirable location for your organization or business, you have to pay up for it.

What about rent control?

As far as housing is concerned, it seems that the California Local Rent Control Initiative (#17-0041) may appear on the November 5, 2018 ballot, since it has received 565,000 supporting signatures when only 365,880 are required.

“The measure would allow local governments to adopt amendments, ordinances, or regulations to govern how much landlords can charge tenants for renting apartments and houses. The measure would also repeal the Costa-Hawkins Rental Housing Act, a law designed to prohibit local governments from enacting rent control on buildings first occupied after 1995.” (sfgate.com)

But as to businesses, under current California law: 

“Rent control, or the capping of rents in a specific area at a certain amount by a public entity, is prohibited by California law with regard to commercial property. … Under Section 1954.27 of the California Civil Code, no public entity is allowed to enact or enforce any type of commercial rent control in the state. However, commercial landlords are allowed to voluntarily enter into a capped rent agreement with public agencies. “(op.cit.)

This creates the possibility for bringing into existence one suggestion from the brainstorming session described above:

Create a municipal “Economic Czar,” as other communities have done. Under this aegis, permit an Association of Business Owners that could negotiate rental prices with landlords.

I think this an extremely interesting idea. No landlord would be compelled to enter into such negotiations, but if some do and arrive at an agreed sum, a process might be underway that could persuade non-signers to get on board to be competitive.

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Red Creek May 22, 2018 08:14 AM
Rent Control to Save Street?

PSTARSR has it exactly right "its because we sold ourselves" to the influence of outside developers that SB has become completely unaffordable to what they euphemistically term the "workface", ie: firefighters, teachers, streetworkers, maids, gardners, cooks, etc. We all need homes, but when properties are bought with expensive price tags, then remodeled or greatly increased in density, the new owners now want the money back through rents. The City Council even sold out East Beach to developers who have created an unreal Disneyland down there. Once upon a time, East Beach was zoned for light industrial tech (much like Goleta) to bring in high paying professional jobs and park like settings. Instead we got hotels and restaurants to serve the tourist with prices and rents forcing out the local "workforce". We got we we voted for and these folks are still running things, using "workforce housing" as a further excuse to increase the density downtown to help new owners cover their investments. A sad selling of our beautiful town.

a-1529301059 May 22, 2018 10:18 AM
Rent Control to Save Street?

Some truth to this. Since the city made its bet on tourism in the early 2000's, there's been a mad rush to maximize the dollar/sq ft of every property in town. Vacation rentals, wineries, funk zone - all trying to grab those $$$ and driving property values even higher. State St is in serious trouble with all the newly opened energy and excitement below the freeway underpass. There's nothing to draw tourists up there. East Beach Grill is a very painful example of how the city is in on the 'drive prices ever higher' movement by kicking out a longtime local guy that served locals for the highest bidder serving tourists. When you sell out your town, pretty much there's nothing left for you.

420722 May 22, 2018 08:11 AM
Rent Control to Save Street?

Any Starbucks baristas on here? What are your thoughts? I personally would hate to work there now with a policy like that. I never let people (homeless or wealthy) just sit in my place of business, use the Internet and bathroom all day without buying anything.

pii May 22, 2018 07:22 AM
Rent Control to Save Street?

One can't "write off" a lack of rental income. You don't have income, you don't pay income tax. I think some people here should look at a tax return once in a while.

sbdude May 21, 2018 09:46 PM
Rent Control to Save Street?

Yeti, simple supply/demand curves do not apply because of the financial and tax advantage of keeping a property vacant, much of which is discussed in this thread. Really monkey-wrenches the analysis. I don't which is killing State St. more - homeless, high rents, a do-nothing mayor and council, or systemic changes in the retail sector. The end result is the same, though: State St. dies while the Funk Zone parties.

a-1529301059 May 21, 2018 07:12 PM
Rent Control to Save Street?

I would venture to guess that with the new Starbuck's policy, that fewer "street" folks will be on the street. God bless Starbuck's for taking the lead to help these people. I believe there are no fewer than a dozen Starbuck's in SB/Goleta/Carp. If each Starbuck's can sponsor four or five individuals, that's 50-60 folks off the streets who now officially have a place where they can use the bathroom without fear of being arrested.

a-1529301059 May 21, 2018 07:50 PM
Rent Control to Save Street?

Actually, Starbucks just clarified their policy. They're not a drug use or homeless haven. https://www.wsj.com/articles/starbucks-says-drug-use-sleeping-unacceptable-as-it-clarifies-guest-policy-1526918854

Lucky 777 May 21, 2018 01:48 PM
Rent Control to Save Street?

It has always been explained to me that vacant properties are written off at the value of the rents last received, and since so many players in this area own multiple properties it serves their self-interest to keep the historic rent rate high, even if it is hollowing out the downtown.

PitMix May 21, 2018 02:14 PM
Rent Control to Save Street?

It seems like there is some leeway to negotiate rents for office space depending on how many vacancies exist. But no leeway to negotiate prime retail storefront rates. The companies we are talking about will never go bankrupt but may someday sell what they own at reduced prices if they don't think the retail market will ever recover. San Luis Obispo seems to have a nice downtown core, maybe we should try to hire their economic czar?

pstarSR May 21, 2018 12:24 PM
Rent Control to Save Street?

Why discuss this when the people that would shop there can't afford to do so. we can talk about "reviving" state street, but honestly locals don't shop there. This wont save santa barbara from the fact that cost of living is too high for anyone locally to survive. Wonder why all the business's on state are owned by "large property holding companies"...... why are all apartments and housing now large developments owned by companies that have headquarters outside santa barbara? its because we sold ourselves

monkeyboy May 21, 2018 03:16 PM
Rent Control to Save Street?

Everyone that lives here pays all their income into rent/mortgage, so those in lower cost of living areas are the only ones who can afford to buy local real estate for investments.

Yeti May 21, 2018 12:02 PM
Rent Control to Save Street?

I love how A-15 is the resident expert on all subjects and feels the need to comment so many times on everything, essentially attempting to monopolize all discussions. Again, simple economics.. IF the so called big property owners can withstand many months of no rent, then WHY are we even having this discussion. Their so called position of strength is obviously not helping them fill vacancies. They will drop rents eventually. My current office lease was signed during a slow period when there were a lot of vacancies. I rent from probably the biggest landlord in this area. BUT, they bent over backwards for us, because they wanted to fill some space. This will happen on State street eventually as well. In the mean time, clean up the filth on lower State and just let the business animal instincts take their course.

a-1529301059 May 21, 2018 03:28 PM
Rent Control to Save Street?

Completely agree and I keep scratching my head why any comment board wouldn't utilize Discuss. Among improvements, Discuss doesn't allow anonymous replies and will also notify commenters that someone else has replied to their post. The only reason it makes sense to use the Edhat scheme is that it forces Users to click again to check for updates. Clinks count...

monkeyboy May 21, 2018 03:18 PM
Rent Control to Save Street?

The second worst feature is that the "send" button for comments only seems to react properly half the time, the other half it appears as if nothing has happened, resulting in double posted comments.

monkeyboy May 21, 2018 03:17 PM
Rent Control to Save Street?

One of the worst features of edhat is the anonymizing system. Makes it nearly impossible to follow a conversation, so I just move on.

monkeyboy May 21, 2018 03:17 PM
Rent Control to Save Street?

One of the worst features of edhat is the anonymizing system. Makes it nearly impossible to follow a conversation, so I just move on.

Potif May 21, 2018 02:44 PM
Rent Control to Save Street?

YETI - I hope you realize that all comments made using the same numbering code are not the same person. The person replying below 'anonymously' (on purpose) on May 21 at 1:08 PM, is probably not the same person who also posted anonymously below with the same 'code', later, at 1:43 PM. As well as all the others replying to this topic. They are likely a fairly large number of different people. Especially with all the comments on this topic. So, I have no idea to who, or which comment you are referring to by using the 'number' A-15. You would also have to include the date and time the post was made to assist us in knowing who you are replying to if they are replying 'anonymously'. It would definitely help if all who make comments had a 'handle', but I also understand people not always wishing to be known for everything they might say.

a-1529301059 May 21, 2018 01:08 PM
Rent Control to Save Street?

YETI, first off A-156932268 isn't the only anonymous commenter. All anonymous comments get the same code. I'll be posting this anonymously to see if it holds the same code I mentioned or if they all change.

a-1529301059 May 21, 2018 12:22 PM
Rent Control to Save Street?

Two things are happening here: the tenants still remaining on State St are locked into annual 3% increases, so over time their rent has increased to the unsustainable level. Thus the Peets and Verizons chain stores are now moving out of State. In the meantime, there are no takers on the vacant storefronts because a) the rents are obscene and b) you'll need years to get through the city's permitting process and c) a persistent homeless problem that keeps customers away. With vacant storefronts comes increased costs in blight management, paid for by the city, or rather, you and me. Yes, the market will eventually correct, but markets aren't some abstract force operating far away. Markets are people, and people are susceptible to delusion. There's a bubble happening on State where Sima, Meridian and other property management firms have convinced themselves that top dollar is what they must command. So they're not moving anything because they won't bend on the pricing. Meantime, more tenants will hit the ceiling of unaffordability....and move out. Over time, this creates a hollowed-out downtown, and that's indeed what we're getting. Will it correct? Will the market finally come to its senses? Sure. But only when State is nearly completely vacant, boarded up, and overrun by homeless. Then some folks that overpaid for property and failed to rent it will go bankrupt. By then few local stores will still be operating because they couldn't afford the annual increases. And the city will be in deep financial trouble because the revenues from sales taxes are gone, while their costs to deal with blight and crime are up. By then, it will be a major economic crisis. And a whole lot of people will have lost a massive amount of money. A good mayor would pull the SIMA / Meridian / Ray Mahboob set into a room and demand that either they start renting those storefronts, or face a fine to cover the city's cost of losing sales tax and dealing with blight. But we don't have a strong mayor, or a strong mayoral system here. A good Chamber head would be out there banging the gong on this. Note that Carp and Goleta do not have this issue. It's a uniquely SB problem. A good downtown business org would pummel city council every week about this. Oh, wait, they tried that, and then fired their director because Rowse and Hart got pissy and said there is no homeless problem - the problem is the downtown org isn't promoting State St enough. Those downtown folks are being good little mice now, lest the city think about yanking the $2 million it gives them annually to maintain State St. In the meantime, since there's no leadership, and since the property management firms are not backing down on obscene rents and more tenants are leaving that shouldn't have a problem making it here.... ...Detroit-like ruins - here we come!

Mesarats May 21, 2018 11:30 AM
Rent Control to Save Street?

Rent control mandates in California, overall to do not increase affordability. A good example is comparing East Palo Alto (has rent control) with Palo Alto which doesn’t. Given the desirability factor between the 2, the difference is a negligible. Lower and mid income people are still being priced out. As far as commercial property on State Street there are other factors that are driving retail. First is the overall decline of sales in brick and mortar, second changes in consumer preferences of how they spend their disposable income, especially the targeted millennial population. If one thinks that our city government can be the solution, a look at their contribution to the problem is in order and it is multi focal. The city’s primary goal is to increase tax revenue and is doing to business what they are doing to housing. We understand the state mandate to add units, but exchanging old stock housing and commercially zoned properties for higher numbers of higher cost rentals has not increased affordability, they are still going up. Goleta too and look how many they have added. The distribution dollars has just shifted to a higher income demographic. The city has also prioritized the development of the funk zone for high end lodging and hospitality, housing and entertainment at the expense of commercial businesses which what it was primarily zoned for. Non essential commerce has just moved down the street at the expense of local craftsman, mechanical, artists, fabricators etc...again the working and middle class have been priced out. This is not sustainable. Giving the city more control is not the answer. Be it food trucks, vendors, marijuana RVs (and those tourists who are no loner welcome here) or common sense vacation rental policies they cannot find a balance that both benefits the community and creates a more interesting and vibrant place to be. Santa Barbara has become just another beautiful cookie cutter high priced California beach town that is sacrificing it’s identity for tax revenue. These are the same people who are changing the Boat House restaurant, the last causal and affordable beachside restaurant into a fine dining establishment. They don’t get it. I come in contact with a lot of tourists and I tell them to go to Ventura, they get it. Local businesses dominate down town, they still have a art community, more diversity of people and businesses, great small music venues and prices are cheaper. The other issue it that is becoming more often that people have to go to Ventura for industrial or building products or services that are no longer available here. I guess it’s true that “we get the government we deserve”

22701015201 May 21, 2018 11:13 AM
Rent Control to Save Street?

SB's Economic Czar is the Parking Sup. Pretty sure he knows nothing about economic development. If the guy needed a promotion the City should have put him somewhere else. Santa Barbara needs a real expect. Someone who doesn't need to be taught economic development from the ground up. Someone managing the city parking structures and permit program should not even be interviewed. The whole city is a disgrace. From an incompetent mayor to our new Economic Czar, formally the head of parking attendants. The city is beyond clueless.

TomTomTomTom May 22, 2018 07:46 AM
Rent Control to Save Street?

This. Between our bloated budgets and inept management, nothing short of a economic hurricane will save SB from the greed and myopia of the last 30 years. When you spend more than you have, more than you make and you never, ever change your ways. You end up with a economy based on the myth not reality... State St is never coming back in its current form. The entire area needs to be re-done to meet the needs of tomorrow. But SB never looks forward, its entire identity is based on a 50 year window between 1930-1980.

Wm. Smithers May 21, 2018 10:54 AM
Rent Control to Save Street?

Unfortunately, EdHat placed a misleading title for this article. Rent control is not legal for commercial property. The article discusses an entirely different idea: a municipal-sponsored Association of Business Owners who may negotiate commercial rental rates when interested parties wish to do so. Current law makes this possible.

a-1529301059 May 21, 2018 10:43 AM
Rent Control to Save Street?

Smithers: There is only one major flaw in your argument for any type of rent control: While rent controls hold down rents, they also hold down the construction of buildings that fall under rent control, thus resulting in less rentals to control. If someone cannot afford to rent in a particular area, they must move to a location, near or far, that they can afford! Rent controls are a great answer to stopping the construction business, but they do not solve the demand for people seeking a place to live in Coastal California, n or do they provide additional housing-they prevent it from being built!

a-1529301059 May 21, 2018 10:02 AM
Rent Control to Save Street?

Building sales prices and rents; for domiciles and commercial or retail buildings, are a function of supply and demand-PERIOD! The rents are too high on State and it isn't the fault of the homeless that retailers can't make it there. The high rents make it even tougher for marginal retailers (T-shirt shops and tourist traps) to survive longer than their business eating up their capital. The only stores that can survive existing rents are stores that have high mark-ups or are part of a chain, but Macy's and Saks have proven that there are exceptions to even chain stores to survive on State St. All the vacancies on state and the store closings, including Macy's and Saks, etc. came because their overhead exceeded their profit and there will be more. Vacancies will continue to a point in time where landlords will eventually lower rents and merchants will be able to return as rents come down. Those owners who don't lower rents and who didn't buy for cash, will suffer losing their asses and in some cases eventually their property! In the meantime, if a business cannot survive in any location, anywhere, they have to shut down. No different than the thousands who cannot afford to live here who must commute.

RHS May 21, 2018 09:56 AM
Rent Control to Save Street?

SBCC night course classes in economics may not be the best place to learn things about democracy and human rights. In a non-existent land of pure free enterprise without cartels, accumulated capital, corrupted political systems (i.e., huge contributions to the election campaigns by big money people), distorted tax laws that benefit certain economic interests and cost others, we might have some sort of movement on the price of goods. This is not our place. Defenders of the landlords actually have the gall to explain how they can ignore the community simply because the have so much property! Rent control or other ways to force capital to accommodate people is perfectly legitimate exercise of citizen rights. Otherwise money would be all that counts and we fought a revolution to stop that sort of thing.

a-1529301059 May 21, 2018 09:56 AM
Rent Control to Save Street?

Went across State St. yesterday. The place was hopping. I don't know how many blocks were blocked off for 'pedestrian only' but wow. Did it ever look lively!!!! That's what State St. needs. Saturdays and Sundays pedestrian only. Maybe afternoon each week the same. Interesting, with all the people in the streets, you didn't notice one homeless person. Maybe the crowds vying for their territory made them go inside somewhere.

monkeyboy May 21, 2018 03:24 PM
Rent Control to Save Street?

I thought the same, then went one block off State and there were 6 people sleeping on the sidewalk. Literally an encampment like I would expect in Oakland, San Francisco or Seattle. Completely blocking the sidewalk, several of them were passed out at 10AM and had their stuff scattered all over requiring us to cross the street to use the other sidewalk. The cops may have rousted them for this one event, but they will be back, occupying all the benches by sundown.

Always_Running May 21, 2018 09:50 AM
Rent Control to Save Street?

I understand any building built before 1970 is exempt from rent control. Most of state street wouldn’t change too much. Only newer developments.

oceandrew May 21, 2018 09:41 AM
Rent Control to Save Street?

Why not impose a vacancy tax on properties left unoccupied longer than ... say... 6 months (exempted if owner can show they are asking desirable and competitive rates). After all leaving properties empty while seeking stratospheric rents only depresses the desirability of the property and economic viability of the area as a whole. It's not the "human waste" that's depressing the economic viability of State St. as there are fewest vacancies in areas with the most vagrant traffic. Rather it's the monopoly run by a few very large property owners/managers that are artificially dictating market rates.

a-1529301059 May 21, 2018 09:28 AM
Rent Control to Save Street?

Rent control is a non-starter as the property owners will never go for it. You'd get much more traction by streamlining the property owner's ability to change the zoning from commercial to residential. Converting shops to apartments hits many issues at once, and zoning modifications is something that government agencies can actually affect.

Baseball guy May 21, 2018 09:13 AM
Rent Control to Save Street?

I totally concur with YETI. Clean up State Street!! Who would like to open a new store/business with the homeless greeting their customers?! Landlords who ask these so called 'high' rents have made an investment of capital, and have the right to try and get a good return on their money. What do you own, William, that gives you the feeling it isn't worth a good return on your investment? Rent control requests are just another example of how this town's people are leaning towards, and seeking a 'communist' state.

Roger May 21, 2018 09:48 AM
Rent Control to Save Street?

They have been talking about cleaning up State street as long as I have been here 40 years looks like it back fired...They say Insanity is doing the same thing over and over again and expecting different results Looks like someone should try something new....But what do people expect with all the bars downtown tourist town filled with bars and tourists some of them pass out here and there too I'm sure...Their are laws protecting people too got to consider those laws even the houseless are protected by laws....

Yeti May 21, 2018 08:35 AM
Rent Control to Save Street?

I strongly encourage you to take a couple night courses at SBCC in the area of economics. Rents fluctuate with market demand and supply. Either these shops will be rented out at this price or soon at a lower price. The current owners of these buildings probably paid way too much for the properties based upon the PAST expectations of the economy and rent growth. The last one left standing when the music stops, is in trouble. IF government is asked to do anything, it would be to clean up the downtown cesspool of vagrants, human waste and trash lining lower State Street. Lower State Street is quickly becoming just another run of the mill tourist town with no soul, boring bars and t-shirt shops, same as every other town that the cruise ships pull into. It will evolve on its own with time.

monkeyboy May 21, 2018 03:26 PM
Rent Control to Save Street?

You might have missed the tax classes where you would have learned that strategic vacancies are a great write-off. Why lower your rent and start a trend that will affect all of your properties when you can just use the vacant ones to avoid paying taxes.

a-1529301059 May 21, 2018 09:49 AM
Rent Control to Save Street?

YETI, there has been a surplus supply of commercial properties but no concordant fluctuations in rents. Your argument is better suited to the domestic real estate market (where high demand has yielded ridiculously low availability of rental properties) not the commercial one where large holding companies can dominate the market and set their rates.

a-1529301059 May 21, 2018 09:22 AM
Rent Control to Save Street?

An owner of a large property portfolio can withstand many, many months of vacancies for a single property. The loss on one property simply reduces the overall net income of the portfolio. And most of these properties are leased for at least 5 years, sometimes 7 years. So letting one property sit vacate for a year is not really that painful. But renting it at a low price for a term of 7 years would be very painful. It also sets a very bad precedent/comparable which harms the entire portfolio's value. So yeah, some day the commercial rents will drop if market rates reflect that reality...but it will take many years.

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