Oakland pushes for Ellis Act reform

Oakland city councilmembers are seeking a permanent protection for the city’s residential hotels, also known as Single Room Occupancy (SRO) hotels, by asking the state legislature to amend an over three-decade-old state law: the Ellis Act. But whether the state legislators and governors will listen remains unclear.

The Ellis Act, which was approved by the legislature in 1985, applies to jurisdictions with rent control protections and balances their eviction restrictions by allowing landlords to “go out of business,” removing units from the rental market and evicting their tenants. As long as a landlord keeps the housing unit outside of the rental market for the next ten years, he may do whatever he likes to it—keep it for personal use, demolish it, or convert it to a condo before selling it.

On September 15, Councilmember Abel Guillen (District 2) and Lynette Gibson McElhaney (District 3) filed a recommendation for the City of Oakland to push the state legislature to expand a 2003 Ellis Act amendment to every city in California. The amendment exempts SROs from the act, which means local governments can manage residential hotels in a more direct and strict way. But it currently only applies to SROs built before January 1, 1990, and to cities with a population of over 1 million: San Francisco, Los Angeles, San Diego and San Jose.

“It shouldn’t be anything about the population. The housing shortage is a problem in many cities, from north to south in California,” Guillen said in an interview. “We hope to expand it [the amendment] and help every single city regulate their affordable housing in a more effective way.”

The Ellis Act was initially set up to protect the rights of landlords during a housing shortage in the 1980s, according to Mike Rawson, director of the Public Interest Law Project, a legal support organization for low-income groups in California. After the California Supreme Court ruled in the case of Nash v. City of Santa Monica that landlords do not have the right to evict tenants in order to go out of business, landlords lobbied the California legislature to adopt the Ellis Act.

“From then on, even if … there’s a tremendous housing shortage, the committee could never forbid that landlord from removing his rental units from the market,” Rawson said.

According to a 2014 report by Tenants Together and the Anti-Displacement Mapping Project, for about ten years after it was adopted, the Ellis Act was utilized largely in the “spirit” of its original case—mostly it was being used by long-term landlords who were retiring or otherwise wanted to stop renting out their properties, or reclaimed the house for their own family’s use.

By around 2000, according to the report, real estate speculators in San Francisco discovered a new way to utilize the Ellis Act. Landlords could change affordable housing buildings such as SROs into much more profitable condos under the Ellis Act. If the owners sell the condos instead of going back to the rental market, they will uphold the letter of law. “Speculators are playing with its loophole,” Rawson said.

The most famous case happened in 1998, when the John Hickey Brokerage company evicted 83-year-old Lola McKay from her living place of over 30 years in San Francisco and changed the four-unit apartment building into a condo for sale. McKay died fighting her eviction. According to a book called “Dispatches Against Displacement: Field Notes from San Francisco’s Housing Wars” by Jame D Tracy published in 2014, McKay’s fight marked a shift in the narrative the media were using to talk about displacements and led to an amendment to the Ellis Act that the elderly should receive a notification a year before an eviction.

Oakland now faces a similar situation in which landlords are eager to convert SROs into condos or other commercial buildings for sale. The 2015 Oakland SRO report by the Oakland Housing and Community Development department shows that eight out of nine SROs closed in or after 2004 ultimately reentered the market and are now rented or sold as condos or student apartments with higher market rates. By contrast, only one out of four closed prior to 2004 is now a commercial hotel, while the others are used for Project Pride (a residential program focusing on pregnant women, mothers and children), homeless supportive housing and other housing for public services.

In those cases, when speculators take advantages of the loophole, “the law [Ellis Act] has handcuffed what municipal and county governments could do with respect to maintaining the stock of affordable housing,” Rawson said. “This is definitely the time we had to ask for” a reform to the Ellis Act.

At the same time, Oakland has seen a significant rise in Ellis Act applications. According to rent adjustment program manager Connie Taylor’s speech at a city council meeting earlier this year, Oakland received 16 applications between July, 2015, and mid-February, 2016, which largely exceeds the previous average of four per year.

But organizations that represent landlords and property owners argue that the Ellis Act should be allowed to stand as it is. “In a rent-controlled jurisdiction, sometimes this [the Ellis Act] is the only way out for landlords,” said Debra Calton, senior vice president of public affairs at the California Apartment Association, in a phone interview. “I can’t even think of why somebody would like to go out of business, unless it’s just not viable to exist anymore. Landlords, especially small property owners, shouldn’t be forced to stay when they can’t make their ends meet.”

Calton also pointed out that it is technically quite hard for a real estate speculator to convert SROs into other commercial buildings. Speaking of the concern that Bay Area SRO owners have tried to bypass rent control measures by making living conditions for tenants unbearable, in order to push them out before they refurbish the building as more profitable student or tech worker housing, Calton argued that “rent control actually greatly restricts a landlord’s ability to do this. It’s the city or county government that should supervise, regulate and stop them. The Ellis Act is not the reason.”

At the concurrent meeting of the Oakland Redevelopment Successor Agency and the City Council on October 4, all councilmembers agreed to adopt this city resolution recommended by Guillen and McElhaney.

Alex Marqusee, who prepared the recommendation file and works as a legislative analyst for McElhaney, said before the meeting that in the current 1,400 SRO units in Oakland, about 20 to 25 percent of the residents rely on SROs as their permanent homes. “As we lose residential houses, we’ve seen an uptick in the number of folks who are homeless,” he said.

At-large Councilmember Rebecca Kaplan openly supported the recommendation during the meeting. Affordable housing for low-income people “is a problem that is growing in significance as time goes on and as more and more low-income folks being displaced,” she said.

But other than stating the seriousness of the problem, the city does not have a detailed plan to persuade the state legislature. Even before talking to the legislators, they still have to a lot to do. According to Marqusee, before negotiating at the state level, they still need to talk in detail with city lobbyists and find a legislator who will act as a sponsor for a bill. “It’s just a first step in a long process,” Guillen said.

The low-income housing problem is not only affecting the Bay Area. According to Guillen, many other cities in California, like Santa Monica, are also experiencing great challenges from gentrification and are facing difficulty in preserving residential hotels.

Rawson agreed, but pointed out that most of the cities which are seeking to reform the Ellis Act are cities with a population of over one million, such as San Francisco, which already exempts SROs from the Ellis Act.

Marqusee suggested that though Oakland staffers don’t know of any other city that is also currently pushing for a statewide exemption for SROs, Oakland will try to collaborate with other relatively small cities to achieve an expansion of the amendment.

But shaking the Ellis Act, which means effecting realtors and landlords’ rights and benefits, will be an uphill task. State Senator Mark Leno, a Democrat who represents San Francisco, proposed two bills in 2014 and 2015. The first bill, SB 1439, which would let San Francisco prohibit landlords from using the Ellis Act to evict tenants within five years of buying a property, was rejected in the Assembly Housing and Community Development Committee on a 3 to 4 vote. In 2015, Leno proposed a similar bill, SB 364, and got rejected even earlier, in a senate committee by a 6 to 5 vote. Both bills were sponsored by San Francisco Mayor Edwin Lee.

“There’s a large portion of state legislators and governors who stand for landlords,” said Elissa Dennis, senior affordable housing finance consultant at Community Economics, a nonprofit organization for affordable housing. According to public records from the California Secretary of State, two major organizations that support the Ellis Act and opposed both of Leno’s bills—the California Association of Realtors and California Apartment Association—are also actively engaged in financing election and campaigns on a state level in California. Both groups’ political action committees contribute to initiatives regarding land use and housing and to both the California Republican and Democratic parties during the election cycle.

Marqusee said Oakland is trying to find ways to cooperate with the different groups, rather than creating tension between landlords, tenants and the city. “We’re not putting all the burden on them [landlords],” he said. “We’re also thinking of new rules, finding funds from the city. … We hope we can get all groups cooperating.”

Guillen said that building housing would be another way to relieve the pressure from the tech boom and resulting gentrification. “There are 580,000 new jobs created since 2013, but we’ve only built 50,000 units of housing in the Bay Area. It’s incumbent for us to build more [houses] to make sure our tech workers or teachers have enough housing. Or else if we don’t, people who are lower-income are going to continue getting pushed further and further out of town,” he said.

But Dennis pointed out that funding is scarce because redevelopment agencies, which used to give local governments a larger share of property taxes to boost housing construction, were outlawed in 2011.

Meanwhile, Oakland councilmembers have taken small practical steps to help SRO residents.

With Councilmember Larry Reid (District 7), Guillen and McElhaney filed another recommendation on September 15 and got it approved during the concurrent meeting of the Oakland Redevelopment Successor Agency and the City Council on October 4 together with the “Ellis Act” recommendation. This city-level resolution asked the Planning Commission to “return immediately” with plans to increase relocation assistance for tenants being evicted from SROs and to conduct a six-month study on amendments to the city’s planning code to preserve the supply of SROs.

Earlier this year, the city council adopted an ordinance that requires landlords to pay moving expenses for seniors, the disabled, low-income groups and families with children under age 18 evicted under the Ellis Act, regardless of tenants’ income.

Still, housing experts say city officials will need to work quickly to help these tenants. “We’re losing SROs now,” Dennis said. “And we don’t really have time to wait for six months.”

Correction: On October 27, 2016, this story was corrected to reflect the misspelling of the organization Mike Rawson works for. It is the Public Interest Law Project.