High cost of housing got you down? Sorry, but the solutions to Chico’s soaring rental rates are not so simple
Gregg Silvas moved into Joshua Tree apartments on Lassen Avenue seven years ago. At the time, the complex was owned by a Bay Area doctor named Edward Pflueger. During the first five years he lived there, Silvas’ rent increased a total of $7.
In the spring of 2000, however, Pflueger sold the 145-unit complex to a group of investors out of Denver, Colo. They, in turn, hired local property management company RSC to maintain the apartment and collect rents. A local corporation, Chico Management LLC, was formed to represent the investor group.
RSC Associates is one of the largest property management companies in town, along with Sheraton Real Estate and Hignell & Hignell. The three companies manage about 60 percent of the apartments in the Chico area.
On Aug. 8, 2000, RSC informed Silvas that his rent would be jumping from $395 to $500 per month when his lease agreement expired in October. One year later his rent climbed again, this time to $565. Then, on June 27 of this year, he was informed that, come October, his rent will go up another $50.
Such sudden and sizable increases these days are not unique to Silvas. Many if not most tenants in Chico have seen their rents jump considerably in the last few years. The landlords and property managers say that, through most of the 1990s, local rents were fairly stagnant even as the cost of living rose in other segments of the economy.
Recently the rents have jumped—in some cases drastically, to be sure—but only to the point where they should be, say property managers.
Dennis McLaughlin, the city housing officer, agrees.
“Rents in Chico over the last 10 years have stayed with the increases of inflation,” he explained. “It’s just that for the first seven years they stayed constant. But more recently they started catching up, which meant big jumps in a short period of time instead of the inflation rate of 3 percent per year.”
McLaughlin says there are a number of factors that determine local rents. But in the end the market resembles a cat chasing its tail. Right now there is a demand for apartments, because only a few have been built in the last few years. While there are plans to build more large complexes in the Chico area, construction will take two or three years, and by the time they are built demands will have changed.
The No. 1 factor affecting rents, he says, is enrollment at Chico State University. While the rental market is broken down into two areas—student and non-student—changes in enrollment have a ripple effect on the non-student rentals, which currently have about a 2 percent vacancy rate. Right now the vacancy rate for college rentals—those within a one-mile radius of the campus—is a bit softer, particularly with three- and four-bedroom units, landlords say.
A few years ago, when enrollment declined, McLaughlin says, a lot of rental properties changed hands. When enrollment went back up, many people began to see single-family units as good investments, and a number were purchased as rentals. That put pressure on the single-family market for home building, and as a result nobody was building apartments.
Even with a soft student rental market, property owners seldom if ever actually lower rents, McLaughlin says.
“They give additional discounts or incentives like rent holidays, or no charge for cable and garbage—that sort of thing. For financing reasons, they have to show steady rental income or else the bank will call in the loan.”
Tim Edwards of North Valley Apartment Brokers estimates there are about 14,000 units in Chico, including six complexes that his company manages.
He says the local rental market went down significantly in 1991, when Chico State started losing students.
Four-bedroom units were hurt the most at that time, he says, and even non-student rentals reached a 6- to 7-percent vacancy rate.
“We lost 3,000 to 4,000 students at CSU and also some at Butte College,” Edwards recalled. “They eliminated some 300 classes at Chico as the state dollars were cut. Attendance was driven by the two-income family in the Bay Area, where the father worked for Northrop but was laid off. So instead of coming to Chico, daughter Heather stayed home and went to Diablo Valley Community College.”
But enrollment went back up, and in 2000, he says, rents were back up too, creating so much pressure that nearly 20 apartment complexes, including Joshua Tree, were sold. In a normal year, he said, only three or four change hands. Also in a normal year, the average apartment sold has been owned by the seller for an average of 12 years. In 2000, the average length of ownership jumped to 21 years.
As for rents, Edwards says that, while they were flat or even down from 1992 to 1996, in the last year or so they have jumped by an average of 40 percent. Location, he explains, plays a major role in filling apartments with students.
“In 1991 I traded a building in the streets [on Normal, south of campus, close to downtown] for one in the avenues [north of campus, away from downtown],” he said. “The one in the avenues is in a bad location, even though it is the same distance from campus. The difference is the one on Normal is within staggering distance of the downtown bars.”
Edwards says there are a number of other influences on rental rates. When a property changes hands, he points out, its property tax, held down artificially by the 1978 tax revolt known as Prop. 13, will take a big jump on the new owner.
A more recent phenomenon, he says, is the cost of insurance due to the number of lawsuits being filed in California over mold-related illnesses.
“Insurance has gone nuts,” he said. “We just had it jump from $4,000 per complex to $23,000. Even in the best-case scenario, insurance rates double.”
At least five insurance companies have stopped doing business in California because of mold issues, he notes.
He estimates that, when the late developer Dan Drake built Joshua Tree Apartments 20 years ago, he was probably able to do so for about $40,000 per unit.
“Now it costs $10,000 just for the land per unit and another $8,000 or $9,000 in fees per unit,” he said. “So you’ve already spent $19,000 before the first shovel full of dirt is turned.”
Today, he says, it costs as much as $95,000 per unit to build one- and two-bedroom apartment complexes.
“Those are just some of the things that are making it less than attractive to build apartments,” he said.
Joshua Tree Apartment tenant Silvas is not by nature a complainer. But that is not for lack of hardships. The 44-year-old former Southern Californian has suffered the last 12 years from rheumatoid arthritis, a condition that more often strikes people in their late 50s or early 60s. Compounding that condition were three severe rear-end automobile accidents he suffered within a short span of time while living in Los Angeles. Doctors have told him the trauma from those jarring accidents most likely hastened the arthritis.
“My body said enough is enough,” Silvas suggested during a recent interview from his apartment.
That body is stiff and inflexible; his greatest relief, Silvas says, comes when he lies in bed, on his left side. Though he can walk, it takes a mighty effort; he often uses a wheelchair.
He collects Supplemental Social Security, about $750 per month. Since he can’t work to supplement his financial situation, his is the very definition of “fixed income.” He also has a Section 8 voucher issued through a federal program for disabled and low-income folks that in Silvas’ case pays about half of his rent.
Still, each rent increase erodes his monthly income.
“When Dr. Pflueger owned the place, he was more hands-on,” Silvas said. “He’d come up here for a week at a time, and he knew the tenants by name. Then this investment group out of Denver bought it, along with some other properties.”
Those other complexes, all with more than 100 units, include the Lakeview Apartments in California Park and Ceres Plaza, which is also located on Lassen Avenue.
“They come in, buy property and raise rents,” Silvas said. “It’s just pure business for these guys out of Denver.”
Silvas said the initial increase of $105 came as a “major shock.”
“I thought, ‘How am I going to do this?'” he said. “Then comes the $65 last year, and now this.”
He says every five to 10 years the federal government will conduct a survey in the county to measure rents and how much of an adjustment needs to be made for Section 8 renters. Such an adjustment was made last year, so it could be another 10 years before another is made.
“At this point my mom has said she will pick up the difference, but I don’t know if she can because Social Security might consider that income, which means my benefits could be cut,” Silva pointed out.
And moving is not really an option. The bus system he relies so heavily upon for transportation serves his current apartment location quite well. Plus, he says, he’s developed a good support group of neighbors over the years, which would take some time to build up again should he move. And the apartment complex accommodates wheelchair users.
“The doctor kept rents lower for those on limited incomes. He just had that touch and knew how to deal with people.”
With his future living conditions up in the air, Silvas contacted local attorney Andrew Holcombe, who agreed to look into the situation.
Holcombe, a tenant law specialist who’s worked on a number of tenant-landlord disputes in his 17 years of practice, says today local renters are spending more than 30 percent of their incomes on rent.
“It used to be that, by the government’s rule of thumb, more than 30 percent was considered a burden,” he said. “There used to actually be a ceiling of 25 percent for Section 8 tenants. Then it was 30 percent. The government would only subsidize the rent if it was 30 percent or less of a person’s income. Now there is no rent ceiling. People on subsidies are compelled to pay more.”
The options available for those on limited incomes, he says, are becoming “slim to none.”
“Families are doubling up in houses or apartments or in trailer parks or moving out of town,” he said.
“Greed is not against the law, and if proper notice [for rent increase or eviction] is given, there is usually very little that can be done. It is against the law to raise one tenant’s rent disproportionately higher than another’s.”
Holcombe said the Denver-based company that purchased Joshua Tree and the other large complexes in Chico has driven up the rents to a certain degree.
“Other owners are face with a quandary,” he said. “If RSC raised the rents, we should follow.”
RSC, he adds, is one of the best property management companies in town.
Larry Guanzon is vice president of RSC. He allows that the property management companies do keep a close eye on their competition as one means of setting rents, though RSC is not necessarily the standard-setter.
“What happens is, we survey the competition, and if they increase the rent, we increase the rent,” he said. “We survey about every quarter [fiscal year] and see who is increasing what and who has vacancies.”
He says right now the college rental market is soft and there are more listings in the want ads than usual for this time of year.
“Next year I think rent increases will be minimal,” he said. As for the future, he said the local rental industry must strike a balance and be careful not to overbuild on apartments.
Silvas’ case is hardly unique, says Dale Downey, housing specialist at Independent Living Services of Northern California.
“It’s a huge problem,” Downey said. “Most of the clients I see are on SSI, which means they have an income of $750 a month. They are not eligible for food stamps and will lose their benefits if they have more than $2,000 in the bank.
“A landlord wants applicants to show that they earn three times the amount of the rent in income. That means a single person on SSI would only qualify for a unit that rents for about $250 per month. This limits their options dramatically.”
Their only option, he continues, is to apply for something called a Housing Choice voucher. But there is currently a three- to four-year waiting list for them.
“Or they could possibly rent a room from someone,” he added. “Try to imagine needing a wheelchair-accessible unit.” Finding one, he said, is “almost impossible.”
Students snag the affordable rentals “because they have their parents to back them up. Then they keep the apartment until they graduate because it’s too hard to find a rental from one semester to the next,” he said.
“All of this makes apartments less available to non-students. I also see that once a person is fortunate enough to find a rental in Chico, they hang on to it for dear life. They will absorb a rent increase until they go under. Some are now paying as much as 65 percent of their income for rent.”
There have been calls for rent control laws in Chico. But even attorney Holcombe says such laws are not the answer.
“Rent control is so complex, and the courts don’t like [controls]," he said, "which means problems in enforcing them. I just don’t see it as a practical solution for Chico. People probably don’t like to hear that, and it’s politically unpopular. But rent control has not produced the results that people want—and that is more affordable housing."