By Jason Islas
Staff Writer

May 7, 2012 -- Nearly two-thirds of Santa Monica's rent-controlled units are now being rented at market rates, up from ten percent in 1999, when a State law lifted rent limits on most vacated units, according to a report released by the Rent Board.

Sixty-one percent of rent-controlled units have gone to market rate since the Costa-Hawkins Rental Housing Act went into full effect, allowing landlords to raise the rent to market rates when tenants move out voluntarily or are evicted for non payment of rent, the report found.

The turnover to market rate has taken place at a slower rate than Rent Board officials anticipated, according to the report, which noted that many thought that by 2009, rent control would no longer exist in Santa Monica.

"After 13 years, 40 percent of tenants are still living in rent-controlled units" that have not received market rate increases, said Tracy Condon, the Rent Control Board Administrator.

While many rent-control tenants are hanging on to their units, Costa Hawkins has contributed to a major shift in the city's demographics as rents rise -- often dramatically -- when units are vacated.

In 1999, the average rent for a two-bedroom unit in Santa Monica was $1,400 a month. In 2011, the average rent has risen to $2,150 a month, according to the report issued earlier this year.

The report also found that Santa Monica renters have become wealthier. In 2000, the largest group of renters – 17 percent – were those making between $50,000 and $75,000 a year. Ten years later, the largest group of renters – just over 16 percent – make $100,000 to $150,000 a year, twice what they were making in 2000.

While Costa Hawkins allows landlords to set the rent, once a unit is re-occupied, it remains under the rent control law approved by Santa Monica voters in 1979. Landlords are only allowed to raise the rent by the annual adjustment approved by the Rent Board each year until the unit is once again vacated.

The Rent Board is scheduled to vote on this year's annual rate adjustment at its meeting Thursday night.

The report estimates that “if a two-percent annual conversion rate continues, all of Santa Monica’s controlled units will have received at least one market-rate increase by the year 2031.”

In addition to the dwindling pool of rent-controlled units, Santa Monica's post-recession recovery has led to an almost complete recovery of market-rate rents for units throughout the City, according to the report.

“Initial rents on 0-, 1- and 2-bedroom units have returned to levels equal or close to the 2007 (rates),” the report found.

Condon noted that while some 40 percent of the units remain under market rate, owners across the city are benefiting from the rent increases allowed by State law.

"Basically nine out of ten owners have rented at least some units at market rate," she said.

And that's a good thing, argued local land-use attorney Rosario Perry, who says that although some tenants certainly need rent control, there are plenty of those who don't.

“We've always advocated for means testing" to guarantee that the people who are benefiting from rent control are people who need it, Perry said.

“People who can afford the market rate should pay it,” he said.

The Costa-Hawkins Act saved the housing market in Santa Monica, Perry said.

Before passage of the 1994 law -- which initially allowed for only incremental increases -- landlords were unable to make money from their properties, and many were trying to get out of the rental business altogether, Perry said.