January 27, 2004

SUBJECT:   INFORMATIONAL REPORT - VACANCY AND RENT SURVEY 

REPORT IN BRIEF

The purpose of this report is to provide the City Council with the results of a Vacancy and Rent Survey completed during the month of December 2003. 

Information collected by this survey indicates a vacancy rate of 6% for apartment complexes in Sunnyvale. The two prior semi-annual surveys indicated a vacancy rate of 5.94% in December 2002 and 5.81% in June 2003.  This is the sixth consecutive Vacancy Survey over a period of thirty months indicating a vacancy rate of 3% or more.  In accordance with the Municipal Code, apartment owners may submit an application to convert their complexes to condominiums.

Sunnyvale Municipal Code, Chapter 19.66, amended on February 4, 2003 by City Council, requires that rent information collected from this survey be used to determine whether rent increases will be allowed for Below Market Rate (BMR) rental units.  The results of the survey show that a decrease in average rents has occurred.  Therefore, no rent increases are allowed at the present time.  Initial base rents for new rental complexes are currently calculated at 80% of median rents therefore, rents for studio to three bedroom units would be $696, $800, $1,036 and $1,200, respectively. 

BACKGROUND

At various times apartment owners have applied to the City for conversion of apartment complexes to condominium status.  The Sunnyvale Municipal Code restricts apartment conversions to condominium status until there is a vacancy rate surplus for one full year prior to a conversion application. 

In order to determine if an apartment vacancy surplus exists, Section 19.70.030 of the Municipal Code requires the Director of Community Development to determine twice each year, on the basis of a representative sampling of apartment buildings, the vacancy rate for apartments within the City.   A vacancy surplus is defined as any number of apartments offered for rent or lease in excess of a three percent apartment vacancy rate. The intent of this ordinance is to prevent the conversion of apartment complexes to condominiums at times of low vacancy when affordable rental housing is in short supply. 

If the appropriate vacancy rate allowing conversion is attained, the City would require a project to receive approval of a Use Permit or Special Development Permit, as well as a Tentative Map.  The zoning code allows applications for conversions to be submitted semi-annually in the months of May and November.  If the number of applications received exceeds the number of units allowed by the vacancy rate, then projects are evaluated based on criteria in Section 19.70.060 of the Municipal Code.

On February 4, 2003 City Council adopted Ordinance No. 2717-03 amending Chapter 19.66 of the Sunnyvale Municipal Code.  Chapter 19.66 now requires that the semi-annual Vacancy and Rent Survey be used to determine whether rent increases will be allowed for apartments in the BMR Rental Program.    The amended chapter now requires that increases in rental prices “shall be either an increase of five percent or the increased percentage of average annual rent based on the Sunnyvale vacancy and rent survey, whichever is less.”

EXISTING POLICY

Housing and Community Revitalization Sub-Element - January 2002

Policy D.4  Provide a mixture of owner and rental housing opportunities by allowing conversion from apartments to condominiums or cooperatives when a benefit to the over-all city housing situation can be shown and when the citywide vacancy rate for rental units warrants.

Policy D.4.a Continue the Condominium Conversion regulation that provides a system for evaluating condominium and cooperative conversion proposals.

The regulations require the City to conduct a survey of apartments every six months to determine the vacancy rate.  Conversion to condominiums are permitted only if a vacancy surplus exists (defined as a vacancy rate exceeding 3 percent).  The ordinance also provides protection for tenants of converted projects, including ownership opportunities and provisions for BMR units.

Goal E        Maintain and increase housing units affordable to households of all income levels and ages.

Policy E.1  Continue to require a mix in the price of housing units in new subdivisions and apartment complexes as a way of distributing low and moderate cost housing throughout the city.

Policy E.1.a  Continue the Affordable Housing requirement in the zoning code.

DISCUSSION

The 97 apartment complexes selected for the survey represent the various geographical areas in the City.  

The survey results show that out of a total of 97 complexes with 14,411 units, 864 units were vacant at the time of contact.  This equals a vacancy rate of  6%.  A 6% vacancy rate represents a slight increase from the June 2003 vacancy rate which was 5.81%.

Apartment rental rate information was collected during the survey period.  The information reflects the actual range of rents, including the average rents for apartments in the complexes surveyed.

December 2003 Actual Rent Range
	Low	High	Average Rent	Median Rent	Calculation Of Initial BMR Rent
Studio	$ 695	$ 980	$ 807	$ 795	$ 696
1 Bdrm	$ 749	$ 1,925	$ 1,053	$ 1,000	$ 800
2 Bdrm	$ 950	$ 2,350	$ 1,346	$ 1,295	$ 1,036
3 Bdrm	$1,050	$ 2,845	$ 1,730	$ 1,500	$ 1,200
A comparison of the Average Rents for December 2003 versus the Average Rents for June 2003 are as follows:
	June 2003	December 2003	% Rent Decrease
Studio	$ 840	$ 807	-3.93%
1 Bdrm	$ 1,093	$ 1,053	-3.66%
2 Bdrm	$ 1,366	$ 1,346	-1.46%
3 Bdrm	$1,888	$ 1,730	-8.37%

As noted above, the semi-annual survey ending December 2003 indicates that the average rents in Sunnyvale have decreased in the past six months.  This current decrease, and the previous six month decrease through June 2003, represents a continued decrease in rents for the annual average.   Therefore, rent increases will not be allowed for BMR units during the next six month period.

This is the first time that a calculation for initial BMR rents has been included for this report.  On September 30, 2003, Council approved guidelines for establishing initial base rents in BMR rental units by utilizing the lower result of two formulas.  The first formula utilizes 30% of income of households earning 65% of HUD Area Median Income (AMI), which would result in rents for a two bedroom unit at $1,544 per month.   The second formula utilizes this survey's results for current market median rents and initial rents are set at 80% of market rent.  This formula would establish initial rents at $1036, resulting in a substantial rental reduction due to current market conditions.  

FISCAL IMPACT

No fiscal impact to the General Fund will result from the information provided. 

Amy Chan

Acting City Manager

Attachments

A. Vacancy Rate Graph 12/98-12/03 (.pdf format)

B. Average Rent Graph 12/98-12/03 (.pdf format)

C. Median Rent Graph 12/98-12/03 (.pdf format)