SunnyvaleRTC

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 June 2005. Vacancy and rent surveys are conducted twice annually, in June and December. Rentals increases or decreases are calculated in January, based upon the last 12 months of survey data.

Information collected by this survey indicates a vacancy rate of 4.77% for apartment complexes in Sunnyvale. The two prior semi-annual surveys indicated a vacancy rate of 4.77% in June 2004 and 5.75% in December 2004. This is the ninth consecutive Vacancy Survey over a period of fifty-four months indicating a vacancy rate of 3% or more. Municipal Code, Section 19.70.30 states that owners may convert apartment complexes when the vacancy rate is 3% or more for one full year.

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 in March of each year for Below Market Rate (BMR) rental units. Adjustments to rents in the BMR Rental Program are calculated annually in January of each year and owners are notified in March of each year of allowable increases or required decreases in rents. Median annual rents decreased from January 2004 through December 2004; therefore, no rental increases were permitted. Initial base rents for new rental complexes are currently calculated at 80% of median rents, since this results in the lowest rental rate; therefore, BMR rents for studio to three bedroom units would be $660, $764, $1,010 and $1,294, respectively. In January 2005, initial base rents were calculated at $660, $800, $1015, and $1,320.

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.”

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.

Chapter 19.66 of the Sunnyvale Municipal Code requires that a semi-annual Vacancy and Rent Survey be used to determine whether rent increases will be allowed for apartments in the BMR Rental Program. Increases in rental prices shall be either five percent or the rent survey percentage increase of average annual rent, whichever is less.

The 108 apartment complexes selected for the survey represent the various geographical areas throughout the City.

The survey results show that out of a total of 108 complexes with 15,056 units, 718 units were vacant at the time of contact. This equals a vacancy rate of 4.77%. A 4.77% vacancy rate represents a substantial decrease from the December 2004 vacancy rate which was 5.75%.

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.

The Below Market Rate (BMR) Housing Program – Administrative Procedures for Renters includes two formulas to establish initial base rents in the BMR rental units. Base rents are calculated utilizing two methods and the lower rent calculated is the initial base rent. 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 $1544.00 per month. The second formula utilizes this survey's results for current market median rents, with initial rents set at 80% of median rent. This formula would establish initial rents at $1010.00 for a two-bedroom unit, resulting in a substantial reduction in the rental rate for new units due to current market conditions.

A comparison of the Average Rents for June 2005 versus the Average Rents for December 2004 are as follows:

	December 2004	June 2005	% Rent Increase January – June 2005
Studio	$ 755	$ 791	4.6%
1 Bdrm	$ 968	$ 1,026	5.7%
2 Bdrm	$ 1,261	$ 1,319	4.4%
3 Bdrm	$ 1,723	$ 1,696	-.1%

The Vacancy and Rent Survey was completed as required. From January through June a decrease in the vacancy rate to 4.77% occurred. Three of the four rental unit initial base rents decreased from the January 2005 report.

Public contact was made through posting of the Council agenda on the City’s official notice bulletin board, posting of the agenda and report on the City web page, and the availability of the report in the Library and the City Clerk’s Office.