Berkeley voters approved a landlord tax that will raise millions for affordable housing.
The measure, U1, passed with about 74 percent of the vote. A competing measure, which landlord groups placed on the ballot in an effort to undermine U1, was crushed, with 71 percent voters rejecting it. Under Berkeley's rules, the measure with the most votes prevails.
Under the new law, the city's existing business tax on residential landlords will increase by 1.8 percent. Supporters of the tax say it will claw back some of the increased profits that landlords have made due to the regional housing crisis.
The tax exempts Section 8 landlords. It also exempts landlords who haven’t used vacancy decontrol — when a tenant moves out of a rent controlled apartment, the new rental price can be increased to market rate due to the state law known as "Costa Hawkins" — to increase rents since 1999. Developers of newly built housing units are also exempted from paying the tax for twelve years in order to spur new construction.
A small group of Berkeley landlords associated with the Berkeley Property Owners Association threw a huge sum of money against U1.
According to campaign finance records, dozens of LLCs, many of them owned by the Lakireddy family, and properties managed by Charles Bettancourt of North Berkeley Properties, Franco Reggi of AP Management, and Sam Sorokin of Premium Properties, spent over $790,000 against U1.
Proponents of U1 filed a state Fair Political Practices Commission complaint against the the Berkeley Property Owners Association, alleging they broke the law by using anonymous LLCs to finance their opposition campaign and make it appear that a large group of landlords were opposing the measure, when in fact it was just a handful. The FPPC hasn't ruled on the complaint yet.
On their side, the landlords filed a lawsuit alleging that the city over-stated the amount of money Measure U1 will generate for affordable housing. The lawsuit alleged there were other "misleading" statements in Measure U1, and a judge partly sided with the landlords by ordering the city to revise several sentences in voter materials.
Even so, Berkeley voters went for the tax. Furthermore, a similar tax increase on landlords passed in East Palo Alto.
Stephen Barton, the former head of Berkeley's housing department who helped write Measure U1, said he expects the new tax will help build more affordable housing in Berkeley, thereby addressing the city’s crushing affordability crisis.
"With these overwhelming victories in Berkeley and East Palo Alto I hope other cities in the Bay Area will pay attention and move to create similar taxes," said Barton.
Krista Gulbransen, the executive director of the Berkeley Rental Housing Coalition, said the new law means that residential landlords will be squeezed further with a 166% increase in their taxes. "It also means that all landlords affected by this tax are now in the middle of assessing how these increased costs affect their ability to do things like repairs and upgrades," she added. "This just put a big squeeze on the older rental housing stock in Berkeley."
H. Graph Massara contributed to this report.
Correction: The original version of this article stated that Measure DD passed by 71 percent. It did not. Rather, Measure DD was rejected, with 71 percent voting no.