This measure caps rental increases on 15,000 older rental units in the City of Mountain View to the CPI (Consumer Price Index) making the units NOT ECONOMICALLY VIABLE as an investment to new operators in the real estate industry.
CPI is considered the annual inflation of a region, in this case the Bay Area which was 3.4% over the past 12 months as reported. If a candy bar costs $1.00 12 months ago it should have increased in price to $1.034 today according to the CPI.
Apartment building valuations are determined by Capitalization Rates by buyers and banks that finance them. After that the buyer who is now an investor looks at their Return On Investment Rates. ROI Rates rise directly and only as a result of increased rental income minus all expenses.
Return on investments need to increase over time from rising rents to make an investment Economically Viable to the investor. If the rents rise at the rate of inflation or CPI then the Appreciation Rate of that investment is stagnate and mirrors the inflation rate or CPI, meaning there is no financial benefit to investing in it.
If the building was worth $1.00 12 months ago, and now $1.034 but so is everything else, what's the benefit to the investor of investing millions of dollars and risking losing capital with all the work to run the business? The building will always be worth the same amount taking inflation into consideration.
NOT ECONOMICALLY VIABLE is the definition of what has happened to all these apartments under Measure V. The values dropped dramatically enough leaving owners to either demolish them for new ECONOMICALLY VIABLE housing or accept no appreciation in the future. The larger properties will develop them with expensive housing, further frustrating the shortage of affordable housing in the City.
The smaller properties that can't be redeveloped because of zoning requirements will fall into disrepair over time as the owner cuts back on expenses to cover the financial shortfalls.
This is the future of Mountain View apartments.
