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It’s no secret to anyone who rents an apartment in Morgan Hill—it’s costly. Among the reasons why is a basic tenant of economics—supply and demand. And in the Bay Area, demand far exceeds supply. That may change in Morgan Hill over the next several years as nearly 500 market-rate units are expected to be built.
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The issue of high rents was brought up at a Morgan Hill City Council meeting in January, which prompted Councilmember Rene Spring to request information from city staff about rent control. While rent control is not expected to be implemented here—in part due to the lack of units in Morgan Hill that can be subject to rent control—the issue of high rent is on the minds of those in city government.
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“I brought it up because we have a serious issue in the area,” Spring said. “Not everyone has large salary tech jobs. We’re in need of housing that our teachers can afford, and given this crazy market, even below-market-rate units will be out of reach for most people.”
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Recent history shows that developers have shied away from proposing large market-rate apartment projects in Morgan Hill.
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“The city has not had any development of market-rate apartments of over four units in the past 15 years,” said Assistant City Manager Leslie Little. “We have constructed several affordable rent-restricted rentals during that time, including more than 250 senior apartments and more than 100 affordable family units.”
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The first dilemma in Morgan Hill is that there are so few affordable housing units available for those making 60 percent of the county’s median income rates or below. Currently, the city has over 1,100 rental units that are under some form of rent restriction. At the moment, there are no vacancies in any of the apartments.
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“All the apartment companies have a waiting list, there is so much demand for affordable housing,” Little said.
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The state does not allow rent regulation for single-family homes or duplexes and any other unit that has been built after 1995, meaning these units may not be subject to rent control. This restriction is meant to add incentive to developers to build high-density affordable housing rather than focus on single-family homes.
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“When I asked city staff to investigate rent control, my intention was to educate myself on the matter, but I don’t know if it’s feasible,” Spring said. “The state limits what we can do in terms of rent control, and there are very few units at the moment that could be subjected to rent control. It would also not be cheap for the city to control the issue.”
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Developers have significant incentive to build single-family homes though. Following the sale of a single-family home, a developer may expect to make an immediate profit.
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For higher density housing, such as large-scale affordable housing projects, it may take years for a developer to see a return on their investment due to high construction costs, developments fees and myriad other costs that a developer must pay. Because of this, making a profit may take years of patience.
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Hence, the housing crisis everyone is aware of in California and, in particular, the Bay Area, where the average rent exceeds $2,000. The supply of market rate apartments does not meet the demand, leading to high rates of rent and long waitlists for affordable housing projects.
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Also, in Morgan Hill, due to growth restrictions under Measure S, a developer may not gain approval to build more than 100 units in a single year.
Market-rate housing thrives
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There is good news on the way for renters. Two new large-scale market-rate apartment projects are currently in the works, including 85 market-rate apartments on Condit Road, and 385 market-rate apartments on Butterfield Boulevard, north of the Sports Complex.
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The housing ownership market seems to have found Morgan Hill, apparently a place where the demand is high enough for developers to make a significant investment in market-rate apartments.
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In the last eight years, Morgan Hill has seen an increase in new townhomes, in addition to new single-family homes. Morgan Hill has also welcomed its first condominium project in the Barley Place, a 16-unit condo development on Depot Street that recently opened its doors for owners to move in.
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For some, the new market-rate apartments are a blessing. For others, who want Morgan Hill to be made up of only single-family homes, the new units are not such great news. Higher-density homes mean more citizens and faster overall growth. To throttle down the rapidity of growth, Measure S sets a limit of 215 unit allocations a year. This year, it will be less, with only 195 units approved by the council.
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But, in the next 10 years or so, Morgan Hill will see 465 new market-rate apartments, to go along with the existing 1,100 deed-restricted units that already exist. How much the new housing will ease the strain on renters is unknown at the moment. Only time will tell as market forces dictate a renter’s monthly burden.
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“We need to have good paying jobs for millennials,” Spring said. “If they work in the tech industry, and have two incomes, they should be ok. But if they’re students, or just starting their first job, they will struggle. If you look at the traffic, many of them aren’t stopping here. They’re going to Gilroy or Los Banos to live. I wish we had an answer, but we only have a limited number of units to work with.”
