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Economic & Planning Systems, Inc. Page 3 Key Findings The maximum right to return rent increases allowed under the TPA does not appear to be a financial disincentive to Redwood City landlords seeking to reinvest in their properties. Based on building permit data over the last six years, typical improvement and rehabilitation costs for rental properties fall comfortably within levels that can be absorbed under the TPA allowable rent increases. EPS cash-flow analysis finds that a Redwood City landlord receiving the median rent for units built on or before 2010 could underwrite building improvements with costs ranging from $180 to $220 per square foot under TPA allowable rent increases. This compares to the median building permit value of $23 per square foot over the last six years. 1. Landlords in Redwood City can absorb higher capital improvement costs than landlords in many Bay Area jurisdictions that have local rent control ordinances. This is because the TPA permits annual rent increases of up to 5 percent plus CPI (capped at 10 percent), which provides more headroom for reinvestment compared to the stricter allowances under local rent control ordinances in many Bay Area jurisdictions (e.g., San Francisco, Oakland, Berkeley, Richmond). 2. Outlier cases likely exist but are rare. There may be some multi-family properties in Redwood City where rents are well below-median and with unusually high rehabilitation needs (e.g. older, historic buildings), in which TPA allowable rent increases may not be sufficient to recoup investment. However, given that these properties are likely the exception rather than the rule, it may be more appropriate to address these circumstances through capital improvement petitions or appeals process rather than broad policy changes. 3. Real market rents in Redwood City have not consistently exceeded the 5 percent annual allowance. Analysis of recent years shows that average rent growth has generally remained below statutory caps, suggesting landlords are not capturing additional rent growth beyond what the TPA permits. The data reinforces the conclusion that market conditions and trends represent the primary determinant of landlord investment decisions, not the TPA. 4. Additional tax and investment benefits provide additional incentive for landlords to reinvest in their properties . Factors such as depreciation, interest deductions, and long-term appreciation increase effective returns for long-term owners, further supporting reinvestment capacity. Study Methodology and Key Assumptions EPS employs a scenario-based cash flow model to evaluate the feasibility of capital improvements to rental units regulated under the TPA framework. The modeling framework is designed to reflect landlord decision making by estimating whether reinvestment projects generate positive returns over time. For each scenario, EPS calculates the maximum level of capital investment that a landlord could reasonably absorb while maintaining a positive Net Present Value (NPV) over a ten-year horizon. 9.A. - Page 77 of 84 182