In a move that Los Gatos officials herald as the town doing its part to provide affordable housing, employees of two associations representing the rental housing industry kept calling the decision the town's way of "imposing a rent control cap" that they say is potentially illegal.

Following the passage of state Assembly Bill 1866, local governments were told they have until July 1 to adopt a ministerial process for reviewing applications from people who wish to rent out second units.

With this change, municipalities can no longer hold public hearings nor require conditional-use permits on such applications. However, local governments can still set standards relating to setbacks, height, unit size, floor area, lot coverage and architectural compatibility.

Forced to change its policies to reflect compliance with the state law, town staff also took the opportunity to suggest that any future second units a property owner rents out must be charged at below market price.

A new unit is defined as a building structure that doesn't already exist or, if the building exists, has not been used as a rental unit before. The latest changes to town policy won't apply to units that have been continuously rented out prior to the adoption of the new codes.

Originally, town staff had proposed requiring property owners to rent their units to people with very low income, but the planning commission thought it best to allow individuals to rent to whomever they want, provided that they continue to charge at a reduced rate. The town council then determined that the maximum rate at which landlords could charge rent would be 80 percent of the fair market value.

Having owners rent their units at a lower rate would help Los Gatos meet its goal of providing affordable housing and enable teachers and town employees to live here, council members said.

"It is an appropriate goal to try to keep some of our community affordable," said Vice Mayor Steve Glickman.

But representatives of two associations representing the housing rental industry said the move might be an illegal form of rent control.

Just hours before last week's council meeting, the town received two letters asserting that placing a rent control cap is potentially illegal. Both letters, written by the Tri-County Apartment Association and the Silicon Valley Association of Realtors, cited the Costa-Hawkins Rental Housing Act, which grants single-family residences exemption from local rent control laws.

Town attorney Orry Korb said the Costa-Hawkins act pertains to ordinances that focus only on rent control issues, but since the town's ordinance addresses other topics, the act does not apply in this case. While he said he would continue to research the issue, Korb also told the council he felt comfortable proceeding with the town's ordinance without putting Los Gatos at risk of a "fatal" consequence.

Mayor Sandy Decker berated the state for its "poor attempt to impose specious housing numbers" to meet California's housing needs without allowing the town to continue with its public review process. "And then to be chided by two vested interest housing production lobbyists on a rent control issue is really an example of not understanding who this community is," she said.

Councilman Joe Pirzynski acknowledged that while Los Gatos is an expensive community in which to live, the town is trying to provide affordable housing to keep the demographic a heterogeneous mix.

But telling owners they can charge no more than 80 percent of the fair market price for their units is not the way to focus on affordable housing, said Diane McNutt, the only council member to vote against the proposed changes to town code.

Most owners of a single-family residence rent out a second unit for one of three reasons, she said: to accommodate an extra family member, because they've decided to turn a studio or workshop into habitable space or because they really need the extra income.

"It's too personal; it's too much of a private owner's rights, and we should not be messing in that area," she said following the meeting.