Landlord: Rape Me One More Time!
One of our readers who owns rental property gives their opinion on the City's efforts to raise so called "relocation fees" for residents who are evicted. Its really more of a lottery win for someone who happens to be in a place where they get evicted. But I digress; our reader writes:Rape me one more time! Many apartment owners are mom & pop operations. People who have spent their lives working hard, scrimping & saving, to invest in real estate- an apartment building, that could suppport them in their retirement years.
In my case, I did it all alone with no help from anyone. I slaved all my live, so one day I could afford to retire & live on my rental income.
A lot of other people didn't work at all. Some have no ambition to get a job, instead choosing to live off the government. Many of these individuals also reap the benefits of becoming "low income tenants, " who have government organizations such as HUD to pay their rent.
I put my life saving & a lifetime of dreams into buying an apartment building for my retirement.
My first mistake was buying in the City of West Hollywood, run by tenants for tenants, where landlords are discriminated against & have no rights. Tenants have all the rights.
The second problem was a 35 year long old maid tenant with obviously no life who came along with the building, who also thinks she OWNS the building, challenging every rule or change that takes place. Worse yet, she works for a lawyer as a paralegal & uses her legal savvy to "frame me" by building up a bogus case against me as an alleged harassing, negligent landlord, by way of lodging non-stop complaints, lawsuits, and even filing criminal charges against me. Did I mention she pays 1/5 of the market rent for a 2 bedroom apartment in a world-famous building in the heart of West Hollywood? My LAWYERS FEES to defend myself against this tenant-from-hell EXCEED the rent controlled low rent that I make in an entire year!!!
So short of unloading the building to another victim, my only alternative is to convert to condos. It's bad enough that I have pay tenants huge amounts of money to move, tenants who have already gotten away with a "free ride" for years on my investment, but the city now thinks they need even more money to end the free ride!!! After the mortgage payments, property taxes, insurance, gas, electric, maintenance, gardener, trash removal, fines, attorneys fees, court costs, along with the condo conversion fees for relocation, architect, permits, contractor, marketing, escrow, sales commissions, etc. WHERE'S THE PROFIT for the landlord?
Real estate is a job & someone's investment. Nobody works for free, so why should I? Why should any landlord? So the tenants can live for free?
-Raped landlord (name withheld)
Posted by Mayor Sam @ 4/17/2007 12:06:00 AM
19 Comments:
Its really more of a lottery win for someone who happens to be in a place where they get evicted.
Lottery win indeed. After all, there are plenty of other places in this City for people to rent. With occupancy rates currently below 5%, it's a renter's market!
Besides, is it so hard for people to pick up and move to a new place that is going to be more expensive and possibly smaller? People especially like moving further away from their jobs, as kids enjoy switching to a new school. Instead of staying in a neighborhood you know with long-time friends and neighbors, you can move to a completely unfamiliar place!
Walter, why is it all sympathy for the landlord and none for the renter? Isn't there room for both?
The only way to reform rent control is to consider the needs of both sides.
what?
If mom and pop will make millions. What's Le Problemo?
Let me get this straight. This post is dated April 17, 12:06 a.m., yet the first three comments are dated April 15 and April 16. Something funny is happening here.
I wrote the first comment dated April 15, 5:05 p.m. You will note this was long before April 17, 12:06 a.m., and I remember the formatting of the post being somewhat different. And it was posted by Walter Moore, not Mayor Sam. That is why the fourth paragraph of that comment begins with the word "Walter."
What is going on with this blog?
505- what does walter have to do with this? mayor sam posted it.
Walter Moore and Mayor Sam believe that rent control should be equated with rape. This post basically endorses that idea through its title and endorsement of the thoughts of this anonymous comment, posted onto another thread some time ago. This post was originally made by Walter Moore on Sunday night, magically disappeared, and somehow reappeared as a post by Mayor Sam tonight.
Who else is disgusted by this idea? Isn't rape much more serious than price controls for real estate? This blog must be trying to insult our intelligence.
I would much rather than my daughter own a rent controlled building than be raped. Shame on this blog!!!
505- what does walter have to do with this? mayor sam posted it.
Hi. 505 April 15 here. Walter has something to do with this because he originally posted it. Don't you notice that the post by Mayor Sam is dated over 24 hours later than the comment you criticize? Something really fishy is going on. Mayor Sam (and Walter) owe us an explanation.
1. This is Mayor Sam's post, not mine.
2. My sympathy, in L.A., in 2007, is for the landlord because the City is using law to take the landlord's PROPERTY and OWNERSHIP rights away without ANY compensation, much less "just compensation." If City Hall were instead trying to screw tenants by taking away THEIR rights under leasess, then tenants would have my sympathies.
3. Do not mistake me for a pro-fat-cat hack. I OPPOSE giving tax dollars to rich developers, and while I oppose rent control, which is NOT based on need, I support guaranteeing full funding of Section 8 housing subsidies for every citizen who qualifies. In other words, let's try giving aid to the POOR, not the RICH. Get it?
4. Where do you come off saying I equate rent control with rape? I do not, and I have never said so. Please read more carefully. The author of each post is clearly stated on the main page. Whoever claimed I posted this is incorrect.
1. This is Mayor Sam's post, not mine.
Walter, when this post was first published on Sunday evening, was your name attached to it? YES or NO? It magically reapperaed with Mayor Sam's name attached to it tonight. As Zuma Dogg would say: "shady." Even he shouldn't want to be associated with this blog now.
4. Where do you come off saying I equate rent control with rape? I do not, and I have never said so. Please read more carefully. The author of each post is clearly stated on the main page. Whoever claimed I posted this is incorrect.
Walter, you originally posted this on Sunday evening. I saw it. I may not have a screen cap, but I saw it.
The author of this post was clearly stated as Walter Moore on Sunday. It was delted. Now the author of this post is clearly stated as Mayor Sam. What I am supposed to believe?
Walter, by originally posting this under the title "Rape Me One More Time," you implicitly imply that you support the idea that rent control should be equated with rent. Me and every other man with a daughter in this town beg you to reconsider.
Just admit you made a mistake, Walter, and let's move on. Don't ask Mayor Sam to take the fall.
Dummy. When other bloggers read your idiotic comments as to this post getting "mysteriously" passed from Walter to me they will also explain that this can not be done with the comment intact. IF we wanted to pull some bamboozle, we would have deleted the comment.
Anyone who catches the blog later in the evening knows that is usually when I am writing and that I post the following day's stories several hours early. While writing, I may post a story for a few minutes to test formatting.
I really do not believe you are being honest. You are probably from some pro-rent control group like LAANE and trying to create a red herring.
Rent control is nothing more than redistribution of the wealth. It is a taking by the government and giving to others.
It only occurs because there are nore tenants than landlords and they can vote themselves the benefits.
It doesn't work; it creates substandard housing where owners don't want to care for the property and let it go without routine upgrades and fixes.
The people get what they deserve.
Rent control sucks.
Anyone who catches the blog later in the evening knows that is usually when I am writing and that I post the following day's stories several hours early.
That explains why the second and third comments are time stamped a couple hours before your post. But why is the first comment time stamped nearly 31 hours before your post? Kindly explain.
11:58: I didn't write it. Never wrote it. Get a freakin' life, man!
I'm totally against rent control. Let the market set the rent. A landlord can't charge more than what the market will pay. If the City wants to subsidize poor people, they should pay their rent. Don't make the small property owner pay the rent of poor people, or people who just want to spend less on rent.
This eviction is not even fair. Does it benefit all renters or poor people? No, just renters who are in a building that's going to go condos. A few people will get money from landlords. How does that help all renters in LA?
I own and sell rental property. I've seen a lot of mom and pops get screwed by rent control. It doesn't help the supposed needy people, i.e. poor renters. It doesn't promote more rentals. It's just renters voting for financial benefits for themselves. If the City wants to pass items like this, they should be the one flipping the bills. Let them pay the renters to move. The eviction fees were high enough as it was.
A regular Adam Smith.
6:24 AM - I think you had one too many beers! I didn't drink any alcoholic beverages Sunday, and I saw Mayor Sam's byline attached to it.
How you can equate Walter's name with Mayor Sam's leads me to suspect that you inhaled too much of your "medical" marijuana as a chaser to your overindulgence of alcohol!
How Rent Control Drives Out
Affordable Housing
by William Tucker
William Tucker is the author of The Excluded Americans: Homelessness and Housing Policies (Regnery) and Zoning, Rent Control, and Affordable Housing (Cato Institute).
--------------------------------------------------------------------------------
Executive Summary
Rent control has been in force in a number of major American cities for many decades. The best-known example is New York, which still retains rent controls from the temporary price controls imposed during World War II. But this policy, meant to assist poorer residents, harms far more citizens than it helps, benefits the better-off, and limits the freedom of all citizens.
A look at the classified ads in rent-controlled cities reveals that very few moderately priced rental units are actually available. Most advertised units are priced well above the actual median rent. Yet in cities without controls, moderately priced units are universally available.
In many cities, policymakers understand that controls drive out residents and businesses. Thus many exempt significant portions of housing from controls, creating shadow markets. Yet as controls hold down rents for some units, costs for all other rental housing skyrockets. And tenants in rent-controlled units fear moving to more desirable neighborhoods since the only units available for rent are very high-priced.
But the trend in recent years has been toward removal of rent control. The repeal of controls in Massachusetts, for example, did not lead to the widespread evictions and hardships that some predicted. The lesson for the rest of the country is that rent control is policy that never was justified and certainly should be scrapped.
The Rush to Rent Control
Rent control has been in force in a number of major American cities for many decades. The best known example is New York, which still retains rent controls from the temporary wartime price controls imposed during World War II.
During the 1970s it appeared that rent control might be the wave of the future. Boston and several of its surrounding suburbs imposed rent control during the inflationary years of 1969 to 1971. President Richard Nixon imposed wage and price controls in 1971 on the entire country, freezing all rents in the process. Many cities retained rent controls, eventually making them permanent, after wage and price controls expired. Washington, D.C., still retains regulations from this period, as do about 125 municipalities in New Jersey, including Newark, Jersey City, and Elizabeth.
During the Proposition 13 anti-tax campaign in 1978, activist Howard Jarvis promised California tenants that their rents would be reduced if the proposed state constitutional amendment lowered property taxes. Yet in the midst of an inflationary period, this reduction failed to materialize, frustrating many tenants. Berkeley and Santa Monica, two smaller cities with radical political cultures, led California in imposing very strict rent control ordinances. Political activists Tom Hayden and Jane Fonda, who lived in Santa Monica, then toured the state urging other cities to follow suit. Ten cities--including San Francisco, Los Angeles, San Jose, West Hollywood, and East Palo Alto--eventually adopted rent regulation, putting more than half the state's tenant population under rent control ordinances. One major California city, San Diego, bucked the trend, rejecting rent control by a 2-to-1 vote in a 1985 referendum.
By the mid-1980s, more than 200 separate municipalities nationwide, encompassing about 20 percent of the nation's population, were living under rent control. However, this proved to be the high tide of the movement. As inflationary pressures eased, the agitation for rent control subsided.
Some cities have remained strangely immune from the rent control temptation. Chicago, with one of the largest proportions of renters of any American city, has never seriously entertained proposals for rent control. Philadelphia, Baltimore, Cleveland, and other eastern cities outside the Boston-New York-Washington axis have never experimented with this policy. In the major cities of the South and Southwest--Atlanta, New Orleans, Dallas, Houston, Phoenix--rent control is simply not an issue. During the 1980s, a reaction set in among southern, western, and rural states. Some 31 states as diverse as Idaho, Florida, Texas, and Vermont adopted laws and constitutional amendments forbidding rent control.
Once in place, however, rent control usually proves extremely difficult to undo. London and Paris still have rent controls that started as temporary measures during World War I. "Nelson's Third Law," the contention by the late economist Arthur Nelson that the worse a government regulation is, the harder it is to get rid of it, seems to apply here. Whatever distortions a regulation creates, some people will adjust to it and actually profit. These people then become a tightly focused interest group that fights tenaciously to retain the regulation. When this interest group is a tenant population that forms a near-majority of a municipality, the chances that rent control can be abolished through local political efforts are extremely small.
Recent Rollbacks
Nevertheless, rent control is proving vulnerable. On January 1, 1997, Boston, Cambridge, and Brookline became the first major American cities to abandon rent controls since 1950. The process was not altogether voluntary. The initiative came from a statewide campaign organized by Boston and Cambridge property owners, who put up a state ballot initiative banning rent control. The initiative that passed in 1994 required immediate removal of rent controls. Landlords, however, soon agreed to a two-year extension of controls for hardship cases.
The property owners during the referendum argued that the costs of rent control were being borne by other taxpayers. When landlords start losing money because of low rents, they are usually able to get their property assessments lowered. This leads to a general decline in property values in a rent-controlled city and thus less revenue going to governments. In Massachusetts, property tax receipts are shared at the state level through a complicated formula that takes money from cities with high property tax bases and gives money to cities with low bases. The owners of rental units argued that lower rents in Boston, Cambridge, and Brookline were being subsidized by higher property taxes elsewhere. Massachusetts voters found this argument persuasive and passed an initiative phasing out rent control by a 51-49 margin--even though it lost 2-to-1 in the state's three rent-controlled cities.
The aftermath has been encouraging to those who believe that rent control can be abolished without widespread disruption. Tenant activists had predicted huge rent increases, mass evictions, and a surge in the homeless population if the regulations were abandoned. None of this has occurred. Formerly regulated rents have risen, but construction of new apartments has also begun for the first time in 25 years. Since the overwhelming majority of rental units were deregulated by 1995, and the rest by January 1, 1997, the worst is probably over.
To be sure, there have been individual cases of hardship that tend to attract a great deal of media attention. Almost without exception, these incidents involve tenants who have suffered a loss of income but still have been able to afford their apartments because of rent control. In one case, featured prominently in many newspapers, an elderly diabetic who had been unable to work for 10 years was losing his apartment in the Fenway district of Boston because the landlord was tripling the rent. [1] But tenants frequently are forced to move when they suffer loss of income. Rent control only delays the process and its abolition cannot be held responsible for every instance of tenant displacement. Boston property owners have alleviated the situation considerably by setting up a bank of 200 apartments around the city that are immediately available for such emergencies.
Rent control is now under attack in New York as well. In December 1996, State Senate Republican majority leader Joseph Bruno announced that he intended to end "rent control as we know it" in New York City within the next few years. Bruno, a successful Rensselaer County businessman and free market advocate, says he is philosophically opposed to rent control and believes it is doing enormous harm to New York City.
His vow to overturn the system is no idle boast. Under New York State's arcane legislative proceedings, the majority leader wields enormous power, virtually controlling the entire legislative agenda. Because New York's rent control ordinance is still only "temporary," it must be renewed every two years. Bruno has said that if the Democratic Assembly does not agree to a two-to-four-year phase-out, the Senate will simply fail to renew the statute and rent regulations will expire on June 15. Bruno's effort has set off a firestorm among New York City's regulated tenant population.
Shadow Markets
Although the battle over rent control is routinely portrayed as a contest of "tenants-versus-landlords," in fact the situation is far more complex. Even in New York, which has some of the strictest rent control in the country, only 1.1 million of the city's 1.7 million apartments--about 63 percent--are regulated. This produces a tenant population of about two million individuals, one of the most formidable political constituencies in the city, with a direct interest in retaining rent control. But since New York City has seven million inhabitants, what are the interests of the other five million? And what are the effects of rent control on those among New York State's eighteen million inhabitants who do not live under rent control, or on individuals in other parts of the country who want to move to New York?
It is useful to analyze this issue in terms of the concept of "shadow markets." This concept was developed by Denton Marks in a paper in the Journal of Urban Economics in 1984, [2] and also suggested by George Horwich and David Leo Weimer that same year in the context of oil price controls. [3] Standard supply-and-demand theory predicts that any price controls, including rent controls, will produce an excess of demand over supply--an economic "shortage." There is virtually no disagreement on this premise. In a survey of 75 of the world's outstanding economists, J. R. Kearl and his colleagues found nearly unanimous agreement on the proposition: "A ceiling on rents will reduce the quality and quantity of housing." [4] Of 30 propositions presented for review, only one other received the same level of support. Further, a poll by the American Economic Association of its members in 1992 produced a similar result. [5]
Yet as Marks pointed out in his 1984 paper, rent control, or any other price control, rarely works in a straightforward fashion. It is virtually impossible for a government to control and regulate the entire supply of a commodity. Once a shortage appears, alternative markets and black markets will arise. The government can react in a variety of ways. Often, it will criminalize these markets and prosecute suppliers in draconian fashion. In Iran, merchants who sell above the government prices have their feet burned with hot irons in the public marketplace.
More often than not, however, governments may tolerate these markets as a way of relieving shortages. In many instances, governments will deliberately leave a portion of the market untouched by regulation in order to serve as a safety valve for excess demand. This unregulated portion of a regulated market becomes the "shadow market."
The question posed by Marks and by Horwich and Weimer is "What happens to prices in this shadow market?" Using standard supply-and-demand theory, they predicted that prices in the unregulated portion of the market will be forced higher than their normal market value. This is because the limited supply in the shadow market must absorb the shortage, the excess of demand over supply, in the regulated part of the market. Because prices are pushed too low in the regulated sector, they are forced above what would otherwise be the market price in the unregulated sector. The result is that average prices in both sectors are likely to end up about as high as their free-market level. They could end up higher because of maldistributions and diseconomies in the regulated sector of the market.
Few Low-Rent Units with Rent Control
The concept of shadow markets offers a reasonable explanation of why the results of rent controls are so perverse and why they lead to a sense of helplessness and panic in a rent-controlled population. Although rent controls are widely believed to lower rents, data I have collected from eighteen North American cities show that the advertised rents of available apartments in rent-regulated cities are dramatically higher than they are in cities without rent control. In cities without rent control, the available units are almost evenly distributed above and below the census median. In rent-controlled cities most available units are priced well above the median. In other words, inhabitants in cities without rent control have a far easier time finding moderately priced rental units than do inhabitants in rent-controlled cities.
This is because tenants in the regulated sector tend to hoard their apartments, forcing everyone else to shop only in the shadow market. Thus, rent control is the cause of the widely perceived "housing crisis" in rent-controlled cities.
Price Controls and Commodity Shortages
Standard supply-and-demand theory shows that when the government fixes prices, a gap opens up between supply and demand. This is usually illustrated by two opposing curves, representing the "marginal propensity to sell" (supply) and the "marginal propensity to buy" (demand). Consumers, of course, are inclined to buy more as prices fall and less as prices rise. Sellers act in an opposite manner, offering more as prices rise and less as prices fall. At one point--and one point only--the interests of buyers and sellers will intersect. This is the "market-clearing price," the point at which, given current economic circumstances, the desires of both groups are optimized. Prices, of course, do not automatically come to rest at some market-clearing level. A continuing discovery process occurs. Either buyers or sellers may achieve a temporary monopoly due to geography or other circumstances. Lack of information may cause either buyers or sellers to accept a price that is unfavorable to them. But, lacking government interference, the actions of buyers and sellers always push prices toward a market-clearing level.
The effect of price regulation is to keep supply and demand permanently separated. If the government holds prices above market value, usually in an attempt to appease suppliers, the result is an economic surplus. For instance, since the 1920s the federal government has maintained price supports for many agricultural commodities. The result has been chronic farm surpluses. Price controls, designed to benefit consumers, are much more common. The oil price controls from 1971 to 1981 that resulted in a decade-long "energy crisis" provide insights into the rent control issue.
Oil price controls had led to gas lines and rationing at the pump during two brief episodes in 1973 and 1979. But for the most part, there was no visible shortage and supplies continued uninterrupted for most of the decade. What happened to the shortages that should have been produced by price controls? In retrospect, the answer was simple. As Horwich and Weimer noted, the federal government was able to impose price controls only on domestic sources of supply. This created a shortage of domestic oil. But the country continually filled this gap by importing more oil. Imports constituted only 25 percent of the nation's supply when Nixon imposed price controls in 1971. In two short years, this portion climbed to nearly 33 percent. OPEC countries were emboldened to interrupt supplies briefly in 1973 and then quadruple the price.
Unfortunately, Congress responded in 1976 by "punishing" the oil companies, dramatically reducing the price and extending price controls indefinitely. As a result, imports rose to more than 50 percent by 1979, despite an extensive government publicity campaign against purchasing importing oil. Congress even abetted the process surreptitiously by expanding "oil entitlements," a program that supplied small refineries with subsidized imported crude oil, supposedly to help them compete against the major oil refiners.
By 1979, America's excess demand had stretched world supplies so tight that a small interruption of supplies, caused by the outbreak of the Iran-Iraq War, was enough to set off another "gas shortage." When President Ronald Reagan removed domestic price controls in 1981, the resulting surge of supply was enough to send world oil prices into a free fall. The "energy crisis" vanished almost overnight.
Horwich and Weimer show that the shadow market concept explains these events. Prices of only part of the oil supply, that produced domestically, were controlled. To make up for the resulting shortages, consumers had to turn to foreign-produced oil. Because of the excess demand, world oil prices rose rapidly. Only when domestic supplies were restored did world oil prices tumble. Over a decade, oil price controls accomplished almost nothing in lowering prices to consumers, but they did cause havoc by creating rapid shifts in the world market.
Shortages and Hoarding
One reason the disadvantages of oil price controls soon became apparent was that the hoarding of this commodity was only partially feasible. Hoarding occurs when consumers buy supplies for future use as well as present consumption. When uncertainty about future supplies becomes general, consumers will begin to stockpile. During the 1979 "gas shortage," for example, entertainer John Denver was reported to be building two 100-gallon gas tanks on his Colorado estate. Ordinary motorists reacted the same way by "topping off" their tanks at gas stations. The U.S. government hoarded oil with the Strategic Petroleum Reserve. Although hoarding may benefit individuals or countries, it also puts upward pressure on prices. When people buy for future use as well as present consumption, supplies will be tighter and prices on the shadow market will be driven even higher. Or, in the case of oil, if rationing-by-waiting is already in effect, gas lines will stretch even longer.
But the ability to hoard depends on the logistics and durability of a product. Oil is consumed only once and must be stored in facilities that are not easily or inexpensively obtainable. During a famine, food can be hoarded, but it must be stored under special conditions to avoid spoilage.
Housing is one of the most durable commodities. A well-constructed building can last more than 100 years; many buildings in Europe are centuries old. Housing can be consumed today and still be consumed 10 or 20 years later. And with government holding prices low through rent control, a tenant who holds a rent-controlled apartment has a strong incentive to stay in it his or her entire life, even passing it on to descendants. Hoarding of housing is not only possible, it can become the natural order of things.
Of course if the laws allow a landlord to charge a higher rent to a new tenant, the landlord may want to evict a low-paying tenant. But this only leads to strong antieviction laws, a staple in all rent-controlled communities that soon makes it difficult or impossible to get rid of even the most destructive or delinquent tenants.
As a commodity, then, rental housing makes an ideal target for conveying certain benefits to a portion of the population. Because of durability of housing, rent control can go on bestowing benefits to the same minority--or even a majority of a municipality--for a very long period of time. It is the individuals who are forced into the shadow market--usually newcomers or people who want to change apartments--who suffer the consequences.
Rent Control and Vacancy Rates
There can be no doubt that rent control creates housing shortages. For almost 20 years, national vacancy rates have been at or above 7 percent--a figure generally considered normal. Cities such as Dallas, Houston, and Phoenix, where development is welcomed, have often had vacancy rates above 15 percent. In these areas of the country, there usually is a surplus of housing rather than a shortage. Landlords commonly advertise "move-in specials," where rent is reduced for the first month or even where they pay moving expenses.
In rent-controlled cities, on the other hand, vacancy rates have been uniformly below normal. New York City has not had a vacancy rate above 5 percent since World War II. (The state's rent control law, supposedly temporary, would automatically expire if it did.) Before giving up rent control, Boston's vacancy rate was below 4 percent. (There are no figures as of yet on the rate since rent control ended.) In rent-controlled San Francisco, the vacancy rate is generally around 2 percent, and in San Jose the rate is 1 percent, the nation's lowest. Meanwhile, comparable nonrent-controlled cities, such as Chicago, Philadelphia, San Diego, and Seattle have normal vacancy rates at or above 7 percent.
Rent-controlled cities absorb these shortages in a variety of ways. Higher rates of homelessness are a manifestation of rent control. [6] Another is the traditional difficulty individuals have in finding a new apartment in these cities. An article in New York magazine entitled, "Finding an Apartment (Seriously)," recommended such techniques as "joining a church or synagogue" as a useful technique in meeting people who might provide good leads on an apartment. [7] Young people who migrate to New York or San Francisco usually must settle for paying $600 a month to share a two-bedroom apartment with several other people or commuting from a nearby city. Crowding is a manifestation of rent control.
Excluding Outsiders
The exclusion of newcomers may even emerge as the main purpose of rent control, particularly in small, selfidentified cities. Many of the small New Jersey municipalities with rent control are close-knit ethnic communities that do not particularly welcome newcomers. One of their major fears is apartment complexes that will bring in large numbers of outsiders and "change the character of the community." Rent control has proved an effective tool for making sure that small, exclusionary-minded communities do not have to undergo change.
Santa Monica is a beach community near Los Angeles that was discovered by urban professionals after the construction of the Santa Monica Freeway in 1972. These newcomers, many originally from New York, immediately set about trying to limit new construction, pulling up the ladder to keep out those that would follow them. In particular, they opposed a series of high-rise apartments proposed for the beachfront. The newcomers soon discovered that imposing rent control not only guaranteed themselves cheap apartments but hampered further development as well.
The result has been a virtually closed community. It is almost impossible for newcomers to find apartments in Santa Monica. As Mark Kann, a Los Angeles newspaper columnist, reported in Middle Class Radicalism in Santa Monica, a book that celebrated rent control, "I knew one professional woman who tried to get a Santa Monica apartment for more than a year without success, but she broke into the city, finally, by marrying someone who already had an apartment there." [8] The city is also famous for its homeless population and is often called "The Homeless Capital of the West."
Generational Subsidies
Berkeley, California, and Cambridge, Massachusetts, have similar housing markets. Small college communities, they originally adopted rent control with the help of large student-voter populations that felt a town-gown rivalry with their landlords. But like many socialist programs, rent control turned out to be a one-generation wonder. Students who were in place when rent control was adopted often remained in their apartments all through their professional lives. Ken Reeves, the mayor of Cambridge until 1994, who used to advertise his rent-controlled status on his campaign literature, was still living in the apartment he rented as a Harvard law student in 1973. He finally bought a home when rent control was abolished.
In Berkeley, Floyd and Eva Floystrup are a carpenter and his wife, and also landlords, who were once forced to pay $70,000 to their tenants in "back rent" because they had refused to register with the rent control board. "We believe in free enterprise," they explained. They noted that their low-paying tenants are all high-salaried professionals who arrived as students in the 1970s. "I always have Berkeley students come up to me on the street and say, `How come I can't find a place to live in this city?'" said Eva Floystrup. "I tell them, `Look, we're still taking care of the Class of 1979. As soon as they leave, we'll have room for you.'" [9]
Studies in both cities showed that rent-controlled apartments have tended to fall into the hands of middle class professionals. A 1994 study of Cambridge by housing consultant Rolfe Goetze showed that rent-controlled apartments were concentrated among highly educated professionals, while the poor, the elderly, and students were generally excluded. [10] Michael St. John, a Berkeley sociologist, found similar results in California. "Rent control has actually accelerated gentrification in Berkeley and Santa Monica," said St. John. "Poor and working class people have been forced out of those communities faster than in surrounding municipalities." [11]
In small cities such as Cambridge, Berkeley, and Santa Monica, the housing shortages created by rent control can be pushed onto neighboring communities. Most Berkeley students now search for housing in Oakland and Richmond, significantly increasing their commuting time.
Shadow-Market Housing
In large metropolises a housing shortage can severely damage the city's economy. Experience shows that when such cities adopt rent control, they usually try to avoid outright housing shortages by leaving segments of the market unregulated. Unsatisfied demand is diverted into this unregulated sector. Because of the shadow-market effect, people in this sector pay higher-than-market prices. Still, they are rarely conscious of the causation. Instead, they simply regard the city as "an expensive place to live" and often become a constituency for extending rent control to their own apartments.
It should be recognized that not all cities enforce rent control with the same enthusiasm. Both the city and county of Los Angeles adopted rent control in 1979, but the county dropped it shortly thereafter. The city government exempted new construction and allowed sizable rent increases. It also adopted a form of vacancy decontrol that allows rents to rise to market value each time a new tenant moves in. A 1990 study by the Rand Corporation found rent control saving tenants only $8 a month. Since then the city has depopulated and vacancies rose close to 10 percent. "We can't even get the rent the rent board allows us," said Dan Fellar, director of the Apartment Owners Association of Southern California. As a result, there is little shadow-market effect. Washington, D.C., is also depopulating and its rent control ordinance has little impact. Toronto has regulated all rental housing down to single-family homes since 1979, but allows generous 8 percent annual rent increases. The regulation seems to have only small impact.
New York and San Francisco, on the other hand, enforce two of the strictest sets of rent control ordinances in North America. (In many European countries, regulation has destroyed private rentals to the point that there is little left but public housing.) Both cities allow only small rent increases and neither has vacancy decontrol, although San Francisco will soon be adopting it according to a state law. Neither city is depopulating and both experience a high demand for housing. As a result, both have developed strong shadow markets.
New York City split its housing market at the outset in 1947 by exempting all future construction. Toronto exempted all new construction when controls were adopted in 1979. San Francisco did the same. Thus, while Santa Monica and New Jersey communities used rent control intentionally to prevent new housing construction, these other cities worried that no new housing would ever be built.
Unfortunately, the strategy of exempting new units often backfires. Sooner or later, tenants in the new buildings will realize their position relative to rent-controlled neighbors and seek controls on the rents of their own dwellings. This happened in New York in 1969, when Mayor John Lindsay was forced to adopt "rent stabilization" to cope with the excessive rent in "post-war" housing, that is, housing built after 1947 that was originally exempt from regulation. Lindsay promised that all post-1969 housing would remain outside rent stabilization. But inflationary pressures forced the New York State Legislature to break this pledge within five years with the Emergency Tenant Protection Act of 1974. Since then, builders have learned that, sooner or later, any new housing in New York risks being "recaptured," the term used by city officials, that is, brought under regulations. Consequently, little new rental housing is ever built.
Toronto also repealed a new-construction exemption in 1989 and now "recaptures" all new housing after five years. Thus little is built. And San Francisco continues to exempt new housing, but does so much to discourage construction through zoning and no-growth ordinances that, with a 1 percent vacancy rate, the city still adds only 500 residential units a year.
New housing thus makes up a stable--if somewhat uncertain--segment of the shadow market. Another common sector is smaller buildings, particularly those that are owner-occupied. Cambridge exempted two- and three-unit owner-occupied buildings. San Jose exempts duplexes and single-family homes, but regulates the 10,000 mobile homes in its jurisdiction. Berkeley does not regulate duplex apartments when the owner occupies one unit. San Francisco originally exempted buildings with four units or fewer, but this was overturned in a popular referendum in 1994. Now the city even regulates rented single-family homes. New York's rent stabilization does not apply to buildings with fewer than six units, although the old rent control regulations from 1947 can still govern smaller units.
Finally, rented condominiums and cooperative apartments are commonly exempted--although this is an extremely controversial policy in most rent-controlled cities. The problem is that once apartment houses fall under rent control, many owners will attempt to escape the regulation by selling off the apartments to individual owners. This frustrates rent control officials because it diminishes the supply of rental housing. In New York, condominiums and cooperatives are treated as single units and thus exempted under the smallowner rule. In Washington, however, an apartment building under cooperative or condominium ownership is regulated as multi-family housing, even though it has multiple owners.
Most cities with rent control usually end up adopting strong laws to discourage conversion to condominium and cooperative ownership, in order to close an escape hatch from the regulated market. In 1989, Cambridge adopted a law actually making it illegal for owners of converted condominiums to live in their own apartments. Instead, owners were to be forced to rent out their apartments as rent-controlled units, in order not to "diminish the supply of rental housing." Active enforcement of this law that would evict individuals from their own property was begun in earnest in 1992. The prosecution of these "condo criminals" swelled the ranks of rent-control opponents and played a large role in passage of the statewide referendum that in 1994 ended this regulation.
In major cities, then, these three exempted sectors-- new construction, smaller buildings, rented condominiums-- generally form the shadow market. Even in the strictest rent controlled environment, this shadow market may grow to considerable size. In New York, the unregulated sector now makes up 36 percent of the 1.7-million-unit rental market. In San Francisco and San Jose it makes up about half. Only in Berkeley and Santa Monica does the shadow market make up less than 20 percent of all rental housing.
Shortages under Rent Control: The New Evidence
What happens to price and availability of unregulated housing in a rent-controlled market? To determine this, this author collected data on all the available apartments advertised in eighteen major cities around North America. The advertised prices were taken from a single Sunday edition of the largest paper in each city during the month of April 1997. The advertised price of every listed apartment was recorded. (Three newspapers were used for New York.) Rented houses were also included. Some older urban areas--Chicago, Cleveland, New York, Philadelphia--have very few rental houses, while in Sunbelt cities such as Dallas, Houston, Phoenix, and San Diego, they make up a large portion of the rental market. To make sure this regional phenomenon was not distorting the figures, rental houses were omitted in two cities, Atlanta and Phoenix. Six of the surveyed cities have rent control--Los Angeles, New York, San Francisco, San Jose, Toronto, and Washington. In addition, Boston ended rent control in January 1997. The median rent shown on each graph is based on the 1990 U.S. Census. [12] (See Appendix for all graphs.)
The most striking observation is that the graphs of rents in free-market cities follow a standard bell curve. The vast majority of advertised rents cluster around the median, with between 33 percent and 40 percent below the census median. The median advertised rent is rarely more than $50 above the census median. This may be because the very cheapest apartments are not likely to be advertised in the newspaper and because landlords often raise rents when apartments become vacant. The mode - the number where the graph peaks - usually occurs below both medians. Characteristically, there is a steep climb on the low-rent side of the curve, followed by a long tail toward the "luxury" end of the market.
Figure 1
It is also striking how affordable housing is in most free-market cities. In Philadelphia, the nation's fifth largest city, the most common advertised rent, the mode, is between $450 and $500--below both the advertised and census medians. (See Figure 1.) In Chicago, the mode was $500 to $550, also below both medians. Unregulated cities such as Philadelphia, Chicago, San Diego, Phoenix, and Seattle seem to have almost perfectly competitive housing markets, with housing available at every price level but clustered at the low end.
The two cities with strict rent control are glaring exceptions to this pattern. In both New York (see Figure 2.) and San Francisco, advertised rents peaked at $2,000--more than triple the U.S. Census median rent for each city. The median advertised rent in New York was $1,350, in San Francisco, $1,400--both more than double the census median. More important, there were almost no rental units available at the low end of the market. In both San Francisco and New York, less than 10 percent of advertised rents were below the census median. (The New York figures also included listings from the Daily News and the New York Post, which are slanted toward the lower end of the market.) Rent control in both these cities appears to make housing spectacularly unaffordable.
Figure 2
San Jose and Boston both show strong symptoms of the rent control disease. San Jose rents peak at $1,500, with rents pushed more toward the expensive end. Boston shows the usual "median hump," but displays overtones of the rent-control effect at the upper end. Los Angeles, Washington, and Toronto--all of which practice milder forms of rent control than New York and San Francisco--show little or no signs of the rent control effect.
What is going on in these markets? The explanation seems fairly straightforward. Rent control splits the housing market into two sectors, the regulated segment and the shadow market. As prices in the regulated sector are forced lower, prices in the shadow market go higher. At a certain point, the differential between the two markets becomes so stark that tenants in the regulated sector begin hoarding their apartments. They hardly ever move. In New York, 88 percent of tenants living in pre-war, rent-controlled apartments have not moved in more than 25 years.
If they do abandon their apartments, regulated tenants pass them on to friends or relatives, or sell them to strangers through "key money" that reflects their true market value. As a consequence, regulated apartments are essentially withdrawn from the market. In New York, where regulated apartments make up 63 percent of the market, only 85 or 3 percent of the 2,800 listings in the New York Times, Daily News, and New York Post, were identified or identifiable as rent regulated. [13]
With the regulated portion market locked away, all new demand is funneled into the unregulated sector--the shadow market. Eventually the competition for these limited number of apartments creates highly inflated prices. It is like squeezing a balloon at one end--the pressure will simply create a bulge at the other end.
Burdens on Newcomers
One thing that makes rent control more palatable to the majority is that the brunt of these excessive costs is usually borne by newcomers. People moving to New York or San Francisco assume that housing is very expensive. They may get discouraged and leave. New York has lost 200 of its 250 national corporate headquarters over the last 25 years, in part because these companies found housing almost unattainable for transferring employees. If these individuals do stay, it may be several more years before they realize that others living in almost identical apartments are paying only a fraction of their rent. In 1985, for example, a woman wrote this letter to the New York Daily News:
I recently moved to New York and I pay almost $1,200 a month for a nice little apartment on the lower East Side. The landlords have been reasonable and the building is clean. Still, when I found out at a tenants' meeting that 30 of the building's 34 apartments rent for below $300 and that most of the tenants in those cheap apartments make more money that I do, I was a bit outraged. I understand protecting the old people, but protecting fellow yuppies with bargains?
In Texas, $400 will rent a two-bedroom apartment with air conditioning, washer/dryer, swimming pool, fireplace, and garage. The vacancy rate is over 10 percent. There are no rent controls and the tenants hold all the cards. And landlords are not a hated breed. [14]
Such voices are usually drowned out in the rent control debate. But they are beginning to be heard. As the current debate heads for its June 15 deadline, the following letter appeared in the New York Times:
Where are the voices of all those who do not share the benefits of rent control but who actually suffer from it? For the past seven years my husband and I have been killing ourselves to pay our exorbitant market rent for a small one-bedroom apartment in order to stay in this city. I know too many people who live in rent-controlled apartments who also own country homes. One person (whose apartment we tried to rent at the legal rate) moved to Florida and now rents out his apartment, illegally, at the market price, subsidizing his new life style. If rent decontrol would mean a fairer, less insane market, then it is a just cause. If the housing situation does not improve, it will be the new generation of middle-class New Yorkers who will be forced to leave the city we love. [15]
Can Rent Control Be Abolished?
Rent control makes housing less affordable to anyone seeking housing in a rent-controlled market. Even people who already have a "great deal" under rent control become prisoners of their own apartment. They can never move because it means being thrown into the shadow market, where prices may be three or four times as high for an almost identical apartment. In Europe, where rent control governs even larger sectors of the market, the result has been the continent's famed "labor immobility," where moving a factory across town may mean losing half the work force. This huge differential between the regulated market and the shadow market strikes terror into the hearts of a rent-controlled population and fuels the fires against deregulation. But this fear is based on the illusion that shadow-market prices are actual market prices. Even landlords make the same mistake. They often assume that an end to regulation will enable them to double and triple rents, whereas the overall effect would be far more modest.
The goal in getting rid of rent control should be to allow the curve of housing prices to return to the elegant symmetry of the free market. It is important to deregulate as much of the market as possible at once. That will move the entire curve toward the lower end of the market. If deregulation occurs in small increments, on the other hand, each individual tenant will be forced to make the jump from the low end to the high end, until their accumulated weight moves the curve back. It would be like moving a mountain one grain of sand at a time.
One poor way to deregulate is "vacancy decontrol." This solution, now in effect in California and being proposed as a compromise in New York, simply extends the adjustment period while delaying the benefits of deregulation. Under vacancy decontrol, apartments are deregulated only when the current tenant leaves or dies. But of course tenants in regulated apartments never move, since leaving an apartment means being thrown into the shadow market. It may take 20 to 50 years before the market resumes its normal shape.
Worse yet, under vacancy decontrol individual landlords have every incentive to evict their regulated tenants since vacancy means deregulation of the apartment. The result will be a daily series of horror stories, with landlords doing everything from hiring thugs to setting fire to their buildings to get rid of low-rent tenants. Meanwhile, because of general uncertainty, builders and renovators will not invest much in new housing. As a result, there is always pressure to repeal vacancy decontrol. New York tried such decontrol in 1972 but repealed it after only two years.
Instead, rent control is best abolished quickly and cleanly, with ample effort to protect the most vulnerable tenants. Massachusetts did it about right. After winning the 1994 referendum, property owners were faced with a series of court challenges that could have delayed implementation indefinitely. At the same time, Governor William Weld had vowed to veto any state legislation to revive rent control in Boston, Cambridge, and Brookline. The result was a compromise. Rent control was lifted immediately in the three cities, but a two-year extension was allowed for tenants qualifying for the federal definition of "lowincome"--less than 60 percent of the median for the region or 80 percent for the elderly and handicapped. In the end, 4 percent of the tenants in Boston and 10 percent in Cambridge and Brookline qualified for this extension. These groups were finally deregulated on January 1997.
Such a program could work in New York and San Francisco, perhaps with a slightly longer time scale. A three-to-five-year phase-out would seem reasonable. The effort could be helped enormously if builders and developers would pledge publicly to step up housing construction during the interim. Unfortunately, landlords and developers in both cities have become such pariahs that they rarely speak openly or work in concert. Boston landlords helped their cause enormously by setting up the reserve bank of 200 apartments for emergency relocations. Yet owners' groups in New York and San Francisco have done nothing comparable. Such an effort would go a long way toward allaying fears about deregulation.
The Morality of the Market
Human morality is based on the premise that virtuous behavior should be rewarded while harmful behavior ought to be punished. Where the rewards of the marketplace are concerned, it can truly be said that cities and nations get what they deserve.
Price controls are built around the concept that one particular group, the providers of some essential good or service, is a nefarious clique that must be wrestled into submission by the government. Oil company executives were the villains of the "energy crisis," and Congress portrayed itself as a gallant knight riding to the rescue of a distressed public. In fact, all that was at stake was the public's ability to tolerate the price increases associated with shifts in energy resources.
Rent control works the same way. Providing housing is perceived by some as an illegitimate enterprise. "Greedy landlords" become public enemies in rent-controlled cities and the entire political apparatus is geared up to subdue them. (The political party that has governed Santa Monica for the last 20 years is called "Santa Monica Renters' Rights.") The hate campaign against landlords feeds on itself, becoming a self-fulfilling prophecy, since owners in the shadow market can charge exorbitant prices, while owners in the regulated sector do best by making life uncomfortable for their low-rent tenants. Yet all that is really at stake is public willingness to accept the idea that some people make their living by providing housing.
Rent control is a disease of the mind that soon becomes a disease of the market. Those cities that resist infection --merely by having a healthy tolerance for the rights of others--are rewarded with a normal competitive housing market in which housing is available at every price level. Those cities that succumb to the disease of rent control are doomed to never-ending, house-to-house warfare over an everdiminishing supply of unaffordable housing. Public policy creates its own rewards.
Economics in One Lesson
by Henry Hazlitt
The Lesson Applied
What Rent Control Does
◄ Government Price-FixingMinimum Wage Laws ►Contents
Government control of the rents of houses and apartments is a special form of price control. Most of its consequences are substantially the same as those of price control in general, but a few call for special consideration.
Rent controls are sometimes imposed as a part of general price controls, but more often they are decreed by a special law. A frequent occasion is the beginning of a war. An army post is set up in a small town; rooming houses increase rents for rooms; owners of apartments and houses increase their rents. This leads to public indignation. Or houses in some towns may be actually destroyed by bombs, and the need for armaments or other supplies diverts materials and labor from the building trades.
Rent control is initially imposed on the argument that the supply of housing is not “elastic”—i.e., that a housing shortage cannot be immediately made up, no matter how high rents are allowed to rise. Therefore, it is contended, the government, by forbidding increases in rents, protects tenants from extortion and exploitation without doing any real harm to landlords and without discouraging new construction.
This argument is defective even on the assumption that the rent control will not long remain in effect. It overlooks an immediate consequence. If landlords are allowed to raise rents to reflect a monetary inflation and the true conditions of supply and demand, individual tenants will economize by taking less space. This will allow others to share the accommodations that are in short supply. The same amount of housing will shelter more people, until the shortage is relieved.
Rent control, however, encourages wasteful use of space. It discriminates in favor of those who already occupy houses or apartments in a particular city or region at the expense of those who find themselves on the outside. Permitting rents to rise to the free market level allows all tenants or would-be tenants equal opportunity to bid for space. Under conditions of monetary inflation or real housing shortage, rents would rise just as surely if landlords were not allowed to set an asking price, but were allowed merely to accept the highest competitive bids of tenants.
The effects of rent control become worse the longer the rent control continues. New housing is not built because there is no incentive to build it. With the increase in building costs (commonly as a result of inflation), the old level of rents will not yield a profit. If, as often happens, the government finally recognizes this and exempts new housing from rent control, there is still not an incentive to as much new building as if older buildings were also free of rent control. Depending on the extent of money depreciation since old rents were legally frozen, rents for new housing might be ten or twenty times as high as rent in equivalent space in the old. (This actually happened in France after World War II, for example.) Under such conditions existing tenants in old buildings are indisposed to move, no matter how much their families grow or their existing accommodations deteriorate.
Because of low fixed rents in old buildings, the tenants already in them, and legally protected against rent increases, are encouraged to use space wastefully, whether or not their families have grown smaller. This concentrates the immediate pressure of new demand on the relatively few new buildings. It tends to force rents in them, at the beginning, to a higher level than they would have reached in a wholly free market.
Nevertheless, this will not correspondingly encourage the construction of new housing. Builders or owners of preexisting apartment houses, finding themselves with restricted profits or perhaps even losses on their old apartments, will have little or no capital to put into new construction. In addition, they, or those with capital from other sources, may fear that the government may at any time find an excuse for imposing rent controls even on the new buildings. And it often does.
The housing situation will deteriorate in other ways. Most important, unless the appropriate rent increases are allowed, landlords will not trouble to remodel apartments or make other improvements in them. In fact, where rent control is particularly unrealistic or oppressive, landlords will not even keep rented houses or apartments in tolerable repair. Not only will they have no economic incentive to do so; they may not even have the funds. The rent-control laws, among their other effects, create ill feeling between landlords who are forced to take minimum returns or even losses, and tenants who resent the landlord’s failure to make adequate repairs.
A common next step of legislatures, acting under merely political pressures or confused economic ideas, is to take rent controls off “luxury” apartments while keeping them on low or middle-grade apartments. The argument is that the rich tenants can afford to pay higher rents, but the poor cannot.
The long-run effect of this discriminatory device, however, is the exact opposite of what its advocates intend. The builders and owners of luxury apartments are encouraged and rewarded; the builders and owners of the more needed low-rent housing are discouraged and penalized. The former are free to make as big a profit as the conditions of supply and demand warrant; the latter are left with no incentive (or even capital) to build more low-rent housing.
The result is a comparative encouragement to the repair and remodeling of luxury apartments, and a tendency for what new private building there is to be diverted to luxury apartments. But there is no incentive to build new low-income housing, or even to keep existing low-income housing in good repair. The accommodations for the low-income groups, therefore, will deteriorate in quality, and there will be no increase in quantity. Where the population is increasing, the deterioration and shortage in low-income housing will grow worse and worse. It may reach a point where many landlords not only cease to make any profit but are faced with mounting and compulsory losses. They may find that they cannot even give their property away. They may actually abandon their property and disappear, so they cannot be held liable for taxes. When owners cease supplying heat and other basic services, the tenants are compelled to abandon their apartments. Wider and wider neighborhoods are reduced to slums. In recent years, in New York City, it has become a common sight to see whole blocks of abandoned apartments, with windows broken, or boarded up to prevent further havoc by vandals. Arson becomes more frequent, and the owners are suspected.
A further effect is the erosion of city revenues, as the property-value base for such taxes continues to shrink. Cities go bankrupt, or cannot continue to supply basic services.
When these consequences are so clear that they become glaring, there is of course no acknowledgment on the part of the imposers of rent control that they have blundered. Instead, they denounce the capitalist system. They contend that private enterprise has “failed” again; that “private enterprise cannot do the job.” Therefore, they argue, the State must step in and itself build low-rent housing.
This has been the almost universal result in every country that was involved in World War II or imposed rent control in an effort to offset monetary inflation.
So the government launches on a gigantic housing program — at the taxpayers’ expense. The houses are rented at a rate that does not pay back costs of construction and operation. A typical arrangement is for the government to pay annual subsidies, either directly to the tenants in lower rents or to the builders or managers of the State housing. Whatever the nominal arrangement, the tenants in the buildings are being subsidized by the rest of the population. They are having part of their rent paid for them. They are being selected for favored treatment. The political possibilities of this favoritism are too clear to need stressing. A pressure group is built up that believes that the taxpayers owe it these subsidies as a matter of right. Another all but irreversible step is taken toward the total Welfare State.
A final irony of rent control is that the more unrealistic, Draconian, and unjust it is, the more fervid the political arguments for its continuance. If the legally fixed rents are on the average 95 percent as high as free market rents would be, and only minor injustice is being done to landlords, there is no strong political objection to taking off rent controls, because tenants will only have to pay increases averaging about percent. But if the inflation of the currency has been so great, or the rent-control laws so repressive and unrealistic, that legally fixed rents are only 10 percent of what free market rents would be, and gross injustice is being done to owners and landlords, a great outcry will be raised about the dreadful evils of removing the controls and forcing tenants to pay an economic rent. The argument is made that it would be unspeakably cruel and unreasonable to ask the tenants to pay so sudden and huge an increase. Even the opponents of rent control are then disposed to concede that the removal of controls must be a very cautious, gradual, and prolonged process. Few of the opponents of rent control, indeed, have the political courage and economic insight under such conditions to ask even for this gradual decontrol. In sum, the more unrealistic and unjust the rent control is, the harder it is politically to get rid of it. In country after country, a ruinous rent control has been retained years after other forms of price control have been abandoned.
The political excuses offered for continuing rent control pass credibility. The law sometimes provides that the controls may be lifted when the “vacancy rate” is above a certain figure. The officials retaining the rent control keep triumphantly pointing out that the vacancy rate has not yet reached that figure. Of course not. The very fact that the legal rents are held so far below market rents artificially increases the demand for rental space at the same time as it discourages any increase in supply. So the more unreasonably low the rent ceilings are held, the more certain it is that the ‘‘scarcity” of rental houses or apartments will continue.
The injustice imposed on landlords is flagrant. They are, to repeat, forced to subsidize the rents paid by their tenants, often at the cost of great net losses to themselves. The subsidized tenants may frequently be richer than the landlord forced to assume part of what would otherwise be his market rent. The politicians ignore this. Men in other businesses, who support the imposition or retention of rent control because their hearts bleed for the tenants, do not go so far as to suggest that they themselves be asked to assume part of the tenant subsidy through taxation. The whole burden falls on the single small class of people wicked enough to have built or to own rental housing.
Few words carry stronger obloquy than slumlord. And what is a slumlord? He is not a man who owns expensive property in fashionable neighborhoods, but one who owns only rundown property in the slums, where the rents are lowest and where payment is most dilatory, erratic and undependable. It is not easy to imagine why (except for natural wickedness) a man who could afford to own decent rental housing would decide to become a slumlord instead.
When unreasonable price controls are placed on articles of immediate consumption, like bread, for example, the bakers can simply refuse to continue to bake and sell it. A shortage becomes immediately obvious, and the politicians are compelled to raise the ceilings or repeal them. But housing is very durable. It may take several years before tenants begin to feel the results of the discouragement to new building, and to ordinary maintenance and repair. It may take even longer before they realize that the scarcity and deterioration of housing is directly traceable to rent control. Meanwhile, as long as landlords are getting any net income whatever above their taxes and mortgage interest, they seem to have no alternative but to continue holding and renting their property. The politicians—remembering that tenants have more votes than landlords—cynically continue their rent control long after they have been forced to give up general price controls.
So we come back to our basic lesson. The pressure for rent control comes from those who consider only its imagined short-run benefits to one group in the population. But when we consider its long-ran effects on everybody, including the tenants themselves, we recognize that rent control is not only increasingly futile, but increasingly destructive the more severe it is, and the longer it remains in effect.
Rent Control In The New Millennium
-----------------------------------By Dennis Keating and Mitch Kahn
-----------------------------------
Back to Table of Contents During the 1970s and early 1980s, the fight for rent control galvanized tenant organizing. That era’s economic and political context made rent control timely and attainable on a number of different levels. First, inflation from the Vietnam War and OPEC oil embargoes placed economic hardships on increasing numbers of working families. Like today, in many areas of the Northeast and California, rent increases were far outstripping wage increases, and a growing shortage of affordable housing exacerbated the crisis.
Second, there was an infrastructure of tenant organizations able to mobilize large numbers of tenants. Groups such as the New Jersey Tenants Organization (NJTO), the Metropolitan Council on Housing (New York City), New York State Tenants and Neighbors Coalition, the California Housing Action and Information Network and the Massachusetts Tenants Organization coordinated successful local and statewide rent control campaigns. A surge of tenant activism throughout the country led to formation of the National Tenant Union (NTU) in 1980. Each group had leaders with extensive organizing experience gained from the political struggles of previous decades.
The last factor that brought about a demand for rent control was the public’s disillusionment with government and corporate America in the wake of Vietnam and Watergate; large numbers of people saw progressive social change as an attainable and desirable goal.
California, New Jersey, New York and Massachusetts, and cities such as Seattle, Baltimore and Washington, DC, were the sites of pitched battles for rent regulation during this time, many of which were successful. At the height of tenant influence in the late 1970s, rent control laws had been enacted in over 170 municipalities, mainly in the Northeast and California where the rent pressures were most severe and tenant organizations were strongest. Though not uniform, these laws did have a number of common features, one of which was a specified annual rent increase, either a fixed percentage or some fraction of the Consumer Price Index. Most of these laws also provided landlords with capital improvement surcharges, tax surcharges and hardship appeals that guaranteed fair rates of return on investment.
Despite these moderate provisions, landlords vigorously opposed all forms of rent control. The emerging conservative onslaught in the 1980s further slowed or rolled back tenant gains. The National Council of the Multi-Housing Industry (NCMHI), a sister organization to the National Apartment Association (NAA), was created to serve as an umbrella organization for state landlord associations. The NAA and NCMHI lobbied to cut off federal Community Development Block Grant funds to any municipality with rent control and got the Reagan Administration to push for this sanction each time the program came up for authorization. Both of these organizations encouraged their state affiliates to initiate local and statewide referenda on rent control and provided research materials, expertise and guidance for these campaigns. These efforts coincided with a growing conservative and anti-regulatory sentiment in many sectors of the voting population.
Meanwhile, the short-lived NTU collapsed, leaving tenants without the coordinated national voice of the landlords. However, the tenant movement remained strong at the state and local levels where rent control is enacted, so the landlord offensive was largely defeated. The large statewide tenant organizations had broad, organized and vocal constituencies that made a crucial difference in thwarting landlord-sponsored voter referenda, legal challenges and massive tax appeal campaigns. But unlike the 1970s, when tenants were offense and winning victories, they were now on the defensive.
Massachusetts and California: Statewide Losses
When landlords attack rent control in a larger arena that includes fewer urban areas or tenants, they are often more successful. Massachusetts fared the worst in this regard, losing rent control altogether in a 1994 statewide referendum sponsored and financially backed by landlords, which passed by 51 percent. But Massachusetts only had three cities with rent control (Boston, Brookline and Cambridge), and not surprisingly, the referendum lost there. The aftermath of the loss of rent control included drastic rises in decontrolled rents and an aggravation of the shortage of affordable rental housing in the greater Boston area, with rents rising 50 to 100 percent. (See The Decontrol Blues.)
While California’s landlords have failed to win statewide rent control repeal, in 1995 they persuaded the California Legislature to impose vacancy decontrols statewide. Vacancy decontrol, a favorite and widely successful weapon of anti-rent control forces, allows landlords to raise rents well above the allowable annual increase when a tenant moves out. In a large number of cases, rents can be raised to market levels before coming under rent control again. In its extreme version, rents are decontrolled altogether upon a vacancy. This not only has made rental housing less affordable for many tenants in rent-controlled jurisdictions, but also has created a great disparity in rents between new and older tenants. As a result, vacancy decontrol also discourages tenant unity.
In California, statewide vacancy decontrols took effect at the beginning of 1999. For much of the rent-controlled housing, this will mean the end of rent control due to the high demand for housing and the small supply of affordable units. Tenant organizations in cities like Berkeley and San Francisco have had to refocus on the crucial, though rearguard, fight to strengthen eviction protections for those tenants that still enjoy the greater protection of prior local laws. In the November 2000 election, San Francisco tenants passed an initiative measure to limit landlords’ ability to increase rents for capital improvements (except for seismic renovations), and Berkeley voters approved an initiative to tighten owner-occupancy rights.
On the upside, California mobile homeowners have benefited from the strong legislative advocacy of the Golden State Manufactured Homeowners League (GISMOL). The mobile home tenant/owner organization in California is one of the best organized and financed in the U.S. In the mid-1990s, GISMOL led a successful effort to defeat a statewide attempt to repeal California’s widespread strong city and county mobile home space rent control ordinances that have either no vacancy decontrol or limit any special increases upon vacancy.
Washington, DC:
Confronting Consultants
Last year, in the District of Columbia, tenants successfully defeated an attempt to repeal rent control. As required by a 1997 Congressional mandate, the DC Financial Control Board had commissioned a study of the rent control system enacted in 1975. The consultants released a report in 2000 that recommended repeal of rent controls covering more than 100,000 rental units, claiming that they were no longer needed and that high vacancy rates would protect lower-income tenants from major rent increases. DC already allows special rent increases for vacant units, including a provision that allows landlords to raise the rent to that of the “highest comparable unit” in their building – although this is not technically considered vacancy decontrol.
The consultants acknowledged that decontrolled rents in Cambridge had risen by 36 percent between 1994 and 1997, but claimed that this would not happen in DC due to already higher rents and vacancy rates. They estimated average decontrolled rent increases at about 2 percent, with little likelihood of tenant displacement.
The DC Coalition for Rent Control criticized the study’s assumptions and methodology. It involved no new research, says Kenneth Rothman of the Coalition, and the study used the unusually high rent ceilings, created in some cases by the highest comparable law, to make rent control appear unnecessary since some owners were charging less than the ceiling allowed.
Knowing that the city council didn’t look favorably on the study since it had been commissioned by the imposed control board, the Coalition didn’t worry about it much. It focused instead on the need to improve the implementation of rent regulations, specifically the de facto vacancy decontrol. In October 2000, with the support of Mayor Anthony Williams, the City Council extended the existing rent control law for another five years.
Rothman believes that rent control is in less danger of being repealed in DC for two reasons. First, it has one of the highest percentages of renters in the country (approximately 60 percent). And second, it has no state government. In other areas, says Rothman, “When the landlords can’t fight [rent control] locally, they take it to the state so they can work with the legislators whose constituencies aren’t urban.” Although DC has federal oversight, the federal lawmakers are hesitant about interfering locally and also aren’t indebted to local realtors for contributions.
New York: Chipping at the Edges
In 1997, New York tenants defeated Republican-led efforts to impose full vacancy decontrol on municipalities like New York City, but it took a full-scale organizing and lobbying campaign. (see Shelterforce #94.) Landlords did win passage of “luxury decontrol” for units renting for $2,000 or more per month. Early in 2000, the New York City Council extended its rent stabilization law covering approximately 1.1 million rental units for another three years (through March 2003), again largely unchanged due to strong tenant lobbying. However, new landlord-friendly regulations were added by the state Division of Housing and Community Renewal. These new regulations create a procedure for defining legal base rents favorable to landlords, restrict cost-sharing between roommates and allow vacancy decontrol increases more than once a year.
New Jersey:
Local Inroads, Strong State
In New Jersey, long the battleground and site of major tenant rent control victories, a number of factors have led to erosion of tenant power. Two decades of vigorous landlord political activity at the state and local levels have begun to yield a shift of power in their favor. Landlord-sponsored voter referenda, a massive tax appeal campaign (see Shelterforce #55) and co-op and condo conversions have taxed the tenant movement’s resources. In addition, throughout the 1980s and 1990s, public opposition to increases in the state income tax and local property taxes led to the election of conservatives at all levels of government. Demagogic attacks on tax increases strained the already tenuous alliance between homeowners and tenants. In the state legislature, this has manifested itself as a barrage of anti-tenant legislation which has placed the New Jersey Tenant Organization (NJTO) in a constantly defensive position.
At the local level, landlords have chipped away at local rent control laws through the divide and conquer strategy of vacancy decontrol. While tenant leaders understand the long-term negative consequences of vacancy decontrol, it has been difficult to mobilize large numbers of tenants in opposition since the policy does not affect them directly. Landlords have also lambasted rent control as a cause of homeowners’ property tax hikes, which has caused weakness in overall tenant-homeowner unity.
As a result, there has been a widespread enactment of vacancy decontrol measures in municipal rent control laws. Eighty percent of New Jersey’s 115 rent-controlled municipalities now have some form of vacancy decontrol. More than half have full vacancy decontrol that allows rents to be raised to market levels before coming under rent control again. Two cities, Bloomfield and Passaic, have recently implemented permanent vacancy decontrol measures that will phase out rent control. In towns with full vacancy decontrol, rents have quickly risen to market levels, exacerbating the already acute housing affordability crisis in New Jersey.
Landlords have carried their anti–rent control campaign to the state legislature, but unlike Massachusetts and California, they haven’t been successful. The NJTO is still an effective electoral force in the heavily populated northern counties in the state, and in spite of persistent opposition, rent control has become a valued part of the political landscape in more than 20 percent of the state’s municipalities. Also, the issue of home rule steers many conservative state legislators away from the issue.
Nonetheless, landlords maintain the offensive in the state legislature. In March 1997, Republican Assemblyman Michael Patrick Carroll introduced legislation to end rent control in the year 2000 for all apartments renting for more than $750 per month, which is well below the average rent in the state. Carroll’s bill also would have prohibited the enactment of any future local rent control laws. Following this bill’s introduction, then-Governor Christie Todd Whitman called for the establishment of a Landlord-Tenant Task Force to make recommendations on rent control and related property tax issues; the Governor recommended members who would be overwhelmingly supportive of the real estate industry’s interests.
The NJTO was given one seat on the 10-member commission. The remaining members were to come from the statewide landlord, builder, banking and bar associations and the state legislature – one Republican leader from each house. The NJTO organized a statewide campaign that mobilized local tenant associations, labor unions, community development organizations, housing advocacy groups and New Jersey Citizen Action to expand the task force’s composition. As a result of NJTO’s efforts, Governor Whitman added representatives from the New Jersey Mobile Homeowners Association and the New Jersey Housing Community Development Network, and the New Jersey Bar Association named a prominent legal services attorney as its representative.
To date, the task force has not issued its report, and tenant lobbying successfully ended the life of the Carroll bill during the 1999 legislative session. Undaunted, Assemblyman Carroll has introduced a new bill that would impose permanent vacancy decontrol throughout the state. However, this legislation appears to be dead on arrival due to considerable tenant opposition.
The National Picture
Nationally, outside the main rent-controlled regions, there has not been a demand for rent controls due to the relatively low inflation rate during the past decade. However, in hot local real estate markets such as Seattle, rent control has re-emerged in policy debates as a response to exorbitant rents. Housing advocates in communities that seek enactment of new rent control laws have some unique organizing challenges; a number of state legislatures, including Washington and Massachusetts, have preempted local governments’ right to enact rent laws. It will be necessary to start with a statewide presence similar to the past efforts in states of New Jersey, New York and California. Tenant unity across class lines must be built at the beginning of rent control campaigns, and tenant-homeowner unity on tax equity issues is essential to thwart the certain divide-and-conquer strategies used by landlords.
Carrying On
In and of itself, rent control cannot solve the crisis of the lack of affordable rental housing. However, under the right conditions it can avert much tenant displacement by preventing steep rent increases while guaranteeing compliant landlords a fair rent.
The history of rent control over the last few decades offers lessons for today’s tenant groups. First, the location of the struggle is always shifting. Real estate and landlord interests are well organized. If they can’t win at the local level, they will try at the state, and vice versa. Organizing has to be strong at all levels to succeed.
Second, economic and political climates have great influence on the success or failure of rent regulations. Tenant groups need to pay attention to these trends and actively form alliances with other groups, such as homeowners concerned about property taxes.
Third, and perhaps most importantly, vacancy decontrol and other weakening of rent regulations can be just as dangerous or more so than the threat of full repeal. Vacancy decontrol provides a strong incentive to threaten tenants with eviction, it weakens the tenant organizing base because it does not directly threaten rent increases to existing tenants and it rapidly reduces the stock of affordable housing. As Kenneth Rothman of the DC Coalition for Rent Control says, “The real fight is going to be within the details of the law.”
Copyright 2001
Dennis Keating (dennis@wolf.csuohio.edu) is associate dean of the Levin College of Urban Affairs at Cleveland State University.
Mitch Kahn (mkahn@ramapo.edu) is professor of social work at Ramapo College of New Jersey.
Post a Comment
Subscribe to Post Comments [Atom]
<< Home