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HomeMy WebLinkAboutRental Regulation - An Examination of the Rental Housing Market in Ithaca New York 1988 Rental Regulation: An Examination of the. Rental Housing Market in Ithaca, N.Y. , and Rental Regulation Techniques. Recommended Areas of Interest for the City of Ithaca. David Bertenthal July 1,. 1988 This report is designed to overview the pros and cons of rent regulation, to illustrate the range of possible rental regulatory formulas by examining two polar examples, and making recommendations as to particular approaches that are appropriate to the City of Ithaca. To accomplish these purposes, this paper will: 1 . Examine the particular situation facing the City of Ithaca Rental Housing Market. 2. Examine approaches tried in other communities. 3. Analyze these approaches for suitability to Ithaca. 4. recommend specific approaches suitable to Ithaca. I. The Situation in Ithacal The City of Ithaca has very unique demographic and housing characteristics. While these unique characteristics add to the atmosphere and character of Ithaca, they also create problems of affordability and availability of rental housing in Ithaca. Consider the following salient factors contributing to Ithaca's poor rental housing situation: 1) There exists a very large renter population. The national housing market is characterized by a housing ratio of two-thirds home owners to one-third renters. Ithaca's proportion is reversed, with two-thirds of the population renters and one third home- owners. This symbolizes the severity of the problem facing the city 1Data taken from: 1. Supply, Demand, and Affordability of Housing; City of Ithaca, N.Y.. May 1987. 2. Recommendations of the Technical Advisory Committee. April 1987 1 since any solution to alleviate the housing situation in Ithaca must strike a delicate balance between affordability and availability of rental housing in the city. Taking into account one part of this spectrum without the other could have serious consequences upon living conditions for the majority of the population. This will be elaborated on further in this paper. 2) There exists a very low rental vacancy rate in the City of Ithaca. Nationally, a rental vacancy rate of 5% is generally agreed by expert to be symbolic of a healthy rental market. The apartment vacancy rate for the City of Ithaca in 1986 was 1 .61%. This low vacancy rate leads to a market where the property owner is to a large degree, in control of the market due to intense competition for the limited adequate and affordable housing available. This leads to less choice among renters for housing, less choice about costs of housing, and greater possibilities for rapidly increasing rents and fees due to a high demand for desirable housing and low supply. This low vacancy rate puts renters at a disadvantage in their relationships with property owners. 3) Increases in amount of Housing units are not keeping pace with the increasing population size and number of households in the city. This problem directly leads to the problem of the low vacancy rate as described above. In the May 1987 report on Supply, Demand, and Affordability 2 of Housing for the City of Ithaca, three projections were made on additional population growth in the City of Ithaca by 1990. One of these projected a population growth of .41% in the decade 1980- 1990 in the City of Ithaca. This would result in 1 ,081 additional households over the 1980 total of 9,195 households. The middle projection showed an increase of 5% in the population, resulting in 1 ,718 additional households being added to the City. This is the projection which members of the research team which developed the projections feel is most likely. The final projection called for a 10% population growth rate which would result in the addition of 2412 households to the City. These population increases, combined with an average household size which was estimated to drop from 2.30 person per household in 1980 to 2.07 persons per household in 1990, point to significant increases in the number of households searching for housing in the City. Against these projected increases in households ranging from an increase of 1 ,081 households at one extreme to an increase of 2,412 households at the other; the number of Housing Units Produced or estimated by 1990 is 589. This leaves. between 492 and 1823 households with unmet needs for housing under current projections and estimates. Under these conditions an increasing proportion of people seeking housing in the City will be faced with a choice between two 3 • options: 1) They will have to live outside the City and commute in; adding to already poor parking and traffic conditions; or 2) They will have to live in housing they would ordinarily view as inadequate for themselves. 4) The age of the City's housing stock is an area of concern. The 1980 Neighborhood Statistics Program determined that 62% of the City's housing was built prior to 1940. In 1981, Ithaca's Community Development Agency determined that 33% of all units in the City's older downtown neighborhoods were substandard. Thus a significant portion of the City's housing will need renovation or replacement if it is to remain as of the Housing Market. Any solution to Ithaca's poor rental housing situation must account for the need to promote rental housing renovation, maintenance, and construction. Unless that is done the small amount of choices available to may households searching for housing in Ithaca may entirely disappear. 5) The large number of students housed off-campus is another problem. Students, for the most part, drive up the price of housing in the entire Ithaca market due to their relative wealth and their capability to live in groups with each individual paying rent, increasing the revenue per property for landlords. For example, a landlord could charge six students $1200 per-month for a house, a moderate rental rate of $200 per month per person. Very few families in Ithaca could afford the same price. Students also drive 4 up prices for home ownerships since this lucrative market spurs competition between landlords and families for some of the same housing. Contributing to this problem are increases in student populations without resulting increases in on-campus housing. Despite protestations from Cornell and Ithaca College that their student population size will remain constant, there has been considerable growth in both schools in recent years and economic pressures for schools to expand while exploiting local infrastructure may cause this trend to continue. At Ithaca College approximately 25% of the student population of 5700 resides off-campus. This number of students has a significant impact on City housing. However, there are signs that this situation may improve since I.C. currently has plans for a new privately owned, 1000 bed dormitory complex which will significantly reduce the amount of off-campus housing consumed by I.C. students. Approximately 50% of Cornell's 17,476 students in 1985 resided off-campus. A large proportion of the City Housing Market is occupied, and indirectly impacted, by Cornell students. No improvement in this situation is likely in ,the near future since recent rennovations of the U-Halls, Sage Hall, and Hughes Hall have resulted in a greater loss of beds than were gained by adding the 5 • .1 • Townhouse Complex. There do not appear to be plans to increase on- campus housing except for renovation of Cornell Quarters Graduate Housingwhich will add a few more graduate student beds and a plan for a new 600 bed facility which, according to Terry Tower of Cornell Residence Life, is still "in the dream stage". 6) The relatively high rents in Ithaca compared to other Upstate New York Cities of comparable size is symbolic of the problem. When all renters with incomes below $16,000 are removed only 33% of all Ithaca's non-student households who don't receive rent subsidies can afford a modestly priced 2-bedroom rental unit. This "modestly priced" unit is defined in accordance with the "Fair Market Rent" as established by the Federal Government for Ithaca, $400 per month including utilities. This figure is actually quite low with respect to some of the neighborhoods on East and South HIIls.The trend of high and continually rising rents is likely to continue until: 1) There is a change in the condition of Ithaca's Rental Housing Market, or; 2) Regulation of rents is instituted. 7) The propagation of questionable rental housing practices is a problem. Landlords requirements of large proportions of the year's rent in advance appear to be a regular occurrence. Mr. Cleveland Meyers demonstrated this in a meeting of the Planning and Development Committee on January 27, 1988 with his statement that his daughter could not find a place to live since landlords required several months rent in advance, which both he and she could 6 1 , ' not pay, though she could pay the monthly rent. Many members of the Ithaca community are being asked to pay _large sums of money in advance of the execution of their rental agreement, above what they can afford to, thus driving them into substandard housing or out of the city altogether. Another problem is unreasonable security deposit retention by landlords. This practice is encouraged b the failure of many renters to take adequate inventory of the condition of their housing prior to, and after, their residence there. This leaves landlords free to charge the renter for any damage in the Unit, whether caused by them or not. Acting City Judge John Sherman estimates that 50% of his cases deal with security deposit disputes and that many of these cases could be easily resolved should such precautions be used. The preceding are salient charateristics of Ithaca's troubled Rental Housing Market. Potential improvement in this situation could be through use of rental regulatory measures which serve the dual purposes of: 1) Helping tenants, and; 2) Not unduly punishing landlords covered by the measures. The City of Ithaca has many potential rental regulation options available to it. Rather than experimenting with each of these options to determine its suitability to the City, these mechanisms, and their effects, can be examined as used in other locations around the country. Determinations can then be made about the societal 7 conditions indicating success of a particular form of rental regulation in a municipality and whether those._conditions .are present in Ithaca with its particular rental housing situation and Societal, Political, Economic, and Legal atmosphere. The following sections will therefore: 1. Examine the effects of rental regulation as seen by • proponents and opponents of rental regulation. 2. Examine the specific forms regulation could take. 3. Analyze the suitability of each form of regulation to the City of Ithaca. II. An Overview of Rental Regulation A. Pros and Cons of Rental Regulation2 Rental Regulation is a complex and controversial system of reducing rental housing costs. First introduced during World War I to help soldiers families and those of war-industry workers, it was reintroduced during World War II and never left again. The most recent "wave" of "Second Generation" rental regulation came during the high inflation period of the early 1970's. Presently rental regulation is practiced all across the U.S. and is most pervasive along the East and West coasts; particularly in California and New 2Data taken from: Technical Memorandum. David Lynn. Rent Control: Arguments For and Against 8 • . F Figure 1 Characteristics of the City of Ithaca Rental Housing Market 1 . A large renter population. 2. A very low vacancy rate. 3. Insufficient increases in housing stock compared with population and household increases. • 4. An aged housing stock. 5. A large student population off-campus. 6. Relatively high rental rates. 7. Propagation of questionable rental housing practices. Jersey where over 100 municipalities currently use forms of rental regulation. Proponents and opponents of rental regulation each have studies, empirical evidence, and expert theories which. promote their viewpoint. The wide disparity in evidence results in much of it being inconclusive. The following is a short summary of the main arguments put forward both in favor to and opposed to rental regulation. Proponents of rental regulation, citing writings such as; John Gilderbloom: Moderate Rent Control:, The Experiences of U.S. Cities, Dennis Keating: Rent Control in California: Responding to the Housing Crisis, and Frank Smizik: Report of Ad Hoc Committee to Brookline Town Meeting Members, make the following pro-rental regulation arguments: 1 . Rental Regulation ensures an affordable supply of housing for lower, working, and middle class households. 2. Rental Regulation prevents excessive rent increases on the part of landlords. 3. Rental Regulation, while preventing excessive rent increases on the part of landlords, promotes reasonable rates of return to landlords allowing them to retain a reasonable profit and keep up their properties. 4. Rental Regulation has a stabilizing effect on tenant/landlord relations by putting their relationship on more equal 9 and defined terms. 5. Rental Regulations promote long-term relationships between tenants and landlords; giving both parties greater incentives to take care of properties. Opponents of rental regulation; citing writings such as: Nicholas Harbist: "Rethinking Rent ConiroL An Analysis of Fair Return", Monica Lett: Rent Control, and George Sternlieb: The Realities of Rent Control In the Greater Boston Area, make following arguments against rental regulation: 1 . Rental Regulation, thru its potential control over the size of landlord's profits, makes the return on investment very uncertain, discouraging lending institutions and developers from investing in rental housing, leading to a decline in rental housing production. 2. Rental Regulation causes inequities within the housing market itself by creating two classes of rental units; controlled and uncontrolled. This creates inequities between renters in rent controlled housing who may have higher incomes than some people who don't live in controlled housing and may pay higher rents. 3. Rental Regulation leads to erosion of the tax base due to the reduced assessed values of rental property in controlled communities, increased applications for tax abatements, and 10 increased tax delinquency due to increasing operating expenses without resultant increases in rents. According to Sternlieb, this suggests that rent control is a subsidy, the cost of which must be borne by the balance of the taxpayers in the municipality (Sternlieb, Hughes. 1980). 4. Rental Regulation leads to faster deterioration and abandonment of rental properties since it adds extra costs to the landlord and restricts rental increases, causing the landlord to decrease expenses on maintenance in order to continue making a fair return on investment. This last point illustrates the the ability of pro- and anti- rental regulation forces . to produce studies supporting their • differing positions. John Moorhouse, in his 1975 study of New York rent control, determined that during inflationary periods maintenance suffers due to an inability on the part of landlords to adjust their rents in accordance with the increase in prices. However, John Gilderbloom, in his 1980 study of rent control in Massachusetts, New Jersey, and California found that, due to the more flexible "second generation" rental ,regulation laws in effect, maintenance expenditures in controlled buildings did. not decrease relative to pre-control days or to non-controlled buildings because landlords were able to pass on the full cost of repairs and improvements to the tenants. Gilderbloom also found that in some instances maintenance expenditures increased after imposition of 11 controls because legal rent increases were not allowed if the level of maintenance and service dropped or if code violations existed (Amherst Report, p.6.19). Before examining the reasons for these differences it must be observed that the results of rental regulation may depend on the form and location of regulation, rather than simply upon the overall pros and cons of regulation expressed previously. According to John Gilderbloom in Moderate Rent Control; Rent Control programs in the United -States can be classified into two broad subgroups: restrictive and moderate. Restrictive rent regulations, characteristic of World War I and II rent regulations and those of New York prior to 1969, led to little or no construction and declining maintenance and valuation of property. This is traced to the fact that they virtually froze rents and, in New York, according to Emily Achtenberg, "may have accelerated the process of private disinvestment by making it difficult for many owners to earn a reasonable rate of return on investment." (Achtenberg, 1976). With the coming of the 1970's second generation, or moderate, rent controls came into use. These moderate controls are characterized by : 1) a"guarantee of a fair and reasonable return on investment; 2) all increases in a landlords operating costs must be passed along to tenants in the form of increased rents; and 3) all new multi-unit construction is exempted from controls. These 12 • provisions must be followed up by equitable administration by the rent-control board - (Lett, 1976). • The idea that these different forms and locations of regulation have different effects is backed up by an analysis of the effects of rent regulation in Boston, New York City, scores of cities and town in New Jersey, Washington D.C., and several California cities, prepared by R. Rakoff for the Amherst Rent Control Study Commission. This study states: "There is no uniform negative effect of rent control on new construction,.building maintenance, or taxable valu- ation of rental properties. In some cities at certain periods under certain economic conditions these negative effects have occurred, as many economists would predict. However, rent control in other cities has been accompanied by an increase in maintenance expenditures, new rental construc- tion, and taxable valuation. What seems apparent is that the of rent control depend on the conditions of the local housing market and the national economy". (Amherst, p.6.17). 13 This study also found that comparisons of rent controlled and non-rent controlled cities is inconclusive. These comparisons suggest that many of the problems attributed to rent controlled cities; abandonment, lack of construction, etc., and the rent increases that non-controlled cities are blamed for, occur in both types of cities. Louis M. Rea and Pipak K. Gupta in their study, "An Economic and Legal Analysis of Rent Control" (1982), reinforce the idea that the form of rental regulation is an important player in its results. In this study they state, "It is shown that rent control measures differ substantially and that their individual features are of crucial importance in determining the potential impact of rent control on the housing industry in a community" (p.3). B. Moderate versus Restrictive Rental Regulation Rea and Gupta in their study, " An Economic and legal Analysis of Rent Control" attempt to define criteria by which rental regulatory measures would be categorized as being restrictive or moderate. Following is a listing of those criteria determined to be either restrictive or moderate: 1. Moderate Criteria a) Rent increase allowed to landlord pegged to •a fixed annual percentage. b) Vacancy decontrol allowed. 14 • c) No rent rollback to a previous rent level. d) New construction excluded from consideration under the rent regulatory measures. e) No regulation to protect tenants from unfair practices. f) No regulation of conversion of apartments to condominiums and/or demolition. g) Composition of rent control board is specified. h) Rental regulations have a specific expiration date. 2. Restrictive Criteria a) Rent increases allowed to the landlord determined by a rent control board. b) Vacancy decontrol is not allowed,. c) Rollback of rents to a previous rent level. d) New construction is not excluded from consideration under rental regulatory measures. e) Regulation to protect tenants from unfair practices. f) Regulation of conversion of apartments to condominiums and/or demolition. g) Composition of rent control board is not specified. h) Open-ended expiration date of rental regulatory measure Ill. Examples of Rental Regulation Measures A. Legally Binding Rent Review Board 15 • A legally binding Rent Review Board has the legal power to mandate maximum rent guidelines for the community as a whole according to different classes of rental housing, or to dispense legally binding decisions regarding disputes between individual tenants and landlords. An example of a rental review board which sets maximum rent guidelines can be found in Brookline, Massachusetts. An example of a rental Leview board which determines individual tenant/landlord disputes can be found in Amherst, Massachusetts. Advantages of.the rent guidelines board found by Herbert Selesnick in his study of four Massachusetts cities include: 1) set rent limits determined by the rent review board which prevent • excessive rent increases; 2) a mechanism allowing for appeals by landlords to increase their rents above the limit due to increased operating expenditures or capital improvements, and; 3) rental increases which are contingent upon the standards of maintenance in the property. (Selesnick, 1976). Disadvantages of the rent guidelines board include: 1) serious time lag faced by landlords in passing on to tenants increases costs through general adjustments; 2) extreme difficulty in determining "fair return" formulas, and; 3) difficulty in determining compensation for increased expenses. • Advantages of rent review boards which make individual • 16 • judgements are: 1) attention is paid to individual complaints rather than entire renting market; 2) smaller beuracracy, and; 3) close examination of individual property conditions. Disadvantages of this type of board include: 1) slowness of action; 2) potential backlog in cases, and; 3) difficulty in determining proper rates of return for landlords. B. Rent Review Board dependent on voluntary Compliance This board does not have the legal power to force acceptance of rent guidelines it publishes or acceptance of any decisions made in individual cases. Instead it uses persuasion to influence tenants and landlords. An example of this form of rent review board can be found in the village of Ossining, N.Y.. This board has the advantage of being a compromise that keeps landlords and tenants working together, according to Mr. Reckard of the Ossining Rent Review Board. It precludes many problems in the housing market associated with restrictive forms of rental regulation, by keeping landlords confident in their ability to make a profit in the area. • A problem with this form of rental board , is its apparent effectiveness only when the results of mediation can be forced upon the landlords, according to Dennis Keating in his study of rent control in California (Keating, 1984). Mr. 'Reckard concurs in this when he states that this system works in Ossining since "Ossining is eligible for coverage under the Emergency Tenant Protection Act of 17 1974, and it is the threat of ETPA's installation that makes this program successful". C. Landlord Information Requirements Landlord information requirements are laws or ordinances requiring landlords to provide tenants with information they might not ordinarily receive in the normal course of renting. An example of this is the State of Michigan Truth in Renting Law. Major points of this law are: 1) the landlord must provide information about tenants rights to the tenant; 2) the landlord, if they are an agent, must give the property owners name, and; 3)the landlord must provide the tenant with information on who to call in the case of emergency involving the rental unit. Advantages of these information requirements include: 1)greater protection .for tenants against illegitimate rental practices, and; 2) increased understanding between tenants and landlords about each of their rights and responsibilities in the rental relationship. A disadvantage of these requirements is that they may be seen as forcing landlord's to assume information costs the tenant should be doing incurring. This added cost may be seen as restrictive and as interference by landlords, who may attempt to pass on this cost to tenants. D. Security Deposit Regulation 18 Security deposit regulations include: 1) the numerical form that the security deposit can take; 2) procedures .which must be followed, and; 3) time limits on reception and release by landlords. Examples of these forms of security deposit regulation include: 1) New York State's limitation on security deposit size and requirements that interest be paid to tenants; 2) State of Michigan requirements that landlords and tenants_inventory rental property at the beginning and end of leases to ensure damage responsibility, and; 3) a New Jersey, law allowing tenants to sue for double the Security deposit if not returned within 30 days of the end of the lease. Advantages of these forms of regulation include: 1) protection of tenants against overcharging and arbitrary seizure of security deposits by landlords, and; 2) dual protection for landlords and • tenants in determining fault in court cases over security deposit retention. According to John Sherman, Acting City Judge of Ithaca, 60% of his cases involve tenant/landlord relations and 90% of these are Security deposit cases. He asserts that an inventory system, such as Michigans' would decrease this amount "tremendously". Disadvantages of these regulations :include: 1) limits on security deposits, may result in insufficient coverage for potential damage,and; 2) rigorous security deposit regulation may cut the profit margin of landlords, who rely on retention of part of the security deposit, discouraging rental property ownership. E. Rental increases "pegged" to a fixed annual percentage. 19 Rental increases "pegged" to a fixed annual percentage allows landlords to increase rents at the same rate as an identifiable measure (i,e, the Consumer Price Index). An example of this is found in San Francisco, California. Advantages of having rental increases "pegged" to an annual percentage include: 1) reduction of uncertainty for both landlord and tenant; 2) greater fairness to landlords, and; 3) reduction of uncertainty caused by use of "fair return" formulas in rental boards (Rea and Gupta). The disadvantage of this is determining what indicator this rent increase should be tied to. Landlords argue that the CPI, representing the inflation rate, should be used as a reflection of the price increases they have to face. Tenant advocates, such as Dennis Keating in his article: A Brief Guide to the Drafting of Rent Control Legislation, argue that the CPI is too great an increase since most landlords cost are fixed and don't increase in the same way as the CPI. They argue for an increase of one-half the CPI. F. Use of Vacancy Decontrol Vacancy decontrol exempts from any further regulation of rents , a vacated apartment, allowing the unit to bring any rent the market will bear. Once rented again, however, the. unit is again regulated. An example of this is found in Las Angeles, California. Advantages of vacancy decontrol are: 1) it ensures the 20 • ' •1 landlords of receiving a "reasonable" rate of return on their property, and;2) it encourages continued construction of rental property since landlords are assured of reaching market prices at some point in time. According to rental regulation advocates this represents "decontrol". Dennis Keating lists disadvantages including: 1) • landlords are encouraged to harass tenars into leaving; 2) tenants are reluctant to leave; 3) rents are skewed in the same building depending on length of occupancy; 4) the Rent Control Board has difficulty determining units which are still controlled, and; 5) rent increases are often exorbitant in decontrolled apartments (Rent Control: A Source Book, p. 110). • G. New Construction Exemptions New construction exemptions are a practice where any new rental housing constructed, or substantially rehabilitated, after a specific date is exempted from regulation. An example of this is contained in a provision of the New York Emergency Tenant Protection Act of 1974 which states that the regulations do not pertain to, "... Housing accommodations in buildings completed or buildings substantially rehabilitated as family units on or after January first, nineteen, hundred seventy-four..." (NY ETPA, 1974). The advantage of these exemptions is they encourage continued investment in, and construction of, rental housing by assuring 21 • 1 lenders and developers of receiving the full rent that the market will bear on new housing, reducing fears of receiving a "fair return". Dis-advantages of these exemptions include: 1)property owners may still fear the extension of rental regulations to include their properties and may not be willing to invest in the rent regulated community at all as found by Sternlieb in his 1973 study, The Realities of Rent Control in the Greater Boston Area, and; 2) two classes of housing are created, regulated and non-regulated, with some needy people being "shut out" of regulated housing, and others being "shut in" due to price constraints. H. Conversion Regulations Conversion Regulations are designed to restrict the conversion of rental housing unity into condominiums and co-ops. An example of this is Section 352222 of the New York State General Business Law, applicable in Westchester, Nassau and Rockland counties. This law contains provisions regarding the percentage of renting tenants who must agree to buy their units and protection of elderly and • handicapped rights. The advantage of conversion regulation is that it prevents, or hinders, the conversion of existing rental units to privately owned units, thus preserving the integrity of the rental housing stock. This • could be of great importance to regulated communities, where property owners may wish to take their properties out of the rental market due to lower profit margins. An example of this is 22 Westchester County where the amount of rental units converted to condominiums or co-ops has increases from only. 3.6%. of the multi- family stock in 1980 to approximately one-quarter of that stock in 1986 (Pasquale, 1986). The disadvantage of conversion regulation is its impact on property owners, developers, and lenders, who see conversion to privately owned units as a way of ensuring their investments. Regulations curbing conversions are a deterrent to construction of • rental housing by negating this insurance against loss. I. Rental Registry A Rental Registry is a mechanism in which landlords are required to provide information to a rental board. This information could include data about the rent level of the unit, the owner of the property, condition of the unit, term of the lease, and any other relevant information about the unit. Examples of rent registries can be found in Amherst, Massachusetts and Princeton, New Jersey. • • Advantages of a rental registry include: 1) the consolidation of information that is important to the operation of the rent review board; 2) easier identification of landlords who are charging • exorbitant rents, and; 3) possible use as a rental guide by members of the community. The potential danger in a rent registry is that it could act at cross-purposes by: 1) identifying landlords charging unfair amounts, 23 but also; 2) encouraging other landlords to charge higher rental rates than they had previously after being exposed to other rates. J. Open Ended Expiration Dates An Open Ended Expiration Date when there is no time limit on a rental regulatory program in a community. An example of this can be found in Berkeley, California. The advantage of this is that there 3s no time limit on the success of the program. Instead program length can bedetermined by perception of its success or failure among municipality administrators and the populace. The dis-advantage of an open-ended expiration date is it leads investors to believe that rental regulation has been established on a long term basis, leading to a cautious investment policy, and possibly, to decreased rental housing construction (Rea and Gupta, 1982). IV. Analysis of Applicability of Individual Forms of Rental Regulation to the City of Ithaca George Sternlieb in his 1974 study, The Realities of Rent Control In the Greater Boston Area, found that a form of rental regulation could be a success in one locale, and fail miserably elsewhere, leading him to the conclusion that both form and place of regulation determines its success. R.Rakoff of the Amherst Rent 24 • • Control Study Commission came to the same conclusion in his study of rental regulation in several Eastern and California cities. These findings symbolize the importance of matching the form of regulation to be used with the conditions present in the Rental Housing Marketin conjunction with the Economic, Social, Political, and Legal environment facing that market. Derivation of a successful program for the City of Ithaca is dependant upon a correct determination of the suitability of each form of regulation specified previously in accordance with the characteristics of the Ithaca Rental Housing Market detailed in Section I and the environment facing the market. • The rental regulations are therefore• divided into two • categories: 1) Those which would improve the condition of the Rental Housing Market in Ithaca and , in the authors opinion, have no major negative Social, Political, Legal, or Economic charateristics, . •iaracterized as suitable for use by Ithaca; 2) Those which either aren't useful or have major negative characteristics or obstacles to their use, are designated as unsuitable for use by the City.3 A. Suitable Forms of Rental Regulation 1. Rent Review Board dependant on Voluntary Compliance Reasons' for "suitable" designation: • 3These classifications are based on current conditions. Should these conditions change in the future the forms of regulation classified as unsuitable could become useful. 25 a. Would act as a check upon the problems of unjustified rental increases and questionable renting practices in Ithaca by exposing the to public scrutiny and persuasion. b. Does not require legal permission from the State. c. Retains landlord confidence in the Rental Housing Market due to its moderate nature. d. Is unlikely to provoke as mucti opposition from landlords as formal Rent Control since it provides for only voluntary compliance. 2. Landlord 'Information Requirements Reasons for "suitable" designation: a. Would act as an equalizer in tenant/landlord relations by better informing Ithacas`-large renter population, especially the student component about their rights,helping to protect against questionable rental practices. b. The demographic similarity between Ithaca and Ann Arbor, Michigan, a municipality where such regulations are successfully in use. c. A relatively moderate, low cost measure which helps tenants without undue inconvenience or cost to landlords. 3., Security Deposit Regulation Reasons for "suitable" designation: a. Would act as a check upon unreasonable security deposit 26 retention or manipulation in Ithaca by setting criteria for inventory of property,time limitations on retention of deposit, etc.. b. Would simplify security deposit cases by presenting clear evidence of damage and fault, according to Acting City Judge John Sherman. c. Provides dual protection for landlords and tenants by protecting tenants against illegitimate retention of security deposit, while giving landlord evidence to use in pressing damage claims in contentious cases. 4. Regulation of 'Up Front" Money Requirements Reasons for "suitable" designation: a. Would act to reduce the financial burden on lower and middle income Ithacans and perspective Ithacans currently being • forced either to live outside the City for affordable, adequate housing or in substandard housing in the City. b. The appearance of several promising approaches towards this regulation suggested by Professor Ernest Roberts of Cornell Law School, including use of Consumer and Home Rule laws. c. Is likely to draw strong support from tenants. d. Existence of other avenues of interest to mitigate this problem (ex. security deposit trust fund) should regulation prove impossible or unworkable. • 5. Rental Registry Reasons for "suitable" designation: 27 a. Enhancement of information available to both the City and tenants about rental rates, rent increases, and housing conditions in Ithaca. b. It would help identify landlords renting sub-standard properties and those using illegitimate or unfair rental practices. c. It could provide benefits to both landlords and tenants by acting as a rental guide, matching landlords and tenants according to mutual needs. in turn this could limit landlord opposition to providing this information. B. Unsuitable forms of Rental Regulation 1 . The Forms of Formal Rent Control: 1) Legally Binding Rent Review Board; 2) Rental Increases "pegged" to a fixed percentage; 3) Vacancy Decontrol; 4) New Construction Exemptions, and; 5) Open- ended Expiration Date. • Reasons for "unsuitable" designation: a. All are derivatives of legally binding rental regulation which under the Emergency Tenant Protection Act of 1974 is specifically limited to Downstate N.Y., making them unusable in Ithaca unless coverage under the act was extended to Upstate N.Y, which seems unlikely at best. b. All are susceptible to lawsuits by either tenants or landlords questioning the techniques being used in the regulations or 28 the decisions made, or the legality of the entire process. This results in large delays in the process while these suits are contested as is currently the case in Amherst, Mass.. c. All are associated with "New York" rent control, arousing fears and opposition even among tenants afraid of its results. d. Institution of formal rental regulation could cause • landlords, developers, and lenders to lose- confidence in the market, reducing constuction and possibly maintenance of existing properties. 2. Conversion Regulation Reasons for "unsuitable" designation: a. Section 352222 of the New York State General Business Law limits application of these regulations to Westchester, Rockland, and Nassau counties. b. Conversion of rental housing to private use is not a problem in Ithaca. c. Conversion Regulations are Restrictive, and as such may have a negative effect on rental housing construction and maintenance. V. Recommendations Based upon investigation of the forms of rental regulation, the unique characteristics of lthacas' Rental Housing Market, and an 29 Figure 2 Summary of Suitability of Rental Regulation Methods for the City of Ithaca Form of Regulation Suitability 1. Rental Board (Voluntary) Suitable 2. Landlord Information Requirements Suitable 3. Security Deposit Regulation Suitable 4. Rental Registry Suitable 5. Regulation of "Up Front" Money Suitable 6. Rental Board (Legally Binding) Unsuitable 7. Rental increases "pegged" to a fixed percentage Unsuitable analysis of the suitability of different forms of regulation as applied to Ithaca; the following forms of regulation can be recommended for examination and implementation by the proposed Rental Housing Commission. These recommendations are prioritized from first to last according to the authors' analysis of the characteristics of the Ithaca Rental Housing Market each would mitigate and their possibilities for success as outlined in Section IV. The recommendations are as follows: 1 . The implementation of Landlord Information Requirements. 2. The Regulation of "Up Front" Money Requirements. 3. Greater Regulation of Security Deposits. 4. Implementation of a Voluntary Rent Review Board. • 5. Organization of a Rental Registry. 30 Form of Regulation Suitability 8. Vacancy Decontrol Unsuitable 9. New Construction Exemptions Unsuitable 10. Conversion Regulations - Unsuitable 11 . Open-Ended Expiration Date Unsuitable Bibliography 1 . Achtenberg, Emily. Evaluation of Rent Control as a Housing Policy. Seminar on Rent Controls. Institute for Professional and Executive Development, Inc.. 1972. 2. Cornell University. Apartment Complexes in the Ithaca Area. Office of the Dean of Students. 1986, 1987. 3. Fair Housing For All. A Guide to Housing Rights in Ithaca, N.Y.. City • . of Ithaca Community Development Agency. 4. Final Report of the Rent Control Study Commission to the Town of Amherst.. Town of Amherst, Mass.. 1985. 5. Gilderbloom, John. Rent Control: A Source Book. 1979. 6.Gilderbloom, John. Moderate Rent Control: The Experience of U.S. Cities. Conference on Alternative State and Local Policies. May 1980. 7. Keating, Dennis. Rent Control in California: Responding to the Housing Crisis. Institute of Governmental Studies. Berkeley, California. Jan. 1984. 8. Lett, Monica. Rent Control. Rutgers University. New Jersey. 1976. 9. Lynn, David. Technical Memorandum. Rent Control: Arguments For and Against. City of Ithaca Planning Department. 1986. • 10. Marcuse, Peter. Housing Abandonment Does Rent Control Make a Difference? Division of Urban Planning. Columbia University. N.Y., N.Y..1981. 11 . New York State Emergency Tenant Protection Act of 1974. Legislature of the State of New York. 1974. 12. Pasquale, Vincent. Cooperative and Condominium Conversion Trends 1980-1985. Westchester Planning Department. New York. Nov. 1986. 13. Rea, Louis M. and Gupta, Pipak K. . An Economic and Legal Analysis of Rent Control. San Diego State University. San Diego, Calif. . 1982. 14. Recommendations of the Technical Advisory Committee. Ithaca, New York. April 1987. 15. Selesnick, Herbert. Rent Control: A Case For. D.C. Heath. Boston, Mass. 1976. 16. Sternlieb, George. The Realities of Rent Control in the Greater Boston Area., Center for Urban Policy Research. New Brunswick, New Jersey. 1974. 17. Supply. Demand. and Affordability of Housing_ City of Ithaca, New York. May 1987. 18: The Spread of Rent Control. National Multi-Housing Council. 1150 17th St., Suite 306, Washington, D.C. 20036. 19. University of Michigan. Rental LeaseAgreement. Housing Division: Rental Property Registration Program. Ann Arbor, Michigan. •