HomeMy WebLinkAboutMN-RHAC-1989-05-08 Rent Control Handout
Steve Jackson, May 8, 1989
1. EXCERPTS FROM "Problems of Affordability: Three Pieces of Evidence," Steve
Jackson, March 26, 1989: "We find that 75% of the County's private employees
earning the median income for their sectors could not even afford a one bedroom
apartment with utilities at the median rent ($385) . . . . [During the period from
the Fall of 1978 to the Fall of 1988] For two and three bedroom apartments, . . .
median rents increased significantly more rapidly than inflation, 50% more in
most cases. . . .As of March 7, 1989 only 24% of all City employees live in the
City of Ithaca. . . . "
2. Determinants of 1980 Median Monthly Rent across 140 Cities:
FACTOR MEASURE OF IMPORTANCE
OF FACTOR
Median Income (1980) .38
Median Cost of Single Family Home (1980) .29
Professionalization of Landlords (1980) .24 v ��z
%Rentals Built before 1940 - .18
Climate Score .15
of Population Non-white - .12
% of Population Growth (1970-80) .12
Vacancy Rate .00
%Rental Units Created, 1975-80 .00
Region in US .00
% Units Lacking Plumbing .00
%Housing Rental .00
Urban Population .00
(Gilderbloom & Applebaum, Rethinking Rental Housing p. 101)
3. Change in Federal funding, in real terms, 1981-1988:
National defense: +31.1%
Community/Regional Development: -50.4%
Housing Assistance: -78.3%
Low income assistance of all kinds: -25.0%
(Gilderbloom & Applebaum, p. 77)
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2. "Over 200 municipalities and counties in the United States currently have
some form of regulation, including 110 municipalities in New Jersey, 66 in New
York State, and places in Massachusetts, Virginia, Maryland, Alaska, Connecticut,
and California. About one quarter of all rental units in California are rent
controlled, as is an estimated 10% of the nation's housing stock. "
(Gilderbloom & Applebaum, p. 127)
3. Three types of rent control: restrictive, moderate, strong
RESTRICTIVE "Prior to the 1960s, most rent control programs in the US were
restrictive; that is, they set ceilings on rents without guaranteeing that
landlords could maintain a given level of return on their investment. Such
restrictive rent controls, most studies claim, contributed to disinvestment in
rental housing --a decline in construction, maintenance, and overall rental
property value. " (Gilderbloom & Applebaum, p. 128)
MODERATE (e.g. New York State 1974 Emergency Tenant Protection Act)
1. Guarantee a fair and reasonable return to landlords
2. Exempt new construction for some period of time (or indefinitely)
3. Require adequate maintenance to raise rents
4. Rents increase as operating costs increase: usually tied by some
formula to increases in the Consumer yrice Index.
5. Vacancy de-control--- u;-{-.�� �.-�-t�w
6. Pass-through of Capital Improvement Costs
7. Administered by board balanced between tenants, landlords, and
homeowners
STRONG (e.g. Berkeley, Santa Monica, West Hollywood California)
Same as moderate rent control, except:
4. Usually tied to a smaller rate of increase
S. No vacancy de-control
6. Administered by elected board
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2 APARTMENT MANAGEMENT NEWSLETTER
WE KNOW THAT RENT CONTROL DOESN'T WORK
Some 200 cities in California, New Vacancy Decontrol -- Partial Relief
York, New Jersey, Connecticut, Massachu-
setts, and Washington, D.C. currently have Even in places where rent control
rent-control laws. A favorable Supreme remains a fixture, the tide is turning
Court ruling in the San Jose case would toward a compromise position -- vacancy
affect those cities, including New York, decontrol, which allows owners to raise
that have provisions requiring owners to rents to market levels when residents
discriminate among tenants and provide vacate. Unless a city is phasing out rent
special benefits to the poor, elderly, and control entirely, such apartments usually go
handicapped citizens. back under control when the new tenant
moves in.
Many of these communities are lending
their support to the California case at a Whv it Doesn't Work
time when the evidence is beginning to pile
up that rent controls, at least in their The well-publicized studies of rent
present form, don't help the people who control all spotlight the same, vicious cycle
need it the most. of long-range consequences. Unable to
. make a profit, financially-strapped owners
During the 1970s, the anti-rent control start cutting services and doing patchwork
arguments of the real estate community maintenance. Gradually, their property
made little impact. That trend began to deteriorates.
reverse itself early in the 1980s after
Ronald Reagan entered the White House. Deteriorating property, in turn, gets
lower tax evaluations. Result: the munici-
The Administration's deregulatory pality ends up with less property tax reve-
agenda -- and its vocal opposition to rent nue and often charges single family home-
control specifically -- certainly helped owners more in taxes to make up the dif-
shape voter opinion. But recent housing ferences.
studies, which thoroughly document the
detrimental, long-term effects of rent The laws have a chilling effect on the
control, have probably had even greater local real estate market. Tenants become
impact. immobile and all parties to the drama dig
in. Eventually, open warfare breaks out
Rent Control Under Fire between owners and tenants.
Today, rent regulation is voted down Assar Lindbeck, a Swedish economist,
more often than it is passed. In cities such summed up the prevailing academic view:
as Miami, Florida, and Somerville, Massa- "Next to bombing, rent control seems in
chusetts, rent control has been tried and many cases to be the most efficient tech-
dropped. nique yet for destroying cities."
A commission in Chicago and state
legislatures in Georgia, Arizona, Colorado, Low Income Advocates Against Rent Con-
Louisiana, and Washington have all decided
against controls, according to the National A California study, called "Who Bene-
Multi-Housing Council in Washington, D.C., fits from Rent Control?", is especially
which has been one of the leaders nation- notable because it was sponsored by the
ally in the fight against rent control. Center for Community Change (CCC). an
organization which represents low-income
In Madison, Wisconsin; Iowa City; Long and minority people. The study came out
Beach, California; and eleven Massachusetts against rent control.
cities, the voters rejected regulation after
property owners mounted effective cam- Dr. Richard J. Devine, the study's
paigns that included evidence of decaying author, estimates that approximately one
housing caused by rent control in areas like out of every three renter households in the
New York's notorious South Bronx. state can barely afford shelter.
APARTMENT MANAGEMENT NEWSLETTER 3
Perpetuating the Status Ouo Devine also found unusually high per
capita spending patterns for luxury items
Rent control does not alleviate poor in both places. In an ironic comment, a
people's shelter problems, Devine argues. Berkeley official attributed this to the
Rather, it protects people who already have inhabitants' greater disposable income
a place to live. because of rent control.
Tenants, rich or poor, who are lucky Ellis Act -- Escape Hatch or Booby Tray?
enough to be in the right apartment at the
right time, when rent laws are passed, are California's rent-control-burdened
the people who benefit -- provided they owners do have a legal out, though. Under
don't move. But the poor tend to move a the new Ellis Act, they can evict residents
lot. for two reasons: to leave their rental prop-
erty vacant; or to demolish the building.
While granting that rent control holds But true to form, some California commu-
out the promise that a family's situation nities are already erecting barriers. For
won't grow worse, Devine says that's a example, Santa Monica wants owners to pay
small solace to those already paying 50 up to $4,000 per unit to evicted residents.
percent of their income on rent. "Families
who get food stamps should be thankful Middle-Class Onnosition
that the problem of hunger was not at-
tacked in a similar fashion'-- by control- It's a truism that controls, once in-
ling the price of food," Devine writes. stalled, are rarely lifted. They tend to get
more, not less strict because they build
Making the Have's Hanov powerful white, middle-class political
constituencies.
In most communities with rent control,
middle and upper-income tenants reap most Despite the political opposition, a
of the advantages. Not only that, but it's number of housing experts have suggested
��- the more prosperous cities that tend to other ways to deal with the problem of
have rent regulation. In California, for affordable housing for the indigent. But
example, Beverly Hills, Palm Springs, and because these programs bypass the middle-
Los Gatos are among the regulated munici- class, politicians haven't mustered the
palities. So are some of New Jersey and courage to act upon them as yet.
Massachusetts' more affluent suburbs.
Rent Control Alternatives
Berkeley and Santa Monica
The CCC study, for example, recom-
Devine cites Berkeley and Santa mends the phaseout of rent control and
Monica, cities with the strictest rent control enactment of a renters' tax credit program.
codes in the state, as particularly striking It would offer needy renters a tax credit
examples. based on.the difference between 30 to 35
percent of their household income and the
• Using 1980 statistics, Santa Monica had local fair market rents. Funding would
the fifth highest per capita income among come from statewide rental registration
whites in communities of 50,000+ popula- fees and a surtax on parimutual betting.
tion. Less than 10 percent of Santa
Monica's residents could be classified as Prof. Peter Marcuse of Columbia Uni-
poor. versity champions a system that would
function along the lines of the existing
The situation in Berkeley, home of the exemption for the elderly in NYC. Tenants
University of California, wasn't much meeting low-income standards would be
different. Although Berkeley had a pov- exempted from annual rent increases and
erty rate of 21 percent, most of its "indi- owners would deduct the amount of the
gents" are white, middle-class students. lost increases from their property-tax bills.
Their so-called poverty is "both temporary It's not ideas for housing the poor that are
and a matter of choice." lacking, but the political will.
3
OPERATING ECONOMICS
WHY RENT CONTROL DOESN'T WORK
Rent control creates more problems than time that all building is prohibited. This
it solves, according to a major new study usually happens only in wartime, says the
issued by the Urban Land Institute. The report, noting that most rent controls were
conclusions of the study's author, Anthony enacted during high inflationary years.
Downs, senior fellow of The Brookings Most importantly, rent control is not a
Institution, come as no surprise to the apart- good way to provide affordable housing. It's
ment industry. less efficient than providing help to low-in-
Rent control, said Mr. Downs, only makes come families in the form of rent supple-
the housing situation worse. New rental units ments or cash assistance.
are not built, even in places where new ones The study was commissioned by the ULI
are exempt. Developers are afraid that the and eleven other real estate and financial
exemptions could be removed later. The organizations to produce a "credible and
obvious result: no new supply of apartments unbiased assessment" of the practice, accord-
to meet the increased demand that produced ing to the sponsors.
higher rents in the first place.
At the same time, existing apartments RENT CONTROL AND HOMELESSNESS
tend to deteriorate as owners cut back on It follows another study conducted by the
repairs and services to make up for lower Manhattan Institute for Policy Research that
profits. And residents don't move as much as found a strong correlation between rent
they do in non-rent controlled areas -- be- control and homelessness. That study found
cause of decreased supply and because their that nine major American cities with rent
rents are artificially low. control,which have the lowest vacancy rates
in the country, also are near the top of the
A BAD WAY TO PROVIDE AFFORDABLE HOUSING charts in rate of homelessness.
The disadvantages of rent control are so There was, in fact, a stronger relationship
great, the study concluded, that it should only between homelessness and rent control than
be used in an extreme emergency situation, with any other factor, including low vacancy
when a rapid increase in demand occurs at a rates.
'+',--1-11'1- ..,,- There is another dimension of the affordable housing problem that I will`
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pursue vigorously. We all know that rents in Ithaca are higher-_, then in
.,y *_
. neighboring communities. They are rso high that many of the people who work in
+. Ithaca can't afford to live here. We also know that..00ie of the main reasons ,,
for the high cost of rental housing is because our colleges, especially Coroell, <.'
do not provide enough housing for their students. The students, undergraduate - ' ,
a:.A aa :
_ > and graduate, are genera tig topa higher rents
topay gh (many of their out of
=- town parents are now, in fact, buying housing stock in Ithaca and in turn renting'
-'_ . to
t � their children's classmates.) The student's willingness to pay higher rents
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_ '' -,- lifts the cost of renting for everyone else in
✓ I thaca. The only way this
artificial inflationary impact on the market can be curbed and rental housing `.
eta-ba ght10 m i i ran`tbe:o3t.eges. esp cc a ] Cornell I ta.bui a student
F �<< i :.y lsmQr
housing• I pledge`, that if reelected,, I will use all my powers of persuasion ' i
and whitever. leverage the city government has to get Cornell to build more
int housing.
Of course
1.-''---,,'-‘:i.-';'''---., aoWe Ithacans, benefit form the lack of student housing and. the �,
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high rents But as one wha is closely related to an Ithaca landlord, T �y
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- landlords will survive and, iadaadv-.w4,11 still do well; ---,,,A,- „., „�, ...
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if Cornell housef y
more of its students,
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Ithaca landlords will still make an appropriate profit if Cornell builds more
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ih verrity gets the message. _ I will-' and to get Cornell to buil, 4_mote
i nt ii* t ig• g
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