Rents Blog: Does rent control work?

Rents Blog: Does rent control work?

Michele Ellson

With rents rising and vacancies rare here in Alameda and across the Bay Area, it’s perhaps no surprise that rent control has become one of the hottest topics on the Island. It’s also one of the most emotional, pitting renters and housing advocates who say housing is a basic human right against property owners who feel controls would take their own rights away.

Renters who have asked the City Council to consider controls and “just cause” eviction rules say they are needed to protect them from losing their homes through rent spikes and no-cause evictions. But landlords have said they fear rent control would curtail investment in the Island’s rental housing, creating blight and making housing even more scarce by discouraging builders and slowing renter turnover.

In a nutshell, research on rent control in other cities shows that the answer lies somewhere in between: It provides protection from sudden rent spikes and, if “just cause” eviction rules are in place, arbitrary evictions. But it also has some impact on housing quality and availability.

If Alameda’s political leaders were to implement rent controls – and the council is showing few signs that it intends to do that – what if any relief would those controls provide to renters? What impact would rent control have on property investment in Alameda? And what other factors affect housing costs and supply?

To answer those questions, The Alamedan reviewed studies on the impacts of rent control and also, of restrictions on and repeal of rent control rules in San Francisco, Berkeley, Los Angeles and Cambridge, Mass., which had “strong” rent controls in place for nearly a quarter century before a state referendum forced their repeal.

Here’s what the research had to say about the impacts of rent control and the loss of rent control in those cities, and about some of the most commonly held notions about its impacts, good and bad.

How much protection does rent control provide?

Rent control was originally implemented in this country as a temporary anti-profiteering measure designed to protect workers aiding in war efforts and then extended to ensure vulnerable renters kept their housing after World War II when population growth outpaced residential development. But it has a unique history in California. The 10 California cities that have rent control laws on the books passed them when Proposition 13 proponents’ promises of reduced rents failed to materialize after the tax-capping law passed.

In 1995, state lawmakers passed the Costa-Hawkins Rental Housing Act, which severely restricted the rent controls cities could impose – and, some researchers have argued, also limited the controls’ effectiveness. It prohibits cities from controlling rents for any housing built after 1995 and, perhaps most critically, required cities to allow landlords to raise rents after a tenant moves out, a policy known as “vacancy decontrol.”

A 1988 study of Los Angeles’s rent stabilization ordinance conducted by researchers at the RAND Corporation determined that rent control rules offered big benefits to renters in their early years of implementation and greater costs in terms of lost housing as time progressed; long-term renters benefited from “rent discounts,” while short-term renters often gained less after absorbing big rent increases up front.

As originally implemented by some cities – with vacancy decontrol, additional rent hikes for property owners who made capital improvements and other rules softening its effects – RAND’s researchers determined that rent controls were “no controls at all.” Decontrol in particular “greatly reduced” renters’ benefits from the Los Angeles ordinance, the researchers determined.

Still, researchers in San Francisco and other cities determined that the controls provided renters some protection from rent spikes and evictions.

Berkeley was one of a handful of cities that had “strict” rent control rules on the books prohibiting vacancy decontrol until state law abolished it, making the city a telling case study for the effects of strong controls. A 2013 City of Berkeley rents study found that the average rent in a rent-controlled apartment that hadn’t turned over since the law changed found the average rent at around $780, similar to rents in Portland; units subject to decontrol were nearly twice that, at $1,436.

Conversely, renters in San Francisco and Los Angeles – both cities whose rent control ordinances contained decontrol provisions, even before it was state mandated – saw limited benefits from rent control. A 2002 telephone survey found that San Francisco renters in market rate units were paying average monthly rents of $1,350, while those in rent controlled units paid an average of $1,094. A 2009 survey of Los Angeles renters found that on average, those in rent-controlled units paid $142 less rent per month than those in market rate units.

Who does rent control protect?

Proponents of rent control say its limits on rent increases protect low-income renters, seniors, disabled people and people of color. Opponents say the laws indiscriminately protect rich and poor alike.

The research shows that both arguments are accurate.

San Francisco’s 2002 survey of renters famously showed that nearly a fifth of the residents it polled who lived in rent controlled apartments earned household incomes of $100,000 or more. Some 72 percent of the rent-controlled apartment dwellers researchers surveyed there were white.

The 2013 study of Berkeley’s rent control rules found that two-thirds of the people still living in units that hadn’t been subject to vacancy decontrol were low income, and a third were seniors.

A 2009 study of rent control in Los Angeles, which determined that the city was “on track” to meet the housing needs of higher income residents but was set to make only “modest headway” on meeting the needs of the city’s lower income residents, determined that rent control largely protected lower-income tenants. That study found that homeowners’ household income averaged $73,000 a year, compared to $32,000 for renters. (The divide is equally sharp in Alameda today.)

An economists’ 2012 study of Cambridge found that its rent control protected rich and poor alike, but also that less affluent residents and students were “overrepresented” as tenants in the city’s 14,000 rent controlled units. A 1998 study of the impacts of decontrol found that 40 percent of the city’s rental housing had turned over in the three years since rent control was abolished, with most of those residents leaving the city, news reports on the study said; rents in previously rent controlled units had risen 50 percent, and evictions had grown by 33 percent.

The elimination of rent control left Cambridge with fewer elderly and low-income residents, The Economist reported in 1998. But the city also became home to more people of color, the magazine wrote.

Does rent control impact investment?

Opponents say rent control curtails real estate investment in the communities that have it and creates blight by providing an economic disincentive to maintain property. Research findings on these points are mixed.

Studies show that property owners invest more when rent controls are relaxed or abolished – but only a tiny fraction of the profits they reap. And most of the research points out that rent control doesn’t impact new construction, because none of it is covered by rent control (The state’s Costa-Hawkins law, for example, expressly prohibits extending rent control to new units).

Economists’ 2012 study of Cambridge after rent control found that property values for formerly rent controlled units – which had been valued at half their market rate counterparts – rose by 18 to 25 percent after it was abolished. But they also found that values for market rate units grew more – by $1 billion, as compared to $770 million for the city’s formerly rent controlled housing stock. One potential factor impacting values: A real estate boom that coincided with the end of rent control.

Conversely, researchers in Berkeley determined that owners of rent controlled units there took in $100 million more in rents than they earned for costs and profit based on the housing they offered; while they spent more to maintain their property after vacancy decontrol went into effect, it was still only a small percentage of that amount, the city’s 2013 rents study found. (The study acknowledged that the amount doesn’t account for financing costs, which can be high for newer owners.)

The Berkeley study also notes that while the value of rental properties has risen sharply, property taxes for longtime family and corporate owners have not increased to reflect the true value of their property. If all the city’s residential rental properties were reassessed, the city would reap an additional $9 million to $10 million a year, it said.

Researchers in Los Angeles found that 80 percent of the city’s rent-controlled housing stock had been resold since its rent control rules went into effect – meaning that purchasers knew about the rules but bought anyway. They also found that between 2003 and 2008, only 1.3 percent of the city’s landlords applied for rent increases tied to property renovations (though twice that number did so under prior rules allowing landlords to charge 100 percent of the cost of the fixes to tenants).

Two-thirds of the rent-controlled property owners the researchers surveyed said they maintained their property as well as or better than owners of market rate units. (Other studies determined that rent-controlled units were not as well maintained.) Of the owners who financed their properties, two-thirds were earning money or breaking even, while one third were suffering losses.

That study determined that high land and construction costs impact housing development.

Does rent control restrict supply?

Opponents of rent control correctly point out that it does nothing to address the real driver of skyrocketing rents: scarcity. But does it take housing off the market, making it harder for disadvantaged renters to find a place to live?

The end of rent control in Cambridge reportedly increased its rental housing stock by 6 percent despite condominium conversions, while the relaxing of conversion rules in Los Angeles left that city at a deficit despite increased housing production. In Berkeley, 85 percent of the city’s 19,000 rent controlled units turned over after the state mandated vacancy decontrol, in 1999. But another 3,000 had not.

Survey takers in San Francisco found that residents in market rate units were less likely to move than those in rent-controlled ones, with 38 percent of market rate unit dwellers having moved over the previous five years compared to 56 percent of renters in controlled units.

Two-thirds said that they were able to find a new place to live in a month or less, the 2002 survey found.

Is increasing supply the solution?

Would increasing a city’s supply of affordable housing fully address residents’ needs? The answer is no.

Cities that have relied exclusively on new housing to address their lower-income, senior and disabled residents’ needs have fallen far short, studies examined by The Alamedan show.

Cambridge lost 14,000 rent-controlled units when rent control was abolished and was only able to replace 100 a year through its housing trust fund, originally increased to $4.5 million a year post-decontrol to create more housing. While 15 percent of the city’s housing stock was deemed “affordable” in 1998, 40 percent of its residents had incomes that qualified them to live in it.

Berkeley’s researchers determined that rent control was the city’s most effective program for keeping people in housing.

Policymakers in Alameda have worked to increase its supply of affordable housing in recent years by requiring developers to make 15 percent of the housing they build affordable for lower income residents, including seniors. Council members also permitted multifamily housing development on several planned development sites, and the city has stepped up its efforts to develop new homes on its own.

Whether council members will approve additional housing is to be determined. Meanwhile, rules to strengthen the city’s Rent Review Advisory Committee, which mediates rent disputes, are pending.

Comments

Submitted by dave on Thu, Jun 11, 2015

No.

Next question?

Submitted by Steve Gerstle on Thu, Jun 11, 2015

Over 30 years ago I lived in another Bay Area community and worked on a rent control campaign. I also served on the rent control board. We had a very strong form of rent control that did not have vacancy decontrol. Rents could go up based on the CPI and the costs of property improvements could be passed along if approved by the rent control board. In spite of all the scare stories, the condition of homes did not decline; those landlords who had previously kept up their property continued to do so while those who did not let their property decline. Eviction could only take place for just cause. Landlords hated this and similar laws in other cities and the State eventually outlawed this form of rent control. Current rent control laws are not very effective -- and that is deliberate.

Building more market rate housing will not help those who cannot afford market rate. We need a significant amount of housing that is taken out of the market rate system. This can be accomplished by government, NGOs, cooperatives and by deed restrictions. One suggestion I have is for our local government to sponsor an affordable housing contest at Alameda Point. Land would be provided for free to those who construct sample homes. The winner of the contest will then get to build the homes. These homes may be quite different than those developed for market rate housing as the incentive would be different. The homes would have to stay affordable, using one of the means mentioned earlier. Relying on market rate developers to solve our housing problems is not sufficient or realistic and other models need to be explored.

Submitted by Michele Ellson on Thu, Jun 11, 2015

Hey folks: Just a reminder that we don't publish comments marked "Anonymous." If you'd like to see your comment posted here, please put a name on it. Thanks!

Submitted by Patrick R. Sullivan (not verified) on Thu, Jun 11, 2015

Funny that cities without rent control don't have any of the horror stories about heartless landlords that are commonplace from NYC and San Francisco.

Submitted by EHirshberg (not verified) on Thu, Jun 11, 2015

Rent control as practiced in San Francisco, Oakland, and Berkeley where the percentage increase is limited invariably punishes the reasonable property owners and rewards those who are agressive in their rent pricing. A more rational method would be a maximum price per square foot, say about $1.50 per s.f. Or a maximum price for a 1, 2, and 3 bedroom apartment.

Submitted by Greg Evans (not verified) on Thu, Jun 11, 2015

Rent Control, like price controls do not work. If you remove the pricing mechanism, how will landlords allocate the scare housing resource. They will seek alternate methods of selection and discrimination. Look at the gentrification of Santa Monica since rent control. Celebrated stars and producer are the beneficiaries of such housing while displacing those on the lower rungs of the socio-economic spectrum (exactly those who were the intended to protect).

Submitted by MJ (not verified) on Thu, Jun 11, 2015

The cause of the problems with rent control, and there are many, is that it attempts to perform a massive/widespread public good with a minority group of citizen's private property.

For instance, I can believe that society may decide that all children should have free milk. Fine... free milk. However, forcing the corner grocer to give away milk is going to close small grocers, cost jobs, drive up the cost of other goods and is just goofy.

If society wants to control the cost of housing for some group, then society should pay for it, not the provider of that housing.

The reason rent control appeals to some is that it feels great to be generous without giving up something personally.

Submitted by b. (not verified) on Thu, Jun 11, 2015

What nobody seems to want to address here is the basic model on which all this is based. It appears that the "cold hard business" aspect of Tenant/landlord is all that matters, but it is NOT.

There has to be some beginning of a dialog about reconciling the basic HUMANITY of everyone involved against the freakin' DOLLAR SIGNS.

WHY do none of you want to talk about the HUMANITY part of the equation?

Until someone steps up and want to genuinely begin a dialog about the HUMAN COST of the cold, hard "business model" of this, then NOTHING is going to change.

Submitted by MJ (not verified) on Thu, Jun 11, 2015

B.,

There has never been more free stuff for poor people in our nation's history. Housing assistance, cash payments, food stamps, unemployment, social security, AFDC, disability, earned income tax credits (just payments requiring no actual earning), medical care without making a payment, food banks, shelters, section 8, college tuition assistance, school lunches, Head Start, private charities and much more.

This generous country has had an ongoing "dialog" about the "HUMANITY" and what has resulted hasn't increased the number of makers or decreased the number of takers. Quite the opposite.

Submitted by Karen Bey (not verified) on Fri, Jun 12, 2015

I agree with MJ on this issue- that society needs to pay the price – not just a handful of housing providers. Rent control places the burden of a regional housing crisis on a small group of property owners.

In addition to building more affordable housing, perhaps we might consider issuing a “rental housing bond”. The rental housing bond would help pay the difference between “market rate rents” and “affordable rents” for those tenants who need it. If the tenant receives a rent increase they cannot afford, they would apply for some of the rental housing bond proceeds to cover their rents.

Local tax payers would pay for the bond and/or perhaps real estate developers could contribute to it, but who qualifies for rent subsidies and for how long are details that would be worked out in the bond issuance. In this way, the cost of providing more affordable housing would be more evenly spread. I would add one condition for a landlord receiving a subsidy payment: that a percentage of the rent increase should be used to make property upgrades if upgrades are warranted.

A rental bond like this addresses many concerns; (1) the tenant gets to stay in their home, (2) the landlord gets to raise their rents, (3) badly needed repairs to the property are made (4) property values are maintained (5) eliminates the need to pit tenants against landlords (5) evenly spreads the cost of the regional housing crisis instead of shifting the cost to a small group of property owners (6) creates more affordable housing.

Submitted by Karen Bey (not verified) on Fri, Jun 12, 2015

I would also add, that unlike Section 8 which is a federal program that focuses mainly on very low income families, this bond would be a local ordinance that would cover all tenants in need of rental assistance including seniors, middle income, etc. We would be able to craft our own language and guidelines to address our local housing crisis.

Submitted by MJ (not verified) on Fri, Jun 12, 2015

Karen, I applaud your suggestion of a solution. At the same time, why long term debt to pay short term housing expense? Why not just a pay as you go plan?

Don't get me wrong... I don't think either is a good idea. Just wondering why principle plus interest (debt) is a good idea. Also, what happens when the money is gone and all that remains is bureaucracy, debt and dependence?

Of course, getting folks to vote themselves benefits has its appeal.

Submitted by Alison Brennan (not verified) on Fri, Jun 12, 2015

Gee, tenants get it from both sides. First we're trashed for not being committed to our communities, but then for staying in our rent-controlled units long enough to be committed to our communities. Hmm.

In addition, moving often is not good for families with children. The average child loses one to two months of education (from the trauma of involuntary moves, being integrated into a new class etc.) every time she moves. That means that a child who is forced to move every year loses, at a minimum, an entire year of education.

Submitted by Karen Bey (not verified) on Fri, Jun 12, 2015

Alison, targeting a small group of homeowners to solve a regional housing crisis is just not the answer. Rent control benefits a few people lucky enough to get a rent controlled apartment, while shifting the housing costs on those in non-rent controlled housing, and the small mom and pop owners who are being forced to give up their property rights. If we can move away from the finger pointing and come up with solutions where everyone can win -- I think we'd all be better off. I just don't think there has to be a winner and a loser in this situation. There are a lot of good ideas out there to consider.

MJ -- I understand your concerns, but a regional housing crisis is pretty serious, and we need to think about creative solutions. If the rental housing bond is something the community is willing to consider, there would be plenty of opportunity to craft something that works for everyone.

Submitted by b. (not verified) on Fri, Jun 12, 2015

Interesting to see all the comments from those who cling to the outdated model. To their eyes it appears anyone asking for any sort of fairness is only wanting "free stuff" and dismissed in a very telling manner.

They are unable to even consider the real change needed.

Enjoy decimating your "community" as you grasp those dollars.

Submitted by MjJ (not verified) on Sat, Jun 13, 2015

The constant whine of "fairness" is how we have gotten to this sorry state of affairs of too much government, too much regulation and a perpetually sick economy. All we have achieved is decreased economic opportunity, a record number of workers out of the workforce, dependency, entitlement, and more cries for "fairness." You'll pardon me if at some point, having seen California go from best to worst state to do business, I don't agree with a bigger government and more government "solutions" (which never are).

Submitted by dave on Sat, Jun 13, 2015

Rent increases are like pay raises for landlords. One getS raises when business is good or productivity is high, or both. Many landlords took paycuts during last 2 recessions and had to deal with rising costs anyway, similar to what most workers dealt with re: cost of living with flat or falling pay. Markets decide rents, not evil mustache twisting landlords.

If you are in favor of rent control, are you also in favor of capping your raises? If you ask your boss for a raise, you are behaving like a landlord who asks for a rent increase. If you leave your apt. for a nicer or cheaper one, that's quite similar to evicting someone to raise the rent.

TEnants need housing, landlords need checks. Both try to maximize their situation.

Submitted by b. (not verified) on Sat, Jun 13, 2015

For most folks I know, "raises" were "capped" long ago.

There has been no appreciable increase to income to most people, while the so-called "market" goes crazy.

This ensures only one thing: Good, hardworking people will be pushed out in favor of the privileged class.

Destroying a community in the name of money is "evil and mustache twisting".

Submitted by David (not verified) on Sun, Jun 14, 2015

I wonder what would happen if people put energy into pushing for an expansion of Section 8 programs to support a wider range of income levels?

Submitted by Karen Bey (not verified) on Mon, Jun 15, 2015

I disagree with name calling and finger pointing on both sides. I think this is where we lose our way. My preference is to put the energy into ideas and solutions that can work for everyone.

David, I like your idea. Expand the current programs to work for more people. San Francisco is perhaps one of the most progressive with ideas to deal with the regional housing crisis. One of the ideas he is pushing is a bond to subsidize middle class apartments – middle class subsidies would be a first of its kind.

http://www.bizjournals.com/sanfrancisco/morning_call/2015/05/san-francis...

Submitted by frank on Tue, Jun 16, 2015

The Tech Companies are largely responsible for the HUGE shift in Cultural Demographics in the entire Bay Area. Apple currently has 178 BILLION in overseas accounts avoiding US Taxes. Many other Corporations have vast resources also. You would think that somehow a portion of this money could be repatriated and used for housing.