Tenants, Landlords Break Even on L.A. Rent Control

A landmark study of Los Angeles’ seven-year-old rent control law released Tuesday concluded that neither tenants nor landlords have dramatically gained or lost because of the city’s controversial rent lid.

The study found “there is no evidence that rent (control) has made any measurable difference” in the city’s rental marketplace.

The law limits annual rent increases to 7%.

The study--prepared under the auspices of a group of tenants, landlords, scholars and public officials named by Mayor Tom Bradley--is the first in-depth look at workings of the city’s rent control law. It was designed to provide facts to evaluate claims by both landlords and tenants that the law is unfair.

The study found that rent control “has had little, if any, effect on the average rate of increase in rents” paid by tenants in Los Angeles when compared to increases in nearby cities with no rent control.

The report also said the rent lid has held down landlord profits “only slightly,” when compared to profits enjoyed by property owners in adjacent cities.

It disputed a number of popular conceptions.

It found, for example, that landlord complaints that rent control inhibits new construction are not entirely true. The study said fluctuations in the rate of new construction are linked more closely to the health of the economy than to rent control laws.

The study also took exception to another landlord argument: That rent control dampens landlords’ incentives to maintain apartment buildings, because the rent ceiling squeezes profit margins.

“On balance,” the study con- cludes, “ . . . the impact of rent stabilization on both maintenance and reinvestment has been modest.”

The $500,000 study was mandated by the City Council and the mayor, whose citizens’ panel hired private consultants to carry it out. As part of their work, the consultants surveyed 2,299 renters in Los Angeles and 404 in nearby cities. Surveyors sent questionnaires to more than 3,300 landlords, but only 311 responded. Of those, 262 owned property in Los Angeles, and 49 were from nearby areas without rent control.

The report found that while 80% of tenants who responded to a survey question believe that rent control is “saving them a great deal of money,” the average savings on rents in Los Angeles, traceable to rent control, translated into a modest savings of from $7 to $18 per household per month.

However, the report noted that benefits for some individual tenants have been far above the average. Those tenants who have not moved since the enactment of rent control “have realized substantial savings,” the report said, averaging from $47 to $55 per household per month.

Those who have moved have been subject to “vacancy decontrol,” which allows a landlord to raise the rent for a vacant apartment to whatever amount he thinks a tenant will pay.

Tax Savings

One reason the rent law has not hurt many landlords more severely is that the landlords have enjoyed large property tax savings under Proposition 13. The savings have helped offset rent law losses, the report noted.

The report was made public at a City Council committee hearing attended by 200 tenants, landlords and lobbyists.

Initial reaction was predictable.

William Barth, a Los Angeles lawyer and spokesman for a renters’ lobby, declared that the study shows that “rent control in this city is working, that it’s helping who it’s supposed to help and it’s not hurting the housing industry. . . .”

Dan Faller, president of the Sherman Oaks-based Apartment Owners Assn., decried the study as “a waste of time and money.”

The political impact of the study may not be felt for a number of weeks, as landlords and tenants seek to persuade the City Council to amend, retain or do away with the rent control law.

Meeting Planned

The citizens’ panel is scheduled to meet Friday to frame recommendations to the City Council. Then, after hearings before the council’s Government Operations Committee, the rent control issue will once again be dumped into the laps of the full 15-member council.

Operations committee chairman Joel Wachs, chief architect of the city’s current rent law, said he thought the study showed that rent control was working and that there had been no “parade of horribles,” such as bankrupt landlords and deteriorating housing stock.

One of the study’s accomplishments was to produce an elusive, yet critically important statistic: the rental unit vacancy rate for Los Angeles.

Under a federal government rule of thumb, if a city’s vacancy rate dips under 5%, rent control should be considered to prevent rent-gouging.

Vacancy Rate

The study found that during the period of rent control, from 1979 until the present, the vacancy rate has ranged from between 1.5% to 3.5%, about half a percentage point lower than in surrounding areas.

Rent control began in Los Angeles in 1978 as a temporary measure. Since 1979, however, the city has had a permanent rent control cap, keeping annual rent hikes to a maximum of 7%.

Under this formula, the city’s 65,000 landlords have been able to pass on to renters the cost of capital improvements. Newly constructed apartment buildings and so-called “luxury apartments” have been exempted from the rent lid.

Unlike tougher rent control laws in cities such as Santa Monica and Berkeley, Los Angeles allows rents to be decontrolled once an apartment is vacated. Then, when a new tenant agrees with the landlord on a new rent level--generally whatever the market will bear--the annual 7% lid once again takes effect.

High Inflation

The current rent control law evolved out of double-digit inflation of the 1970s and subsequent land speculation that caused rents to soar. Adding to renter unrest was the passage in 1978 of Proposition 13, which provided big property tax decreases but no real savings for tenants.

In 1978, the City Council enacted a rent freeze that, the next year, evolved into the permanent 7% lid, an outgrowth of then-President Jimmy Carter’s anti-inflation guidelines.

In the past year, however, the inflation rate, as measured by the widely watched Consumer Price Index, has been running at an annual rate of slightly under 4%--well under the maximum 7% annual rent increase allowed landlords.

This fact of economic life, probably more than any other, has stirred tenants to demand major revisions in the rent lid law.

In fact, one of the first issues tackled by the citizens’ committee was how to come up with alternative formulas to the 7% ceiling.

Six Approaches

In the study, six approaches were analyzed. The first was a simple continuation of the 7% formula. The other five options would permit the ceiling to vary from year to year, depending on a variety of factors, including formulas linked to the national inflation rate, building operating costs or reasonable landlord profits.

Barbara Zeidman, head of the Rent Stabilization Division of the city’s Community Development Department, said her agency will recommend that the council tie rent increases directly to the Consumer Price Index, the most frequently cited barometer of inflation. Zeidman also headed the citizens’ panel.

Whatever formula is finally agreed upon, the report underscored that rent control alone does not provide a sufficient buffer against inflation for the poor and the elderly, who live primarily on fixed incomes. Therefore, the report said, government subsidies should be considered to help them.

Times staff writer Victor Merina contributed to this story.

RENT CONTROL IN LOS ANGELES A citizens group appointed by the mayor released a landmark study of Los Angeles’ seven-year-old rent control law on Tuesday. Among the top findings: Rents: On average, protected tenants saved a modest $7 to $18 per household per month. But those tenants who have remained in the same apartment throughout the rent control period saved substantially more, because their rents were not affected by vacancy decontrol.

Construction: Total new construction fell by almost two-thirds from 1978-82, then rebounded sharply to a new peak in 1984. But the study found that those changes were linked more to general economic trends than to local rent control.

Landlords: Profits for property owners within the city have been only slightly less than for owners in nearby areas without rent control. Initially, profits of city landlords dipped noticeably. But they have rebounded and are now increasing at higher rates than those for landlords in nearby areas.

Repairs: The incidence of city apartments in need of repairs is rising, but no faster than in nearby areas that do not have rent control.

The Elderly: Rent control has not brought housing costs for the elderly and the poor into the affordable range. Vast additional government subsidies would be required to do that.

THE KEY PARTICIPANTS Here are the key participants in the Los Angeles rent control survey:

The Rental Housing Study Steering Committee. The nine-member committee was authorized by the City Council to conduct the survey. The committee members are Barbara Zeidman, its chairwoman and head of the city’s rent stabilization program; William Barth, the tenant representative, head of Los Angeles Renters Lobby; Bob Smith, the property owner representative, president of Ring Brothers Management Co.; V. C. (Bud) Mathis, the union representative, executive secretary, Los Angeles County Building and Construction Trades Council; Richard Solomon, law professor, member of city’s Rent Adjustment Commission; Paul Smith, City Council legislative analyst; Marc Girard, principal analyst, City Administrative Office; Gene Edmunson, senior engineer, Department of Building and Safety, and John Perica, a planner in the city Planning Department.

Consultants. Chief consultant to the steering committee was Michael B. Teitz, an urban planning professor at UC Berkeley. Teitz directed the most recent major study of rent control in the United States, a 1968-1970 Rand Corp. project on New York City. Three other consultants have been hired by the city: UCLA urban planning professor Allan Heskin to advise the tenant representative; USC economics professor M. Chapman Findlay III to advise the landlord representative, and Ben Bartolotto, research director, Construction Industry Research Board and a veteran of previous Los Angeles rent control battles, to advise the union representative.

Contractors. Prime contractor for the study was Hamilton, Rabinovitz, Szanton & Alschuler, a Los Angeles policy and management consulting firm. One of the partners, John H. Alschuler Jr., formerly was city manager in Santa Monica, where he helped implement that city’s strict rent control ordinance. Subcontractors included the Urban Institute of Washington, D.C., responsible for data analysis; Arthur Young & Co. of Los Angeles, an accounting firm, which coordinated the landlord survey, and Professional Research Organization of East Windsor, N.J., which conducted the tenant telephone survey. Separate contracts were let for real estate price and landlord income and expense data to Damar Corp. of Los Angeles, a real estate information service, and to the state Franchise Tax Board for landlord income and expense information.