Is rent control out of control?

Are the increasing restrictions placed on landlords too heavy, too light, or just right? Joseph Mailander and Peter Dreier. Previously Dreier and Mailander debated whether City Hall gone too far or not far enough in reining in property rights and sketched out the contours of what they think this housing crisis is. Later this week, they’ll propose solutions and clear up myths.

An unintended consequence: higher rents
By Joseph Mailander

Peter, before we get started, I’d like to dispel a myth about rent control, and maybe you’ll own up agreeing that it is indeed a myth.

Most people hear the words “rent control” and they presume that it always works to hedge against too-pricey rents. In truth, rent control is a lot like collective bargaining; while it has the potential to do some good, it also has the potential to harm. It can even create rents that are too high, with especially bad consequences for prospective first-time homeowners.

Rent control can be used to check unfair practices or it can be used to tilt the playing field to a point where property owners are disincentivized to care for their properties, and developers are discouraged from developing new units to meet demand—all of which put housing in the city at risk.

Make no mistake about it: The city of Los Angeles needs to protect its tenants from unduly high rents. That is something it does very well. But the kind of rent control we have in Los Angeles and in scattered cities throughout the Southland is, I think, typically somewhere between too kind to renters and terribly wrong for the city.

Wherever there are disproportionate numbers of renters to owner-occupied homes, as there are in the City of Los Angeles and in Santa Monica, the renters typically have an undue amount of leverage, and they can use it to their city’s disadvantage. Wherever in California the ratio of homeowners to renters is more consistent with the rest of American cities, any rent controls put in place are typically less renter-leveraged; and those are places where housing is not in the kind of crisis that it is here.

There’s no question that rent controls in Los Angeles are partially responsible for taking away rungs on the below-middle end of the housing ladder in the City of Los Angeles. If you were a developer, would you build an apartment complex in a city with rent control or without rent control? Of course, you’d build it outside of a city with rent control. Worse, it’s not profitable to you to build in a rent-controlled city unless you can do it on a monstrous level. Rent control almost guarantees that only the worst, most dense kind of rental housing gets built—and that’s why L.A. has replaced New York as America’s most dense city.

We now have extremely high apartment occupancy rates in Los Angeles County, and of course in the city, the kind of occupancy rates that puts pressure on rents to keep rising in perpetuity. Rent control is to blame for that. Spillage from unavailable units in the City keeps the prices high in adjacent cities, and the adjacent areas can’t meet the demand for housing either. The price pressure is all upward.

Too tight controls on rentals ironically discourage the kind of growth that our mayor and City Council insist is inevitable for Los Angeles. Too tight controls on rent lock in renters to a lifetime of renting, taking away the potential for developing starter homes. Too tight controls on rent inhibit home ownership, and also take properties that might become homes off the market.

All this is why, when I see the Mayor and Eric Garcetti and their attending phalanxes of big-money developers say that “growth is inevitable in Los Angeles” when they’re promoting their affordable housing solutions, I think: “Well, if you think growth is inevitable, then do something about it! Free up the market a bit, to bring us more and more better units, and roll back the paralyzing rent controls!”

Joseph Mailander is a writer and lecturer on architecture and urbanism who often nags the city of Los Angeles about housing issues. He edits the blog MartiniRepublic.com, which features a special category on architecture and urbanist issues, martinirepublic.com/la+u.

Acknowledging all grassroots activists
By Peter Dreier

Where will Los Angeles’ working class live? That’s what the debate over rent control and condo conversions is about.

The heroes in this story, who organize for affordable housing, are ACORN, the Coalition for Economic Survival, Coalition LA, LA Voice, LA Metro, LA Community Action Network, UNITE/HERE, SEIU, People Organized for Westside Renewal (POWER) and other grassroots activist groups, including the LA Coalition End Hunger and Homelessness, which is sponsoring tomorrow’s Tent City rally at City Hall. Their allies on the City Council include Ed Reyes, Bill Rosendahl, and Eric Garcetti. Developers and landlords, on the other hand, use their campaign war chests and political muscle to spread lies about the consequences of tenant protections. City Councilmembers like Bernard Parks, Greig Smith, and Herb Wesson believe them anyway.

In the mid-1990s, the real estate lobby, led by the California Apartment Association and the California Housing Council, killed local rent control. The lobby persuaded the state legislature to remove local communities’ right to limit rent increases when a rental unit is vacated. Instead, they allowed cities like L.A. to adopt “vacancy decontrol.” which allows landlords to raise rents to market levels whenever a tenant leaves. This, of course, encourages landlords to harass renters and evict them illegally, which is widespread in L.A. Under vacancy decontrol, which now covers about 600,000 units in L.A., eventually all apartments will rise to market rates, which currently averages almost $1,300/month.

Unfortunately, much of the debate around rent control is based on myth rather than actual experience. Some people mistakenly believe that rent control freezes rents and makes it unprofitable to own rental housing. In fact, every rent-control system in California provides for annual across-the-board rent increases as well as individual rent adjustments. These allow landlords to make capital improvements, maintain buildings and derive a fair profit. Rent control simply limits gouging and speculation.

But doesn’t rent control lead landlords to defer maintenance? Experience says no, because local rent-control laws require landlords to maintain their properties in accord with health and safety codes in order to receive approval for rent increases.

Studies conducted by independent researchers and not sponsored by the real-estate industry conclude that rent control does not have adverse consequences for new construction, maintenance and other measures of investment in rental housing.

The landlord lobby argues that rent control discourages builders and banks from investing in rental housing. But all rent-control laws specifically exempt new construction. Studies show that similar cities with and without rent control have the same level of new housing. Some critics also claim that such laws mainly help affluent yuppies. The landlord lobby can certainly point to a few upper-income people living in these apartments—anecdotes they use to make their point. But these are exceptions. Most tenants in L.A.’s rent-regulated apartments are poor and working class.

Without rent regulations, seniors on fixed incomes and working class tenants—secretaries, bus drivers, nurses, schoolteachers, computer programmers, waiters, cashiers, garment workers, police officers—would face constantly rising housing costs. Most would be pushed out their neighborhoods and lose many family and social ties.

Yes, we need to build more affordable housing (which I’ll discuss on Friday), but we also need to protect the existing supply of rental housing.

Since 2001, 12,840 affordable rental housing units in Los Angeles have been demolished or converted to condos, and the trend is escalating. About three-quarters of these evictions have taken place since 2005. These figures only include units already under rent regulation; the actual numbers are higher, but the city does not keep track of them.

Due to demolitions and conversions, the city is chasing its tail, losing as many units as it adds, according to a study by Southern California Association of Non-Profit Housing.

Constructing new condos, especially when the buildings include a mix of market-rate and affordable units, makes sense. But razing affordable rental housing and replacing it with luxury condos, or simply converting apartments to condos, exacerbates the housing crisis. It provides a windfall to developers. But no net units are added. It simply makes the existing stock of housing more expensive.

Moreover, condo conversions often do little to improve the quality of the housing stock. Many of the “improvements” made to buildings undergoing condo conversions are merely cosmetic. Developers slap on a new coat of paint, give the building a fancy name and—presto!—an $800/month apartment becomes a $350,000 condo.

Tenants who think they are buying into the “American dream” soon find out that they’ve purchased a nightmare. They are often unaware of the long-term costs of owning a condo—especially in buildings with structural defects.

Some people suggest that we require landlords and developers to give renters a one- or two-year notice before they can be evicted for demolitions and conversions—with no rent increase during that period. But this simply tightens the noose more slowly, postponing the inevitable demand to buy or move out. At the end of that period, tenants are simply older and poorer.

Last week, the City Council approved a two-tiered plan to increase relocation allocations to tenants evicted because of condo conversions. (Since then, Councilman Wesson seems to be buckling to developer pressure. He’s backed off his promise to give higher relocation amounts to tenants who’ve lived in their apartments at least three years).

But in this housing market, the whole idea of evicting tenants and handing them some cash is absurd. With an invisible rental vacancy rate, where do the Council members expect tenants to move to?

If they’re lucky, tenants forced out by demolitions and conversions usually find inferior housing and higher prices. And once they resettle, there is no guarantee that their new apartments will not be sold out from under them again.

In 2004, only about half the tenants with Section 8 vouchers were able to find apartments. This year, only about one-third of renters with vouchers can do so. So giving tenants “relocation” funds is like giving people food stamps when the supermarket shelves are empty. Its a dumb idea.

So here are a few better ideas:

• Put a moratorium on condo conversions until the city’s rental vacancy rate reaches 5%.

• Ban all evictions for condo conversions and demolitions until the rental vacancy rate reaches 5%.

• Require condo converters to make one-third of the units affordable to low- and moderate-income households—and that these units remain affordable over the long-term through deed restrictions—before granting a permit allowing a condo conversion.

• Require that two-thirds of existing tenants agree in writing to purchase the units and obtain financing to do so, before a conversion can proceed.

Until more affordable housing is built in Los Angeles, the City Council must act decisively to protect the city’s renters, and its rental housing.

Peter Dreier is E.P. Clapp Distinguished Professor of Politics and director of the Urban & Enviromental Policy program at Occidental College. He is coauthor of three books: Place Matters: Metropolitics for the 21st Century; The Next Los Angeles: The Struggle For A Livable City; and Regions That Work: How Cities and Suburbs Can Grow Together; and co-editor of Up Against the Sprawl.