Rent Control Solution

By: 
Al Jacobs

The headline, in Rockwell Extra Bold 72-point cap, couldn’t be ignored: “IS RENT CONTROL THE SOLUTION?” Although the question is certainly provocative, it’s equally perplexing … the solution to what?

My familiarity with rent control goes back a long way. During World War II, the administration of President Franklin D. Roosevelt enacted a nationwide program of price, wage and rent controls – my understanding of the purpose being support for the war. Apparently the president believed Americans at home needed to endure sacrifices as a way to demonstrate to the millions of men in the military fighting the enemy we were all in it together.

The government also added rationing to the controls, to show the entire nation participating in the struggle. Whether or not restricting citizens’ ability to purchase sugar, shoes and butter actually contributed in any way to our final victory is immaterial; in 1945 we won the war. I suppose it’s reasonable to suggest rent control was part of the solution.

We’ll now fast-forward to 1979 and visit the oceanfront city of Santa Monica in Southern California, then experiencing a shortage of housing units, low vacancy rates and rapidly rising rents. In April of that year the voters adopted a rent control ordinance intended to alleviate hardship and ensure apartment owners received no more than a fair return. Exactly how matters turned out, nearly 40 years later, is worth describing.

Although approximately 29 percent of Santa Monica’s current 27,542 rent-controlled units are still at pre-1999 rents, the bulk of them were then reset to market rates upon passage of Costa Hawkins Rental Housing Act. They are currently experiencing substantial rent increases with the rents for new tenants at least double those for longtime renters. The median rent now for a studio unit is $1,600; 1-bedroom rents are $2,050; 2-bedroom units go for $2,750; and 3-bedroom apartments stand at $3,595.

According to federal standards for housing affordability, tenants should spend no more than 30 percent of their income on rent. By those calculations, Santa Monica renters require an annual salary of $76,514 to afford a studio apartment, $86,900 for a one-bedroom, $103,067 for a two-bedroom and $118,840 for a three-bedroom.

By these standards, according to Don Costello, an information analyst with the City’s Rent Control Board, “Only four percent of Santa Monica’s rent-controlled units are actually affordable for families making 80 percent or less of the average income. Given that the area median income for a four person household in the greater Los Angeles areas was no more than $64,800, no household would be able to afford even a studio in Santa Monica.”

The report from Santa Monica Rent Board Commissioner Todd Flora is even more pessimistic. “What we’re doing is, we are pricing out the working-class people that work in Santa Monica from living here. What that is actually doing is it is freezing out people that actually work here from being able to possibly afford a unit. This is a real crisis. What this clearly shows is that, despite our good intentions, despite all of our strong rent controls, provisions and protections, despite being a rent-control city, the owners still have all the cards.”

We’ll return now to 1979 and pose the question: Is rent control the solution? Before you loudly proclaim “no,” let’s rephrase the question to: Is rent control the solution to what? Obviously if “what” is to alleviate hardship and ensure apartment owners received no more than a fair return, your “no” answer is correct.

But if “what” is to promote the interests of certain individuals or groups in one fashion or another, the answer may become “yes.” We’ll now view rent control from a different perspective.

In the year 1976 John V. Tunney, son of former heavyweight boxing champion Gene Tunney, completed his first and only 6-year term as a U.S. Senator from the state of California. He not only lost in his reelection campaign, but barely won nomination for a second term, finishing only slightly ahead in the Democratic primary to a political newcomer, Thomas Emmet “Tom” Hayden, a social and political activist, best known for his role as an anti-war, civil rights and radical activist.

With an obvious aspiration for political office, together with access to substantial financial resources as the then husband of actress Jane Fonda, Hayden searched for a venue to become politically active. Following an unsuccessful 1978 Santa Monica City effort to cap rental rates, together with the passage of Proposition 13 (Jarvis Initiative) to lower property taxes, many renters became irate in that they felt they were being ignored.

When a group of mostly retired Santa Monica residents began to agitate about the rising cost of rental housing, Hayden saw an opportunity. He became an active spokesman for the rent control movement, ingratiating himself with the Santa Monica Committee for Fair Rents. As one of the organizers, Denny Zane, said: “[Hayden’s] role was powerful. He wasn’t the czar, but he was a hell of a leader. He inspired us all.”

With the formation of Santa Monicans for Renter’s Rights and a successful rent control ordinance at the ballot box in 1979, Hayden’s political fortunes began to rise. His dominance of the established Santa Monica-Venice Campaign for Economic Democracy (CED) launched his and the group’s 35-year dominance of Santa Monica politics.

Hayden was now a prominent figure in a local wing of the California Democratic Party. CED meetings regularly took place in the Santa Monica house where he lived, though sometimes organizers retreated to Fonda and Hayden’s Laurel Springs Ranch in Santa Barbara. Only three years later, in 1982, he would capture a seat in the California Assembly. By 1992, after five terms, he ran for the State Senate, remaining in that office until 2000.

Let’s return now to our fundamental question: Is rent control the solution? – though this time in a revised form: Is rent control the solution to possible success in politics? I suspect your response may no longer be resounding, but at least the answer “yes” is a possibility. And with this I now confess the intent of this article is not merely to lampoon a meaningless title, but to provide a few thoughts on this politically controversial subject.

The reason rent control is now discussed is because of the recent spate of attention to affordable housing and homelessness. Although substantial sums of taxpayer money are indiscriminately thrown at the problem – typical in situations like this – nothing is really being done to resolve the matter. Perhaps this is understandable, as the problem is neither politically nor economically solvable. Nonetheless, elected officials must appear to be doing something, or they run the risk of being ousted from their offices by candidates accusing them of not taking aggressive and effective action.

Naturally their successful opponents, after replacing them in office, will themselves be equally unable to do much of anything, for unsolvable problems remain such regardless of who’s in charge. Of course this is what democracy is all about; anyone claiming otherwise is merely whistling Dixie … I apologize if this is now a politically insensitive analogy.

A final comment: The reality of rent control as an ineffective housing policy is pretty well understood by those knowledgeable of the facts. The adverse economic and social consequences of government intervention in the nation’s housing markets have been well documented over the years. Nevertheless, a number of communities around the country continue to impose rent controls, usually with the intended goal of preserving affordable housing for low- and middle-income families. Unfortunately rent control in no way advances this goal. To the contrary, in those areas it is used rent control reduces both the quality and quantity of available housing.

Al Jacobs, a professional investor for nearly a half-century, issues a monthly newsletter in which he shares his financial knowledge and experience. You may view it on http://www.roadwaytoprosperity.com.

al@beachcomber.news

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