LA Rent: Has rent control been successful in Los Angeles?
"There is a shortage of decent, safe and sanitary housing in the City of Los Angeles resulting in a critically low vacancy factor," begins Los Angeles' Rent Stabilization Ordinance, which was enacted in 1978. "This situation has had a detrimental effect on substantial numbers of renters in the City, especially creating hardships on senior citizens, persons on fixed incomes and low and moderate income households."
Back then the city's vacancy rate was 3.8 percent, according to a RAND Corporation study. In 2012, it was 3.9 percent, and it's expected to be lower when the numbers are released for this year. At the same time, rents are at all-time highs, having risen 25 percent between 2000 and 2012 alone in L.A. County.
The Rent Stabilization Ordinance, or "rent control" as it is usually known, limits how much landlords can raise rent to 3 percent this year in L.A. But generally it only applies to apartments built before October 1, 1978.
Eighty percent of the 880,581 multifamily units in the city of Los Angeles are covered by rent control, according to the Los Angeles Housing and Community Investment Department. Those living in rent controlled units pay an average of $1,612 a month, $602 less than the average market rate unit.
L.A. now has the dubious distinction of being ranked the most unaffordable city in America by both Harvard and UCLA, though much of that is because the city's median income is lower than other big cities like San Francisco and New York.
Beverly Kenworthy, Executive Director of the California Apartment Association, says rent control has done the opposite of what it was intended to do.
"Clearly [rent control] hasn't worked," said Kenworthy. "Unfortunately, I think it's a failed policy. It sounds like a good idea, but when it plays out, it doesn't get you what you need. It doesn't keep costs down. You've taken a whole section of units basically off the market."
Kenworthy points to Santa Monica, where voters approved a stricter form of rent control than L.A. in 1979 largely in response to what was known as the "demolition derby," where during a 15-month period in the late 1970's, over 1,300 rental units were destroyed and hundreds of others were converted to condos.
Today about 78 percent of Santa Monica's apartments are protected by rent control, according to the Santa Monica Rent Control Board.
The policy is very beneficial to tenants who have been living in their apartments since before 1999, who occupy about a third of Santa Monica apartments. Their median rent is just $862 a month for a one-bedroom apartment, almost $1,000 less than the average market rate for a one-bedroom last year in Santa Monica.
When tenants cling to their inexpensive rent-controlled apartments, it's beneficial for them but it's bad for those at mercy of market rates because it reduces the supply of apartments available to rent, according to Paul Habibi, who teaches finance and real estate at the UCLA Anderson Graduate School of Management and UCLA School of Law.
"Market rate units now go up significantly higher and faster than they otherwise would if you took away the rent control provisions," he said.
Habibi isn't a neutral observer. He owns thousands of apartments, just under half of which are rent-controlled. He wouldn't do away with rent control altogether, but he thinks a better solution to bringing prices down is to make it easier to build.
"If you take Econ 101, you’ll see that rent control has a lot of adverse effects," Habibi said.
Habibi says rent control makes landlords like him less likely to want to build more apartments, even though the rules don't apply to any unit built in L.A. after 1978.
"Someone can strike a gavel and make more properties rent-controlled," said Habibi. "That 1978 date could extend in the future, which would hinder landlords. That really disincentives new developers."
He also says landlords are less likely to make improvements to rent-controlled properties, because they fear they will not be able to recoup the investment.
“For the most part, market forces dictate that those apartments that are market-rate are going to get investment dollars,” said Habibi.
Another reason many economists, including Habibi, are skeptical of rent control is that unlike public housing and other forms of government assistance like food stamps and welfare, whether someone benefits from rent control or not has nothing to do with their income.
“You could have an attorney making a quarter of a million dollars living in a rent stabilized property," said Habibi. "Meanwhile, someone who makes only a fraction of that is living in a market rate building. We definitely have people who are paying significantly below market apartments who can certainly afford to pay more."
One of those people was the notorious Boston gangster Whitey Bulger. He spent 17 years on the lam until the FBI finally arrested him at his modest apartment in Santa Monica in 2011, when he was the most wanted man in America.
Bulger paid just over $1,000 a month for his two-bed, two-bath rent controlled apartment a few blocks from the ocean, where he lived for over a decade.
When the same unit went on the market this summer, it was priced at the market rate: $2,972 a month, according to Curbed.
Bulger could certainly have afforded that. After all, he stuffed millions of dollars in his apartment wall.
Most renters are cost-burdened
Bulger is very much the exception rather than the rule, says Larry Gross, Executive Director of the tenants rights group, The Coalition for Economic Survival.
"You can find one example of somebody and blow it out of proportion," said Gross. "Most renters in L.A. are working people, low-income or middle class people trying to get by and rent control laws provide them with some stability. 62-percent of renters in L.A. are paying unaffordable rents as it is.”
More than just capping rent increases, Gross says rent control gives tenants some of the security they would get if they were a homeowner because they know they can't be kicked out on a landlord's whim.
"It levels the playing field for tenants," said Gross. "It says you can’t evict somebody just because you don’t like them."
Gross says a more typical example of someone who has benefited from rent control is 62 year-old Wendell Jones, who took us up several flights of stairs to visit his West Hollywood apartment on a recent afternoon.
“That’s my exercise for the day," said Jones, panting. "I have chronic fatigue syndrome.”
Jones has lived in his studio for about two decades and it's not hard to understand why: his rent is $700 a month, thanks to rent control.
West Hollywood is known as "the city built on rent control." It incorporated in 1984 largely for that purpose after a measure to win countywide rent control failed.
In area where studios easily go for twice what he's paying, Jones' sensed his landlord was eager to get him out so his apartment would reset to the market rate. Sure enough, when Jones got sick and fell slightly behind on his rent a couple years ago, he opened the mail and received a three-day eviction notice.
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With help from the tenants rights’ group, the Coalition for Economic Survival, Jones fought back. They discovered Jones’ landlord hadn’t been paying back the interest on the security deposit, as is required in West Hollywood, and Jones got to stay.
“Now things are relatively friendly with my landlord because they know I know lawyers, so they can’t just come after me,” Jones said.
There are plenty of people who would think it’s unfair Jones pays $700 a month to live in West Hollywood — unfair to his landlord who could be making so much more and unfair to tenants at the mercy of market rates. But Jones doesn’t think so. He says whether you support rent control or not all depends on what kind of city you want to live in.
“People like me who have things to share with the community, we’ll all be driven out if rent control goes," said Jones. "None of us will be here. But if you think that people should be able to live their lives, landlords should be able to make decent profits, and we should all live together, we should all have rent control.”
Jones has little doubt where he would be without rent control.
"I'd be homeless," he said.
Local rent control laws watered down by the state
Gross helped campaign to bring rent control to West Hollywood and Los Angeles decades ago. He says as unaffordable as the rental market is now, it's still an improvement over what the market was like in 1970's, before rent control.
"It was a crisis situation," remembers Gross. "Speculators had found L.A., buying apartment buildings and turning them over. People were receiving three, four, and five rent increases per year."
Gross says although local rent control has helped many tenants in cities like L.A., Santa Monica, and West Hollywood, it has been consistently watered down by state laws.
"It could be a lot more effective," said Gross. "What rent control has done is limited rent gouging, protected tenants against unjust evictions, and preserved some of our affordable housing stock. But there’s much too many loopholes in the law that allow property to escape."
In 1985, the legislature passed the Ellis Act, which allowed landlords to evict tenants if they go out of business.
A decade later, the state enacted the Costa-Hawkins Rental Housing Act, which prohibited any unit built after 1995 from being rent controlled and allowed landlords to charge market rents after apartments are vacated. The law didn't have much impact in L.A., where new units already reset to market rates, but it had a big effect in Santa Monica.
“We can’t control our rent because of the Costa-Hawkins decision,” Santa Monica planning commissioner Sue Himmelrich said. “That really is the pressure on our housing market.”
There's been a big uptick in so-called Ellis Act evictions in the past decade in San Francisco. Gross says these kinds of evictions are on the rise in Los Angeles.
"We’ve lost upwards of anywhere from thirteen to sixteen thousand units through landlords going out of the rental market to demolish their buildings to build new luxury condos," said Gross. "Housing will be lost and never replaced.”
L.A has comparitively weaker rent-control compared to New York and San Francisco, which is another reason it’s less affordable to rent here, according to a new UCLA study.
New York's rent control dates back to 1943, and can be passed down from generation to generation, resulting in examples far more extreme than Bulger's. For example, The New York Times recently detailed the plight of Her Imperial Highness Zeynep Osman — niece of the late Mohammed Zahir Shah, the last king of Afghanistan — who is is fighting to hang onto to her 1600 square-foot, rent-stabilized apartment. It costs her all of $390 a month.
"New York’s regulations are much more stringent than L.A.’s," said Daniel Flaming, President of the L.A.-based Economic Roundtable. "New York puts a ceiling, unlike L.A. Some units in New York are at remarkably affordable prices. That’s rare in L.A."
A policy of limited effectiveness
In 2008, Flaming and his colleagues produced a 431-page report on L.A.'s rent stabilization ordinance [RSO], commissioned by the city's housing department. It concluded the ordinance is needed, but it only provides one part of the solution to the city's housing problem, especially since it does nothing to address the scarcity of affordable housing.
"It is a partial answer because the RSO does not result in affordable rents for most tenants; rather it slows the rate of rent increases for tenants who remain in place during periods of rapid housing inflation," the report said. "The rent of a tenant who remained in an RSO unit for any five-year interval since 2000, would have gone up only half as much as the rent of a non-RSO tenant during the same interval. All RSO tenants pay market rates when they move into their units and half move out within five years, meaning that many tenants receive little rent relief from the RSO."
In other words, to see much savings from rent control you have to stay in your apartment longer than five years – like Wendell Jones or yes, Whitey Bulger – which most tenants don't do.
The report also noted that rent control's central purpose is very difficult to achieve absent higher incomes or another real estate crash.
"The purpose of the RSO is to protect tenants from excessive rent increases, while allowing owners a reasonable return on their investments," the report said. "This balance is difficult to achieve in a rental market with both long-term decline in renter incomes and inflation in housing prices."