Rent Control: Oceanfront Battleground

Elected officials in Santa Monica, California, make a point of being Politically Correct. At the weekly meetings of the city's rent control board, three of the five members refuse to recite the Pledge of Allegiance; instead, they observe a moment of silence as a protest against U.S. policy in El Salvador. During the March 29 meeting, a member of the American Civil Liberties Union gave a 15-minute presentation opposing capital punishment. The board later issued a proclamation asking Gov. George Deukmejian to grant clemency to murderer Robert Alton Harris.

The board may soon find that it has little more influence over rents in Santa Monica than it does over U.S. foreign policy or the criminal justice system. Eleven years after successfully backing some of the strictest rent laws in the nation, the Santa Monica rent-control coalition faces a fight for its life. Frustrated landlords threaten to take as many as 20 percent of the city's rental units off the market within three years. And the next court challenge to Santa Monica's rent control charter might invalidate it.

These challenges to rent control reflect a nationwide trend. Syndicated columnist Neal R. Pierce, writing in National Journal, reports that rent control may be illegal in as many as 45 states by year's end. An early draft of the U.S. Senate's omnibus housing bill (sponsored by California Democrat Alan Cranston) would have withheld federal housing funds from rent-controlled cities unless the cities could prove that their laws don't harm the housing market.

Santa Monica's rent control law, passed in 1979, differs from most around the country because it doesn't even allow landlords to increase rents when a tenant moves out. (By contrast, the rent control laws in surrounding Los Angeles County do permit such "vacancy decontrol.")

Santa Monica's law limits annual rent increases to two-thirds of the Consumer Price Index, in a market where housing and land prices are going up far faster than the CPI. And, when enacted, it rolled back rents by 10 percent. As a result, rents are far below market value: 25 percent lower, estimated a 1987 study by the Los Angeles Planning Group, a consulting firm.

Until 1986, Santa Monica also made it nearly impossible for anyone to get out of the rental business. That year, however, the state legislature gave landlords a legal escape hatch with the Ellis Act. The act lets property owners go out of business if they convert apartments into condominiums, tear down the apartments and build single-family dwellings, or use the property for noncommercial purposes.

Since Ellis became law, nearly 1,000 of the city's 33,000 rent-controlled apartments have disappeared from the marketplace.

One event in late January signaled a crisis for rent-control advocates: the "Ellising" of the oceanfront Sea Castle Apartments. Sea Castle's owner threatened to use the Ellis Act to close the 278-unit structure and evict its 400 tenants. Residents panicked; Mayor Dennis Zane and rent board chairwoman Susan Packer Davis vowed to pressure the legislature into altering or repealing the Ellis Act.

But a new phenomenon emerged from the Sea Castle announcement. The once-solid bonds among "tenants' rights" activists began to dissolve.

About 80 percent of the city's 96,000 residents are renters. A three-pronged coalition originally pushed Santa Monica into its strict rent-control position: left-liberals, led by Tom Hayden's Campaign for Economic Democracy; longtime residents who objected to property developers and to the multifamily housing that had replaced beachfront cottages; and tenants concerned about the annual double-digit increases in their rents. This mixture of ideology and pragmatism held together for nearly a dozen years.

The Sea Castle crisis widened an existing rift between leftist ideologues and Santa Monicans for Renters' Rights, the powerful 5,000-member tenant group that once hand-picked the city's elected officials. In the past, SMRR consistently opposed property owners; now the group tosses aside ideology when it conflicts with the self-interest of members.

SMRR is trying to cut a deal that protects rent control for current tenants while keeping apartments on the market. Recent proposals include partial vacancy decontrol, permission for property owners to pass maintenance and renovation costs along to tenants, and the optional use of binding arbitration to settle landlord/tenant disputes.

Some rent board actions have antagonized tenants. Last fall, a plan devised by rent commissioner Wayne Bauer offered landlords the opportunity to increase rent on two-thirds of their vacant units if they set aside the other third for low-income tenants. A NIMBY (Not In My Back Yard) effect set in: Tenants opposed both the rent hikes and the prospect of sharing their buildings with welfare families. Landlords didn't flock to the plan because they wanted to negotiate a better deal.

SMRR's recent maneuvers have sent local politicos scrambling. Rent commissioners Davis, Bauer, and Eileen Lipson will not seek reelection this fall. Bauer says SMRR is dominated by "yuppies" who don't care about low-income tenants; he threatens to campaign against its slate of candidates in November. Davis blames SMRR for making a series of "bad compromises," and refuses to "preside over a dying system." But Mayor Zane, a founder of SMRR, cautions that tenants "must be willing to consider things [they] would have rejected five years ago."

Attorney Carl Lambert, a property owner and spokesperson for the landlord group Action, says this deal cutting is "too little, too late." Action plans to place a vacancy-decontrol initiative on the November ballot. Without full decontrol, Lambert contends, landlords will pull between 5,000 and 10,000 of the city's rent-controlled apartments from the market within two years. Even with new commissioners, Action believes that the rent board will try to consolidate its power; under partial decontrol, the board would continue to regulate rent increases. Lambert hopes tenants and property owners will unite to throw out the most draconian aspects of rent control.

A final specter haunts Santa Monica's rent control: legal challenges. In 1986, the U.S. Supreme Court upheld the rent control charter as a legitimate exercise of the city's "police power." But recent court decisions, especially Nollan v. California Coastal Commission (U.S. Supreme Court, 1987) and Seawall Associates v. City of New York (New York Court of Appeals, 1989), may serve as precedents for challenging the charter as an unjustified taking of private property for public use. The city has avoided major court cases since Seawall, and the rent board relies heavily on its legal staff to prevent any changes in regulations that may inspire lawsuits. At the March 29 meeting, Chairwoman Davis repeatedly said, "We want to stay out of court."

Both landlords and tenants believe that rent control will soon wear a different face. The Rent Control Board will have a new majority while tenants confront a rapidly shrinking rental market. "Santa Monica may continue to have the strictest rent control laws in the country," attorney Lambert concludes, "but both tenants won't be too happy about it."

Rick Henderson is researcher/reporter for REASON.