Rent Deregulation in California and Massachusetts:
Politics, Policy, and Impacts - Part II
By Peter Dreier
International and Public Affairs Center, Occidental College, Los Angeles, CA 90041
Prepared for the Housing '97 conference sponsored by
New York University School of Law
Center for Real Estate and Urban Policy
and the NYC Rent Guidelines Board
New York University, May 14, 1997
Also available in PDF Format (297K)
Part I (separate HTML File)
- Executive Summary
- Key Concepts
- The Battle Over Rent Control
- Rent Control in Massachusetts
- The Politics of Deregulation in Massachusetts
- Rent Control in California
- The Politics of Deregulation in California
- Comparative Analysis
- The Consequences of Deregulation
- Appendix: Arguments For and Against Rent Control
- Author Bio
Part III -- Endnotes (separate HTML File)
Rent Control in California
In the 1970s, California seemed an unlikely place for a broad movement for tenants' rights. As Heskin notes, "Aspiring tenant organizers considered the California tenant to be too individualistic and too mobile to be organized" and "the densities of renters too low for mass collective action." But a California tenants movement exploded in l978 following passage of Proposition 13, the tax-cutting amendment. California had an upsurge of tenant activism in the late l970s and early 1980s, and then -- with a few local exceptions -- experienced a lapse starting in the mid-l980s which continued into the 1990s.
During much of the l960s, apartment vacancy rates in the state's urban areas were high; some landlords even complained of an "apartment glut." This began to change in the l970s, as rental apartment construction fell, vacancy rates fell, and rents increased faster than inflation. Moreover, skyrocketing housing prices shut out many middle-class households from homebuying. Except in Berkeley, however, there was little tenant activism in response to these changing market forces. In 1972, Berkeley voters passed a rent control charter amendment through the initiative process. The city began to implement the law, but landlords successfully challenged the amendment in court. In Birkenfeld v. Berkeley, the Alameda County Superior Court (in 1973) and the state Court of Appeal (in June 1995) held that the Berkeley law was unconstitutional on procedural grounds, but it found that cities had the right to adopt rent control without further state legislation.
In 1975, Senator David Roberti filed a rent control bill that died "quickly and quietly" in the Senate Judiciary Committee, a reflection of the weak political constituency at the time. In the mid-1970s, even before the upsurge of tenant activism, California's real estate industry recognized the potential for a wave of tenant protest and demands for rent regulations, especially in light of Birkenfeld v Berkeley. In 1976, the California Housing Council, a new coalition of the state's major apartment developers, owners, and managers, along with their allies among realtors and smaller landlords, pushed a bill (AB 3788) through both houses of the state legislature pre-empting localities from adopting rent control. A fledgling California Renters Coalition was too weak to effectively oppose the bill in the legislature or the media. But on the advice of his liberal housing department director, Arnold Sternberg, and with the support of his liberal constituency, particularly Jack Henning, the head of the state AFL-CIO, Gov. Jerry Brown vetoed the bill, angering the real estate community.
Sensing that a battle was brewing, a handful of tenant organizers and legal aid attorneys recognized that they needed to be better organized and in l977 250 activists met in Los Angeles to form the California Housing and Information Network (CHAIN) to serve as the umbrella coalition for tenants' rights. A few local groups, such as the Coalition for Economic Survival (CES) in Los Angeles, began to organize tenants around rent increases, evictions, and maintenance issues. In 1977, CES and the Gray Panthers, a radical senior citizens group, began pushing the Los Angeles City Council to adopt rent control, initially promoting ordinances against "rent gouging." Simultaneously, tenants in Santa Monica launched an effort to place a rent control initiative on the June 1978 ballot. These groups were able to mobilize hundreds of tenants for public hearings and rallies. Smaller efforts were underway in Santa Barbara, Santa Cruz, Long Beach, and San Diego, while tenants continued to push for rent control in Berkeley.
Gov. Brown's veto of the CHC's pre-emption bill proved fateful, because demand for rent control exploded across the state in the aftermath of Proposition 13. Proposition 13 was spearheaded by ultra-conservative political forces. The leader of the tax revolt was Howard Jarvis, chief executive of the Apartment Association of Los Angeles County, who sent a mailing to landlords urging them to "convince your tenants that lower property taxes mean lower rents." A month before election day, the California Apartment Association announced that landlords would pass property tax savings onto tenants if Proposition 13 passed. Recognizing the dangers of a tenant backlash if landlords failed to fulfill their promises, the CHC opposed Proposition 13.
On the same day that Proposition 13 won by a two-to-one margin statewide, rent control initiatives were defeated in Santa Monica (56-44%) and Santa Barbara (by roughly the same margin), even though tenants represented a majority in both communities. Real estate interests poured huge sums of money to defeat these referenda. An analysis of voting results revealed that precincts that favored Proposition 13 voted against rent control, often by a similar margin. Throughout the state, in fact, voters who opposed rent control thought that property taxes were the cause of high rents. They expected Proposition 13 to hold down rents.
The California Housing Council was the only major real estate industry group to oppose Proposition 13. After Prop 13 passed, the CHC sent a letter to its members across the state urging them to reduce rents. But the anticipated windfall of rent rollbacks did not materialize. In fact, many of California's 3.5 million tenants received notices of rent increases shortly after Proposition 13 passed. This set the stage for a significant tenant backlash. Throughout the state, tenants who had been hit by rent increases organized meetings to demand that landlords share their property tax savings. Newspapers were filled with stories of outraged renters, embarrassed landlords, and politicians jumping onto the bandwagon. For example, Los Angeles Mayor Tom Bradley, who had earlier lent his name to the anti-rent control campaign in nearby Santa Monica, called for a citywide rent freeze ordinance. As public clamor mounted, some landlords agreed to voluntarily reduce rents in order to avoid mandatory rollbacks and freezes.
Tenant pressure did not subside. Governor Brown established a renter "hotline" which, at one point, was receiving 12,000 phone calls a day to register complaints about rent hikes. When heavy real estate industry lobbying defeated a statewide bill requiring landlords to pass on Proposition 13 savings to tenants, the battle shifted to the local level. Groups like CES, the Gray Panthers, CHAIN, and Tom Hayden's statewide Campaign for Economic Democracy (which grew out of his unsuccessful bid for U.S. Senate in 1976) organized tenants and kept the anger about post-Prop 13 rent hikes in the news. Tenant groups began to mobilize in communities across the state, demanding rent control. Experienced tenant leaders began to travel across the state, helping local groups. Newspapers reported an upsurge of rent strikes, even in the politically moderate San Fernando Valley section of Los Angeles.
By 1981, more than 25 California communities, including Los Angeles and San Francisco, had passed some kind of rent control laws. By 1988, 78 communities in California had some form of rent control, although in 64 of these jurisdictions rent control was limited to mobile homes. In the 14 cities where rent regulations covered apartments, nearly one million units were covered. Eleven of those 14 laws were enacted by ordinance. In Berkeley, Santa Monica, and Cotati, they were put into place by voters through the initiative process. In nine of these jurisdictions, the rent regulations not only covered rents, but included "just cause" eviction, limiting landlords' ability to evict a tenant without due process and cause. Los Angeles, Palm Springs and Thousand Oaks exempted so-called "luxury units" from rent regulations. Several cities exempted single-family homes; some exempted condominiums. Twelve of the 14 jurisdictions (except Los Gatos and Cotati) exempted new construction from rent regulations. Nine of the jurisdictions provide for vacancy decontrol, allowing landlords to set rents at market levels when a tenant voluntarily vacates an apartment; in six of these jurisdictions, the law requires that the unit be placed back under rent regulation after the new tenant moves in and the landlord has set the market rent. Berkeley, Santa Monica, West Hollywood, East Palo Alto, Cotati, and Palm Springs did not allow vacancy decontrol. Local rent boards set rent levels each year, no matter how many times the units turn over. Jurisdictions vary in the formulas they use to set rent increases.
In response to tenant pressure, rent strikes, and steady news coverage about rent increases and angry tenants, especially seniors, the Los Angeles City Council passed a six month rent freeze in August 1978. As the rent freeze was reaching its end, tenant forces and their allies pushed for a permanent and strict rent regulation law. The City Council adopted a somewhat watered-down version of regulation, including vacancy decontrol and an exemption for single-family homes, which went into effect May 1, 1979. This law was reviewed annually by the City Council, with minor changes. In 1981 the City Council made significant changes. The original law permitted a 7.6% rent increase annually. After 1981, this was reduced to a 5.6% annual rent increase. From the beginning, landlords were allowed to raise rents more freely when an apartment became vacant, but then adjusted further rent increases for the new tenant. The original law allowed new rents to be set to market levels. The new law limited rent increases to 10%. Both laws exempted new construction, hotels, single family dwellings and so-called "luxury units" (those with rents above a specific level. Both laws contained "sunset" provisions which would end rent control if the vacancy rate in Los Angeles rental housing rose above 5%.
The Los Angeles law did not apply to the unincorporated areas of Los Angeles County, including West Hollywood, where renters composed 80% of the population. Renters organized rent strikes and rallies with as many as a thousand demonstrators and successfully pressured the county Board of Supervisors to pass a rent control law that applied to unincorporated areas. The law included a "sunset" provision and in 1985 the Board of Supervisors did not extend it. Fear of this threat led activists in West Hollywood to seek to incorporate a new city. Soon after West Hollywood became a separate city, the city council adopted rent control in June 1985. Rent control was also the driving force behind the efforts to incorporate a new city in East Palo Alto. East Palo Alto, which had about 3,000 rental units and a large African-American community, was incorporated in 1983. It adopted rent control a few months later. Landlords were unsuccessful at repealing it with several city ballot measures, sponsored by the California Apartment Owners Association.
Rent control was the centerpiece of electoral activity in Berkeley and Santa Monica, where progressive coalitions won majority blocs on the City Council of each city. In the late l960s, Berkeley was a hotbed of "radical" political activity, not only on the campus but also in the community. The Berkeley Tenants Union was formed in 1969. It formed part of a coalition of progressive activists who mobilized to gain a foothold in city government with rent control one of their key platforms. After the courts reversed the 1972 pro-rent control ballot measure on procedural grounds, the coalition tried again. Rent control supporters put another initiative on the April 1977 ballot. It lost 63% to 37%. Following Proposition 13, Berkeley voters approved a temporary rent freeze on the November 1978 ballot by 58% to 42%. Voters adopted permanent full rent control in a June 1980 initiative. The pro-tenant governing regime remained in power for almost two decades until the pro-tenant majority on the rent control board was defeated by voters in 1993. A court decision over the meaning of a "fair return" forced Berkeley to water-down its rent regulations in 1992, resulting in major rent increases. The Berkeley law regulated 21,000 of the 24,500 rental units in the City.
In Santa Monica, a coastal city of 90,000 adjacent to Los Angeles, the tenants movement formed the core of an ongoing governing coalition. As noted above, voters had defeated a rent control ballot measure in June 1978 by a 55.5% to 45.5% margin, even though renters comprised 80% of the city's residents. In the wake of Prop 13, activists regrouped. They formed a political coalition, Santa Monicans for Renters' Rights (SMRR), which drew on a wide group of senior citizen, consumer, Democratic Party, and housing activists. SMRR put another rent control measure, Proposition A, on the ballot in April 1979. Although SMRR was outspent $217,257 to $38,443, it effectively mobilized renters as campaign volunteers. Proposition A won by a 54.5% to 45.5%. A few months later, a pro-tenant slate, organized by SMRR was elected to the rent control board. The next November, SMRR forces defeated Proposition Q, a real estate industry-sponsored ballot measure to weaken the rent control law by adopting vacancy decontrol. In 1981, SMRR's slate won a majority of seats on the City Council and elected a SMRR leader as mayor. The campaign mobilized over 6,000 people to get involved in phone calling, door-to-door canvassing, and other electoral activities. Since l981, SMRR has held a voting majority on the City Council, with the exception of l984 through 1988. All of SMRR's candidates supported rent control and tenants' rights, but they have included union leaders, a minister, a high school teacher, a cab driver, a disabled activist, a lesbian activist and others.
As a governing coalition, SMRR strengthened Santa Monica's rent control and condo conversion law -- key issues in an attractive beach city that was undergoing extremely strong development pressures. Indeed, Santa Monica's rent control law was perhaps the strongest in the country; for example, it did not automatically allow landlords to increase rents when they refinanced their properties. SMRR also elected a majority to the rent control board, guaranteeing that the law would be implemented effectively. Once in office, SMRR enacted a broad progressive agenda that went beyond tenant problems. But a dent in the SMRR coalition involved a controversy over the city's tolerance of homeless people in public places. Even in "the People's Republic of Santa Monica," as opponents called the city, political support for rent control was weakened in the early l990s by two forces: a visible increase in homelessness, which landlords effectively linked to the city's rent control law, and the Northridge earthquake of January 1994. Complaints from businesses and other citizens led SMRR to toughen its policy by allowing police to remove homeless vagrants from public places and require them to move to a city-run shelter or day program.
Other cities joined the rent control list. The San Francisco Board of Supervisors passed rent control (with vacancy decontrol) in 1979 to head off a stronger initiative put on the ballot by community and tenant groups. San Jose's law went into effect in l979. It was called the Rental Dispute Mediation and Arbitration ordinance.
Faced with all these local brushfire battles, and unable to get Gov. Brown to sign a local pre-emption bill, the real estate industry's strategy was to circumvent the liberal governor by putting the issue of pre-emption before the voters in a statewide initiative. Seeking to stop the rent control momentum, the CHC, the umbrella lobby group of the state's largest landlords, spearheaded the campaign for Proposition 10, which appeared on the ballot on June 3, 1980. Voters overwhelmingly defeated Proposition 10 by a 65% to 35% margin, despite the fact that the CHC outspent the opposition by an 80-to-1 margin. The landlord campaign used the usual arguments that rent control stymied new construction as well as maintenance and thus have a serious negative impact on the supply of rental housing. CHC polls showed that, as a group, "landlords" were not well-liked. (At the same time, San Diego Mayor Pete Wilson successfully led the opposition to a rent control initiative in that city).
During the l980s, the statewide momentum for rent control slowed down. No new cities enacted rent control laws, but neither did local politicians seek to weaken rent control where it already existed. The real estate industry recognized in 1987 that "rent control may no longer be the single hot issue that it once was." While it was difficult to roll back existing local laws, the industry saw that "rent control no longer draws the overriding community concern that it once did." In 1987, for example, only one locality, Burlingame, sought to pass a rent control measure, and it was defeated. In 1988, the CHC helped defeat a citywide ballot initiative for full rent control. In 1991, Mayor Art Agnos, who had been elected as a rent control supporter, got the Board of Supervisors to pass full rent control, but the real estate industry got the issue on the ballot and orchestrated an expensive and successful campaign to repeal the Board's vote. Then in December 1991 the real estate industry helped police chief Frank Jordan, a foe of rent control, defeat Agnos for re election. The ballot victory and Jordan's election, in a liberal city with a big tenant majority, led real estate interests to conclude that "rent control is not what it used to be" as a political issue.
The Politics of Deregulation in California
Beginning in 1983, Assemblyman Jim Costa (D-Fresno) annually introduced a bill on behalf of real estate industry (California Housing Council, California Association of Realtors, California Apartment Association, and California Building Industry Association) to weaken local rent regulation, or what they termed "radical rent control ordinances." The Costa bills included a requirement for vacancy decontrol, an exemption for new construction, and an exemption for single-family homes. In 1983 and 1984, his bills included mobile homes, but subsequent bills exempted mobile homes.
Typically, the Costa bill would whiz thru the Assembly, whose leaders were closely connected to real estate lobbyists, but bog down in the Senate, largely at the behest of Senator David Roberti. Roberti was majority leader and then president pro tem of the Senate. He represented part of Los Angeles's San Fernando Valley, as well as parts of Hollywood, and was a major fundraiser for his Democratic colleagues. Roberti would assign the Costa bill to the Senate Judiciary Committee, which had a strong liberal majority. Invariably, the committee would reject the Costa bill.
In fact, only Roberti's influence kept the state legislature from bowing to landlord pressure to dismantle local rent laws. The real estate industry, especially the California Housing Council, identified Roberti as their chief obstacle to eliminating rent control. "As long as Roberti was there, we couldn't win. So we focused our attention on the local level, just trying to keep the lid on," explained the CHC's lobbyist. By the early 1980s, tenant organizing in California had declined significantly. Only in Santa Monica, and to a lesser degree in West Hollywood, East Palo Alto, and Berkeley, did tenant organizations wield significant political influence. Roberti consistently warned tenant activists and cities with rent control not to get complacent, and encouraged them to organize, since he would not be in the legislature forever, but they did not heed his warnings. In the big cities like San Francisco, Los Angeles, and San Jose, tenant organizing was ineffective. But, according to CHC lobbyist Steve Carlson, "the rent control forces never had to assert themselves so long as Roberti was there. It was a slam dunk."
Over the years, apartment owners and other real estate interests invested millions in campaign contributions to support anti-rent control legislation. A 1987 report by the California Association of Realtors claimed that the industry had spent over $14.2 million to fight rent control. About $5.6 million was spent on Proposition 10 in 1980. A more recent estimate claimed that in the past 12 years, the industry spent an estimated $50 million to fight rent control -- pouring money into local rent control ballot initiatives, city council, legislative, and gubernatorial races, and efforts to unseat Roberti. A real estate lobbyist explained, "it is a small investment when you consider a billion dollars or more in apartment real estate values are at stake."
In some ways, rent control's fate was doomed in 1988, when California voters passed an initiative imposing term limits on state legislators. That meant that Roberti would have to leave the state Senate in l995. In 1994, the real estate industry and the National Rifle Association (angered by Roberti's support for strong gun control) tried to evict Roberti from the legislature a year early by sponsoring a recall campaign in his new Senate district. The recall effort by NRA failed with Roberti garnering help from housing activists from Santa Monica and other cities outside his new district. Tenant activists from as far away as San Francisco came to the San Fernando Valley to campaign against the recall vote.
After the recall effort failed, but knowing that Roberti would be out of office after 1995, the real estate industry set the stage for the following year's battle. Again, Costa filed his legislation. Again, it sailed through the Assembly and wound up in the Senate Judiciary Committee. A public hearing was held in June 1994. This time, however, the vote was closer than in earlier years. A number of Democrats who in the past had voted with Roberti broke ranks and others had to have their arms twisted by Roberti and labor leaders. A hearing was held in Sacramento in June. But they came within one vote of passing the bill in the Judiciary Committee. The deciding vote was cast by Sen. Art Torres, a liberal Democratic, who was also leaving office. Tellingly, Sen. Bill Lockyer, who would replace Roberti as president pro tem, abstained. In June 1994 the state Senate voted against the bill. According to CHC lobbyist Steve Carlson, "It seemed to us that we were getting closer." As president pro tem, "Lockyer wouldn't make this a life-or-death issue that way Roberti did." Defeated, Costa withdrew his bill on August 16, 1994, but it was already clear that Roberti's grip had weakened and that the real estate industry was flexing its muscles for the next legislative session.
Several factors changed the balance of forces. Roberti was forced to leave the Senate because of term limits; his final term ended in December 1995. Senator Bill Lockyer, no ardent fan of rent control, was elected president pro tem. Also, Costa was elected to the Senate. In 1995, the Republicans won control of the Assembly. The political center of gravity had shifted to the right. Governor Pete Wilson was re-elected in November 1994, defeating Kathleen Brown. A long-time opponent of rent control, going back to his tenure as San Diego mayor, he was certain to sign any anti-rent control bill.
In 1995, the San Jose Mercury-News described the Costa bill as "moving smoothly" through the legislature. Costa bill was approved by a 5-2 vote in Senate Judiciary Committee on April 4, 1995. Senator Nicholas Petris, a liberal Democrat who represented Oakland and Berkeley and was a member of the Judiciary Committee, as well as a long-time supporter of rent control, voted for the Costa bill in the Judiciary Committee, sending it to the Senate floor. The Senate passed the Costa bill on May 23, 1995 by 22 to 14 vote, one more than the majority required. Ironically, Petris voted against it once it reached the floor. The Assembly Housing and Community Development Committee approved the bill 6-2 on June 21, 1995. The bill was approved 10-7 by the Assembly Appropriations Committee in July, 1995. On July 24, 1995, the Senate (24-11) and Assembly (45-18) passed the Costa/Hawkins bill. To win Assembly passage, Democrats supported compromise provisions that phased in rent increases over 3 years, then allows full decontrol. Rents can go up 15% the first year. Wilson signed the bill on August 4, 1995, with the law to go into effect on January 1, 1996.
Opposition to the Costa/Hawkins bill was very feeble. Only Santa Monica, West Hollywood, Berkeley, East Palo Alto, and Cotati would be significantly affected, because the other cities with rent regulations already had vacancy decontrol. San Francisco and Los Angeles would lose their rent regulations on single-family homes, but this did not provide a broad enough political constituency to mobilize serious opposition. Tenant groups from these jurisdictions and city governments sent representatives to the public hearings in Sacramento, but were vastly outnumbered by representatives from the real estate industry, particularly so-called "Mom and Pop" landlords who were the public face of the industry campaign. The Western Center on Law and Poverty, an arm of legal services, led the opposition. It sought to piece together a coalition of local tenant groups, senior citizens groups, religious groups, and local governments. The cities of Santa Monica, Berkeley, and West Hollywood chipped in funds to hire a Sacramento lobbyist to orchestrate a lobbying and public relations effort to defeat the Costa bill. But Roberti's warnings had proven accurate. The pro-rent control forces lacked the organizational infrastructure and grassroots constituency to mount a serious opposition effort. It was easy for legislators to vote for a bill that would only significantly affect the small cities of Santa Monica, Berkeley, West Hollywood, Cotati, and East Palo Alto, the only cities with even a modicum of grassroots tenant activism. According to one organizer of the pro-rent control coalition, they considered passage of the Costa/Hawkins bill a "done deal." Their efforts to stop it was viewed as a "last gasp." Seventeen years after the post Proposition 13 groundswell of pro-rent control tenant activism, the legislature was able to pass a statewide pre-emption bill with almost no political fallout.
Mobile Home Rent Control
Since 1985, bills to weaken rent control in California have carefully exempted mobile homes. This is no accident. In contrast to the tenants movement, residents of mobile homes have been well organized and able to defeat efforts to weaken protections. Mobile home park owners lack the political clout of their counterparts in the real estate industry. As a result, rent regulations affecting mobile homes is widespread and shows little signs of weakening.
Mobile home owners occupy an unusual status. They own their homes, but they rent the spaces in mobile home parks. Compared with apartment tenants, they are actually less mobile, because of the size and cost of moving their structures. Thus they have a major stake in opposing rent increases and organizing for rent control.
The number of mobile homes in California increased during the l980s as a result of rising housing prices. There are 375,000 mobile homes in California parks with about one million residents. Mobile home owners pushed for local rent control. The first wave of mobile home rent control activity coincided with the general post Proposition 13 groundswell for rent regulation. For example, San Jose adopted rent control for mobile homes in 1979. But unlike the efforts of apartment tenants, the momentum for mobile home rent control persisted in the l980s and early 1990s. Today, about 140,000 to 250,000 live in rent controlled parks. Eighty-nine cities and counties have adopted mobile home rent control in the state.
Mobile home owners are older and are "faithful voters." They have their own political lobby, the Golden State Mobilehome Owners League. It has 80,000 members statewide, from big cities to small towns. Led by Jeffrey Kaplan, the owner of several mobile home parks, park owners formed the CA Mobilehome Parkowners' Alliance in 1988. Over the years, they have mobilized local and statewide ballot measures, and worked through the legislature, to abolish rent control for mobile homes.
In 1995, Sen. Raymond Haynes (R-Riverside) filed a bill, on behalf of the Alliance, to exempt mobilehome parks from rent control. Haynes had received significant campaign contributions ($7,500) from park owners. The bill went nowhere. The Alliance then bankrolled the petition drive for the anti-rent control ballot measure in March 1996. Prop 199, on the March 26, 1996 ballot, would have voided and phased out local rent control laws for mobile homes. As one news report explained, "Owners went to the initiative after years of losing battles in the Legislature." The mobilehome park owners outspent the tenants by 3-1 in the Prop 199 battle: $1.6 million to $489,000, most of it in small $25 and $50 contributions from tenants. A later article put the figures at $2.1 million vs. $320,000. The mobile home residents were well-organized. They engaged in protest rallies, candidates nights, letters-to-editor of newspapers, guest columns, and other forms of protest and electoral mobilization. The residents personalized the opposition campaign by focusing on Kaplan.
A number of major daily newspapers, including the Los Angeles Times, San Jose Mercury News, and the Sacramento Bee, editorialized against Prop 199. The Bee's editorial reflected its ambivalence about rent control. "Rent control usually creates more problems than it solves -- but there are compelling reasons why this measure should be defeated." Supporters of Prop 199 included mobile home park owners groups, the state Republican Party and Republican legislators. Opponents included mobilehome owners groups, the AARP, the Congress of California Seniors, the state AFL-CIO, and the state Democratic Party. Opponents also included 14 counties and 85 cities. City Councils in small and large cities voted to oppose Prop 199. Prop 199 lost by 61% (3.1 million) to 39% (1.98 million.) Ironically, the spokesman for the Yes on 199 campaign, Denis Wolcott, which spent about $2.1 million, said "the money is simply not there," to run an effective campaign. During l994 through 1996, anticipating the state law, a number of cities and some counties passed mobile home rent control laws.
What are the key factors that explain the dramatic turnabout in the fortunes of rent control in Massachusetts and California? Changes in housing market dynamics in the two states cannot explain the change in policy, since there was no significant change during the period under discussion here. Rather the key factors are political and ideological.
Influence of Real Estate Industry
It is difficult to exaggerate the political influence of the real estate industry, fueled by a combination of political contributions and grassroots networks. For years, the various components of the industry -- apartment owners, developers, realtors, managers and lenders -- worked together to oppose rent control and other tenant protections. This persistence and unity eventually paid off. Even when the industry lost some battles, it persisted in fighting the long-term war over rent control, refining its ammunition and, when necessary, calling for reinforcements. These industry organizations and their staffs developed close ties to legislators at the state and local levels over the course of several decades. They have the staying power to persist in waging their efforts year after year. The deregulation victories in 1994 and 1995 should be seen as part of this long-term process, not a sudden reversal of fortune.
In both states, the real estate industry is one of the most powerful political lobby groups in the state legislature. In Massachusetts, it is one of the six more generous industries in terms of PAC campaign contributions and lobbyists' personal contributions to state legislators. In California, the California Real Estate PAC was the sixth largest contributor ($649,800) to legislative campaigns during the 1991-92 election cycle. From 1983 through 1993, the Real Estate PAC was among the ten largest PAC donors each year, ranking as high as third during the l987-88 election cycle. Costa was one of the industry's favorite beneficiaries. Other industry trade associations and individuals are major donors. Still as one California real estate lobbyist noted, "If it had just been `juice,' we would have gotten rid of rent control a long time ago." Other factors opened a window of opportunity for the housing industry to get the Costa bill through the legislature.
In Massachusetts, the Greater Boston Real Estate Board played the role of coordinating the industry's activities, with strong support from the Massachusetts Association of Realtors and others. In Massachusetts, the emergence of the SPOA, representing small property owners, could have undermined the industry's unity, but quite early in the Question 9 campaign, SPOA and the GBREB joined forces, linking the ideologically-driven SPOA with the more pragmatic GBREB. In fact, the emergence of SPOA helped shape the public debate in ways that helped define the GBREB as "moderate" and its legislative efforts as a "compromise." The SPOA's willingness to engage in protest tactics helped make the "abuses" of Cambridge's rent control a newsworthy story and draw attention to the issue. The fact that it was landlords, not tenants, engaging in protest was to journalists the equivalent of "man bites dog." The SPOA lacked the political resources to carry out a statewide strategy, so its fragile alliance with the major real estate industry proved useful, even though some of SPOA's members considered the legislative solution a "sell out."
In California, the California Housing Council, formed in the l970s to represent the large apartment owners and managers, worked closely with the California Apartment Association (which represents smaller property owners), the Building Industry Association, and California Association of Realtors, and others. The lobbyists for these groups meet once a week "to compare notes." A split between CAA (representing small apartment owners) and CHC (large landlords) in California emerged in the late l980s when there was little likelihood of defeating rent control, but this split was resolved in the mid-l990s when, according to a CHC lobbyist, "we realized it wasn't possible to get rid of it entirely" and CAA accepted the need to compromise. Echoed another lobbyist: "It took awhile for small owners to concede that we should settle for something short of the complete elimination of rent control."
The influence of the real estate industry goes beyond its campaign contributions to local and state public officials. The financial resources of the real estate industry have been used to constantly put its opposition on the defensive. As a result, tenants organizations have constantly had to organize to protect the status quo from further erosion of tenant protections. With their considerable financial resources, the CHC and the Greater Boston Real Estate Board sponsored ballot measures or introduced anti-rent control legislation at the state or local levels that kept tenant groups busy and in a reactive mode. They also kept filing lawsuits challenging the legality of various tenant protection laws and then appealing them if and when they lost in lower courts. This served to sap some of the strength and persistence of tenant organizations. It also turned so-called "tenants rights" struggles into complex legal, technical, and legislative maneuvers.
Moreover, the real estate industry is well-organized at the national level. State and local real estate organizations can draw on the experience, expertise, and resources of national bodies and each other. For example, in both states, national real estate industry trade associations and firms have contributed money to support anti-rent control ballot measures, including the Question 9 campaign. Also, national real estate groups have spent several decades hiring academics to conduct studies that criticize rent control as a public policy, while tenant groups generally lack the resources to sponsor comparable research, and disseminate these studies to state and local groups to use in their battles against rent control. The findings of this research, repeated often enough, becomes the "conventional wisdom" among academics. There is now a cadre of academic experts that the industry uses to testify before legislative bodies and to speak to the media. For example in the late l980s, when the Los Angeles City Council was considering renewing (and even strengthen) its rent regulations, the CHC brought Brookings Institution's Anthony Downs, who had written a report against rent control sponsored by a coalition of national real estate industry groups, to Los Angeles to talk to Council members and staff, the media, and industry officials. In support of the Costa-Hawkins bill, the CAA and CHC brought several academics to Sacramento to testify against rent control, summarizing their studies that had been paid for by the industry. During the Question 9 campaign, the GBREB hired two academics to conduct studies to support the anti-rent control arguments.
Finally, the real estate industry was effective at mobilizing its constituency when its leaders thought doing so was necessary. As one real estate lobbyist explained, the realtors, landlords, and developers view this behavior as part of their business activities and spending money for political influence as a business expense. Unlike some other highly-concentrated industries, real estate has many small- and medium-size firms among landlords, realtors, and developers. For example, the California Association of Realtors alone has over 100,000 members. The industry's professional lobbyists catalyze this constituency to write letters to newspapers and politicians, arrange group meetings with elected officials, and attend public hearings.
Weakness and Fragmentation of Tenant Constituency
Even in the best circumstances, the pro-rent control forces in both states faced overwhelming odds when facing off against the organized power of the real estate industry. If the tenant groups had any chance of preserving rent control, they would have had to mobilize their "natural" constituency of protected tenants and marshall strong support from their "natural" allies among seniors, labor, housing groups, and other "liberal" constituencies. In neither state did the tenant organizations achieve this level of self organization. The tenant constituency was weak, fragmented, and politically isolated. By the 1990's, the pro-rent control forces were no longer a protest movement. They had become an interest group, and a narrow one at that.
Although renters represent a majority of the population in most major cities, they represent a minority in the larger population of both Massachusetts and California. Even more important, the number of tenants who would be directly affected by the loss of rent control was a relatively small subcategory of all tenants. In both states, rent control exempted public housing, private developments with project-based subsidies from federal and state government, and units with Section 8 vouchers and certificates. In Massachusetts, in particular, this represents a sizable proportion of the residents of rental housing. In the Boston area, too, the housing stock consists of many two- and three-unit owner-occupied buildings, whose tenants are also exempt from rent regulations. In Cambridge, for example, half of all renters were exempt from rent control. In California, the Costa-Hawkins bill carefully excluded mobile homes, thus eliminating another potential ally in the fight to preserve rent regulations.
One could reasonably argue that the real estate industry had already won the war against rent control when, during the l970s, it used its political muscle to limit what it called "extreme" or "radical" rent control to a handful of cities in both states. Moreover, in California the Costa-Hawkins bill did not seek to abolish all rent regulations. It allowed cities to adopt or maintain vacancy decontrol provisions. As a result, tenants in the major cities which already had vacancy decontrol -- San Francisco, Los Angeles, Oakland, and San Jose, among them -- would not be directly affected. Only renters in the small cities of Santa Monica, West Hollywood, Berkeley, East Palo Alto, and Cotati stood to lose protections. In Massachusetts, Question 9 sought to wipe out all rent regulations and the subsequent legislation did the same. But only Boston, Cambridge, and Brookline would be affected by this change in policy, and, by 1994, only Cambridge still had full rent control. Landlords in buildings with decontrolled units in Boston and Brookline, which represented the vast majority of units, had already pushed rents to market levels when units became vacant. Although these tenants in Boston were still helped by the "grievance" system, it did not provide the same degree of protection as those handful of tenants who remained in rent controlled apartments. Tenants in those decontrolled apartments had little immediate stake in mobilizing to oppose the real industry's deregulation efforts.
The tenant organizations in Massachusetts and California had been seriously weakened by the 1990s. One Massachusetts tenant organizer explained that tenants had become "complacent" about the protections they had. A California housing activist used the same word in describing the status of tenant organizing there. Since the demise of CHAIN, tenants groups were "very poorly organized" and "very fragile," he said. The handful of lobbyists in Sacramento that work for low-income housing groups are "disconnected" from any "organized base."
Effective tenant organizing would incorporate a combination of electoral work, lobbying, and protest activity. In both states, existing tenant organizations lacked the capacity to mount much more than token mobilization efforts. During the l970s, tenant activists in both states had helped organize rent strikes, large rallies and demonstrations, and occassionally civil disobedience. These activities have two functions. They help solidify the morale and expand the base of the tenant constituency. They also can help catalyze support from third parties (such as the media), a topic discussed below. By the late l980s, tenant groups in both states had ceased engaging in this kind of protest activity. Landlords did not feel sufficiently threatened to negotiate directly with tenants or indirectly through elected officials.
The Massachusetts Tenants Organization had turned into an advocacy organization rather than a organization capable of large-scale electoral mobilization and mass protest. Funded by foundation grants, with only a handful of staff, few volunteers, and high turnover among leadership, MTO primarily engaged in counseling tenants about their rights and testifying at public hearings. As noted above, tenant groups in Cambridge could mobilize around periodic crises and regular elections, but they relied on a handful of volunteer activists. They had no staff, no strong membership base, and no second-tier leadership. The Brookline Tenants Union, which during the l970s and 1980s wielded substantial influence in town government, lost influence in the early 1990s when many of its endorsed candidates were defeated for Town Meeting and real estate forces in the town weakened the local rent regulations. In Boston, many of the neighborhood-based tenant organizations -- in the Fenway, Back Bay/Beacon Hill, Allston-Brighton, and elsewhere -- had ceased to exist or became empty shells, when key leaders withdrew and funding dried up. The situation in California was even more problematic. The statewide tenants group, CHAIN, had collapsed in the mid-l980s. So had the Campaign for Economic Democracy, Tom Hayden's statewide consumer group. The major tenants rights group in Los Angeles, the Coalition for Economic Survival, only had three or four staffpersons who devoted their work primarily to organizing residents of HUD-subsidized projects. Organizations of private housing tenants in San Francisco, Oakland, and other major cities had gone through a similar process of decline. Tenant organization in Santa Monica, Berkeley, East Palo Alto, and West Hollywood looked similar to that in Cambridge. Groups could mobilize around election cycles to preserve their regulations, but lacked strong leadership or mass membership.
The passage of Question 9 and the subsequent legislation in Massachusetts led to a flurry of tenant organizing and protest, including threats of rent withholding, but these efforts were episodic and politically ineffective. Ironically, it was the small property owners in Cambridge, through SPOA, that utilized these tactics to mobilize opposition to rent control.
In other words, by the time Question 9 and the Costa-Hawkins bill came along, the tenant constituency was already in a weakened state and unable to mount an effective opposition campaign. Both real estate industry leaders and pro-rent control activists share a common assessment of the state of tenant organizing in the 1990s. One California real estate lobbyist gives credit to Tom Hayden and others, who recognized rent control as an "excellent organizing issue" during the l970s and l980s. "He [Hayden] outworked the other side." But with David Roberti in a position to protect rent control, "the rent control forces never had to assert themselves" and became "complacent." The real estate industry strategists calculated that by the 1990s, "They [rent control forces] don't have a constituency any more. It's just a few activists. Rent control used to be a good political organizing issue. That's going away now." A Massachusetts real estate lobbyist had a similar assessment: Tenant groups in the Boston area "don't have the army" they had in the 1980s.
The deregulation efforts in 1994 and 1995 owe their success, at least in part, to the general decline of tenant organization during the prior decade. In addition, one can see, at least in hindsight, that the pro-rent control forces made some strategic errors in mounting their campaigns to preserve rent control in both states. In Massachusetts, the tenants made what one real estate lobbyist calls a "fatal mistake" to think that Boston, Cambridge and Brookline would deliver a 70% or 80% margin against Question 9. Another error was to organize much of their anti-Question 9 campaign as a defense of the principle of "home rule." "Our polling showed that this didn't resonate with voters." In California, according to one housing activist, the pro-rent control forces took Nick Petris' vote for granted, and were shocked when he cast a key vote in favor of Costa-Hawkins.
External Resources: Money and Allies
From the "resource mobilization" perspective, a significant factor was the tenant organizations' inability to marshall external resources in the form of money, allies, and sympathetic media coverage. According to one former tenant organizer, now a lobbyist for low-income housing, explained, "We don't have the money to spend on organizing the base." A real estate industry lobbyist acknowledged the obstacles to organizing renters: "It's tough. How do you get a mailing list of tenants? It's difficult to do."
Most tenants are low- or moderate-income. Real estate industry claims to the contrary, a majority of tenants living in regulated apartments fall into these categories. Even if they have the capacity to recruit members and collect dues -- itself a complex and labor intensive task -- it is very difficult for organizations with low- and moderate-income constituencies to sustain themselves with dues from members. Thus, if tenant organizations are to hire staff, rent office space, publish and mail newsletters, and undertake the other tasks required of grassroots organizations, they have to attract money from "outside" sources. Since the early 1980s, this has proved increasingly difficult to do.
Many of the grassroots community and tenant organizations of the l960s and l970s received funds from a variety of federal programs, such as VISTA, CETA (the job training program), and others. When President Reagan took office in 1981, a top item on his agenda was to "defund the left" -- to withdraw federal funds from groups engaged in liberal advocacy and organizing. This had a direct affect on tenant organizing. A former leader of CHAIN, California's statewide tenant organization, acknowledged that the organization was "never terribly strong." Even in its post-Proposition 13 heyday, it was comprised primarily of a nucleus of activists but "no real membership base." It was always essentially a "letterhead organization" with only "one staffperson and some VISTAs." When, after the Reagan policies took affect, "the VISTAs ran out" and "CHAIN disappeared." The Reagan administration also eliminated the CETA program (which provided staffpersons for tenant and similar organizations) and cut the federal budget for the Legal Services Corporation (LSC). It also sharply restricted LSC's authority to engage in "advocacy" activities and work with grassroots organizations. LSC had been a key source of legal support for tenant organizations in both states. As their budgets were cut and their hands tied, agencies such as the Legal Aid Foundation of Los Angeles and Greater Boston Legal Services had a harder time providing the legal support for organized tenants in terms of negotiating with landlords, organizing tenant unions, appearing in housing court, and other activities.
To the extent that, during the Bush and Clinton administrations, the federal government funded tenant organizing, it was exclusively in federally-subsidized developments, particularly under the various HOPE programs sponsored by HUD to help create resident management organizations and to help residents assume ownership of subsidized projects. Because there was money to be had for organizing (typically defined as "technical assistance"), a number of key tenant organizations in the two states shifted their priorities from organizing residents of private apartments (the constituency for rent control) to organizing the low-income residents of subsidized housing. In Massachusetts, the Boston Affordable Housing Alliance converted itself to the HUD Tenants Alliance. Massachusetts Tenants Organization shifted some staff resources to organizing residents in federally-subsidized "expiring use" projects. In California, the Coalition for Economic Survival, a major catalyst for rent control in the Los Angeles area, changed its priorities toward organizing residents of HUD-assisted buildings.
During the l980s, the major philanthropic foundations concerned with the problems of affordable housing and urban poverty began to shift their grantmaking away from community and tenant organizing. Indeed, their ambivalence about funding groups involved in organizing and confrontational tactics goes back to the civil rights and anti-poverty movements of the l960s. Starting in the early l980s, as the shortage of low-income housing and the increasing visibility of homelessness became public issues, mainstream foundations began to expand their interest in these problems, primarily by funding non profit community development corporations (CDCs) engaged in the development of low income housing. Many of these CDCs grew out of tenant and community organizing groups. As foundations changed their grantmaking priorities, however, these organizing groups began to divert their attention toward "bricks and mortar" development and pay less attention to organizing. Most foundations did not consciously seek to "co-opt" grassroots activist in favor of development, but their funding priorities had that effect. Statewide groups such as CHAIN and the Massachusetts Tenants Organization, and local tenant groups such as the Symphony Tenants Organizing Project in Boston and the Coalition for Economic Survival in Los Angeles experienced the decline of foundation funding support for organizing activities.
Thus, when confronted with a major assault on rent regulations in the 1990s, the tenant organizations were organizationally unprepared to respond. To be effective, though they would have had to dramatically expand their collaboration with their "natural" allies who could help mobilize the money, volunteers, and voters. Unfortunately for the tenant forces, these "natural" allies provided to be elusive and did not provide the resources that would have been necessary to mount a winning defense against the rent deregulation forces.
In both states, pro-rent control forces generated a long list of groups that officially opposed the Costa-Hawkins bill and the Question 9 ballot measure. These included what one housing activists called the "usual suspects" (housing groups, labor unions, senior citizens groups, liberal politicians, consumer groups, and others) as well as a few organizations and individuals who were not among the "usual suspects" crowd. "On paper, we had everybody and anybody," explained the sole staffperson of the anti-Question 9 campaign. But when it came to providing money or volunteers, "it was pretty sparse...Tenants were mainly on their own." In California, where geographic distance makes it difficult for groups across the state to work together in any event, the "allies" situation was even more problematic.
What could these allies have done? They could have sent mailings to members, lobbied state legislators through phone calls or letter writing, written letters to local newspapers, donated money, mobilized volunteers to do office work, staffed phone banks, participated in get-out-the-vote efforts, or participated in rallies and public hearings. Who were these potential coalition partners? They include the following:
- Tenants in Subsidized Housing and Mobile Homes. Heskin describes the emergence of "tenant consciousness" in California in the post-Proposition 13 period. The recent experience of tenant self-help efforts in California as well as Massachusetts suggests that, at least in the 1990s, "tenant consciousness" was highly segmented into narrow "interest group"-like politics. In California, residents of mobile homes have traditionally supported rent control not only for themselves, but for tenants in private apartments. As noted above, the GSMOL has been a well-organized and effective lobby for mobile home rent control. GSMOL officially opposed all the Costa bills and the Costa-Hawkins bill in 1995. But it failed to mobilize its members around this legislation. Groups working to organize tenants in HUD-subsidized and public housing projects -- which are exempt from local rent control -- also officially opposed Costa-Hawkins and Question 9, but did not mobilize these residents around these issues. Groups working with tenants in public housing also officially endorsed the pro-rent control efforts, but did not participate in mobilization efforts.
- Housing and Homeless Advocacy Groups. In both states, groups that work on low-income housing issues could have been expected to join the battle to defend rent control. Few did so. In Massachusetts, for example, the most respected housing advocacy group, the Citizens Housing and Planning Association, which lobbies for state-funded housing programs, remained neutral on Question 9 because, according to one of its board members, its board included major developers and development attorneys. Organizations that advocate for the homeless -- such as the Massachusetts Coalition for the Homeless and the Los Angeles Coalition Against Homelessness, endorsed the efforts against Costa Hawkins and Question 9, but did not actively participate on the steering committees or mobilize their constituencies. For the most part, the network of community development corporations (CDCs) in both states remained on the sidelines around rent deregulation. The major CDC trade associations, Massachusetts Association of CDCs and the Southern California Association for Non-Profit Housing, official endorsed the efforts to defeat Costa Hawkins and Question 9, but their staffs did not actively participate in the campaigns. In Boston, two CDCs -- the Fenway CDC and the Allston-Brighton CDC -- played an active role in the anti-Question 9 campaign. Both groups had emerged out of tenant activism, their neighborhoods faced with gentrification and condo conversions in the l980s, and their staffs and board members predisposed toward political activism. The West Hollywood CDC played a similar role in California, but the many CDCs in San Francisco and Los Angeles stayed on the sidelines.
- Seniors, Unions, and Consumer Groups. Massachusetts Senior Action, the California Congress of Senior Citizens, both state AFL-CIO organizations , and many individual unions officially endorsed the tenants' efforts to protect rent deregulation. The heads of the state AFL-CIOs testified at hearings and participated in press conferences. They did not, however, mobilize their unions' financial resources (except for token contributions) or their members to oppose Costa-Hawkins or Question 9. Similarly, community organizations in California, such as ACORN, the Industrial Areas Foundation network, and Concerned Citizens of South Central -- whose constituencies were composed primarily of low-income renters -- did not mobilize around the Costa-Hawkins bill. Neither did the consumer-oriented Public Interest Research Group in either state use their considerable lobbying networks.
In the case of the Massachusetts campaign against Question 9, more money alone might have made a critical difference, given the narrowness of the ballot measure's victory. As described above, the SOCC group operated on a shoestring budget with only one staffperson, no funds for TV commercials, no funds to sponsor research studies, and only limited funds to do polling and distribute literature. Had Question 9 been defeated, it is unlikely that SPOA and the GBREB would have had the political momentum to defeat rent control in the state legislature. In the case of the legislative fight over Costa-Hawkins in California, money alone for more staff probably would not have changed the outcome, given the weakness of the tenant constituency compared with the real estate lobby.
Other factors involving allies played a role in the victories for the Costa-Hawkins bill and Question 9 and its legislative twin. For example, in California, rent control's biggest political supporter, David Roberti, was forced to retire, while there was no doubt that a Republican Governor would sign any anti-rent control bill on his desk. In Massachusetts, rent control's biggest political supporter, Boston Mayor Ray Flynn, left office in July 1993 to become U.S. Ambassador to the Vatican, while Gov. Michael Dukakis, who lived in Brookline and would not have signed an anti-rent control law, had been replaced by libertarian Republican William Weld. In Massachusetts, rent control lost a crucial ally when Kirk Scharfenberg, the liberal editorial director of the Boston Globe who had kept the paper's reporting and editorializing sympathetic to tenant issues, died in September 1992. These personnel changes made a difference in the pragmatic political maneuvering that led to rent deregulation.
Rent control supporters lost the Costa-Hawkins and Question 9 battles primarily because they were outgunned by the real estate industry's superior financial and political resources. There are no public opinion polls to gauge changes over time in rent control's favorable and unfavorable ranking, so it is impossible to say with certainty how the "public" feels about this policy. But there is little doubt that the real estate industry was successful in discrediting the very idea of "rent control" took a beating as a public policy to address housing problems -- if not among the general public, then at least among opinion leaders and elected officials.
Rent control has always been controversial, even during World War 2 when it was imposed to address the housing shortage and help the war effort. During the l970s, however, rent control was viewed as a policy to protect vulnerable tenants from rising rents and arbitrary evictions perpetrated by "greedy" landlords. By the 1990s, the real estate industry had succeeded in repositioning, if not completely discrediting, rent control in the public debate. It argued that rent control had become a policy that protected undeserving affluent tenants and abused small property owners.
This did not occur overnight or by accident. It was part of a long-term effort by the real estate industry. Moreover, it occurred in a broader political environment in which "active government" itself came under assault. During the l970s and l980s, corporate America engaged in an ideological assault on government activism. This exacerbated and reinforced public skepticism about the capacity of government to solve social and economic problems. Indeed, it directly challenged the role that government had played in the private economy. Rent control was a weapon in this battle. It became a convenient symbol of the excesses of government regulation.
The Question 9 ballot measure took place on the same day in November 1994 as what one real estate lobbyist called the "Republican revolution in Congress" which brought a GOP majority in both Houses and led to the elevation of Cong. Newt Gingrich as Speaker of the House. The campaign around the Costa-Hawkins bill in l995 occurred soon after Governor Pete Wilson had been re-elected and Californians had voted for Proposition 187 (to restrict illegal immigration) and defeated Proposition 186 (to enact "single-payer" health care reform).
In other words, the changing public mood toward government itself might be considered the "background noise" in the rent control battle. Real estate and tenant groups then sought to position or "frame" rent control in ways that would win public sympathy. In the current political climate, however, real estate groups had the ideological upper hand. Moreover, they were able to mobilize their substantial resources to take advantage of this situation. As one tenant activist explained, the industry helped frame the issue so that "rent control was seen as the ultimate big government solution" in a period when "big government" was not a term of endearment.
As noted above, the real estate industry over the years has used a number of arguments to attack rent control, but most recently they have sought to emphasize their claim that it does not help -- in fact, it hurts -- the poor. The industry effectively co-opted the message of rent control advocates by arguing that it primarily benefits affluent renters at the expense of the poor, the elderly, and minorities. Beginning in the mid-1980s, the closely knit network of conservative think tanks and publications promoted the notion that local rent regulations led to an increase in homelessness. This idea was not only picked by the mainstream media but used by conservative members of Congress and HUD Secretary Jack Kemp to back legislation to withhold federal HUD funds to localities with rent control. This persistent drumbeat of negativism toward rent control had a cumulative effect. According to a California real estate lobbyist, "After 10 or 12 years of fighting rent control, I think we could make a compelling argument that this form of rent control did not fulfill its goals. In fact, it had negative impacts. We had studies and census data and experts who could tell this story."
This public relations effort played up the image of affluent professionals -- "yuppies" -- monopolizing rent controlled units and living in "subsidized" apartments, while, in effect, shutting out more needy renters. The image of West Hollywood, Santa Monica, Cambridge, and Brookline as havens of yuppie affluence reinforced the real estate industry's propaganda. On the eve of the Costa-Hawkins and Question 9 showdowns, the California Housing Council and the Greater Boston Real Estate Board both sponsored studies that claimed to demonstrate that cities with rent control had seen a decline in the number of minority or low-income residents and/or that residents living in regulated apartments were not primarily low-income. Although these studies had serious methodological flaws, the real estate industry was able to widely disseminate their findings, while tenant advocates flailed away, trying to find academics to poke holes in the studies' statistical methods. Perhaps even more importantly, the real estate industry was able to "humanize" this point by identifying some high-profile individuals living in rent regulated apartments. In Massachusetts, the names of Cambridge Mayor Ken Reeves and Supreme Judicial Court Justice Ruth Abrams repeatedly appeared in the news media as examples of the "abuses" of rent control. "I'm forever grateful to Ken Reeves," said Ed Shanahan of the Rental Housing Association and the GBREB.
Real estate interests were so successful at injecting this view into the public debate that news columnists and elected officials repeated it as if it were a truism. Sen. Ray Haynes (R-Riverside) was quoted as saying, "Rent control deprives the young and the old of affordable housing." Upon signing the bill, Gov. Wilson called it "a fundamental issue of fairness for both property owners and those who have artificially been denied access to quality housing." Even a Boston Globe editorial opposing Question 9 repeated the canard that in "Cambridge, the rent control ordinance has indeed been abused by middle-class tenants who can afford to pay market rents." In fact, those few newspaper editorials that opposed Costa-Hawkins, Question 9, and Proposition 199 (to abolish rent control for mobile homes) tended to echo the Globe's view that while rent control itself was problematic, this approach was too blunt an instrument. The tenant groups and their sympathetic politicians had no effective retort to these statements. Even the head of the MTO-led effort was reduced to the defensive posture that rent control is "not a perfect system" and that only a handful of tenants who live in regulated apartments are rich.
The real estate industry had learned to use the phrase "extreme" or "radical" rent control to describe the laws in Cambridge, Santa Monica, West Hollywood and Berkeley. By this they meant that it did not allow vacancy decontrol and that it posed a particular hardship for small property owners, who were characterized as "Mom and Pop" landlords. Both the news media and many elected officials picked up this jargon. It helped to frame the issues so that "vacancy decontrol" became defined as the "moderate" or "compromise" version of rent control.
The real estate industry cleverly anointed small property owners as the public face of the deregulation campaigns. When they needed people to testify at hearings, to appear on television, or to be interviewed by reporters, they had a battery of small property owners with "horror stories" to tell. Interviewees in both California and Massachusetts used the same word -- "poster child" -- to identify the individuals who became the representatives of the anti-rent control forces. One real estate industry lobbyist referred to SPOA's Denise Jillson as a "great poster girl." A California tenant activist acknowledged that the landlords had "good poster children" from Santa Monica, Berkeley, and West Hollywood.
In retrospect, some (though not all) housing activists acknowledge that the very strict rent control regulations in Cambridge, Santa Monica, West Hollywood, and Berkeley may have played into the hands of rent control's opponents. In particular, they cite regulations in Cambridge that prohibited some condominium owners from living in their own units, and regulations in Berkeley that allowed the rent board to require large rent rollbacks because small property owners had misunderstood some technical regulations. No doubt all of these examples can be justified legally and technically by rent board staff and rent control supporters. The point of the tenant activists is that these examples provided ammunition for their opponents -- examples of government "abuse" that ordinary people could identify with. One Massachusetts tenant activist acknowledges that during the Question 9 campaign, some Brookline and Boston tenant activists thought that "those Cambridge tenants ruined it for all of us" by failing to correct some of the more stringent aspects of that city's rent control law. He noted that it was no accident that the backlash against rent control was strongest among small property owners in Cambridge, not Brookline and Boston. A California tenant advocate acknowledged that Berkeley's strict rent control system "pissed off even some sympathizers," most importantly, Senator Nick Petris. None of these people favored eliminating full rent control in favor of vacancy decontrol. But they argued that by not treating "Mom and Pop" landlords (small property owners) differently, cities with strong rent control gave the real estate industry ammunition to use against rent control and helped ignite the SPOA rebellion in Cambridge. Also, as noted earlier, the real estate industry was able to stigmatize "radical" rent control by associating it with the unconventional reputations of Berkeley, Santa Monica, West Hollywood, and Cambridge.
As noted earlier, the news media, for the most part, framed the battles over rent control in ways that undermine the tenants' perspective. The controversy was a constant source of news in the local Santa Monica, Berkeley, Cambridge, and Brookline newspapers, but it was only irregularly covered in the major dailies such as the Boston Globe, Boston Herald, Los Angeles Times, San Jose Mercury-News, San Francisco Chronicle, and others. The Boston papers paid only sporadic attention to the Question 9 campaign until the last weeks. It then covered the battle in the state legislature as an "inside politics" fight, focusing on the roles of Governor Weld and the key legislators. The Globe did offer some "human interest" stories, equally balancing the hardships of tenants with those of small property owners. The Boston press paid no attention to the financial contributions of the real estate lobby, or the close connections between SPOA and the major real estate groups; indeed, it emphasized the split between SPOA and GBREB rather than their symbiotic relationship. In comparison, however, the major California media virtually ignored the battle over the Costa-Hawkins bill. As one housing activist noted, the issue was "not on their screen." By 1995, the mainstream media was "tired of rent control as an issue. They viewed it as an 'old' issue." California's major newspapers reported the key votes on Costa-Hawkins, but did not cover the legislative maneuverings or the potential consequences of its passage. It was viewed almost entirely as a political story. Not surprisingly, most of the stories about the Costa-Hawkins battle emanated from their bureaus in Sacramento, the state capital, far from where deregulation would have the most impact. (Sacramento does not have any form of rent control). It is not surprising that the battle over rent control received more coverage in Massachusetts than in California. In Massachusetts, Boston is the state capital, the major media market, and the geographic area where all rent control battles have taken place.
Consequences of Deregulation
Rent deregulation began January 1, 1995 in Massachusetts and a year later in California. Too little time has passed to thoroughly analyze the impact of these policy changes on housing markets and on housing consumers. Moreover, both laws were designed to be gradually phased-in, so the full implementation and consequences of deregulation were postponed for several years. There has certainly been an increase in housing hardship in the localities that experienced rent deregulation. But there have been no systematic studies of housing conditions in either the Boston metropolitan or Los Angeles metropolitan areas, or in any of the submarkets in which rent deregulation took place. Even if such studies existed, however, it would be difficult to separate the impact of rent deregulation from other factors such as cuts in federal and state housing studies, state welfare reform, immigration, population growth or decline, and other demographic forces.
It is reasonable to argue that rent deregulation had already taken affect in California and Massachusetts by the late 1970s or early l980s. In other words, the major cities in both states had already adopted vacancy decontrol policies. Los Angeles, San Francisco, San Jose, and Oakland adopted vacancy decontrol from the beginning. Boston had rent control for five years before it was changed to vacancy decontrol. Other major cities -- Worcester, Springfield, New Bedford, Fall River, San Diego, San Bernadino, and others -- and most suburbs and small towns never adopted any reform of rent regulations on apartments.
By the mid-1990s, only about 75,000 units out of 4.6 million rental units in California (in Santa Monica, West Hollywood, Berkeley, East Palo Alto, and Cotati) and about 40,000 units out of 915,617 rental units in Massachusetts (in Boston, Cambridge, and Brookline) were under rent control. This is a extremely small proportion of the rental housing stock in both states. The real estate industry had already won the rent control war. Question 9 and the Costa-Hawkins bill were the final battles in a war of attrition.
An examination of the "impacts of deregulation," therefore, must be viewed in this context. San Francisco, Los Angeles, and San Jose never adopted strong rent controls. Their vacancy decontrol laws meant that all apartment units would eventually reach market levels and that market forces, not government regulation, set rent levels. The impact will be small because the overall number of units affected is so small. For example, the real impacts of deregulation in Boston began in l976, when vacancy decontrol initially took affect and the number of units under rent control fell from about 100,000 to 22,000 in less than a decade.
Former Boston Mayor Kevin White once compared rent control to a tourniquet. He viewed it as a response to an emergency situation -- in effect, to stop the bleeding and allow the body (or the housing market) to heal itself. A Boston housing activist described the impact of deregulation with another metaphor about bleeding. He said:
"Some people expect the end of rent control to lead to blood in the streets.
That won't happen. It won't happen all at once, so you won't see the pain.
It will be a slow bleed. It won't be easy for reporters to write about, because
it won't be dramatic, it won't happen to lots of people at the same time, it
will be partly hidden from public view. But that doesn't mean it isn't happening.
There will be lots of pain and suffering, but it will happen over months and years."
Whether or not this statement is exaggerated or melodramatic, it points to an important distinction in understanding the consequences of deregulation. Even if we could isolate the impact of deregulation from these other factors, any analysis of this question must separate (a) the immediate or short-term impact on existing or sitting tenants from (b) the longer-term impact on the housing market, particularly the availability of affordable housing.
Immediate Impact on Sitting Tenants
Most of the media coverage and public debate over deregulation focused on the potential hardship that would affect renters in regulated apartments once these regulations were lifted.In particular, media coverage and public debate focus on low-income and elderly renters. How high would landlords raise rents? Would tenants have much higher rent-to income ratios? Would tenants face eviction and displacement? Was there a sufficiently high vacancy rate to absorb displaced tenants at reasonable rent-to-income ratios? Would tenants be able to remain with reasonable proximity to their previous apartments in order to maintain access to work, family, friends, health and social services, religious institutions and other networks. Would the prospect or reality of these changes affect the physical or emotional health of renters?
With the exception of Santa Monica and Berkeley, none of the cities with any form of rent control know very much about the characteristics of residents who live (or lived) in regulated apartments: age, income, rent-to-income ratio, health status, place of work, and other variables. None of these cities have conducted systematic surveys of how these renters were affected by deregulation to answer the questions posed above. Thus, we are left with indirect indicators and impressions to evaluate the short-term impacts on sitting tenants.
To some extent, both laws mitigate against dramatic impacts by phasing-in the implementation of deregulation. As noted earlier, this phasing-in was a matter of some controversy even within the ranks of the real estate industry groups. The large landlords and developers successfully argued for a phase-in period to avoid draconian consequences and media "horror stories."
The Massachusetts law did not go into effect all at once. Some tenants lost protections immediately, while others had a one- or two-year delay. The impact in Boston, Cambridge, and Brookline differed depending on their age, income, physical disability, the size of their building, and whether they were in a rent controlled or decontrolled unit.
For example all tenants in Boston's 63,000 decontrolled units -- including elderly, low-income, and disabled -- faced an immediate end to rent regulations in January 1995. In these units, once renters moved out, the Rent Equity Board had regulated rent increases, evictions for "just cause" and condominium conversion. The Rent Equity Board had no data on the number of low-income, elderly, or handicapped renters living in these units.
Low-income, elderly, and handicapped tenants in the 22,000 rent controlled apartments had one- or two-year worth of protections, depending on the size of their buildings. About 8,000 units lost rent control protections after the first year (as of January 1, 1996), and the remainder lost protections a year later. Rent control ended for all units on January 1, 1997.
There was no immediate political uproar after the law began to take effect. Informants attribute this to several factors. First, the law was phased-in gradually, so that regulations were not all lifted simultaneously. There were essentially three phases of the decontrol process -- starting with all tenants in decontrolled units and all tenants not in protected categories in rent controlled apartments (who lost all protections immediately), followed by elderly, low-income, and handicapped tenants in rent controlled units in small buildings, followed by elderly, low-income and handicapped tenants in large buildings. While many low-income and elderly renters in the 63,000 decontrolled units in Boston (and their counterparts in Brookline and Cambridge) lost protections right away, they were scattered in many buildings and neighborhoods. There was no critical mass of tenants facing immediate rent hikes and evictions under the same roof. Second, tenant groups were unable to mobilize tenants facing immediate rent hikes and evictions -- in part because the individuals were so spread out and in part because they lacked the resources to identify and organize them. Third, the local news media did not pay significant attention to the aftershocks of rent control until the first phase of deregulation, and then they focused primarily on the fate of specific elderly renters rather than the impact of deregulation on the overall housing market. Fourth, the GBREB and its RHA did an effective job of persuading the news media that landlords would hold the line on rent increases for vulnerable tenants. The RHA identified a few examples where landlords limited rent hikes for elderly tenants in the second and third phases of deregulation. The RHA recognized that Mayor Menino wanted to look as though he had convinced landlords to be reasonable and agreed to appeal to its members to "work with" tenants facing hardship. The RHA claimed it "worked closely with the Menino administration to weave a multi-layered safety net."
These factors allowed the real estate industry and its allies to claim that tenants' predictions of the dire consequences of deregulation were exaggerated. For example, in April 1996 Globe columnist Jeff Jacoby wrote, "It is 18 months since Question 9 was approved. Rent control is more than 95 percent phased out. There has been no crisis, no emergency, no upheaval, no explosion of evictions."
The Boston Globe provided anecdotal evidence of how landlords and tenants were reacting to the immediate or gradual phase-out of rent regulations. One story reported that, according to the head of the Massachusetts Tenants Organization, its phone was "ringing off the hook lately with complaints about landlords raising rents." The paper reported landlords raising rents in various orders of magnitude: from $493 to $650; from $315 to $450 and from $179 to $700; from $425 to $900; from $469 to $572, from $465 to $575, and from $560 to $975; from $300 to $800; from $576 to $875, from $304 to $750, and from $158 to $950; and from $159 to $650. A Globe columnist recounted the tale of three senior citizens, between 85- and 87-years old, facing eviction by an absentee landlord from apartments they'd occupied for almost 50 years. Other stories, however, told of landlords limiting rent increase for vulnerable tenants or of landlords relieved to be able to raise rents on affluent tenants who had been paying rents far below the market level.
As the law went into effect, there was considerable confusion regarding who was and was not eligible under the new law. The city government, tenant organizations, and local media tried to provide information. The city government had little to offer renters in the 63,000 decontrolled units facing rent increases and evictions. "They'd say, "what rights do I have?' and I'd say, "you don't have any rights,'" explained the director of Boston's rent control agency. "I had to deliver a lot of sad news. It's a terrible situation."
Boston's city government waited almost a year after the legislature passed the law to begin a telephone survey of the residents of rent controlled units. Many tenants, especially the elderly, were "in denial," according to several informants. They did not contact the city agency to have their income, age, and disability eligibility verified. As of October 1995, only 700 of the 22,000 (3%) households had qualified for extended protections. In contrast, 9% of Cambridge's 16,000 rent control households and 12% of Brookline's 4,200 households qualified, in part because both cities did more aggressive outreach to renters. But most informants believe that even these figures significantly minimize the number of eligible renters in rent controlled units.
Housing groups in the three cities pushed local governments to develop a plan to assist tenants facing hardship. Boston tenant groups proposed a plan to provide property tax abatements to landlords who agreed to limit rent increases and to provide city subsidies to tenants facing rent increases and eviction. Mayor Menino rejected this proposal. He initially refused to direct any of the additional property tax revenues expected from deregulation to housing assistance. Instead, the city government's response was to give priority to low-income and elderly tenants facing eviction from deregulation in the allocation of 250 federal Section 8 certificates, to reorganize the Rent Equity Board into a counseling agency called the Rental Housing Resource Center, and to lean on the RHA to urge landlords to be reasonable with rent increases and evictions. Right before the third phase of decontrol was to begin, and under pressure from senior citizen organizations and community groups, Menino pledged $2 million in city funds (from the city's Housing Trust Fund, a depository for linkage funds, which had been used to support affordable housing development) to provide rent subsidies for poor elderly tenants about to lose their protections.
In Cambridge, the City Council voted to target a portion of the increased property tax revenue expected from deregulation to expand the stock of subsidized housing. City officials estimated that property tax revenues would increase by about $4 million; they allocated at least $2 million a year over five years towards housing programs. The funds would be used to help tenants purchase homes (with the city attaching resale restrictions to maintain long term affordability) and for the city to purchase condominium units to add to the inventory of public housing. Cambridge housing officials decided not to use these funds to provide housing vouchers on the grounds that they would not add to the inventory of permanently affordable housing and because they feared that landlords would simply raise rents, forcing the city to spend even more money to subsidize tenants. In addition, the Cambridge Housing Authority is giving preference in its public housing units to eligible tenants displaced by deregulation.
There are some indirect indicators of hardship from the immediate deregulation faced by the majority of tenants, and during and after the two-year phase-in period facing the minority of tenants. These include the following:
- In 1996, Boston rents increased by 14%, from $880 to $912 for a typical apartment.
- During that year, the rental vacancy rate for market-rate apartments dropped to 1%; in Brookline it dropped to 0.7%.
- Boston's 1995 census of homelessness found 5,299 homeless people, a 10% increase from the previous year.
- In January 1995, the Boston Housing Authority had 21,600 applicants on its waiting list as well as 14,000 applicants for 200 federal rental certificates. Both the BHA and the Cambridge Housing Authority closed their waiting lists because it was so long.
- Both the Boston and Cambridge housing authorities are finding it more difficult to place tenants with federal Section 8 vouchers and certificates in private apartments because market rent levels are now much higher than the Section 8 Fair Market Rents (FMRs) set by HUD.
- The number of tenants contacting the Massachusetts Tenants Organization seeking assistance increased "dramatically" after the law initially went into effect in January 1995 and jumped again after the full deregulation took effect in January 1997.
The Costa-Hawkins bill took effect in January 1996 but its implementation is phased in over three years. It permits cities to employ vacancy decontrol (with re-control). In other words, it deregulates rental housing gradually as tenants vacate apartments voluntarily or for non-payment of rent. (In contrast, the Massachusetts law deregulated all rental housing within two years. Also, unlike the Massachusetts law, Costa-Hawkins has no means-test provision).
Under Costa-Hawkins, landlords will be allowed to increase rents, no more than twice between 1996 and 1999, but the greater of 15% above the then-existing Maximum Allowable Rent (MAR), as set by local rent control boards, or an amount such that the total rent does not exceed 70% of the Fair Market Rent (FMR) in Los Angeles County, as set by the U.S. Department of Housing and Urban Development. Beginning January 1, 1999, rent increases on vacated units will be deregulated. So long as tenants currently (as of January 1996) in rent controlled apartments remain in these units, they will continue to be subject to rent control -- in other words, landlords will be allowed to increase rents as approved by the Rent Control Board.
The Costa-Hawkins bill will not eliminate the re-control provisions in Los Angeles, San Francisco, and several other cities with vacancy decontrol, but it will primarily affect those cities with full rent control. These include Santa Monica (86,000 population, 68% rental units, 28,200 rent controlled units), West Hollywood (36,118 population, 88% rental units; 19,300 rent control units) Berkeley (102,724 population, 48% rental units, 21,000 rent controlled units), East Palo Alto (23,452 population; 53% renter units; 2,700 rent control units), and Cotati (6,455 population, 600 rent control units). From a statewide perspective, the overall number of units under rent control is quite small, but in each city the number represents a substantial proportion of its housing stock. The impact will not felt, however, all at once. Tenants will be protected by rent control as long as they stay in their units.
One immediate consequence of Costa-Hawkins, at least in Santa Monica, is the decline in the number of rental units available for renters with Section 8 certificates and vouchers. Prior to Costa-Hawkins, landlords in Santa Monica were eager to accept Section 8s because the Fair Market Rents (FMR) were often higher than the allowable rents under rent control and units were exempt from rent control so long as they had Section 8s. Once Costa-Hawkins passed, the number of landlords willing to accept Section 8s has dwindled. In fact, some landlords are holding units vacant until January 1, 1999 (when all rent regulations are eliminated) rather than rent to new tenants, including Section 8 holders. Current FMRs for the Los Angeles/Long Beach area, which includes Santa Monica, are $675 for a one-bedroom apartment, $854 for a two-bedroom apartment, and $1153 for a three-bedroom apartment. If landlords are willing to forgo these rent revenues, it suggests that market rents in Santa Monica are even higher.
In terms of short-term impact, a major concern is the threat that landlords now have an incentive to encourage tenants to vacate units so they can be free of rent regulations. Some tenant activists warned that the Costa-Hawkins bill will lead landlords to harass tenants to vacate their rent controlled apartments. Staff at the Santa Monica rent board and several legal services attorneys indicated that, indeed, they have knowledge of such increased harassment, but they were unable to quantify the magnitude of the increase. Santa Monica passed an anti-harassment law in July 1995 to address this threat.
The impact of deregulation in Santa Monica and other rent control cities depends on the rate of turnover of regulated units. Between January 1996 (when the law took effect) and May 5, 1997, landlords of over one-fifth (6,354) of the approximately 28,200 rent controlled units in Santa Monica had already registered a vacancy and applied for a vacancy rent increase. Of these, 790 were filing for their second vacancy.A survey of Santa Monica households found the following:
"Average incomes of households in rent-controlled units are significantly
lower than households in uncontrolled units and below those of tenants in
rent-stabilized units in West Los Angeles. Median household income for tenants
in rent-controlled units is $27,000, compared with a median of $42,500 in
non-controlled units. In West Los Angeles in 1992, median income for households
in rent stabilized units was $32,500. Adjusting for inflation, there has been a
decline in real median income among households in controlled units between
1986 ($30,623 in 1994 $) and 1994 ($27,500)."
The survey found that almost three-quarters of the households in rent controlled apartments meet federal guidelines for low- and moderate-income. Tenants in Santa Monica's rent controlled units stay in their units longer than those in other units. They also have lower rent-to-income ratios. Even so, almost half (45%) of households in rent controlled units were paying more than 30% of their incomes for rent, despite the fact that their rents were considerably below the market level. Impressionistic evidence from knowledge sources in Boston and Cambridge suggest a comparable profile of tenant in rent controlled units and compared with renters in nearby cities. When these tenants move -- assuming their incomes do not dramatically increase and that they remain in the Los Angeles area -- it is very likely that they will pay higher rents and have higher rent-to-income ratios.
Impact on Availability of Affordable Housing
What will be the long-term impact of deregulation on the overall housing market, particularly the availability of housing affordable to low- and moderate-income households? It is a certainty that as deregulation takes effect, rents in the deregulated apartments will rise - the only question is, how much? A related question is whether, as rent levels in the deregulated apartments increase, landlords will raise rents in the non-regulated sector to their "equilibrium" level? Another question is whether deregulation will trigger a significant increase in new rental construction and, should this take place, whether the addition of these new apartments will stabilize the rental market to some "equilibrium" level? These questions cannot be answered with much certainty, but we can identify some key trends, indicators, and impressions from informed sources that allow us to make some tentative forecasts.
During much of the 1980s, the Boston, Los Angeles, and San Francisco areas were among the hottest housing markets in the nation. Indicators include both the pace of price increases and the absolute price levels. The rental market paralleled the home sale market in these three metropolitan areas. During that decade, these areas consistently had among the highest rents in the country. These three areas were among the "least affordable" of all metro housing markets, measured by the gaps between median incomes (or wages) and housing prices (and rents), such as the quarterly reports from the National Association of Realtors' housing affordability index. A 1987 analysis of wage/home price ratios in 49 metro areas found Boston the least affordable area, followed by Anaheim, Hartford, New York, Providence, San Francisco, San Diego, and Los Angeles. Ranking 44 metro areas in terms of the proportion of renters paying more than 30% of their income for housing in 1989, San Diego ranked first (57.7%), San Francisco ranked second (54.1%), Miami/Ft. Lauderdale (53.9%) ranked third, Los Angeles ranked fourth (52.8%), San Jose and Minneapolis/St. Paul (both 50.7%) tied for fifth, and Boston (49.8%) ranked seventh. One study in the late l980s calculated that it would cost $106 million a year to provide every low- and moderate-income renter household in Boston with enough subsidy to bring the rent down to 30 percent of household income.
Case argues that the housing boom in these areas was due as much to psychological as economic factors -- sellers, buyers, and agents, along with the media, contributed to bidding wars for housing. Sooner or later this speculative bubble was bound to burst. Around l989, in both the Boston and Los Angeles housing markets, prices began to decline. Even so, their absolute levels were still among the highest in the nation and during the housing recession, prices did not go back to pre-boom levels. Both regions experienced an economic recession that exacerbated the housing "bust." Housing prices in the Bay Area followed a similar pattern. Despite the recessions, housing affordability levels did not improve, because incomes for low- and moderate-income households fell along with rent levels. As a result, in 1990 Los Angeles and San Francisco central cities had among the highest proportions of low-income renters with severe rent burdens (defined as housing costs that are 50% or more of household income). The Boston figure was not among the top primarily because it had a very high proportion of federal- and state- subsidized housing apartments compared with other cities. Among those renters in nonsubsidized apartments, the proportion with severe rent burdens was considerably higher than most other cities.
By the mid-l990s, both Boston and Los Angeles emerged from recession and housing prices began to increase, while price levels in other California housing markets, including Bay Area and the Silicon Valley (San Jose area), began to rise significantly. A study of 1995 rent levels in major metro areas ranked San Francisco first, followed by Washington, Los Angeles, Boston, San Diego, and New York. The ranking of median home prices found San Francisco first, followed by Boston, New York, San Diego, and Los Angeles. A 1995 study of the least affordable metro area markets for single-family homes ranked San Francisco first, followed by Honolulu, Los Angeles, New York, Oakland/East Bay, Boston, San Diego, and San Jose. A 1996 study of rental affordability -- comparing median renter income with Fair Market Rents -- found that more than half of renters in the Los Angeles and San Francisco areas, and close to half in the Boston area, were unable to afford rental housing.
Immediately after deregulation in Massachusetts took effect -- between February 1995 and February 1996 -- average rents for market-rate units in Boston rose $100 (13%), from $802 to $903. Vacancy rates fell sharply, from 4.5% to 1.8% in the city of Boston and from 4.2% to 1.4% in the Boston metro area. Vacancy rates in private assisted apartments (with state or federal subsidies) was 0.7%. A year later, rents averaged $917, with the vacancy rate at 1.67%. In the metro Boston area, average rents were $940 and the vacancy rate was 1.34% In other words, people uprooted by deregulation in Boston -- and, in general, low-and moderate- income households seeking rental housing -- had few places to look within the city or in the surrounding area. Comparable figures for Santa Monica and other rent control cities, or the Los Angeles and San Francisco metro areas, were not available. In 1996, rents in San Francisco rose 24% rise in the 15 months after January 1995. In May 1996, the city's rental vacancy rate was about 2%. Surveys revealed that San Francisco rents (an average of $1105 at the end of 1995) were the highest in nation except in Manhattan. Data from Los Angeles suggest that low-income households displaced from Santa Monica or West Hollywood will have difficulty finding affordable housing in Los Angeles, where overall vacancy rates are low, affordable housing is scarce and increasingly at risk, and rent-to-income ratios far exceed national averages.
A review of the state's housing market at the end of 1996 indicated that "rents went through the roof this year and by year's end there were few if any rooms at the inn, let alone apartment complexes." At least one California real estate official fears that there could be a renewed interest in rent control, especially in "hot" housing market areas like the Santa Clara Valley. Renters in Milpitas pushed the City Council for rent control. Tenants in Cupertino, where some rents increased 30% at once, started a tenants union and circulated a petition for rent control.
In this context, the deregulation of rental housing is likely to have a significant impact on the availability of affordable housing in the target cities and on the future demographic composition of these cities and their neighborhoods. This statement is based on some key facts. In general, residents of rent controlled and rent regulated apartments have lower incomes that the residents of non-regulated apartments. Indeed, the majority of tenants in rent controlled units in California fall within the low- and moderate-income categories. Moreover, the profile of renters in these cities reveals a higher proportion of low- and moderate-income households, a lower median income, a higher proportion of seniors, and lower rent-to-income ratios than in adjacent cities without rent control. (For example, the average Santa Monica household in a rent controlled apartment pays 28% of household income for rent compared with 37% for households in uncontrolled units.
The apartments lost to the rent control inventory represent about 12% of Boston's housing stock, 37% of Cambridge's housing stock, and 20% of Brookline's housing stock. In Santa Monica, the 28,000 rent controlled units represent about 60% of the city's housing stock. One study estimates that by 2003, between one-half and three-quarters of Santa Monica's rent controlled stock will be decontrolled. Given projected rent increases, these will no longer be affordable to low- and moderate-income households. Among those units that do turn over once between 1996 and 1999, average rents are expected to increase between 23% and 25%. By 2003, cumulative rent increases are predicted to increase between 46% and 48%. Even within the remaining stock of rent controlled apartments, allowable rent increases under the Costa-Hawkins formula could reduce the proportion of units affordable to low-income households from 45% in 1995 to 24-30% by 2002. Apartments in East Palo Alto currently rent for about half what they cost in neighboring cities. According to a member of the East Palo Alto rent stabilization board, the Costa Hawkins law "means East Palo Alto will be gentrified..." Within ten years, "East Palo Alto will look like Palo Alto," a much more affluent city.
Other factors suggest an intensification of competition for rental housing in the Boston area, the Los Angeles area, and the San Francisco area, a trend that will push rents higher. All three metro areas are experiencing population growth. Moreover, the supply of subsidized housing is at risk due to federal housing policy changes. Boston, in particular, has a large inventory of Section 8 developments and other developments facing expiration of low-income use restrictions. In both Massachusetts and California, state housing programs have been contracted since the late l980s; state housing finance agencies are not sponsoring new rental housing construction in either state. At the same time, changes in federal welfare policy will reduce the incomes of many low-income households. Rising rent levels and the reduction of subsidized housing will make it even more difficult for low income households to find affordable housing.
Some argue that a significant increase in new rental housing construction could offset these trends. Rent deregulation has seen an increase in rehabilitation and remodeling of existing rental units in Boston, Cambridge, and Santa Monica, but there has not been any significant increase in construction of rental housing since the deregulation laws took effect in both areas. According to the mayor's housing policy advisor in Boston, developers claim that they need rent levels of about $2,000 to make the investment sufficiently profitable and that, with the exception of a few downtown neighborhoods, the Boston housing market has not reached that level. Perhaps a rental housing construction boom will emerge, but it has not yet been seen. Moreover, what new construction is currently in the pipeline is almost entirely market-rate and luxury apartments. There is much debate among housing experts about the so-called "filtering" process -- whether an increase in rental housing at the upper tier of rents loosens the rental housing market in older units. There is considerable evidence that an increase in market-rate and luxury housing may have the opposite impact -- leading to "filtering up" (gentrification) rather than "filtering down."
The most likely scenario is that housing affordable to low- and moderate-income households will decline both in absolute numbers and as a proportion of the rental housing stock in cities where rent control has been or is in the process of being eliminated. As a consequence, rent-to-income ratios for existing  and future renters will increase. This will have an importance beyond the household or the housing market; it will mean that renters, with less discretionary income, will spend less on other goods and services, including basic necessities such as food and clothing as well as other items. This will have a negative impact on the larger economy as the effective demand for non-housing goods and services declines. One can expect an increase in overcrowding as tenant households facing rising rent-to income ratios and lower vacancy rates respond by doubling-up. Even with rising rent-to income ratios and increased overcrowding, it is likely that the number of low- and moderate income households will decline in absolute numbers and as a proportion of the populations of formerly rent controlled cities. These communities will lose some of their economic and social diversity. The bonds of "community" -- reflected in social ties -- may begin to diminish. It is impossible to put a price-tag or to quantify this aspect of a city's quality of life.
Appendix: Arguments For and Against Rent Control
There is much debate about the short-term and long-term consequences of rent control. While advocates argue that rent controls are necessary to keep rent increases in line with tenants' incomes, opponents counter that in the long run controls will contribute to the very crisis they seek to address. By lowering profits, it is argued, rent controls will ultimately lead to lowered investment in rental housing: new construction will cease, maintenance will decline, and even homelessness will result. Worse, it is argued, rent control does not even reach those lower-income tenants who need it most, primarily benefitting upper-income tenants. These arguments provide the principal rationale behind efforts to restrict the ability of localities to enact rent control -- to "pre-empt" local governments regulating rents.
There's much academic and political debate about these topics, most of which have been subject to empirical tests. Unfortunately, much of the debate around rent control is based on hypothetical arguments rather than empirical research that examines the experiences of communities that have enacted rent control programs. Thus, there are many myths about rent control that inhibit a healthy public discussion about its pros and cons. In fact, there has been considerable empirical research on the impact of rent control. Quite a few of these studies have been sponsored by various real estate industry organizations. Studies conducted by independent researchers, however, conclude that rent control does not have adverse consequences for new construction, maintenance, and other measures of the level of investment in rental housing. But these studies do not diffuse the controversies, since the various sides appear to be talking past each other. Indeed, both sides tend to view these studies as "ammunition" to use in their lobbying and public relations efforts. Not surprisingly, the real estate industry has greater resources to invest in academic studies, so most of these reports emphasize the negative consequences of rent control.
Some people may support rent control as a "last resort," but believe that providing needy people with rent subsidies is a more efficient way to help house people who really need it. Unfortunately, less than one-third of all households eligible for federal rent subsidies receive them. Providing rent subsidies to all low-income households who are currently paying over 30% of their income in rent (the accepted "affordable" housing guideline) would cost at least an additional $50 billion. One study of Boston in the late l980s found that providing subsidies to all low- and moderate-income households who were paying more than 30% of their income in rent would cost $150 million a year. Further, the real estate industry, the major opponents of rent control, have not been active supporters of efforts to increase federal housing subsidies for the poor. Moreover, rent control advocates argue that it is more cost-effective for taxpayers than providing direct subsidies. One recent study estimated that if Santa Monica, West Hollywood, and Berkeley abandoned their rent control program, it would cost the state's taxpayers about $160 million a year simply to maintain the existing levels of affordability provided by rent control.
Some people mistakenly believe that rent control freezes rents and makes it unprofitable to own rental housing. In fact, every rent control system calls for annual across-the board rent increases tied to the cost of living or cost increases. They all also provide for individual rent adjustments to ensure landlords a "fair return" on their property, although definitions of "fair return" vary. These adjustments allow rents to keep pace with increasing costs and to allow landlords to make capital improvements. Landlords are assured of making a reasonable profit. Rent control, in this view, simply limits rent gouging and speculation.
Some argue that rent control leads landlords to defer maintenance. Experience reveals that it doesn't, because in order to receive a rent increase, local rent control laws require landlords to maintain their properties in accordance with health and safe code regulations. As a result, rent control actually encourages better maintenance. More of the tenants' rent goes toward building maintenance in cities with rent control than in cities without it.
Some argue that rent control lead landlords to abandon their buildings. Common sense and hard reality suggests otherwise. In California, for example, Santa Monica and West Hollywood have the strongest rent control laws in the state, but there are almost no abandoned apartment buildings in either city. Nor do these rent control cities have the blight of foreclosed apartment buildings owned by banks and federal government agencies (such as the FDIC and RTC) that is common in much of California. The same story was true in Cambridge and Brookline, Massachusetts, when these cities had very strong rent control regulations.
Real estate groups argue that rent control discourages builders and banks from investing in new rental housing. In fact, almost all rent control laws exempt new construction. No jurisdiction has suggested that it would ever reverse this commitment. Many cities with rent control have experienced an increase in apartment construction during the past decade. In Santa Monica alone, about 1,000 apartments were built between l987 and l993.
Rent control's critics claim that it mainly helps "yuppies" and other affluent tenants who "hoard" the apartments. As a result, they say, rent control hurts the elderly, the poor, and people of color, who really need rental housing but are "locked out" of the rental market because units are occupied by those who do not need below-market housing. Some have even gone so far as to argue that rent control causes homelessness for these reasons. The real estate industry can certainly point to a few upper-income people living in these apartments -- anecdotes they use to make their point. But these are the exceptions, not the rule. And to focus on these exceptions is ironic, if not hypocritical, because it is landlords decide who will rent their units. But, in fact, rent control encourages economic and social diversity. The vast majority of renters living in apartments covered by rent control laws are low- and moderate income and/or elderly households.
In the most recent analysis, Allan Heskin and his colleagues at UCLA carefully examined neighborhoods in East Palo Alto, Berkeley, Santa Monica, and West Hollywood (all cities with vacancy control) and compared them with comparable neighborhoods in adjacent cities without vacancy control. Their study demonstrates that in the four California cities with the strongest rent control laws, the mix of renters -- including the elderly, the poor, and people of color -- remained relatively constant between l980 and 1990. Without rent control, low-income tenants, and people on fixed incomes, would face constantly rising housing costs. Many would face displacement. The most important implication of the UCLA report is that rent control promotes community stability and an economically. racially, and socially diverse population mix.
The real estate industry complains that rent control is complex to administer and gets mired in bureaucracy. In fact, with proper compliance by landlords, rent control is very simple to administer. With the advent of computers, rent control is even simpler to implement. In Santa Monica, for example, costs have not varied by more than $2/unit per month in the last five years. Most of the expense is due to landlords refusing to comply with the law or mounting extensive administrative and legal challenges to its operation. Even so, in Santa Monica, tenants pay the full cost of rent control. In West Hollywood and Los Angeles, tenants and landlords split the cost. In Santa Monica, landlords who want a rent increase beyond the annual general adjustment simply have to submit an application listing their expenses and income. Even the cost to landlords of getting professional help is included in the rent increase. Full pass-throughs for earthquake-related improvements have been put on a simplified fast track (30-60 days) basis.
Some argue that rent control is not needed because housing prices and rents are no longer escalating as they did in the l980s. Indeed, during the early 1990s housing prices and rents in some housing markets actually declined and vacancy rates rose, making it easier for low-income renters to find affordable housing. In fact, the recession made things even worse. Lay-offs and unemployment make many families' housing situation even more precarious. Where rent levels declined, it was almost entirely at the high end of the rental market. Similarly, most vacant apartments were in the expensive units. Meanwhile, in the Boston, Los Angeles, and San Francisco are housing markets (even before the earthquakes that shook Los Angeles and the Bay Area), waiting lists for subsidized apartments were long and growing. Now, these waiting lists have expanded even more. One symptom of this shortage is the rise in homelessness, especially among families with children. Before the earthquake, an estimated 60,000 people were homeless in the Los Angeles area alone. Among Los Angeles' homeless population, an estimated 40% are families, as many as a third are employed, and over a third are veterans.
Judy Allend, Metropolitan Area Planning Council (Boston)
David Booher, lobbyist, California Housing Council
Barbara Burnham, Fenway Community Development Corporation (Boston)
Patricia Canavan, housing advisor to Mayor Tom Menino (Boston)
Steve Carlson, executive director and lobbyist, California Housing Council
Ted Dientsfry, former director, Mayor's Office of Housing, San Francisco
Connie Doty, former director, Boston Rent Equity Board
Lew Finfer, Massachusetts Affordable Housing Alliance
Aaron Gornstein, Citizens Housing and Planning Association (Boston)
Jay Greenwood, California Secretary of State's Office
Matthew Henzy, Massachusetts Tenants Organization
Michael Herald, lobbyist, Housing California
Roger Herzog, Cambridge Community Development Department
Rick Laezman, California Association of Realtors
Peter Mezza, Santa Monica Housing Authority
Christine Minnehan, lobbyist, Western Center on Law and Poverty (Sacramento) George Pillsbury, director, Money and Politics Project, Commonwealth Coalition (Boston)
Mary Roach, Massachusetts Secretary of State's Office
Marcia Rosen, director, Mayor's Office of Housing, San Francisco
Vivian Rothstein, Ocean Park Community Center (Santa Monica)
Ed Shanahan, Greater Boston Real Estate Board and Rental Housing Association
Harvey Tsuboy, California Secretary of State's Office
Calvin Welch, director, San Francisco Information Clearing House
Mary Ann Yurkonis, Santa Monica Rent Control Board
Peter Dreier is the Dr. E.P. Clapp Distinguished Professor of Politics, Professor of Sociology, and Director of the Public Policy Program, at Occidental College in Los Angeles. He joined the Occidental faculty in January 1993, after serving for nine years as the Director of Housing at the Boston Redevelopment Authority and senior policy advisor to Boston Mayor Ray Flynn.
A native of New Jersey, he received his B.A. degree in journalism and sociology from Syracuse University and his Ph.D. in sociology from the University of Chicago. From l977 to l983, he was on the faculty at Tufts University. During the l980-l98l academic year he was awarded a Public Service Fellowship from the National Science Foundation.
Dreier has written widely on urban politics, housing policy, and community development. He is a regular contributor to American Prospect and the Los Angeles Times. His articles have also appeared in the Harvard Business Review, Social Policy, Urban Affairs Quarterly, Journal of the American Planning Association, North Carolina Law Review, Challenge, Housing Policy Debate, National Civic Review, Planning, International Journal of Urban and Regional Research, Real Estate Finance Journal, Journal of Urban Affairs, Columbia Journalism Review, Washington Journalism Review, Social Problems, Housing Studies, Journal of Housing, Canadian Housing, Foundation News, Media and Society, and other professional journals. He has also written for the New York Times, Washington Post, Boston Globe, Newsday, Chicago Tribune, Philadelphia Inquirer, Nation, New Republic, Washington Monthly, Progressive, Dissent, Commonweal, Dallas Morning News, Houston Chronicle, Sacramento Bee, San Jose Mercury, Cleveland Plain Dealer, and elsewhere.
He recently completed a two-year study with three colleagues on the relationship between regional economic development, community economic development, and poverty in greater Los Angeles. This study, Growing Together: Linking Regional and Community Development in a Changing Economy, was funded by the Haynes Foundation. His book, Struggling for the American Dream: Housing Politics and Policy, will be published in 1998.
In l987, while serving in Boston's city government, Dreier drafted the Community Housing Partnership Act, legislation sponsored by Congressman Joseph Kennedy and Senator Frank Lautenberg, which became part of HUD's new HOME program, created under the National Affordable Housing Act of 1990. This legislation provides federal funds to community-based non-profit housing development organizations. He also worked on legislation to strengthen the Community Reinvestment Act and to provide additional federal funds for low-income and homeless persons.
In 1993, the Clinton administration appointed Dreier to the Advisory Board of the Resolution Trust Corporation (RTC), the Savings-and-Loan clean-up agency. He currently is a board member of the National Housing Institute, the Southern California Association of Non Profit Housing, and the Pacific Housing Alliance, on the advisory board of the Liberty Hill Foundation and the Lewis Center for Regional Policy Studies at UCLA, and the editorial boards of Urban Affairs Review and Housing Studies. He has served as a consultant to the U.S. Department of Housing and Urban Development (HUD), VISTA, the Connecticut Conference of Municipalities, the U.S. Conference of Mayors, the MacArthur Foundation, the Boston Foundation, Discount Foundation, ACORN, the Industrial Areas Foundation, Oxfam, and other government, community, and philanthropic organizations. He also served as chair of the Advisory Committee of the Spivack Program in Applied Social Research and Policy of the American Sociological Association. He served for almost a decade on the board of the National Low Income Housing Coalition.
Part I of Rent Regulation in California and Massachusetts