Rent Control

Some cities have rent control, eviction protections, mediation, or mobilehome rent controls

The Rent Crisis

In a healthy economy and rental market, a landlord has vacancies to fill and rents are easily within reach of the tenants’ budget. Landlords don’t want to lose the tenants they have, so they keep the rents down and fix anything that needs it, to keep the tenant happy. Landlords compete with each other to fill vacancies, offering free rent or utilities included, to accomplish that. It’s called the “free market,” where supply and demand controls the price.  It works, so long as the vacancy rate stays above 5% in the area.  Unfortunately, we haven’t had that since the early 70’s.

How did we get here?

Just about the time when Baby Boomers were out looking for their own place, the OPEC oil embargo hit. Gasoline went from 30¢ per gallon to over a dollar. Gas lines formed at gas stations, odd and even plate numbers were used to ration gas. And the uncertainty stopped the construction of new apartment buildings. Supply cut back just as demand exploded, and overnight rents skyrocketed. It has been that way ever since, with vacancy rates below 1% throughout California.

Prop 13 in 1978 came into existence to freeze property taxes, which passed under its leader,  Howard Jarvis, who was president of the Los Angeles Apartment Owners’ Association. Taking advantage of the severe housing shortage, rents got higher and higher. In order not to appear greedy and exploiting the emergency shortage, Jarvis had his members tell tenants that the landlords were “forced” to raise rents due to rising property taxes.  Of course that was not true, because a 1% rise in taxes did not justify a 10% increase in rents.  It worked, to mislead tenants. Jarvis then falsely advertised for Prop 13, saying that Prop 13 would lower rents, even though there was no such provision in it.  Desperate to get lower rents, tenants poured into the voting booths to approve it. Tenants breathed a sigh of relief, until their landlords gave them the new rent increase notices. Landlord did not have the decency to change their lie, using the old form that said they were “forced” to raise rents due to the increased property taxes.

Real estate agents and investors loved the rising rents, because tenants trying to escape the rent increases were willing to pay more and more to buy a house, driving up house prices dramatically. The rising rents kept a lot of tenants from being able to save up the down payment to buy, so that only by help from their parents or expensive second mortgages could a few more tenants escape the rental nightmare.  Because rental properties’ market value is determined by the amount of rent that can be charged, landlords made millions by just raising rents. They borrowed from those properties to buy others, and do the same thing.  Rent increases went even higher. The rich got richer; the poor, poorer.

Tenants finally woke up.  It was a lie all along. Landlords were only raising rents because of the emergency housing shortage, and people were willing to pay more and more just to have a place to live. At that time, homelessness as we see nowadays was only a theoretical possibility.  Larger and larger percentages of tenants’ income went to pay rent, leaving less to spend in stores and other businesses, so that landlords’ profited at the expense of the rest of the economy. Increases in minimum wage, intended to help tenants pay their rent, were instead taken by the landlords who just raised everyone’s rent.

The Birth of Rent Control

Rent controls came into play as the result of that election fraud.  In that way, Howard Jarvis was the “father” of rent control , in the same way that a rapist is the father of the child they created in their victim. Jarvis was celebrated by the property owners as the hero, but the tenants had no spokemen, and could not afford the TV coverage that landlords enjoyed in their propaganda campaign.

Rent controls came into existence first by tenant-organized propositions in Berkeley and Santa Monica, against tens of millions of dollars in propaganda paid by the landlords for TV and other ads. It was more election fraud, ironically paid for by those increased rents that landlords had forced out of tenants, and the real estate investors whose wealth was burgeoning from the process. A few cities, like Los Angeles, passed rent controls, but most tenants’ efforts in other cities were crushed by the money and propaganda of landlords and the real estate investors, saying it would hurt tenants, not help. Since then, at least two statewide efforts at rent control have lost by a few percentage points, as the same propaganda machine repeats the same argument.

Landlords argue that the free market would solve the problem, so that more housing would be built because of the rising rents, and with the greater supply created, the rental rates would naturally come back down. It sounded right to the voters, who voted against rent control every time.  That was in the 70s, but here it is, a half century later, and the rents are over 10 times what they were back then.

Fast Forward to Today

In the current economy, things are even worse. Homelessness are exploded. The ICE raids at construction sites have eliminated much of the work force, and the uncertainty of the economy from the tariffs and AI robot displacement have made investment in new construction too risky. Many large house projects have been abandoned.  Increasingly, landlords are the huge corporations who owe their shareholders maximum profits, and they don’t care about tenants’ inability to afford rents. Even homeowners who are losing their house due to the massive layoffs turn to apartments as the next legal down. By doing that, they are not just squeezing the housing shortage tighter but because they can afford the more expensive apartments, landlords raise rents across the board, as each higher level rents the next one down, until more homelessness is created. Renters are in for hard times.

Why Have Affordable Apartments Not Been Built?

Why haven’t more apartments been built in all that time as the anti-rent control propagandists had promised? There are several factors.

The developers who would be building those buildings explain that low income housing, other than the projects paid by government funding, just doesn’t pencil out.  In the cities, there is no vacant land to build on, so the developer would have to buyer the houses on the properties in order to tear them down, which automatically adds a huge expense to the project.  Ironically, due to the high rents being charged, the construction workers need to be paid a lot more, which adds costs to the project.

The lumber and other materials have also increase in price, due to the higher wages those suppliers have to pay their people, due to those workers’ higher rents. Developers were getting by hiring the Mexican workers who crossed the border illegally to make money to send home, and would work for less than the American workers, but the ICE raids have stopped that, and now the developers can’t afford to continue and the American construction labor market has dried up.

The more labor intensive a product or service is, the more it is affected at each stage by the rising rents. By the time the apartment project is complete, the rents that would have to be charged are not affordable to those who need it.

As a result, only luxury apartments and condos have been built, with only the hope that a higher rent tenant would go through the hassle to pay even higher rent at one of those fancy units, rather than escape the rental nightmare and buyer a home. In cities around the country, developers are shocked that no one is buying their new houses or renting their luxury apartments, offering a couple of months free rent or appliances. 

There are no takers.  Those new landlords will not lower their rent, because having paid so much for the project, they could not pay their mortgage if they charged affordable rates. The same is true for landlords who bought an apartment building based upon the increased rents, and now can’t drop the rent because they can’t pay their higher mortgage. They evict tenants for nonpayment, but would rather have an empty apartment at the unaffordable rate, because it’s what they are used to.

The Rental Market is Ratcheted Up

The entire rental market is just ratcheted up, year after year, and it can’t come down. Even if landlords with too many high rent vacancies lose their buildings in foreclosure, with the bank auctioning off the building at a below market rate, it would have to be sold to a buyer who will abandon profits in order to rent at a lower rate.  People who buy property at auctions are not that type.

We could reduce homelessness if landlords were prohibited from evicting tenants for having additional people living with them. The renting relatives and friends of homeless people would be glad to help out by letting their homeless friends and relatives couch-surf. The problem is, if they did such a humane thing, their landlord would evict them for having unauthorized guests, raging about the additional wear and tear that the couch-surfer would cause, minuscule or nonexistent as that may be.

What can be done?

The first problem is the public perception of the problem, shaped by politicians and celebrities who benefit from keeping things exactly the way they are. The free market has failed miserably, and it was all just a lie by the landlords to keep jacking up the rents.  The tenants’ income is spent more and more on rent, leaving less and less spending in stores and for other services. The rest of the entire economy suffers so that the 2% of the population who are landlords can get richer.

Political Stranglehold

The government could prohibit evictions for having additional occupants, to drop homelessness. It could make evicting tenants a more difficult process, with more leniency to help tenants avoid losing by dirty tricks or neglect. That would cost nothing, but it would reduce the fear of homelessness which the landlords increasingly use to get their tenants to pay more and more rent. Pay me more, stop your complaining about defects and obey me, or end up like them!  The landlords use the higher rents they charge to pay for the politicians’ campaigns, so the politicians don’t want to bite the hand that feeds them. It would not be politically correct, especially when they can promise anything to get elected and then not follow through, as we have seen.

Even the private small business people and conservatives argue that the government should not be involved in controlling rents.  They don’t seem to recognize the impact of rising rents on decreased business for the rest of the economy, or the unfairness suffered by commercial tenants in so many ways. They bought the free market mantra, even through they can see that it hasn’t worked to solve the problem.

The government could buy land and build affordable housing, because it has the resources to get that going, so that tenants could buy those new houses.  New technology now allows the 3-D printing of houses, oozing a “geopolymer” cement, made of dirt and recycled waste. A computer-controlled machine forms the walls in a day, for a house finished a couple of weeks later. The cost of this new housing is extremely low, easily affordable by tenants.  Whole towns could be built where there is only abandoned farmland now. Thousands of these projects could be done at once, providing new jobs for all the people who have been laid off.  If the migration of tenants to these new towns could increase the city vacancy rates to just 5%, the rents could be lowered to fill those vacancies in true free market style, even if the landlord has to re-finance the building to make that happen. Of course, the landlords only believe in free market when it justifies their raising rents, but when it reduces their rents, they call it communism, even as they accept huge government subsidies as they did during COVID. The landlords would turn to their purchased politicians to stop such a plot as to increase the housing supply, because it would reduce landlord profits.

There are private developers who have the resources to build these 3-D towns, and have started doing that, running into local standards challenges and political barriers. Various innovations from modular housing and prefabricated kits to mini-houses have come out to fill the void, but all confront challenges that inhibit their application.  The powers that be want to keep housing scarce, and use their political connections to frustrate those innovations. What is really needed is a national push to remove those barriers and encourage by all means the development of more housing, to benefit all those other parts of the economy suppressed by rising rents.

Rent Control

Rent control is nothing new. After World War II, price controls included rent control to ensure a rapid regrowth of the country.  New York has long had rent controls to prevent landlord abuse of their position in the economic pecking order.  Some cities have enacted rent controls on their own, like Los Angeles. Some rent controls have been enacted only for mobilehome parks. Most city-wide rent controls are the result of tenant Propositions, to overcome the landlord-backed city council refusals to take action.

The California legislature voted to outlaw any commercial rent controls in 1987, and to outlaw any new local rent controls in 1995, through what is known as the Costa-Hawkins Rental Housing Act.  Tenant groups have attempted to eliminate Costa-Hawkins by statewide petitions, but the landlords’ propaganda machines have repeatedly defeated those efforts by massive TV ad campaigns, again using the rent increases from tenants to crush the tenants’ efforts. The propaganda is all based on lies. With rents going up, tenants can’t afford to contribute to the efforts against the landlords, or to get rent control.  Many are persuaded by the landlord propaganda to vote against those efforts. 

The essential part of rent control is only to restrict rent increases for an existing tenant. It does not take away a landlord’s property or hurt the landlords in any way. It does not take money from the landlords and put it in the “undeserving tenants’ pockets,” as the propaganda would have people believe.  It does not discourage new apartment construction, as history has shown. Los Angeles had exempted new construction from its rent control, only to have virtually no new construction occur anyway, the exception being the few luxury apartments. In over 50 years, no new construction of any affordable housing has been built.

In 2019, California did enact the Tenant Protection Act [“TPA”] which included a rent control of no more than 10% rent increases per year, with exceptions of all kinds including houses. Since rents have never gone up by that amount statewide, it was rent control in name only.  It did include some effective eviction protections, but since landlords could raise rents above what tenants can afford, they could easily evict for that reason.

How are the Landlord’s Profits Affected by Rent Control?

In the typical landlord budget, 50% of the rent goes to the fixed mortgage payment, 30% goes to taxes, insurance, management and other fixed operating expenses, 10% to repair and maintenance, and 10% goes to profit. So for every $1000 of rent, $500 goes to mortgage, $300 goes to fixed operating expenses, $100 goes to maintenance and $100 for profit, before raising the rent. With only $100 for repairs and maintenance being subject to inflation, if inflation rate is 3%, his expenses skyrocket from $100 to $103, and his profit plummets from $100 to $97.

It’s more than he can bare, so he raises his rent by the permitted 10%, collecting $1100 per month. After deducting the $800 of fixed expenses, and the $103 in repair costs, his profit goes from $100 per month to $197, nearly doubling his profits. He claims that he is just breaking even by keeping up with inflation, but that’s like the Prop 13 property tax lie.  Under the Los Angeles rent control law, the landlord is guaranteed at least 3% rent increases per year. In our example here, raising the rent 3%, from $1000 to $1030 would increase his profits by over 25% even with the 3% inflation rate, not just breaking even.

Obviously, if the landlord doesn’t do repairs or maintenance, he doubles his profits. He figures that, with the housing shortage as bad as it is, he will fill the vacancies with people who don’t dare complain about the lack of repairs and laugh all the way to the bank. And that’s with rent control.

It’s Just Not Enough Only to Hope

For tenants whose wages have not increased, and for many, greatly decreased, rent increases hit the edge. Tenants have to choose between risking homelessness by not paying rent and other necessities of life: eating, medication, utilities, having a car, or a phone.  Forget about clothes, internet, vacations, household items, Christmas shopping, and the rest. That money went into the latest rent increase.

Tenants need to start thinking about major changes. In this game, everything is stacked against the tenant, and there is no mercy. The politicians mouth the words of sympathy, but with rare exception don’t follow through with real change. Tenants have not shown up at the polls until recently, with Prop 50, and have felt “disenfranchised”:  None of the politicians talk about doing what you need, so why vote for any of them?

Hopefully, politicians will look at the Prop 50 election results and see that tenants are the sleeping giant in politics, and start taking action in bold new ways.  Letters to your politicians can be an effective way to get action, representing the views of maybe thousands of voters who did not take the time to write. Continuing to vote is important, because politicians see the high turnout in tenant precincts, and need those extra votes to win their election. Before long, they are tripping over each other to be more-tenant-friendly-than thou, to gain that extra voter margin.

If we do nothing, our death will be slow and painful. If we take action, we can restore the country to what it should be, and enjoy the peace, fairness and prosperity we deserve. It’s that simple.