Santa Monica Provides Lesson as Interest in Rent Control on the Rise

By Niki Cervantes and Jorge Casuso

September 21, 2017 -- Almost 40 years after Santa Monica voters passed one of the nation’s most stringent rent control laws, the controversial legislative measure used to cap skyrocketing rents is piquing renewed interest across the state.

A new poll released this week shows six in ten voters across California -- and even more in metro L.A. –- would embrace such a law in their cities.

Santa Monica’s tale of housing woe offers some harsh reality for those interested in following its lead as one of the original rent control pioneers when local voters approved a law in 1979 that placed strict limits on rental increases.

The consequences of rent control are dire, property rights advocates warn, while City officials caution that it is easier said than done after state legislation badly undermined local rent control laws two decades ago.

These days, rent control remains the City’s “single most effective tool” for protecting long-term tenants from being displaced, said City Manager Rick Cole.

Those tenants hunkered down and stayed put in their rent-controlled units over the decades, paying rents that are often one-third of market rates, safe from the landlord-backed legislative changes.

But their numbers are shrinking.

And given the weakened state of the City’s rent control law, it can’t help people shut out of Santa Monica’s rental market “either because they don’t already have a rent-controlled unit or because they have been displaced from one,” Cole said.

“Which is a larger and larger population of people,” he said.

A Berkeley IGS poll about California’s housing crisis showed a desperate populace that was thinking about fleeing the state altogether, with 60 percent of those questioned favoring local laws to put a lid on rents.

Rent control was supported as a way “to help more low- and middle-income people remain in their communities,” said Mark DiCamillo, the director of the online poll of 1,200 registered voters in late August and early September.

In L.A. County, 68 percent favored rent control, with the expensive San Francisco Bay area close behind.

Overall, support for local rent control ordinances included 76 percent of
Democrats, 55 percent of those who identified as non-partisans and 34 percent of Republicans, he said.

“Just 26 percent side with an opposing view that such laws lead to fewer rentals being built, making the problem worse,” DiCamillo said.

Opponents of rent control argue that the law greatly restricts new housing construction and gives landlords little incentive to upgrade or, in some cases, even rent. Many units, they contend, are often occupied by tenants who can easily afford to pay market rates.

As a result, many landlords choose to leave the housing market altogether.

The 1986 Ellis Act, amended in 2003, allowed landlords to exit the rental housing business and re-enter no sooner than five years later at market rates.

Since its enactment, the Rent Control Board said, the Ellis Act has been used to withdraw 2,975 units from the Santa Monica rental housing market.

A total of 852 of the units returned to rent-controlled housing. The net loss was 2,123 controlled units, many of which did return to the housing market but as market-rate multi-family construction, including condominiums.

The problem, Cole said, is that “Ellis is increasingly being used by property owners to evict long-term tenants to redevelop their properties to make Santa Monica less affordable.”

“And, of course, rent control doesn’t apply to buildings built in the last three decades,” he said.
 
But the biggest blow to local rent control laws was the 1994 Costa Hawkins Rental Act, which allows landlords to raise the rents when a rent-control unit is voluntarily vacated or the tenant is evicted for non-payment of rent.

By the end of 2016, renters paying market rates had increased to 67.8 percent due to Costa-Hawkins, the City’s Rent Control Board reported. Of the 27,594 rent controlled units in Santa Monica, 18,718 were subject to the state law.

Of the total, 7,716 units, or 28 percent, are still tied to the original 1979 rent control law, since they’ve never been vacated, the report said.

The difference in the rental rates is stark, data shows. As of 2016, tenants who have remained in the units pay about $773 a month, compared to $2,645 for a similar market rate unit.

The same report found tenants needed an annual household income of $106,667 to afford a two-bedroom apartment at market rates, compared to $49,600 for units that had not undergone decontrol.

Opponents of rent control argue that Costa Hawkins has increased the quality and quantity of rental housing in in Santa Monica by giving landlords incentives to return as many as 2,000 vacant units that were not being rented back into the market and making much-needed upgrades to the city's deteriorating housing stock.

"The psychological effect was therapeutic" as landlords suddenly found hope in the prospect of being able to compete in a free market, landlord attorney Rosario Perry wrote in a 2004 opinion peice in The Lookout ("OPINION: Costa Hawkins Has Saved Santa Monica Rental Housing," June 22, 2004).

"Everywhere one drove, there were buildings being painted, re-roofed, remodeled, landscaped, re-piped and rewired," Perry recalled. "Amenities were being added.

"These additions, while intended to benefit the soon-to-come market-rate tenant, actually benefited the existing low paying tenants as well."

Local landlords view Santa Monica as a cautionary tale for cities that view rent control as a way to address California's housing crisis.

Aside from Santa Monica, about two dozen California cities have some form of rent control, including Los Angeles, San Francisco, Oakland, West Hollywood and Beverly Hills.

In November, Richmond and Mountain View –- in the Bay area -- passed measures limiting rents.

What all cities need is “State legislation to strengthen local rent control,” Cole said, and a way to “strengthen other tools to assist those who want to remain here or who work here and want to shorten their commutes.”

Santa Monica Council Member Kevin McKeown, who lives in a rent control unit that has not been impacted by Costa Hawkins, said Wednesday he is proud of the City’s staunch support of rent control.

As renters in other cities suffer “increasingly from burdensome rents and increased tenant harassment,” he said, elected leaders are looking “longingly” at the accomplishments of the local rebels who helped start rent control, Santa Monicans for Renters’ Rights.

The organization has been a major player in local elections since then.

The City Council “has consistently strengthened renter protections to meet new challenges brought by unfavorable changes in state law (the Ellis Act,Costa-Hawkins, etc.),” Mckeown said in an email.

“Only by working together can tenant organizations up and down the state overcome the renter-unfriendly policies from Sacramento, spreading rent control and housing stability as sorely needed,” he said.