Thursday, October 8, 2015

Seattle Rent Control

Here is a letter I recently received from Seattle City Councilman Nick Licata on rent control in the city of Seattle:

Thank you for writing to the City Council about our passage of a resolution requesting that the State Legislature vote to lift the state ban in support of local control of rent regulations.  That resolution passed the City Council on an 8-1 vote in support.

On Wednesday, October 14, I am going to kick off these discussions of how we move forward in Seattle and Olympia to address the affordable housing crisis, with the goal of providing more information about our desired direction to our Legislative Delegation in time for the 2016 Legislative Session.  I am hosting a discussion in City Hall Chambers at 3pm, entitled:  How have rent regulations worked in the real world? Timothy L. Collins is our guest.  He ran the rent stabilization program for one million housing units in New York City, a metropolis of over eight million people. He has an unmatched grasp of the on-the-ground realities - economic, political, social and legal - of New York City and state rental housing and efforts to keep it affordable.

Housing affordability in Seattle has become a crisis with some of the highest rent increases of major U.S. cities.  Seattle is now among the nation’s ten most expensive cities.  More than 45% of Seattle rental households are now considered rent-burdened.

A 2015 Washington State Housing Needs Assessment found there are only 34 affordable rental housing units in the City available for every 100 renter households who are earning 50% or below of the median income ($31,400 for a single person), and just 15 affordable rental units in the City available for every 100 renter households earning 30% or below of the median income ($18,850 for a single person).

Finally, the Out of Reach Report found that in order for a single parent to afford a two-bedroom in King County, one needs to make $27.21 per hour, or $56,595 a year.

What kind of rent regulations would a lift on the ban allow Seattle to consider?
There are over 200 cities across the country with some form of rent regulation, and each city has tailored their ordinance to fit their housing markets.  Large cities like New York City, San Francisco, Los Angeles, Washington, D.C., and Oakland, California have rent regulations as well as smaller cities like Santa Monica, Berkeley, and West Hollywood, and 100 towns in New Jersey and several in Maryland.  Most offer various kinds of exemptions.  For instance newly constructed buildings can be exempt unless the owner voluntarily opts-in in order to receive a property tax reduction.  These laws also allow for additional exemptions when landlords experience increased costs such as increased taxes, utilities, or capital improvement costs.  Many rent regulation laws also contain hardship provisions to ensure that no building operates at a loss because of these laws.

In other words, one size does not fit all.  Most of these laws are not the kind of laws that most people would consider to be traditional “rent control,” which is being phased out in New York City for instance. Other examples, like laws that close loopholes in local tenant protections and establish better enforcement of the law, laws that require serious code violations to be corrected before rent increases, and laws that prohibit rent increases for seniors in the winter months are all prohibited under RCW 35.21.830, the Washington State law prohibiting all “ordinances or other provisions that regulate the amount of rent.”

Do Rent Regulations Work?
The main arguments are that rent regulations a. lead to high vacancy rates, b. slow new construction, and c. result in deterioration and abandonment.  It’s important to make a distinction between the “first generation” rent control laws passed post-World War I and World War II that froze rental costs from the “second generation” rent stabilization laws that replaced them.  In NYC there are about 38,000 rent controlled apartments compared to about one million rent stabilized apartments.  The term “rent regulated” encompasses both rent controlled and rent stabilized units.

Economist Phillip Weitzman, a former director of research and policy with the New York City Department of Housing Preservation and Development has said, “The existing empirical literature does not take into account the rise of second generation [moderate] rent controls.” A review of cities with these later laws shows that most of the arguments used against regulating rent are associated with these strict first generation rent control laws.  Here are some of the most common.

Myth 1 – Vacancy rates will rise with rent regulations:
  • After Boston got rid of its rent regulations the vacancy rate got even smaller – it fell to 2.9 percent, from 4% under rent stabilization.
  • NYC, a city with a million rent stabilized units, consistently has vacancy rates that are lower than the rest of the country.
Myth 2 – New construction will slow:
  • Most cities exempt newly constructed buildings unless the owner voluntarily participates in exchange for generous property tax abatements (and in NYC most do opt in).
  • A New Jersey study done after multifamily housing construction dropped by 77% in the nation and in New Jersey by 88% found that the reduction in New Jersey cities with rent regulations was only 52%.
  • NYC’s two biggest 20th century housing booms occurred under its strictest rent control.
Myth 3 – Deterioration and abandonment will result:
  • Abandonment takes place, and at similar rate both in cities with rent stabilization and those without it.
  • A Columbia University study by Peter Marcuse concluded that “substantial evidence available from national as well as local studies suggests that there is no correlation between rent control and abandonment.”
  • Under many laws, owners are allowed generous rent increases for improvements made to their rent regulated properties. For example, an owner who provides a new $400 in a refrigerator is entitled to a rent increase of $10 per month forever.  And the cost of major capital improvements yields twice as much of their original cost in 14-
Myth 4 – All economists oppose rent regulations.
  • The source for this statement appears to originate from a survey of economists who were asked, if they agreed that “a ceilingon rents reduces the quantity and quality of housing available.”
  • Moderate rent regulations are not a “ceiling.”
  • Michael Mandel, a chief economist with Business Week, wrote: “A price ceiling, as defined by economists, is a uniform ban on selling a product above a certain price…. It is clear that such a policy inevitably leads to shortages. However, rent control laws in the United States are not price ceilings in this sense…these laws will not suppress the supply of new apartments (and may even increase supply).”
A recent LA study found that its Rent Stabilization Ordinance, covering 66% of their rental units, has been successful.   It may be true that rent control and rent stabilization have not solved the housing crisis and that rents are very high in places like San Francisco and NYC, but that is not a result of rent control.  Just the opposite – rent stabilization laws have been eroded in those cities, adding to the unaffordability of housing there.  Changes have included allowing property owners to deregulate apartments once vacant (California) or when the unit reaches a regulated rent of $2,000 and goes vacant or its tenants’ income reaches $250,000 or more (NYC). Later changes further lowered the threshold for high-income decontrol and creating a “vacancy bonus” that allowed landlords to raise rents 20% when a stabilized tenant leaves.  These changes in rent control laws have resulted in hundreds of thousands of units leaving the system in both of those cities.

What is clear is that the market, without regulatory laws in place, does not work. How can one call increasing rents by over 100% and forcing people to leave their homes of twenty years, as well as in many cases leaving their community, a working model?

What can be done to control rents?
The short answer right now is that in Washington State very little can be done. When the Republicans got control of both houses and the Governor’s office in 1980, they banned any form of controlling or limiting rental rates. I worked with the State Legislature this year and last year to try and pass State legislation (supported by the Seattle Times) that would have given all renters in Washington State more notice of large rent increases, but landlords opposed that legislation, so our only option is to try and change the state law to give us the local authority. The Council’s resolution to request the State to repeal or amend the ban will allow Seattle to determine whether there is a policy path that we can design to address our affordability challenges.

Seattle City Councilmember Nick Licata

Happy Investing!

1 comment:

Anonymous said...

Nick Licata and Kshama Sawant are simply wrong about a housing boom happening under New York's strict rent control. New housing was EXEMPT from rent controls exactly because politicians feared that building would be stunted. This isn't evidence for rent control, but evidence AGAINST it. Licata then cites SF and says that high rents there are because 'stabilisation was eroded' (read: new housing was exempted). The guy should make up his mind! Either you have the EXEMPTION and have new supply or you don't have the exemption and have no 'erosion' but then hardly any new buildings and a major social catastrophe.