WHO BENEFITS FROM RENT CONTROL? EFFECTS ON TENANTS IN SANTA MONICA, CALIFORNIA



Contents

A Survey of Rent-Controlled Households

Conclusion

REFERENCES

 

Methodology

 

Residential Tenure and Access to Controlled Units

 

Reduction of Housing Costs for Tenants

 

Protection of Low Income Tenants

 

Rent Control and Income Changes

 

Rent Control and Ethnic Change

 

The Tenure of Families with Children

 

Rent Control and Affordable Housing for the Elderly

NOTES

 

The objective of Santa Monica's rent control law, in effect since 1979, is to protect renters--particularly "the poor, minorities, students, young families and senior citizens"-from rapidly rising rents. Comparing 1 987 and 1 979 tenant surveys indicates that the rent control ordinance has fulfilled some of its goals. Length of tenure has increased, while lower-income tenants and the elderly have benefited most. In addition, the law may have contributed to stopping the decline in households with children. However, it has not stopped a decline in the proportion of black and Latino households. The results suggest that the vacancy control provision of the ordinance is the major factor offering protection to tenants. Since rent control does not increase the supply of affordable rental units nor prevent housing discrimination, it should be viewed as one of a number of housing policy strategies for maintaining affordable housing for specific target populations.

Santa Monica is a coastal city adjoining Los Angeles. Originally composed largely of single family homes, the city experienced substantial apartment construction from the 1950s through the 1970s. By 1980, of the 43,912 households in the city, 34,194 (or 77.9 percent) were renter households. In 1979, the renters, under gentrification pressure, went to the polls in record numbers and passed a local rent control initiative (Heskin 1983). The stated goal of rent control, as spelled out at the time, was to stop "gentrification" and alleviate the hardship from rapidly rising rent levels caused by "a serious housing shortage," which in turn was exacerbated by "land speculation." The "poor, minorities, students, young families and senior citizens" were seen as particularly "endangered" by these conditions (City of Santa Monica 1979).

The Santa Monica rent control law covers all existing rental buildings of four or more units and all rental buildings of three or fewer units where the landlord does not live in the building. It exempts new construction. Rents were rolled back to levels holding in April 1978. The ordinance provides for annual adjustments in rents, as determined by an elected rent control board, from a base of 1978 net operating income as well as 15-year "pass-through" of certain capital improvement costs. Unit registration fees finance the administration of the law, and landlords are allowed to pass these fees through to the tenants. As in all United States rent control laws, a "fair rate of return" is guaranteed to landlords and special hardship increases are possible if the landlord proves they are necessary (Bear 1983). Most important, the law contains a "vacancy control" provision; thus, rents remain controlled when a tenant moves. On average, the general adjustments in rents have been approximately three-quarters of the consumer price index for the area. The law also severely limits the ability of landlords to convert their buildings to condominiums or demolish them. The Santa Monica ordinance has been categorized as one of the strongest ordinances in the United States (Appelbaum and Gilderbloom 1988).(n1)

To date, there has not been a thorough evaluation of the rent control law in Santa Monica. Devine (1985) attempted an evaluation of the rent control laws in both Santa Monica and Berkeley by examining the demographic composition of the total population of the two cities, as enumerated at the last census, and comparing that to the composition of the state of California as a whole. Unfortunately, he could not analyze individual households and did not distinguish between tenant- and owner-occupied housing units. Further, he did not examine who benefited from these laws because he lacked base data from which to make such a comparison. Shulman (1981) has estimated the amount of income transfer between landlords and tenants that the ordinance accounted for, and Appelbaum (1983) and Baar and Squier (1987) have analyzed the effects of the rent control ordinance on Santa Monica's real estate values.

Much of the rent control literature consists of debates about the existence of inequities and market dysfunctions caused by rent control's redistribution of wealth from landlords to tenants (Friedman and Stigler 1946; Grampp 1950; Johnson 1951). Some literature, however, suggests the existence of another rent control-created distributional inequality, that within the tenant population itself. Grebler (1952) worried that too much attention was being given to the question of redistribution between landlord and tenants and not enough to the question of redistribution among tenants. Grebler's concern was that the "have nots" would have less access to controlled units than the "haves," and thus forced into the uncontrolled housing market, would have to pay a premium for their housing. The argument is that, under rent control, landlords will engage in noneconomic rationing of the units. Since rent increases beyond regulated levels are not permitted, landlords are assumed to become more selective in choosing tenants. To protect their property, they will tend to choose more affluent tenants who are in a more stable life stage. This mechanism would be detrimental to low income people and minorities and to people in a less stable stage in life (e.g., single people, female-headed families) and would thereby continue the "gentrification" that rent control was supposed to retard, as well as circumvent fair housing laws.

Some studies have substantiated this position. For example, Kristof (1970), in analyzing New York's housing problems, argued that middle class New Yorkers were able to gain a disproportionate share of the benefits of rent control by not moving frequently. This view was supported by De Salvo (1971), Hayck (1972), Olsen (1972), Roistacher(1972), and Devine (1985). Local opponents of the Santa Monica law have argued, like Grebler, that the law has, in fact, contributed to the gentrification of the city because it has induced landlords to rent to the most secure tenants, high income renters with the fewest people in their household.

A more recent argument claims that rent control is economically neutral, benefiting all classes of tenants irrespective of need. For example, Gyourko and Linneman (1985) found that, "while many poor families were aided by the rent controls, the same was also true for middle and upper income families." Further, Gilderbloom (1978), Clark and Heskin (1982), Linneman (1980,1987), and Levine and Grigsby (1985) have shown evidence that, although the middle class benefited the primary beneficiaries are those most in need, e.g., lower income households.

Some critics, while acknowledging that a broad cross-section of tenants have benefited from rent control, have questioned the wisdom of a policy that benefits both middle- and lower-income persons. Their criticism is that while the needs of the poor may justify a rent control policy, the targeting of rent control toward low income people is very inefficient. For example, one study argued that tenants who could afford the rent took their savings and used it for "down-payments on suburban single-family homes or on retirement condominiums or homes in Florida, California, Arizona and New Mexico" (New York 1977).

The following discussion focuses on the question of which groups among the Santa Monica tenant population have benefited from the rent control ordinance. Changes in the demographic composition of the tenants since the inception of the law in 1979 are documented, and an attempt is made to determine the extent to which rent control contributed to these changes. First, we measure the level of benefits received by the tenant population as a whole. Second, we examine the sub-groups among the tenant population (with the exception of students) who have benefited the most in relation to the stated goals of stopping gentrification and stabilizing rents, in particular low income people, minorities, young families, and senior citizens.

A Survey of Rent-Controlled Households

Methodology

The survey providing the basis of this discussion was conducted in May and June 1987. Funded by the Santa Monica rent control board, the survey was to provide information about the composition of rental housing units within the city and the characteristics of the individuals living within those units. The 411 tenant households were selected using the random digit dialing method (Tuchfarber and Klecka 1976; Waksberg 1978; Lavrakis 1987).(n2) Tenants were asked about the type of unit and building they were living in, the number of years lived in the unit, current rent levels, services and facilities provided by the owner, security deposits and other moving-in expenses, perceptions of maintenance and unit condition, relations with the landlord, and basic demographic characteristics of the household.

Results of the 1987 survey were compared with a 1979-80 survey of Santa Monica tenant households (Heskin 1983). In that survey, 758 Santa Monica tenants were interviewed. They also were selected through the random digit dialing method. There was sufficient overlap of questions to allow a comparison of the two data sets. Thus, the database presents information on the same population at two different points in time, the information having been collected with similar methodologies.

A comparison of the two surveys suggests that the composition of rental units in Santa Monica was essentially the same in 1987 as in 1979-80. For example, both the 1979-80 survey and the 1987 survey showed that around 90 percent of rental units were apartments, over 80 percent of the units were one or two bedrooms, and about 75 percent had one bathroom. In both periods, approximately half the buildings had a manager; over three-quarters of the managers lived in the building. The data indicated that a consistent 90 percent of the units were being rented as not furnished. In addition, the vast majority of tenants in both cases were expected to pay for both gas and electricity.

Residential Tenure and Access to Controlled Units

A comparison of the two data sets disclosed a significant increase in the average length of tenure of renters in Santa Monica. Table I presents the number of years of residence in the two surveys.(n3) The average tenant had stayed in his or her unit 2.3 years longer in 1987 than in 1979-80. There had been about a 40-percent decline of renters living in their units less than three years and a near doubling in the percentage of renters living in their units more than five years. However, only in a relative sense has the population been stable. Almost three-quarters of the tenants (71.4 percent) had moved into their unit, since the rent control law took effect in April 1979.

Undoubtedly, rent control has contributed to the increased tenure. But it probably would be a mistake to attribute all of the increase to rent control alone. An evaluation of the rent control ordinance in the nearby city of Los Angeles showed that the less stringent Los Angeles rent control law had little effect on length of tenure (Hamilton et al. 1984). The Los Angeles rent control study compared a sample of tenants from Los Angeles with tenant samples from several nearby cities that did not have rent control. In both samples, length of residence increased between 1977 and 1984; it increased somewhat more for Los Angeles.(n4) In both cases, the increase in length of tenure was shorter than in Santa Monica.

In the Los Angeles study, the researchers hypothesized that a major factor in increased length of residence in both Los Angeles and the surrounding cities that did not have rent control was the perception of a lack of affordable housing in the area (Hamilton et al. 1984). It should be noted, however, that the Los Angeles law contains a "vacancy decontrol" provision that allows rents to rise to market levels when units become vacant (City of Los Angeles 1979). It has been argued that the vacancy decontrol provision encourages evictions. To what extent this provision contributed to the similarity in the findings between the city of Los Angeles and the surrounding, non-rent-controlled cities is unknown.

Whatever the contribution of rent control, it is clear that, because of the decrease in turnover rates, there are fewer units available for rent in Santa Monica at any one time than there were before the adoption of rent control. (n5)In the 1987 survey, respondents were asked how they obtained their unit. The methods fell into three contact categories: personal, formal, and casual contacts. Personal contacts accounted for almost 60 percent. Tenants acquired their units either through a friend or relative or by knowing the landlord. Formal contacts (made through an advertisement, bulletin board, rental agency) accounted for about 30 percent of rentals, and casual contacts (made by driving by or seeing a sign) accounted for the rest. An analysis of these data by length of tenure suggests that there may have been a change over time in the manner in which units have been found. Comparing tenants by when they moved in, and taking April 1979 (the month the Santa Monica rent control law was enacted) as a cut-off point, it appears that obtaining units through personal contacts has increased while using formal or casual contacts as a means for acquiring a unit has decreased. The one exception has been a slight increase in the proportion of tenants using rental agencies.(n6)

The data suggest that "gentrification" has slowed. Residents are staying longer in their units and, when a unit does become available, it is more likely to pass from one tenant to another through personal contact. One would expect that personal contacts tend to reinforce demographic characteristics of the population (i.e., people tend to replicate themselves by choosing people like themselves).

Reduction of Housing Costs for Tenants

The single most important goal of rent control is, of course, controlling rent levels. Tenants were asked for their current monthly rent, including the monthly registration fees. Table 2 presents the average rent and that of the 25th, 50th (median), 75th, and 90th percentiles. These are broken down separately for the units covered under rent control. Not all units in the 1987 survey were covered by the rent control ordinance. Twenty-one of the 411 households surveyed were not under the rent control law and 14 additional households did not know whether they were or not.

The average monthly rent was $508; rents varied from $157 to $3,250. The four percentiles indicate the approximate rent levels of that proportion of renter households. That is, 25 percent of renter households were paying $345 or less a month; 50 percent were paying $444 or less a month; 75 percent were paying $591 or less a month; and 90 percent were paying $734 or less a month. The lower rent levels for the rent-controlled units indicate that the tenants of units under rent control were paying less than those not under rent control. The average rent for units not covered under rent control was $824, but small sample sizes for units not under rent control make the true difference indeterminate.

To estimate how much rent control has affected the rent levels of tenants in Santa Monica, the current rent levels in Santa Monica were compared to rent levels in the Los Angeles metropolitan area.(n7) The 1979-80 survey, which was conducted between September 1979 and March 1980, was used. In order to estimate market rent levels, the rent levels obtained in the 1979 survey were adjusted back to April 1978.(n8) Since not all landlords raised their rents in September 1979, this adjustment would also underestimate slightly the actual market levels.

The standard way of adjusting monetary levels for different time periods is to utilize the Consumer Price Index (CPI), published monthly by the U.S. Bureau of Labor Statistics. The CPI is broken down into separate price components, including housing, and for major urban areas. The housing component is, in turn, broken down into several components, including residential rents. Even though these indices are rough, they can be used to estimate what the average cost of residential rent would have been if rents in Santa Monica had kept up with rent increases throughout the county.

The most appropriate index for comparing changes in rent levels would be the residential rent index for the Los Angeles-Long Beach SMSA. In April 1978, the residential rent index for Los Angeles County was 168.4. The residential rent component for Los Angeles County in May 1987 was 358.1. Therefore, between April 1978 and May 1987, residential rent levels in Los Angeles County increased by 112.7 percent (i.e., 358.1 minus 168.4 divided by 168.4).

Figure 1 contrasts percentiles for the expected rent levels in May 1987, based on the residential rent CPI, with the actual rent levels found in the survey; these are presented from I percent to 99 percent in increments of 5 percent. The adjusted April 1978 rent levels are superimposed on the graph. Overall, the actual rent levels in May 1987 were substantially lower than what we would have expected if the April t978 rents had increased at the same rate as residential rents throughout Los Angeles County. For example, at the 25th percentile the expected rent level was $447, whereas the actual level for rent-controlled units was $335, a difference of $ 112. Similarly, at the 75th percentile, the expected rent level was $783, but the actual level for rent-controlled units was $571, a difference of $212. On average, the difference between the actual rents for rent-controlled units and that expected was $159 per month.

The graph shows that the savings in actual dollars is greater for those who pay higher rents. Relative to the rent levels, however, there is only a slight difference in savings. For example, for those at the 25th percentile, the savings represent a relative decrease of 25 percent below what county CPI rents would have been, compared to 27 percent for those in the 75th percentile.

Protection of Low Income Tenants

A primary goal of rent control laws is to reduce the pressure that escalating rents impose on household incomes, particularly low incomes. Over the past 20 years, tenants in the United States have paid an increasing proportion of their incomes on rent, and the burden has become severe for many (President's Commission on Housing 1981; Sternlieb et al.1982; Grigsby and Hruby 1985).

To examine the effect of Santa Monica's law on the tenants' rent burden, an index of shelter cost was calculated by taking annual rent as a proportion of household income.(n9) Figure 2 graphs the index of shelter cost (on the Y-axis) by the percentile distribution of renters (from 1 percent to 99 percent in 5-percent increments) for both the 1979 and 1987 surveys.(n10) The estimated 1986 household incomes based on a regression of household income by shelter cost have been superimposed on this graph. (n11)As can be seen, between the first percentile and the eightieth percentile, there is no fundamental difference in shelter cost between the 1979 survey and the 1987 survey. For the top 20 percent, who were paying the highest proportion of their income for rent (above 40 percent), however, the 1987 survey shows a definite decrease in shelter cost. These are households whose income tended to be below approximately $23,000 a year in 1986.

In 1979-80, the average shelter cost was 34 percent.(n12) In 1987, the average rent for a tenant household had declined to approximately 30 percent. Much of these savings were accrued by lower-income households. For example, at the 90th percentile, where the expected household income was less than $ 15,000, almost 67 percent of the renter households' income was paid on rent in 1979-80, a percentage that was reduced to 56 percent by 1987. To sum up, the Santa Monica rent control law has benefited tenants at virtually every rent level. In relation to income, the savings have been greater for lower-income households.

Rent Control and Income Changes

While there clearly has been a relative saving in shelter costs for low income tenants in Santa Monica, low income people may not have been able to move into or remain in the city. Grebler's (1952) concern that low income tenants might be denied access to housing because of rent control suggests that there should have been a decline in the proportion of low income tenants. Yet, the finding that tenants located their apartments through personal contacts indicates a contrary result. With a turnover of 71 percent of the rental units in the nine years of rent control, there should have been ample time and activity to allow a test of these two arguments.

To test which argument is correct, we conducted a quartile analysis comparing the distribution of incomes in Santa Monica in 1979 and 1986.(n13) To adjust the 1979 income levels for inflation, we used the general CPI for Los Angeles County. Figure 3 presents the percentile distribution (from I percent to 99 percent in 10-percent increments) of expected 1986 household incomes if renter household incomes had kept up with inflation and actual 1986 household incomes for the rent-controlled units.(n14) If there had been gentrification, the actual distribution would be shifted upward on the curve, above the expected. We have indicated this shift by drawing a possible distribution that represents the difference between the mean of rent-controlled and non-rent-controlled units (916,615).(n15)

As the graph indicates, every percentile up to approximately the 90th percentile falls at or below the expected 1986 household income level. Only from the 90th percentile on has there been a tendency to replace those who already have high incomes with people who have even higher income levels. Whether the replacement of higher income tenants by even higher ones represents an aberration from the general market conditions--that is, an exception--or whether it is the beginning of a trend cannot be determined from the data at this point.

What these data do suggest is that, so far, for the vast majority of the renter population, the household income distribution is similar to what it was in 1979. At least at this point gentrification appears to have been attenuated.

Rent Control and Ethnic Change

While income distribution in Santa Monica has remained relatively stable, there has been an increase in the white population and a decrease in the population of black and Latino renters. To obtain this information, we asked respondents to which racial or ethnic group they belonged. By assuming that all members of a given household were of the same race or ethnic group as the respondent, we could calculate racial/ethnic distribution of Santa Monica renters (Table 3). Whites have increased from 73.4 percent of the renter population to 78.3 percent, while Latinos have decreased from 17.8 percent to 13.2 percent and blacks from 5.1 percent to 3.2 percent. The proportionate decline is greatest among the already small population of blacks (a relative decline of 37.3 percent), followed by Latinos (a relative decline of 25.8 percent).

Because the population of Santa Monica is over-whelmingly white it is difficult to measure ethnic change by surveying households. In the 1979 survey, only 4.2 percent of the surveyed households were black. In 1987, this percentage was down to 2.7 percent of the total households, or only 10 households. With a sample size of 10, the estimation error is very high. For Latino renter households, the figures disclosed a decline from 9.5 percent to 7.5 percent, with 31 households responding in 1987; here again, small sample sizes make the estimate uncertain.

The data suggest, nevertheless, that the decline relates to access to units rather than security of tenure. There has been a substantial decline in the proportion of Latinos and blacks that have moved into Santa Monica since rent control was adopted. Of the people who have moved into Santa Monica since rent control went into effect, a disproportionate percentage are white. Of the whites, 73.3 percent moved in since rent control, compared to 40.0 percent among blacks and 53.3 percent among Latinos.

The first possible explanation for this change is the racial discrimination feared by the critics of rent control. Racial discrimination, of course, exists with or without rent control. The argument has been, however, that it would increase because landlords would select tenants on different criteria than income if rents were controlled. Other factors, however, may also be contributing to the decline. The black population of Santa Monica has been on the decline for some time and the overall black population of the county of Los Angeles has been declining in this decade. Comparing the 1970 and 1980 Census, the entire black population of Santa Monica (renters and owners) showed a decline from 4.8 percent to 4.1 percent of the population (U.S. Bureau of the Census 1970,1980). The corresponding figures for Los Angeles County showed the opposite trend--10.9 percent in 1970 to 12.6 percent in 1980 (U.S. Bureau of the Census 1970, 1980); the increase among black renter households from 1970 to 1980 was even more dramatic: 12.0 percent to 14.8 percent. However, since 1980, there has been a decline in the county black population; black households decreased from 12.2 percent of all households in 1980 to an estimated 10.2 percent in 1987 (U.S. Bureau of the Census 1987).

The trend for Latinos, however, is different. Similar figures for Santa Monica were not available from the Census Bureau because the ethnic category of Hispanics was not measured directly in 1970. However, between 1980 and 1987, Latino households have increased from 19.8 percent to 24.8 percent of the total households in Los Angeles County (U.S. Bureau of the Census 1980, 1987).

A significant portion of the increase in the Los Angeles Latino population has been absorbed in overcrowded renter households. A 1988 city of Los Angeles rent control study (Hamilton et al. l 988) disclosed a dramatically increased overcrowding rate--from 9.3 percent of renter households in 1977 to 21 percent in 1987. The overcrowding is concentrated in large households (83 percent of renter households with five or more people were overcrowded in 1987) and Latino households (49.7 percent of Latino renter households were overcrowded in 1987). There is some indication that this phenomenon is occurring among the Latino households in Santa Monica as well. The average size of the Latino renter households that have moved into Santa Monica since the adoption of rent control is slightly higher than the 1979 survey mean (3.69 in 1987 compared to 3.46 in 1979). Santa Monica has never been seen as a port of entry for immigrant Latinos and does not have a substantial housing stock that would absorb large families without overcrowding. It may be that, although some landlords have been willing to accept large Latino families, others have become less willing to allow what in many cases may be overcrowding.

While shelter cost has improved for low income tenants in Santa Monica and rents have increased more slowly than the CPI, many black and Latino renters may have been priced out of the market. For example, white households that have moved in since the rent control ordinance was passed in 1979 pay an average of only 27.5 percent of their income on rent, compared to 37.5 percent for Latino households. The few black households in the sample paid a very high percentage of their income on rent; small sample sizes make the amount indeterminate. While some landlords may be willing to accept black and Latino tenants paying a high shelter cost, the number may be declining.

More data on rent control and ethnic change are needed. But the fact remains that the Santa Monica rent control ordinance has not stopped the decline in the minority populations living in the city.

The Tenure of Families with Children

Another goal of the rent control ordinance was the protection of young families with children. Between 1970 and 1980, the percentage of all households that were families in Santa Monica declined from 56.6 percent to 44.5 percent. At the time the 1979 rent control ordinance was passed, the perception was that landlords were reluctant to rent to families with small children. During the 1979-80 period, the protection of the rent control law was also accompanied by increased activity to prohibit discrimination against households with children. The courts emphasized state law on this point and Santa Monica became a center for these efforts, producing a local antidiscrimination ordinance.

After nine years, the average household size of 1.86 persons has not changed. Among Santa Monica renters, almost one-half are single-person households. Married couples represent less than a third of renter households. The remainder are made up of unrelated people, single parents with children, and "miscellaneous" types (all involving multi-family arrangements with children). In 1987, there was a slightly lower proportion of single-person households and there was a slightly higher proportion of two-person households, but these differences were not statistically significant. It is not known whether the proportion of married couples has changed since 1979, because this was not explored in the earlier survey. However, the percentage of households having children under age 18 was essentially the same as in 1979 (16.6 percent compared to 16.2 percent in 1979-80); the differences are not statistically significant.

On the other hand, the number of children in families has decreased. In 1979-80, there was an average of 1.8 children (under the age of 18) for households with children, whereas in 1987 this number had dropped to 1.3 children per household with children. Whether this decrease is due to declining fertility levels, as is generally true throughout the Los Angeles area, or to a lack of incentive by landlords of rent-controlled units to accept large families cannot be determined from the data. Among renter households that moved into their units after the rent control ordinance was passed in 1979,15.5 percent were families with children, almost the same percentage that had existed in 1979-80 (16.2 percent). Further, the distribution of incomes of families with children has also remained constant over the period. Therefore, on the face of it, there is no direct evidence of discrimination against families. Thus, while the rent control ordinance has not increased the proportion of families among the renter population, it may have helped to stem a decline that was occurring in Santa Monica prior to the rent control ordinance. However, it is possible that landlords are restricting household sizes more in rent-controlled units. More data on this will be necessary.

Rent Control and Affordable Housing for the Elderly

The proportion of the population who are elderly has increased significantly and appears to be a direct consequence of the rent control law. To see this, we have to examine changes in the age distribution of Santa Monica tenants. Figure 4 is a graph of the percentage of renters in each of five age groups for the 1979-80 and 1987 surveys. As the graph shows, in 1987, compared to 1979, there was a lower proportion under the age of 30, a higher proportion between the ages of 30 and 44, and a higher proportion age 65 and older. In other words, the 1987 renter population was, on average, older than the 197980 renter population; the differences were statistically significant (chi-square = 22.87 with 4 d.f.; p </= .001).(n16)

To explore this phenomenon more systematically, we constructed a model of the age distribution that would have been expected in 1987 if the 1979 renter population had merely stayed in place. If none of the renters who were living in Santa Monica in 1979 had moved, the only changes would have come about through births and deaths; children born in the eight-year period would have been added to households, while people who died would have been subtracted. In the model, no one is allowed to move out of the city nor is anyone allowed to move in. The goal of the model is to analyze the effect of the aging process on the population. Any differences between the "expected" population and the population actually enumerated are usually due to changes in net-migration (i.e., either more people moving into the city than moving out, or the opposite).

Using the HALLEY cohort component population model, we constructed a model of the proportional age distribution (i.e., the proportion of the population in each age group) that the 1987 renter population would have if there had been no migration since 1979 and if the birthrate had stayed essentially constant.(n17) Figure 5 is a graph of the actual age distribution compared to the distribution that would have been expected if there had been no migration and constant fertility. Figure 6 graphs the differences between the actual proportions of people in each age group and that expected if there had been no migration.

Three discrepancies emerge from these analyses. The most apparent is the higher-than-expected number of people in the age group 18 to 29 and the lower-than-expected number of people in age groups 30 to 44 and 45 to 64 (see Figure 6). Since Santa Monica is a city of renters, near the beach, one would expect a high influx of unmarried young people. After people get married and establish a family, they may find better job opportunities elsewhere, may find the size of rental units inappropriate, or may buy a house. Thus, one might expect that people would move out during their 30s and 40s. The data in Figure 6 suggest this.

A second discrepancy is the smaller-than-expected proportion of children under age 18. This finding was discussed in the previous section. The third discrepancy is a greater proportion of elderly people than expected. Santa Monica has been a desirable residential location for the elderly for some time. However, given the competition for rental housing in Los Angeles and the generally lower incomes of the elderly, one would expect there to be a decrease in elderly people. Part of the increase is due to the aging in place of tenants who were already in their units (the "expected" elderly population in the model), but part is due to new rentals to elderly persons. For example, 6.2 percent of the households that had moved into their units within the previous three years had an elderly person, age 65 and over, living in them. The fact that new rentals have been made and that there are more elderly than expected suggests that the rent control policy has been effective in keeping housing affordable for the elderly. This phenomenon contrasts with conditions in the city of Los Angeles where there has been a significant decline in the elderly renter population between 1977 and 1987, particularly on the west side of Los Angeles adjacent to Santa Monica; this decline started in the 1970s and has accelerated during the 1980s.(n18) Even though the city of Los Angeles has rent control, its law is less strict than Santa Monica's and has not prevented a decline in the elderly population. The Los Angeles rent control law allows vacancy decontrol, a five-year pass-through of capital improvements, and a permanent decontrol if capital expenditures exceed a certain level. The Santa Monica law has vacancy control and a 15-year pass-through of capital expenditures and does not allow permanent decontrol.

Conclusion

The findings from this study indicate that the 1979 Santa Monica rent control ordinance has fulfilled some, but not all, of its stated goals. On one hand, the community has not been destabilized. Length of tenure increased and the socio-economic makeup of the city has remained approximately the same. Lower-income tenants have gained proportionately more from the rent control law, realizing a significant reduction in their shelter cost. This is particularly true of elderly people; there has been a slight increase in the elderly tenant population in Santa Monica. The proportion of households with children has remained constant, though family sizes have declined. This result may be an additional benefit of rent control, and may represent the stopping of a decline in rentals to families before the law's enactment that may still be continuing in adjacent areas. On the other hand, there has been a decline in black and Latino tenants, a trend that started prior to the rent control law and that has continued.

Our results show that, in relation to the intent behind it, the Santa Monica rent control law has been most beneficial for low income households. There is no evidence to support the argument that rent control is providing a disproportionate benefit to middle- and upper-income groups. In cities like Santa Monica, where there is vacancy control, rent control appears to be effective in keeping many units affordable. Savings passed on to renters from such laws could be considerable, and could perhaps allow some people to accumulate enough in savings eventually to purchase their own homes.

Many of the economic arguments that have been raised against rent control take place in a theoretical "vacuum" where the effects of price control are seen as detrimental for the building of new rental units.(n19) Perhaps if rent control were the only price distortion affecting a housing equilibrium, then we might have found that it had a negative effect on the total rental stock. But, in reality, rent control usually emerges in tight and worsening housing conditions and in locales where the majority of the housing stock is renter-occupied. The Santa Monica law emerged under housing conditions where land speculation (rapid buying and selling of units) was occurring.

Given the current housing crisis in large urban areas, rent control should be viewed as one of a number of policy strategies that can be employed to improve the housing situation for selected target populations, specifically low--and moderate-income households. As a policy strategy, rent control does not directly address questions of expanded supply of affordable rental units and family-sized units, nor will it eliminate housing discrimination (it may actually provide an effective vehicle for some landlords to discriminate against minorities). Rent control is most effective at protecting those who have housing already. For these other housing problems to be solved, a number of different housing strategies focused on specific objectives and target populations would have to be developed. Such policy strategies should address questions related to financing, stimulating production of affordable units, obtaining a balance among unit sizes, yielding an appropriate geographic distribution, and avoiding housing discrimination. In short, rent control primarily has been a response to rapidly escalating rental rates, rather than a cause. The real problem is those factors affecting housing costs (e.g., land speculation, low vacancy rates, high interest rates, etc.), which lie well beyond the limited arena for landlord-tenant debates.

We believe it is fair to ask what the consequences of rent control are and whether rent control can improve the housing situation in urban areas today. Needless to say, other housing policies are rarely examined for their abilities to provide housing for the less advantaged members of our society. In uncontrolled markets, supply and demand are the governing factors underlying the pricing mechanisms for rental units, and in tight housing markets, like the Los Angeles area, rent increases have escalated rapidly. Rent control has been of limited success in protecting low income households, but market conditions may have been even less successful. Any housing policy that is developed must address these questions and must be subjected to the same empirical criteria applied to rent control. We cannot assume that market conditions will solve urban housing problems without some form of public intervention.

NOTES

(n1.) A key factor in the analysis of rent control is the strength of the ordinance. Appelbaum and Gilderbloom (1988) categorize rent control ordinances into three types: restrictive, moderate, and strong. They have argued that all three types have little impact on the amount of investment in rental housing, though they do show differences in the effects on long-term rent levels, with the stronger ordinances leading to lower average rents. In particular, vacancy control measures appear to have the strongest impact in controlling rent levels.

(n2.) This method involves selecting telephone prefixes that cross the city and then generating random telephone numbers. Even though most numbers are not working or are businesses, the sample produced represents a random sample of households with telephones. Since a high proportion of the Santa Monica renter population have telephones (the 1980 Census documented 96 percent of all renter households having telephones), the method was appropriate for accurately estimating the characteristics of renter households. Details of the survey methodology can be obtained either from the authors or from the study report (Levine and Grigsby 1987). Supplemental interviewing efforts were undertaken for those households that did not speak English.

(n3.) There was a slight difference in the way these items were measured in the two surveys. The 1979 survey rounded off length of residence to the nearest year, whereas the 1987 survey calculated residence in exact years (e.g., 0 to 11 months is "0" years, 12 to 23 months is "1" year, etc.). This difference is not critical, especially in comparing groups of years.

(n4.) For example, the average number of years of residence for tenants within the city of Los Angeles increased by 1.93 years compared to 1.53 years for tenants in the surrounding non-rent-controlled cities. A more dramatic increase was seen for tenants residing in their units six or more years. In 1984 within Los Angeles, 34.1 percent of the renter population had lived in their units six or more years, compared to 22.9 percent of tenants in the surrounding cities that were studied.

(n5.) The 1980 Census indicated that the vacancy rate in Santa Monica was 1.7 percent (U.S. Bureau of the Census 1980). We don't have 1987 figures for the vacancy rate, but it appears to be low.

(n6.) Among tenants who moved in prior to 1979, 3.2 percent used a rental agency, compared to 8.6 percent who have moved in since 1984. It has been argued within the city of Santa Monica that rental agencies are required to gain entry and that significant "extra" payments must be made to such agencies. We found that three-quarters of those who used a rental agency paid a fee; the median fee was $50. While it has been frequently argued locally that prospective tenants need to go to rental agencies and pay a large fee to obtain units, our results do not support this.

(n7.) We also constructed a hedonic pricing model. It yielded a figure of $ 191 in savings due to rent control in Santa Monica. Such models raise methodological issues, the resolution of which are beyond the scope of this article. We decided to use the more conservative Consumer Price Index (CPI) variation test with the assurance that the hedonic model yields a larger savings figure.

(n8.) The April rent control law rolled back rents to the April 1978 level. In September 1979, a 7-percent increase was allowed, based on the April 1978 rent levels.

(n9.) We calculated this proportion by multiplying the monthly rent in 1987 by 12, and then dividing by the total household income in 1986. Even though the method is rough, it gives an indicator of the proportion of income spent on shelter.

(n10.) The figures are indeterminate for those at the very top of the distribution. In both the 1979 and 1987 surveys, there were households with an annual rent-to-income ratio greater than 1.00. We have truncated their shelter cost index to 1.00.

(n11.) We estimated expected household income by the equation

 
              Y = $43,536 - $49,623*S

where Y is 1986 household income and S is the ratio of annual rent to household income (as a proportion). The R2 was 0.35.

(n12.) The figure for average shelter cost in 1979 was 34.2 percent, with a standard deviation of 30.7 percent; for rent-controlled units in 1987 the mean was 30.4 percent with a standard deviation of 23.1 percent. The difference is highly significant (t = 10.38, p </= 001).

(n13.) We also constructed Lorenz curves and Gini coefficients for both surveys (see Shryock and Siegel 1976). The Gini for 1979 was 0.3463, while the Gini for 1986 was .3646.

(n14.) Ten-percent increments were used because of insufficient numbers of income increments.

(n15.) Note: this "gentrification distribution" is arbitrary. We have calculated it by taking the average difference between rent-controlled and non-rent controlled units and adding it to the household income at each percentile. In 1986, the average income in non-rent-controlled units was $42,343, compared to only $27,473 for those in rent-controlled units; the small number of household not under rent control makes this difference uncertain.

(n16.) It should be noted that the increased proportion of elderly is a phenomenon occurring throughout the state. In 1985, for example, the state's elderly population comprised 10.8 percent of the population. By the year 2000 the proportion of the state's elderly population is expected to reach 12.3 percent, according to the State Department of Finance.

(n17.) See Levine (1985). The model assumed that survival rates would remain constant over the next ten years and that child-women ratios (the ratio of children, 0 to 4 and 5 to 9, compared to women, l 0 to 49) would remain stable. We assumed that there was no net-migration, neither people moving in nor out. This is a necessary assumption in order to examine the age distribution that would occur if there had been no migration. We can then compare this expected distribution with that actually observed to see in which age groups migration had the greatest effects.

(n18.) For example, the 1977 Annual Housing Survey of the Los Angeles area showed that 20 percent of the heads of renter households within the city of Los Angeles were aged 62 years or older. By 1984, this percentage had declined to 16 percent and by 1987 to 15 percent (Hamilton et al. 1984, 1988). Similar conclusions have been reached from an analysis of net migration trends in the city of Los Angeles between 1970 and 1980 (Grigsby, Levine, and Leavitt 1986).

(n19.) In a recent study, Baar and Squier (1987) examined both new construction and apartment sales in Santa Monica and nearby areas. They showed that new construction in Santa Monica since 1980 has been higher than in many coastal cities south of Santa Monica, which do not have rent control. They also showed that, from a sample of apartment buildings that had sold recently, Santa Monica units sold at a price about 12-percent lower than units from adjacent areas.

 
TABLE 1: Length of residence 1979-1987 (frequencies and
percentages)
 
Percentage of                 1979-80 survey       1987 survey
sample who had              (in rounded years)   (in exact years)
lived in unit                   n = 758 (%)         n = 411 (%)
 
Less than 6
  months                           16.0                 5.3
Less than 3 years                  54.5                32.8
Less than 5 years                  72.8                46.4
Less than 8 years                  87.4                73.4
More than 10 years                  9.2                19.6
AVERAGE YEARS
  OF RESIDENCE                      3.9                 6.2
 
Standard deviation                 (6.6)               (4.5)
 
Difference in
  means (t-value)                           6.9
Probability of
  differing by
  chance                                 p </= .001
 
TABLE 2: Various indicators of 1987 monthly rent levels (monthly
rent)
 
                                             Units under
                             All units       rent control
Indicator                     n = 384          n = 352
 
25-percentile                   $345             $335
50-percentile                   $444             $439
  (median)
75-percentile                   $591             $571
90-percentile                   $734             $703
Average rent                    $508             $489
 
TABLE 3: Racial-ethnic distribution of renter population[a]
 
                            Population distribution
 
                            1979-80
Race/ethnicity of           survey       1987 survey
all household                                            Percent
members                    n        %      n       %     change
 
White (non-Latino)       1,028    73.4    587    78.3     +4.9
Black                       71     5.1     24     3.2     -1.9
Latino                     249    17.8     99    13.2     -4.6
Asian/Pacific
  Islander                  41     2.9     24     3.2     +0.3
Native American             11     0.8      6     0.8     +0.0
Other                       --     --      10     1.3      --
                         1,400    100.0   750    100.0
 
[a.] Assuming that race/ethnicity of the respondent applies
to all household members.

GRAPH: FIGURE 1: Expected and actual rents, 1978-1987 expected on basis of residential rent CPI.

GRAPH: FIGURE 2: Shelter cost, 1979- 1987, annualized rent as a percentage of household income.

GRAPH: FIGURE 3: Household income percentiles, 1986, expected and actual for rent-controlled units.

GRAPH: FIGURE 4: Santa Monica renter age distribution, percentage of renter population in each age group

GRAPH: FIGURE 5: Modeling 1987 renters' age distribution, expected and actual percentage in each age group.

GRAPH: FIGURE 6: Migration tendencies of renters, actual minus expected percentages in each age group.

REFERENCES

Appelbaum, Richard P. 1983. The Effects of Rent Control on the Santa Monica Rental Housing Market. Paper presented at the Lincoln Institute of Land Policy Colloquium on Rent Control. Cambridge, MA, November.

Appelbaum, Richard P., and John I. Gilderbloom. 1988. The Impact of Modern Rent Control on Landlords and Tenants. Typescript.

Baar, Kenneth. 1983. Guidelines for Drafting Rent Control Laws: Lessons of a Decade. Rutgers Law Review 35, 41: 721-885.

Baar, Kenneth, and Gary Squier. 1987. Perspectives on the Rental Housing Market in the Santa Monica Area. Report prepared for the Rent Control Board of the City of Santa Monica, August.

City of Los Angeles. 1979. Rent Stabilization Ordinance. Ordinance No. 152, 120. April 21.

City of Santa Monica. 1979. Rent Control Charter Amendment 1805.

Clark, W. A. V., and Allan David Heskin. 1982. The Impact of Rent Control on Tenure Discounts and Residential Mobility. Land Economics 58, 1: 109-117.

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~~~~~~~~

Ned Levine, J. Eugene Grigsby III, and Allan Heskin

Levine is a lecturer in the Graduate School of Architecture and Urban Planning, University of California at Los Angeles. His research interests are planning information systems, social policy evaluation, and security planning. He also developed the HALLEY population analysis program. Grigsby is an associate professor in the Graduate School of Architecture and Urban Planning, University of California at Los Angeles. He earned his doctorate in urban sociology from UCLA in 1971. His research interests are social policy planning and urban impact assessment. Heskin is an associate professor and head of the urban planning program in the Graduate School of Architecture and Urban Planning, University of California at Los Angeles. He is the author of Tenants and the American Dream (Praeger, 1983), a book about the tenant movement in Los Angeles and Santa Monica.


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Source: Journal of the American Planning Association, Spring90, Vol. 56 Issue 2, p140, 12p
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