SLOW DEATH FOR RENT CONTROL DEPARTMENT OF URBAN PLANNING
By JUSTIN FOX

(FORTUNE Magazine) – Twenty-eight years ago, Phyllis Anderson bought a six-unit apartment building in the California beach town of Santa Monica. It was to be both a place for her to live and a source of income when she retired. She still lives there, along with her nephew. But thanks to the twisted economics of rent control, nobody else does. In 1990, Anderson paid her tenants $3,500 each to move out, figuring that was cheaper than coping with her city's rent control laws.

Limit what people can charge for something, and they're apt to reduce its quality or just stop producing it. As economic theories go, this is about as uncontested as you're going to get. Nevertheless, in the 1970s and early 1980s, with inflation sending rents cloudward, voters and politicians in about 200 U.S. cities said to hell with economics and imposed rent ceilings. Most of these laws were modest and brought neither big economic distortions nor markedly lower rents. Then there's Santa Monica, which arguably has the country's toughest rent control law. Controlled rents are 30% below market rates by one estimate. The government in this city of 87,000 has tried to throttle greed and speculation to make housing affordable for all.

The problem is that it often takes greed and speculation to get housing built. With capitalist cupidity in check, the number of rental units in Santa Monica dropped 5% in the 1980s, despite the construction of hundreds of new city-funded apartments. Finding a place to rent now involves long waits, odious broker fees, or connections. Rental-housing quality is suffering as well. The two-story apartment buildings (known as dingbats to architectural historians) that make up most of Santa Monica's housing stock look ratty--especially next to the city's snazzy shopping streets and million-dollar homes.

The city's rulers, members of a political party called Santa Monicans for Renters' Rights (or SMRR, pronounced "smur"), are well aware that rent control tempts landlords to cut back on maintenance or convert their apartment buildings into condos, mansions, or minimarts. To counteract such unsavory impulses, the local rent control board has 250 pages of regulations, a staff of 50, and an annual budget of $4.2 million. Until 1986, it was even against the rules for landlords to go out of business as Phyllis Anderson did. It took a state law to force Santa Monica to allow landlords to stop being landlords. Anderson still can't put her property to any other use. Anybody who buys the building from her is in the same boat.

Despite all this, Santa Monica's rent controllers see their experiment as a success. "Without rent control, Santa Monica would have become a community of high-priced condos," says Dennis Zane, who co-founded SMRR and was the city's mayor in the late 1980s. That's debatable. What's certain is that for people lucky enough to have an apartment, rent control has been a boon: They get to live in a pleasant, safe, very fashionable city, just blocks from the beach and a few miles from L.A.'s office towers, for rents that averaged just $552 a month in 1990 and haven't gone up much since.

This infuriates Santa Monican landlords, who, in terms of net worth, aren't exactly Trump-like. "They're using our money to give to other people without any proof whatsoever that those people are in need," says John Rodriguez, a barber who owns three small apartment buildings and has been the city's most outspoken rent control critic. But for SMRR, rent control is the pocketbook issue that unites the city's tenant majority behind the party's broader agenda, rooted in the leftist activism of Santa Monican Tom Hayden.

This political equation does not add up outside the city limits, where landlords are on a winning streak. In 1994, Massachusetts voters abolished local rent controls. Last year California's legislature made it illegal as of 1999 for cities to limit the rents landlords can ask for vacant apartments--a move that will mean big changes in Santa Monica. A congressional panel voted last year to do away with the District of Columbia's rent controls, although it later backed off. In New York City, where rent control dates back to World War II and 83% of Manhattan apartments are regulated, state lawmakers plan to take aim at rent limits next year. "It's dying," says John Gilderbloom, a University of Louisville professor who was one of rent control's leading proponents in the 1980s. "I just don't think the advocates are there."

In Santa Monica the advocates are still there, and their power still occasions political weirdness, economic weirdness--and just plain weirdness. At a recent rent control board meeting, a woman stood up during the public-comment period to announce that the Genovese Mafia was behind the deaths of Queen Victoria, William McKinley, and John F. Kennedy, and was now "trying to kill me with constipation." More to the point, when the board recited the Pledge of Allegiance at the start of the meeting, the closing line, "...with liberty and justice for all," was followed by a shout from a man in the front row of the audience: "Except in Santa Monica!"

--Justin Fox