BEN KENNEDY — Affordable housing in the United States has been a hot-button issue as rents and home prices have been rising steadily in recent years. Median rent growth has dramatically outpaced wage growth making finding affordable housing difficult for many Americans. This issue has been particularly troublesome in large coastal cities such as San Francisco and New York City amidst a growing demographic trend of urbanization and a flight to larger cities. To combat the rising affordability issues, many politicians have called for various policies limiting the amount that landlords can raise rents or providing a ceiling for what a landlord can charge.
In September 2019, the California State Assembly passed AB 1482, which caps rent hikes for existing tenants and prohibits landlords from terminating the lease of a tenant that has occupied the property for at least 12 months without just cause. The bill caps rental increases at the lower of either the sum of five percent plus the change in cost of living or a total of ten percent. California’s new law is not the first of its kind in the news recently. Earlier in the year, Oregon’s Governor Kate Brown signed Senate Bill 608, restricting landlords from raising rents more than seven percent per year plus the change in the cost of living. Bill 608 was notable in that it was the first statewide rent control law. Shortly after California passed AB 1482, Presidential hopeful Bernie Sanders made headlines when he released his “Housing for All” plan. Sanders’s plan calls for $2.5 trillion in spending and caps rental increases nationwide at the higher of 3 percent or 1.5 times the consumer price index.
Although rent control laws have been around in the United States since World War II, they typically have been a focus of local politics on a city-by-city basis and not at the state or national level. One such city where rent control has been a contentious topic is New York City. There, landlords are fighting broad and far-reaching rent regulations that passed in June of 2019. The New York City regulations include abandoning previously available provisions for landlords to deregulate their units after rents legally reached a certain point. They also limit landlords’ ability to raise rents based on improvements made to the property and eliminate landlords’ ability to take advantage of a “vacancy bonus” after a tenant moved out. The landlords argue that the new laws effectively amount to a taking of property in violation of the Fifth Amendment’s Takings Clause.
Landlords have not had much success in the Supreme Court when challenging that rent regulations amount to a taking of their property without just compensation. The Court has analyzed Takings Clause claims under two distinct frameworks: physical takings and regulatory takings.
As established in Loretto v. Teleprompter Manhattan Catv Corp., the Court has held that a physical taking has occurred when there is a permanent, physical occupation of property and therefore compensation is necessary in such a scenario. On the other hand, as laid out in Penn Central Transp. Co. v. New York City, when the government has merely regulated the use of property, the Court has used an ad hoc balancing test to determine if there has been a taking. This test includes analyzing the economic impact of the regulations, the regulations’ interference with reasonable investment-backed expectations, and the character of the governmental action. The New York City landlords argue in their suit that the new regulations drastically reduce the value of their properties and amount to both a physical and regulatory taking of property. The New York landlords are not asking for monetary damages for the diminution in value, but rather for the court to enjoin the application and enforcement of the Rent Stabilization Laws.
Economists have been critical of rent control as a solution to affordable-housing problems. Many have pointed out that these policies often limit renters’ mobility, lead to a reduction in the supply and quality of available rental housing, and do not do a good job of targeting those who most need assistance the most. Furthermore, these policies can result in cities losing out in large amounts of tax revenue, which will either be reflected in a higher tax burden for home owners and tenants in the non-controlled housing or result in reduced city services.
In sum, rent control policies are a complicated issue involving many parties and conflicting interests. Policy makers may have more success by looking at other potential solutions including reexamining local zoning laws in the most expensive housing markets and expanding voucher programs. Housing remains a topic of crucial importance for all Americans and it will be interesting to follow how the courts, politicians, and other involved stakeholders react to the changing economic and political landscape.