Rent Instability

Dear Readers,

Let’s take a scrupulously objective look at the rent stabilization issue, shall we?

First of all, do we all agree that the majority of landlords are bloodsuckers? What else would you call people who profit from housing, as basic a human need as you can name? They have tenants over a barrel. Basically, they force them to hand over most of their earnings. The sort of people who are outraged by rent control and other government “meddling” in their lives, complain that taxpayers work for the IRS from January to April – that’s the portion of their income they pay in taxes. How come they don’t get even more outraged that renters work for the landlord from January to about October? At least taxes go to pay for public services. The rent goes down a rat hole.

To be fair, tenants benefit as well. The money they pay to the landlord goes to pay the mortgage on the building, and the mortgage is tax-deductible. Oh, wait, that’s a benefit for the landlord, isn’t it?. Of course, the tenants get to write off . . . hmm, . . . nothing, actually.
Gee, Gilbert reluctantly concludes that the rental-housing system is stacked against the poor, propertyless, little guy. How could such a thing happen in America?

But wait, here in Takoma Park, we’ve passed laws to protect the little guy – we have rent control (or “rent stabilization” if you want to use the city ordinance’s term). Rent increases are tied to the cost of living index. Landlords can petition the city for rent increases to cover costs that would cause them to lose profit. In theory, anyway. That part has not been working, according to the landlords.
They’ve been griping about this and other problems with rent stabilization to the city council, which is in the process of reviewing and revising the ordinance.

As it does with all issues, the council has been taking little bites, holding a series of hearings and discussions. Over the last couple of months all the groups who play a part in this: landlords, tenants, citizens, the city council, and the city staff, have had a chance to speak up.

The March 27th session was an opportunity for tenants, landlords, and other citizens to express opinions and ideas to the council.

The tenants clearly won that round. It is one thing when landlords metaphorically cry about their profit losses, it is another when tenants literally break down in tears because they can barely afford to rent their run-down, cockroach-infested apartments. If the rent rises, they have nowhere to go – certainly no place in their children’s’ school district. For example, the single mother of a high school junior decried the fact that her building is going condo, and she has not been able to find a comparable rent in the area – which means her son will not be able to finish his senior year at his school.

Even so, the landlords made some i important points. Clearly, the soaring costs of utilities and insurance are outstripping the allowable rate of rent increase. The city’s capitol improvement petition process is daunting and unwieldy (this is the process through which landlords get permission to increase rents to cover certain types of costs).

In the next round Mayor Porter, who is considerably more evenhanded on this subject than Gilbert , nevertheless kicked off the April 3rd city council rent-stabilization discussion by stating that people who criticize rent control should offer concrete alternatives. They should also be prepared for the council to scrutinize the alternatives in the same level of detail being lavished on rent control. Her admonition was totally ignored, of course.

Porter said that in all the years she’s been looking at affordable housing issues, rent stabilization is the only program the city can make use of.

She readily admitted that the program needs adjusting, especially in the light of utility and insurance rate increases. She acknowledged problems with the capitol improvement petition process as well. But, she said, all programs have pros and cons.

Councilmember Terry Seamens counted himself a strong supporter of affordable housing, saying the city benefits from having residents with various levels of income. He said that to his knowledge rent stabilization is the best tool to provide affordable housing. Like the Mayor, he acknowledged that there are problems with the current law and that it needs “tweaking”.

“Tweaking” was again the by-word of the evening . [See Granolapark entry, January 7, “Tweak, Tweak!”] Even Councilmember Marc Elrich, possibly the most outspoken supporter of rent control, admitted tweaking was in order.

At the center of Elrich’s aggressive defense of rent control is the assertion that rent control is a moral issue. In a society that does not provide adequate housing to people who can’t afford it, the people’s representatives have a moral obligation to protect them. The Supreme Court, Elrich says, has ruled in favor of rent control, as long as the laws allow landlords to make a profit.

He disagreed a bit with the mayor, who in her introductory remark said that the issue is about efficiency. Elrich said it was about fairness – echoing a word used by Councilmember Bruce Williams.

This was somewhat ironic, as Councilmember Williams had taken a stand with Councilmember Colleen Clay on the (in Gilbert’s unbiased and objective opinion) slimy side of the issue along side the blood leeching landlords (see? totally unbiased). Both stated dissatisfaction with rent control. What Williams actually said about fairness was that he’d like to see something fairer and simpler, complaining that the law as it stands is difficult to understand and does not accomplish what it is intended to. He joined the “Tweak” chorus, however, tacitly acknowledging that adjustments to the existing laws are more likely than a different affordable housing program.

Councilmember Clay was more outspoken, saying it was no secret she has “issues” with rent control, and saying it doesn’t help the low-income people it is intended to. Before the council tweaks, she said, it should look at the broader underlying issues. She complained t hat the council examination of rent stabilization has not looked at the aspects she thinks they should.

Those aspects include whether the law “targets” the right group of people for assistance, and how much the ordinance costs the city. Not just the costs of the city staff time to administer the program, she meant, but the costs to the city, taxpayers, and property-owners directly or indirectly caused by lowered property values and reduced tax income – results of rent control.

She also said the council should look at what other programs might be of more benefit.

She said that the council has learned that rent control is not working for either tenants or landlords. Tenants are not happy, she said, with lack of maintenance. The low rents do not cover full maintenance, say the landlords. They can’t afford it.

Clay said (with a teaspoon of disingenuousness, and maybe just a pinch of malice), that since city residents so strongly support affordable housing they would be glad to take the burden of doing so onto themselves and not unfairly make the landlords take on the entire load.

 

She attempted to turn Elrich’s focus on morals against him. She said she agrees it is a moral issue, but it comes down to what the city’s residents are willing to contribute towards the costs of rent control. Right now, she says, the city has taken a moral stand, but shifted most of the burden onto the shoulders of landlords, who in effect are transferring income into the pockets of their tenants, whether those tenants are poor enough to deserve it or not. She cited the “poster boy” tenant described in a study of rent control, a well-off doctor paying a small fraction of his income to rent a Takoma Park apartment.

That controversial University of Maryland study was commissioned by one of the country’s largest rental companies, owners of the Park Ritchie apartments. Clay said the study should be carefully examined and discussed by the council as it raised the issues she thought should be considered.

Marc Elrich pounced on this proposal like a landlord on a jugular vein. He said the city has another study from the University of Maryland, which it commissioned, showing that in fact Takoma Park’s rent controlled properties are better maintained than similar properties in surrounding districts. He asserted that the council will get no insights from the study considering the corporation that commissioned it.
The council wrangled over whether or not to hear a presentation on the study, but the staff wasn’t sure the authors could be persuaded to make a presentation, since the council had previously dismissed the study.

Councilmember Williams pressed however, and most of the others agreed on the grounds that they don’t want to be caused of ignoring it. The mayor promised she would fit it into a council agenda in the not-to-distant future.

Joking “Don’t shoot me!” Clay proposed a committee to study affordable housing. The committee, she said, could study the issue in more depth and bring recommendations to the council for changes. Joy Austin-Lane and Terry Seamens agreed with the proposal. Bruce Williams said “I have to smile”, as his first involvement in city politics was as a member of such a committee. It might be worth doing all over again, he allowed, but, the council should dust off that committee’s report.

Marc Elrich grudgingly agreed to a committee, but warned that a majority of the members must be tenants, to accurately reflect the demographics of the city.

Mayor Porter, who has been around the rent-controled block a time or two, warned that a committee will not solve the problems. She agreed with Clay that the council should know what effects their policies might have, but she said, reprising her opening remarks, it is not fair to criticize rent stabilization without comparing it to something else. She said that in her experience in antipoverty programs, there are always difficulties reaching the “target” group. There are lack of efficiencies in all programs and they all have direct and hidden costs. But the costs of the current rent control program are nothing compared to subsidizing low income rents, she asserted.

She agreed that the city might take a look at affordable housing ownership, especially in the case of condominium conversions. As an aside she voiced what Gilbert has heard many city residents say of late, that she is worried by high cost of property in the city. It used to be, she said, that the reasonable prices attracted people such as teachers and employees of nonprofit organizations, but those people are now priced out. She couldn’t afford to buy her own home now, Her Honor said.

Clay followed up on the mayor’s points. Seeking to hold the city and citizens to a consistent moral standard, she said that while the city provided assistance to tenants, there was no comparable affordable housing program for people who wanted to buy property in Takoma Park.
Most of the council warily allowed that such a program might be worth looking into. Maybe. Depending. In theory.

Councilmember Doug Barry lined up with Marc Elrich, for the most part, cautioning against letting market prices take over the rental market. That, he said, would result in social stratification. He said rent control is a sensible and humane policy. He joined in the “Tweak’ chorus,too, citing examples of adjustments that could be made: energy surcharges, allowing landlords to choose which is the most favorable “base year” to reckon their rent increases, and offering more staff assistance to landlords applying for capitol improvement petitions.

In between scheduled discussions of rent stabilization, there has been a steady stream of folks addressing the issue during city council citizen comment segments. A number of these have been landlord lobbyists and lawyers (how’s that for alliteration?), particularly at the May 1 council meeting. Their comments have ranged along a scale. At one end of t he scale have been individual tales of woe describing profit loss due to rent control and rising utility, energy, and insurance costs, to threats of legal action against the city. Depending on how big the landlord is (economically, that is) the higher up the threat scale they go.

The razor-sharp lawyer for Southern Management Corporation (one firm that commissioned the University of Maryland study, and owner of the Park Ritchie apartments) threw out an ultimatum – saying the corporation will take one of three actions: convert the building to condos, vacate and close the building, or sue the city for 20 million dollars, claiming the rent control laws violate the US constitution and the

Maryland bill of rights. He dismissed the rent stabilization revisions so far discussed, sniffing “none of this helps us.”
Before the lawyer slithered away Councilmember Seamens took a little wind out of his sails, asking if it were true that Southern Management Corporation have never asked for relief via the processes provided by the law. The lawyer huffed that such an effort would have been “futile.”

Seamens replied that he found it “interesting” that rather than try, the company decided it would be insufficient.

Mark Hessell (sp?) who represents, he says, a handful of landlords, laid out his group’s proposed reforms at the same meeting. Begrudging that rent control is not gong to “go away” given the current makeup of the city council, they advocate some form of “vacancy decontrol,” Mr.Hessell described various forms this might take:

• when a tenant moves out, the rent of that unit is allowed to rise to “market rate,”
• when a tenant moves out and the rent is allowed to rise to market rate, it will remain set, rising at a rate consistent with the consumer price index,
• when a vacancy occurs, the landlord is allowed a large but limited increase.

Later in that May 1 meeting, the council hit the next milestone on the rent stabilization trail, though they are slipping behind schedule. This discussion – a review of staff recommendations regarding the capitol improvement petition process – was postponed from last week. Prior to that, the mayor realized that they had not scheduled enough time for staff recommendations. More than one session would be required, and there should be one meeting with special focus on the capitol improvement petition process.

Furthermore, as they got into discussing the capitol improvement petition process, the mayor and council agreed that an even more in-depth look would be necessary.

If you can stay awake, dear Readers, perhaps I should explain again that the capitol improvement petition process is a way for landlords to justify a rent increase – if the landlord shows he spent money on improvements to the property. These improvements have to meet certain definitions. Regular maintenance does not count. Increases in utility costs don’t count either.

What the staff recommends:
• They would tighten up the exemptions to rent control, no longer exempting landlords of accessory apartments and -smaller-than-4-unit buildings.
• They would exempt newly constructed apartment buildings for 5 years following completion.
• They would peg the rate of rent increase to 100 % of the consumer price i index (currently pegged to 75%)
• They would adopt the IRS definition of capitol improvements for consistency’s sake.
• They would develop a “single rent increase petition” to cover increasing costs such as utilities, insurance, and financing
• They would base rent increases on providing a reasonable rate of return for landlords. That rate is yet to be determined, and would doubtless be controversial since most of the landlords who have voiced opinions seem to think that only an unfettered market value is the most reasonable rate of return
• They would allow landlords to determine the most advantageous “base year” for calculating a rate of increase.
• They would allow landlords to add annual energy and property tax surcharges to the rent.
• They would change the allowable rent increase upon vacancy to a percent (to be determined – another bitter debate) of the Fair Market Rent limits (a federal government figure). This is a mild version of vacancy decontrol.

So there you have it, you are SO up-to-date and well-informed, you glow in the dark, Dear Reader. And, it probably is dark, because this is such a long posting the sun went down since you started.
.
– Gilbert.

About the Author

Gilbert
Gilbert is the pseudonym of a hard-bitten, hard-drinking, long-time Takoma Park resident who maintains the granolapark blog. Gilbert and William L. Brown — Granola Park's mild-mannered chief of staff, researcher, and drink pourer — have never been seen in the same place at the same time.

5 Comments on "Rent Instability"

  1. Thanks — that was actually informative while still being interesting. And it’s an important subject. More please.

  2. Awesome blog. Peace out until next time TabathaOster

  3. Steve Davies | June 5, 2006 at 3:13 am |

    No doubt, it’s a tough issue. But as a homeowner, I would be willing to pay a surcharge or special fee (as we do for stormwater) that would go into a fund to help people with their rent and to help them 1) buy a home in TP (good luck w/ the housing prices the way they are) or 2) help tenants take ownership of their buildings.
    I’m with Clay — let’s put our money where our mouths are. I assume (no proof here) some landlords are greedy and don’t keep their properties in livable shape, but others — I surmise — are simply businesspeople trying to do the right thing for tenants and make a modest profit. If Takoma Park drags its feet on addressing the landlords’ concerns, tenants will truly be SOL.
    May I add an observation about what I see as a bit of a disconnect? Our latest Takoma News talks of New Hampshire Avenue redevelopment in glowing “community” terms. We need redevelopment along this blighted stretch of road, which right now has businesses that do not serve our “affluent” community, the article says.
    The city wants to market the Takoma/Long Branch Enterprise Zone to developers. The EZ provides tax breaks for expansion and capital improvements for commercial properties along NH Ave between Eastern and University, on University between NH and Piney Branch, and also on Piney Branch, including Flower Village.
    This Enteprise Zone was an important campaign plank for Mayor Porter, but an article in the TP Gazette shortly after the election noted that most business owners who attended an EZ informational meeting were unaware that it even existed, despite its having been designated in 2003.
    Here’s where I see a bit of a disconnect. Many in TP are willing to believe the worst about landlords, and want to ensure that rents are affordable, yet the city is saying that we need businesses that will appeal to our “affluent” lifestyles.
    Many of the businesses along NH Ave serve the communities across the road in Prince George’s, or the folks in Langley Park. I noticed there’s even a new bank serving Latinos in the strip center just north of Holton. And Aldi? That’s like Trader Joe’s, but cheaper. Many many people who are a lot poorer than homeowners here in TP shop there for their groceries. Are we proposing to get rid of that?
    Despite the years of rhetoric about redevelopment along NH, I have yet to hear anyone suggest a realistic proposal for new business. Wal-Mart? (Please, no). Target? There’s one 10 minutes away down 410. Nordstrom’s? Yikes. (They wouldn’t come, anyway)
    We do have the new Starbucks (a tiny one) down at the Crossroads. But pity the person who tries to suggest Starbucks move into Old Town Takoma. Oh, the protests that would ensue!
    By all means fix the sidewalks, improve the shelters at the bus stops, educate the existing business proprietors about the EZ and the possibility of tax breaks — but please, let’s try to acknowledge the existence of the communities near us that are not as “affluent.”
    BTW, I’d love to see some back-and-forth on this subject, w/ specifics.
    EZ info
    http://www.choosemaryland.org/businessservices/taxincentives/enterprisezone.html
    Steve Davies
    6717 Poplar Ave
    Takoma Park MD 20912

  4. One minor correction. The mortgage income tax deduction works slightly differently for landlords. If you live in your own home you can deduct mortgage interest and property taxes from your personal income taxes, which is actually a lot of money. But if you rent out the home then your taxes work like any other business. You can deduct your costs against your income. So if you rent out an apartment you can only deduct the mortgage interest, and any other cost, against the rental income. You then have to pay taxes on the rental income to the extent its greater than your costs. So, for most landlords, as opposed to property owners, the tax benefits are pretty slim.

  5. Deirdre McIntyre | August 21, 2006 at 12:37 am |

    Bloodsucking landlord, here.
    Thanks for the interesting post about Takoma Park’s rent stabilization law. I have mixed emotions. I have a very small building that I operate in Takoma Park with a partner, and I believe that there’s value in making sure there is a place to live for people of all income levels in Takoma Park. I live in Takoma Park as well, and I’m feeling like getting to the less yuppified climes of College Park, myself.
    One of my tenants is a beneficiary of Montgomery County rental assistance. I favor these sorts of programs over rent control. My other tenants do not appear to be at all low income — they just know a good deal in a nice place when they see it. They would pay 30 – 40% more to be less than a mile away in Silver Spring (did I mention I am a Realtor, too?) Wouldn’t it be nice to focus the funds going to my other tenants on the one tenant family who needs it — at least by the Montgomery Co. standard? And maybe some of my other tenants do need help. Without going back over their credit reports, I couldn’t tell you.
    We pay a mortgage that is approximately $500 less than the rents. Each year thanks to the costs of improvements to the building, and the gas bills, we are about $6000 in arrears. Because of the not-great tax code of the United States, all tax payers usually – usually – almost make it up to us in the end.
    I don’t suck blood. I feel a little anemic. My solution is to sell the property as a very large single family dwelling. This is not what rent control was meant to do, diminish the affordable rental housing stock. If there were a more targetted way of assisting lower-income people to provide affordable housing, I’d really like to abolish the rent stabilization law. In the absence of good laws like these, I’m theoretially in favor of rent control. I just can’t afford to keep paying for it!
    The other thing I got out of this is that my local councilman said some good stuff to Southern Management. Go Terry! Kathy Porter suggested to come up with better ideas. I really don’t like when Takoma has to come up with local laws because the region, Maryland, or the USAC isn’t doing it’s/our duties. I don’t have any numbers behind this idea, but maybe all Takoma Park landlords could pay into a fund, but otherwise charge market rents for thier places. Another advantage to rent control is that the folks who qualify for the lower rents in the targetted programs are sometimes stigmatized, and may have trouble getting a place.
    I’ll admit I’m just as confused as the next person. For now, I’m sitting in a more confortable position than many. But don’t forget, I took a lot of risk and carry a lot of responsibility to provide this housing.

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