RENT CONTROL: Reform, But Don't Abolish

President, Cambridge Civic Association

The real needed reform of rent control in Cambridge is being obscured by the misleading questions about tenant's income, the tax consequences for controlled versus non-controlled properties and City Councilor Bill Walsh's proposal for "dedication" of controlled units to low- to moderate-income tenants--a proposal best understood as vacancy decontrol.

The implementation of rent control has admirably fulfilled the intent of past majorities of the city council to protect all tenants from a difficult choice between wholesale displacement through eviction and/or inability to pay versus a drastically decreased living standard precipitated by the unconscionable rent-gouging permitted by a "free-market" as presently seen in Cambridge. A majority of the city council intends to preserve the diversity of Cambridge through a housing policy, including rent control, which makes it possible for all income groups--the poor, low, moderate, middle, upper-middle and wealthy--to live in Cambridge.

Clearly, rent control has worked in Cambridge. With a generally balanced policy, it has protected the naturally adversarial interests of landlords and tenants. Fifteen years of regulation have maintained rents at approximately two-and-a-half times those of 1967, an increase which is slightly less than the increase in the consumer price index. This increase can recover normal operating costs and maintain a fair profit in most cases.

Landlords have always been permitted to petition for additional rent increases where documented increases in costs or capital improvement necessitated additional income to maintain a fair net operating income. No landlord can legally be denied a fair income, regardless of a tenant's ability to pay.

The real problem of rent control involves very few properties, probably less than 5 percent of all buildings, with unrealistically low legal rent. Many of these buildings are believed to be owned by the anecdotal "small property owner" who is being crushed by increases in costs greatly exceeding the legal rent increases. These low rents--$50 to $150 per unit per month in 1986--are the result of the Cambridge Rent Control Board's policy whereby 1967 rents are presumed to be "fair", i.e., profits were uninfluenced by speculation and operating costs were being recovered.

Presupposing Fairness

The rent board has never determined a "fair rent" through an analysis of operating costs plus fair net income for individual properties. The [city's] General Adjustment policy preserves the historical 1967 ratio of expenses to profits even if the resulting rents are unrealistically low or outrageously high. This "presumption of fairness," while expedient both politically and bureaucratically, avoids the difficult task of ensuring real fairness to landlords and tenants like.

Fifteen years of rent control have only accentuated the unfairness for these few landlords. They suffer because for a variety of reasons the rents were unrealistically low in 1967, and the normal General Adjustment cannot ensure rents which will recover current operating costs and provide a fair net income. The Individual Rent Adjustment process provides an avenue of redress for these cases. It requires landlords to substantiate in detail their increased expenses.

However, many of the lowest rent units are owned by landlords--the "small property owners"--who are unable by language or education or managerial skills or who are unwilling for financial or philosophical reasons to begin this adjustment. Nevertheless, they complain loudly to the city council about the "unfairness" of rent control. During this stalemate, the property may deteriorate significantly and be lost to future tenants. Numerous cases abound with properties at 34 Cedar St. and 74-6 Putnam Ave. being newsworthy recently.

Tenants suffer from this presumption of fairness when outrageously high levels of profit approaching 90 percent of the gross rent in 1967 are carried forward to the present. This legalized rent-gouging is a continuing testimonial to the unbridled greed of a few landlords in the "fair" rental markets of 1967. While the tenants paying these rents suffer most, all tenants and the rent control policy suffer as responsible landlords observe a few greedy neighbors receiving huge profits without basis in any rational analysis of the rent. The appearence of "unfairness" most easily leads to pressure to raise all rents towards the "free-market" level. The existing huge range for actual rents and in the ratios of expenses to profit greatly contribute to the perception of unfairness and inequality. This is a fundamental structural problem.

The sad fact is that many alleged "reforms" of rent control do not recognize or address this problem. Instead, they are attempts to gut rent control in the name of reforming it. Councilor Walsh's proposal (The Crimson, October 18), is a glaring example. While questioning what kinds of tenants by income or occupational status should be protected and targetting less than half of presently controlled units to poverty level tenants though vacancy decontrol, the Walsh package misconstrues the intent of rent control, and tosses yet another red herring in the path of real needed reform. Under the Walsh plan, the approximatley 25 percent annual turnover rate for tenants in Cambridge would result in the deregulation for the majority of controlled units in five to 10 years. These units would be permitted market rental rates or could be converted to condominiums. The package fails to address or provide relief to the "small property owners" with low rent units or rent-gouged tenants described above caught in a Catch-22 situation caused by the "bugs" in rent control.

Would Walsh's package actually help more low-income tenants than are protected now? Media accounts of the proposal and the councilor himself at an address to the CCA Board on May 15, 1986 stressed that 30 percent of the currently rent-controlled units would remain "dedicated" to low-income tenants. At that meeting, Walsh did not have an impact analysis--how many units would be "dedicated"--or a rationale for the 30 percent level. A preliminary analysis of the CCA indicates that the proposal would dedicate only 20 percent of the approximately 14,800 non-condo, rent-controlled units.

This 10 percent difference between the stated intent and the actual impact results from a provision buried in the "definition" section of the proposed ordinance. Obviously, the advocates and spokespeople for the Walsh package did not point this out when discussing the "decontrol" section. In fact, the 30 percent set-aside applies only to buildings with seven or more units. In five or six unit building, only one unit would be dedicated. One to four unit buildings would require no dedicated units. Needless to say, this lack of forthrightness is a great concern.

Heart of the Matter

What is the real intent or impact of Councilor Walsh's proposal? Who will it benefit? Who will pay the costs? When pushed, Walsh has pointed to the expanded opportunity for homeownership made possible by vacance decontrol of 70 percent of presently controlled units. Clearly, a prospective resident or an absentee owner with a downpayment and an income large enough to carry a huge mortgage can benefit. Clearly, a landlord or a condominium developer can benefit as rents double or triple to market rates or condos are sold to the wealthiest buyers. Clearly, the real estate brokers can benefit as market rate rental units will double in number and/or condos are sold with ensuing broker fees.

Who will fail to benefit or be hurt? Few native Cantabrigians will have enough resources to buy in the hottest real estate market in the U.S. Middle-income tenants who already can't afford to buy in the Massachusetts market and who can't or won't pay $1000 or more per month for old, small apartments will see the small supply of affordable rental housing in Cambridge disappear immediately. Essentially every tenant above the poverty income level will see his rent increase drastically despite no correspoonding increase in costs to the landlord or increase in the quality of the unit.

Protecting a Scarce Commodity

The Cambridge Civic Association has supported rent control but not because it is a welfare housing program. That's the function of the Cambridge Housing Authority, the Section Eight Program, the community development corporations such as the Riverside Cambridgeport Community Corporation, the various neighborhood initiatives for linkage or leverage such as those by Area Four Coalition, the Simplex Committee, and numerous initiatives in East Cambridge under Councilor Alfred E. Vellucci's guidance. We strongly support the adoption of a city-wide linkage plan to aid middle as well as low to moderate income residents.

We don't support rent control because it benefits one group of citizens to the detriment of another: tenants versus landlords, or "deserving tenants" versus ordinary low income tenants. We support rent control because it is a consumer protection program, a regulation of a scarce public good whose consumption is a necessity rather than a luxury or a lifestyle choice. As is the case with other publically regulated, but private utilities--natural gas, electricity, telephones, auto liability insurance--rental housing is regulated in the general public interest to realize the maximum public good. The good is seen as the balance between residents' need for safe, sanitary, affordable rental housing and property owner's right to a fair operating income which affords the incentive and the means to provide rental units in a city where approximately 70 percent of households rent, where 40 percent of all households are rent-controlled (60 percent of all rental units are controlled), and where the rental vacancy rate is rarely greater than one percent. In this view, rent control should be both a consumer protection plan and an "expenses plus fair profit" rent adjustment program.

Reform Proposals: Ombudsman and Adjustments

It is time for a reasoned, measured and effective response to the complaints of the low-rent landlords whether they are "small property owners" or "Class D" owners or are incapable by language, education or other reasons to effectively manage their rental properties. There is a crying need for an ongoing program to identify these "hardship" buildings and through an ombudsman position at the rent board to expedite appropriate adjustments. An ombudsman is authorized by the Rent Control Act, but has never been properly funded by the city council or the city manager.

Similarly, a close look should be taken at those properties where there is reason to believe that greater than 60 percent of the gross rent is net income or profit. A change in rent board policy toward adjusting rents on a building by building basis rather than groups or classes of building would address many of the present inequities including the "hardship" cases. This change in policy would require a reappraisal of the "presumption of fairness" in 1967 rents. After moving to an "expenses plus fair income" accounting, a few properties would require sharp adjustments to be within guidlines.

Such adjustments would seem to be a small price for greater rationalization of the policy and a better response to the perceived and actual inequities of the present situation. Such adjustment would take a year or two to fully implement, but seem fully realizable with a computer-based system.