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

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

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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,
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