Thank you. Welcome, everybody! Yes, it is true. I am an attorney from California and so I will talk like an attorney, but since I am from southern California, I will spice in “dude” here and there. That way I will just kind of follow the theme.
The title of my presentation is “Hope for People Fighting Rent Control.” I am going to talk about some recent developments such that you might want to take a little pen to the title and put a little question mark at the end of that. There have been some recent developments which I will talk about, where there is some hope for people fighting rent control, but some recent developments in the Supreme Court have raised some questions about that hope.
With the hopeful cases that I have come here to talk about, I am just going to discuss the concepts on these cases. I am not going to be too lawyerly here. There is a case called Chevron USA versus Lingle. It is a case that comes out of the Ninth Circuit, which has been an unlikely source of some really positive cases for rent control, and they are actually cases that bleed over into land use in general. The simple proposition of the Chevron USA v. Lingle case, which comes out of some other Ninth Circuit cases, is that property regulation has to substantially advance a legitimate state interest. What does that mean? It simply means it has got to actually do what it is supposed to do. If it is rent control, it has got to achieve the goal of rent control. If it is zoning, it has got to achieve the goal of zoning. It seems like a reasonable proposition, but from the standpoint of government regulators, that is a hurdle that is just way too high to reach.
So, in fact, if you look, I have got the dissenting opinion of the judge in Lingle who says this: “Under the panel’s holding virtually all rent control laws in the Ninth Circuit are now subject to the ‘substantially advances of legitimate state interest’ test and many of those laws may well be held unconstitutional under that test. Rent control is often inefficient and sometimes unfair, but we should not confuse inefficiency and unfairness with unconstitutionality.”
So these are the high words of sterling recommendation for rent control. The test has been followed fairly recently in a case that has also sent some shock waves, called Cashman v. City of Cotati, which occurs in the mobile home rent control area, which is where I work a lot. In that case, in fact, the “substantially advances” test was held to make this rent control ordinance unconstitutional. Let me explain just briefly why.
It is kind of a common sense issue. The idea behind rent control in theory is to provide affordable housing. That’s what everybody’s common sense understanding of what rent control is about. Now, regardless of how you feel about that social policy, the question is, does rent control actually make more affordable housing? The bottom line answer to that question is no. In the context of mobile home rent control, it becomes even crystal clear, because this is what happens. In cities like Capitola which has a mobile home rent control in combination with vacancy control, which means after a resident leaves, the rent stays the same for the next resident. In Capitola, in fact, the client we represent rents spaces within walking distance to the Santa Cruz boardwalk, some of the most valuable property in the country. The space rents are $210 a month. That’s $7 a day. It costs $15 a day to rent a pair of skates at the boardwalk, just a walking distance away from there. So you have this really confiscatory level of rents. What happens? Well, whenever you have rent control you have sort of a split ownership situation, where the resident or tenant owns the mobile home. What happens is that these residents, who may have been there for many years and have enjoyed the benefit of these really depressed rents, turn around and sell basically what is a glorified tin can for about $150,000 or $200,000. Why does that happen? Because they just want the right to rent the space at this below-market rent in a really valuable area. What’s happening is there is really a transfer they call a premium, a transfer in the underlying value of the property, from the mobile home park owner to the resident. Now, this prevents any goal of being advanced as far as rent control because, yes, you are paying lower rents, but that amount of lower rent is just being transferred dollar for dollar into the higher price for the mobile home. You are not achieving any purpose, or any legitimate state purpose.
Using that logic, the Cashman v. Cotati case has overruled a rent control ordinance. Many other rent control ordinances were subject to similar challenges.
It is hardly news to almost anyone, particularly in this group, that rent control is just bad policy. It doesn’t make sense. Economists can’t agree on anything, but ninety percent of the economists in the world agree that rent control is a stupid idea. So why does rent control exist? Why does it prevail? It is politically popular. One of the framers of the Constitution was Madison. One of his concerns, along with the other framers, and why they adopted the Fifth Amendment, was they were concerned about what you would call “the tyranny of the majority,” where political majorities could, in essence, vote to take property from minorities. That is exactly what has happened in rent control and why rent controls has become, in effect, popular.
The problem and the reason for the question mark that I added to the title was that the United States Supreme Court just granted cert on the Lingle decision.
What we had thought had been the law for quite some time now in the courts of the United States, this “substantially advance” standard, is questionable. I went to a conference a little more than a week ago put on by the Georgetown Law School. It was at UCLA and this is where all the “great minds” of property rights were there speaking and they were just excited. They were beside themselves in excitement over the fact that the Lingle case had been granted certiorari. Just to let you know, these folks were basically regulators, they were academics, they were people working for governments in California. I was sort of like a spy behind enemy lines. It was very informative, but it was very scary. I remember one of the comments of one of the speakers was—the Fifth Amendment to the Constitution, of course, says you should not take property for public use without compensation. So his reaction was, well, you know what that means. That means if you take it for private use, you don’t even have to compensate. This is a respected academician who is publishing ideas like this, and Mr. Miniter, who spoke earlier about his experiences in Europe, made me think of one of the other comments of the faculty members, which was that we really need to get away from this American idea of property and more to the European view of what property is. That is, unfortunately, where we may be heading if the academic intelligentsia have their way.
There have been some other developments in the Ninth Circuit that have been pretty positive for rent control and property rights in general, but to a large extent they hinge on the continued existence of the “substantially advances” test. There have historically been really two problems that a lot of property rights litigators have faced. Number one is the statute of limitation issue and number two is a “ripeness” issue.
The statute of limitations is a problem because, especially in the area of rent control, many of these laws are triggered earlier than the lawsuit. Basically, you can’t challenge these laws if they are triggered at the date that they are passed, and that has become a problem in many situations because many of the rent control laws that have been passed and other regulatory laws have been on the books for many years. So property owners are therefore out of luck in many cases. There have been some positive developments in cases that we have worked on, which have basically been in the Ninth Circuit, which have allowed an expanded notion for the statute of limitations based on—how do I describe it without being too much of a lawyer dork?—based on sort of specific applications of property just for new uses. For example, in the rent control context, a rent control ordinance may have been passed twenty years ago, but, if you bring in an application for a rent increase in the last year, you can, in effect, bring the rent control ordinance back in. You can make it a timely challenge.
The second area is ripeness. Ripeness is a real problem for those of us who want to be in federal courts to litigate takings claims. The reality is, in most cases, that you want to be in federal court, particularly if you are in a place like California. The ripeness concept is sort of amusing. Basically, this comes from a decision in 1987 by the California Supreme Court which says, well, let’s say the government regulates and takes your property. They pass a zoning ordinance or they pass a rent control law. Your property actually hasn’t yet been taken in terms of the Fifth Amendment. You may not realize it, but it hasn’t been taken. The Fifth Amendment only protects you against taking without compensation. And it is not just without compensation, you actually have to ask for compensation. It is not enough that they took your property against your consent, you have to ask for compensation. Okay, I’ll ask for compensation. You can’t just ask for compensation. You have to file and lose a state court lawsuit before you have been denied compensation under the 1985 of Williamson County. That, in effect, has become an amazing procedural bar to bringing rent control lawsuits.
Now, I want to go the four points that are, I think, important for being successful in bringing land use and rent control challenges.
First, present an emotionally appealing case. I think that, for those of us who believe in property rights deeply, we believe in it from an intellectual standpoint. We understand it completely, but we don’t always go for the guts. We don’t always go for the emotion that is there and it is there to be taken. For example, in the bio that I have there is a description of the Yakuras. The Yakuras, who are represented in a rent increase application, have just this great personal story. They were Japanese Americans, and they had been interned during the war. I had them go before the rent board for a rent increase and tell their personal story. Mrs. Yakura is just this spunky, adorable 85-year-old woman, and I had her standing there. I was shamelessly appealing to the emotions before this rent board. These rent boards are really entertaining, because you have all the mobile home residents there. It is like an episode on Jerry Springer. I am getting booed as I make my arguments. It is hilarious. But the people there, the politicians there, that are on that board responded to the emotions. They responded to the personal story. Sometimes you have to appeal to people on an emotional level.
Second, there really is strength in numbers and organizing. One of the politicians that was at that conference that I was at made the comment that the squeaky wheel is what gets taken care of. The other comment he made was specifically in the context of mobile homes. He said, let’s see, we have 250 mobile home residents who vote as a block versus one property owner. You do the math. Who is going to get taken care of?
So it is crucial to organize and have your voice heard together to get an impact.
Third is actually make it expensive. Litigation is a strategy that works especially when cities are strapped for money. That often brings them to the table. It has worked for us. It has worked even in places like New Jersey where we have challenged rent control. In essence, what happens is that the cities just get tired of fighting litigation. They can’t afford to protect the small group’s interest and bust the budget.
Finally, there is politics in voting. One of the best judges that is out there on property rights is Janice Brown, who is the California Supreme Court judge who was one of those judges that was locked up in the Senate, and she is just an amazing judge in terms of property rights, one of the few that is out there. So we really need to work politically, be politically active to change the politics. Thank you very much.
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