HomeMy WebLinkAboutItem #06 - Discussion ItemRichard L. Fosmoen
City Manager
Dena Spillman, Director
Department of Community Development
January 15, 1981 -
Rent Control
In October of 1980, the City Commission was presented with a proposed ordinance for
local rent control. The sponsor of the proposal urged its adoption by the Commission
as a measure to eliminate "rent profiteering" by owners of rental property seeking to
capitalize on the City's shortage of rental housing.
An opinion on the subject of rent control provided by the City Attorney's office
(see attached copy) indicates it to be within the City's power to institute rent
control r•easures and iF�pose rent restrictions on owners of buildings with average
rents of S250 per unit per r onth, subject to certain procedural requirements and a
referendum by Mia,-J's voters.
Prior to any action by the City Commission with respect to rent control, the positive
and negative aspects of instituting such measures should be considered.
The proponents of rent control maintain that rent regulations effectively prevent
unscrupulous rental entrepr'enuers frow "rent UOu(i1nU11, particularly during periods
when rental housin(i resources are in scarce supply. Supporters of rent control also
argue that controlled rents protect lo►:er inco,re farilies on fixed incoc:es from
rental rate increases caused by inflated market conditions.
The arguirents generally advanced by those individuals and organizations opposed to
local rent control are many and varied. To a greater or lesser extent, depending
upon the economic factors at work in a given community, they are valid. Among them
are:
- Rent control discourages reinvestment in rental property by owners who
decrease capital expenditures for building maintenance to maintain
"reasonable" profit levels.
- Rent control generally reduces a city's residential property tax income as
rent receipts are used to calculate property taxes.
- Rent control increases the incentive for owners to convert rental apartments
to condominium ownership reducing the overall rental housing supply.
Richard L. Fosmoen
Page two
January 15, 1981
- Rent control acts as an additional disincentive to developers of new rental
housing discouraging production of units to meet increased demand.
Nevertheless, over two hundred local governments have adopted rent control legis-
lation and are instituting rent control programs. Miany other cities are now con-
sidering rent control measures. The extent to which rent control has effectively
served the lower incor.,e families in cities with such procirams is the subject of a
great deal of debate. Critics claim that rent control does not serve the poor and
reduces incentives for new rental housing development. Supporters argue that these
programs serve their intended purpose and are necessary to preserve the %.,elfare of
the econarically disadvantaged. Accurate statistical data supporting the views of
the antagonists in this issue are difficult to obtain, and results are SJvject to
the unique social and economic factors at play in a given community.
Therefore, the merits and disadvantages of implementing a rent control program in
Miami must be viewed within the context of local conditions.
With the extreme shorta,,e of available rental housing in Miami (0� rental vacancy
rate), it is reasonable to assume that some owners of rental property are taking
advantage of the situation through rent profiteering. However, beyond those few
instances that have recently came to the attention of city government, the extent
of the problem is unknoti.;n.
To a certain extent, all of Miami's renter families are experiencing the impact of
both national and lccal inflationary factors. Rental rates, like the costs of
other services and con•m cdities, are increasing. Naturally, families on fixed
incomes and those on the lager rungs of the economic ladder are most affected.
In considerinn the irpler•entation of i,,easures to control the impact of inflation
on housi n(-r costs and prevent "rent gouging", the City must be wA ndfu 1 of the effect
such measures micht have on the existing housing inventory and the potential for
developr,ent of new rental housing resources. Of equal in•,portance, it should con-
sider whether or not rent control would actually serve those families and individuals
for which it is intended. Also, institutinn measures to control rental rates on
apartments in the S250 per month rancie would not necessarily benefit the poor
exclusively. It is often the case that efficiencies in this rent r,-r1',2 are occupied
by younger professionals. Many low incase families, of course, are renting apart-
ments at rates well in excess of those that would fall under the City's jurisdiction
in a rent control pro�iram.
Many developers of housinu in MiiaiA have expressed strong opposition to the imple-
mentation of local rent control measures indicating that they would present one
more obstacle to the new rental housing industry which has all Lut ceased as the
result of inflated land, construction, financing and operational costs. Some owners
of existin; rental property in Miar!i have indicated that rent control and the
"red t?.^(? 1'';11iCit in ;'Jch a the-, little choice but to seriously
consider conver�inn cf their property to ccndo.,iniw, a..nership.
Richard L. Fosmoen
Page three
January 15, 1981
While the rent control measures proposed to the Commission recently would only
impact upon owners of rental properties with average rental rates of $250 per
month, the point discussed above would seem irrelevant to the discussion.
However, they must be considered.
Fear on the part of developers of housing and rental housing owners of the imple-
mentation of future rent control measures directly affecting their interests
could cause immediate "across the spectrum" rent hikes, as well as investment
of potential housing capital in other investment alternatives.
Of more importance thou,h is the effect that rent control might have on the small
properties directly affected by the rent control proposal and the cost of imple-
menting the program. The majority of small rental buildings in Miami that would
fall under rent control are at least 20 years old and, by today's codes, are sub-
standard. In many instances, the desire of property owners to maintain profit
levels in the face of rising operating costs has resulted in deferred maintenance.
These inflationary factors co,ibined with only marginal activity by the City in the
area of code enfcrcer,ent are working in concert to reduce the quality of the City's
existing rental housing inventory. Rent control without accelerated code enforcement
could very well hasten this decline. Furthermore, rent control could serve to
decrease the City's operatinn revenues as has happened in many cities where rent
receipts are used, in part, to calculate property taxes.
Rent control pronrar, cnst cnnsiderations rTrust also enter a discussion of subject.
A rent control program in ^liafJ would require a budget of approximately $200,000
per year. This, of course, could increase or decrease depending on the level of
service necessary to meet actual demand.
Finally, it should be pointed out that some amount of consideration is being given
by Reagan administration officials to the discontinuation of federal assistance to
cities with rent control programs. Mayor Pete Wilson of San Diego, who heads
President Reagan's Urban Affairs Task Force, considers local rent control programs
unqualified failures as weasures to insure equitable treatment of renter families
in the housin(i rarket. The new administration's concerns have been supported by
a special study group of the U.S. Department of HUD which recently urged repeal
of all local rent control legislation. Similar opposition to rent control has
been expressed in Congress. Certainly, the loss of much needed federal assistance
would have a r,ajor impact on the City's ability to carry out essential community
improvement activities.
Richard L. Fosmoen
Page four
January 16, 1981
In summary, through rent control initiatives, the City would be in a position to
provide some measure of relief to lower income residents now confronted with
escalating rental housing costs, as well as those being victimized by rent profi-
teers. But the implementation of such a program would be expensive and could
have a severe negative ir,pact on both the quality of the existing rental housing
inventory and the City's tax revenues. Furthermore, rent control could serve as
a catalyst for r•ore rental to condor,iniuri conversions and further discourage
private investrent in rental housing production. It is also uncertain as to
whether or not rent control would actually benefit those families it is intended
to serve.
For these reasons, and due to the fact that the City tray be required to choose
between rent control and federal grant assistance in the near future, it is
recommended that the City should not institute a local rent control program at
this tirre.
/rjf
i r
To Richard ""5' 1960
City -',,ma,jcr
Pc,nt Control Or6ii,an,--
In
F ri City At-tonicv..
A graim o4c concerne,! City of Hilmi resi,17nts 11:117c p'cC),:,Osc--3
that the City Cocn-missionors of th2 Cit*., o.' iami Calact .:!),It
Commonly r C, I- - r-11 !11 to as; a " rcn L c o n '.- r o o r 1 -J n a n c o . 1-1 L S 17
proI; c i -i t s t i -, u o 11 o i , i � I J s s u,�� S ' i ) r t}1,3 C t'.* IC G.' I! -,I i S S I I S C :6 i 2 r -
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ation.
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ill rul I !'. i I'.,- t- ; 1: 1 , ""' l '- L
h c 1,-1 L i i -i t- i '.- -; r -I r I ) i ': r a - I - inl ui.-
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0
Aidhard Fosmocn
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proces:,. T'he Cc.i:rt Llountl the an-1 i;111E:C?lincs for
the r( 11` 1ci!-1i;li:;t:r.ator sr) ct1 anul ar:)icrar v an(? in
such c xjct in] ami_)!ints!tcrms as to ruevo t the
c3dminls::rat;)r frC"1 L-i1.f-1'::inJ a fai!: raL,_, of :"(:t urn t0 `:lc
landlord. As Tf.e
Court (..termim--A tndt: t:Ii rt:c c (?,1t-2 L h c, n 2 t annual
rate of rot'.:r n cn ass-_as:?t_'t val . .11-to l ,in,! t he f.7llurc
to t,l}:'_ into ,? '7U:7t r'01: t:ij.li�i? LI1GT?r°��t a- an
expen w: rt' lf'. );1<7 t_h._, major of Ordinancc
that lec? to its teii`:rr cl(�a�;l kncil.
Fc11, '.: in L: is 1n.anCC' :3 '1C'.:nf?I I Ln 'F-Ctc Eu pray
the Citv Of �I..c7i1L ;CaC!1 CC.:1I:11ssio n rctu;:"12d t0 the 11ray.!in-
boar1 t0 (1111 i nwi- t_-d Or:}11:«nCC tflat
Stan`; Itlgil C<< lIc�11 g .'2 !Il a Jf 1'.'i.-11
L l f SCh L E C 31l ( 3 C1 L- f i) i n
1916 .an Jlll_`}1.1Qi:. j 11 197,3 1n C
Fr:]n J l_1 .) .- (. I . I) ! J } , 411c •!la;n1
W fGl..,.1 t:Ci
on t i i c �r.ou,r. ~ ...t r.Lnaroe ;t.,1 :lLlr citat'..t(.:L'V
re(aulr(:I"i' ili= tilt d flit'}Ln'] of }lO1]S1:i:J C`1 (j ..1C' :io a.i t.^.
c0nStit It:_ a JC'.._ Uu 1':0 n aCC t0 ti1C (j ('- n c ':a1 puh11C t)C ClCAI (_ an'?
reciter' in Erna: �::1l�nt.
AL t}:E' :it :::'�.i'1'. 1:..Ot.: t ilC.�1 til Lt:. :7'�L:11On mil -• )_- - _ '� :i: _�
Sup' nal rent CC]it:rol
clpal Ol).: (1L 1% u:l :('_r th(' t]r )`,il; (_ono_ ; _ions. Tl:c c..a 1!1L
ti1cmc con(1(2cf-in,jii the :ii.'rios Oi cdiS'':i Oi
Miami Gc•aCh 1:,2nt control or•dinancc is that, tho crdina:lcc must
111V aL"."e::l::f-. L'l Vcli�_.''. t:.!'
o)
an'? lt'LU t1l�lii 'r:hLCll �!.lr;:.l.�" r'..::L. C:`:i.-
trol La L"C: Ctc,;?! C;t.lq!:t: l r('t:'.1C;1 to J1 .•'Ore
nuar?
at 7C,(�_3.
The 1e,71.:3laL1'.'j'
f:.o(?..' C:ii.;t: C1,lr: r a
tlill] 1S
t0
rt'nt:-
ing from a hou:,in(t
and
,:it the _;.11„
tirv�
al . �w landd-
lords a `air
.ai:t? cqui.tal)l-_-�
return
11(((7;1 t11--lir
i:]vest:r.:ents.
Forte
-supra at 763.
Ridhard 'r osmoen
Scptom'"-ar" 25, 1980
%otwithstanding the fore,joinn judicial action, tho
Florida Lon
,iz,lature ha:3 defined tho spec. frig, :arar,1(2tu ;s
for municipal rent control leoi.slation. In 1976, the Florida
Legislature en•_icteCa St ctLJ:l 166.043, clorid,a Statut(.s of
the MunL.:il)al A-,,t. All loc:i lc(g)iil. Lion
concerning rent conLrols :'.lust c0;T'I)1`.• Lt}1 t}h.— S provision.
It requires the legislative finding:
"That such controls ar,' n('ccss ry an:1 proper
tO an oxiL t.Ln j }ioU'uLn- c ior,I^all"!
%jIlicih is sG fjra.,f_' Is LU constlitut(3 a serious
menace to the general public."
Such legislative :_in i.. ? carr(.cs of validi'- •
and places the 1)':r :_ :1 cn the ch:t1Ic .cjin,l part•• tU rel'ut such
finding. s,--ct.ion 16 .') �3 (3) : i.z. St:._�t. , recui rc,s thr, `.ol io�ing
action be taken in orcier to enact rent:. c )ntrol lorislation:
(1) Noti�.e an? public he k 74 ,,,3
(2) Rocitat ion in tht, or ina;lcc of ti:e le jislative
findin. cuot(--,: zl�nve.
(3) IiC: Cr.. 1C li'1 1i:^r: �'._. Sll _tl 1f�'1131•.11:7.•'�n b_• tl
eligi,01f2 VGturs of t11' Cit, of
It ShOuld 1),2 nOtC: tih�lL t11C. 1:�'tlt C0lit1 1:� Z�C 7�� a(; •_ :1�
ble to
or tourist Urlit:i `:: f:1•:'�llincl i1C 1%S
Gated in luxury apart-^ent buildlings. Section 166.0•11"(4) . Fla.
Stat.
t1112 C(;r1r1i:;.iion of Lh:` City of ;1iarli is e,m-
powcrc(. 'Lo c('act: rul1L control lcc�t:�lzti�.n ClCd such
1Cgl�l_1t1�)(1 `iU�c not contravone provi::,ion:� or Section 166.043,
r1orida Statutos.
Prrnpur-
tJT„k v a l-7E 1 11c,
Assistant City Attornt2y
CCK P-1 A11 /t,; pc
cc: Haurico A. Ferre
Arcl.indo E. Lacasa
J. L. Plummer
T!lcodf)re R. Gibson
Joc Carollo