Author Archive: Travis Eller

rent control

Washington’s Rent Control Law

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Economists of all stripes vilify rent control, from liberal economist Paul Krugman to libertarian Thomas Sowell. The consensus is so pronounced that rent control is used in as an illustration of bad economic policy in academia—literally a textbook example of what not to do.

Washington state, nevertheless, recently passed rent control into law.

To address high rents and a lack of affordable housing one might seek measures designed to increase housing supply. In fact, Washington’s governor did that on his first day in office and again on the same day he signed rent control into law. More on that in another post.

For now, this article explores the consensus view of economists regarding rent control, then summarizes the provisions of the new Washington rent control law.

Economists condemn rent control as bad policy.

One  economics journal article begins with “rent control is usually introduced to economics students as a price ceiling and an unambiguous source of inefficiency.” [1]

Blair Jenkins, the author, makes clear that she is reviewing professional economics literature. She organized the judgments of economic research using only articles that met certain criteria: the articles focus on rent control policies; data come from U.S. cities; and at least one author must be an economist. Jenkins proclaims that she was scrupulous to include articles that “go against the main tendency” to “assure the reader that my efforts have not accommodated a ‘picking and choosing’ bias on my part.”

Jenkins concludes that “the preponderance of the literature points toward the conclusion that rent control introduces inefficiencies in housing markets. Moreover, the professional literature on the whole does not sustain any plausible redemption in terms of redistribution.” Emphasis mine.

First-generation rent controls.

Rent control comes in different forms. A hard freeze on rent that does not allow increases at all (a/k/a “first generation” rent control) is universally derided by economists. “The results (of economic research) of first-generation controls are uncontroversial.” Even economists who offer a revisionist view of other forms of rent control do “not dispute that first-generation controls were harmful (they almost certainly were).” While short-term freezes might have a place in wartime or other temporary emergencies, “long-term rent freezes are undoubtedly harmful to economies.”

“[T]he cumulative evidence – both quantitative and qualitative –strongly supports the predictions of the textbook model [of rent freezes] in virtually all respects. The decay and shrinkage of the rental housing markets…caused by long-term rent control are persuasively documented.”

“Rent controls prohibit prices from rising above politically-determined levels.”

Under rent control, “fewer housing units are supplied than demanded, resulting in a shortage.”

Jenkins observes that “there is a clear consensus among economists,” including even revisionists, “that first generation controls are bad” before quickly moving on to “consider studies that examine other forms of rent controls, often referred to as second generation controls.” Emphasis mine.

“Second generation” rent control laws, instead of simply freezing rents, limit increases in rent. Some forms of second-generation rent control, like that in Washington, allow rents to increase relative to inflation rates.

The effects of second-generation rent control are more difficult to predict and measure. “Because second-generation controls do not fit the typical model of a price ceiling, it is difficult to know their effects.” Nevertheless, economists generally conclude that second-generation rent controls have negative effects.

Rent controls incentivize residents to remain in the unit, even if the unit no longer fits their needs and lifestyle. Meanwhile, the unit is not available to other tenants looking for that type of unit.

“It is shown that tenants as a class do not benefit, but rather…some tenants are benefited (those in the controlled sector), and other tenants are hurt (those in the noncontrolled sector). Taking dead-weight losses into account, even some of the tenants in the controlled sector are hurt.”

Many economists conclude this leads to inefficiencies in the labor market. Jenkins quotes several economists on this point. “As sitting tenants are reluctant to move from a rent-controlled apartment, they are less likely to accept a higher-paying job in another city. …In addition to the inefficient use of time and resources associated with extended commutes, it is not too much of a leap to postulate that a related consequence of rent control must be a decline in the quality of job matches for residents….If households are less inclined to move due to rent control, they are also less inclined to react to changes in labor market conditions…..One consequence of the ‘lock-in effect’ is increased unemployment as workers are less willing to commute longer distances to find and hold jobs.”

Rent controls also have a negative effect on maintenance. Landlords who can collect a lower rent amount have less incentive to maintain the rental. “[W]hy should a landlord maintain a $1000-value property for which she can only collect $750?”

While this, like other effects, is more nuanced with second-generation rent control, many economists suggest that all rent controls, including second-generation rent controls, will simply result in reduced maintenance on controlled units.”

Jenkins again illustrates the point with quotes from various economists.

“The landlord will let unit quality deteriorate to the point where the controlled rent is actually the market price. After all, the landlord has no incentive to make the apartment any nicer than he must in order to keep it occupied.”

“I continue to believe that even second-generation rent control creates strong disincentives for quality provision when the unit is occupied.”

“[L]andlords cut back on operating and maintenance expenses and allow their property to deteriorate, the quality and flow of housing services to tenants are reduced: Heat may be lowered and supplied more erratically, halls may be swept less frequently, the exteriors may be allowed to chip and peel, the plumbing my drip and leak, and there may be an increase in roaches or mice infestations as exterminator visits are reduced.”

Rent control will generally lead to a decline in maintenance expenditure by the landlord.”

“[C]utbacks are typically slow to show their effects. For example, tenants may be unaware that landlords under control may now repair leaking roofs rather than replace them, or that formerly annual services may now be performed every two years.”

I am not an economist, and a complete review of the economics of rent control is beyond the scope here. Suffice it to say that most economists have a negative view of rent control, and even revisionists must account for inherent problems with the policy to pitch a more nuanced view of rent control to their professional peers.

We will move on to a summary of the new Washington rent control law. As with any subject touching on law, it is best to get independent legal advice. The way courts will interpret any new set of laws is always only an educated guess and will vary from courtroom to courtroom. Also, no summary can address every person’s particular circumstances.

The particulars of Washington state rent control.

Under the new Washington rent control law

  • Caps rent increase at the lower of 7% plus inflation, or 10%
  • Prohibits any rent increase in the first 12 months of a tenancy
  • Requires all rent increases to utilize mandatory language
  • Requires all rent increase notices to be served like a predicate notice (pay or vacate and similar notices), and
  • Rent increases require 90 days’ notice

There are exemptions for the first 12 years after new construction, landlords who share their housing unit with a tenant, public housing, nonprofits, and a few other less common scenarios.

A separate law changes the particulars of how predicate notices, and thus rent increase notices, must be served. Although this law does not go into effect until July 27, 2025, one interpretation of the law is that it applies to any notice that itself goes into effect on or after July 27, 2025. Since the rent control law requires 90 days’ notice, under this reading of the law any rent increase notice must be served under the new provisions of the predicate notice statute, not the current version. Also, any rent increase notice still pending when the rent control law was signed by the governor must be re-served under this reading of the law.  None of this is explicitly spelled out in the new laws, but it is a possible interpretation.

A tenant served with a noncompliant rent increase notice must provide the landlord with an opportunity to cure by adjusting the rent amount to comply. The tenant may also terminate the tenancy.

The tenant or the Washington Attorney General may sue the landlord and be awarded any excess amounts paid, up to three months’ rent, and costs. The Attorney General may bring such an action regardless of whether the tenant gave the landlord an opportunity to cure.

This is a brief overview of a new law yet to be interpreted by the courts. The application of any law will vary depending on circumstances. If you have further questions or concerns, consult with an attorney.

 

[1] Blair Jenkins, Rent Control: Do Economists Agree?, 15-1 Econ Journal Watch 73 (2009). Quoted throughout.

US Court of Appeals Holds CDC Eviction Moratorium Likely Invalid

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In September 2020 the Center for Disease Control (CDC) issued a nation-wide eviction moratorium,  citing generic rulemaking authority under the Public Health Service Act. The same month, landlords in Tennessee filed a lawsuit in federal court arguing that the CDC eviction moratorium exceeded statutory authority.

The Public Health Service Act statute authorizes the CDC Director to provide for “inspection, fumigation, disinfection, sanitation, pest extermination, destruction of animals or articles found to be so infected or contaminated as to be sources of dangerous infection to human beings, and other measures, as in his judgment may be necessary.” The CDC based its authority to supersede state law and halt evictions nation-wide on the “other measures” catchall.

Later, Congress extended the CDC eviction moratorium from December 31 to January 31. On January 29, the CDC extended the eviction moratorium through March 31, relying again on the generic catchall as authority.

The federal district court ruled that the CDC had exceeded its statutory authority. The government appealed and moved for a stay on the district court’s order.[1] The Sixth Circuit Court of Appeals concluded that the government was unlikely to prevail on the merits, and denied the motion.[2]

The Court reasoned that as the “other measures” catchall comes at the end of a list of specific items, the “other measures” catchall must be construed to be of the same nature as the specified items like “inspection, fumigation, disinfection, sanitation, pest extermination” and so on. “Plainly, government intrusion on property to sanitize and dispose of infected matter is different in nature from a moratorium on evictions.”

The Court noted that regulation of the landlord-tenant relationship has historically always been the province of the states, and the Court would not read the statute as granting the CDC power to insert itself in a traditional area of state law without “some clear, unequivocal textual evidence of Congress’s intent to do so.” The Court cited an “ordinary rule of statutory construction that if Congress intends to alter the usual constitutional balance between the States and the Federal Government, it must make its intention to do so unmistakably clear in the language of the statute.”

The government argued that since other provisions of the Public Health Service Act allow the CDC to enforce quarantines, the “other measures” catchall must be read broadly to include things like quarantine. The Court conceded that this argument has “cosmetic appeal” but concluded that it does not hold up to scrutiny. The Court reasoned that the provision the government relied upon dealt with limited power to restrict liberty by imposing quarantines. The “other measures” language is found in provisions dealing with property interest, and an eviction moratorium is radically different from the types of property interests listed there.

The government also argued that when Congress legislatively extended the CDC eviction moratorium it acknowledged that the statute authorized the moratorium. The Court noted that nothing in the congressional act expressly approved the CDC’s interpretation, and “mere congressional acquiescence in the CDC’s assertion” of statutory authority “does not make it so, especially given that the plain text indicates otherwise.”

The Court found the government unlikely to prevail on the merits, and accordingly denied the motion for a stay on the district court’s order.

[1] Tiger Lily, LLC v. US Dept. of Housing and Urban Development (6th Cir. No. 21-5256).

[2] See https://www.opn.ca6.uscourts.gov/opinions.pdf/21a0074p-06.pdf

Texas Federal Judge Hold CDC Moratorium Unconstitutional

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A federal judge in Texas has held the Centers for Disease Control eviction moratorium unconstitutional.[1]

In September 2020 the CDC issued a nation-wide residential eviction moratorium in response to the COVID-19 pandemic. The CDC eviction moratorium stopped evictions for non-payment. In Texas several landlords filed suit challenging the legal authority of the federal government to impose an eviction moratorium upon states.

The judge ruled that while states have the power to regulate residential evictions, the CDC moratorium exceeded federal authority to regulate interstate commerce. States have broad power to enact laws for the general public good—called ‘police power’—but the police power of the federal government is limited under the US Constitution.

The federal government has no general police power. The federal government must find authority either under an area reserved to it under the Constitution, such as the power to regulate interstate commerce.

The Court noted that the “federal government cannot say it has ever before invoked its power over interstate commerce to impose a residential eviction moratorium” and that the federal government had not done so during the Spanish Flu pandemic or the Great Depression. “The federal government has not claimed such a power at any point during our Nation’s history until last year.”

The government claimed broad constitutional authority. The federal government argued it had authority to issue suspend evictions even in the absence of a pandemic for any reason, including an agency’s views on “fairness.”

Note that the impact of this ruling is limited as it is the holding of a local federal district court judge, and even within its jurisdictional boundaries, the Court did not issue an injunction. Any landlord should consult with an attorney before acting, particularly as there are potential criminal penalties for violating the CDC moratorium.

An appeal is highly anticipated.

[1] Terkel et al. v. Center for Disease Control and Prevention, No. 6:20 -cv- 00564 (E.D. Texas February 25, 2021).

Evicted by Matthew Desmond, a Review

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A woman moves slowly, looking overcome as she answers the door for the sheriff deputy and moving-crew. A sob breaks through her face as she open the refrigerator and sees the movers have cleaned out everything, even the ice trays. At another eviction, the mother named in the court order had died two months prior. The children had gone on living in the rental by themselves with ratty mattresses and roaches scaling the walls. The landlord changed the locks. No one in the crew knew where the children would go, and they did not ask. A week earlier a man being evicted told the sheriff deputy to give him a minute. Then he shut the door and shot himself in the head.

In the Pulitzer Prize-winning Evicted Matthew Desmond paints a compelling portrait of the agonizing human toll eviction exacts. Desmond seasons anecdotes gleaned from living with landlords and tenants in Milwaukee’s low-income neighborhoods with enough data to show he has done his homework, but not too much to risk boring the reader.

Desmond’s non-judgmental approach lends much to his credibility. No zealot labeling good guys and bad guys, he instead writes that landlords are not “so different from the rest of us.” If given the same business “opportunity would any of us price an apartment at half of what it could fetch or simply forgive and forget losing thousands of dollars when the rent checks don’t arrive?” he rhetorically asks. At the same time, he writes candidly about some tenants being their own worst enemies with substance abuse and other issues.

The truth is far more nuanced than blaming some tenants for their own plight. Desmond argues that housing affordability and the resulting high eviction rate has gotten worse over several decades because of a complex web of public policies and socio-economic trends.

He shows how low-income people are at great risk of falling into a vicious cycle. If half or more of your income goes to housing, it is easy to fall behind—often for reasons that are not blameworthy at all. Once your behind if you find yourself under threat of eviction and take off from work to look for new housing, you lose income and are at greater risk of being fired. Displaced children fall behind in school and suffer emotional trauma, putting them in jeopardy of falling into a generational poverty trap. And so it goes.

So, do we reach for a Bolshevik abolishment of private rental housing? Hardly. Desmond recognizes that economic incentives to provide housing are a vital part of any solution. “If we are going to house most low-income families in the private rental market, then that market must remain profitable,” Desmond writes. Quoting a source from some 125 years ago, Desmond postulates “The business of housing the poor, if it to amount to anything, must be a business…As a charity, pastime, or fad, it will miserably fail, always and everywhere.”

He urges solutions such as no-cost legal representation for low-income tenants facing eviction, and universal housing vouchers to all who financially qualify, rather then putting most low-income applicants on a waiting list for housing vouchers as is done now. We do not put people on a waiting list for food stamps, nor do we vilify grocery stores for not handing out free food to the hungry.

Rather than display a partisan’s intransigence, Desmond acknowledges that the policies he advocates—like all policies—may have both pros and cons, and welcomes an honest debate. “Would a universal housing program be a disincentive to work? It is a fair and important question.”

Yet not addressing the housing crises, he urges, is far worse than possible side effects of universal housing vouchers and other possible solutions.

A compelling read, Evicted is the product of years of embedded research. The Gates Foundation has granted Matthew Desmond funds to continue research into the causes of high housing costs, even if lower-income areas. Could a sequel be in the works?

New CDC Eviction Moratorium

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The Center for Disease Control (CDC) issued an eviction moratorium covering essentially all residential properties. To qualify for protection the tenant must provide the landlord with a declaration under penalty of perjury that the tenant

  1. has used best efforts to obtain all available government assistance for rent or housing;
  2. expect to earn for 2020 no more than $99,000 for individuals or $198,000 for joint tax filers;
  3. is unable to pay the full rent due to substantial loss of income, loss of work hours, wages, lay-off, or extraordinary out-of-pocket medical expenses;
  4. is making best efforts to pay as close to full payment as circumstances permit;
  5. eviction would likely make the tenant homeless or forced the tenant to move in close quarters in a shared-living arrangement;

The CDC argues in its moratorium that preventing evictions will help slow the spread of COVID-19. It cites this argument as giving the CDC authority to issue the eviction moratorium.

The CDC moratorium does not apply to evictions based on a tenant

  1. engaging in criminal activity;
  2. threatening health or safety;
  3. damaging or posing an immediate and significant threat to property;
  4. violating building or health codes or similar laws;
  5. violating contractual obligations other than non-payment of rent or other charges

The CDC moratorium is set to expire December 31, 2020.

 

New York Eviction Moratorium Challenge Dismissed

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A federal judge struck down constitutional challenges to Governor Cuomo’s eviction moratorium orders.

The moratorium allows tenants to apply security deposits to rent provided the tenant replenishes the funds on a defined schedule, and temporarily prohibits landlords from starting an eviction against tenants facing financial hardship related to the pandemic.

The Governor’s Orders did not address then pending eviction cases, but as the Court pointed out the New York state courts closed in March and all eviction cases were suspended.

The first moratorium temporarily paused all evictions regardless of grounds.  A later order clarified that evictions on grounds other than non-payment against tenants experiencing financial hardships could proceed.

A group of landlords sued Governor Cuomo in federal court challenging the constitutionality of the orders on various legal theories. The Court dismissed the case in a summary judgment ruling.

The Court noted as background that evicting a tenant in New York, especially a residential tenant, is slow, cumbersome and extremely tenant-favorable process, especially when compared to analogous procedures in other states.

The Court noted several times in its opinion the temporary nature of the New York eviction moratorium. “[T]here is nothing permanent about [the eviction moratorium order]; it expires on August 19.”

The Court reasoned that the moratorium does not forgive rent, and landlords will be able to attempt to collect and/or evict tenants once the moratorium expires. “As long as the order is in place, tenants will continue to accrue arrearages, which the landlord will be able to collect with interest once the Order has expired. Furthermore, landlords will regain their ability to evict tenants once the Order expires.”

The Court pointed out that landlords “can still initiate eviction proceedings against the tenants who are not facing financial hardship but who have chosen not to pay their rent” and “will be able to move against their other tenants after August 19.”

The Court reasoned that the moratorium is not a regulatory taking because landlords still retain many economic benefits of ownership such as collecting rent from tenants not facing financial hardship and collecting security deposit funds from tenants affected by the pandemic.

The Court stated that the law is clear that “state governments may, in times of emergency or otherwise, reallocate economic hardships between private parties, including landlords and their tenants, without violating” the US Constitution.

Download a copy of the Court’s opinion.

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Landlords Sue City of Los Angeles

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Many landlords “have mortgages on their properties that they are unable to pay without a steady stream of rental income.” Landlords “rely on rental income to maintain and secure their properties and pay employees, among other operating and personal expenses, including payment for food and housing for their own families.” Landlords are “also required to pay the substantial property taxes, utility fees and other assessments on their respective properties, which taxes, fees and assessments cannot be paid in the absence of rental income.” Many “cannot financially survive if a significant number of their tenants do not pay rent for a prolonged period of time.”

These are some of the allegations landlords raise in a complaint filed in US District Court challenging the Los Angeles Eviction Moratorium as violating both the California and US constitutions.

Landlords assert that the Eviction Moratorium will put many landlords “out of the rental business, either through foreclosure and/or bankruptcy, ultimately reducing the badly needed supply of rental housing within the City and further driving up the cost of housing.” According to the plaintiffs, the “City was fully aware of this when enacting the Eviction Moratorium, with some officials openly hoping to convert private distressed properties to public housing.”

The City of Los Angeles Eviction Moratorium prohibits “landlords and property owners from initiating or continuing residential eviction proceedings based upon non-payment of rent” but “does not require tenants to provide notice, let alone documentation, of their inability to pay.”

Tenants “may continue to occupy their respective premises at no charge, utilizing the water, power, trash, sewage, and other fees that the landlords must continue to pay without reimbursement.

While the LA Eviction Moratorium “ostensibly only applies if a tenant is unable to pay due to circumstances related to the Pandemic” in reality “it does not require tenants to provide notice, let alone documentation, of their inability to pay.”

Landlords have no process in which to challenge the tenant’s asserted inability to pay. But, the Eviction Moratorium “creates a private right of action in favor of only tenants whereby tenants are allowed to sue for alleged violations of the moratorium, subjecting landlords to civil penalties of up to $15,000 per violation.” (Emphasis originally in plaintiffs’ Complaint.)  

So, “while the Eviction Moratorium bars” landlords from evicting tenants “it provides a new weapon for tenants to use against landlords.”

It is “unlikely that tenants who do not pay rent during the” pandemic “will be in a position to pay back rent, in addition to their normal rent.”  Yet the City gives tenants a grace period that will extend for twelve months beyond the declared pandemic emergency “irrespective of the tenant’s ability to pay some or all rent, the term of the lease, any agreed plan or schedule for repayment, or any evidence demonstrating that the tenant will actually be capable of paying back rent at the expiration of the one-year grace period.”

While landlords can theoretically eventually sue tenants for back, the likelihood of ever actually collecting many months of back rent is minimal, at best. For tenants who move during the moratorium period, there is essentially no chance for landlords to recover rent. If they were to try, the landlords would incur tremendous (and likely unrecoverable) litigation expenses.

These are some of the allegations and arguments made by landlords in their lawsuit challenging the constitutionality of the LA Eviction Moratorium. The landlords conclude that “as well-intentioned as [the Eviction Moratorium] may be” it has the effect of jeopardizing the “businesses and livelihoods” of landlords, and by driving some landlords out of business may take rental properties off the rental market, increasing rental housing scarcity.

If you are a California landlord or tenant, see our landlord-tenant lawyer directory to find legal counsel.

Seattle First in Time Law Upheld

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The Washington State Supreme Court recently upheld the Seattle First in Time law. Landlords had challenged the law as unconstitutional. A trial court struck down the First in Time law, but the Supreme Court overturned the trial court and upheld the law.

Seattle residential landlords must post their rental criteria and documentation needed for each criterion. Landlords must note the date and time they receive rental applications and must accept the first qualified applicant. The applicant has 48 hours to accept the lease.

There are certain exemptions for properties in which the landlord also resides.

This short summary is not a substitute for legal advice.

Portland Passes Tenant Screening Restrictions

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The Portland, Oregon city council recently passed new laws restricting landlords in screening for rental applicants.

Landlords must give 72 hours notice before accepting applications, then are required to accept the first qualified applicant. The income and credit score requirements landlords may use are capped. Landlords’ use of criminal background checks is limited.

The new laws are aimed addressing homelessness and housing affordability. Critics argue the new laws will drive some landlords out of the market, making rents more expensive and exacerbating the problems.

Washington Legislature Passes Landmark Landlord-Tenant Reforms

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The Washington state legislature has passed sweeping changes to residential landlord-tenant laws, aimed at preventing homelessness. The new bill is expected to be signed into law by the governor.

The reforms slow the eviction process and provide tenants new and expanded opportunities to stay in their current housing by paying only rent owed (including utilities and a capped amount of late fees).

Critiques argue these reforms will cause increases in rent for all residential tenants. Since landlords can no longer enforce security deposit payment through an eviction notice, security deposits will be difficult at best to collect. History and basic economics teaches us that landlords will pass this increased risk to all tenants by increasing the rent.

A pay rent or vacate notice will require a 14-day cure period, as opposed to a 3-day cure period. Landlords will have a strong incentive to serve these notices immediately if rent is late, to get the clock moving.

Although in the past landlords often obtained judgments for all money owed, including court costs, these judgments more often than not went uncollected, as they were against tenants with no means to pay the judgments. Under the new law, landlords will have more opportunity to collect some of the money owed than in the past.

Contact and landlord-tenant lawyer for more information about how Washington’s new landlord-tenant laws affect you.