City council debates, entrepreneurs upset

When Councilman Kendra Brooks came to the city council over three years ago, she introduced a resolution calling for rent control hearings.

During the pandemic, Brooks and her colleagues focused on preventing evictions, and only now, as mayoral and council races heat up, is she returning to rent regulation.

“We’re seeing rents continue to skyrocket,” Brooks said ahead of Wednesday’s long-awaited Rent Control Hearing before a crowd of tenants and activists outside City Hall. “We also see the prices of goods and services going up, but we don’t see it going up in our pockets. It’s time to get back to this conversation about rent caps.”

The median gross rent in Philadelphia, according to the latest census figures, is $1,149.

When Brooks was elected in 2019, she and Borough Representative Jamie Gauthier were the only two tenants on the city council. In a city that many experts believe could become the majority renter by the end of this decade — the percentage of homeowners has fallen to 52% from over 58% in 2006 — their focus on renter issues is emblematic of Philadelphia’s changing housing policy .

But without some progressive momentum in the mayoral and city council elections, Philadelphia’s rent regulation faces a difficult road. At a recent mayoral candidate forum on development, all candidates except Helen Gym unequivocally opposed the idea.

What is rent control?

When it comes to rent control, most people think of rigid forms of regulation from the early 20th century, which frozen rents in times of particular stress such as the housing shortage after the Second World War. It is this type of rent control – with strict caps – that most economists argue against and around which most opponents argue.

This is not how most rental regulation in the US looks today. In New York City, about 20,000 units are still subject to tight rent controls, while half of the city’s rental units are protected by rent stabilization policies, in which a local council sets the percentage increase by which rents can increase each year.

Most forms of rental arrangements exempt small landlords. New builds are also typically exempt, partly because newly built housing tends to be marketed to higher-income people, and partly because most policymakers don’t want disincentives for new builds. In New York, rent stabilization only applies to buildings built before 1974; in San Francisco the date is 1979. A new law in St. Paul, Minnesota was quickly changed to introduce a rolling window that barred new construction for 20 years.

Buildings in the Manhattan skyline in New York, U.S. on Thursday, June 17, 2021. Bloomberg photo by Victor J. Blue. … Read moreVictor J. Blue / Bloomberg

Rental regulations also usually provide for a “vacancy release”, which is intended to allow landlords to increase rents between tenants more drastically. Tenant groups have long argued that this is being abused, effectively taking units out of regulation by allowing rents to skyrocket between residents. New York recently made sure that increases can’t skyrocket while still giving landlords a cushion for repairs.

The Philadelphia Debate

During Wednesday’s three-hour hearing in Philadelphia, Brooks and her colleagues heard testimony from tenants, local attorneys and experts in New York City.

Industry voices have been relegated to the public comments section. Arguments against rent control included criticism that it would restrict new construction, discourage reinvestment in properties and force units out of the rental market when owners sell their properties.

Smaller landlords have been particularly disdainful of the idea, sometimes denouncing other tenant-friendly laws the city council has passed in recent years, such as lead paint and bed bug ordinances.

“The city [has been] they put their hands in my pocket and in the pockets of other landlords,” said landlord Stanley Daniel, who estimated he had rented to 600 tenants in Philadelphia over the past 15 years. “Instead of passing all sorts of stupid laws that affect rents, you should look at our side of the story before making any decisions.”

Landlords with just a few units said they could not have renovated their buildings or saved for retirement if they had been rent-regulated.

This mirrored mayoral candidate Allan Domb’s argument against rent controls at the Mayoral Forum on Development, where he stated that 90% of landlords in Philadelphia are “individual moms and pops,” in contrast to jurisdictions like California where 70% of renters were owned by corporations. (Domb, a former council member who resigned to run for mayor, falls into the latter category himself.)

Former City Council Member Allan Domb takes to the stage during a forum on Sunday January 15, 2023. . … Read moreTom Gralish / Staff Photographer

At Brooks’ hearing, various other interest groups also testified against the idea of ​​rent control, including the Association of Builders and Administrators, the General Association of Contractors and the Confederation of the Construction Industry, which represents housing developers.

“Economists from Milton Friedman to Paul Krugman are opposed to rent regulation,” said Andre Del Valle of the Pennsylvania Apartment Association. “Rental maintenance will lead to a misallocation of limited resources as many housing providers will not invest in the routine maintenance of their property as they cannot charge market rents to offset these costs.”

Proposals for rent control in the USA

Rent control has become more important across the country in recent years. In 2019, Oregon and California passed legislation limiting rent abatement, while New York State tightened its rent regulations to preserve affordability in New York City and allow smaller municipalities to enact their own regulations. A member of the Harrisburg delegation from Philadelphia, Jimmy Dillon, also plans to introduce a rent regulation law soon.

At the municipal level, policy is under active scrutiny in Minneapolis and Boston, where Mayor Michelle Wu ran on a platform that includes rent metering regulation. In 2021, St. Paul, Minnesota took an aggressive shape that imposed a hard cap on annual rent increases and included new construction. (It has since been moderated.)

“We need to raise wages and lower costs,” Dillon, a Democrat from Northeast Philadelphia, said at the Brooks hearing.

Dillon said the bill would apply to landlords who own more than 15 units. It would not apply to new construction for ten years, capping only dramatic rent spikes, modeled after California and Oregon legislation.

“As landlords have struggled to recoup their losses during the pandemic, rental prices have skyrocketed,” Dillon said. “I’ve heard stories from constituents that their monthly payments have increased by 50% over what they paid a year ago. That is not right; that’s not fair.”

The 1906 Beaux Arts State Capitol Building in Harrisburg, February 21, 2023. . … Read moreTom Gralish / Staff Photographer

What studies say about the rental price brake

The scholarship around rental regulations is complicated. A San Francisco study found that rent control limits displacement in the short term, but prompts a sizeable minority of landlords to sell their units, removing inventory from the rental market. Studies from Massachusetts found that rent control similarly encouraged some landlords to sell their properties while ensuring existing tenants had longer tenures in their units and preventing huge price spikes unrelated to real estate reinvestment had.

There is no evidence of such obstacles to new construction, because rental regulations usually only apply to old buildings. But there is strong evidence that it protects existing tenants and stabilizes neighborhoods that could otherwise experience massive demographic shifts due to reinvestment.

That’s what highlights the rhetoric of Brooks and her allies. They argue for the potential of rent control as a means of ensuring income diversity and stable tenancies in neighborhoods experiencing real estate investment and demographic change. (Its effectiveness in low-income neighborhoods that don’t see reinvestment is another question.)

“Do you know what rent control means for us? Neighborhood Stabilization,” Brooks said. “It is high time that we tackle the rent cap as a strategy to prevent violence, prevent the homeless and strengthen the community, because affordable communities are strong communities.”

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