Amicus Curiae Brief — Santa Monica Beach, Ltd. v. Superior Court of California

UPTO LOU

FILED

CLERK

No. 98 - 1512

In the

Supreme Court of the United States

October Term, 1998

SANTA MONICA BEACH, LTD.,

Petitioner,

Vv.

THE SUPERIOR COURT OF LOS ANGELES COUNTY,

Respondent,

SANTA MONICA RENT CONTROL BOARD,

Real Party in Interest.

On Petition for Writ of Certiorari

to the California Supreme Court

BRIEF OF AMICI CURIZ AMERICAN ASSOCIATION FOR SMALL

PROPERTY OWNERSHIP; AMERICAN SENIORS HOUSING ASSOCIATION;

COMMUNITY HOUSING IMPROVEMENT PROGRAM; HUDSON COUNTY

BOARD OF REALTORS; HUDSON COUNTY TAXPAYERS ASSOCIATION;

ILLINOIS RENTAL PROPERTY OWNERS ASSOCIATION; MAINE

CONSERVATION RIGHTS INSTITUTE; METROPOLITAN REAL ESTATE

INVESTORS ASSOCIATION; NATIONAL APARTMENT ASSOCIATION;

NATIONAL MULTI HOUSING COUNCIL; NEW HAMPSHIRE PROPERTY

OWNERS ASSOCIATION; PROPERTY OWNING WOMEN; PROPERTY

RIGHTS FOUNDATION OF AMERICA; RENT STABILIZATION

ASSOCIATION; AND SMALL PROPERTY OWNERS ASSOCIATION

IN SUPPORT OF PETITIONER

Counsel for Amici Curie MICHAEL E. MALAMUT, Counsel of Record

New England Legal Foundation

150 Lincoln Street

Boston, MA 02111

Telephone: (617) 695-3660

Facsimile: (617) 695-3656

——————<—[—=——=—>=>~—=—=—=—=&={=—=o——ooI III III oo —————_—_—_—_—_—_—-

N

QUESTIONS PRESENTED

Should the ends-means nexus test of Nollan v.

California Coastal Commission, 483 U.S. 825

(1987), be used to determine whether a rent

control law effects a regulatory taking as applied

to specific real property?

Is a claim for an as-applied regulatory taking

properly set forth by factual allegations which,

if proven at trial, would show that the

application of a rent control ordinance has “no

relationship at all” to its admittedly legitimate

police power objectives?

TABLE OF CONTENTS

CQunenraes PON ES OA as ss SSS |

TASES CPCI FSS OS BE OR ai kc ii |

TABLE OF AXTCRORIIINE a re Oa a iii |

INTOREST OF AT Cte a is eR A ees l |

STATEROINT OR THE CAME 6 Fe Oa on 8 3

SUMMARY CP ARUN oo SE GAN, Sc ere 3

AIDE six ccs oka a a ee oe ee 4

‘ THE DECISION OF THE CALIFORNIA

SUPREME COURT BELOW CONFLICTS WITH ;

THE DECISIONS OF OTHER COURTS AND

WITH OPINIONS OF THIS COURT BY

REFUSING TO CONSIDER EVIDENCE OF THE

EFFECT OF RENT CONTROL ON ACHIEVING

THE ClITY’S STATED GOALS’ AND

CONTINUING THEIR EFFECT BEYOND ANY

eS i i Oe 4

Il. THE EXPERIENCE OF OTHER RENT-

CONTROLLED JURISDICTIONS IS SIMILAR TO

THAT OF SANTA MONICA’ AND

DEMONSTRATES THAT RENT CONTROL

REDUCES THE NUMBER OF RENTAL UNITS

AND OF PooR, MINORITY, AND STUDENT

TURES. ei ah ee ae eee 1]

CON I in ee a ee i arma cee aes 20

TABLE OF AUTHORITIES

CASES

Baker v. Carr, 369 U.S. 186 5 SEAN ara aba ci 10, 20

Bannerman y. City of Fall River, 391 Mass. 328

WOE Pesan PRO LINOOY oe lap elec eo... 13

Birkenfeld v. City of Berkeley, 17 Cal. 3d 129,

550 P.2d 1001, 130 Cal. Rptr. 129 (Cal. ee) See

Chastleton Corp. v. Sinclair, 264 U.S. 543 (1924) 5, 8, 9, 10,

11, 12,20

Dolan v. City of Tigard, 512 U.S. 374 (1994) ... 5, 6, 7, 8, 9,

12, 19

East New York Savings Bank v. Hahn, 326 U.S. 230 (1945). 9

Girard v. Town of Allenstown, 121 N.H. 268.

RAMEE es 13

Hutton Park Gardens v. Town Council,

Ob N.S. S43, 300 A.2d 1 (1975) 2... 6... 8

Lochner v. New York, 198 U.S. 45 i SORE aie acne: 9g

Lucas v. South Carolina Coastal Council, 505 U.S. 1003

2 GNERREA SD S00 ae iO ard Rare te 1]

Manocherian v. Lenox Hill Hosp., 84 N.Y 2d 385,

643 N.E.2d 479, 618 N.Y.S.2d 857 (1994),

cert. denied, 514 U.S. 1109 (1995) ............. 7

Nollan v. California Coastal Comm’n, 483 U.S.

ks Re ER ICI ae 5, 6, 7, 8, 9, 12, 19

Pennsylvania Coal Co. v. Mahon, 260 U.S. 393 (i922)... 9

Richardson v. City of Honolulu, 124 F.3d 1150

NR Pair han Oe) ee 7

United States v. Carolene Prod. Co., 304 U.S. 144 (1938) . 9

Westchester W. No. 2 Ptsp. v. Montgomery County,

SUS Pde GO BOT oh wee On ho OS 82 8

Woods v. Cloyd W. Miller Co., 333 U.S. 138 (1948) ...... 9

Yee v. City of Escondido, 503 U.S. 519 (1992) ..... 67,43

CONSTITUTION, STATUTES, AND ORDINANCES

Jd. RAE OE F OcUK ANAD Reeve eerie tums 6,8

J Dede UN MEY 4 Cee scs bud SSR RNAS RTOS EERE 6

IFoo Bee, A BO as ia vc aes 3 eos eke 12

BEAUE Sab Ge ne cb ag ae Rees boogie es 12, 13

59RS FENG: DU. GA BOE a os ok kb he OA eee 12

1999 Naess. FROUEE Tait 1SG0. ois eee eda whee 13

SANTA MONICA, CAL., CHARTER art. XVIII, § 1800 6, 10, 11

WESTBROOK, ME., CODE §§ 21-15 et seg. ............. 12

RULES ‘

SUP. CORR SOG 5 coke ics lees civ eiies ashe se ie ee 6

te ty AN) inp Ge ey ng 5 8, 14

MISCELLANEOUS

ARTHUR D. LITTLE, INC., A TALE OF Two CITIES (1986) .. 18

ATLANTIC MARKETING RESEARCH, CAMBRIDGE RENTAL

HOUSING STUDY: IMPACTS OF THE TERMINATION

OF RENT CONTROL CSV O 6 oto resi ieenk 16, 19

ROBERT COOTER & THOMAS ULEN, LAW AND ECONOMICS

Ciel OR. ST) hc a a a kK aa 1]

ROLF GOETZE, RENT CONTROL: AFFORDABLE HOUSING

FOR THE PRIVILEGED, NOT THE POOR (1994) .. 16, 18

N. GREGORY MANKIEW, PRINCIPLES OF ECONOMICS

CE) Fick Rees boi ae Aa eS ha oud 11, 14, 16, 17

JOSEPH E. STIGLITZ, ECONOMICS (2d ed. 1993) ... 11, 14, 16

LAURENCE H. TRIBE, AMERICAN CONSTITUTIONAL LAW

C2 Fes Shee ESE he's CURR E ree ewes es 8

Richard Arnott, Rent Control, in 3 NEW PALGRAVE

DICTIONARY OF ECONOMICS AND THE LAW 305

(Peter Newman ed., 1998) ....... 10, 14, 15, 16, 17

Richard Ault & Richard Saba, The Economic Effects

of Long-term Rent Control: The Case of New

York City, 3 J. REAL EsT. FIN. & ECON. 25 (1990) 18

Robert C. Ellickson, Rent Control: A Comment on Olsen,

67 CHI.-KENT L. REV. 947 (1991) ............. 15

Richard A. Epstein, Rent Control and the Theory of Efficient

Regulation, 54 BROOK. L. REV. 731 (1988) 11, 15, 17

Werner Z. Hirsch & Joel G. Hirsch, Legal-Economic

Analysis of Rent Controls in a Mobile Home

Context: Placement Values and Vacancy

Decontrol, 35 U.C.L.A. L. REV. 399 (1988) ..... 1]

Edgar O. Olsen, Is Rent Control Good Social Policy?

67 CHI.-KENT L. REV. 931 (1991) .......... 12, 15

R.S. Radford, Regulatory Takings Law in the 1990's:

The Death of Rent Control?

21 Sw. U.L. REV. 1019 (1992) ... 10,11, 15, 16, 17

R.S. Radford, Why Rent Control is a Regulatory Taking?

6 FORDHAM ENVTL. L.J. 755 (1995) ........ 11,17

Slimmer Pickings, ECONOMIST, Mar. 23, 1996, at78 .... 15

Vv

i a a a

In the

Supreme Court of the United States

October Term, 1998

SANTA MONICA BEACH, LTD.,

Petitioner,

Vv.

THE SUPERIOR COURT OF LOS ANGELES COUNTY,

Respondent,

SANTA MONICA RENT CONTROL BOARD,

Real Party in Interest.

On Petition for Writ of Certiorari

to the California Supreme Court

BRIEF OF AMICI CURIZ AMERICAN ASSOCIATION FOR SMALL PROPERTY

OWNERSHIP; AMERICAN SENIORS HOUSING ASSOCIATION; COMMUNITY

HOUSING IMPROVEMENT PROGRAM; HUDSON COUNTY BOARD OF REALTORS;

HupsoN COUNTY TAXPAYERS ASSOCIATION; ILLINOIS RENTAL PROPERTY

OWNERS ASSOCIATION; MAINE CONSERVATION RIGHTS INSTITUTE;

METROPOLITAN REAL ESTATE INVESTORS ASSOCIATION; NATIONAL

APARTMENT ASSOCIATION; NATIONAL MULTI HOUSING COUNCIL; NEW

HAMPSHIRE PROPERTY OWNERS ASSOCIATION; PROPERTY OWNING WOMEN;

PROPERTY RIGHTS FOUNDATION OF AMERICA; RENT STABILIZATION

ASSOCIATION; AND SMALL PROPERTY OWNERS ASSOCIATION

IN SUPPORT OF PETITIONER

INTEREST OF AMICI CURIZ'

The Amicus organizations’ seek to bring to the Court’s

l Pursuant to Supreme Court Rule 37.6, counsel for amici states that

neither counsel for Petitioner nor Respondent authored this brief in whole

or in part and no person or entity other than amici made a monetary

contribution to the preparation or submission of the brief.

2 American Association for Small Property Ownership is a national

grassroots organization of small property owners. American Association for

Small Property Owners’ goal is to restore common sense and equity to

l

federal, state and local regulations, and to tax and liability and other laws

that unduly impinge on the right of small property owners to build wealth

with real estate.

American Seniors Housing Association is an affiliate of the

National Multi Housing Council that represents the interests of the nation’s

largest firms involved in seniors housing. American Seniors Housing

Association consists of the principal officers of these firms. The members

of the American Seniors Housing Association are engaged in all aspects of

the development and operation of seniors housing, including ownership,

construction, management, and finance.

Community Housing Improvement Program, Inc., is a not-for-profit

trade association representing more than 2000 owners of rent-controlled and

rent-stabilized apartment buildings in New York City. The organization was

established in 1966 to inform and represent its members on issues of rent

regulation and apartment management.

Hudson County Board of Realtors, Inc., is a New Jersey not-for-

profit corporation which currently has 1797 members throughout Hudson

County, New Jersey. The goals of the organization are, inter alia, to further

the interest of home and other real estate property ownership and to unite

those engaged in the real estate profession.

Hudson County Taxpayers Association is an organization of

property owners in Hudson County, New Jersey. It has approximately 850

members who are concerned with the effect of government regulation, in

particular rent control and tax policy, on property values of small property

owners.

Illinois Rental Property Owners Association is an organization of

rental property owners, investors, and managers in Illinois. It unites

numerous member organizations from around the state, comprising

approximately 2000 property owners. Illinois Rental Property Owners

Association’s mission, in part, is to provide a unified voice for Illinois rental

property owners.

Maine Conservation Rights Institute is a non-profit organization

committed to the application of innovative conservation methods within the

context of the private property and free market systems. It has

approximately 900 associates. Maine Conservation Rights Institute’s

mission, in part, is to educate the public as to their constitutional property

rights.

Metropolitan Real Estate Investors Association is a New Jersey

not-for-profit member-sponsored real estate organization incorporated in

2

1987. Metropolitan Real Estate Investors Association includes

approximately 125 real estate investors, who are housing providers and

rehabilitators of small unit rental housing in the New York metropolitan

area, primarily in northern New Jersey.

National Apartment Association is the largest national federation

of state and local associations of apartment industry professionals including

developers, owners, investors, and property managers. National Apartment

Association is comprised of 150 affiliates and represents more than 26,000

professionals who own and/or manage more than 3.3 million apartments.

National Multi Housing Council is a non-profit association

representing some of the apartment industry’s largest firms. National Mult

Housing Council consists oi over 800 members, who are the principal

officers of these firms. The members of the National Multi Housing

Council are engaged in all aspects of the development and operation of

multi-family housing, including ownership, construction, management, and

finance.

New Hampshire Property Owners Association is an all-volunteer

New Hampshire trade association for owners and managers of rental real

estate. New Hampshire Property Owners Association has seven city

chapters and over 700 member landlords. Its mission, in part, is to educate

small property owners about management skills and applicable laws.

Property Owning Women is a non-profit association of small rental

building owners in New York City. It has approximately 100 members.

Property Owning Women’s mission, in part, is to educate the public about

the role that small property owners play in the maintenance of New York

City’s diversity, economic health, and quality of life.

Property Rights Foundation of America is a tax-exempt

incorporated association with 1500 members. It represents private property

owners nationally. Among its objectives is to promote the fundamental

constitutional right to own and use private property.

Rent Stabilization Association is a New York not-for-profit

corporation. The Rent Stabilization Association is a trade association with

a membership of approximately 25,000 owners and managers of rent-

regulated residential real property in New York City. The mission of the

Rent Stabilization Association includes advocating for the property interests

of its membership.

Small Property Owners Association is a nonprofit organization

which began in Cambridge, Massachusetts, 1987, and includes 3,000

members throughout Massachusetts. The Small Property Owners

-

3

attention their views, and those of their supporters, concerning

the scope of the takings clause under the Fifth and Fourteenth

Amendments to the United States Constitution.

If the decision below is not reversed, property owners

will not be able to use scientific evidence or factual data to

challenge regulatory takings. If the decision below is allowed

to stand, different standards of review of regulatory takings

under the Fifth Amendment to the United States Constitution

will apply in various states and the federal courts. Rent control

is a substantial regulation of property that has substantial

popular political appeal. Under the decision below, property

owners will be left without recourse to preserve the investment

value of their property and challenge the expansion of rent

control if they are prohibited from presenting data that

demonstrate the lack of nexus between a regulation’s intent and

its result. These issues are of significance to the members of

the Amicus organizations as well as to property owners

generally. Amici Curia believe that this brief may provide an

additional perspective which may aid the Court in determining

whether to grant the petition for a writ of certiorari.

Pursuant to Supreme Court Rule 37.2, counsel for Amici

have secured written consent for the filing of this brief from

counsel for Petitioner and Respondent.

STATEMENT OF THE CASE

Amici adopt the Statement of the Case contained in the

Brief of the Petitioner, Santa Monica Beach, Ltd.

Association’s goal is to preserve the 1994 Massachusetts referendum repeal

of rent control, advance the rights and interests of small, family-business

rental owners, and educate the public on the contribution of small property

ownership to neighborhood stability and affordable housing.

SUMMARY OF ARGUMENT

The California Supreme Court erroneously concluded

that it could ignore demographic data demonstrating that the

Santa Monica Rent Control Law did not advance its stated

purpose. This Court should grant the petition for certiorari

because the decision below interpreting the applicable standard

for regulatory takings as enunciated in Nollan v. California

Coastal Commission, 483 U.S. 825, 834 (1987), and Dolan v.

City of Tigard, 512 U.S. 374, 386 (1994), deprives those

standards of meaning and conflicts with the decisions of other

State and federal courts. The decision below also directly

repudiates a decision of this Court, Chastleton Corp. v. Sinclair,

264 U.S. 543 (1924). Moreover, the issue before this Court is

not unique. The long-term adverse consequences of rent

control—the decrease in affordable housing in affected

jurisdictions and continuing housing shortages—predicted by

standard economic theory have been borne out by studies of

other jurisdictions. Under the Nollan standard, property owners

should be able to demonstrate through demographic data that

rent control, rather than advancing its stated intent, in fact

hinders it.

ARGUMENT

1. THE DECISION OF THE CALIFORNIA SUPREME COURT

BELOW CONFLICTS WITH THE DECISIONS OF OTHER

COURTS AND WITH OPINIONS OF THIS COURT BY

REFUSING TO CONSIDER EVIDENCE OF THE EFFECT

OF RENT CONTROL ON ACHIEVING THE CITY’S

STATED GOALS AND CONTINUING THEIR EFFECT

BEYOND ANY INITIAL EMERGENCY.

Amici contend that property owner Santa Monica Beach,

Ltd. (“SMB”) should be permitted to demonstrate at trial that

the Santa Monica Rent Control Law, SANTA MONICA, CAL.

CHARTER Article XVIII, Section 1800, violates the Takings

Clause of the Fifth Amendment to the United States

Constitution (as applicable through the Due Process Clause of

the Fourteenth Amendment). The Santa Monica Rent Control

Board (‘the Board”) in its demurrer to SMB’s complaint has

made no proffer that there is a current rent emergency unrelated

to the imposition of rent contro] or that rent control in fact

advances any substantial state interest.

Pursuant to Supreme Court Rule 10 (b), certiorari is

appropriate in this case as the decision of the California

Supreme Court below conflicts with those of another state court

of last resort and of a United States Court of Appeals. This

Court, in Yee v. City of Escondido, 503 U.S. 519, 537-38

(1992), declined to address the issue of rent control as a

regulatory taking, in part because at that time there was no

conflict among lower courts on the issue. At this time,

however, there are conflicting rulings on whether a general rent

control scheme that fails to advance its stated goals constitutes

a regulatory taking under the standards of Nollan v. California

Coastal Comm'n, 483 U.S. 825, 834 (1987) (“Nollan”), and

Dolan v. City of Tigard, 512 U.S. 374, 386 (1994) (“Dolan”).

As suggested in Yee, supra, 483 U.S. at 538, certiorari

is nOW appropriate as there is a conflict in this case “between

two courts whose jurisdiction includes California, the State with

the largest population and one with a relatively high percentage

of the Nation’s [rent-controlled residential properties]. Forum

shopping is thus of particular concern.” Jd. at 538. In this case,

the decision of the California Supreme Court below, Santa

Monica Beach, Ltd. v. Superior Court, 968 P.2d 993, 81 Cal.

Rptr. 93 (1999), by interpreting the Nollan and Dolan standards

as a “rational relation test,” App. A-14—16, A-21—22, directly

conflicts with the opinion of the Court of Appeals for the Ninth

Circuit in Richardson v. City of Honolulu, 124 F.3d 1150,

1165-66 (9th Cir. 1997). The Court of Appeals in Richardson

held an ordinance that “regulate[d] the use of the lessors’

property in a manner that d[id] not substantially further the goal

of creating affordable housing,” id., constitutes a regulatory

taking.

The decision below also conflicts with the opinion of the

New York State Court of Appeals, the highest court of another

large state with a large percentage of the Nation’s rent-

controlled housing, in Manocherian v. Lenox Hill Hospi ‘|, 84

N.Y.2d 385, 392-93, 643 N.E.2d 479, 482-83, 613 IN.Y.S.2d

857, 860-61 (1994), cert. denied, 514 U.S. 1109 (1995). In

Manocherian, the Court of Appeals, applying the Nollan and

Dolan substantial advancement standard, found a provision of

the New York City Rent Stabilization Law (“RSL”) to be a

regulatory taking because the provision “contradict[ed] two key

goals of the RSL, to wit, occupant protection and eventual

market redemption.” Jd. at 84 N.Y.2d at 394, 643 N.E.2d at

483, 618 N.Y.S.2d at 861. Thus, in that case, the Court of

Appeals analyzed the provision to determine whether it actually

advanced the state’s enunciated goals, as required under Nollan

and Dolan, while the majority in the decision below was

satisfied with the enunciation of lofty goals and declined to

address the practical effects of the legislation. App. A-15-18.

Another reason that this Court, in Yee, supra, 503 U.S.

at 538, declined to consider whether rent control effects a

regulatory taking was that the issue had not been fully litigated

below, depriving the Court of the benefit of developed

arguments on both sides and lower court opinions squarely

addressing the question. In this case, however, the Court has

the benefit of three lower court determinations directly on point,

as well as three thoughtful dissenting opinions and a

concurrence in the decision of the state court of last resort.

In addition, certiorari is warranted pursuant to Supreme

Court Rule 10 (c) as the decision below conflicts with relevant

decisions of this Court in Nollan, Dolan, and Chastleton Corp.

v. Sinclair, 264 U.S. 543 (1924). While the opinion below

purports to follow Nollan and Dolan, App. A-19-22 (while

thoroughly distorting their meaning, as discussed in the

dissenting opinions of Justices Baxter, Chin, and Brown), the

majority below explicitly repudiates Chastleton Corp. v.

Sinclair, 264 U.S. 543 (1924). App. A-23.° Justice Baxter’s

dissent ably discusses the continuing validity of Chastleton,

App. A-71-—72. In dismissing Chastleton as “a Lochner-era case

the validity of which is questionable at best,” App. A-23, the

majority below ignores the fact that Chastleton was clearly

decided on Fifth Amendment Takings Clause grounds, not as a

substantive due process claim. Chastleton, supra, 264 U.S. at

546.

In Chastleton, which concerned the continuation of rent

control initially imposed during the First World War, this Court

Stated that “the emergency that justified interference with

ordinarily existing private rights [during the First World War

and its immediate aftermath] had come to an end in 1922, and

no longer could be applied consistently with the Fifth

Amendment of the Constitution.” Jd. at 546. The Court went on

to hold that, if all that remained of the wartime emergency was

inflated prices, “that is not, in itself, a justification of the [rent

control] act.” Jd. at 548.

3 Several state courts have previously held that the emergency

requirement for adoption of rent control is no longer applicable. Birkenfeld

v. City of Berkeley, 17 Cal. 3d 129, 550 P.2d 1001, 130 Cal. Rptr. 129 (Cal.

1976); Westchester W. No. 2 Ptsp. v. Montgomery County, 348 A.2d 856

(Md. 1975); Hutton Park Gardens v. Town Council of W. Orange, 68 N.J.

543, 350 A.2d 1 (1975). All of these cases were decided before Nollan and

Dolan.

Since Chastleton, this Court has not subsequently

addressed the doctrine of emergency as justification for rent

control outside of the context of a war and its immediate

aftermath.’ Nevertheless, Chastleton contains clear, definitive

language invalidating rent control legislation that continues

beyond the emergency that supported its enactment. Chastleton

was authored by Justice Holmes, the same justice who had two

years earlier written Pennsylvania Coal Co. v. Mahon, 260 U.S.

393 (1922), the foundation of modern regulatory takings

jurisprudence.’ Chastleton thus clearly presages and falls

within the standards enunciated in Nollan and Dolan, because

ameliorating temporary high inflation in housing prices caused

by war-time disruptions is a legitimate public interest which

may, in certain circumstances, be advanced, in the short-term

only, by rent control. See Richard Arnott, Rent Control, in 3

4 See Woods v. Cloyd W. Miller Co., 333 U.S. 138 (1948); East New

York Savings Bank v. Hahn, 326 U.S. 230 (1945). See also Woods, supra,

333 US. at 146-47 (Jackson, J., concurring) (“Particularly when the war

power is invoked to do things to the liberties of people, or to their property

or economy that only indirectly affect the conduct of the war and do not

relate to the management of the war itself, the constitutional basis should be

scrutinized with care. ... I cannot accept the argument that war powers last

as long as the effects and consequences of war for if so they are permanent

ees: |

5 It should be noted, moreover, that Justice Holmes had presciently

dissented in Lochner v. New York, 198 U.S. 45, 74-76 (1905) (Holmes, > &

dissenting). Moreover, this Court in United States v. Carolene Products

Co., 304 U.S. 144, 153 (1938)—the case considered by commentators to

mark the demise of Lochner, see LAURENCE H. TRIBE, AMERICAN

CONSTITUTIONAL LAW § 8-7 at 582 (2d ed. 1988)—relied upon Chastleton

for the proposition that “the constitutionality of a statute predicated upon the

existence of a particular state of facts may be challenged by showing to the

court that those facts have ceased to exist.” Carolene Prods. Co., supra,

304 U.S. at 153.

NEW PALGRAVE DICTIONARY OF ECONOMICS AND THE LAW

305, 307 (Peter Newman ed., 1998). Chastleton was relied

upon by this Court as recently as Baker v. Carr, 369 U.S. 186,

214 (1962) (per Brennan, J.), quoting Chastleton for the

proposition that “political” questions are justiciable.°

Assuming that the emergency basis for the Santa

Monica Rent Control] Law was a marked inflation in rents, the

temporary effect of inflation in the late 1970s should have

dissipated by now.’ If, at this point, all that is left is the

lingering effects on the base rent of the initial rise in prices, then

the emergency has passed in accordance with Chastleton, supra,

264 U.S. at 547-48 (“A law depending upon the existence of an

emergency or other certain state of facts to uphold it may cease

to operate if the emergency ceases or the facts change even

though valid when passed.”). Moreover, to the extent that rent

control may reduce rents in Santa Monica below market rent for

comparable facilities in neighboring towns, that lower rent will

result in increased demand for housing in Santa Monica and

gradual deterioration and diminution of the Santa Monica rental

housing stock, exacerbating rather than relieving the problem,

6 ““{A] Court is not at liberty to shut its eyes to an obvious mistake,

when the validity of the law depends upon the truth of what is declared. .. .

[It can] inquire whether the exigency still existed upon which the continued

operation of the law depended.’” Baker, supra, 369 U.S. at 214 (quoting

Chastleton, supra, 264 U.S. 547-48).

7 It should be noted that the rental emergency caused by the First

World War was determined to be over within four years of the signing of the

armistice on November 11, 1918. Chastleton, supra, 264 U.S. at 546.

10

ite dene ea

Ce eee ee

as discussed below.® If a situation that caused a regulation to be

passed continues in effect because of the regulation itself, it

ceases to be an “emergency,” therefore, invalidating further

application of the regulation. See Chastleton, supra, 264 U.S.

at 546; R.S. Radford, Regulatory Takings Law in the 1990's:

The Death of Rent Control? 21 Sw. U. L. REv. 1019, 1032

(1992) (“Courts must employ heightened scrutiny to determine

that a specific ordinance, as administered, substantially

contributes to relieving the problems stemming from the

emergency.”).

In this case, the Santa Monica Rent Control Law

includes in its preamble a pro forma recitation that “A growing

shortage of housing units resulting in a low vacancy rate and

rapidly rising rents exploiting this shortage constitutes a serious

- housing problem... .”? Yet the Board has not proffered any

8 See ROBERT COOTER & THOMAS ULEN, LAW AND ECONOMICS 32

(2d ed. 1997); N. GREGORY MANKIEW, PRINCIPLES OF ECONOMICS 115-17

(1998); JOSEPH E. STIGLITZ, ECONOMICS 114-16 (2d ed. 1993); Richard A.

Epstein, Rent Control and the Theory of Efficient Regulation, 54 BROOK. L.

REV. 741, 763, 765-67 (1988) (rent control linked to decrease in quality and

quantity of rental housing); Werner Z. Hirsch & Joel G. Hirsch, Legal-

Economic Analysis of Rent Controls in a Mobile Home Context: Placement

Values and Vacancy Decontrol, 35 U.C.L.A. L. REV. 399, 432-33, 434, 440

(1988); R.S. Radford, Why Rent Control is a Regulatory Taking? 6

FORDHAM ENVTL. L.J. 755, 769-70 (1995); R.S. Radford, Regulatory

Takings Law in the 1990's: The Death of Rent Control? 21 Sw. U.L. REV.

1019, 1034-35, 1039-40 (1992).

9 Many rent control ordinances contain a relatively general

declaration of emergency, most often referring to a perceived shortage of

rental housing. Radford, supra, 21 Sw. U. L. REv. at 1033 & nn. 94-96.

This rote recitation of an “emergency” basis is not adequate to overcome a

takings claim. See Lucas v. South Carolina Coastal Council, 505 U.S.

1003, 1026 (1992) (“A fortiori the legislature's recitation of a .

justification cannot be the basis for departure from our categorical rule that

1]

defenses that would rebut SMB’s allegations or indicate that the

Santa Monica rent control program in any way alleviates a

shortage of rental housing units as required under Nollan and

Dolan. Certainly, the Board cannot satisfy Chastleton’s

requirement that any rental housing emergency declared in 1979

continue to this date for a non-self-perpetuating reason. The

decision of the California Supreme Court below explicitly

contradicts the continuing mandate of this Court in Chastleton

and therefore merits review and correction.

Il. THE EXPERIENCE OF OTHER RENT-CONTROLLED

JURISDICTIONS IS SIMILAR TO THAT OF SANTA

MONICA AND DEMONSTRATES THAT RENT CONTROL

REDUCES THE NUMBER OF RENTAL UNITS AND OF

POOR, MINORITY, AND STUDENT TENANTS.

The experience of Santa Monica is by no means unique.

At least five states and the District of Columbia currently permit

local rent control.'° Given the seductive lure of reducing

housing costs without direct and transparent costs to the

total regulatory takings must be compensated. If it were, departure would

virtually always be allowed. ”’).

10 California, Maine, Maryland, New Jersey, New York, and the

District of Columbia. See Edgar O. Olsen, Js Rent Control Good Social

Policy? 67 CHL-KENT L. REV. 931, 931 (1991). In 1994, after a successful

referendum, Massachusetts eliminated rent control. See MASS. G.L. ch.

40P; 1994 Mass. Stat. ch. 282. But see infra note 11. In 1995, Maine

deleted its rent control enabling statute, but permitted existing municipal

rent control ordinances to continue and enunciated a legislative intent “to

permit municipalities to continue to adopt and enforce rent control

ordinances under home rule authority.” 1995 Me. Laws ch. 194. The City

of Westbrook, Maine, continues to operate a rent control ordinance,

WESTBROOK, ME.. CODE §§ 21-15 et seq., which is currently the subject of

litigation. Ham Westbrook, L.L.C. v. Inhabitants of Westbrook, Dock. No.

AP-98-111 (Cumberland, Me., Super. Ct.).

12

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government, municipalities will continue to have incentives to

impose rent control even without state authorization. See, é.g.,

Bannerman v. City of Fall River, 391 Mass. 328, 330-31, 461

N.E.2d 793 (1984); Girard v. Town of Allenstown, 121 N.H.

268, 272, 428 A.2d 488, 491 (1981). The long-term adverse

effects of rent control are not readily apparent to the general

public. Once in place, rent control is difficult to end because its

imposition creates a large and strong constituency supporting its

continuation.!! Yet, as discussed more fully below, consistent

with standard economic theory, rent control has resulted in a

decline in the number of rental housing units and of poor,

minority, and student tenants in other rent-controlled

jurisdictions.

The fact that the adverse effects of rent control in Santa

Monica have been repeated in other jurisdictions in other states

supports granting certiorari in this case as this Court’s

determination will affect several large and economically vital

jurisdictions that currently enforce rent control or are

considering its imposition in the future. The extent to which

rent control constitutes a regulatory taking is thus a matter of

national concern that this Court has not previously considered"”

1] Particularly in times of high housing price inflation (regardless of

general price stability), there is a strong popular demand for rent control.

For example, in Massachusetts rent control was repealed by statute, Mass.

G.L. ch. 40P, after a successful 1994 referendum campaign. Nevertheless,

currently there is an effort to reimpose rent control through legislation

would affect all properties that once benefitted from government housing

subsidies and would gradually spread rent control, since the bili covers all

apartments ever occupied by a Section 8 tenant. 1999 Mass. House Bill

1548 §§ 2 (A) (3), 5. -

12 In Yee, supra, 483 U.S. at 537-38, this Court recognized the

importance of and invited consideration of the regulatory taking question in

an appropriate case.

13

and that should be addressed by this Court pursuant to Supreme

Court Rule 10 (c).

Classic economic theory teaches that the effects of

“hard” or “first-generation” rent control’’ include the following

effects: an increase in tenant demand for cheap apartments, a

reduction of supply of apartments, deterioration of rental

housing stock, discouragement of new rental construction,

inefficient distribution of rental housing resources,’* side-

payments, and selection by landlords of “easy” tenants. See N.

GREGORY MANKIEW, PRINCIPLES OF ECONOMICS 115-17

(1998); JOSEPH E. STIGLITZ, ECONOMICS 114—-16 (2d ed. 1993);

Arnott, supra, 3 NEW PALGRAVE DICTIONARY OF ECONOMICS

AND THE LAW at 306. As landlords under rent control must rent

at the regulated rent, they can exercise their prejudices in tenant

selection without paying an economic penalty, as they would in

the free market. Therefore, for example, a landlord who would

prefer to rent available apartments to quiet widows rather than

to noisy students would not be forced to lower his rents to

accommodate his selective tenant choices. See id.

So called second-generation rent controls, which “entail

a complex set of optional provisions governing not only rents

and rent-increases, but also conversion, maintenance, and

landlord-tenant relations,” were introduced in the 1970s.

13 “*{F]irst-Generation’ [rent control] programmes [sic] entail rent

freezes, with intermittent upward adjustments in rents.” Arnott, supra, 3

NEW PALGRAVE DICTIONARY OF ECONOMICS AND THE LAW at 305.

14 “The proverbial example [of inefficient distribution of housing

resources under rent control] is a poor widow who chooses to remain in the

large unit in which she raised her children, while large young families have

to settle for cramped quarters.” Arnott, supra, 3 NEW PALGRAVE

DICTIONARY OF ECONOMICS AND THE LAW at 306.

ja

Arnott, supra, 3 NEW PALGRAVE DICTIONARY OF ECONOMICS

AND THE LAW at 305-306. The extent to which second-

generation rent control mitigates the perverse effects of classic

first-generation rent control depends on the particular

provisions of the implementing regulations, id. at 307, and can

best be reviewed by empiric analysis such as that proffered by

SMB below.

It is not surprising that investors refrain from

development of residential real estate in areas subject to rent

control. Residential housing has historically had one of the

lowest returns on investment of traditional investment vehicles,

Slimmer Pickings, ECONOMIST, Mar. 23, 1996, at 78, even

without the additional disincentive of rent control. Even with

a second-generation — style regulation exempting new

construction from rent control, the existence of rent control

considerably increases potential investors’ fears that Santa

Monica might decide at a future date to impose rent control on

additional properties when their tenants became sufficiently

politically active to demand the protections available to their

neighbors.’°

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Thus, as predicted by the classic economic model, in

Santa Monica rental housing stock decreased by nearly 5% in

15 See Robert C. Ellickson, Rent Control: A Comment on Olsen, 67

CHL-KENT L. REV. 947, 949 (1991) (threat of rent control hampered

construction of new housing in New York); Richard A. Epstein, Rent

Control and the Theory of Efficient Regulation, 54 BROOK. L. REV. 741, 767

(1988) (“Even if new construction is exempt from the [rent control] statute,

existing rent control laws give a loud and clear signal that old policies may

be reversed so that future units may be subject to similar restrictions.”

(footnotes omitted)); Edgar O. Olsen, /s Rent Control Good Social Policy?

67 CHL-KENT L. REV. 931, 943 (1991); R.S. Radford, supra, 21 Sw. U.L.

REV. at 1037-38 & n. 130 (New York City has twice implemented rent

controls for previously exempt buildings).

15

the ten years from 1980 to 1990 while rental housing increased

in comparable Southern California towns without rent control,

App. E-3. It would appear that in Santa Monica landlords

withdrew properties from the rental market by owner-

occupancy or deterioration and replacement housing was not

built. By increasing demand, see Radford, supra, 21 Sw. L.

REV. at 1039-40 & n. 136, and decreasing supply, see supra,

note 15, rent control thus effectively creates the perception of

a continuing emergency, which can only be alleviated by

incentives to increase supply and to dampen demand, such as

introduction of free market rents.

Similar trends were demonstrated from 1980 to 1990 in

rent-controlled Cambridge and Brookline, Massachusetts.

ROLF GOETZE, RENT CONTROL: AFFORDABLE HOUSING FOR THE

PRIVILEGED, NOT THE PooR 8—11 (1994). Cambridge and

Brookline rental housing stock decreased from 1980 to 1990,

while rental housing stock in the ten largest non-rent-controlled

Greater Boston towns increased. Id. ii, 7-8, 2-9 (1994).'®

Studies of New York City and other rent-controlled

municipalities similarly indicate that rent control leads to

deterioration of rent-controlled apartments and reduction of

rental housing stock. MANKIEW, supra, at 115—17; STIGLITZ,

16 After rent control ended in Cambridge in 1995, landlords began

reinvesting in residential property maintenance. A _ recent study

commissioned by the City of Cambridge found that new tenants of formerly

rent-controlled (“decontrolled”) apartments assessed their housing

conditions considerably more favorably than did tenants remaining in

decontrolled apartments. ATLANTIC MARKETING RESEARCH, CAMBRIDGE

RENTAL HOUSING STUDY: IMPACTS OF THE TERMINATION OF RENT CONTROL

52 (1998). In the years immediately following the termination of rent

control, permits for building improvements to decontrolled properties

jumped by 68%, indicating significant deferred maintenance on such units.

Id. at 79.

16

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supra, at 114-16; Amott, supra, at 309: Radford, supra, 21 Sw.

U.L. REV. at 1034-36 & nn. 104—11.

The demographic data presented by SMB indicate that

rent control has had the predicted classical effect on

disadvantaged social groups in Santa Monica. App. E-3-4. See

MANKIEW, supra, at 117; Arnott, supra, 3 NEW PALGRAVE

DICTIONARY OF ECONOMICS AND THE LAW at 306. The number

of poor, students, and minorities decreased because under rent

control there was no adverse economic impact to landlords in

renting to members of other groups perceived to be “easier”

tenants. App. E-3-4. See Richard A. Epstein, Rent Control and

the Theory of Efficient Regulation, 54 BROOK. L. REV. 741, 769

& n. 118 (1988); R.S. Radford, Why Rent Control is a

Regulatory Taking? 6 FORDHAM ENVTL. L.J. 755, 769-70

(1995); Radford, supra, 21 Sw. ULL. REV. at 1047-48 & nn.

11-85. The poor and the elderly are particularly susceptible to

the high search costs caused by excess demand for cheap rent-

controlled apartments and inadequate incentives to increase

supply. The poor cannot afford side payments and move more

frequently, so that it is harder for them to maintain a position on

4 waitlist. Radford, supra, 21 Sw. ULL. REV. at 1047 & nn.

178-80. The elderly may ve daunted by the time and legwork

necessary to locate an appropriate rent-controlled apartment.

As older rent-controlled apartment dwellers gradually move out,

they tend to be replaced by younger, more aggressive apartment

seekers.

Demographic data taken from the United States Census

for Cambridge and Brookline, Massachusetts, demonstrate

trends similar to those apparent in Santa Monica. Based on

1990 Census data, there was considerable housing

underutilization in rent-controlled Cambridge and Brookline,

indicating that rent-controlled tenants chose to live alone or in

smaller family units or to rent more space than they would have

17

in neighboring non-controlled towns. GOETZE, supra, at 8-9,

15-16. Families with children in Cambridge were significantly

more likely to live in market-rate apartments than rent-

controlled units. /d. Cambridge Election Commission data on

occupation and birthdate and Census data indicate that

individuals in their 20s, 30s, and 40s were more likely to live in

rent-controlled apartments than those over 60, who were more

likely to live in market-rate or publicly assisted units. Jd. at

18-19, 2-14-15. Contrary to the intent of many rent control

laws (including Santa Monica’s), white collar employees and

those in the skilled trades predominated in Cambridge rent-

controlled housing while unskilled workers, students,

housewives, and retirees were as likely or more likely to live in

uncontrolled buildings. Jd. at 16-17, 2-16-17. In 1990, rent-

controlled tenants in Cambridge had yearly incomes averaging

over $1000 higher than tenants in Cambridge market-rate

apartments. Jd. at 14-15.'’ Similarly, in 1990, fewer than 14%

of tenants in rent-controlled housing were non-white, while

19% of tenants in market-rate apartments were non-white. /d.

at 19. These findings—fewer elderly, minorities, and families

in rent-controlled housing than in market-rate housing—parallel

the predicted effects of rent control as a powerful force for

gentrification in Santa Monica.

Not unsurprisingly, in a study commissioned by the City

of Cambridge based on a 1997 survey of 1000 households, the

17 Similarly, in New York City, a 1986 study for the Rent

Stabilization Association indicated that wealthy white families received the

greatest economic benefit from rent regulation while poor blacks and

Hispanics (a large percentage of the total New York City population)

received considerably less direct benefit from rent regulation. ARTHUR D.

LITTLE, INC., A TALE OF Two CITIES ES-4—S (1986). See Richard Auit &

Richard Saba, The Economic Effects of Long-term Rent Control: The Case

of New York City, 3 J. REAL Est. FIN. & ECON. 25 (1990).

18

numbers of poor, minorities, and students increased in

Cambridge after rent control was terminated in Massachusetts.

ATLANTIC MARKETING RESEARCH, CAMBRIDGE RENTAL

HousinG STUDY: IMPACTS OF THE TERMINATION OF RENT

CONTROL 34, 43-44 (1998). Despite the end of rent control, the

socioeconomic profile of Cambridge became poorer.

Significantly more wealthy households moved out after rent

control was ended while moderate income and poor tenants

replaced them in their decontrolled apartments. Jd. For

example, households with under $20,000 in yearly income

increased by 5% while households with income over $80,000

decreased by 13% based on move-in/move-out data. Id.'* This

is consistent with the wealthy—who were receiving sizable

subsidies under rent control—moving out to more appropriate

owned housing or larger apartments after their subsidized

controlled rents terminated and being replaced by lower income

individuals willing to pay a reasonable rent for the now more

readily available apartments.

SMB sought to present empirical evidence that

demonstrates that the Santa Monica Rent Control Law in fact

has the adverse effects predicted by economic theory (and these

effects are confirmed by comparison with similar communities).

A property owner should not be precluded from using that

evidence to convince a court that the regulation’s unintended

effects outweigh or, as in this case, negate the intended benefits

of the regulation under the standards articulated by this Court

in Nollan and Dolan. “‘[A] Court is not at liberty to shut its

eyes to an obvious mistake, when the validity of the law

18 In addition, the Cambridge Survey indicated that, based on move-

in/move-out data, the number of non-white tenants increased by 12% and

the number of students increased by 18% after rent control was terminated.

Id. at 43-44.

19

depends upon the truth of what is declared.’” Baker, supra, 369

U.S. at 214 (quoting Chastleton, supra, 264 U.S. 547-48).

CONCLUSION

For the reasons stated above, Santa Monica Beach,

Ltd.’s petition for a writ of certiorari should be granted.

Respectfully submitted,

AMERICAN ASSOCIATION FOR SMALL PROPERTY

OwWNERSHP;

AMERICAN SENIORS HOUSING ASSOCIATION;

COMMUNITY HOUSING IMPROVEMENT PROGRAM;

HUDSON COUNTY BOARD OF REALTORS;

HUDSON COUNTY TAXPAYERS ASSOCIATION;

ILLINOIS RENTAL PROPERTY OWNERS ASSOCIATION;

MAINE CONSERVATION RIGHTS INSTITUTE;

METROPOLITAN REAL ESTATE INVESTORS ASSOCIATION;

NATIONAL APARTMENT ASSOCIATION;

NATIONAL MULTI HOUSING COUNCIL;

NEW HAMPSHIRE PROPERTY OWNERS ASSOCIATION;

PROPERTY OWNING WOMEN;

PROPERTY RIGHTS FOUNDATION OF AMERICA;

RENT STABILIZATION ASSOCIATION; AND

SMALL PROPERTY OWNERS ASSOCIATION,

By their attorneys,

Michael E. Malamut, Counsel of Record

Counsel for Amici Curie

New England Legal Foundation

150 Lincoln Street

Boston, MA 02111

Telephone: (617) 695-3660

Facsimile: (617) 695-3656

Dated: April 20, 1999

20

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