Rent Control Loony Tunes

  

The justification for rent control laws is that free market rents are too high, low-income tenants can’t afford them, and therefore it is necessary for government regulators to step in, impose limits on what landlords can charge, and thus provide affordable housing for people of limited means. Nowhere is this rationale more strongly espoused than in case of mobile homes which are usually occupied by low-income folks who are hard put to keep a roof over their heads. Of course, the way rent control works, the government doesn’t do a thing for those poor folks. Rather it forces their landlord to become an involuntary subsidizer of mobile home rents. No one has explained why – if providing housing for the poor is a proper government function – the government can evade its moral duty to do so, and force a private individual to go into the charity business by providing housing below the prevailing market rate at his expense. But that’s an issue for another time.

 The subject at hand is the brand-new, humongous Ninth Circuit opinion in Guggenheim v. City of Goleta, Docket No. 06-56306 that just came down, which is noteworthy for two things: first and foremost, believe it or not, the landlord won a taking claim. Yes sir, we kid you not. The U.S. Court of Appeals for the Ninth Circuit found the Goleta rent control ordinance to be a taking of the landlord’s property. Second: the opinion is a tour de force of intellectual navigation through the thickets, shoals and reefs of what passes for ripeness law. We won’t attempt to explain that aspect of the opinion here – we leave that task to people who get paid for doing so, or otherwise feel that they must talk about it. If you have an interest in the subject of regulatory takings in general and in rent control in particular we recommend that you sit down, have a stiff belt of your favorite alcoholic beverage and have at it. Our fellow blogger, Robert Thomas, has already heralded the arrival of this opus, and you may want to take a look at his admittedly preliminary cut. See http://www.inversecondemnation.com/inversecondemnation/2009/09/new-ninth-circuit-case-mobile-home-rent-control-ordinance-takes-property.html  

The Guggenheim opinion is not unanimous. Judge Kleinfeld dissented, arguing primarily that the action was brought too late. But Judge Kleinfeld has provided us with an inadvertent demonstration of just how loony rent control can get. Mobile homes are not really mobile – once transported to their site in a mobile home park and plopped down on a pad, they are rarely moved again. Nine out of ten stay put for life. So what that means is that when a mobile home owner (who is a tenant of the piece of land on which his “coach” rests) moves, he sells the “coach” to the person who takes his place. Ah, but if the mobile home park is subject to rent control, that means that the new guy would get to occupy a dwelling that in a free market would cost a lot more to occupy than the much lower controlled rent that the landlord is allowed to charge. The right to do so can be worth a lot. So the seller of the “coach,” being no dummy, insists on a premium reflecting the bonus value of occupancy at low, controlled rents. So he sells the “coach” to the new occupant for an inflated price that by far exceeds its value or even the cost of a brand new one, the additional money thus charged being the price of the new guy’s advantageous right to live there at a below-market rent. The way the economists put it, this process  “monetizes” the rent advantage when the seller and buyer of the “coach” go through the fiction that this extra money is for the “coach,” not for the rent advantage.  

That brings us to the absurdity of mobile home rent control. While rent control may provide an advantage or a windfall to the original mobile home park tenants whose “coaches” are already in place when the rent control ordinance becomes effective, any subsequent mobile home occupants have to pay, not only the controlled future monthly rent after they move in, but also the monetized value of the future rent advantage, payable in a lump sum up front. That is what the agreed-upon, high “price” of the coach is all about. Got it?

 So as far as all mobile home occupants, save the original ones, are concerned, the rent control ordinance does them no good whatever. What they save on rent, they pay as the price of the “coach” which they must buy if they want to become occupants of the mobile home park. In other words, as to the subsequently moving in tenants it’s a zero sum game. So the money that by rights should have gone to the landlord as rent, now goes to the moving-out tenant as the inflated price of the “coach.” 

Judge Kleinfeld’s dissent in the Guggenheim case, as well as te majority opinion to which he alludes, demonstrate just how wacky these things can be. He points out that without rent control, a “coach” in the subject mobile home park would sell for $14,037, but with the rent control ordinance in place it goes for $105,054 – which, of course any new tenant moving into the mobile home park has to pay to his predecessor in interest. So the landlord and the new tenant both get ripped off, while the tenant who is moving out gets to pocket a hundred grand or so. How $weet it is. 

Pardon us folks, but being of limited intellectual resources and thus easily confused by the reasoning of our betters, we can’t help asking: This is rent control? This is how the poor folks who have to live in mobile home parks are protected from high rents? By being forced to pay an exorbitant price for an old, used mobile home (that in some cases may be so old and junky that it has to be scrapped and replaced with a new one)? Wouldn’t it make just as much (or more) sense to scrap mobile home rent control altogether since it manifestly does not control rents? 

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