Epstein on California's Rent Control Laws

California's Kafkaesque Rent Control Laws
Richard A. Epstein
Defining Ideas
October 11, 2011

In March 2011, my column for Defining Ideas carried the title, The Follies of Rent Control. In it, I took to task the Court of Appeals of the Second Circuit for perpetuating a substantive mess in takings law when, in Harmon v. Markus, it yet again upheld New York City’s Rent Stabilization Law. On that occasion, I directed my attention to the injustices that arise whenever the government may allow a tenant on a short term lease to remain on the premises, at rental rates set by the government, after the lease has run out.

The fundamental substantive error of this legal regime is that the government treats the owner as if he operates the property as a public utility. As such the owner is duty-bound to let the tenant stay in possession, so long as the owner received sufficient revenue for its operating and capital expenses, but to nothing more. Accordingly, the right to any and all increases in the value of the underlying property is shifted, without compensation, from the owner to the tenant. In booming markets, that shift can be huge.

New York is not the only economically failing state that treats rent control as the road to salvation for its financially pressed citizens. California matches it stride for stride. In the California setting, the focal point is mobile homes. The 2010 decision in Guggenheim v. City of Goleta upheld a municipal ordinance that allows the tenant to hunker down in perpetuity so long as he or she agrees to cover the landlord’s increased costs, narrowly conceived.

Richard A. Epstein