Rent Control Wins Again!
By Peter Reitz

Over the past several decades, there have been a number of attempts to challenge rent price controls on the grounds that such restrictions amount to an illegal taking under the Fifth Amendment of the U.S. Constitution.

One of the first decisions of this kind was Hawaii Housing Authority v. Midkiff. In that 1984 case, U.S. Supreme Court Justice Sandra Day O’Connor wrote that in order to use the eminent domain process, the state only had to show that its activities were “rationally related to a conceivable public purpose.” A taking under rent control can conceivably be related to a public purpose.

Kelo v. city of New London (2005), involving a city’s use of eminent domain to transfer land from one private owner to another private owner to further economic development, the Court held that the general benefits a community enjoyed from economic growth qualified private redevelopment plans as a “permissible public use” under the Takings Clause of the Fifth Amendment.

The legal battle against rent price control as an illegal taking was dealt another major blow. So where do opponents of rent control go from here and what course of action is available to them to successfully challenge it in the courts?

The legal battle against rent price control as an illegal taking was dealt another major blow on April 23rd when the U.S. Supreme Court announced its refusal to hear a lawsuit challenging New York City’s rent-stabilization law as an unconstitutional taking of private property. The much-anticipated case, Harmon v. Kimmel, was filed in 2008 by James and Jeanne Harmon, owners of a New York brownstone with six apartments, of which three are rent stabilized. The U.S. Southern District Court dismissed the case in 2010 and the U.S. Court of Appeals for the Second Circuit affirmed the dismissal in 2011. The case was never heard and the high court’s refusal to hear an appeal marks its end.

Regulation of rent price levels has a long history and it appears that in turning down a review of the Harmon case, the U.S. Supreme Court felt that it is up to New York State and city officials to decide its future. Only five jurisdictions have rent price controls: California, District of Columbia, New Jersey, New York and Maryland. Rent control has been preempted in a total of 46 jurisdictions – 32 by statute, three by case law and 11 without preemption.

These court decisions have served to distort the original intent of the eminent domain doctrine, moving the nation in the wrong direction on private property rights. So where do opponents of rent control go from here and what course of action is available to them to successfully challenge it in the courts?

Whither future legal battles on rent control? The U.S. judicial system is unique in that it is actually made up of two different court systems – the federal system, made up of the U.S. Supreme Court, U.S. District Courts and the U.S. Circuit Courts of Appeal and the state system, composed of State Supreme Court, Superior or Trial Courts and the Courts of Appeal. While each court system is responsible for hearing certain types of cases, neither is completely independent of the other and the two often interact. Federal constitutional issues can be heard under both court systems.

If the state judicial path is chosen for future legal challenges to rent control, litigants must weigh the chance of success in presenting cases in California, Washington D.C., New Jersey, New York and Maryland. The odds are poor. If the federal path is taken, the case would need to be filed in a jurisdiction that is more likely to rule favorable to property owners. A favorable outcome in a lower court would surely be appealed and judges in the Second and Ninth Circuit Courts of Appeal aren’t likely to uphold a favorable lower court decision.

Another way to look at is it is to ask whether a court in a jurisdiction without rent control would be interested in ruling on a matter that has no particular relevance within its jurisdiction. Similarly, the five jurisdictions with rent control have dealt with somewhat similar cases and have ruled in favor of keeping rent control.

Whatever happens in the future, one thing is for sure. Rent control as a legal issue is not going away. Stay tuned for further developments.

Peter Reitz is the Executive director of SPOSFI. Reprinted with permission of the Small Property Owners of San Francisco Institute (SPOSFI) News. For more information on becoming a member of SPOSFI or to send a tax-deductible donation, please visit their website at www.smallprop.org or call (415) 647-2419.

Leave a Reply