Sawant’s Rent Control Bill

As promised, Council member Kshama Sawant unveiled her proposed rent control ordinance on Monday night. Capitol Hill Seattle Blog scanned in a printed copy that was distributed at Sawant’s hearing/rally. (update: here’s a clean version of the bill, provided by Sawant’s office)

Here’s what’s in the bill.

The ordinance applies to all rental housing where rent is charged  — apartments, single-family homes, SEDUs, ADUs, a room in your house — except for:

• • AirBnB-style short term rentals;
  • Hotels, motels, B&Bs, and the like;
  • Emergency and temporary shelter;
  • Transitional housing;
  • Housing owned, operated or managed by a government entity or housing authority;
  • housing exclusively leased to immediate family members;
  • housing units exempted under federal, state or local laws.

A landlord may not increase the rent in any one year more than the Consumer Price Index for Seattle Urban Wage Earners and Clerical Workers (CPI-W) for the Seattle-Tacoma-Bremerton Area for the previous 12 months. The June 2019 CPI-W was 2.7%. There is no “vacancy decontrol;” rent may not be reset when a tenant moves out.

Utilities may be included in rent, but the amount charged for utilities can’t exceed the average bill for the prior 12 months.

If new construction on a site demolishes a rental structure (i.e. rental units that existed any time in the previous 10 years), then if the newly-constructed units are rented out, an equivalent number of units to the previously-existing housing must be offered at the same rent, CPI-adjusted and proportionately adjusted for changes in square footage. Additional units beyond the number that originally existed may be initially offered at any price, but are subject to the standard rent increase limits from that point on.

Whenever a housing unit is first registered or renewed under the city’s Rental Registration and Inspection Ordinance, the landlord must submit a record of the rent charged over the previous ten years.

The ordinance creates a Rent Control Board of at least 43 persons, consisting of seven mini-boards — one for each Council district. Each district board contains five renters and one landlord from within that district. In addition, one or more young adults may be added to the Rent Control Board through the city’s Get Engaged program.

The Rent Control Boards are responsible for:

• recommending policies to the City Council on rent control;
• holding hearings and making binding decisions on petitions for emergency exemptions to the rent control increase restrictions;
• recommending changes to the maximum annual rent increase.

Rent Control Board positions are two-year terms. The initial 42 Rent Control Board members are appointed by their respective district City Council members, and subject to confirmation by the full City Council. After the initial terms, they are all elected by the voters of their respective district.

The district-based rent control boards meet once a month to hear and decide on exemption petitions. Their decisions are to be based upon considering:

1. The financial hardship of the landlord;
2. The financial hardship on the impacted tenants;
3.  Major damage to the property resulting from unforeseeable events (e.g. fire, flood, earthquake).

They are not allowed to consider foreseeable major repair needs — only unforeseeable ones. The ordinance is clear that an exemption should only be granted if there is major unforeseeable damage that presents a financial hardship to the landlord. The financial hardship on the tenants is a mitigating factor, and “no Emergency Rent Control Exemption should be granted if it can reasonably be expected to result in one or more impacting tenants becoming unable to remain housed in the City of Seattle.”

Submitting a petition for an emergency exemption costs a landlord $500 per unit, and is refunded if the petition is granted or conditionally granted (i.e. the board grants a smaller increase than what was requested).

The decision of a rent control board may be appealed to the Hearing Examiner, who may remand it back to the rent control board if the information available to the board was found to be substantively inaccurate, one or more members of the board failed to properly recuse themselves, the tenant didn’t receive timely notice of the petition, or substantive new evidence becomes available.

The full 43+ member Rent Control Board will meet four times a year to discuss policy matters and make recommendations to the Council and Mayor.

Citations for violation of the rent control ordinance incur a $500 fine for the first offense, and a $1000 fine for subsequent offenses. If a landlord is found to have violated the ordinance, then to correct the violation the landlord must:

• revise the rent to within the allowable amount;
• discontinue any adverse impacts on the tenant caused by attempts to collect excess rent, such as late fees, negative references, and eviction proceedings;
• refund to the tenant triple the amount of rent in excess of what is allowed plus 12% annual interest.

In addition, a tenant has a private right of action in court for any violations of the ordinance, and may recover any actual damages, reasonable attorneys’ fees, and a penalty of up to two months’ rent.

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Some of the problems with the proposed ordinance:

• It’s tied to consumer CPI, but landlords’ costs are more closely tied to the construction inflation rate, which is usually higher (and certainly has been for some time here in Seattle). Construction inflation in Seattle is running around 4% this year, versus CPI-W at 2.7%. So the longer rent control is in place, the farther into the hole landlords will find themselves in trying to maintain their units.
• If landlords include utilities in rent, they will always be one year behind their actual costs since they are constrained by the average for the previous year. They can’t charge their tenants’ actual usage unless it is equal to or lower than last year’s average.
• The provision requiring replacement housing to charge the same as the old housing is totally unworkable in practice. If a landlord tears down an old, drafty 70-year-old building and builds better housing, they can’t charge more for the better housing. This simply ensures that the oldest, worst-condition “naturally affordable” housing rots in place until it is no longer fit for occupancy, or until it’s torn down and replaced by something other than rental housing. The worse condition a rental unit is in, the less likely it will be replaced with a better one.
• The Rent Control Board is a massive bureaucracy that will be expensive to run — both the Board’s own operations and the elections for 42 positions every two years. It will also be extremely political, the natural result of electing people to make important financial decisions on behalf of residents and landlords. It’s set up to skew the result heavily in favor of renters, both in the board’s composition and in the rules under which it is allowed to make its decisions. The $500 fee to petition for an exemption is a big gamble for landlords: the ones in financial hardship who most need an exemption will be the ones least likely to have $500 to risk on it, especially when the rent control board is structurally biased toward renters.
• The enforcement piece of this will also be a huge bureaucracy for SDCI to manage. There is no estimate yet on how many people the department will require to staff it, nor what the infrastructure will cost to track rental prices on tens of thousands of active rental units — not to mention tracking whether every residential property in the city has been rented out any time in the past ten years.
• The rule that an exemption may not be granted if it is likely to displace a tenant out of the city is well-intentioned, but incredibly problematic in practice. It means that a landlord with financial hardship and unforeseen major expenses is simply screwed, with no recourse. This will be an enormous disincentive for landlords to take in low-income tenants at high risk of displacement, because it eliminates all possibility of raising rents more than the cap if something unexpected happens.
• The sheer weight of this bureaucracy will push small landlords, including those renting ADUs or a room in their house, out of the market.

And then, of course, there is the larger issue: rent control is terrible policy. It will be doubly so under the terms in this bill, which includes compelling disincentives to building new rental housing such as the rules about building replacement units and the cap below the inflation rate for construction.  Also, pegging the maximum increase so low means that landlords will quickly learn to impose the maximum increase every year regardless of their immediate need for more revenues, because they have no ability to “catch up” in the future if they incur a large expense (unforeseen or not, major damage or not).

Finally, there’s the fact that rent control is prohibited by state law. The ordinance awkwardly tries to deal with that in specifying its effective date:

If the Washington Legislature adopts and the Governor signs legislation amending or repealing RCW 35.21.830 to allow rent control, this ordinance shall take effect and be in force 30 days after its approval by the Mayor…

This is terrible drafting. The intent is most likely to say that it will take effect as soon as the state ban is lifted. But what it actually seems to imply is that in the future if the ban is lifted, then rent control is retroactive back to the point in time 30 days after the Mayor signs the ordinance into law.

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It’s pretty much guaranteed that nothing will happen with this legislation through the end of November, while the City Council is fully immersed in the 2020 budget process. Sawant can call a meeting of her committee in early December to amend it, but the bill is in such bad condition that even if she can find five supporters of rent control among her Council colleagues, there is no way they will be able to hammer this thing into acceptable shape in two weeks before the Council goes into its winter recess. And realistically, the policy issues are big and complex enough that Council members will likely want several weeks to research and debate it in advance of any vote. So practically speaking, this bill can’t get passed by the Council before 2020. And if Sawant doesn’t get re-elected in November, it will never get off the ground.

Of course, Sawant knows all this, and it’s no coincidence that she rolled it out six weeks before Election Day. She is aware that District 3 has a large proportion of renter households, many of whom are feeling the pain from Seattle’s high rents, and this bill (and the surrounding hoopla) are engineered for maximum appeal to that constituency. The timing is perfect to ensure that there is no serious policy debate on her proposed bill in the City Council, where all of its flaws would be exposed, before the election. She gets to harvest the political goodwill of being seen as fervently pro-tenant, without being exposed as the purveyor of bad public policy and the author of poorly-constructed legislation.

All that’s left is to see whether the voters buy what she’s selling.