Rent Controls May Feel Impact of Hawaii Case

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The New York Sun

New York State’s decades-old residential rent regulations could be at stake in a Supreme Court case challenging Hawaii’s right to cap the amount of rent oil companies can charge to service stations, according to close observers of rent control laws.


The Supreme Court is scheduled to hear arguments early next year on whether a Hawaii law imposing rent regulations on other oil companies violates the Constitution. While the case, brought by Chevron, involves commercial rent regulation, the legal questions the justices are to consider also apply to residential rent regulations.


If the Supreme Court upholds rulings by lower courts that struck down the Hawaii law, the result could open the door to legal challenges to residential rent control laws across the nation, groups on both sides of the rent control divide said.


“My guess is that it could have a significant impact,” James Grow, a housing lawyer in Oakland, Calif., said. “The analysis they use to come to the conclusion will affect other state and local regulatory measures, particularly price controls on real estate.” Mr. Grow is a staff attorney at the National Housing Law Project, a nonprofit law firm.


The Supreme Court is expected to rule on the case before the end of its term next summer.


“This case is going to be looked at very closely by the real estate industry and other affected groups and parties,” Mitchell Posilkin, general counsel for the Rent Stabilization Association, said. “What the Supreme Court says on the subject of rent control, or at least commercial rent control challenge, is likely to have a significant relevance to residential control in the city.” The association, based in New York City, comprises property owners who oppose rent regulations.


At issue in the case is whether the power of the government to regulate the use of private property is restricted by the “takings clause,” a portion of the Fifth Amendment that bars government from taking private property for public use “without just compensation.”


The case marks the first time the Supreme Court is using the “takings clause” to examine the legality of rent control.


Opponents of rent control have long believed that the “takings clause” offers the best legal avenue for defeating rent control regulations, according to James Burling, principal attorney in the property rights section of the Pacific Legal Foundation in Sacramento.


The issue of rent regulations in New York and other states across the country is as divisive as ever.


Supporters say the laws are essential for ensuring the existence of affordable housing in areas of high-priced real estate. Opponents say the regulations are an intrusion into the free market, constitute an illegal taking of landlords’ property, and actually reduce the supply of cheap housing.


Fifty-one municipalities in New York State have rent control laws, according to the New York State Division of Housing and Community Renewal.


The number of apartments in New York City that are subject to rent control, which are in older buildings and have long-standing tenants, has dwindled below 60,000, but the number of rent-stabilized apartments, which under current law are deregulated when the rent reaches $2,000, remains around one million.


The case before the Supreme Court involves a law Hawaii’s legislature passed in 1997 that capped the amount of rent Chevron and other oil companies can charge to a service station at 15% of the station’s profits. At the time, lawmakers said the regulation would help lower gasoline prices.


Ruling against Hawaii, a federal district court, and then the appeals court for the Ninth Circuit concluded that the rent control regulation failed to lower gas prices. Because it did not “substantially advance a legitimate state interest,” a precedent set by a 1980 Supreme Court case, the regulation was deemed an unconstitutional regulatory taking.


The legal questions before the Court are whether a court can invalidate such a regulation because it does not advance a state interest, and whether a court has the power to determine on its own that a state law is not effective.


“At least on the surface, the question that arises in Chevron is the same that arises in residential rent control challenges,” Mr. Posilkin said. “The question is whether the state legislative action at some point crosses the line from permissible regulation to a taking for which compensation is required under the Constitution.”


The Supreme Court struck down, in the 1987 case Nollan v. California Coastal Commission, a law that required people seeking permits to build or repair a coastal home to grant the public the right to access to a portion of their property. That marked the first time it used the “state interest” test to invalidate a state regulation.


Though the high court has never ruled against rent control, it “recently has been more solicitous of regulatory taking challenges,” Mr. Grow said.


The New York State attorney general, Eliot Spitzer, who is a proponent of rent regulations, filed a friend-of-the-court brief with the Supreme Court that was joined by 21 other states.


The brief argued that the Ninth Circuit’s ruling “permits an assault” on a state government’s power to “experiment” with regulations that influence economic interests. In effect, the brief argued, the decision establishes the federal courts as “overseers” of state laws.


“Courts will be required to closely scrutinize not the reasonableness of a regulation, but whether the legislative ‘means’ chosen by the elected members of state government will, in the court’s own view, achieve their ‘ends,'” the brief said.


A spokesman for Mr. Spitzer, Paul Larrabee, said such regulations as rent control should not be subject to a “means-end analysis,” but he wouldn’t comment on the potential impact a ruling against Hawaii could have on New York rent regulations.


The New York Sun

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