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Fred Schnaubelt and Tom Kozden argue about rights to housing

Rent control

Tom Kozden, the prominent rent control activist, and Fred Schnaubelt, the city councilman, are sitting at a small kitchen table. - Image by Jim Coit
Tom Kozden, the prominent rent control activist, and Fred Schnaubelt, the city councilman, are sitting at a small kitchen table.

The scene opens in the tiny kitchen of a one-bedroom apartment downtown. Tom Kozden, the prominent rent control activist, and Fred Schnaubelt, the city councilman, are sitting at a small kitchen table. It is afternoon. Through the open window next to the table a summer breeze is stirring. The men can look out to see another apartment, a studio, where the rent has climbed nearly one hundred percent in the past two years. Kozden thinks such an increase is appalling.

Tom Kozden: A person doesn’t have a right to live in an affordable, decent place?

He has just finished explaining what he would like to see instead: a city wide ordinance that would roll rents back to August. 1977 levels and then adjust them annually for the two years that have since passed. He wants to see neighborhood boards set up which would determine and administer fair rent increases and which would operate until San Diego once again sees a five percent apartment vacancy rate. Across the brown Formica table top, Schnaubelt is bristling with objections. He's protesting that rent control would be a disaster, that it's an inefficient way to deliver protection for some people. . . . The air is thick with tension.

Fred Schnaubelt: "You don't have the right to force people to supply you housing."

FRED: According to Department of Labor statistics, in the twelve-month period from July, 1978 to July, 1979, the cost of home ownership in San Diego went up somewhat over twenty-eight percent. The consumer price index for all items went up 16.9 percent. The cost of renting apartments went up 9.9 percent. The consumer price index in San Diego is rising seventy percent faster than rents. So when you put the whole thing in context, even though rents are going up. they are an incredible bargain compared to other items in the consumer price index!

The average price of a new home in San Diego is more than $98,000. Now, if you take the cost of home ownership, including taxes, it would be about $1000 a month. So what people who provide apartments are doing is enabling people to have a decent place to live for one-half to one-quarter the price of owning a home. They are beset by a general price index rise of 16.9 percent, yet they 're only raising the rent on average for the overwhelming majority of people by 9.9 percent.

TOM: Using the consumer price index is the most loaded context to use for a landlord-tenant discussion, because in reality the landlord's costs are not going up according to the consumer price index.

The consumer price index is a measure of inflation that affects everybody — including the renters who have to pay just as much for all those goods and services — whereas in reality the landlord’s principal on his apartment building doesn't go up with the consumer price index. The only area of the landlord's cost that could justifiably be said to correlate with the consumer price index is maintenance, the workman who comes to fix the plumbing or whatever — that is probably going up with the consumer price index. But ask tenants when was the last time the landlord did maintenance on their building!

FRED: Let’s talk about the school teacher, who saves and saves, and she buys an apartment building. She pays it off over thirty years. She retires. Social Security is not enough for her. She can’t eat her appreciation and she can't eat her depreciation. All she can eat is what can be purchased by the cash flow that comes in. So she has this apartment building and she has an income coming in. and it gives her $10,000 or $12,000 a year. Now, you’re saying that this lady should not be able to raise her rents. . . .

TOM: I didn’t say that. I say what is the rent increase going to be? Should she be able to raise the rents a hundred dollars?

FRED: Yes. She should.

TOM: See, that’s where we draw the line.

FRED: She should raise it $200, $400, $1000, $10,000. If she wants to charge $10,000 a month for her apartment, she should be able to charge $10,000 a month.

TOM: (Shaking his head incredulously) Do you see housing as a right, Fred?

FRED: The right to compete, yes.

TOM: But you don’t say a person has a right to a house? A person doesn’t have a right to live in an affordable, decent place?

FRED: You don't have the right to force people to supply you housing.

TOM: If there is a supply of housing, do people have a right to it?

FRED: You do not have the right to force somebody else to supply you a house that you don't want to pay for, and that's as simple as you're talking about.

TOM: Who has said I don't want to work, that I don’t want to pay for it? We're willing to pay for it. We’re willing to work for it.

FRED: But you want to set the price. Why should you set the price?

TOM: We’re not saying we set the price. We’re saying two landlords, two tenants, and one homeowner set the price. What are you afraid of? There are three property owners on each board. Why are you so afraid of a fair price being set?

FRED: Because you have no right to tell me what I can do with my property, Tom. If I save my money and invest it and buy an apartment building, if I want to keep that apartment building vacant, that is my business. And you have nothing to say about it.

TOM: This is the total difference. Now we’re getting down to the root of it. You believe that housing is just for profit?

FRED: Of course it’s for a profit. That’s right. Everything is for a profit.

TOM: It’s not a right that people have?

FRED: They have a right to bid for it.

TOM: They bid for it. And if they don’t have enough money to have it, then what? FRED: You don’t punish the people who produce because some people are in need. Not if you want to create a better, freer society.

TOM: What happens to the people in need? Let’s follow this out.

FRED: What happens to them historically? There are people like you, who are concerned with them, who should take care of them, but you don’t want to. You want to force somebody else to take care of them.

TOM: What do you mean, take care of them?

FRED: Well, you see somebody in need, you can invite him into your house. How have most people in history been helped that are poor? They’ve moved in with their parents. The other poor took care of them and assisted them. Isn’t that true?

TOM: So you advocate doubling up?

FRED: That is what has happened in the past.

TOM: It’s happening right now. And then after everyone has doubled up. then do you advocate people triple up? And quadruple up? Until we have the situation that we had in the early Nineteenth Century in this country where you had twelve, fifteen people living in a one-bedroom apartment? That's the kind of housing that you see?

FRED: How did it change? In the real world, instead of your fantasy land, how do you create more housing? In the real world, how do you get people to work? You want to enslave them and force them to build more housing?

TOM: If the private sector’s not going to do it, then I say we don't have much choice about what we can do. And that’s what’s happening right now. We’ve reached a situation where the private sector says, ‘Look, land is too expensive. Labor’s too expensive. Material’s too expensive. Even if I wanted to be a nice guy, I couldn’t afford to do it. It just doesn’t pencil out.’ I would much rather see the private sector do it; they’re geared up to do it; they have the expertise to do it. All they lack is what I consider to be the social responsibility to do it. And if they’re not going to exercise it under this society, contrary to what you believe, there’s no way you can force a builder to build. If the private sector’s not going to build it, then we have to use our tax money; we have to use our revenues that we pay. The government and the tenants themselves have to come in and form neighborhood development corporations that will build the housing, that will manage the housing, that will solve their own problem. If we continue in the present direction, I don’t see any way out of it. We put a man on the moon. Can’t we provide enough housing for people in this country?

FRED: You want the government to build housing, but let’s see what happens when the government builds housing. We (at the city council) have a proposal before us from the Kind Corporation [a local social services agency] to build a senior citizen's complex in downtown San Diego. They want to get a government loan of $7 million to finance the project. It comes out to $68,000 per unit for an efficiency apartment. Now, you can buy apartments all over town for $30,000 to $35,000 a unit. And yet the federal government is going to build these units for $68,000. The government, which is beneficent, altruistic, and makes no profit, is building these units smaller, less amenities, and they cost fifty percent more. Now, obviously, when you do this on a massive scale it becomes readily apparent that for the same amount of money spent by the government as by private individuals you have fifty percent fewer dwelling units.

TOM: I don’t have the details on this specific situation.

FRED: Well, look at the Supreme Court case of the Commonwealth of Pennsylvania versus James Linn, who’s the head of the Housing and Urban Development Agency of the federal government. There was the issue of holding back federal funds from the federal government’s 235 and 236 subsidized housing programs.

And the reason the action was sustained to prevent more development at that time was that it was demonstrated that when the government builds housing it is from twenty to forty percent more expensive than when it is privately developed. Which means, obviously, you can build twenty to forty percent fewer homes with the same amount of money once it goes through the government bureaucracy. It also said that at the absolute minimum, rents in government projects are ten percent more than in private ones.

This is not some small little experimental pilot project that we’re talking about. We’re talking about a program that had committed $85 billion. When you look at that massive scale of government intervention and the inefficiency and the very little, relatively speaking, that you get for the tax dollars spent, then you begin to see why I’m so adamantly opposed to the government doing this in the marketplace.

TOM: I see a total contradiction in your position. You’re saying, ‘Let the private sector develop the housing and then it’ll come forth.’ Yet look at the reality of today. The private sector is totally developing the housing and it’s not coming forth for low- and moderate-income people. But then you say, ‘If the private sector won’t do it, don’t let the government do it because they’re inefficient.' So what are people who need affordable housing supposed to do? If you only want the private sector to do it, and they won’t do it because it’s not profitable enough, what options do we have?

FRED: It is a fantasy approach to think that anybody any place is going to build brand-new homes for people who have no money. You want to take an item that takes a great deal of skilled labor and a great amount of entrepreneurial skill and education, and you want to produce that all at a cost less than all those factors of production require. Now, the argument that the construction industry does not supply homes for poor people is true. Directly, the builders do not. Indirectly, they do an incredible job of it. But the same holds true for automobile manufacturers. They do not build brand-new Cadillacs or Lincolns, or even Fords and Chcvys, for poor people. Nor does Sears build brand-new refrigerators or ranges for poor people. And yet you see that most poor people have refrigerators and they have ranges and the majority of them have automobiles, surprisingly enough. And they get it through the filtering process. Because somebody buys a brand-new car and trades in a used car, and somebody buys that used car and trades in an older used car, poor people have a chance to own an automobile. Housing works precisely the same way.

The University of Michigan conducted a $5000 study called “New Homes and Poor People.” They took a thousand people who bought brand-new homes and they followed the chain of moves as to where those people moved from and what their income level was. And they discovered that when a thousand new homes were built, 3500 moves took place. And of those 3500, 333 were by households classified as living at or below the poverty level, according to the federal government guidelines. Six hundred and fifty-seven of the families which moved were categorized as low-income. So you have a little more than a thousand people benefiting from the construction of a thousand new homes. It’s true those low-income people do not live in brand-new homes in North City West or La Jolla or Point Loma. But they live in better homes than they had before, the presumption being that if they would move into another home, it was better than the place they were living. So when the government frustrates new construction, as the board of supervisors and the city council have been doing — as an avowed policy to control and manage growth — it frustrates this whole chain of moves. Yet that’s how the majority of people have acquired better housing.

TOM: You’re saying that all the renters are demanding new homes. I don’t know any renters that are demanding new homes. They’re just demanding an affordable place to live.

FRED: You just said the government should make land and materials available. I assumed there was going to be a new home. . . .

TOM: What do you want, Fred? You want the units built used?

FRED: Well, you said they weren’t asking for new housing. . . .

TOM: I’m saying the ultimate answer to the housing shortage is going to be new construction, Fred. But the vast majority of renters are not demanding to move into new homes like you’re trying to paint us, wanting a Cadillac when all we deserve is a Ford.what you deserve.

TOM: I want to discuss the filtering system. This is a great study that you trot out, but there’s one great flaw in your statistics. And that is that this study is based on a stable state population. And on that basis, sure, if you have a stable state, if the population of San Diego is going to remain at 800,000, then as new homes get built, people move up into the new homes. Then that makes more affordable housing available to people down at the bottom. But the reality is that's a dream land. The reality is San Diego is not a stable-state situation. We have more than 50,000 a year migrating to the region and internal population growth, and we’re not at a situation where if you just build housing, then everyone can kind of move up (he ladder. We’re being swarmed by new people. There’s just no way that demand has ever kept up with supply, and the landlords are glad of it.

FRED: If you're trying to say that you have in-migration in San Diego and that that impacts the filtering process, then you have to examine a little more carefully what’s taking place. If the city allows a surplus of housing to be built, the in-migration makes no difference. If the city retards growth, meaning the development of housing, then everything is going to be far more severely impacted. And that’s what’s taken place.

Let’s look at what’s happened. (Schnaubelt hauls out an old clipping from the Los Angeles Times, dated April 6, 1969) "Shortage of Housing Strangling San Diego; Little Relief in Sight.” Gas and electric company inactive meters –

1.2 percent. Very severe shortage. We had no rent controls. Rents went up. Profits went up. Incentives to build more housing increased dramatically. So builders started building more and more. People were flooding in. San Diego by 1972 had nine of the ten largest home builders in the United States building in response to the shortage.

By 1972 the headlines in the San Diego Union (hauling out another clipping) say, "County Headed for Overbuilt Market." Tremendous production taking place. Very high vacancy factor in houses. High vacancy factor in new subdivisions and mobile home parks. And if you’ll read the want ads from those years, you’ll see that landlords, those greedy, gouging people you allude to, were offering a free month’s rent if you signed a year’s lease, they were paying for your moving expenses if you moved into their apartments, they were giving you a color television if you’d come and stay for a year. Because the rents had gone up, signaling that there was a shortage, developers came in and responded to that.

And then the forces began to mobilize, such as the Sierra Club and the environmentalists, who wanted to develop an initiative to restrict the growth of San Diego, and in their terms, ‘restrict the growth’ means to retard the supply of new housing. And how has that been done? It’s been done by the initiation of height limitations, sewer moratoriums, parking requirements. floor-area ratios, and a half dozen other things that add to the cost of housing — increased water connection fees, open-space requirements, and so on.

So back in 1973 here’s another article projecting what will take place: "Who’s going to be most affected? The aged, minorities, young adults. With the supply of housing restricted and demand increasing. the price of existing housing will rise dramatically. So will apartment rents.” Just fundamental economic projections told you that when the government said, "We don’t want more housing to be built.” prices were going to go up. And so you have a tremendous suffering upon people on fixed incomes, people who are retired, people who are just starting out. TOM: If that’s the situation, and we have such a tight market now as we’ve had over the last two years, why isn’t the housing being built?

FRED: Why do you find it so difficult to understand? How can you imply that the government has just had an outright laissez faire attitude as far as builders are concerned, and they can build and they can build wherever they want?

TOM: You want to look at building permit figures?

FRED: Whatever they are, they’re not enough! Why is that so difficult for you to understand?

TOM: Of all the restrictions you mentioned, you left out the biggest single factor in housing, Fred: the cost of land.. Do you agree with that, that the cost of land is the number-one factor in housing?

FRED: Certainly it is.

TOM: Government regulations, f rom every study I’ve ever read, ultimately add up to less than ten percent of the total cost.

FRED: The government has stopped them from building on the land.

TOM: You ’re putting out this myth that housing isn’t being built. In reality, housing’s being built all over this county, right now. Anyone who drives around this county can see all kinds of housing being built. The city council just voted for North City West. The question is, why isn’t affordable housing being built? And the answer is, there’s greater profits to be made in building luxury condominiums, hundred-thousand-dollar tract houses, and they’re not going to build affordable apartments if there’s greater profit to be made elsewhere.

FRKI): Affordable housing is not built; it comes out of the existing stock. The reason they don’t build so-called low-cost housing brand-new is the same fundamental reason that diamonds cost more than rocks.

TOM: You want it just to filter, but your filter mechanism implies a stable state.

FRED: It doesn’t imply a stable state. Look at San Diego. In 1910, the population of San Diego was 39,000. Today it’s over 800,000. Now, apparently, without the government building affordable housing, some 800,000 people, many of whom are low- and moderate-income, have a place to live. Now, how did they get a place to live?

TOM: Back once upon a time, when we had a true supply/demand situation, there was a competitive marketplace. It wasn’t even that long ago. Landlords knew that if they upped the rent fifty dollars on someone, that someone was going to move to a cheaper apartment. There was another option for the tenants, and that was to move somewhere, where it was affordable. Today, when there’s a vacancy rate of less than two percent, we don’t have that option. Once you reach an indirect monopoly state, which is what we have now, where there is no supply/demand, where we don’t have a five percent vacancy rate so that someone can always move down the block, then you start to see the greed factor come into play, where people take advantage of the lack of supply, and gouge. Or the other factor is that speculators come in, have no intention of using their apartment as any kind of a long-term investment, only see it as a fast-buck opportunity to make a fast turnover and let the tenants pay for it.

FRED: The builders could build a surplus of apartments and homes in San Diego in eighteen months, if the government would let them. But you want to punish those people, you want to penalize them, you want to take away their incentives for having more production.

Rent control chills the marketplace. The majority of people who invest in apartments get the money from the existing buildings that they own. These obscene profits that are alluded to are reinvested in more construction to meet the demand. If you freeze the rents, then you freeze the profits, and you freeze the ability of people to bring new production onstream.

TOM: I hate to get into studies again, but since you mentioned your study. I’m going to mention mine. John Gilderbloom did extensive research on just this situation — looked at 200 cities on the East Coast that have modern rent controls which exempt new construction, allow a fair return on investment for landlords, and deactivate when the vacancy gets high enough. And what he found is that contrary to the myth, in all except seven cities new construction proceeded. The rental stock increased. And in those seven cities the tax assessors blamed things like redlining, loss of industrial base; it could not solely be pinned on rent control. Once landlords and builders get over their bugaboo that they’re not going to get a fair return on investment, once they see that it is a fair system and that their equity is protected — what more do they want?

FRED: Usually, pointing to studies becomes less fruitful because you can get most anybody to say anything you want if you pay enough for it. You have some Nobel prize winners like Friedrich Hayek who’s done a study. I don’t know if he owns apartments, but his major concern is apparently in the area of economics, writing books, and working in universities, and he has done a study — as has Milton Friedman — in San Francisco, and in Sweden, and in Austria, and in France, and their conclusion is that you have less construction taking place.

TOM: The Gilderbloom study totally contradicts that and I think we have to look at America and study how modern rent control, not traditional rent control, has been enacted here.

FRED: Another point is that as the demand increases for apartments, you have less moving around, because people that are in protected tenancies will not move to an unregulated, brand-new apartment. If you’ve got a fixed rent at $250 a month, and the same thing in a brand-new, unregulated building would cost you $500, you have no incentive to move. And when you don’t move, there are fewer opportunities for other people.

TOM: Our proposal would not freeze people into anything because all the existing units in the city would be controlled, if you want to use that word. So people could move between existing units. We don’t have what’s called vacancy decontrol, where if someone moves out, the landlord can charge whatever he wants. Secondly, we’re not freezing rents. You say we’re going to freeze rents.

FRED: You want to freeze them below the market rate.

TOM: Now, that’s a different concept entirely. We’re not freezing rents. We provide for an annual increase. We provide for a process for any landlord who feels he needs to make improvements. Even if he has a hardship and he feels he needs more money in order to make it, he can come before a local board to make his pitch. Actually, three property owners will end up making the decision along with two tenants. So we’re trying to provide an equitable regulatory process for a situation that drastically needs it.

FRED: You ‘re talking about controlling the rent at a rate below what the market rent is. The market rate is the price at which all products are cleared. In other words, if you raise the rents too high — to an unfair, unjust rent — you have vacancies and the market corrects itself by landlords lowering their rents. If you lower the rents below the market, then you have shortages, because people want more housing than they can afford, if they can get it at the lower than market rate. What you get is people who consume additional space. You create incentives for adults, children, or teen-agers to move out of their parents’ homes and get a below-market-rate apartment for themselves. You discourage the doubling up of college students. You increase the incentive for people who are older to hold onto larger housing units than they need, because they have a fixed, below-market rate. You pit landlords against tenants, create a hostile environment for them where each of them is at the other’s throat and so those people who want to pay more go to the black market, which in essence is the free market. They come in and they say, ‘I’m willing to pay a higher rent than the people you have in there right now. And I will buy the furniture in there for $2000 if you’ll rent me this apartment at the fixed rate.’ The black market develops wherever they have rent control for any extended period of time. It exists in New York right now.

TOM: Right now we ’re in a market situation, and if what you just described was the situation, then people would have the option to move if the landlord raised the rent. They could go somewhere else and find another place to live. But that’s not the reality. You're in the fantasy land, Fred. You don’t realize what it is to be a renter now and get an outrageous rent increase, and to try to .find another place, and to realize that any other place that’s available is going to cost you just as much.

The situation is that we have a break-down of the market rate. Right now we have a black market, only it’s a landlord’s black market, where tenants will pay whatever is necessary in order to keep the basic human need — shelter. You’re saying that rent control will cause a market shortage, but we’re in a market shortage right now.

FRED: Would you say that when you get a rent raise and you move, that the only way that raise can be sustained is if somebody else is willing to pay it?

TOM: Sure. And in a shortage there always is someone willing to pay it.

FRED: So where your hostility should be directed is toward the people who are willing to pay a higher rent than you are.

TOM: How can I be hostile at them? Everyone needs shelter.

FRED: Well, you should, because they’re saying that they have a more urgent need for the particular apartment than you do, and they’re willing to pay a higher price in order to satisfy that need. And you’re saying, ‘No, we wanted to be protected. We want the government to step in and say those people that need it worse and are willing to pay more should be precluded.* That they don’t have any right to housing. v

TOM: With someone who can come in and bid $500 against someone who’s living in a $250 place, no, they shouldn’t have the right to come in and just displace someone.

FRED: They have no rights?

TOM: We’re saying that’s an abuse of power. It’s an abuse of the system, especially when the market provides no place for the people to go. It’s one thing if you have a vacancy rate where there is another place that you can move to. If we had that five percent vacancy factor, then you’re right. We would see rents come down.

FRED: Why five percent? Why not fifty percent?

TOM: Oh, that would be even better, because then the rents would come down even more.

FRED: Oh, you believe that, do you?

TOM: Sure, I believe in the market.

FRED: Why wouldn’t the greedy landlords raise the rents anyhow? If they had a fifty percent — well, let’s make it more realistic. Let's say they had a ten percent vacancy factor. If they ’re really the kind of people that you say they are, why wouldn’t they just refuse to rent seventy-five percent of their units? They just could say. This unit is not for rent.’ They lock the doors. And then they just take the twenty-five percent of the units and say, ‘You either pay my price or nothing.’ Why don’t they gouge that way?

TOM: They’d have to take a cash-flow loss.

FRED: They’re taking cash-flow losses now. What difference does that make? Just think about it. They’d be in their heyday. They could raise the prices so high that they could cover all the losses from the apartments they couldn’t rent, and make these absurd profits and they could spend all their time in the Arab countries where all the other millionaires are.

TOM: That would be a direct monopoly. What we have now is not a direct monopoly; we have an indirect monopoly.

FRED: Created by the government, which you think is your savior.

TOM: Not created by the government. Created by migration. Created by people staying in San Diego.

FRED: What’s a monopoly?

TOM: I call a monopoly situation the vacancy rate that we have right now — an indirect monopoly.

FRED: What’s this? The Tom Kozden School of Economics’ theory of monopoly? I’ve never seen it in any other recognized economics book, Marxist, socialist, capitalist. . . .

TOM: I’m saying a monopoly exists when there’s no supply, when control of the supply is vested in however many hands. In oligarchic hands. An indirect monopoly. . . .

FRED: Do you really believe all this shit? Or is this really like my ego trip, this is your ego trip. You don't really believe what you're saying, but you think. ‘It gets me in the forefront and gets me in the Reader magazine.’ (Laughing)

TOM: (Also grinning) Fred, you’re taking some very cheap shots. No, I really believe there are some landlords out there who are saying, ‘Hey, there’s a captive market. I’ve got twenty tenants for every vacancy. I can get what I want.

FRED: If most houses being built require a thousand dollars a payment, why don’t the landlords charge $900 a month for the average rent?

TOM: Some of them would.

FRED: Yeah, but why aren’t all of them? Every place? The only alternative is to buy a brand-new home.

TOM: That’s the trend we’re on.

FRED: Why don’t the landlords raise their rents to $900 a month?

TOM: ’Cause they can’t get $900 a month.

FRED: But they have a monopoly. A monopoly allows them to do anything. They could make super-excessive profits. They could make wind-wind-windfall profits.

TOM: Because of consumer resistance.

FRED: Oh shit. Don’t tell me you believe in consumer resistance. Don’t tell me you think that people who are limited in their means have something to say about prices? Well, that throws your whole theory right out. Run the tape over. He’s just brought in a whole new idea.

TOM: When people get a fifty-dollar rent increase, they figure, ‘What part of the budget am I going to take out?’

FRED: Why don’t the landlords make it a hundred-dollar increase?

TOM: Some of them do.

FRED: But why don’t they make all apartments rent for $900 a month? It would still be a hell of a deal.

TOM: Because they couldn’t get it. If they could get it, they would do it.

FRED: In the real world, they don’t raise prices so high that nobody can afford them. Because of competition, and because as prices go up in response to demand. other people come in to produce what the consumers are asking for. And they will produce it in greater quantities until you have stabilization.

TOM: If all housing is in demand,they’re going to produce that housing that’s most profitable, right?

FRED: You know, one person doesn’t own all the housing in San Diego, nor do 500 or 1000 people. It’s not a monopoly situation.

TOM: I tempered that. I said indirect monopoly. You have an indirect monopoly whenever people are trapped in their units. They can’t move. There’s no cheaper place for them to move to. They take it out of their food, transportation, and clothing budgets to pay for it.

FRED: Well, how do airline stewardesses make out? How come two or three of them will take a $400-a-month apartment and only pay a hundred dollars a month apiece? It seems to me that they have found a way to reduce their housing costs. What you’re saying is people want more, and they’re not willing to pay for it.

TOM: People want more and they’re willing to pay a fair price for it.

FRED: You have one hundred homes and 200 people. You're going to have to have doubling up or they’re going to live in the streets.

TOM: I think we can have enough housing for everybody, Fred.

FRED: By stealing it?

TOM: No. not by stealing it; by building it.

FRED: You're wearing a watch. I like that watch. I'm going to give you a dollar for it. Now. how does that differ from the tenant who comes in and says, "I don’t want to pay you $500 a month or $300 a month. . . ?”

TOM: Is this watch worth a dollar?

FRED: I’m willing to give you a dollar for it. Hand it over. Why not? You going to exploit me? You going to rip me off?

TOM: You 're trying to equate rent control with one-dollar watches?

FRED: He’s exploiting! He’s gouging! He’s setting the price of something that he owns!

TOM: Let me turn the analogy around. Fred, and let’s say you have all the food that’s left on this block. Do you have a right to just hold onto the food or make people pay as much as you want them to pay?

FRED: Only in a free society do you have that right. Let’s say I own this apartment and I want to rent it for $200 a month. And I have a thousand people or 2000 people out there that are willing to pay $200 a month for it. Now, Tom only wants to rent it for $125 a month — voluntarily. Now, what is the difference between a theft and rent control that would say I could only charge $125? I have a lot of people that urgently want this, who are willing to bid up the price. He only wants to pay $125. He’s going to take seventy-five dollars away from me and prevent them from the opportunity to have this house. Now, that seventy-five dollars that he’s going to take away — I want to know why that’s not theft?

TOM: It’s not theft first of all because if you had even one hundred people out there you wouldn’t rent it for $200. You’d say, ‘Who will pay $250? Who will pay $300? Who will pay $350? Who will pay $400?’ You would keep bidding it up until you had it down to two people, and then you would say, ‘Bid against yourselves.’ This actually happened in Hillcrest. A landlord told all the tenants who were interested in a unit to show up at 1:00 p.m. Sunday and that’s exactly what he proceeded to do. He said, ‘I’m starting this apartment out at $195,’ and he bid it up to $260. And that’s absurd! FRED: Why is it absurd?

TOM: This is our difference. People who see housing as a basic right say you shouldn't have to go through an auction process, where only one person at the top is going to end up with a house and everyone else gets to live in the street.

FRED: The only alternative is theft and force.

TOM: I don’t think modern rent control is theft.

FRED: I think it is.

TOM: First of all, modern rent control would let you rent that apartment at $200 if that was a fair profit.

FRED: In whose opinion?

TOM: In the opinion of two landlords, two tenants, and one homeowner. And that’s the fairest way that we could think of to decide that. They would allow this landlord to have a fair return on his apartment. He has a vital commodity. He has a commodity that’s in such short supply that you can actually say it constitutes control over a monopoly. When the supply and demand situation breaks down so that there is no supply, we need to say, ‘Yes, you can make a fair profit, but no. you can’t make an excessive profit. We’re not going to have you gouge people. And if $125 is going to give you a fair profit, then that’s what you should get.’

FRED: What you ’re saying is for you to come into my house and personally take seventy-five dollars would be theft and wrong, but if you can get five people on a board to do it. it’s all right?

TOM: Who are democratically elected.

FRED: So if you democratically elect five people, then it’s okay to steal?

TOM: Five people who will tell you, no, you’re not going to make excessive profits — no. that’s not theft.

FRED: I think you have to look at the moral consequences. You talk about rights. But if people voluntarily work and earn money, and voluntarily choose to invest that money in a property, what moral right does someone have to come by and say, ‘You know, it’s really not yours. The fact that you chose to buy apartments rather than stocks and bonds means that we are going to determine what you can do with your property and how much you can increase yo.ur rents. And we’re going to appoint five people to a board, and that board will determine what your rights are for you.’ I find that an untenable, authoritarian determination which is indefensible by anyone who believes in freedom.

TOM: It’s a good moral question. I’m glad we’re getting down to the moral question, ’cause that’s ultimately the essence of it. You talk about the investor. I’m going to bring up the person that’s working, the person who cannot afford to buy a house, the person who will probably never be able to afford to buy a house, the person who’s literally going to be stuck as a renter for. . . (pausing)

FRED: Ever.

TOM: Probably forever. We’re in a situation now where the American dream of owning a home is dead for probably ninety-eight percent of the renters. That person who still needs housing, who still needs shelter, does he have a moral right to be displaced because of an excessive, outrageous rent increase that is just a straight gouge situation? Not a fair return on an investment, but an outrageous return on the investment? Do they have a moral right not to be displaced? Do they have a moral right to continue to have shelter? I say they do, and it gets down to whose moral rights.

FRED: You have to define rights. Can you have a right that requires an obligation on another? The person who through his effort buys an apartment building does not force somebody to live in his apartment. He does not force somebody to pay a rent — high, low, or medium. He doesn't force anybody to do anything. But under your theory of rights, the person moving in can force somebody to rent that building at the price they determine, and by doing that you are imposing an obligation on another party. In the same way that we talk about the right to speech, the right does not mean that you can force other people to listen to what you say.

TOM: We’re not talking about producing. We’re talking about someone dealing with a basic commodity that everyone needs, that’s in short supply, and that’s being abused in the marketplace. You say the landlord doesn’t use any force at all. What about the force used to evict the tenant who can’t come up with the sixty-dollar-a-month rent increase? What about that force?

FRED: It is his property.

TOM: So the landlord does have a right to force a tenant into the street then, right?

FRED: If the tenant doesn’t pay the rent, then he doesn’t have a right to stay.

TOM: Aren’t the rights really all one way then?

FRED: No. The rights emanate from ownership.

TOM: We say the rights of private ownership also entail social responsibility.

FRED: Social responsibility doesn’t mean anything. Define social responsibility.

TOM: It means not taking advantage of an indirect monopoly.

FRED: Well, what about the people who want the apartment and are willing to pay a higher rent? What about the social responsibility to them?

TOM: Do you believe that people have a right to housing? You never did answer that.

FRED: Your right is to steal it. Mine is not.

TOM: So if someone cannot afford to live in San Diego, then they should move elsewhere?

FRED: I would say that’s true.

TOM: So the little old lady who lives here all her life does not have a right to live here if the marketplace drives the rent up too much?

FRED: This goes back to raising the rent to $900. Why don’t they raise it to $900? Because there’s a place to go. When the price goes up so high, miraculously, places become available. People will rent out their spare bedrooms. They’ll even rent out their garages. They'll rebuild their garages into additional rooms.

TOM: So you believe in raising the rents high enough — just keep raising them higher and higher — and then we’ll get a vacancy rate, and then we’ll have mobility?

FRED: That’s exactly what happens. That’s what happened for 1000 years.

TOM: Except what happens in the interim? That's the period we’re in right now. You answered it, finally. People have to leave.

Fred has an answer for this, of course. And of course Tom has an answer for his answer. And so on. as the afternoon shadows deepen. Finally, the two men rise, still friendly, and walk out into the early evening. Neither looks as if he has changed his mind.

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Tom Kozden, the prominent rent control activist, and Fred Schnaubelt, the city councilman, are sitting at a small kitchen table. - Image by Jim Coit
Tom Kozden, the prominent rent control activist, and Fred Schnaubelt, the city councilman, are sitting at a small kitchen table.

The scene opens in the tiny kitchen of a one-bedroom apartment downtown. Tom Kozden, the prominent rent control activist, and Fred Schnaubelt, the city councilman, are sitting at a small kitchen table. It is afternoon. Through the open window next to the table a summer breeze is stirring. The men can look out to see another apartment, a studio, where the rent has climbed nearly one hundred percent in the past two years. Kozden thinks such an increase is appalling.

Tom Kozden: A person doesn’t have a right to live in an affordable, decent place?

He has just finished explaining what he would like to see instead: a city wide ordinance that would roll rents back to August. 1977 levels and then adjust them annually for the two years that have since passed. He wants to see neighborhood boards set up which would determine and administer fair rent increases and which would operate until San Diego once again sees a five percent apartment vacancy rate. Across the brown Formica table top, Schnaubelt is bristling with objections. He's protesting that rent control would be a disaster, that it's an inefficient way to deliver protection for some people. . . . The air is thick with tension.

Fred Schnaubelt: "You don't have the right to force people to supply you housing."

FRED: According to Department of Labor statistics, in the twelve-month period from July, 1978 to July, 1979, the cost of home ownership in San Diego went up somewhat over twenty-eight percent. The consumer price index for all items went up 16.9 percent. The cost of renting apartments went up 9.9 percent. The consumer price index in San Diego is rising seventy percent faster than rents. So when you put the whole thing in context, even though rents are going up. they are an incredible bargain compared to other items in the consumer price index!

The average price of a new home in San Diego is more than $98,000. Now, if you take the cost of home ownership, including taxes, it would be about $1000 a month. So what people who provide apartments are doing is enabling people to have a decent place to live for one-half to one-quarter the price of owning a home. They are beset by a general price index rise of 16.9 percent, yet they 're only raising the rent on average for the overwhelming majority of people by 9.9 percent.

TOM: Using the consumer price index is the most loaded context to use for a landlord-tenant discussion, because in reality the landlord's costs are not going up according to the consumer price index.

The consumer price index is a measure of inflation that affects everybody — including the renters who have to pay just as much for all those goods and services — whereas in reality the landlord’s principal on his apartment building doesn't go up with the consumer price index. The only area of the landlord's cost that could justifiably be said to correlate with the consumer price index is maintenance, the workman who comes to fix the plumbing or whatever — that is probably going up with the consumer price index. But ask tenants when was the last time the landlord did maintenance on their building!

FRED: Let’s talk about the school teacher, who saves and saves, and she buys an apartment building. She pays it off over thirty years. She retires. Social Security is not enough for her. She can’t eat her appreciation and she can't eat her depreciation. All she can eat is what can be purchased by the cash flow that comes in. So she has this apartment building and she has an income coming in. and it gives her $10,000 or $12,000 a year. Now, you’re saying that this lady should not be able to raise her rents. . . .

TOM: I didn’t say that. I say what is the rent increase going to be? Should she be able to raise the rents a hundred dollars?

FRED: Yes. She should.

TOM: See, that’s where we draw the line.

FRED: She should raise it $200, $400, $1000, $10,000. If she wants to charge $10,000 a month for her apartment, she should be able to charge $10,000 a month.

TOM: (Shaking his head incredulously) Do you see housing as a right, Fred?

FRED: The right to compete, yes.

TOM: But you don’t say a person has a right to a house? A person doesn’t have a right to live in an affordable, decent place?

FRED: You don't have the right to force people to supply you housing.

TOM: If there is a supply of housing, do people have a right to it?

FRED: You do not have the right to force somebody else to supply you a house that you don't want to pay for, and that's as simple as you're talking about.

TOM: Who has said I don't want to work, that I don’t want to pay for it? We're willing to pay for it. We’re willing to work for it.

FRED: But you want to set the price. Why should you set the price?

TOM: We’re not saying we set the price. We’re saying two landlords, two tenants, and one homeowner set the price. What are you afraid of? There are three property owners on each board. Why are you so afraid of a fair price being set?

FRED: Because you have no right to tell me what I can do with my property, Tom. If I save my money and invest it and buy an apartment building, if I want to keep that apartment building vacant, that is my business. And you have nothing to say about it.

TOM: This is the total difference. Now we’re getting down to the root of it. You believe that housing is just for profit?

FRED: Of course it’s for a profit. That’s right. Everything is for a profit.

TOM: It’s not a right that people have?

FRED: They have a right to bid for it.

TOM: They bid for it. And if they don’t have enough money to have it, then what? FRED: You don’t punish the people who produce because some people are in need. Not if you want to create a better, freer society.

TOM: What happens to the people in need? Let’s follow this out.

FRED: What happens to them historically? There are people like you, who are concerned with them, who should take care of them, but you don’t want to. You want to force somebody else to take care of them.

TOM: What do you mean, take care of them?

FRED: Well, you see somebody in need, you can invite him into your house. How have most people in history been helped that are poor? They’ve moved in with their parents. The other poor took care of them and assisted them. Isn’t that true?

TOM: So you advocate doubling up?

FRED: That is what has happened in the past.

TOM: It’s happening right now. And then after everyone has doubled up. then do you advocate people triple up? And quadruple up? Until we have the situation that we had in the early Nineteenth Century in this country where you had twelve, fifteen people living in a one-bedroom apartment? That's the kind of housing that you see?

FRED: How did it change? In the real world, instead of your fantasy land, how do you create more housing? In the real world, how do you get people to work? You want to enslave them and force them to build more housing?

TOM: If the private sector’s not going to do it, then I say we don't have much choice about what we can do. And that’s what’s happening right now. We’ve reached a situation where the private sector says, ‘Look, land is too expensive. Labor’s too expensive. Material’s too expensive. Even if I wanted to be a nice guy, I couldn’t afford to do it. It just doesn’t pencil out.’ I would much rather see the private sector do it; they’re geared up to do it; they have the expertise to do it. All they lack is what I consider to be the social responsibility to do it. And if they’re not going to exercise it under this society, contrary to what you believe, there’s no way you can force a builder to build. If the private sector’s not going to build it, then we have to use our tax money; we have to use our revenues that we pay. The government and the tenants themselves have to come in and form neighborhood development corporations that will build the housing, that will manage the housing, that will solve their own problem. If we continue in the present direction, I don’t see any way out of it. We put a man on the moon. Can’t we provide enough housing for people in this country?

FRED: You want the government to build housing, but let’s see what happens when the government builds housing. We (at the city council) have a proposal before us from the Kind Corporation [a local social services agency] to build a senior citizen's complex in downtown San Diego. They want to get a government loan of $7 million to finance the project. It comes out to $68,000 per unit for an efficiency apartment. Now, you can buy apartments all over town for $30,000 to $35,000 a unit. And yet the federal government is going to build these units for $68,000. The government, which is beneficent, altruistic, and makes no profit, is building these units smaller, less amenities, and they cost fifty percent more. Now, obviously, when you do this on a massive scale it becomes readily apparent that for the same amount of money spent by the government as by private individuals you have fifty percent fewer dwelling units.

TOM: I don’t have the details on this specific situation.

FRED: Well, look at the Supreme Court case of the Commonwealth of Pennsylvania versus James Linn, who’s the head of the Housing and Urban Development Agency of the federal government. There was the issue of holding back federal funds from the federal government’s 235 and 236 subsidized housing programs.

And the reason the action was sustained to prevent more development at that time was that it was demonstrated that when the government builds housing it is from twenty to forty percent more expensive than when it is privately developed. Which means, obviously, you can build twenty to forty percent fewer homes with the same amount of money once it goes through the government bureaucracy. It also said that at the absolute minimum, rents in government projects are ten percent more than in private ones.

This is not some small little experimental pilot project that we’re talking about. We’re talking about a program that had committed $85 billion. When you look at that massive scale of government intervention and the inefficiency and the very little, relatively speaking, that you get for the tax dollars spent, then you begin to see why I’m so adamantly opposed to the government doing this in the marketplace.

TOM: I see a total contradiction in your position. You’re saying, ‘Let the private sector develop the housing and then it’ll come forth.’ Yet look at the reality of today. The private sector is totally developing the housing and it’s not coming forth for low- and moderate-income people. But then you say, ‘If the private sector won’t do it, don’t let the government do it because they’re inefficient.' So what are people who need affordable housing supposed to do? If you only want the private sector to do it, and they won’t do it because it’s not profitable enough, what options do we have?

FRED: It is a fantasy approach to think that anybody any place is going to build brand-new homes for people who have no money. You want to take an item that takes a great deal of skilled labor and a great amount of entrepreneurial skill and education, and you want to produce that all at a cost less than all those factors of production require. Now, the argument that the construction industry does not supply homes for poor people is true. Directly, the builders do not. Indirectly, they do an incredible job of it. But the same holds true for automobile manufacturers. They do not build brand-new Cadillacs or Lincolns, or even Fords and Chcvys, for poor people. Nor does Sears build brand-new refrigerators or ranges for poor people. And yet you see that most poor people have refrigerators and they have ranges and the majority of them have automobiles, surprisingly enough. And they get it through the filtering process. Because somebody buys a brand-new car and trades in a used car, and somebody buys that used car and trades in an older used car, poor people have a chance to own an automobile. Housing works precisely the same way.

The University of Michigan conducted a $5000 study called “New Homes and Poor People.” They took a thousand people who bought brand-new homes and they followed the chain of moves as to where those people moved from and what their income level was. And they discovered that when a thousand new homes were built, 3500 moves took place. And of those 3500, 333 were by households classified as living at or below the poverty level, according to the federal government guidelines. Six hundred and fifty-seven of the families which moved were categorized as low-income. So you have a little more than a thousand people benefiting from the construction of a thousand new homes. It’s true those low-income people do not live in brand-new homes in North City West or La Jolla or Point Loma. But they live in better homes than they had before, the presumption being that if they would move into another home, it was better than the place they were living. So when the government frustrates new construction, as the board of supervisors and the city council have been doing — as an avowed policy to control and manage growth — it frustrates this whole chain of moves. Yet that’s how the majority of people have acquired better housing.

TOM: You’re saying that all the renters are demanding new homes. I don’t know any renters that are demanding new homes. They’re just demanding an affordable place to live.

FRED: You just said the government should make land and materials available. I assumed there was going to be a new home. . . .

TOM: What do you want, Fred? You want the units built used?

FRED: Well, you said they weren’t asking for new housing. . . .

TOM: I’m saying the ultimate answer to the housing shortage is going to be new construction, Fred. But the vast majority of renters are not demanding to move into new homes like you’re trying to paint us, wanting a Cadillac when all we deserve is a Ford.what you deserve.

TOM: I want to discuss the filtering system. This is a great study that you trot out, but there’s one great flaw in your statistics. And that is that this study is based on a stable state population. And on that basis, sure, if you have a stable state, if the population of San Diego is going to remain at 800,000, then as new homes get built, people move up into the new homes. Then that makes more affordable housing available to people down at the bottom. But the reality is that's a dream land. The reality is San Diego is not a stable-state situation. We have more than 50,000 a year migrating to the region and internal population growth, and we’re not at a situation where if you just build housing, then everyone can kind of move up (he ladder. We’re being swarmed by new people. There’s just no way that demand has ever kept up with supply, and the landlords are glad of it.

FRED: If you're trying to say that you have in-migration in San Diego and that that impacts the filtering process, then you have to examine a little more carefully what’s taking place. If the city allows a surplus of housing to be built, the in-migration makes no difference. If the city retards growth, meaning the development of housing, then everything is going to be far more severely impacted. And that’s what’s taken place.

Let’s look at what’s happened. (Schnaubelt hauls out an old clipping from the Los Angeles Times, dated April 6, 1969) "Shortage of Housing Strangling San Diego; Little Relief in Sight.” Gas and electric company inactive meters –

1.2 percent. Very severe shortage. We had no rent controls. Rents went up. Profits went up. Incentives to build more housing increased dramatically. So builders started building more and more. People were flooding in. San Diego by 1972 had nine of the ten largest home builders in the United States building in response to the shortage.

By 1972 the headlines in the San Diego Union (hauling out another clipping) say, "County Headed for Overbuilt Market." Tremendous production taking place. Very high vacancy factor in houses. High vacancy factor in new subdivisions and mobile home parks. And if you’ll read the want ads from those years, you’ll see that landlords, those greedy, gouging people you allude to, were offering a free month’s rent if you signed a year’s lease, they were paying for your moving expenses if you moved into their apartments, they were giving you a color television if you’d come and stay for a year. Because the rents had gone up, signaling that there was a shortage, developers came in and responded to that.

And then the forces began to mobilize, such as the Sierra Club and the environmentalists, who wanted to develop an initiative to restrict the growth of San Diego, and in their terms, ‘restrict the growth’ means to retard the supply of new housing. And how has that been done? It’s been done by the initiation of height limitations, sewer moratoriums, parking requirements. floor-area ratios, and a half dozen other things that add to the cost of housing — increased water connection fees, open-space requirements, and so on.

So back in 1973 here’s another article projecting what will take place: "Who’s going to be most affected? The aged, minorities, young adults. With the supply of housing restricted and demand increasing. the price of existing housing will rise dramatically. So will apartment rents.” Just fundamental economic projections told you that when the government said, "We don’t want more housing to be built.” prices were going to go up. And so you have a tremendous suffering upon people on fixed incomes, people who are retired, people who are just starting out. TOM: If that’s the situation, and we have such a tight market now as we’ve had over the last two years, why isn’t the housing being built?

FRED: Why do you find it so difficult to understand? How can you imply that the government has just had an outright laissez faire attitude as far as builders are concerned, and they can build and they can build wherever they want?

TOM: You want to look at building permit figures?

FRED: Whatever they are, they’re not enough! Why is that so difficult for you to understand?

TOM: Of all the restrictions you mentioned, you left out the biggest single factor in housing, Fred: the cost of land.. Do you agree with that, that the cost of land is the number-one factor in housing?

FRED: Certainly it is.

TOM: Government regulations, f rom every study I’ve ever read, ultimately add up to less than ten percent of the total cost.

FRED: The government has stopped them from building on the land.

TOM: You ’re putting out this myth that housing isn’t being built. In reality, housing’s being built all over this county, right now. Anyone who drives around this county can see all kinds of housing being built. The city council just voted for North City West. The question is, why isn’t affordable housing being built? And the answer is, there’s greater profits to be made in building luxury condominiums, hundred-thousand-dollar tract houses, and they’re not going to build affordable apartments if there’s greater profit to be made elsewhere.

FRKI): Affordable housing is not built; it comes out of the existing stock. The reason they don’t build so-called low-cost housing brand-new is the same fundamental reason that diamonds cost more than rocks.

TOM: You want it just to filter, but your filter mechanism implies a stable state.

FRED: It doesn’t imply a stable state. Look at San Diego. In 1910, the population of San Diego was 39,000. Today it’s over 800,000. Now, apparently, without the government building affordable housing, some 800,000 people, many of whom are low- and moderate-income, have a place to live. Now, how did they get a place to live?

TOM: Back once upon a time, when we had a true supply/demand situation, there was a competitive marketplace. It wasn’t even that long ago. Landlords knew that if they upped the rent fifty dollars on someone, that someone was going to move to a cheaper apartment. There was another option for the tenants, and that was to move somewhere, where it was affordable. Today, when there’s a vacancy rate of less than two percent, we don’t have that option. Once you reach an indirect monopoly state, which is what we have now, where there is no supply/demand, where we don’t have a five percent vacancy rate so that someone can always move down the block, then you start to see the greed factor come into play, where people take advantage of the lack of supply, and gouge. Or the other factor is that speculators come in, have no intention of using their apartment as any kind of a long-term investment, only see it as a fast-buck opportunity to make a fast turnover and let the tenants pay for it.

FRED: The builders could build a surplus of apartments and homes in San Diego in eighteen months, if the government would let them. But you want to punish those people, you want to penalize them, you want to take away their incentives for having more production.

Rent control chills the marketplace. The majority of people who invest in apartments get the money from the existing buildings that they own. These obscene profits that are alluded to are reinvested in more construction to meet the demand. If you freeze the rents, then you freeze the profits, and you freeze the ability of people to bring new production onstream.

TOM: I hate to get into studies again, but since you mentioned your study. I’m going to mention mine. John Gilderbloom did extensive research on just this situation — looked at 200 cities on the East Coast that have modern rent controls which exempt new construction, allow a fair return on investment for landlords, and deactivate when the vacancy gets high enough. And what he found is that contrary to the myth, in all except seven cities new construction proceeded. The rental stock increased. And in those seven cities the tax assessors blamed things like redlining, loss of industrial base; it could not solely be pinned on rent control. Once landlords and builders get over their bugaboo that they’re not going to get a fair return on investment, once they see that it is a fair system and that their equity is protected — what more do they want?

FRED: Usually, pointing to studies becomes less fruitful because you can get most anybody to say anything you want if you pay enough for it. You have some Nobel prize winners like Friedrich Hayek who’s done a study. I don’t know if he owns apartments, but his major concern is apparently in the area of economics, writing books, and working in universities, and he has done a study — as has Milton Friedman — in San Francisco, and in Sweden, and in Austria, and in France, and their conclusion is that you have less construction taking place.

TOM: The Gilderbloom study totally contradicts that and I think we have to look at America and study how modern rent control, not traditional rent control, has been enacted here.

FRED: Another point is that as the demand increases for apartments, you have less moving around, because people that are in protected tenancies will not move to an unregulated, brand-new apartment. If you’ve got a fixed rent at $250 a month, and the same thing in a brand-new, unregulated building would cost you $500, you have no incentive to move. And when you don’t move, there are fewer opportunities for other people.

TOM: Our proposal would not freeze people into anything because all the existing units in the city would be controlled, if you want to use that word. So people could move between existing units. We don’t have what’s called vacancy decontrol, where if someone moves out, the landlord can charge whatever he wants. Secondly, we’re not freezing rents. You say we’re going to freeze rents.

FRED: You want to freeze them below the market rate.

TOM: Now, that’s a different concept entirely. We’re not freezing rents. We provide for an annual increase. We provide for a process for any landlord who feels he needs to make improvements. Even if he has a hardship and he feels he needs more money in order to make it, he can come before a local board to make his pitch. Actually, three property owners will end up making the decision along with two tenants. So we’re trying to provide an equitable regulatory process for a situation that drastically needs it.

FRED: You ‘re talking about controlling the rent at a rate below what the market rent is. The market rate is the price at which all products are cleared. In other words, if you raise the rents too high — to an unfair, unjust rent — you have vacancies and the market corrects itself by landlords lowering their rents. If you lower the rents below the market, then you have shortages, because people want more housing than they can afford, if they can get it at the lower than market rate. What you get is people who consume additional space. You create incentives for adults, children, or teen-agers to move out of their parents’ homes and get a below-market-rate apartment for themselves. You discourage the doubling up of college students. You increase the incentive for people who are older to hold onto larger housing units than they need, because they have a fixed, below-market rate. You pit landlords against tenants, create a hostile environment for them where each of them is at the other’s throat and so those people who want to pay more go to the black market, which in essence is the free market. They come in and they say, ‘I’m willing to pay a higher rent than the people you have in there right now. And I will buy the furniture in there for $2000 if you’ll rent me this apartment at the fixed rate.’ The black market develops wherever they have rent control for any extended period of time. It exists in New York right now.

TOM: Right now we ’re in a market situation, and if what you just described was the situation, then people would have the option to move if the landlord raised the rent. They could go somewhere else and find another place to live. But that’s not the reality. You're in the fantasy land, Fred. You don’t realize what it is to be a renter now and get an outrageous rent increase, and to try to .find another place, and to realize that any other place that’s available is going to cost you just as much.

The situation is that we have a break-down of the market rate. Right now we have a black market, only it’s a landlord’s black market, where tenants will pay whatever is necessary in order to keep the basic human need — shelter. You’re saying that rent control will cause a market shortage, but we’re in a market shortage right now.

FRED: Would you say that when you get a rent raise and you move, that the only way that raise can be sustained is if somebody else is willing to pay it?

TOM: Sure. And in a shortage there always is someone willing to pay it.

FRED: So where your hostility should be directed is toward the people who are willing to pay a higher rent than you are.

TOM: How can I be hostile at them? Everyone needs shelter.

FRED: Well, you should, because they’re saying that they have a more urgent need for the particular apartment than you do, and they’re willing to pay a higher price in order to satisfy that need. And you’re saying, ‘No, we wanted to be protected. We want the government to step in and say those people that need it worse and are willing to pay more should be precluded.* That they don’t have any right to housing. v

TOM: With someone who can come in and bid $500 against someone who’s living in a $250 place, no, they shouldn’t have the right to come in and just displace someone.

FRED: They have no rights?

TOM: We’re saying that’s an abuse of power. It’s an abuse of the system, especially when the market provides no place for the people to go. It’s one thing if you have a vacancy rate where there is another place that you can move to. If we had that five percent vacancy factor, then you’re right. We would see rents come down.

FRED: Why five percent? Why not fifty percent?

TOM: Oh, that would be even better, because then the rents would come down even more.

FRED: Oh, you believe that, do you?

TOM: Sure, I believe in the market.

FRED: Why wouldn’t the greedy landlords raise the rents anyhow? If they had a fifty percent — well, let’s make it more realistic. Let's say they had a ten percent vacancy factor. If they ’re really the kind of people that you say they are, why wouldn’t they just refuse to rent seventy-five percent of their units? They just could say. This unit is not for rent.’ They lock the doors. And then they just take the twenty-five percent of the units and say, ‘You either pay my price or nothing.’ Why don’t they gouge that way?

TOM: They’d have to take a cash-flow loss.

FRED: They’re taking cash-flow losses now. What difference does that make? Just think about it. They’d be in their heyday. They could raise the prices so high that they could cover all the losses from the apartments they couldn’t rent, and make these absurd profits and they could spend all their time in the Arab countries where all the other millionaires are.

TOM: That would be a direct monopoly. What we have now is not a direct monopoly; we have an indirect monopoly.

FRED: Created by the government, which you think is your savior.

TOM: Not created by the government. Created by migration. Created by people staying in San Diego.

FRED: What’s a monopoly?

TOM: I call a monopoly situation the vacancy rate that we have right now — an indirect monopoly.

FRED: What’s this? The Tom Kozden School of Economics’ theory of monopoly? I’ve never seen it in any other recognized economics book, Marxist, socialist, capitalist. . . .

TOM: I’m saying a monopoly exists when there’s no supply, when control of the supply is vested in however many hands. In oligarchic hands. An indirect monopoly. . . .

FRED: Do you really believe all this shit? Or is this really like my ego trip, this is your ego trip. You don't really believe what you're saying, but you think. ‘It gets me in the forefront and gets me in the Reader magazine.’ (Laughing)

TOM: (Also grinning) Fred, you’re taking some very cheap shots. No, I really believe there are some landlords out there who are saying, ‘Hey, there’s a captive market. I’ve got twenty tenants for every vacancy. I can get what I want.

FRED: If most houses being built require a thousand dollars a payment, why don’t the landlords charge $900 a month for the average rent?

TOM: Some of them would.

FRED: Yeah, but why aren’t all of them? Every place? The only alternative is to buy a brand-new home.

TOM: That’s the trend we’re on.

FRED: Why don’t the landlords raise their rents to $900 a month?

TOM: ’Cause they can’t get $900 a month.

FRED: But they have a monopoly. A monopoly allows them to do anything. They could make super-excessive profits. They could make wind-wind-windfall profits.

TOM: Because of consumer resistance.

FRED: Oh shit. Don’t tell me you believe in consumer resistance. Don’t tell me you think that people who are limited in their means have something to say about prices? Well, that throws your whole theory right out. Run the tape over. He’s just brought in a whole new idea.

TOM: When people get a fifty-dollar rent increase, they figure, ‘What part of the budget am I going to take out?’

FRED: Why don’t the landlords make it a hundred-dollar increase?

TOM: Some of them do.

FRED: But why don’t they make all apartments rent for $900 a month? It would still be a hell of a deal.

TOM: Because they couldn’t get it. If they could get it, they would do it.

FRED: In the real world, they don’t raise prices so high that nobody can afford them. Because of competition, and because as prices go up in response to demand. other people come in to produce what the consumers are asking for. And they will produce it in greater quantities until you have stabilization.

TOM: If all housing is in demand,they’re going to produce that housing that’s most profitable, right?

FRED: You know, one person doesn’t own all the housing in San Diego, nor do 500 or 1000 people. It’s not a monopoly situation.

TOM: I tempered that. I said indirect monopoly. You have an indirect monopoly whenever people are trapped in their units. They can’t move. There’s no cheaper place for them to move to. They take it out of their food, transportation, and clothing budgets to pay for it.

FRED: Well, how do airline stewardesses make out? How come two or three of them will take a $400-a-month apartment and only pay a hundred dollars a month apiece? It seems to me that they have found a way to reduce their housing costs. What you’re saying is people want more, and they’re not willing to pay for it.

TOM: People want more and they’re willing to pay a fair price for it.

FRED: You have one hundred homes and 200 people. You're going to have to have doubling up or they’re going to live in the streets.

TOM: I think we can have enough housing for everybody, Fred.

FRED: By stealing it?

TOM: No. not by stealing it; by building it.

FRED: You're wearing a watch. I like that watch. I'm going to give you a dollar for it. Now. how does that differ from the tenant who comes in and says, "I don’t want to pay you $500 a month or $300 a month. . . ?”

TOM: Is this watch worth a dollar?

FRED: I’m willing to give you a dollar for it. Hand it over. Why not? You going to exploit me? You going to rip me off?

TOM: You 're trying to equate rent control with one-dollar watches?

FRED: He’s exploiting! He’s gouging! He’s setting the price of something that he owns!

TOM: Let me turn the analogy around. Fred, and let’s say you have all the food that’s left on this block. Do you have a right to just hold onto the food or make people pay as much as you want them to pay?

FRED: Only in a free society do you have that right. Let’s say I own this apartment and I want to rent it for $200 a month. And I have a thousand people or 2000 people out there that are willing to pay $200 a month for it. Now, Tom only wants to rent it for $125 a month — voluntarily. Now, what is the difference between a theft and rent control that would say I could only charge $125? I have a lot of people that urgently want this, who are willing to bid up the price. He only wants to pay $125. He’s going to take seventy-five dollars away from me and prevent them from the opportunity to have this house. Now, that seventy-five dollars that he’s going to take away — I want to know why that’s not theft?

TOM: It’s not theft first of all because if you had even one hundred people out there you wouldn’t rent it for $200. You’d say, ‘Who will pay $250? Who will pay $300? Who will pay $350? Who will pay $400?’ You would keep bidding it up until you had it down to two people, and then you would say, ‘Bid against yourselves.’ This actually happened in Hillcrest. A landlord told all the tenants who were interested in a unit to show up at 1:00 p.m. Sunday and that’s exactly what he proceeded to do. He said, ‘I’m starting this apartment out at $195,’ and he bid it up to $260. And that’s absurd! FRED: Why is it absurd?

TOM: This is our difference. People who see housing as a basic right say you shouldn't have to go through an auction process, where only one person at the top is going to end up with a house and everyone else gets to live in the street.

FRED: The only alternative is theft and force.

TOM: I don’t think modern rent control is theft.

FRED: I think it is.

TOM: First of all, modern rent control would let you rent that apartment at $200 if that was a fair profit.

FRED: In whose opinion?

TOM: In the opinion of two landlords, two tenants, and one homeowner. And that’s the fairest way that we could think of to decide that. They would allow this landlord to have a fair return on his apartment. He has a vital commodity. He has a commodity that’s in such short supply that you can actually say it constitutes control over a monopoly. When the supply and demand situation breaks down so that there is no supply, we need to say, ‘Yes, you can make a fair profit, but no. you can’t make an excessive profit. We’re not going to have you gouge people. And if $125 is going to give you a fair profit, then that’s what you should get.’

FRED: What you ’re saying is for you to come into my house and personally take seventy-five dollars would be theft and wrong, but if you can get five people on a board to do it. it’s all right?

TOM: Who are democratically elected.

FRED: So if you democratically elect five people, then it’s okay to steal?

TOM: Five people who will tell you, no, you’re not going to make excessive profits — no. that’s not theft.

FRED: I think you have to look at the moral consequences. You talk about rights. But if people voluntarily work and earn money, and voluntarily choose to invest that money in a property, what moral right does someone have to come by and say, ‘You know, it’s really not yours. The fact that you chose to buy apartments rather than stocks and bonds means that we are going to determine what you can do with your property and how much you can increase yo.ur rents. And we’re going to appoint five people to a board, and that board will determine what your rights are for you.’ I find that an untenable, authoritarian determination which is indefensible by anyone who believes in freedom.

TOM: It’s a good moral question. I’m glad we’re getting down to the moral question, ’cause that’s ultimately the essence of it. You talk about the investor. I’m going to bring up the person that’s working, the person who cannot afford to buy a house, the person who will probably never be able to afford to buy a house, the person who’s literally going to be stuck as a renter for. . . (pausing)

FRED: Ever.

TOM: Probably forever. We’re in a situation now where the American dream of owning a home is dead for probably ninety-eight percent of the renters. That person who still needs housing, who still needs shelter, does he have a moral right to be displaced because of an excessive, outrageous rent increase that is just a straight gouge situation? Not a fair return on an investment, but an outrageous return on the investment? Do they have a moral right not to be displaced? Do they have a moral right to continue to have shelter? I say they do, and it gets down to whose moral rights.

FRED: You have to define rights. Can you have a right that requires an obligation on another? The person who through his effort buys an apartment building does not force somebody to live in his apartment. He does not force somebody to pay a rent — high, low, or medium. He doesn't force anybody to do anything. But under your theory of rights, the person moving in can force somebody to rent that building at the price they determine, and by doing that you are imposing an obligation on another party. In the same way that we talk about the right to speech, the right does not mean that you can force other people to listen to what you say.

TOM: We’re not talking about producing. We’re talking about someone dealing with a basic commodity that everyone needs, that’s in short supply, and that’s being abused in the marketplace. You say the landlord doesn’t use any force at all. What about the force used to evict the tenant who can’t come up with the sixty-dollar-a-month rent increase? What about that force?

FRED: It is his property.

TOM: So the landlord does have a right to force a tenant into the street then, right?

FRED: If the tenant doesn’t pay the rent, then he doesn’t have a right to stay.

TOM: Aren’t the rights really all one way then?

FRED: No. The rights emanate from ownership.

TOM: We say the rights of private ownership also entail social responsibility.

FRED: Social responsibility doesn’t mean anything. Define social responsibility.

TOM: It means not taking advantage of an indirect monopoly.

FRED: Well, what about the people who want the apartment and are willing to pay a higher rent? What about the social responsibility to them?

TOM: Do you believe that people have a right to housing? You never did answer that.

FRED: Your right is to steal it. Mine is not.

TOM: So if someone cannot afford to live in San Diego, then they should move elsewhere?

FRED: I would say that’s true.

TOM: So the little old lady who lives here all her life does not have a right to live here if the marketplace drives the rent up too much?

FRED: This goes back to raising the rent to $900. Why don’t they raise it to $900? Because there’s a place to go. When the price goes up so high, miraculously, places become available. People will rent out their spare bedrooms. They’ll even rent out their garages. They'll rebuild their garages into additional rooms.

TOM: So you believe in raising the rents high enough — just keep raising them higher and higher — and then we’ll get a vacancy rate, and then we’ll have mobility?

FRED: That’s exactly what happens. That’s what happened for 1000 years.

TOM: Except what happens in the interim? That's the period we’re in right now. You answered it, finally. People have to leave.

Fred has an answer for this, of course. And of course Tom has an answer for his answer. And so on. as the afternoon shadows deepen. Finally, the two men rise, still friendly, and walk out into the early evening. Neither looks as if he has changed his mind.

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