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RULES AND REGULATIONS

preempt state and local action; which $103.2 Reninle!TECN.

Durant to section 8 of the Unite contrlhute to such chains. Moreover, with respect to KUD-ownel projects, they terfere in the remulation by loc id rent $40.3.6 Rental larges.

Thic Department will generally not In- States llousing Act of 1937.
nic property of the United Strin Gov'-

control boards of rents or unsubsidized
crnment, and thercío:c not subject to
local truation.
projects with ino: 1 Cores Insured or licki

The Department finds thnt It is in th

nntional interest to sort exclusive Ju It 13 for these reasons that the Dapart. by ITUD. Ilowever, BIOD w!!! nasert cxment is adding to Charic IV of Touc 21 clusive Jurisdiction over the relation

risdiction over the routton or the rent MC Part 103,"Local Rent Control," of the rents of such a project then the

of studied projects with mortgan

v hirin it insures or holds. Therefore, th that formally scis fcrth UUD's sosit!on

delay or clccision of a locul re:t control
99 local rent control of I'll projects. authority jeopardizes the Depariment's Deportinent lis determined to prems

the onlire
'The nuc essentially provides that the
economic interest in the project,

or rent regulation by loca

rent control boards feliat pursuant t Department shall sort exclusiia juris. $ 403.3 Proredures.

slate or local law as piled to subsidize diction over the maxi:un rentals for

(a) The local HUD office slal process

projects with mors which are in 24 unsubsidized projects with mortgages InSardor held by HUD only when it doems

a mortuagon's repuest for anroval of sured or held by HUD).

increases in the inaximum permissible $.103.7 Procedures,
that its cconomic interest in the project coils pursuant to Part 101 of this Chap-
1s jopardized by the decision of the local
ter and IUD landbook 4350.1. "Insured

(2) The mortror all be respx.usible rent control authority (or by iclay in

for notifying tl.clical lid os.ce silica Project Servising liandbouk, without minA decisioo). Ilowever, the Deregard to the existence or terms of :

ever a local rer.t control bort: kesan partment has exclustic Jurisdiction over

action to prevent the niortor froir local rent control oruuance. The inortthe rents or subsidized projects will 63 cor should sinultaneously unit 3

inaplementing a KUD-approved rent mortgages Instired or held by IUD and

increase.
similar rccuest to the local rint control
all HUD-OM projects. The rulc ako

(b) Uron reelrins such botification,
board fo!iosing the requirements of tho
xnorisies procedures for handlas cases

the local HD filce hail prointly c.. local jurisdiction. Where the local ront control board ap

vey the Department's positlon on this ***

(b) Tic niortsagor is responsible for piores a loxer 122x22numi rent level than

subject, es reficcted in th's Subpar to inforinin's the locul IIUD occ, 1f the JIUD docs.

the local reat control bord. If the local rents for the project approved by the

Tent control bord then frils to ppprve This recuintion is tcing adopted as an local boare! are lower than those npfute ini rule to be clective uprilica

tic ront schedule approved by NUD. tho proved by BUD, or if the ward fuis to 102, lecotuse the Department considers

local JiUD oilco shall promptiz notify act within a polod of thirty (30) ciays

the one of General Counsel, the Ofice is vital to ved further morthese fusur. following the filing of the application.

of Loan 11.:nagement, and the Kerinal 6C c!us caised by local rait control Tho mortugor shall furnish the local

Oflice.
retrictions, lovover, the Department HUD once any financial data that was
invitus interested persons to sutini dain, supplied to the local bikerd, but not pre-

Subpart C--HUO Owned Projects
VW ord suggestions with respect to viously furnished to HUD, aluse riith the $493,3 Renatcharch
th; rule endis eroiicina 60 Ony's In lle!! ren.OIS SV his h?: LD'S (0-
cibelai 30 cys in bici 107.com. be 10 s10 projenis juard-

The Dipartit has exclusive forsunts. Alliclesnit inte vial !icerca su

Lurr te les cl All pro or .:.! 25, 1975, will be cur: - (c) Vincent all the 2017:19

315! 04.0, Inte: :!c of the existe erillinre a nurvie is adopied. Fii: 35 inst", e nei 201, tho

HCC or the terms of any local rent con

trol cruinnice.
should refer to the above Dockct number 10!!!D plice still propily sont a
(n.210 141 Scd in the Rules Doclict Written report to the Onice Of Lou Man. $ 403.9 Procedures
C!:0, Cáce of Géncial Coursci, Poorn a cuint (ROD Central Ore) 213 2

Whenever a local tout control board
20245, 451 Serol Street, Si., Vash copy lo tie colocal Or, if it doems
in, D.C. 2011!). Copies of the con tho delay or Cecision of the loerl rend

takes nyanlo provent the Depart. 1:s sub.nitted will be available during control board coordincs the Dept

mc: irowizpia rert increase

tic !oco1 19 ocell popli; c01s Dours Cilic above exdress for nonls com.cnc interest in 1:2 project CX3in!en by interested persoas. nililie loco! : !!! not 10 y 13

vey the Dipuent's positiori on th's

subject to trucal ont contret burd. ile Desi! moat has doleriolacu that position to the easisiaction of Use local if (hte local ronitici vor:d then fils an D801291a! Impact St: tenent is

iTUD office
(d) 7h30:5ce of Loan Management LCD, ibe133121:00eurom!!!

to purctic rentcivile instituta!!y
rol relied with respect to this rule.
')? incl. of narcibility is all shail promptly review the icon! HUD ol.

noillying On Colie able for noction et the above addessfice's repost godinake a decentnenie. tion to the Orice or Ceneral Courlit

Olice of Lon il cuut, aad 11:e Rc.
Ciclo 24. Clapur IV Is Amended by

floral Odcc.
It tuluks that leaction in the 7ttir
Si iar! 90!o rus3 follows:

15 irable, cl action will bucur Critice, s omenciert is ef:: Smarta 1, sulature ojccta

eindependently of at action taken fectiicicbary 23, , by 'Taortor.

K. I. CRAWFORD,
1031 11!:5ully.

Super-23:
21. Projets

Asi Sailor 10 ut iuri.

11025int Manser.cat 23-032.Jindricts

TK 1700.75 5073 * ?2-9175:12:181)
17:15 Suprinsic lo ait ole's
i !!'c
...tz.

1.130:08 or ?! NUD,
<sc.
Inclou

i rce114 suosi); It! 107.1 c!:
part. Projects

(1) 11r riscont.:'!*. Yorice.

Ar! t. Cik inte

klous-
III.1.

10 Art; (b) lu'5-!>>ketinin 12
1:7:"e7(?) at the mome! (:'3 DU:11; 2-2110 (3) und (5
"XS(): S...":17, 53 Slut. I, of Minn; .!; (5) Et
kii2U8.C. 1715).

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STATEMENT PRESENTED TO HEARINGS BEFORE THE

SUBCOMMITTEE ON COMMERCE, HOUSING, AND TRANSPORTATION

OF THE HOUSE DISTRICT COMMITTEE

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City-Wide Housing Coalition
Metropolitan Washington Planning & Housing Association

D. C. Public Interest Research Group
Greater Washington Central Labor Council, AFL-CIO

October 1, 1975

The City-Wide Housing Coalition, the Metropolitan Washington Planning &
Housing Association, the D. C. Public Interest Research Group, and the
Sheater Washington Central Labor Council, AFI-CIO, have prepared a joint
statement for presentation to this subcommittee this morning.
Congress must no

C. rent control. We are outraged at this threatened Lotervention of Congress in such critical local concerns, and so we make this joint statement of protest.

veto

I.

First of all, we protest this kangaroo-court-type hearing. Your witness list demonstrates utter disregard for the rights and protection of the serenty-five percent (75%) of D. C.'s residents who rent their homes. This is no representation of the District of Columbia. Where are the 600,000 tenants in the city? Only our four housing/public interest groups were Dotified of these hearings just last week. And our efforts to have a more representative witness list were rejected under the guise of time limits. With only sparse representation of tenants and tenant unions on the one hard, and this largely white, suburban set of non-residents from the real estate and business community on the other, we must call this "hearing" for what it is -- a sham. The inclusion of real estate profiteers who care nothing for the well-being of tenants, and of financial institutions who have guaranteed urban deterioration in D.C. through their racist reclining practices, are examples of the shallow and unjust farce you

have here today.

II.

Secondly, we must go on record to strenuously oppose any such intervention
by Congress in D. Č. matters which are not sufficiently in the Federal
interest. What legitimate Federal interest does Congress have in rent
control? Clearly, you have none. We are fully aware that by granting
only limited home rule instead of statehood, Congress intended to afford
1. C. citizens only a form of participatory colonialism. But this
plantation mentality must end!
The intensive work of numerous community groups and the City Council over
the past nine months must not be overlooked nor overthrown. Two public
hearings, extensive research by community groups, a round-table dialogue
with the City Council, landlords, and tenants, and daily lobbying, debates,
and deliberations, all underline the amount of work and energy put into

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this most important legislation.

But now, despite this overwhelming concentration of work by landlords and tenants through the legitimate legislative process of deliberation, landlords deceptively come crying to Capitol Hill for special favors. But tenants have not come pleading for extra-legislative favors, even though many tenants also felt sold out by the City Council's capitulation to the Mayor's veto and the Council's adoption of so many pro-landlord compromises. The ultimate outcome of D. C.'s rent control law is a greatly watered-down version which is literally filled with pro-landlord loopholes, because of the threats, bluffs, and lies of landlord special interest groups, and precisely so that Congress would not be upset so as to insure elimination of any possibility of a Congressional veto. (As you know, the Council weakened its professional tax provision last week to help overcome a Congressional veto. But what you also should know is that the City Council, with the Mayor, already significantly weakened the rent control law before its final passage for precisely the same reason.)

It is simply unthinkable for Congress now to capitulate to the inappropriate and unjustified demands for special favors by the city's absentee landlords and their expedient Congressmen, while denying the democratic process of the local home rule government and the severe housing and economic needs of seventy-five percent of our city's residents.

We don't see you threatening to veto rent control in Boston, or in Cambridge, or in New York City, or in Montgomery County, Md., or in Prince Georges County, Md., or in any of the other cities in the country who have some form of rent control. And there's a good reason why not--because it would make a mockery of the democratic process. And just so, in this year preceeding the nation's Bicentennial, we submit that this threatened veto itself mocks the basic principles of democracy and justice.

III.

Finally, we address the rent control legislation itself. As we have said, the Rental Accomodations Act of 1975 is already a weakeneu bill in terms of the protections afforded tenants. During the City Council's deliberations on the bill, tax benefits were removed from the income side of the rate of return formula and a fictional 2% depreciation "expense" was included. Furthermore, the Council was pressured by landlords to use assessed market value in the denominator of the formula as opposed to built-up equity, or the landlord's actual investment in the property. This allows landlords to earn a return on the full value of the property rather than on his actual investment. Finally, the Mayor's veto caused further weakening of the bill by raising the rate of return floor from 7% to 8% and by pushing the automatic rent increase figure from 4% to 5%.

The District of Columbia needs strong rent control if the racial and economic heterogeneity of its people is to be maintained. This is the way the Housing and Urban Development Committee of the previous City Council described the state of housing in D.C. only six years ago in a special report: "A large portion of the District's housing stock is characterized by appalling maintenance both in private and public sectors; an extreme

3

shortage of accomodations for low income families, particularly those with four or more members; spiralling rents that place even inadequate housing beyond the reach of many families; and predatory landlord practices that degrade the dignity of low-income families."

Specifically, the housing market in D.C. is currently characterized by the following: vacancy rate of less than 2%, well below the 5% figure considered as a crisis. Overcrowding: 14.9% of the units in D.C. were overcrowded, according to the 1970 Census, compared with 5.4% and 4.6% of the units in the urbanized areas of Maryland and Virginia respectively. Rent as percentage of income: 39.6% of D.C. tenants pay more than 25% of income for rent. By income group, the 1970 Census showed that low income D.C. residents paid more than 35% of their incomes for rent. Inflation is devastating the everyday folks of this city, and tenants simply cannot afford the rent gouging of an uncontrolled market.

The Apartment and Office Building Association of Metropolitan Washington (ACBA) has conducted two income expense analyses in the last nine months which can shed tremendous light on the effect of rent control on the rental housing market, if honestly analyzed. Contrary to the dishonest public outcry of landlords, their first study (January, 1975) actually showed that a little more than 60% of the landlords had in fact increased their margins of profit under rent control (when carefully reviewed by an economist who works here on the Hill). The second study (September, 1975) reveals that the 12.32% increase allowed under the old bill (74-20) was almost adequate to fully recover cost-increases for the average landlord through the end of August. The 5% increase allowed for most landlords under the new bill you are now considering will again allow landlords to increase their profits over

More important, the second study showed a large discrepancy anong landlords. While some landlords experienced declining profit margins over the past two and a half years, many others have had tremendous increases. Anong twelve randomly selected buildings we examined, six experienced increasing profit margins, one by as much as $36,000 over the two year period.

the next two years.

The large variation in increases in income and expenses is the basis for our support of the general rate-of-return approach to rent control. This form of rent control considers each landlord's situation individually and grants autonatic increases only to those who need it based upon their rates of return. This approach is much fairer to landlords and tenants, for tenents can then be assured that, for the most part, any rent increases they must pay are not simply giving their landlords windfall profits.

Finally, we do not take a naive approach to housing or economics. We do not consider rent control the ultimate solution to the housing problems of the city. Indeed, we are working vigorously for a comprehensive housing plan for D.C. However, strong rent control is absolutely necessary to make an emergency housing situation barely tolerable. Rent control must not be vetoed or weakened through Congressional intervention; for to kill rent control would be literally tragic for thousands and thousands of D.C..citizens.

October 1, 1975

D.C. RENT CONTROL--SOME ISSUES & ANSWERS

Prepared by: City-Wide Housing Coalition

A good rent control bill must not only set limits in rent levels for the general case but also provide a mechanism for addressing those cases, both landlord and tenant, which require individual attention because of their specific circumstances. In Act 1-46, the tenant who reports housing code violations can file with the Commission for a rent reduction and the landlord who lacks a sufficient rate of return (or satisfies certain other conditions) can file for a rent increase to recover cost increases. These cases are reviewed and given approval prior to putting any rent adjustment into effect.

But in order to avoid the tedious consideration of all increases on a case-bycase basis, Act 1-46 uses the "rate of return" formula in order to be able to grant automatic increases to those landlords who are most likely to be the ones failing to fully recover recent cost increases. There has been much debate about which formula and which rate-of-return level should be used to construct the fairest representation of the landlord's return on his investment. The following is an outline of some common landlord objections to Act 1-46 and demonstrates clearly that the fairness on the rate of return question and other questions is already biased in favor of the landlord.

1) "There is no 'pass-through right.""

Any across-the-board increase (such as the 12.32% under the old law and
the additional 5% increase under the new law) does constitute a pass-
through mechanism for cost increases, since tenants are paying more
for presumed cost increases. The recent D.C. Court of Appeals ruling
did speak of a "pass-through right", but only in the context of guide-
lines in the Congressional enabling legislation for the old law, which,

we all know, is now no longer necessary for the City Council to follow, 2) "This is profit control--no increase is allowed if rate of return exceeds 89."

NOT TRUE! The profit calculation is used as a limit only when it is used
to determine which landlords will be eligible for the automatic increases.
On the contrary, the law gives landlords a guaranteed floor on profits.
The landlord who is falling below an 8% return due to increased costs is
raised to the 8% floor. In addition, the landlord who is making above an
8% return can improve building efficiency or can apply for a rent increase
under the law's provisions for negative cash flow, substantial rehab, or
increased services--all of these resulting in a rate of return above 8%.

3) "The 8% rate is confiscatory because it is computed without debt service."

Landlords were offered and rejected the chance to support a proposal for
the inclusion of debt service in expenses by use of the "equity formula".
This method would have used the actual investment in the building instead
of the assessed value to compute the profit margin. Other proposals for
a more equitable formula supported by tenant groups included tax benefits
as income and excluded the fictitious depreciation expense while allowing
no more than a reasonable management fee. With all these loopholes and
misrepresentation of the true financial picture, the 8%-ain real terms,
much more than 8%--is a generous ofit guarantee.

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