not controlled. An especially large proportion lived in apartments exempted under the small landlord exemption. The publicity surrounding the rent watch raised some false hopes, and many tenants in exempt units were frustrated and disappointed when they received large rent increases. THE JUSTICE DEPARTMENT The litigation of rent case was the largest part of the Justice Department's enforcement effort in terms of number of cases. The Economic Stabilization Section of the Justice Department was staffed in Washington by fiften to eighteen attorneys. Each of the attorneys had responsibiltiy for processing rent cases. The Justice Department's Stabilization Section was closely coordinated with the Internal Revenue Service effort. Early in the Stabilization Program the Justice Department and the Internal Revenue Service established a joint working committee to formulate guidelines to instruct the Internal Revenue Service field agents on the proper application and interpretation of the complex rent regulations. The Justice Department also collaborated in the development of changes to the rent regulations to make it easier to apply and enforce. Phase III Decontrol PHASE III PLANNING Rents were exempted at the commencement of Phase III while most of the economy remained subject to a voluntary, self-administered standard. The decision to exempt rents was made by the Phase III planning group on January 3, 1973. The planning group deliberated over the design of Phase III independent of the Rent Advisory Board. Initially, the planning group did not directly address rents, since it first had to determine the character of the overall Phase III program. It was decided in late December that there would be general guidelines calling for voluntary compliance by most sectors of the economy. Phase II regulations would serve as a reference for applying the guidelines. Three or four sectors (health, construction, food, and possibly public employees) were to remain subject to mandatory controls. Once this determination was made, the planning group debated whether rent should be subject to the voluntary Phase III standards or be decontrolled. The planning group considered several alternatives to decontrol which were summarized in a "rent decontrol options" memorandum." The group felt that neither TLP nor profit margin price standards, the two price control concepts to be used in Phase III, fit the rental industry. (See related papers.) It felt that applying voluntary standards to residential rents would likely produce confusion and uncertainty on the part of both tenants and landlords. The resulting criticism would create undesirable pressure for more comprehensive controls. The other option considered was the establishment of a separate rent standard along the lines of the price and the wage and salary standard, but specially tailored to rentals. The second option would avoid the incongruity of applying poorly-suited standards to rents, but the group felt that it would tend to spotlight rents and create increased expectations that the controls would have a significant effect. A precise set of rules for rents would be inconsistent with the overall Phase III strategy the planning group had delineated. Considering these points, and finding no economic justification for prolonging rent control, the group concluded that rent controls should be eliminated outright. The decision was made public with the announcement of Phase III on January 11, 1973. THE CASE AMENDMENT Less than a month after the decontrol decision was made, Senator Case (R.-New Jersey) proposed a rent amendment to the Economic Stabilization Act, due to expire on April 30, 1973. The amendment provided for the reimposition of rent controls in any Standard Metropolitan Statistical Area (SMSA) in which the vacancy rate among low and moderately priced units dropped below 6.5 percent. In such areas, rent increases would be limited to 2.5 percent annually plus a pass through of any increased tax, capital improvements, and any reasonable increased costs of services and materials. The Cost of Living Council contended that rapidly rising rents were not a national problem, and could be dealt with on a local basis. Nevertheless, the bill gained immediate support in the Senate as a concrete measure by which the Congress could show that it was determined to protect the interests of the consumers. The Case amendment signalled the beginning of a confrontation between Congress and the Cost of Living Council over the reimposition of rent controls. The Council adopted a firm stand against rent controls in any form. It was felt that any step toward the reinstatement of controls, even voluntary, might draw the Council back into the regulatory area it sought to avoid. A voluntary standard would prompt consumer demands for greater government involvement and there would be too great a risk of being caught up in mandatory controls. A voluntary standard would be unenforceable, yet consumers would expect some form of action to deal with "violations." In addition, there was a realization that if the Federal government returned to rent controls a second time, it might be impossible to end rent controls for many years. More specifically, the Council argued that the large increases to which Senator Case alluded were a localized problem. Nationwide, rents had generally stabilized quickly after controls were lifted. While not encouraging localities to establish rent control boards, the Council maintained that where rent controls might prove necessary, a local effort, rather than a Federal controls program, was preferable. The NAHB and the NAREB assisted the Council in gathering data to prove Federal rent control unnecessary. After first surveying rents and finding problems to be of a localized nature, the national industry groups committed themselves to setting up watchdog groups. These groups would constitute a non-governmental policing effort to hold down unreasonable increases in rents. On March 20, 1973, despite Administration objection, the Senate passed the amendment as part of the extension to the Economic Stabilization Act. In the House, the bill reported by the Banking and Currency Committee would have stabilized all rents at levels prevailing on January 10, 1973, the day before Phase III was announced, and permitted increases only where there had been an increase in taxes, a capital improvement or an increase in "the cost of services and materials." The Council also opposed this rent provision, on essentially the same grounds. The House Rules Committee substituted for the Banking and Currency proposal another bill which did not contain a rent provision. After the House refused to consider that bill, three attempts were made to add a rent provision to a bill introduced on the floor by Rep. Martin (R-Nebraska) that would simply have extended the Economic Stabilization Act and all three attempts were defeated. The House-Senate Conference Committe considered, but did not adopt, the Senate's rent control provision. So ended the attempt to mandate legislatively the reimposition of some form of rent controls. Observations Based on the experience of this program, it appears that the problems encountered in instituting a short-term Federal rent control system tend to outweigh the potential benefits. The lack of current data in the housing area creates severe limitations for informed decision-making. It is conceivable that non-economic factors might legitimately carry as much weight as economic factors in the decision whether to include rent controls in a comprehensive stabilization program, but rent controls should not be implemented for noneconomic reasons unless adequate data delineating the economic ramifications of that decision are available. The Cost of Living Council, the Price Commission, and the Rent Advisory Board all recognized the importance of locale in the rental market. The experience of the recent rent program supports the judgment that problems in the rental area are so local in nature that a Federal program has little hope of responsibly addressing issues important to particular areas when it tries to design a program which is uniform for the entire nation. If a Federal rent program were to be mounted, consideration might be given to delegating to local governmental units authority to formulate specific regulations which are responsive to local problems. Of course, this would increase the risk that rent controls could not then be dismantled when the Federal program was terminated. Overly complex regulations should be avoided. Tenants, landlords and the IRS as the enforcement arm of the program, could not easily apply the Phase II regulations. A program with such specific regulations could not escape complexity and difficulty in application without a large bureaucracy to administer and enforce it. In any controls program, even one with specific regulations, there will be inequities and hardship. Therefore, it might be better to promote ease of administration and provide for public monitoring of compliance by instituting simple, understandable regulations. There is the further danger that a rent control program will spark rent increases where such increases might not otherwise occur. The ceiling for allowable increases can become the floor for possible increases under the rent program. Increases of this type are likely to happen in tight market areas such as the Northeast. In anticipation of some future tightening of the controls, landlords may feel encouraged to raise rents beyond the level they might normally have increased them. Many areas of the nation where the housing stock is plentiful relative to demand have no need for controls at a given time, since free market competition effectively restrains increases. The need for simplicity and comprehensiveness should be balanced against the risk that controls in such competitive areas may stimulate anticipatory increases. Finally, consideration should be given to the possibility that rent controls can advesrely affect landlord-tenant relations. The existence of rent controls can be interpreted by tenants to mean that any rent increase, no matter how necessary or consistent with the regulations, is a wrongful act by his landlord aimed at him. When controls are terminated, there is the possibility of a "bulge" in rents, or retaliatory actions against tenants who have complained about violations. Such post-control action will be especially irritating to tenants, since the Government no longer will provide a remedy. U.S. Department of Labor, Bureau of Labor Statistics. Detailed minutes of CLC Executive Committee Meeting, August 27, 1971. • Memo from Dr. Herbert Stein as head of Phase II Task Force to CLC, September 24, 1971. Connally's concern for rent controls was recalled by his administrative aide and Dr. Marvin Kosters, Associate Director for Planning and Analysis. • From minutes of CLC and CLC Executive Sessions, especially Executive Session of September 18, 1971. Ibid. Executive Order 11627. • Three officials of the Canadian Government, headed by John Young, Chairman of the Canadian Prices and Incomes Committee were in Washington observing the effects of our freeze; it was suggested that the benefit of their experience might be useful. 10 From Rent Advisory Board paper, Rent Policy Objectives, directed to the Price Commission, November, 1971. "Rent Advisory Board Adjustments Issue Paper, Formula for Rent Adjustments. Title 6, Code of Federal Regulations, Section 300.507. 13 Rent Advisory Board Paper. 14 HUD policy recommendations to the National Rent Board, October 27, 1971. 15 Guidelines for the Analysis of Petitions for Rent Exceptions, March 3, 1972, internal Price Commission document, can provide some insight into this procedure. 16 10 From discussion with New York City IRS Stabilization staff, and Rent Advisory Board reports. 17 Confidential decontrol discussion of C-8 planning group, January 4, 1973. Bibliography The following sources were used as general reference, and would be of interest to a researcher studying the federal rent controls program. The files of the Rent Advisory Board, especially minutes, agendas, policy and issue papers, and recommendation papers. Minutes of Price Commission meetings Minutes of Cost of Living Council meetings Minutes of Cost of Living Council Executive Sessions |