TYLER v. COLLEGE PARK

"prevent excessive rents"); Apt. Ass'n of Greater L.A. v. Santa Monica Rent Control Bd., 24 Cal.App.4th 1730, 30 Cal.Rptr.2d 228, 229 (1994) (observing that "[r]ent control is a proper exercise of a city's police power if the regulation is `reasonably calculated to eliminate excessive rents and at the same time provide landlords with a just and reasonable return on their property'" (quoting Birkenfeld v. City of Berkeley, 17 Cal.3d 129, 130 CaLRptr. 465, 491, 550 P.2d 1001 (1976))); Dep't of Ins. v. Dade County Consumer Advocate's Office, 492 So.2d 1032, 1042 (Fla. 1986) (stating that the constitutional justification for rent control is "the protection of [tenants] from economic depredation by [landlords]"); Brunetti v. New Milford, 68 N.J. 576, 350 A.2d 19, 28 (1975) (noting that, in the context of rent control, rationales "include but are not limited to proof of a housing shortage, widespread imposition of exorbitant rents, monopoly control of rental housing market or prevalence of substandard housing"); Somers Associates, Inc. v. Gloucester Twp., 241 NJ.Super. 323, 575 A.2d 20, 24 (App.Div. 1990) (noting that the traditional primary purpose of rent control is "protection of tenants, usually with fixed or limited incomes, from burdensome impairments of their standard of living").

Nevertheless, courts also recognize a number of other legitimate governmental objectives in addressing housing concerns, including "the restoration and revitalization of urban housing," see, e.g., Allen v. Brodie, 573 F.Supp. 87, 90 (D.Md. 1983), "promoting and preserving neighborhoods that are conducive to families," particularly those with young children, have stable populations, and have low traffic, see Ames Rental Prop. Ass'n v. City of Ames, 736 N.W.2d 255, 260 (Iowa 2007), and "preserving the character of single-family residential neighborhoods," Anderson v. Provo City Corp., 108 P.3d 701, 708 (Utah 2005).

The stated objectives of the Ordinance are articulated in § 127-1.A, which describes the purpose of the City's rent control program as follows:

1. To encourage the University of Maryland and the private sector to provide suitable housing to meet the needs of undergraduate and graduate students on or near campus.

2. To encourage the availability of housing for households of all income levels, and to preserve, maintain and improve existing housing.

3. To strengthen College Park neighborhoods by reducing the number of single-family homes that are rental properties.

4. To encourage private reinvestment by homeowners consistent with a neighborhood's character.

City Code § 127-1.A. Although the above-stated goals differ from the traditional purpose of rent control legislation, namely, the protection of tenants from exorbitant rents, we cannot say, in light of the relevant case law and the broad discretion granted legislative bodies to determine and protect the public interest, that the goals of the Ordinance are illegitimate governmental ends. We turn to consider whether the means selected by the City in the Ordinance are related rationally to achievement of those objectives.

Appellants recast the City's goals in a sinister fashion, suggesting that the intent of the City in passing the Ordinance was to force student renters out of single-family neighborhoods by reducing the number of more affordable rental properties in those areas and to benefit one sector of the rental market (apartment buildings) at the expense of another (landlords in single-family neighborhoods). Although certain other considerations, such as those suggested by Appellants, may have contributed to the passage of the Ordinance, we confine our consideration in analyzing this facial constitutional challenge to the stated objectives of the Ordinance.

As to the first two stated goals of the Ordinance, encouraging the availability of housing for households of all income levels, including university students, and preserving, maintaining, and improving existing housing, the City maintains that it is reasonable to believe that capping rent in detached dwellings in single-family neighborhoods, but not in apartment buildings, will encourage builders, investors, and the University of Maryland to expedite the construction of apartment buildings capable of housing hundreds of renters in and near the City. In addition, the City asserts that the rent control program would reduce speculative pressure on home prices in single-family neighborhoods, thereby lowering home prices in those neighborhoods and make them more attractive for single-family use. The City contends that it is not irrational to believe that an acceleration in apartment building construction would improve the quality of housing options for renters and that increasing home ownership would help preserve, maintain, and improve housing in traditional residential neighborhoods on the theory that homeowners commit more resources to the maintenance of their homes than do renters and landlords. In response, Appellants direct our attention to the "expert statement" of Dr. Fuller to the effect that it is his opinion that the Ordinance would result in an increase in the cost of rental housing generally by restricting the supply of less expensive units in single-family neighborhoods, while permitting apartment buildings to increase rents due to increased demand, and that rent caps generally lead to further deterioration of rental properties.

Irrespective of the opinion evidence proffer presented by Appellants regarding Dr. Fuller's contrary view of the effect that the Ordinance may have on rental costs in the City and the City's existing housing stock, we cannot say that the City's perceived nexus between the rent control program and the goals of encouraging the availability of housing for households of all incomes is without any rational basis. It is entirely rational to believe that, by capping rents in the City's single-family neighborhoods, speculative investors will be less inclined to purchase such properties and, as a result, the price of those properties will be less inflated. Similarly, we are unprepared to say that the rent control program instituted by the Ordinance is not related rationally to the City's goal of preserving, maintaining, and improving existing housing. If rent control leads to increased construction of apartment buildings, landlords of other rental properties will be forced to improve their properties in order to compete for rental business, and, as noted supra, a decrease in single-family home prices may lead to increased home ownership and, thus, improved maintenance of the City's existing housing stock. Although the City's rent control plan may not result ultimately in achieving these legislative goals, as argued by Appellants, even well-supported criticism of the Ordinance and its likely effects provides an insufficient legal basis to find the Ordinance to be violative of the protections of Article 24.

Such a debate is at the very heart of the legislative process and, if the City's intended goals fail to come to fruition as the result of the application of the Ordinance (the Ordinance provides for a 1 September 2012 "sunset" of its terms, at which time its effectiveness may be evaluated), the City is free to learn from its mistakes. In addition, should they be disappointed in the results of the rent control experiment, Appellants and others may exercise their political voices by voting for other candidates for Mayor and the City Council. Nevertheless, as noted supra, a court is not permitted to judge the wisdom or expediency of a given legislative action under rational basis review. Rather, our inquiry is confined to determining whether there is a rational basis to believe that the City's chosen means may effectuate its legitimate goals.
The opinion of the Iowa Supreme Court in Ames shares that view. Ames, like the procedural track taken by the present case, was decided by the trial court in favor of the city by the grant of summary judgment in a declaratory judgment action. The Iowa Supreme Court affirmed. In that case, the court considered the validity of a city zoning ordinance which only permitted single-family dwellings in certain areas of the city, and defined "family" as "any number of related persons or no more than three unrelated persons." Ames, 736 N.W.2d at 257. Upon equal protection challenge by a city landlord association, the court upheld the validity of the ordinance, finding that it was related rationally to the government's interest in providing quiet neighborhoods, even though the classification between related and unrelated persons relied heavily on stereotypes that groups of unrelated persons living together typically do not establish roots in the community, do not provide playmates' for neighbors' children, attract large numbers of friends, and create additional noise and traffic. Id. at 261-63. In addition, the court noted that, although the landlord association may be correct that the ordinance would do little to further the city's goals, it was the city's prerogative "to fashion remedies to problems affecting its residents" and that, should the ordinance prove ineffective, "the elected city council may change course and amend or repeal" the ordinance. Id. at 263.

Regarding the Ordinance's second major goal, namely, strengthening City neighborhoods by reducing the number of single-family homes that are rental properties, the City relies on research explicated in the Sage Report demonstrating that renters are cited more frequently for litter and garbage violations than occupying homeowners. Appellants retort by explaining, in considerable detail, that although renters are cited more frequently for litter and garbage violations than homeowners, other portions of the same data base shows that homeowners are more frequent violators of the City code in other ways, such as the presence of inoperable vehicles and "miscellaneous" violations. According to Appellants, this revelation undermines the City's claim that instituting rent control will strengthen City neighborhoods by reducing code violations. Nevertheless, it is not Appellants' nor this Court's prerogative to determine which municipal code violations are more serious and pose a greater threat to the citizens of College Park; that judgment rests in the hands of the City. We shall not second-guess the City's determination as to which code violations to target and how best to overcome their pernicious effects. In addition, it is not clearly irrational for the City to believe that apartment buildings, where renters enjoy highly convenient waste services and pathways between units are generally confined inside the buildings, do not contribute in similar fashion to violations of the City code as do renters in detached "single-family" properties. Thus, we cannot say that the Ordinance is unrelated to the City's goal of strengthening City neighborhoods.

Regarding the Ordinance's final purpose, encouraging private reinvestment by homeowners consistent with a neighborhood's character, we agree with the City's contentions that it is not irrational to believe that neighborhoods with a high number of private, owner-occupied residences, which, according to the City, will be the likely result of its rent control program, will be more stable than neighborhoods populated by properties whose market prices are driven by absentee landlords speculating on the future of the rental market. The opinion of the Utah Supreme Court in Anderson reached a similar conclusion. In that case, the City of Provo amended a zoning ordinance governing residential neighborhoods near Brigham Young University to allow only those homeowners who reside in their homes to rent out "accessory apartments," resulting in a distinction drawn between occupying and non-occupying landlords. Anderson, 108 P.3d at 703. Against an equal protection challenge, the court upheld the validity of the amendment, concluding that the disparity in treatment was justified reasonably by the council's "stated objective of balancing the city's competing interests in accommodating student housing needs and in preserving the character of single-family residential neighborhoods." Id. at 708. Specifically, the court noted that the city concluded reasonably that "preventing absentee landlords from dominating . . . neighborhoods would help to retain the neighborhoods' single family character rather than converting them, in effect, to duplexes with both units often occupied by semitransient residents." Id.

As acknowledged supra, it is possible that the City's rent control program may prove unsuccessful in addressing effectively the goals identified in § 127-1.A. Nevertheless, it is clear that, despite Appellants' considerable criticism of the City's methods and legislative fact-finding, the City is not without a rational basis to its belief that the Ordinance may achieve its stated objectives. As such, we hold that the Ordinance does not violate on its face Appellants' due process and equal protection rights under Article 24 because there is a rational relationship between the purported goals of the Ordinance, which we have found to be in the acceptable range of legitimacy, and the method chosen by the City to achieve those goals, namely, imposition of a rent control regime.

Appellants contend additionally that the Ordinance violates their equal protection rights because it targets unfairly students. In making this argument, Appellants rely heavily on our decision in Kirsch. In Kirsch, we invalidated the Prince George's County "minidorm" zoning ordinance, which regulated rental of residential property to three or more students pursuing higher education, finding that the ordinance deprived students of equal protection. Kirsch, 331 Md. at 91, 107-08, 626 A.2d at 373, 381. Specifically, we found that the ordinance's classification was based "solely on the occupation which the tenant pursues away from [their] residence," and concluded that such a distinction was an arbitrary classification not related rationally to the County's objective of clearing residential neighborhoods of noise, litter, and parking congestion. Id. at 106, 626 A.2d at 380.
Although the Ordinance at issue here may have a considerable impact on students in the City, because they are nearly always renters rather than homeowners, Kirsch does not control here. The Ordinance does not make distinctions on the basis of occupation (students versus non-students). Rather, its operative premise is based on the type of rental property in question. Although in Kirsch we concluded that the distinction between students and nonstudents bore no rational relationship to the goal of reducing noise, litter, and parking congestion because both groups were equally capable of committing such violations, the City presented a considerable evidentiary proffer suggesting that capping rent on single-family homes, while exempting apartment buildings, will lead to the accomplishment of its goals of making housing in the City more affordable, reducing the number of certain code violations, and stabilizing residential neighborhoods in the City.
Appellants make the further contention that the methods chosen by the City to calculate the rent ceiling, including the use of CPI, the HUD value, and the percentage of assessed value figure, were chosen arbitrarily by Councilmember Catlin and the City Council and bear no rational relationship to the goals set forth in the Ordinance. We disagree. The City provided the Circuit Court with explanations underlying its reliance on those figures which demonstrated that they were not chosen in an entirely arbitrary fashion. Likewise, in light of those facts, we cannot say that use of these figures in calculating the rent ceiling is unreasonable completely. See Brunetti, 350 A.2d at 27 (finding that formulae for calculating rent increases that rely on CPI or fixed percentage rates "bear a rational relation to the legitimate municipal purpose of stabilizing rental levels").

STATE AND COUNTY FAIR HOUSING ACTS

Maryland Code, State Government Article § 20-705, entitled "Discriminatory housing practices-Sale or rental of dwelling," provides in pertinent part:

Except as provided in §§ 20-703 and 20-704 of this subtitle, a person may not:

(1) refuse to sell or rent after the making of a bona fide offer, refuse to negotiate for the sale or rental of, or otherwise make unavailable or deny, a dwelling to any person because of race, color, religion, sex, disability, marital status, familial status, sexual orientation, or national origin;

(2) discriminate against any person in the terms, conditions, or privileges of the sale or rental of a dwelling, or in the provision of services or facilities in connection with the sale or rental of a dwelling, because of race, color, religion, sex, disability, marital status, familial status, sexual orientation, or national origin; . . .

Md. Code (1984, 2009 Repl.Vol), State Gov't Art. § 20-705. The prohibition against discriminatory housing practices extends to local governments, which may enact housingrelated ordinances so long as the ordinance "does not authorize any act that would be a discriminatory housing practice under this subtitle." Md. Code, State Gov't Art. § 20-703(4). Thus, Prince George's County Code § 2-210, entitled "Sale or rental of housing; exception," provides in pertinent part:

(a) No person, whether acting for monetary gain or not, shall:

(1) Refuse to sell, lease, sublease, rent, assign, or otherwise transfer; or refuse to negotiate for the sale, lease, rental, assignment or other transfer of the title, leasehold, or other interest in any housing; or represent that housing is not available for inspection, sale, lease, sublease, rental, assignment, or other transfer when in fact it is so available; or otherwise make housing unavailable, deny, or withhold any housing from any person because of race, religion, color, sex, national origin, age, occupation, marital status, political opinion, personal appearance, sexual orientation, physical or mental handicap, or familial status;

* * *

(2) Include in the terms, conditions, or privileges of any sale, lease, sublease, rental, assignment, or other transfer of any housing, any clause, condition, or restriction discriminating against any person in the use or occupancy of such housing because of race, religion, color, sex, national origin, age, occupation, marital status, political opinion, personal appearance, sexual orientation, physical or mental handicap, or familial status;

Prince George's County Code (2003 Supp. 2005) § 2-210(a).

According to Appellants, the Ordinance's text and legislative history demonstrate that it was enacted for the discriminatory purpose of removing renters, particularly student renters, from residential neighborhoods in the City and segregating them from homeowners because the City believes that renters are undesirable neighbors. On this basis, Appellants contend that the Ordinance violates the State and County Fair Housing Acts by discriminating in housing on the basis of age, occupation, marital status, or familial status. We disagree.

By its very terms, the classification employed by the Ordinance distinguishes between rental units in traditional single-family neighborhoods and rental units in apartment buildings, among other types of excepted properties. On its face, the Ordinance does not discriminate in violation of the State or County Fair Housing Acts because it does not distinguish impermissibly between groups based on some characteristic of the group. Although it is true that the Ordinance may impact students more than any other demographic of renters due to the fact that most renters in the City are students at the University of Maryland, this alone cannot form a basis to conclude that the Ordinance discriminates facially on the basis of age, occupation, marital status, or familial status. As noted by the Circuit Court, people of every age, occupation, marital status, and familial status will be affected in the same manner if they live in rental housing in single-family neighborhoods. Thus, we conclude that the Ordinance on its face does not violate the State or County Fair Housing Acts.

DE FACTO ZONING

With the exception of the City of Laurel, municipal corporations within Prince George's County, including the City of College Park, are "not authorized, by means of an amendment to its charter or otherwise, to exercise any of the powers relating to planning, subdivision control, or zoning granted by the Maryland-National Capital Park and Planning Commission or the County Council of Prince George's County." Md. Code, Art. 28, § 7-103(b). Appellants contend that the Ordinance must be nullified as an act of "de facto zoning" by the City, beyond its enumerated powers. They are mistaken.

In Maryland Overpak Corp. v. Mayor City Council, we defined zoning as the "`process of setting aside disconnected tracts of land varying in shape and dimensions, and dedicating them to particular uses in some degree to serve the interests of the whole territory affected by the plan.'" 395 Md. 16, 48, 909 A.2d 235, 254 (2006) (quoting Bd. of County Comm'rs v. Stephans, 286 Md. 384, 388-89, 408 A.2d 1017, 1019 (1979)). Similarly, we observed that "`[t]he very essence of zoning is a territorial division according to the character of the land and the buildings, their peculiar suitability for particular uses, and uniformity of use within the zone.'" Donnelly Adver. Corp. v. City of Baltimore, 279 Md. 660, 665, 370 A.2d 1127, 1130 (1977) (quoting Heath v. Mayor City Council, 187 Md. 296, 305, 49 A.2d 799, 804 (1946)); see also Appleton Reg'l Cmty. Alliance v. County Comm'rs, 404 Md. 92, 101, 945 A.2d 648, 653 (2008) (defining "zoning action" as one which "`decides the use of a specific parcel or assemblage of parcels of land' and `creates or modifies substantively the governing zoning classification or defines the permissible uses, building and lot sizes, population density, topographical and physical features, and other characteristics of a specific parcel or assemblage of parcels of land. . . .'" (quoting Md. Overpak, 395 Md. at 50, 909 A.2d at 255)).

As noted by the City in its brief, the Ordinance does not divide the City into districts, define lot sizes, or mandate particular uses of any specific parcels or buildings. Rather, the Ordinance sets a limit on the amount of rent a single-family property owner may charge his or her tenants. That the Ordinance may contemplate land use changes, i.e., shifting rental housing into apartments and out of single-family neighborhoods, does not inherently convert what is a rent control ordinance into a zoning ordinance. See Donnelly, 279 Md. at 665-66, 370 A.2d at 1130-31 (finding that a municipal ordinance regulating signs under the police power was not an exercise of zoning power "[a]lthough it is within the scope of the zoning power to regulate signs"). As such, we reject Appellants' characterization of the Ordinance as an attempt by the City to engage in impermissible "de facto zoning."

IS THE ORDINANCE CONFISCATORY?

Finally, Appellants contend that the City's method for calculating the rent ceiling, on its face, cannot possibly ensure a fair return on landlords' investments and, for that reason, is impermissibly confiscatory. A number of courts have found that rent control regulations may be considered to have a confiscatory effect "if no rent adjustment mechanism is provided" and the terms of the rent control ordinance "will not permit those who administer it to avoid confiscatory results in its application to the complaining parties." Apt. Ass'n of Greater L.A., 30 Cal.Rptr.2d at 232; see also Richardson v. City and County of Honolulu, 802 F.Supp. 326, 332-33 (D.Haw. 1992) (noting that a municipal rent control ordinance may be facially confiscatory where it provides "no meaningful mechanism for obtaining relief when the lease rent formula results in a confiscatory rate"). For example, in Brunetti, the New Jersey Supreme Court observed that an ordinance may be confiscatory where it is so restrictive as to preclude facially any possibility of a just and reasonable return for landlords. 350 A.2d at 27. In that case, however, the court determined that the rent control ordinance at issue, which fixed rents at a given base level and permitted annual increases in rental charges, was not confiscatory facially because, although the annual increases were not unlimited, the ordinance permitted landlords to apply for unlimited rental increases in the event that he or she could demonstrate that he or she could not realize a reasonable profit from his or her investment. Id. Thus, in the court's eyes, the ordinance did not preclude facially the recovery of a just and reasonable return and, for that reason, was not impermissibly confiscatory. Id. On the other hand, in Helmsley v. Borough of Ft. Lee, 78 N.J. 200, 394 A.2d 65 (1978), the court invalidated as confiscatory a rent control scheme which limited any rent increases to 2.5% of the base rent and contained a lengthy and burdensome hardship relief mechanism, noting that, where a municipality desires to enact rent control, "it must be prepared to protect the landlords' interests by providing prompt, fair, and efficacious administrative relief" if imposition of the ceiling results in confiscatory rates of return. Id. at 81, 85-86.

The Ordinance here accounts clearly on its face conceptually for landlords to receive a fair return on their investment. For example, where a landlord petitions the Board for an upward adjustment in the permissible annual rent increase, the Board is required to take into account the landlord's rate of return. § 127-7.C(1)(h). That section provides "that individual upward adjustments in the rent ceilings on units be made only when the landlord demonstrates that such adjustments are necessary to provide the landlord with a fair return on investment." § 127-7.C(2) (emphasis added). Furthermore, § 127-7.1 states that "[n]o provision of this Chapter shall be applied so as to prohibit the Board from granting an individual rent adjustment that is demonstrated necessary by the landlord to provide the landlord with a fair return on investment." § 127-7.1. It is clear that, on its face, the Ordinance balances the City's goals of capping rent levels while maintaining an avenue for a landlord to obtain a fair return on his or her investment. Absent proof by Appellants that application of the Ordinance's rent ceiling and the Ordinance's related adjustment procedure results in unreasonably limited rates of return (no such facts admissible in evidence exist in this record), we cannot say that the Ordinance is confiscatory on its face.

The parties concede that no landlord has applied to the Board for an adjustment under the Ordinance.

Appellants contend that the purpose of the Ordinance, namely, to make rental conversions less profitable for landlords in order to reduce the number of rental properties in single-family neighborhoods, contradicts a finding that the statute is not facially confiscatory. We disagree. Although the Ordinance places limits on the profitability of rental units, such a fact does not mean inherently that landlords will be unable to earn a fair return on their investments. Rather, landlords renting rent-controlled properties will no longer be permitted to determine unilaterally their profit margin return from their investments and, as such, may be dissuaded from renting such properties.

CONCLUSION

Appellants waged unsuccessfully their battle against the City's initiative for a rent control program in the legislative arena. Undeterred, they turned to the Circuit Court, seeking essentially a spring board declaration that the Ordinance was unconstitutional on its face or otherwise legally invalid. In the view of that court, the Ordinance does not violate Article 24 because the City's goals in enacting the Ordinance were legitimate and the means selected to achieve those goals were rational, putting aside the likelihood of success. Similarly, the Circuit Court held that the Ordinance does not discriminate against student renters in violation of the State and County Fair Housing Acts, nor does it constitute an impermissible act of "de facto zoning" by the City. Finally, the trial court concluded that the Ordinance does not effect a facially confiscatory taking, as it permits landlords the ability to petition the Board for individual adjustments to the rent ceiling in order to maintain a fair rate of return. The Circuit Court recognized that even considerable and legitimate criticism of a legislature's chosen path will not provide the fodder for judicial interference in the legislative process, so long as the legislature's actions are calculated reasonably to achieve legitimate governmental ends. Indefatigably, Appellants pressed their arguments to us. Finding no substantial basis to disagree with the Circuit Court, we shall affirm.

JUDGMENT OF THE CIRCUIT COURT FOR PRINCE GEORGE'S COUNTY AFFIRMED; COSTS TO BE PAID BY APPELLANTS.

BELL, C.J., BATTAGLIA, and MURPHY, JJ., Dissent.