CARL LAMBERT GOT off relatively easy. In the wake of the massive 6.8 earthquake, only one of his 12 apartment buildings was condemned. The quake rocked the 15-unit complex clean off its foundation, buckling the exterior walls like so much Sheetrock. "I don't know if I'll rebuild," says Lambert, a Santa Monica real-estate broker and past president of ACTION, a property-owners' rights group. "I do know that I won't be able to get loans if I can't show that I'll be able to pay them back."
In human terms, the January 17 earth-quake--the most destructive in over 20 years--staggered Southern California: over 60 people dead, thousands more injured, 20,000 displaced. The physical wreckage was similarly the stuff of nightmares: collapsed freeways, gas-line eruptions, toppled buildings. Estimated costs of the quake range from $10 billion to $30 billion. In Santa Monica alone, over 250 buildings, including two major hospitals, were severely damaged. Eventually, city inspectors "red-tagged"--evacuated and sealed off--more than 100 buildings.
The extensive property damage in Santa Monica illustrates one of the underlying problems of heavily rent-controlled housing markets: Why should landlords bother to repair or rebuild properties rented out at below-market levels? After building inspectors condemned an estimated 3,100 of the city's 28,000 rental units as uninhabitable, it became clear landlords could not afford to fix their buildings if they could not recoup repair costs through higher rents. Otherwise, they wouldn't be able to secure loans from FEMA, the Small Business Administration, or private sources.
The squeeze isn't just on landlords seeking reimbursement and displaced tenants seeking shelter, however. Rent-control advocates, who dominate the city's Rent Board and traditionally hold a slim advantage in local elections, realized that, perhaps even more than the landlords, they needed to back measures that would expedite repairs. After all, if the 3,100 apartments--housing 4,000 to 5,000 voters-remained uninhabitable or were ultimately destroyed, their electoral plurality would disappear along with the units. To maintain the housing stock would necessitate their enacting the thing they most vehemently oppose: rant hikes.
"The earthquake has been a nightmare for tenants and landlords both," says Lambert, who has tried to put displaced tenants into vacancies in his other buildings. By underscoring the anti-market economics of rent control and its...