Westchester West No. 2 Ltd. Partnership v. Montgomery County

Eldridge, J., delivered the opinion of the Court. This case presents a challenge to a Montgomery County rent control ordinance on the ground that it constitutes a deprivation of property without due process of law in violation of the Fourteenth Amendment to the United States Constitution. On September 18, 1973, the Montgomery County Council enacted a rent control law, Bill No. 39-73, codified as Montgomery County Code (1972, 1974 Cum. Supp.), Chapter 29, Article VI, which became effective on October 1, 1973. 1 The law applies to persons owning three or more dwelling units in Montgomery County, and limits rent increases to a maximum of 4% of the base rent, depending on the type of unit involved and the utility services furnished by the landlord. 2 Extraordinary rent increases, in excess of the basic rent increase, may be permitted after certain procedures are followed by the landlord. 3 The ordinance ⁴⁵⁰ originally was to expire on October 31, 1975, but it was extended by Montgomery County Council Bill No. 6-75, to December 31,1975.

We were advised at the oral argument in this case that the County Council was considering legislation to extend further the rent control law. The rent control law, Bill No. 39-73, included certain legislative findings made by the County Council, including findings “that a public emergency exists in the housing of a considerable number of persons in the county; that there exists a serious housing shortage of dwelling units in the county; that the construction of new housing units planned will not eliminate the existing housing shortage in rental units because of, inter alia, the sewer moratorium; that in the absence of regulations of rents there have ensued excessive rent rises which have resulted in serious impairment to the health, safety and welfare of a large segment of the population and in conditions that would substantially hamper and deter the efforts of the county government to effectuate the protection and promotion of the health, safety and welfare of the citizens of the county as well as the general purposes of planning; . . . that .such regulations and controls are necessary in order to prevent the execution of unjust, unreasonable and oppressive rental agreements, and to forestall profiteering, speculation and other disruptive practices tending to impair the public health, safety and general welfare . . . .” Ch. 29, Art. VI, § 29-47. Bill No. 6-75, the act extending the termination date of the ⁴⁵¹ rent control law, also recited “that an emergency exists and that this legislation is necessary for the immediate protection of public health and safety.” On August 26, 1974, Westchester West No. 2, a limited partnership, along with four other limited partnerships, all owning rental housing property in Montgomery County, filed suit against Montgomery County in the circuit court for that county, seeking to have Bill No. 39-73 declared unconstitutional in that it is based on a non-existent public emergency and therefore “constitutes a deprivation of private property without due process of law.” At trial (before McAuliffe, J.) each side produced one expert witness in support of its respective position. Thomas Hamilton, Executive Director for the Montgomery County Office of Landlord and Tenant Affairs, testified for Montgomery County concerning some of the factors that led to the enactment of the rent control bill.

He stated that, in determining the present and future availability of housing, the county was aware of the lack of proper sewage disposal in some areas, and the fact that a sewer moratorium had been imposed on the county. Although pointing out that the full impact of the inflationary spiral in the economy could not have been fully appreciated at the time the bill was proposed, Mr. Llamilton testified that “[w]e did know at the time that resources normally connected with the housing industry were rising in cost, such as, material and labor,” thus suggesting a possible decrease in the construction of new housing units. Coupled with this was the knowledge that prospective buyers were having financial problems due to the high cost of homes, inability to obtain mortgages, high down payments, and high interest rates. These factors, according to Mr. Hamilton, prevented tenants normally interested in buying homes from leaving the rental housing market.

Mr. Hamilton further testified that the number of new housing starts decreased from around 2,000 in 1973 to about 400 in 1974. This was due, at least in part, to the high cost of materials, unavailability of financing, and inability to get ⁴⁵² sewerage connections. This shortage of new starts would adversely affect the stock available for rental housing. The record also discloses that additional evidence was presented to the Montgomery County Council in connection with its consideration of the bill.

At public hearings held by the council on August 2, 1973, and August 20, 1973, there was testimony both for and against the proposed law. Those in favor of the bill, including some realtors and representatives of several tenant associations, spoke of the low vacancy rates, unfair landlord practices, and fears of unbearable rent increases as a result of unequal bargaining power caused by the tight market. In addition to the oral testimony, letters were received from tenants concerned about what they considered to be exorbitant rent increases. The county council also considered an apartment project survey which was undertaken by the Montgomery County Office of Community Development, and which was completed on May 22, 1973.

The survey showed an overall vacancy rate in rental units of 3.5%. When broken into its component parts, the survey revealed a 26.1% vacancy rate in new units — those 12 months old or less. However, new units constituted a relatively small percentage of the total number of apartments. Mature units, those over one year old, had a vacancy rate of only 1.7%.

A 1974 survey update indicated that while the overall vacancy rate climbed to 3.9%, the rate for mature units dropped to .5%. In comparison, the testimony revealed that a 1970 Department of Commerce study reported a 6.6% national vacancy rate, and a 5.0% overall vacancy rate for the state of Maryland. According to the witness Hamilton, the newer units were largely to be found in the northern sections of the county, such as the area of Gaithersburg. Thus, those units were somewhat distant from the Washington metropolitan area and, consequently, were undesirable to many prospective renters who would have to travel a greater distance to work.

Also, the newer northern units were more expensive than comparable units in other parts of the county because, as Mr. Hamilton stated, they were built with “inflated dollars.” ⁴⁵³ The effect of the higher rents in the Gaithersburg area, he said, was to cause people to move toward lower rents outside the area, where the vacancy rate was less than .5%. Mr. Hamilton also testified that the 3.9% overall vacancy rate indicated by the 1974 survey was inflated by an unusually high percentage (20%) of new units in the sample. The 1973 survey also indicated that vacant units occurred more frequently at higher rent levels. Of units costing less than $200 per month, only .4% were not rented.

Over 70% of the projects surveyed reported no vacancies at all. The evidence showed that another factor contributing to a rental housing shortage was the increase in the population and number of households in Montgomery County. A census survey taken in 1974 by The Maryland-National Capital Park and Planning Commission revealed an 11.5% increase in population and a nearly 20% increase in households in Montgomery County between April 1970 and April 1974. Finally, the county council feared that the termination of federal rent controls under Phase II of the Economic Stabilization Program on January 11, 1973, would lead to “exorbitant” rent increases.

Dr. Michael Sumichrast, Vice President and Chief Economist of the National Association of Homebuilders, testified in the circuit court on behalf of Westchester West. Dr. Sumichrast said that Montgomery County has experienced an average vacancy rate of about 3.5% since 1950, and that the county’s rate has traditionally been lower than that of other jurisdictions in the Washington metropolitan area. But he argued that in arriving at ? fair and acceptable vacancy rate for a particular area, the vacancy rates of other geographical areas should not be used for a comparison because of the many variables involved, such as the size and economic growth of the area. He said that for Montgomery County a normal and acceptable vacancy rate would be “in the vicinity of about one and a half to two percent.” A 3.5% vacancy rate, he claimed, was “a very acceptable rate, high.” Dr. Sumichrast also stated that most of the available ⁴⁵⁴ rental units, “eighty percent, are in garden-types, which . . . are the cheapest units.” He also challenged the county’s statistical breakdown of the overall vacancy rate into “new” and “mature” units, saying that “[t]here is always one market.

It doesn’t really make any difference whether it is new or mature.” Dr. Sumichrast disputed Mr. Hamilton’s conclusion concerning the 1974 survey update, arguing that it did reflect an accurate percentage of new rental units, and that the overall vacancy rate of 3.9% stated in the survey was not artificially high. After reviewing both the evidence before the county council and the evidence introduced in court, the circuit court concluded that “there existed a rational basis for the enactment of Bill No. 39-73,” and that the bill did not constitute a deprivation of private property without due process of law. Westchester West appealed to the Court of Special Appeals, and we issued a writ of certiorari prior to a decision by that court. Westchester West contends that in the absence of an emergency condition concerning housing shortages, Montgomery County cannot, consistent with the Due Process Clause, impose rent controls.

In this case, Westchester West argues that no such emergency exists, and that therefore Bill No. 39-73 deprives it of property without due process of law. Westchester West relies upon several United States Supreme Court cases, the most recent of which was decided in 1924, in which the Court indicated that with respect to rent control, an emergency condition must exist in order to justify the regulation in light of the Due Process Clauses of the Federal Constitution. This Court has pointed out on numerous occasions that the test for constitutionality of regulatory legislation under the Due Process Clause is whether the statute, as an exercise of the state’s police power, “bear[s] a real and substantial relation to the public health, morals, safety and welfare of the citizens of the State.” Steuart Petroleum Company v. Board of County Commissioners of St. Mary’s County, 276 Md. 435 , 347 A. 2d 854 (1975); Bowie Inn v. City of Bowie, 274 ⁴⁵⁵ Md. 230, 236, 335 A. 2d 679, 683 (1975); Md. St. Bd. of Barber Ex. v. Kuhn, 270 Md. 496, 511 , 312 A. 2d 216 (1973); Md. Bd. of Pharmacy v. Sav-A-Lot, 270 Md. 103, 106 , 311 A. 2d 242 (1973); Salisbury Beauty Schools v. St. Bd., 268 Md. 32, 46 , 300 A. 2d 367 (1973); Allied American Co. v. Comm’r, 219 Md. 607, 617 , 150 A. 2d 421, 427 (1959); Davis v. State, 183 Md. 385, 397 , 37 A. 2d 880 (1944). However, in applying this test the courts perform a very limited function.

Unless the exercise of the police power by the Legislature is shown to be arbitrary, oppressive or unreasonable, the courts will not interfere with it. Bowie Inn v. City of Bowie, supra, 274 Md. at 236 ; Salisbury Beauty Schools v. St. Bd., supra, 268 Md. at 48 . Moreover, the wisdom or expediency of a law adopted in the exercise of the police power of a state is not subject to judicial review, and such a statute will not be held void if there are any considerations relating to the public welfare by which it can be supported. Bowie Inn v. City of Bowie, supra, 274 Md. at 236 ; Sav-A-Lot, supra, 270 Md. at 106; Salisbury Beauty Schools v. St. Bd., supra, 268 Md. at 48 . 4 ⁴⁵⁶ Westchester West, however, claims that there is an exception to the above stated principles for rent control legislation.

It relies upon Block v. Hirsh, 256 U. S. 135 , 41 S. Ct. 458 , 65 L.Ed. 865 (1921), and Marcus Brown Holding Co. v. Feldman, 256 U.S. 170 , 41 S. Ct. 465 , 65 L. Ed. 877 (1921), where the Supreme Court upheld District of Columbia and New York rent control laws in light of the emergency conditions created by World War I. In Block v. Hirsh, supra, 256 U. S. at 157, the Court explained that “[t]he regulation is put and justified only as a temporary measure. ... A limit in time, to tide over a passing trouble, well may justify a law that could not be upheld as a permanent change.” See, additionally, Levy Leasing Co. v. Siegel, 258 U. S. 242 , 42 S. Ct. 289 , 66 L. Ed. 595 (1922). In Chastleton Corp. v. Sinclair, 264 U. S. 543 , 44 S. Ct. 405 , 68 L. Ed. 841 (1924), the Supreme Court again considered the rent law it had reviewed in Block v. Hirsh. This time, however, the Court decided to remand the case to the lower court to determine if an emergency still existed, stating ( 264 U. S. at 548 ), “If about all that remains of war conditions is the increased cost of living that is not in itself a justification of the act.” These early Supreme Court cases must be viewed in the context of the period in which they were decided.

At the beginning of the twentieth century, and through the early 1930’s, a majority of the Supreme Court was of the view that legislation regulating the amount to be charged for goods ⁴⁵⁷ and services generally was unconstitutional, as a violation of due process, unless there was an emergency, 5 or unless the business being regulated was “affected with a public interest.” 6 The Court did not distinguish between rent control and other price and wage control cases in striking down such legislation, or in upholding it under the “emergency” or “affected with a public interest” standards. As indicated by Tyson & Brother v. Banton, 273 U. S. 418, 429 , 47 S. Ct. 426, 428 , 71 L. Ed. 718 (1927), which held unconstitutional a New York statute regulating the maximum price for which theater tickets could be resold, the majority of the Court believed that “the right of the owner to fix a price at which his property shall be sold or used is an inherent attribute of the property itself, . . . and, as such, within the protection of the due process of law clauses of the Fifth and Fourteenth Amendments. . . . The power to regulate property, sendees or business can be invoked only under special circumstances [such as businesses affected with a public interest, or emergencies].” (Emphasis supplied.) And in Ribnik v. McBride, 277 U. S. 350, 357 , 48 S. Ct. 545, 546 , 72 L. Ed. 913 (1928), in holding invalid a statute regulating employment agency fees, the Supreme Court flatly stated that various types of price control legislation, including rent control legislation, were on the same footing for purposes of the Due Process Clause, and were all unconstitutional absent a “grave” emergency: ⁴⁵⁸ “Under the decisions of this court it is no longer fairly open to question that, at least in the absence of a grave emergency (Tyson & Brother v. Banton, supra, pages 431, 437 [ 47 S. Ct. 426 ]), the fixing of prices for food or clothing, of house rental or of wages to be paid, whether minimum or maximum, is beyond the legislative power. And we perceive no reason for applying a different rule in the case of legislation controlling prices to be paid for services rendered in securing a place for an employee or an employee for a place.” (Emphasis supplied.) During this period, the Supreme Court invalidated numerous statutes regulating the amount to be charged for goods or services, where there existed no emergency and no “business affected with the public interest.” Thus, in Adams v. Tanner, 244 U. S. 590 , 37 S. Ct. 662 , 61 L. Ed. 1336 (1917), the Supreme Court struck down state legislation regulating the fees charged by employment agencies.

In Adkins v. Children’s Hospital, 261 U. S. 525 , 43 S. Ct. 394 , 67 L. Ed. 785 (1923), the Court ruled a District of Columbia minimum wage law unconstitutional. The Court held in Fairmont Co. v. Minnesota, 274 U. S. 1 , 47 S. Ct. 506 , 71 L. Ed. 893 (1927), that Minnesota lacked the power to regulate the price of milk within the state. And in Williams v. Standard Oil Co., 278 U. S. 235 , 49 S. Ct. 115 , 73 L. Ed. 287 (1929), the Court held unconstitutional a Tennessee law regulating the price of gasoline within the state. However, where the business was considered “affected with a public interest,” or where an emergency condition was found to exist, the Court sustained price and wage controls.

For example, in German Alliance Ins. Co. v. Lewis, 233 U. S. 389 , 34 S. Ct. 612 , 58 L. Ed. 1011 (1914), the Court considered the business of insurance so far affected with a public interest as to justify regulation of its rates. See additionally O’Gorman & Young v. Hartf'd Ins. Co., 282 U. S. 251 , 51 S. Ct. 130 , 75 L. Ed. 324 (1931); Tagg Bros. v. United States, 280 U. S. 420 , 50 S. Ct. 220 , 74 L. Ed. 524 (1930) (holding the business of stockyards as “affected with a ⁴⁵⁹ public interest” so as to justify regulation of rates charged).

In Wilson v. New, 243 U. S. 332 , 37 S. Ct. 298 , 61 L. Ed. 755 (1917), the Court held that Congress could temporarily fix wages when faced with an emergency caused by a threatened nationwide strike of railroad workers. See also Highland v. Russell Car Co., 279 U. S. 253 , 49 S. Ct. 314 , 73 L. Ed. 688 (1929), upholding a Presidential order fixing the maximum price of coal during World War I. 7 Beginning with Nebbia v. New York, 291 U. S. 502 , 54 S. Ct. 505 , 78 L. Ed. 940 (1934), however, the Supreme Court has generally upheld price control legislation under the Due Process Clause regardless of whether an emergency existed or whether the business was one affected with the public interest. Nebbia v. New York involved a challenge under the Fourteenth Amendment to a New York statute which permitted a state board to fix minimum and maximum retail prices for milk. The Court found “that the dairy industry is not, in the accepted sense of the phrase, a public utility.” And no