Santa Monica Beach, Ltd. v. Superior Court

968 P.2d 993, 81 Cal. Rptr. 2d 93, 19 Cal. 4th 952, 99 Daily Journal DAR 131, 99 Cal. Daily Op. Serv. 95, 1999 Cal. LEXIS 2

• Court: California Supreme Court
• Decided: January 4, 1999
• Docket: S052824
• Status: Published

Opinions

Opinion

MOSK, J.

In this case we consider whether a trial court properly sustained a demurrer to a complaint alleging that a city’s rent control law violates the takings clause of the Fifth Amendment to the United States Constitution and the equivalent provision under the California Constitution because of that law’s alleged failure to fulfill its stated objectives. We conclude that the trial court was correct to sustain the Santa Monica Rent Control Board’s demurrer to petitioner’s cause of action for inverse condemnation, and we accordingly reverse the Court of Appeal’s judgment.

I. Statement of Facts

Petitioner Santa Monica Beach, Ltd. (SMB), alleged the following in its complaint for inverse condemnation and petition for writ of mandate, which we accept as true for purposes of assessing the complaint’s sufficiency to withstand a demurrer. (Quelimane Co. v. Stuart Title Guaranty Co. (1998) 19 Cal.4th 26, 34, fn. 3 [77 Cal.Rptr.2d 709, 960 P.2d 513].)

In April 1979, the City of Santa Monica (the City) adopted a rent control charter amendment (hereinafter sometimes the Rent Control Law) and created an elected rent control board (Board) to regulate rentals. Among other things, the Rent Control Law requires that owners register each rental unit and pay annual registration fees to the Board, establishes maximum allowable rents, provides for annual general adjustments and individual adjustments of allowable rents, prohibits evictions except for specified reasons, and prescribes remedies for violations of its provisions.

The stated purpose of the Rent Control Law, as expressed in the preamble to the charter amendment, was as follows: “A growing shortage of housing units resulting in a low vacancy rate and rapidly rising rents exploiting this shortage constitute a serious housing problem affecting the lives of a substantial portion of those Santa Monica residents who reside in residential housing. In addition, speculation in the purchase and sale of existing residential housing units results in further rent increases. These conditions endanger the public health and welfare of Santa Monica tenants, especially the poor, minorities, students, young families, and senior citizens. The purpose of this Article, therefore, is to alleviate the hardship caused by this serious housing shortage by establishing a Rent Control Board empowered to regulate rentals in the City of Santa Monica so that rents will not be increased unreasonably and so that landlords will receive no more than a fair return.”

SMB alleges that in practice, however, rent control has been an agent of “gentrification” in Santa Monica. During the rent-controlled decade of the 1980’s, Santa Monica experienced a loss of 775 low-income-renter households, a decrease of nearly 12 percent. The number of low-income-renter households increased over this period in every comparable city in Southern California without rent control. Santa Monica also lost 285 very-low-income-renter households. This was the largest decrease in the number of very-low-income renters of any comparable Southern California city.

Concurrent with this exodus of economically disadvantaged renters under rent control, Santa Monica experienced a 37 percent increase in the proportion of households with very high incomes between 1980 and 1990. This population shift toward upper-income households occurred during a decade when the proportion of very-high-income households dropped by more than 8 percent in Los Angeles County as a whole.

Under rent control, housing in Santa Monica has become increasingly unavailable to young families. Between 1980 and 1990, the number of family households with children in Santa Monica fell by 1,299, a decline of more than 6 percent. No comparable city in Southern California without rent control lost family households over the decade of the 1980’s.

The impact of rent control has been especially harsh on young families headed by a mother with no spouse. The number of female-headed households with children under the age of 18 in Santa Monica fell by 593 between 1980 and 1990, a decrease of more than 27 percent, despite an increase in such households in Los Angeles County as a whole.

Under rent control, Santa Monica’s elderly population (age 65 or over) declined by 1.7 percent between 1980 and 1990, whereas the elderly population of Los Angeles County rose by more than 15 percent over the same decade. The elderly population increased over this period in every comparable city without rent control in Southern California.

In March 1992 SMB, the owner of a 12-unit residential rental property in the City filed a petition asking the Board for permission to increase its rents. To obtain permission, SMB had to prove that its property was producing less than a “fair return” under “a comparative Net Operating Income (NOI) analysis that compares the NOI of calendar year 1978 to that of calendar year 1991, the most recent year prior to the filing of’ SMB’s 1992 petition. In May, after an administrative hearing, the Board’s hearing examiner found that SMB’s operating expenses for the base year of 1978 were $14,879, but that SMB was not entitled to a rent increase. SMB appealed to the Board, without success.

After various modifications to the Rent Control Law not relevant here, SMB filed on March 30, 1993, a second petition with the Board, this time asking for permission to increase its rents based upon its income and expenses for 1992. A hearing examiner found that SMB was entitled “to a permanent rent increase of $3 per unit per month and temporary rent increases averaging $58 per unit per month.” SMB appealed to the Board, contending, inter alia, that the hearing examiner improperly applied the law and regulations to reduce SMB’s rent increase entitlement based on SMB’s 1992 net operating income and to permanently deny SMB three-fourths of the general rent adjustment to be implemented in 1993 and 1994. The Board affirmed the hearing examiner’s determinations.

SMB filed a combined complaint for inverse condemnation and petition for a writ of administrative mandate, naming the Board as defendant and respondent and contending that, as applied to SMB, the Rent Control Law constitutes a compensable regulatory taking of its property. In its inverse condemnation claim, SMB claims the Board has, by application of the Rent Control Law, violated SMB’s rights under the Fifth Amendment rights to the United States Constitution and its rights under article I, section 19 of the California Constitution.

Specifically, SMB claims the Rent Control Law does not meet the “substantial advancement” test articulated by the United States Supreme Court in takings cases, as discussed below, because the Rent Control Law fails “to substantially mitigate some social harm that would otherwise result from the [property] owner’s unregulated use of [its] property” and by “fail[ing] in practice to advance the specific purpose stated in the regulation. . . .Because [the Board’s] application of the [Rent Control Law] has reduced the availability of private rental housing in Santa Monica and has made it more difficult for low-income renters, young families, and the elderly to find affordable rental housing, the [Rent Control Law] is not substantially advancing its stated purpose of implementing the housing policies of the [C]ity with regard to these population groups. [<[] The . . . Board’s final determination regarding [SMB’s 1993 petition] does not substantially advance a legitimate governmental interest, nor is there any close nexus between the denial of [SMB’s] application for a fair rate of return on capital investments and any public harm that might result from [SMB’s] unregulated operation of [its] property, because unregulated use of [its] property by [SMB] would not have resulted in the problems allegedly addressed by the [Rent Control Law], i.e., a shortage of available housing for low-income renters, young families, and the elderly.”

Additional allegations within the inverse condemnation complaint charge the Board generally with depriving SMB of “essential attributes of ownership of its property, including the right to exclude others and the right to determine the terms upon which leasehold interests in [SMB’s] property will be alienated.” SMB “has received no compensation for the damages inflicted by [the City’s] application of the [Rent Control Law] to [SMB’s] property, and the [Rent Control Law] contains no provision for seeking or obtaining compensation.”

For each and all of these reasons, SMB alleges, the Board’s application of the Rent Control Law to SMB’s property “comprises a regulatory taking of [SMB’s] property for public use without just compensation . . . . [f] A trial de novo is necessary to examine the constitutional issues in this case. The administrative record compiled by the Rent Board is inadequate for this purpose because the Rent Board does not conduct the kind of judicial proceedings needed to safeguard [SMB’s] fundamental right to due process of law or its right not to be deprived of its property without just compensation. . . .”

SMB’s petition for a writ of administrative mandate alleges that the Board acted without or in excess of its jurisdiction under the Rent Control Law and that the Board’s actions frustrated its ability to obtain a fair return from its rental property.

The Board demurred to the claim for inverse condemnation, contending that, as a matter of law, SMB could not prevail because there was a “rational basis” for the Rent Control Law. The trial court agreed and sustained the demurrer without leave to amend, leaving the administrative mandate petition to be heard at a later date. SMB filed a petition for a writ of mandate with the Court of Appeal, claiming the inverse condemnation action was inextricably related to its administrative mandate, and that the demurrer had been wrongly sustained.

The Court of Appeal issued an order to show cause and subsequently set aside the trial court’s judgment. It agreed with SMB that a heightened standard of scrutiny applied to Rent Control Law under Nollan v. California Coastal Comm’n (1987) 483 U.S. 825 [107 S.Ct. 3141, 97 L.Ed.2d 677] (Nollan), and, if the allegations were true, that the Rent Control Law’s failure to meet its stated purposes meant that it failed to substantially advance a legitimate government purpose, and was therefore a taking of property. The court made clear, however, that in its view even under a more deferential “rational basis” test, the rent control ordinance would fail. “If, in fact, [the Rent Control Law] has reduced rather than increased the number of rental units available to those intended to be benefited by that law, then the regulation has no relationship (nexus) at all to its stated purpose. Deference to legislative authority cannot salvage a regulation that defeats rather than accomplishes its stated purpose.”

We granted review and initially deferred briefing pending resolution of another case involving the Rent Control Law, Kavanau v. Santa Monica Rent Control Bd. (1997) 16 Cal.4th 761 [66 Cal.Rptr.2d 672, 941 P.2d 851], That case, however, did not directly address the novel constitutional theory advanced by SMB and accepted by the Court of Appeal. We ordered further briefing to determine the merits of SMB’s constitutional claim.

II. Discussion

A. Statute of Limitations

We begin by addressing the Board’s contention that SMB’s challenge to the imposition of the Rent Control Law is actually a facial challenge, and therefore barred by the statute of limitations. (See Sandpiper Mobile Village v. City of Carpinteria (1992) 10 Cal.App.4th 542, 549 [12 Cal.Rptr.2d 623] [holding there is a five-year statute of limitation for real property takings challenges].) SMB contends, on the other hand, that its inverse condemnation action is an “as applied” challenge, and is timely brought. Generally, “[a] facial challenge to the constitutional validity of a statute or ordinance considers only the text of the measure itself, not its application to the particular circumstances of an individual.” (Tobe v. City of Santa Ana (1995) 9 Cal.4th 1069, 1084 [40 Cal.Rptr.2d 402, 892 P.2d 1145].) On the other hand, “[a]n as applied challenge may seek . . . relief from a specific application of a facially valid statute or ordinance to an individual or class of individuals who are under allegedly impermissible present restraint or disability as a result of the manner or circumstances in which the statute or ordinance has been applied . . . .” (Ibid.) In the case of rent control laws, facial challenges have been used to invalidate structural features of the law that are inherently confiscatory, i.e., that fail to permit a landlord a fair rate of return. (See, e.g., Birkenfeld v. City of Berkeley (1976) 17 Cal.3d 129, 169 [130 Cal.Rptr. 465, 550 P.2d 1001] (Birkenfeld) [inadequate mechanism for adjusting base rents renders rent control charter amendment partially facially unconstitutional].) An “as applied” challenge is typically based on a showing that the application of the ordinance has left a particular landlord without the ability to earn a fair return. (See, e.g., Kavanau v. Santa Monica Rent Control Bd., supra, 16 Cal.4th at pp. 777-779 (Kavanau).)

We recognize that SMB’s unusual claim bears resemblance in a number of respects to a facial challenge—it seeks to invalidate the Rent Control Law, not merely its application against one landlord. Nonetheless, for present purposes, our concern is not to label SMB’s claim but to determine whether it is barred by the statute of limitations. Because SMB contends that its claim is derived from events occurring after the passage of the Rent Control Law, we will proceed to the merits of its claim. In so doing, we leave aside for the moment the problem of determining precisely when SMB’s inverse condemnation claim accrued.¹

B. The Inverse Condemnation Claim

We begin by recognizing the well-established case law of the United States Supreme Court and of this court holding that ordinary rent control statutes are generally constitutionally permissible exercises of governmental authority. In Pennell v. City of San Jose (1988) 485 U.S. 1 [108 S.Ct. 849, 99 L.Ed.2d 1] (Pennell), the court stated: “[W]e have ‘consistently affirmed that States have broad power to regulate housing conditions in general and the landlord-tenant relationship in particular without paying compensation for all economic injuries that such regulation entails.’ [Citations.] . . . ‘[Statutes regulating the economic relations of landlords and tenants are not per se takings.’ [Citation.] Despite amici’s urging, we see no need to reconsider the constitutionality of rent control per se.” (Id. at p. 12, fn. 6 [108 S.Ct. at pp. 857-858]; see also Birkenfeld, supra, 17 Cal.Sd at p. 165.)

Many have questioned the wisdom of rent control, and no consensus exists as to whether it is good public policy. (See, e.g., Epstein, Rent Control and the Theory of Efficient Regulation (1989) 54 Brook. L.Rev. 741, and various responses on pp. 1215-1304 of the same journal.) We emphasize that a decision affirming the constitutionality of a particular rent control law is not in any sense an endorsement of its soundness. (See Birkenfeld, supra, 17 Cal.3d at p. 159.) “Courts have nothing to do with the wisdom of laws or regulations, and the legislative power must be upheld unless manifestly abused so as to infringe on constitutional guaranties. The duty to uphold the legislative power is as much the duty of appellate courts as it is of trial courts, and under the doctrine of separation of powers neither the trial nor appellate courts are authorized to ‘review’ legislative determinations. The only function of the court is to determine whether the exercise of legislative power has exceeded constitutional limitations.” (Lockard v. City of Los Angeles (1949) 33 Cal.2d 453, 461-462 [202 P.2d 38, 7 A.L.R.2d 990].)

We also emphasize that both the enactment and administration of rent control laws are subject to a number of constitutional constraints. Particular decisions of public agencies charged with administering rent control may be deemed to be unconstitutional if as a result landlords are deprived of a fair rate of return. (Kavanau, supra, 16 Cal.4th at p. 778.) Moreover, we have recognized that rent control laws must possess certain structural features that safeguard against confiscatory results: “For example, due to the effects of inflation, the law ‘may not indefinitely freeze the dollar amount of . . . profits without eventually causing confiscatory results.’ [Citation.] In addition, when a rent control law establishes a ‘base rent’ by reference to rents on a specified date, the law should permit adjustments of that base rent for those rental units that had artificially low rents at that time. [Citation.] Similarly, the law should permit individualized rent adjustments in appropriate cases even if base rent was not artificially low [citation], and the procedural mechanism by which landlords may obtain any of these adjustments must not be prohibitively burdensome [citations]. Among other things, this process may not entail ‘a substantially greater incidence and degree of delay than is practically necessary.’ [Citations.] In this regard, we recommended that the law permit ‘general rental adjustments for all or any class of rental units based on generally applicable factors.’ [Citations.]” (Kavanau, supra, 16 Cal.4th at p. 772.) We accordingly have invalidated part of a rent control law for failing to provide adequate mechanisms for expeditious adjustments of base rents. (Birkenfeld, supra, 17 Cal.3d at p. 169.) We note that in its administrative mandamus action, SMB contends that the Rent Control Law has deprived it of a fair return on its property, and it remains free to pursue that claim.

SMB’s inverse condemnation claim, however, is not based on the ground that the Rent Control Law is confiscatory, either structurally or as administratively applied. Rather, SMB alleges that it can show, through the use of census data, that the demographic groups that the Rent Control Law was allegedly supposed to favor have not in fact benefited from it.² The notion that a court may invalidate legislation that it finds, after a trial, to have failed to live up to expectations, is indeed novel. In our constitutional system, it is generally assumed that only the legislative body that enacted the statute may exercise a power of repeal if that statute fails to meet legislative expectations. (See, e.g., Ryan v. Johnson (3d Cir. 1997) 115 F.3d 193, 200 [despite court’s personal views on shortcoming of statute, it is “the singular role of Congress to amend or repeal [a] . . . statute”].)

SMB’s claim is based on its reading of relatively recent United States Supreme Court case law in the area of takings jurisprudence. Before examining its claim in more detail, we first state the basic principles to emerge from this body of law. In determining whether a government regulation of property works a taking of property under the Fifth Amendment to the United States Constitution, the United States Supreme Court has generally eschewed any “set formula” for determining whether a taking has occurred, preferring to engage in “ ‘essentially ad hoc, factual inquiries’ ” (Lucas v. South Carolina Coastal Council (1992) 505 U.S. 1003, 1015 [112 S.Ct. 2886, 2893, 120 L.Ed.2d 798]), which focus in large part on the economic impact of the regulation (see Penn Central Transp. Co. v. New York City (1978) 438 U.S. 104, 124 [98 S.Ct. 2646, 2659, 57 L.Ed.2d 631]; Keystone Bituminous Coal Assn. v. DeBenedictis (1987) 480 U.S. 470, 493-501 [107 S.Ct. 1232, 1246-1250, 94 L.Ed.2d 472]). In the context of rent control and other price controls, this impact analysis takes the form of analyzing whether the regulation impairs “investors’ ability to earn a fair return.” (Kavanau, supra, 16 Cal.4th at p. 776.) Other than this ad hoc inquiry, the court has held categorically that property is taken when a government regulation “compel [s] [a] property owner to suffer a physical ‘invasion’ of his property” or “denies all economically beneficial or productive use of land.” (Lucas, supra, 505 U.S. at pp. 1015-1016 [112 S.Ct. at p. 2893] .) The court has also stated that “the Fifth Amendment is violated when a land-use regulation ‘does not substantially advance legitimate state interests’” (Lucas, supra, 505 U.S. at p. 1016 [112 S.Ct. at p. 2894] .) It is this last prong of the United States Supreme Court’s “taking” standard that SMB claims has been violated.

In Nollan, supra, 483 U.S. 825, 834 [107 S.Ct. 3141, 3147], the court discussed this “substantially advance” test in the context of a governmental requirement that a property owner dedicate a portion of its property to the public as a condition for obtaining a development permit: “Our cases have not elaborated on the standards for determining what constitutes a ‘legitimate state interest’ or what type of. connection between the regulation and the state interest satisfies the requirement that the former substantially advance the latter. They have made clear, however, that a broad range of governmental purposes and regulations satisfies these requirements.” (Fn. omitted.) The court further noted that the “substantially advance” standard is different from the rational basis standard employed in the fields of equal protection and due process. (Id. at p. 834, fn. 3 [107 S.Ct. at p. 3147].) The court also declared toward the end of its opinion: “As indicated earlier, our cases describe the condition for abridgment of property rights through the police power as a ‘substantial advancing]’ of a legitimate state interest. We are inclined to be particularly careful about the adjective where the actual conveyance of property is made a condition to the lifting of a land-use restriction, since in that context there is heightened risk that the purpose is avoidance of the compensation requirement, rather than the stated police-power objective.” (Id. at p. 841 [107 S.Ct. at pp. 3150-3151].)

This standard was further elucidated in Dolan v. City of Tigard (1994) 512 U.S. 374 [114 S.Ct. 2309, 129 L.Ed.2d 304] (Dolan), a case that also concerned required dedications of property as a condition for granting a development permit. The court concluded that a “rough proportionality” standard “best encapsulates what we hold to be the requirement of the Fifth Amendment. No precise mathematical calculation is required, but the city must make some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development.” (Id. at p. 391 [114 S.Ct. at pp. 2319-2320], fn. omitted.)

The Dolan court once again emphasized that conveyances such as were considered in that case were deserving of a greater scrutiny than other land use restrictions. Typical land use regulations such as zoning ordinances “differ in two relevant particulars from the present case. First, they involve essentially legislative determinations classifying entire areas of the city, whereas here the city made an adjudicative decision to condition petitioner’s application for a building permit on an individual parcel. Second, the conditions imposed were not simply a limitation on the use petitioner might make of her own parcel, but a requirement that she deed portions of the property to the city. . . . Under the well-settled doctrine of ‘unconstitutional conditions,’ the government may not require a person to give up a constitutional right—here the right to receive just compensation when property is taken for public use—in exchange for a discretionary benefit conferred by the government where the benefit sought has little or no relationship to the property.” (512 U.S. at p. 385 [114 S.Ct. at pp. 2316-2317].) The court further stated in the course of responding to the dissent: “Justice Stevens’ dissent takes us to task for placing the burden on the city to justify the required dedication. He is correct in arguing that in evaluating most generally applicable zoning regulations, the burden properly rests on the party challenging the regulation to prove that it constitutes an arbitrary regulation of property rights. [Citation.] Here, by contrast, the city made an adjudicative decision to condition petitioner’s application for a building permit on an individual parcel. In this situation, the burden properly rests on the city.” (Id. at p. 391, fn. 8 [114 S.Ct. at p. 2320], italics added.)

From the above, it can be inferred that the “substantially advance” standard in the takings context is applied differently depending on the type of government action under consideration. As Nollan and Dolan both attest, government requirements that property owners dedicate land as a condition of receiving a development permit will receive the highest scrutiny—a type of intermediate scrutiny in which a government’s dedication requirements will pass constitutional muster as long as the government “make[s] some sort of individualized determination that the required dedication is related both in nature and extent to the impact of the proposed development.” (Dolan, supra, 512 U.S. at p. 391 [114 S.Ct. at pp. 2319-2320], fn. omitted.) Moreover, although the above formulation in Dolan cannot be readily transplanted outside the context of exactions, we have long held that adjudicative land use decisions in general must be justified by factual findings supported by substantial evidence in an administrative record. (Topanga Assn. for a Scenic Community v. County of Los Angeles (1974) 11 Cal.3d 506, 514-516 [113 Cal.Rptr. 836, 522 P.2d 12].) The most deferential review of land use decisions appears to be for those that pertain to “essentially legislative determinations” that do not require any physical conveyance of property. A challenger to the validity of a legislative determination, such as a zoning regulation, bears the burden of proving that the regulation “constitutes an arbitrary regulation of property rights.” (Dolan, supra, 512 U.S. at p. 391, fn. 8 [114 S.Ct. at p. 2320]; see also Corona-Norco Unified School Dist. v. City of Corona (1993) 17 Cal.App.4th 985, 992 [21 Cal.Rptr.2d 803] [judicial review of quasi-legislative acts of local agencies by ordinary mandamus is limited to “whether the action was arbitrary, capricious or entirely lacking in evidentiary support”].)

We recognized these different levels of takings scrutiny in Ehrlich v. City of Culver City (1996) 12 Cal.4th 854 [50 Cal.Rptr.2d 242, 911 P.2d 429] (Ehrlich). We rejected the claim that the Nollan and Dolan standards do not apply to development fees imposed on an individualized basis as a condition for development. “In our view, the intermediate standard of judicial scrutiny formulated by the high court in Nollan and Dolan is intended to address just such . . . land use ‘bargains’ between property owners and regulatory bodies—those in which the local government conditions permit approval for a given use on the owner’s surrender of benefits which purportedly offset the impact,of the proposed development.” (12 Cal.4th at p. 868.) But a different standard of scrutiny would apply to development fees that are generally applicable through legislative action “because the heightened risk of the ‘extortionate’ use of the police power to exact unconstitutional conditions is not present.” (Id. at p. 876; see also id. at p. 897 (conc. opn. of Mosk, J.); id. at p. 903 (conc. and dis. opn. of Kennard, J.).) Thus, individualized development fees warrant a type of review akin to the conditional conveyances at issue in Nollan and Dolan, whereas generally applicable development fees warrant the more deferential review that the Dolan court recognized is generally accorded to legislative determinations. (Dolan, supra, 512 U.S. at p. 391, fn. 8 [114 S.Ct. at p. 2320].)

Where does rent control fit within this scheme? It could be argued that rent control is essentially a species of price control rather than a land use regulation, and that the constitutional jurisprudence of price control governs ordinary rent control ordinances. (See Hutton Park Gardens v. Town Council (1975) 68 N.J. 543 [50 A.2d 1, 7-8]; see also Birkenfeld, supra, 17 Cal.3d at p. 157.) Those challenging the constitutionality of a legislative scheme of price control must show that “ ‘no reasonably conceivable set of facts could establish a rational relationship between the regulation and the government’s legitimate ends.’ ” (20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216, 292 [32 Cal.Rptr.2d 807, 878 P.2d 566].) A price control regulation is generally constitutionally challenged with the contention that a particular price or rate regulation is confiscatory, i.e., does not allow a just and reasonable rate to investors. (See, e.g., 20th Century Ins. Co., supra, 8 Cal.4th at p. 293; Duquesne Light Co. v. Barasch (1989) 488 U.S. 299, 307-308 [109 S.Ct. 609, 615, 102 L.Ed.2d 646].) Thus, we recently stated that, “[i]n the context of price control, which includes rent control, courts generally find that a regulation bears ‘a reasonable relation to a proper legislative purpose’ so long as the law does not deprive investors of a ‘fair return’ and thereby become ‘confiscatory.’ [Citations.]” (Kavanau, supra, 16 Cal.4th at p. 771.) As we also noted in Kavanau and 20th Century Ins. Co., courts have employed this fair return analysis in price regulation cases whether the contested regulation is denominated as a taking or a deprivation of property without due process. (Kavanau, supra, 16 Cal.4th at pp. 776-777; 20th Century Ins. Co., supra, 8 Cal.4th at p. 292; see also Duquesne Light Co., supra, 488 U.S. at pp. 307-308 [109 S.Ct. at p. 615].)

We need not decide whether the standard of review for rent control legislation is identical to the rational relationship test employed in other price control schemes. In light of the analysis reviewed above, we believe it is clear at least that the heightened intermediate scrutiny standard articulated in Nollan and Dolan does not apply in this case. Rather, the standard of review for generally applicable rent control laws must be at least as deferential as for generally applicable zoning laws and other legislative land use controls. Thus, the party challenging rent control must show “that it constitutes an arbitrary regulation of property rights.” (Dolan, supra, 512 U.S. at p. 391, fn. 8 [114 S.Ct. at p. 2320].) Moreover, as explained below, even if, as SMB contends, the heightened standard in Nollan and Dolan were applicable here, the trial court acted properly in sustaining the demurrer to SMB’s complaint.

The two United States Supreme Court cases to address rent control in the “post-Nollan” era are consistent with the above analysis. In Pennell, supra, 485 U.S. 1, the court rejected a facial challenge to a city’s rent control ordinance that contained “hardship to a tenant” as one factor to consider in determining whether to grant rent increases. (Id. at p. 4 [108 S.Ct. at p. 853].) The court stated, in rejecting a due process challenge to the law, that a “ ‘[p]rice control [law] is “unconstitutional ... if arbitrary, discriminatory, or demonstrably irrelevant to the policy the legislature is free to adopt (Id. at p. 11 [108 S.Ct. at p. 857].)

The court also held that any takings challenge would be premature, because there was no showing of the actual impact of the “tenant hardship” provision of the San Jose ordinance. (Pennell, supra, 485 U.S. at pp. 10-11 [108 S.Ct. at p. 857].) Justice Scalia’s dissent, like the majority, took for granted the basic constitutionality of ordinary rent control laws, and would have found the ordinance in question constitutional but for the tenant hardship factor which, in the dissent’s view, unfairly imposed on landlords the solution to the “social problem” of having “some renters who are too poor to afford even reasonably priced housing.” (Id. at p. 21 [108 S.Ct. at p. 862] (dis. opn. of Scalia, J.).) Neither the majority nor dissent suggested that some heightened standard was appropriate for reviewing ordinary rent control law.

In Yee v. City of Escondido (1992) 503 U.S. 519 [112 S.Ct. 1522, 118 L.Ed.2d 153], the court considered the constitutionality of a mobilehome rent control ordinance. As the court made clear at the outset, the case did not raise the issue of whether ordinary rent control laws violate the takings clause. (Id. at p. 526 [112 S.Ct. at p. 1527].) The mobilehome ordinance in question had several features that distinguished it from ordinary rent control—a restriction on the ability of the landlord to exit from the mobilehome rental business, and a provision that a mobilehome park tenant had the right to sell his rental to others, without the landlord’s consent. The effect of such a regulatory scheme was allegedly to permit existing tenants to appropriate all the savings that result from rent control, rather than, as in the case of ordinary rent control, having those savings be distributed among both present and future tenants. (Id. at p. 530 [112 S.Ct. at p. 1530].) The issue before the Yee court was whether such a regulatory scheme constituted a physical taking of property, and the court determined that it did not. (Id. at p. 532 [112 S.Ct. at pp. 1530-1531].) The court stated in dictum that the peculiar features of this type of rent control law might “have some bearing on whether the ordinance causes a regulatory taking, as it may shed some light on whether there is a sufficient nexus between the effect of the ordinance and the objectives it is supposed to advance.” (Id. at p. 530 [112 S.Ct. at p. 1530].) Thus, the court’s dictum suggested that the mobilehome rent control scheme of regulation would be scrutinized to determine whether those restrictive regulations advanced a legitimate government interest. The opinion did not suggest that such restrictions were unconstitutional, nor did it elaborate upon the “substantially advance” standard in this context. Still less did it hold or imply that in the case of ordinary rent control, there was a new, heightened standard of review.

With this background in mind we turn to the present case. SMB’s complaint focuses on certain of the stated goals of rent control found in the preamble to the charter amendment—providing affordable housing for the poor, the elderly, and young families—and has alleged that rent control has failed to achieve these goals. As will appear below, these allegations, even if true, do not adequately state an inverse condemnation claim.

As the United States Supreme Court affirmed in Nollan, “a broad range of governmental purposes and regulations” are constitutionally valid under the takings clause. (Nollan, supra, 483 U.S. at pp. 834-835 [107 S.Ct. at p. 3147].) One of the purposes that the court has explicitly recognized as valid after Nollan is that of “ ‘preventing] excessive and unreasonable rent increases’ caused by the ‘growing shortage of and increasing demand for housing’ ” within a municipality. (Pennell, supra, 485 U.S. at p. 12 [108 S.Ct. at p. 857].) SMB does not allege that the Santa Monica Rent Control Law fails to advance the purpose of “preventing excessive and unreasonable rent increases caused by the . . . shortage of and increased demand for housing” in the City or that existing tenants have not obtained protection from excessive or unreasonable rent increases. Therefore, even if we assume that some sort of intermediate judicial scrutiny, patterned after the Nollan and Dolan cases, were applicable to judicial review of rent control, SMB’s complaint does not adequately allege that the Rent Control Law fails to substantially advance some legitimate state purpose.

SMB contends essentially that in considering the legitimate purposes of the Rent Control Law, we must confine ourselves to the stated purposes of that law. But even if that were true, there is no justification for SMB’s truncated reading of the law’s purposes. The charter amendment spoke of a housing shortage “resulting in a low vacancy rate and rapidly rising rents . . . affecting the lives of a substantial portion of those Santa Monica residents residing in residential housing. In addition, speculation in the purchase and sale of existing residential housing units results in further rent increases. These conditions endanger the public health and welfare of Santa Monica tenants, especially the poor, minorities, students, young families, and senior citizens. The purpose of this Article, therefore, is to alleviate the hardship caused by this serious housing shortage by establishing a Rent Control Board empowered to regulate rentals in the City of Santa Monica so that rents will not be increased unreasonably and so that landlords will receive no more than a fair return.” (Italics added.) We agree with the Ninth Circuit Court of Appeals, which, in rejecting an almost identical challenge to Santa Monica’s Rent Control Law, stated: “[Plaintiff] contends that the Rent Control Law does not ‘substantially advance’ its purpose, which she misperceives as only to help the poor, elderly, minorities, and families with children. The Rent Control Law’s stated purpose is to help all Santa Monica tenants, not just those within the mentioned groups, and not those who wish to become tenants there. [Citation.] Controlling rents to a reasonable level and limiting evictions substantially alleviate hardships to Santa Monica tenants. That rent control may unduly disadvantage others, or that it may exert adverse long-term effects on the housing market, are matters for political argument and resolution; they do not affect the constitutionality of the Rent Control Law.” (Schnuck v. City of Santa Monica (9th Cir. 1991) 935 F.2d 171, 175, italics in original, fns. omitted.)

Moreover, there is no constitutional requirement that the inquiry into whether the legislation substantially serves legitimate goals must be limited to stated goals, much less to only some of the stated goals. “Legislative bodies have broad scope to experiment with economic problems . . . .” (Ferguson v. Skrupa (1962) 372 U.S. 726, 730 [83 S.Ct. 1028, 1031, 10 L.Ed.2d 93, 95 A.L.R.2d 1347].) It appears elementary that any complex piece of social or economic legislation will often have unanticipated consequences that can be both beneficial and detrimental, and that the legislative body or the electorate that enacted the legislation must be entrusted to weigh whatever harms and benefits result from the legislation in determining whether that legislation should be amended or abrogated. There is simply no authority for the proposition that a piece of legislation that advances legitimate goals, but not precisely those goals specified in its preamble, may be struck down by a court as unconstitutional.

Accordingly, the prevention of “ ‘excessive and unreasonable rent increases’ caused by the ‘growing shortage of and increasing demand for housing’ ” in the City (Pennell, supra, 485 U.S. at p. 12 [108 S.Ct. at p. 857]) is a legitimate government interest whether or not that goal is precisely identified in the text of the law’s preamble and whether the primary beneficiaries of such protection are tenants with low or merely moderate income. The assistance of moderate-income households with their housing needs is recognized in this state as a legitimate governmental purpose. (See, e.g., Gov. Code, § 65583, subd. (c)(2) [local communities must set forth in housing elements of their general plan a program that will “assist in the development of adequate housing to meet the needs of low- and moderate-income households” (italics added)].) Nor does SMB allege that no poor, minority or elderly tenants have benefited from rent control, only that they did not benefit as much as a class in the City as they did in other locales that did not have rent control. Thus, the complaint does not allege that even the limited goals identified by SMB have been completely frustrated.

Moreover, a rent control law, even if imperfect, may protect existing tenants, including the poor and elderly, from being displaced due to rising rents in a tight rental market. As the Supreme Court stated in upholding article XIII A of the California Constitution (Proposition 13) against an equal protection challenge brought by property owners who objected to the greatly disparate property tax burdens that provision had created: “[T]he State has a legitimate interest in local neighborhood preservation, continuity, and stability. [Citation.] The State therefore legitimately can decide to structure its tax system to discourage rapid turnover in ownership of homes and businesses, for example, in order to inhibit displacement of lower income families by the forces of gentrification . . . .” (Nordlinger v. Hahn (1992) 505 U.S. 1, 12 [112 S.Ct. 2326, 2332-2333, 120 L.Ed.2d 1].) So too, a legitimate goal of rent control may be to stabilize communities in much the same way, by preventing sharply escalating rents from forcing tenants to move (see Berger, Home Is Where the Heart Is: A Brief Reply to Professor Epstein (1989) 54 Brook. L.Rev. 1239), even if its benefits are not limited to targeted demographic groups.

SMB purports to find support for its position that the legislation must be measured against stated purposes from the statement in Nollan, supra, 483 U.S. at page 834, footnote 3 [107 S.Ct. at page 3147]: “Contrary to [the dissent’s] claim, . . . our opinions do not establish that these [takings] standards are the same as those applied to due process or equal protection claims. To the contrary, our verbal formulations in the takings field have generally been quite different. We have required that the regulation ‘substantially advance’ the ‘legitimate state interest’ sought to be achieved [citation], not that ‘the State “could rationally have decided” that the measure adopted might achieve the State’s objective.’ ” The Nollan court also noted that in the development permit/dedication context, there is the “heightened risk that the purpose is avoidance of the compensation requirement, rather than the stated police-power objective.” (Id. at p. 841 [107 S.Ct. at p. 3151], italics added.) But these statements do not aid SMB. As discussed, the Rent Control Law has the broad stated purpose of “alleviating] the hardship caused by th[e] serious housing shortage” in the City for the general benefit of tenants, and SMB does not allege that it has failed to do so.

Furthermore, Nollan implies, and Dolan more explicitly states, that the standard of review for land use legislation is different from the standard of review when the court considers a property dedication in exchange for a development permit—a particular type of adjudicative determination. It is one thing for courts to make a government agency adhere to its own justification for requiring the dedication of a particular portion of property as a condition of development; such adherence safeguards against the possibility that the justification is merely a pretext for taking the property without paying compensation. (See Nollan, supra, 483 U.S. at p. 841 [107 S.Ct. at p. 3151]; Ehrlich, supra, 12 Cal.4th at p. 868.) Holding agencies to their stated goals in these instances is also consistent with our state law requirement that adjudicative or administrative decisions be based on findings supported by substantial evidence in the record. (Topanga Assn. for a Scenic Community v. County of Los Angeles, supra, 11 Cal.3d at pp. 515-516.) But it is another thing for courts to require that a complex, generally applicable piece of economic legislation that will have many effects on many different persons and entities accomplish precisely the goals stated in a legislative preamble in order to preserve its constitutionality. Rather, as discussed, such legislation may not be invalidated under the “substantially advance” prong of takings analysis unless it “constitutes an arbitrary regulation of property rights.” (Dolan, supra, 512 U.S. at p. 391, fn. 8 [114 S.Ct. at p. 2320].) Thus, although we believe that SMB’s complaint fails to state an inverse condemnation cause of action even under a heightened Nollan/Dolan type of standard, the complaint unquestionably fails under the more deferential takings standard appropriate for general legislation.

SMB cites Chastleton Corporation v. Sinclair (1924) 264 U.S. 543, 548 [44 S.Ct. 405, 406, 68 L.Ed. 841], for the proposition that government dissatisfaction with high rents “is not in itself a justification” for rent control. In that case, the court considered whether an emergency wartime rent control statute should be extended beyond the emergency period, and concluded that a factual question had been presented that required further adjudication. But as one court has stated, “Chastleton is a Lochner-era[³] case the validity of which is questionable at best.” (Traweek v. City and County of San Francisco (N.D.Cal. 1984) 659 F.Supp. 1012, 1028, fn. 30.) As we explained at considerable length in Birkenfeld, supra, 17 Cal.3d at pages 153-160, an emergency housing shortage, such as may exist during wartime, is not a constitutional requisite for rent control. The modem view is “that a legitimate and rational goal of price or rate regulation is the protection of consumer welfare” (Pennell, supra, 485 U.S. at p. 13 [108 S.Ct. at p. 858]), irrespective of the existence of an emergency.

Our adoption of SMB’s position would not only be inconsistent with constitutional precedent, but would create formidable practical problems as well. How long would a court, or a litigant, have to wait to give the law a “fair chance” to work before declaring that it is a failure and therefore unconstitutional? There is no answer to this question that would not be arbitrary and would not put courts in a distinctively legislative role.

That is not to say that a change in conditions may never justify the constitutional invalidation of a once valid law. But the circumstances for such invalidation are quite narrow. A quintessential example is presented by Skalko v. City of Sunnyvale (1939) 14 Cal.2d 213 [93 P.2d 93]. In that case the plaintiff’s property was zoned for residential use. Since the time of the zoning ordinance’s enactment, a large cannery had been built about 100 feet from the property. The cannery greatly increased automobile and truck traffic adjacent to the property and caused an infestation of the prune trees on the property by insects drawn to the cannery. After the city denied the plaintiff’s proposal that his lot be rezoned so that he could operate a cafeteria and refreshment stand, he sued for declaratory relief, claiming the zoning ordinance was invalid as applied to him. In upholding his position, this court stated: “Where conditions have changed since the legislative action was taken, ‘statutes and ordinances which, after giving due weight to the new conditions, are found clearly not to conform to the Constitution, of course, must fall’.” (Id. at p. 216.) As the court concluded: “Certainly no one wants to live next door to a large factory, and the question whether any consideration of public health, peace, safety or general welfare justifies the continued restriction upon the appellant’s property which prohibits its use for commercial purposes is not fairly debatable.” (Ibid.)

Thus, in Skalko, the court found changing conditions rendered the application of a zoning ordinance to a particular piece of property arbitrary and irrational. There is no comparable allegation in SMB’s complaint. Rather, SMB seeks to engage courts in the task of evaluating whether a piece of complex legislation has sufficiently measured up to its objectives to preserve its constitutional validity. Nothing in the United States Supreme Court’s recent jurisprudence indicates that it envisions such an activist role for the courts.⁴

In reversing the Court of Appeal, we again emphasize that we are not considering the question whether rent control is good policy but rather affirming the constitutional propriety of having the political process, through state and local legislative bodies, determine that policy. We note that the Legislature has already placed some limitation on rent control, enacting a statute restricting the capacity of localities to prevent landlords from charging the full market rent when a rental unit becomes vacant, and also preventing the imposition of rent control on certain types of units. (Civ. Code, §§ 1954.50-1954.53.) Thus, the legislative process has worked in a way that the blunt instrument of constitutional law generally cannot, crafting a political compromise that eliminates some of the perceived evils of rent control while preserving some of its benefits, i.e., to existing tenants.

In sum, with rent control, as with most other such social and economic legislation, we leave to legislative bodies rather than the courts to evaluate whether the legislation has fallen so far short of its goals as to warrant repeal or amendment. Courts, on the other hand, retain the constitutional role of invalidating certain features and applications of rent control law that have or will produce confiscatory results. (See Kavanau, supra, 16 Cal.4th 761; Birkenfeld, supra, 17 Cal.3d at p. 169.) In the present case, SMB remains free to proceed with its administrative mandamus action alleging that the Board exceeded its legal authority under the charter amendment and that the Board’s rulings deprived SMB of a fair return.

III. Disposition

For all of the foregoing, we reverse the judgment of the Court of Appeal and remand with directions to reinstate the judgment of the trial court.

George, C. J., Kennard, J., and Werdegar, J., concurred.

1 The Board requests that we take judicial notice of the administrative record in this case, primarily to establish that the present action was brought 12 years after the enactment of the Rent Control Law. Because the timing of the suit is not directly relevant to the issues presented in this case, we decline to grant the request.

2 SMB in its briefing to this court argues for the first time that the broad constitutional issue of the validity of the Rent Control Law itself is not before us and that the inverse condemnation claim cannot be decided without a detailed case-specific factual inquiry. Yet the very nature of SMB’s inverse condemnation claim, and the manner in which SMB chose to litigate it in the superior court and the Court of Appeal, raises the broader constitutional issue. SMB does not allege with any particularity in its inverse condemnation claim that the Board’s decisions denied it a fair return, reserving such allegation for the administrative mandamus action, which is not before us. It is the larger constitutional issue of the role of the judiciary in determining whether a rent control law sufficiently advances a government interest to maintain its constitutional validity that is the crux of SMB’s inverse condemnation claim, and resolution of this issue was the basis of the Court of Appeal’s holding and our grant of review. It is this claim that we now address.

3 The reference is to Lochner v. New York (1905) 198 U.S. 45 [25 S.Ct. 539, 49 L.Ed. 937], in which the court invalidated on due process grounds a law limiting the maximum hours bakers were permitted to work. This case has lent its name to the era in which the constitutional view the case typifies—invalidation of social and economic legislation on due process grounds if in the court’s view there was insufficient justification for the law— prevailed. (See Tribe, American Constitutional Law (2d ed. 1988) § 8-4, pp. 570-573.)

4 To be sure, there are circumstances in which some greater degree of judicial scrutiny of legislative factfinding is appropriate. This has been the case, for example, when there are fundamental constitutional rights at stake that can be curtailed only when the state demonstrates a compelling interest under the strictest judicial scrutiny. (See American Academy of Pediatrics v. Lungren (1997) 16 Cal.4th 307, 341, 349-350 [66 Cal.Rptr.2d 210, 940 P.2d 797] [greater scrutiny of legislative factfinding under the California Constitution’s privacy clause for statute curbing the right to abortion]; Turner Broadcasting System, Inc. v. FCC (1994) 512 U.S. 622, 666 [114 S.Ct. 2445, 2471, 129 L.Ed.2d 497] [recognizing that when First Amendment rights are implicated, “deference afforded to legislative findings does ‘not foreclose [a court’s] independent judgment of the facts bearing on an issue of constitutional law’ ”].) We have also recognized that some state constitutional provisions that impose very specific constraints on governmental power require for their enforcement a certain degree of judicial scrutiny of legislative factfinding. Thus, in Professional Engineers v. Department of Transportation (1997) 15 Cal.4th 543, 569-570 [63 Cal.Rptr.2d 467, 936 P.2d 473], we considered article VII of the California Constitution, which has been construed to restrict the state’s authority to privately contract for state services, subject to limited exceptions, such as when such contracting would result in cost savings. (15 Cal.4th at p. 550.) We upheld a trial court injunction against a certain form of private contracting by the Department of Transportation, in which the trial court had made a specific finding that no cost savings would result. We rejected a challenge to the injunction that relied on a statute passed subsequent to the injunction that asserted, without evident factual support, that the private contracting proscribed by the injunction would indeed result in cost savings. (Id., at pp. 572-574.)

The present case, regarding as it does the extent to which the government can regulate rent increases, does not involve the sort of fundamental right that is subject to the highest judicial scrutiny. (See Pennell, supra, 485 U.S. at p. 12 [108 S.Ct. at pp. 857-858].) Nor does it involve a constitutional provision construed to prohibit a certain type of government action absent specific factual findings, as was the case in Professional Engineers.

Moreover, as previously discussed, courts will scrutinize the adjudicative decisions of local legislative bodies on statutory and constitutional grounds to determine if their findings are supported by substantial evidence (Topanga Assn. for a Scenic Community v. County of Los Angeles, supra, 11 Cal.3d at pp. 515-516) or, in the case of certain development permit decisions, whether the exactions required are roughly proportional to a legitimate governmental interest. (Dolan, supra, 512 U.S. at p. 39 [114 S.Ct. at pp. 2319-2320]). This type of scrutiny has generally not been applied to the legislative acts of local bodies. (See Corona-Norco Unified School Dist. v. City of Corona, supra, 17 Cal.App.4th at p. 992.)