As a commercial real estate broker and a former landlord, the recent Los Angeles City Council meetings where discussions have centered around the implementation of a rent freeze and eviction moratorium has shown me that there is a vast disconnect for Los Angeles Tenant Unions (e.g., LATU, SAJE, etc.) and members of Los Angeles City Council and the intent of Los Angeles’ landlords.
Tenants’ rights groups believe that housing is a human right; all apartment buildings are owned by greedy corporate landlords (which is categorically false – 82% percent of apartment buildings in Los Angeles are subject to local Rent Stabilization Ordinance or RSO).
The 3% allowable rent increases does not offset double-digit inflation impacting costs of insurance, trash removal, water and sewer, maintenance, repairs and RSO fees. And many institutional or “corporate” landlords have left or are leaving Los Angeles en masse – one only needs to contact a multifamily commercial real estate broker in Los Angeles to verify this.
Is price gouging happening?
Tenants’ rights groups also assert that price gouging in rentals is up 7,000% (this was stated several times at the Jan. 29 Los Angeles City Council meeting); while price gouging in single-family properties has increased since the January wildfires, state regulations are in place for those who violate the law.
More importantly, price gouging for residential properties has been primarily relegated to single-family residences. Again, if anyone simply consulted with a commercial real estate broker or commercial real estate data provider such as CoStar, they would see that residential vacancy rates for apartments have been elevated throughout Los Angeles for the past year. In fact, West Los Angeles vacancy is trailing at 5% and markets such as downtown, Hollywood and Koreatown are as high as 10%. These vacancy rates do not include apartments that are not currently marketed for rent as they are under renovation and will be on the market at some point.
The problems with the current system are twofold:
• First and foremost, tenants’ rights organizations misinform or partially inform their members, using them as pawns to fight problems that a minority of property owners are perhaps guilty of committing (and are already being dealt with by the Los Angeles Housing Department) and requesting policy changes that affect property owners indiscriminately.
• The second problem is with the City of Los Angeles, as well as county and state regulatory bodies who impose rent freezes and eviction moratoriums without the use of empirical data to verify the charges of the tenant rights unions.
Looking at data
In addition, if the Los Angeles City Council, County Board of Supervisors and state officials looked at any data on rent control and regulations, they would have learned that their decades old policies do not work. In 2019, New York City imposed a repeal of vacancy decontrol, and since then, there are thousands of apartment buildings in New York City with multiple code violations as a result of repealing vacancy decontrol rules because owners cannot afford to improve their rental units or address existing deferred maintenance.
Moreover, regulations imposed on Los Angeles’ landlords since the onset of Covid-19 have largely disincentivized investment in housing in Los Angeles; while most people tend to agree the city needs more housing, how and who builds that housing is up for debate.
This issue of lagging investment in rental housing factored in with rising construction costs, softening rents (both market and Section 8 rents), and increased transfer taxes under Measure ULA has disincentivized developers from building housing in Los Angeles. During January, just 338 residential units (single family, apartments and two-to-four-unit properties) were permitted while the state imposed Regional Needs Housing Assessment (RHNA) housing goal for City is 7,000 residential units to be permitted monthly.
The loss of investment in the city of Los Angeles due to regulation does not only hurt “greedy” landlords and developers; it also hurts ancillary industries that rely on the business that the construction and sale of apartment buildings and homes generate, including construction, lending, design, property management, leasing, sales and title, and escrow, to name some.
The loss of investment hurts also the city, county, and state due to the lost income generated from taxation: increased property taxes from the sale of property, transfer taxes, permitting fees and more.
This all comes at a time when the City of Los Angeles has a $1 billion budget deficit (according to the City’s Controller) and the state is operating at a deficit of $12 billion although neither number accounts for the billions of dollars in the residential and commercial property loss due to the Palisades, Eaton and Hughes wildfires.
To spur the economic activity needed to increase revenue at the city, county and state levels of government, we need less regulation of residential property owners, not more.
The knife of regulation cuts both ways, hurting both owners and renters alike. I hope that city, county, and state officials will look at the data illustrating the effects of rent control prior to making their next decision to expand regulations on property owners.
David Evans is a principal with Investment Property Advisers and a commercial real estate broker. He is also a member of the Apartment Association of Greater Los Angeles.
