Thousands of L.A.’s apartment owners say they’ve been hurt by the city’s rent freeze and will continue to suffer if it’s extended. For example:
Matthew Millen is a 76-year-old veteran who manages several multifamily properties in Santa Monica and San Pedro as his retirement plan. After his foster son’s wife died of breast cancer last fall, Millen took on the extra responsibility of trying to help support him and his three kids – ages 8, 10 and 13. Millen resides in one of his own five-unit rental buildings in Santa Monica.
Vlad Polischuk grew up in Ukraine under communism and moved with his family to Los Angeles in pursuit of a prosperous life. He owns owns three single-family homes in Palmdale and has nine units across two apartments in North Hollywood.
Born and raised in Los Angeles, Scott Rosenfeld got into the apartment business fresh out of college. His company is L.A. Properties, which owns about 500 units spread around Los Angeles County – the majority of which he considers “blue-collar units.”
They are a few of the tens of thousands of property owners who are members of the Apartment Association of Greater Los Angeles. Now, the association is fighting back, last week filing a lawsuit against the city of Los Angeles for the financial burden the rent-freeze ordinance has caused housing providers.
The ordinance began on March 30, 2020, but isn’t scheduled to end until Jan. 31. It prohibits landlords from increasing rent on units subject to the Rent Stabilization Ordinance, an attempt to provide renters with additional protections in response to Covid-19 – a period deemed financially stressful.
Ultimately, the rent freeze was established to prevent unnecessary housing displacement and to prevent individuals from falling into homelessness.
According to the association, the lawsuit seeks to nullify the ordinance, claiming it violates both the U.S. and California constitutions by depriving landlords of due process.
Financial burden
Los Angeles County has undergone severe inflationary pressures in recent years, leaving landlords dependent on rent increases to keep their businesses alive. But with standstill rental prices despite inflation, combined with the city continuing to increase property taxes and contracts for utilities – such as water, power and trash – some housing providers are facing a loss of income.
“Property owners are under water,” said Daniel Yukelson, executive director of the apartment association. According to Yukelson, the citywide loss of income as a result of the rent freeze equates to well over $2.6 billion.
“The problem with the rent freeze is it’s not means-tested,” Millen said. “If he (my tenant) can go out and buy another motorcycle, he can afford $25 more a month in rent.”
Approximately $900 is the loss of revenue from just one of his San Pedro rental units over the last three years.
For Millen, “that extra income would be helpful.”
“Landlords are (paying) out of pocket for tenants to live in their buildings,” Rosenfeld added. “I’m not looking to make more of a profit. I’m just looking to offset the expenses.”
Other investments
Polischuk has started investing in Airbnb properties. He now has Airbnb locations in Maui and Big Bear Lake, which, he says, he wouldn’t have done had the city not introduced the rental freeze.
“The economics of these kinds of laws are very bad,” Polischuk said. “It causes people like myself to take my money and go somewhere else.”
According to association members, one of the biggest grievances about the ordinance is the targeted nature of the government mandate on a private enterprise, a situation, they deem, exclusive to the rental market.
“No other type of business or entity – not food suppliers, medical professionals, nor the government itself – have been burdened by what will ultimately be a four-year mandated ‘freeze’ on income from which housing providers will never be able to make up,” said Cheryl Turner, president of the apartment association’s board, in a statement.
“How is it, that in a free country, I can’t charge what fair market is for rent?” Rosenfeld questioned. “If Apple wants to raise the rate on their iPhone, that they could do. If Honda wants to charge more for a car, if Starbucks wants to charge more for a cup of coffee or if the city wants to charge more for RSO fees, that can be done. But if a landlord wants to increase the rent, why is that not okay?”
According to the association’s members, the biggest goals with the lawsuit are to overturn the rent freeze, prevent similar legislation from being passed in the future and allow members to seek damages from the city.
The association has not filed a temporary restraining order against the city, although Yukelson noted that it is “still formulating their legal strategy.”
The city has at least 30 days to respond to the lawsuit.
Since the rent-freeze ordinance was instituted in March 2020, the association has filed multiple other lawsuits against the city, including suits against Measure ULA – a one-time real estate tax on multimillion dollar real estate transfers – and the residential eviction moratorium, another form of renter protection the city provided in response to Covid-19.
