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Sunday, Sep 24, 2023

Los Angeles Moves to Legalize Bootlegged Residential Units

Some of the 5,000 bootlegged units across Los Angeles created without a city permit could soon become legal.

The Los Angeles City Council voted 12-0 on Wednesday to approve an ordinance that would permit previously unapproved dwelling units that had been “bootlegged” into multifamily properties. The ordinance provides a path for the legalization of units often created when apartment building owners divided single apartments into multiple dwellings.

The ordinance, part of the city’s effort to alleviate a shortage of affordable housing the city, required that in return for legalizing a bootlegged unit, the owner must provide at least one rent-restricted affordable unit for up to 55 years.

That requirement might deter some landlords from legalizing a bootlegged unit that’s already being rented because they would incur a net loss from reporting it, said Paul Habibi, a finance and real estate lecturer at UCLA’s Anderson School of Management.

“There’s no free lunch in the business. You’re basically gaining one and potentially losing one in terms of rental income,” he said.

Due to the loss of rent money, legalizing a bootlegged unit would appeal most to landlords who have already had units shut down and converted into storage rooms, said Robert Lopata, chief executive of LB Property Management in Sherman Oaks.

Lopata’s firm manages over 16,000 units in Los Angeles County, some of which have been shut down over the years.

“Often that’s news to us,” he said. “I can tell you about units that are fully improved, completely habitable; two bedroom apartments people were living in for decades. They get shut down and become storage rooms. To have a pathway to bring these back to the market is a win for the landlord and the fact that it’s affordable serves that greater purpose.”

To be eligible, the residential or mixed-use building with the unapproved dwelling unit must be located in a multiple family zone of R2 or above. The owner must demonstrate that the unit existed as of Dec. 10, 2015, and the building must be free from other code violations.

Between 400 and 500 housing units are removed each year through the Systematic Code Enforcement Program’s periodic inspection of all multifamily buildings, according to a city press release. Low- and moderate-income households are often dislocated as a result.

City enforcement agencies identified 2,560 bootlegged units between 2010 and 2015. Of those, 1,765 were removed and 201 were legalized, according to the 2015 city report.

These units may have been built with permits for a different use, such as a storage room or a subdivided part of a previously larger unit.

“This is one solution towards solving the issue of affordable housing,” Habibi said. “It’s just a drop in the bucket. But it’s at least a step in that direction.”

Residential real estate reporter Helen Zhao can be reached at hzhao@labusinessjournal.com. Follow her on Twitter @zhaomeow.

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