Hagman Conference : State’s Rental Crisis Lacks Constituency

The crisis in California rental housing--if there is a crisis at all--probably doesn’t have enough of a constituency to attract much attention in Washington or Sacramento, according to a group of experts who gathered at UCLA.

If anything, panelists at the Third Annual Donald G. Hagman Commemorative Program said, governmental actions are likely to make building and investing in rental housing less attractive in the years ahead.

For one thing, tax breaks for residential property owners could be greatly curtailed if Congress passes a tax-reform proposal. But beyond that, some of the experts said, the mechanisms that are supporting rental housing construction and rehabilitation--such as mortgage revenue bonds for moderate-income units, and grants and tax-increment financing for low-income units--are also under attack because of the money they sap from the federal treasury.

Indeed, the consensus was, the only strong political constituency for rental housing of any sort exists at the local level--where, in some locations, political leaders have rallied around the divisive and emotional issue of rent control. But the panelists, who represented a broad cross-section of views on housing issues, agreed that zeal for rent control in some localities, coupled with apathy at higher levels of government, is not enough to assure a large supply of affordable rental housing.

“There is no money (to subsidize rental housing), and there is no constituency except for the builders,” said George Sternlieb, director of the Center for Urban Policy Research at Rutgers University and a frequent critic of government intervention in housing matters.

“There’s no will, no political leadership on this issue,” agreed Christine Minnehan, an aide to State Sen. David Roberti, (D-Los Angeles) who has supported local rent control ordinances for several years.

The program, sponsored by the UCLA Extension Public Policy Program and the Lincoln Institute on Land Policy, is held annually in the memory of Donald G. Hagman, a UCLA law professor who died in 1982. Hagman was a national recognized expert in the areas of land-use law and state and local government finance.

Ironically, the meeting took place at a time when construction is more robust than it has been in years. Ben Bartolotto, research director for the Construction Industry Research Board, reported that California’s multifamily construction in August ran at a seasonally adjusted annual rate of 148,000 units--four times the figure for 1982. Bartolotto said he expects a dropoff by the end of the year to about 121,000 units, still the highest figure in years.

Such numbers persuaded some panelists to declare that there was no rental housing crisis in California after all. “I’m not sure what the rental housing problem is,” said Ira S. Lowry, a longtime housing researcher for the Rand Corporation and now an independent housing and development consultant.

Lowry suggested that, on the average, California renters pay about 35% of their income for rent today, only a slight increase from about 32% in 1970. Furthermore, he said, the vast majority of renters are either young people who will go on to buy houses or older people who have sold houses they once owned.

But he got an argument from Fred Kahane, housing project manager for the Southern California Assn. of Governments, who said that 75% of all renters have only low or moderate incomes. Kahane acknowledged that a lot of new rental housing is being constructed, but he said SCAG statistics show it concentrated in resort areas, where it is used mostly for the second-home market.

“We are ignoring our greatest need in the country today,” he said.

Most of the panelists were willing to admit that, despite the high construction figures, there are rental housing shortages in a number of local areas around the state. Bradley Inman, vice president of the Bay Area Council, said that advertised rents in the Bay Area have increased by 75% in four years--despite the first construction boom in rental housing in a decade.

“Certain markets within the region are being ignored, while others are tremendously overbuilt,” he said. “The affordability problem is similar to the home-price glitch in the late ‘70s, from which we’re still recovering. We’re pricing a large part of our population out of the market.”

And Fred Case, a professor in the real estate program at UCLA’s Graduate School of Management, agreed that low- and moderate-income renters may be getting priced out of the coastal counties. He said a combination of high demand, high land prices, and strict land-use controls is making rental housing construction more expensive. “If we want families with lower incomes to live in coastal counties, we have to give them subsidies,” Case said.

Perhaps the greatest evidence of these local “glitches” is the continuing interest in local rent control ordinance. Michael Teitz, a professor of city and regional planning at UC-Berkeley, estimated that about 35% of California’s rental units are under rent control--far higher than the national figure than 10%. Furthermore, rent control is concentrated in urban areas around San Francisco and Los Angeles, and a decrease in inflation over the past few years does not seem to have dampened the interest of local politicians, as recent struggles in West Hollywood and the city of Los Angeles show.

Housing researcher Francine Rabinovitz, whose firm recently completed a large study of the effects of Los Angeles’s rent control law, reported that the law has helped some of the people who need help most--relatively low-income elderly renters who have not moved for many years. According to Rabinovitz, longtime renters in Los Angeles receive, in effect, a subsidy of between $47 and $55 a month. The subsidy is paid partly by landlords and partly by newer tenants, whose rents are higher because of vacancy decontrol. Rabinovitz concluded that the rent control law is more efficient at providing subsidies to those who need them than a tax would be.

Poor Coalition

Whatever its efficiency in Los Angeles’s case, most of the panelists agreed that the political popularity of rent control is certain cities cannot be translated into a broader constituency for the construction of needed rental housing around the state.

“Housing is a very poor coalition issue,” said Barbara Zeidman, director of the rent stabilization program for the city of Los Angeles. “Coalitions fall apart after immediate needs have been met.”

The lack of a broad constituency, however, has left rental housing vulnerable to tax reform proposals. Indeed, the current construction boom may be partly the result of special programs that federal tax reform would probably do away with. Bartolotto sasid he believes much of California’s current construction boom is attributable to mortgage revenue bonds, which may not survive tax reform.

“Take out mortage revenue bonds and the picture is not as rosy,” Bartolotto said. “Construction would have fallen behind household production.”

Similarly, tax reform could cut off the mechanisms propping up housing production for low-income renters, too. Panelist Fei Tsen, a development consultant from Oaklaned, described a project she worked on in East Oakland that relied on the use of federal block grants and Housing Development Action Grants, selling off the tax write-offs to investors, and tax-increment revenue. She acknowledged that all those techniques could vanish in the next few years, but insisted subsidies msut come from somewhere.

Anthony Downs, a senior associate with the Brookings Institution, said that the Reagan Administration is relying on the “trickle down” effect to provide housing for lower-income groups but added: “I’m not sure enough production can be continued without subsidies and tax breaks,” both of which the administration wants to reduce or eliminate.

“Reagan’s constituency is suburban and rural, so “the Administration’s attitude is) why bother with rental housing?” Downs said.

Administration officials have repeatedly stated that states and localities must pick up the funding slack, but there is little evidence that California is willing to do so.

“State funds are often made available,” Henry Felder, HUD’s deputy assistant secretary for policy developmetn and research, stated during one of the panels. But when the moderator asked California housing director Susan DeSantis whether the state of California could fill the rental-housing gap, she looked at Felder and said flatly, “It’s not likely.”

If the tax breaks and subsidies that help to support construction of rental housing do disappear, it might lead to a decline in investment in rental housing. Lowry suggested that without the props, apartment buildings will have to “stand on their own” as investments, and the size of net operating income will become the decisive factor. “Comparative costs (of apartment buildings versus other investments) will become increasingly salient,” he suggested.

Such developments might also lead to a declining interest in low-income housing as well, on the part of local government as well as private investors. Tsen suggested that without the grants and tax breaks that can be pulled together for a low-income projects, neither the private nor the public sector will be able to afford to construct low-income units. “There is no such thing as low-cost housing,” she said. “There’s only housing for low-income people.”