Rather Than Help the Landlords, Make Rent Laws Help the Renters
The Los Angeles rent-stabilization ordinance is not doing its job and needs to be strengthened. A recent study conducted as part of a review of the ordinance found rents have not been stabilized. Although tenants are doubling up and overcrowding in extraordinary numbers, the percentage of tenants’ income paid for rents has been increasing.
Two provisions of the ordinance are responsible. Landlords can pass on the cost of “capital improvements” to the property in addition to raising rents at a percentage equivalent to the inflation rate. Further, when a tenant moves, the landlord may raise the rent, free of regulation--what is called vacancy decontrol. The result of these two provisions is that rents have gone up an average of 143% of the City Council-mandated 4% increase.
These capital-improvement pass-throughs often force tenants to move because they can’t afford the increased rent. The city allows pass-throughs to encourage increased maintenance. But there’s no evidence to indicate that the city’s capital-improvement policy has resulted in increased maintenance of property. Landlords’ profits have been going up 8% per year. Landlord mortgage borrowing is also going up. This seems to indicate that the policy is contributing to increased turnover in ownership of property and increased speculation.
Vacancy decontrol is what makes it so difficult for a tenant to find an affordable apartment. The city study tells us that moves are on the increase. Many of these moves were forced moves. About 4,000 units were demolished last year and another 1,000 were converted to other uses. Tenants in these units had to move and faced an unregulated market. Young people, who are just getting themselves established, move more often than do older tenants and receive the least protection under the ordinance because of vacancy decontrol.
Younger tenants are trying to save for a down payment on a house. With rents taking a higher percentage of their income, this will take much longer. In this decade the average age of the first-time home buyer has already jumped from 25 to over 30 years of age. As a result, even though we have just gone through a rental building boom, there are more tenants and not enough housing.
In some ways the building boom has made things worse. The average rent on new units is more than $900 a month. Often low-rent units were demolished to make room for the new units. Many landlords now want to compete with owners of the new units for the trapped $900-a-month tenant. The landlord uses capital-improvement pass-throughs to push out the low-income tenants, and the younger tenant can’t save to buy a home. Everybody loses under this scenario, except the landlord.
The landlords’ response is that this is not their problem. Why should they be asked to subsidize low-income and down-payment-saving renters? If the government wants to help these groups, let it spend the taxpayers’ money. The answer is that they are not being asked to subsidize the tenants. Rents are high and will go higher not because of landlords’ efforts, but landlords are exploiting the situation. Federal tax, fiscal, trade and housing policies have limited new construction of affordable rental housing, made home ownership more expensive and attracted foreign capital to our city. The real estate market has been pumped up by the heavy concentration of federal defense spending in our area. Landlords want to exploit a situation generated in large part by our tax dollars and to spend more tax money on what this exploitation will create.
Some city bureaucrats say the rent-stabilization ordinance should not be asked to solve the problem. Unfortunately, this is typical of a bureaucracy that has refused to address the city’s housing problems. If the capital-improvement and decontrol problems are addressed, they say it would cost about $60 million to administer the law. The projected costs are more representative of administrative inefficiencies of this city than a realistic estimate of the cost. Other cities, except for the non-comparable case of Santa Monica, have done much more for far less.
The City Council should stabilize rents, as it promised the tenants years ago. Rents should rise no faster than tenants’ incomes. The study just completed shows that there is plenty of leeway in landlord profit to make this adjustment. Capital-improvement pass-throughs should be restricted to landlords who need the increase to maintain a just and reasonable return on their investment, particularly when the increase will raise the rent over affordable levels, and vacancy decontrol should be limited or eliminated.
