Rent control ages badly in Los Angeles

http://www.dreamstime.com/-image19890499“I own rental property,” Assembly Member Donald Wagner, R-Irvine, told a recent gathering of apartment owners, “but I won’t own rental property in California. You guys have a target on your backs. We’re trying to get that target taken off.”

How bad is business for apartment owners? Ask Arnie and Debbie Corlin, who own six properties in Los Angeles. “We’re thinking of selling them and buying rental property in Detroit,” Arnie said.

That’s how bad it is. Detroit is more business friendly than Los Angeles.

“Income has to cover expenses,” said Iona Blackwell, who owns 72 rental units spread out over several buildings in Venice. “A building has to pay for itself. I am not a charity.”

Actually, she is. By owning rent-controlled apartments in the city of Los Angeles, Blackwell is donating to her longtime tenants, every month, the difference between what they’re paying in rent and what the units could bring on the open market.

Unlike government housing subsidies, rent control is not based on income. Landlords can find themselves subsidizing tenants who earn more than they do.

L.A.’s Rent Stabilization Ordinance ties rent increases for existing tenants to the Consumer Price Index. This year, rents can rise 3 percent.

Apartment owners argue that the CPI reflects the prices of consumer goods, not the expenses of running a building. “Water up 24 percent, sewer charges up 44 percent, trash collection up 30 percent,” one owner said irritably.

“We can’t control how much water the tenants use,” another added.

And installing individual meters for each apartment is wildly expensive. “The DWP charged me $3,500 for one meter in 2007,” Arnie Corlin said.

Rent control has been in effect in Los Angeles since 1979. Early on, in 1981, the city paid the RAND Corporation to study the impact of rent control on the housing market. “In the long run,” the findings warned, “it may create the very housing shortage it was designed to alleviate.”

The RAND researchers documented in 1981, and again in 1988, that building owners cut back on maintenance until expenses matched rent revenue — and sometimes removed the units from the market altogether, converting the apartments to condos or demolishing the buildings to use the land for something else.

When the California Supreme Court ruled that landlords did not have the right to evict their tenants and go out of business, the state legislature changed the law. The 1985 Ellis Act says government entities can’t force an owner of residential property to continue to offer it for rent or lease.

But the Ellis Act is perpetually under attack. This year, a proposed state law, SB 364, would have allowed the city of San Francisco to force landlords to stay in the rental business until all owners of the building had owned it for at least five years. California Association of Realtors president Chris Kutzkey called the bill “an unreasonable and unjustified attack on property owners that need or want to take a rental property off the market.” The bill was defeated.

Los Angeles officials are trying to implement a local crackdown on Ellis Act exits from the rental housing business. A motion by Councilman Gil Cedillo would require clearance from the Housing and Community Investment Department before any permits for construction or demolition could be issued for a formerly rent-controlled property. The extra scrutiny and red tape would continue for five years.

Mayor Eric Garcetti said he supports Cedillo’s motion as a way of “preserving the affordability we have now.”

More likely, it’s a way of forcing L.A. property owners to stay in the rental business because they won’t live long enough to get the permits to build anything else.

This tactic would have met with the approval of Whitey Bulger, the Boston gangster who was on the lam for 16 years until the FBI found him living in a rent-controlled apartment in Santa Monica in 2011. Bulger, who kept his guns and $800,000 in cash hidden in the wall, had resided quietly for more a decade in the two-bedroom apartment on 3rd Street, just blocks from the ocean. His rent was $1,145 a month.

“Rent control confers most of its benefits early and extracts most of its costs late,” the RAND researchers said. After 36 years of rent control in Los Angeles, we now are dealing with the cost — a reduced supply of affordable housing. Piling more mandates, penalties and regulations on housing providers will only speed up the run for the exits.

(Susan Shelley is a columnist for L.A. Daily News. Reach the author at Susan@SusanShelley.com or follow Susan on Twitter: @Susan_Shelley.)