By Tony Maniscalchi 03/2024
In 1988 The Claremont Institute published a research report titled “The American Nightmare-How Government Regulations are Destroying Real Estate Ownership” Here are the top bullet points of this 36-year-old report.
*The Real cause of the housing crisis is not inflation but regulations
*The vague & ambiguous language of No-Growth policies ensures the bureaucratic control over our lives.
*The Answer to our housing shortage is De-regulation
*Regulations reduce the creation of housing, foster urban sprawl resulting in more traffic, not less.
*A survey by the Center for Urban Policy Research found 20% of developers found it necessary to terminate projects because of over regulation.
*Municipalities feel no qualms about compelling builders to do penance in the form of fees or onsite/offsite expectations.
Now Fast forward to 2018 in the UC Berkey’s Terner Center for Housing Study.
*California is in the throes of a serious housing crisis with rising rents and displacement pressures. More than 1/2 of renter households are rent burdened.
* There is a growing chorus calling for Policy action to provide relief including the repeal of Costa Hawkins to pave the way for greater & deeper rent controls.
* Price protections are only one piece of a comprehensive solution to protect tenants.
* There is movement and momentum to put rent control on more ballots in more cities including the attack & repeal of Costa Hawkins.
* The repeal of Costa Hawkins will constrain new housing supply, reduce investment leading to the removal of units from the market
Let’s just focus on Los Angeles for just a minute, Rent Control was intended to bring stability for many, but it’s resulting in some serious trade-offs. The quality of housing in the controlled stock is less desirable, repairs and maintenance across the board are suffering and few mechanisms are available for owners to raise rents for a basic return on investment, even when you attempt to file a formal appeal for a “just and reasonable return” under the RSO. Just look outside of Los Angeles and NOWHERE can you point to the success of Rent Controls, particularly for housing providers.
From California to New York, Rent Controls are an Epic Failure. But did you know our federal government first implemented emergency price controls in 1942 to support the war efforts during World War 2? It was ultimately phased out in 1951. But the poisoned political seeds were planted and by the early to mid 1970s, 14 California cities were infected with some degree of rent control. Then fueled by the political class (and maybe a few Hippies), population growth, labor unions, organized tenant groups and student organizations because the voting age dropped to 18 years old, Richard Nixon passed in 1972 a wage and price controls resolution that included rent control. This was the 1st time since WW2, and it was intended to soften the then 10% annual inflation.
Not surprising it was in 1973 when the first California city, Berkeley, became the first rent-controlled city, then the dominoes began to drop.
San Francisco 1979, Santa Monica 1979, Beverly Hills 1978, Los Angeles 1978, Hayward 1979, San Jose 1979, West Hollywood 1985 and locally Pasadena dropped in 2023. Today the count is over 40 cities. Owners and Property Rights groups organized in passing “The Ellis Act” in 1985 and as mentioned earlier Costa Hawkins passed in 1994.
While local and state governments, led of course by left wing progressive entitlement pushing democrats, continue their assault & push for repeals of the few laws protecting property owners, there’s increased momentum for rent control with Tenant Unions, Tenant Rights Groups, Non-Profit Legal Aid providers, Soft City Council members or County Supervisors that are far more interested satisfying an outspoken minority than the rule of law or even fundamental fairness. Of course, cities are also supported by a battalion of Assembly/Senate members. Controls today have metastasized like cancer attaching itself to nearly any structure that could be rented to a residential occupant. Be careful, because you can guaranty these clowns are coming after your ADU, Garage Conversion, Live-Work Loft or mixed-use properties–wherever you are, and they have eyes on commercial properties now too.
Government has designed a system to divide housing providers and tenants with little to no concern for the investments made by individual investors all while we’re forced to absorb the damage, destruction and abuse by many “opportunistic” or irresponsible tenants many with fictional claims of habitability, landlord abuse or just intentional defaults. Moreover, we have an L.A. City Controller, Kenneth Mejia an avowed Socialist attacking the “Cash for Keys” program now believing that tenants again are being unfairly treated or manipulated by landlords in the buyout of their units. Little does this tool know these “Cash for Keys” deals are insanely lucrative for tenants often forgiving pass due rents, accepting the damages to an existing unit and getting walk away money large enough for the tenant to move to another area often with enough money for a down payment on a house or condo. There are so many rules applicable to this program it’s staggering. There’s even a “Tenants Anti-Harassment Ordinance” (TAHO) that prevents an owner from suggesting a buyout but only 1 time every 6months.
The government is knowingly pushing independent owners of Multi-Family housing into the hands of government, government controlled non-profits, & institutional owners who have the money, staff and political influence to manage or maneuver around the growing list of compliance laws.
We’re being ripped off by the Protected Political Class and their bandits who pander to their agenda. From Rent Control, Just Cause Eviction, Tenant Harassment Ordinances, Tenants Right to Counsel (paid by taxpayers) Annual Inspections for “Habitability” (and Tenants are never found to be at fault), Added annual inspections for Section 8 tenant occupancies, mandatory seismic upgrades, balcony/decking upgrades under SB721, mandatory electrical panel upgrades, City Rent Boards stacked with mostly tenants and few if any property owners, and of course the annual unit registration. Then on top of all these we have the Governor and his disciples down in the assembly and senate working to repeal Costa Hawkins, eliminate the Ellis Act, Split the Property Tax Rolls (commercial vs residential) and working at eliminating proposition 13 by way of the ballot box with ACA1 and ACA13 plus laying the foundation for a California wealth tax under AB259. Oh, there’s more, Mayor Bass of Los Angeles sent an email to tenants under eviction outlining paths to “stay in their homes”. Of course, the City of Los Angeles is also working on mandating “Air Conditioning” for rentals in Los Angeles. Oh, let’s not forget the ULA Tax on all real estate asset sales in the city.
California is tracking your every move and even when you exercise your right under the 1031 Exchange and bounce out of California to another state, California is following that investment so when you ultimately sell, they’re there to get their share of capital gains.
The controls on society & our way of life are growing tighter and wider and if you’re an investor in commercial properties & feeling comfortable, well then, put your eyes on the Proposed Senate Bill–SB 1103. I’ve said it before, no one is safe, and this bill intends to restrict a landlord of commercial properties in security deposits without regard for the risks associated with the tenant’s occupancy. From increased security deposit for an undercapitalized business, to security deposit for landlord provided tenant improvements to environmental risks, commercial, industrial and retail landlords might be dealing with controls never seen before.
If you’re staying in California, Get involved and donate, participate & accelerate your engagement with your elected officials and professional trade associations. Stand for Something or Stand for Nothing.