Rent Control: Tenant's Dream, Landlord's Nightmare?
At almost 30 years of age, L.A.'s rent control ordinance is a double-edged sword -- reviled by some and relied upon by others.
"Nearly half of L.A. renters spend more than 40 percent of their income on housing and 29 percent spend more than half. Of the city’s 780,000 rental units, the Rent Stabilization Ordinance covers 550,000 that had a certificate of occupancy issued on or before October 1, 1978."
"'These units,' said Malcolm Bennett, president of the Apartment Assn., California Southern Cities, 'are more a pain in the neck than they’re worth,' yet '...the original idea of preserving inner-city housing and keeping costs down was admirable.'"
"Aside from Los Angeles, Santa Monica, West Hollywood and Beverly Hills, no other areas in Los Angeles County mandate rent control. There are no rent stabilization ordinances in Orange, San Bernardino or Riverside counties. In Ventura County, the Thousand Oaks ordinance covers a small number of tenants who moved into their apartments in 1987 or before."
"Without rent control, the average market-rate rent for apartment ranges from $1,485…in central Los Angeles, to $2,079 in the West LA area, which includes Santa Monica, Beverly Hills and the Westside."
"But say tenant advocates, 'Los Angeles is a city of renters, and without rent control, the workers who keep the city running couldn’t afford to live here. Eventually…senior citizens, teachers, social workers, won’t have a place to go and Los Angeles will become an elitist city.'"
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Funny how the LA Times never
Funny how the LA Times never interviewed anybody on the other side of the financial spectrum who benefits from rent control....every tenant in the story is poor, or just barely getting by. But studies in New York and San Francisco have shown that plenty of tenants, in SF it was about 30% (from what I recall), make over $100 grand a year. SF City Supervisor Jake McGoldrick takes home about $130K a year and lives in a rent-controlled three-bedroom apartment where pays about $900 bucks a month (avg. 3 -bedroom rent in SF is $3000/month)...and he owns an apartment building in Alameda where there's no rent control...he's not exactly struggling to get by.
The Times could have dug deeper to show the true other side of rent control...very rich folks that get the a lot of the benefits of something that was designed to help poorer folks.
SF renters
Ricardo,
A 30-year fixed mortgage for a median-priced SF home sale requires a $120,000 income. The mayor advanced a home-ownership plan a few years ago that would have aided families making as much as $104,000 a year, and the plan was backed by the same developers and real estate agents who want to terminate rent control. Why? The real-estate lobby want renters out of SF, so agents can sell their space as TICs or condos and collect commissions that rental units don't generate.
Rent control should not be just for poor folks. It should exist to create the same type of stability for residents that Prop 13 grants to homeowners in CA (and that similar measures grant to owners in 44 other states). Actually, rent control in SF is much less stringent than Prop 13. It benefits only the current occupant. Market rate prevails as soon as an occupant leaves. Prop 13 benefits can be passed along to grandchildren.
Rent control is also comparable to the regulation of the mortgage industry, which is not allowed to dictate when a house is sold or to recoup any appreciation, even if the bank owns more than half the property for 20 years. The protections for homeowners far exceeed those for renters, even in a rent-controlled town. If McGoldrick had bought a house in 1970 and was feasting off the taxes of his late-arriving neighbors, no one would speak up as you did.
Renters carry a huge tax burden for homeowners. A renter with the same income as a homeowner -- who often had the advantage of receiving a down payment from wealthy parents -- would have no mortgage interest deduction. Even the property taxes can't make up the difference, especially since those taxes can be written off against income.
Plus, you act as if the people making $100,000 a year all moved into places that cost $900.
A lot of people here live in places that cost at least $1900 a month, which for a $100,000 earner, means that almost 40 percent of net income goes to housing.
(In Manhattan, a renter typically needs an income 40 times monthly rent to qualify for a lease. Most one bedrooms go for over $2200 now. An $85,000 income wouldn't cut it for a $2200 rent. But if somehow, that person got the apartment anyway, you don't think he or she would deserve capped rent increases. In your mind, that income sounds like a big, fat number -- even though the landlords themselves have said that the person doesn't make enough to rent the place comfortably. )
Meanwhile, renters from that income category are forced to subsidize housing for the landed gentry (through taxes) and for the less advantaged (through public housing.)
In this whole debate, I have never seen evidence of a landlord actually losing money in SF. From what I can tell, the landlords want to dump rent control because they are desperate to make more than they already are. Which is fine, in a completely unfettered property market. If that's what you want, then let's dump all the tax breaks for homeowners, removing the price supports that inflate costs. Mortgages would be fully taxable, as they are in Canada. And renters wouldn't have to work as hard they do now to raise down payments, because the prices would come down.
Re: SF Renters
First, nowhere did I say anything about homeownership and the huge subsidies they receive and whether I thought those things good or bad…so arguing over assumptions you made about what I may or may not think is just silly. Second, I really enjoy a good consipracy theory, and the one about the “real-estate lobby” wanting to end rent control to collect extra commissions on the extra home sales made me smile (as if they don’t collect commissions on selling apartment buildings or brokering rental units). Third, I would actually love an unfettered property market (for both property owners and tenants, with the necessary government oversight [adequate building codes, code enforcement, etc.] of course) as it would allow more folks, especially on the low-income side, to build wealth and step into the middle class.
However, what I may want is neither here nor there, so I’ll focus on rent control for you. Rent control does benefit some deserving folks, I definitely cannot argue that. But like most laws designed to help everybody at the expense of “the greedy rich” (landlords in this case) the costs of this law far outweigh the benefits to the desrving few. That’s the point I was trying to make above in my (probably too snide) comment on the LA Times story… there’s never any focus on the other side of the coin so to speak. The benefits of rent control, especially in expensive areas (like manhattan and SF) go diproportionately to the wealthy (as there’s no reason someone like McGoldrick should get his rent subsidized by a law designed to help “the poor”). Rent control forces eveyone but the lucky few to pay higher rents than they otherwise would have as landlords will restrict supply (by simply not renting out units, which is estimated to be about 5,000 – 10,000 units in SF). It also fosters much in the way of discrimnatory lending practices as few landlords in SF will now rent to seniors, AIDS victims, people with disabilities, people with low incomes, and families (basically anybody that’s not young, wealthy and likley to move soon) because rent control laws have basically made these people tenants for life if they so choose at rents that only rise at 60% of the CPI, and landlords just don’t want to be saddled with that burden (the mahattan example you gave is the perfect illustration of this effect). Rent control leads to underinvestment and lack of maintenance in rental properties as landlords rarely can get a return on this type of investment…etc.
I could go on and on but I won't, and there are literally thousands of studies that prove the ill effects of rent control (by both liberal and conservative sources)…all you have to do is look around San Francisco to see what rent control does (and these effects are only going to get worse as rent control was only forced upon small properties in 1994…Ellis Act anyone?). Of course, those who benefit the most (the wealthy) are gonna scream about the poor, and greedy landlords, whenever rent control is brought to question… the evidence is in Cambridge, MA as the city went through the abolition of rent control by state law, the ones who cried the loudest were very well-paid Harvard professors who lived near campus and were subsidized the most…oh, but wait, it’s for all about poor. In short, the benefits to the deserving few who get them in no way outweigh the costs to everybody else (especially other renters).
Cost of homeownership in SF
"A 30-year fixed mortgage for a median-priced SF home sale requires a $120,000 income..."
Actually, it's more like $180,000 income (rock botton, absolute minimum).
Consider the following:
The average selling price of a home in SF (incl. all single-family houses, condos, and TICs) is currently around $800,000 (according to SFAR).
Doing the math... $800,000, with 20% down, that's $800,000 minus $160,000 down = $640,000 @ 6.25% for 30 yrs. = $3940.00 monthly payment. Add to this $747.00/mo. prop. tax ($800,000 x 1.12% Tax Rate = $8960.00/12 = $747.00).
$3940.00 mo. mortgage payment + $747.00 = $4687.00 per month.
Adding the monthly cost of insurance (fire, etc.), easily will be another $300.00, bringing the total monthly carrying cost of an $800,000 property to right around $5000.00. That will require a gross income of $15,000 a month or $180,000 a year (assuming 1/3 gross income goes to housing cost, which is how most banks will figure it on a conventional mortgage).
Keep in mind the following:
1) This assumes one has $160,000 cash for a down payment (otherwise the monthly carrying costs go even higher, since one must borrow more money, probably at a higher interest rate, plus PMI kicks in if more than 80% financed).
2) The above is figured at 6.25% interest for a conventional 30-yr. mortgage, a rate available to only the best-qualified borrowers.
3) As anyone who lives here knows, if you're shopping for a single-family house, $800k doesn't buy much in SF (though there are slightly cheaper houses, only slightly larger than dog houses... maybe for $650k... located in drug- and gang-infested neighbourhoods, mainly south of I-280. (In my rather ordinary neighbourhood, Upper Noe Valley-Diamond Heights, $800k doesn't buy any house, only a 2-bdrm. condo).
Sorry to say, but $120,000/yr. income doesn't cut it in SF.