Rent control

L.A.'s Plan To Save Old Affordable Units Could Mean No New Ones

Freezing rents at existing affordable housing will eliminate developers' incentive to build more of it.

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Los Angeles politicians' plan to preserve affordable housing might just end developers' incentive to ever build more of the stuff in the city.

Last week, the Los Angeles City Council passed a resolution directing city agencies to explore options for freezing rents at privately owned buildings with expiring affordability covenants. These covenants require building owners to keep their rents at below-market rates for a specified period of time, typically 30 to 55 years, in exchange for various government subsidies—including tax credits, low-interest loans, and relief from zoning restrictions.

Covenants covering thousands of these units are set to expire within the next few years, allowing landlords to raise rents to market rate. Lower-income tenants benefiting from affordability restrictions could be faced with unaffordable rent increases.

A 2017 city report found that there were 11,771 affordable units in the city of Los Angeles at risk of being converted to market-rate rents by the end of 2021. A 2020 report from the California Housing Partnership found a smaller 11,241 rent-restricted units in the whole of Los Angeles County were at risk of expiring within the next ten years.

"Many covenants are now reaching an expiration date, which would effectively remove the affordability requirements, and allow an owner to raise rents," said Councilmember Gil Cedillo, who authored the motion, reports the Commercial Observer. "We can't let this happen, especially during the time of a health pandemic, because we can't create any opportunity for any resident to be unable to afford to stay in their own home."

His motion, citing the specter of 300 percent rent increases for some tenants, calls on the city attorney and the Los Angeles Housing and Community Investment Department (HCIDLA) to report on recommendations for implementing a rent freeze at units with expired or soon-to-expire affordability covenants.

A rent freeze would be a pretty radical move, particularly when compared to other policies people have floated to preserve affordability covenants. That California Housing Partnership report recommended more subsidies and tax credits to preserve affordable units.

HCIDLA has proposed forgiving building owners' debt they owe the city in exchange for extending affordability covenants, or, in the case of debt-free buildings, subsidizing owners for forgoing market-rate rents.

All those ideas involve compensating property owners for voluntarily keeping their rents low. Cedillo's proposal would require them to eat the entire cost of maintaining below-market-rate rents.

That would be a huge disincentive for anyone to ever participate in future affordable housing programs, says Dan Yukelson, executive director of the Apartment Association of Greater Los Angeles.

"We need affordable housing. We need to build more of it," Yukelson tells Reason. "This would just be a complete discouragement to develop more affordable housing if the city is literally at the end of these contracts pulling the rug out from under these people who agreed to take less rent for all these years."

This would be particularly true, says Yukelson, for any rent freeze enacted at the city level. Developers could easily forgo projects in Los Angeles proper and instead build in Santa Monica, Long Beach, or any other community in the L.A. metro area that isn't as dead set on forbidding the eventual conversion of units to market-rate rents.

Given that private, for-profit developers build the bulk of affordable housing in America—of the top 50 affordable housing developers identified by Affordable Housing Finance in 2019, 38 were for-profit entities—Los Angeles could well see almost all affordable housing development disappear.

In addition to the practical implications, there's also a question of whether Cedillo's proposed rent freeze would even be legal.

"On the face of it, it looks like this whole thing would be illegal. The city would unilaterally be changing some contracts they have in place," says Yukelson. "We'll see what the city attorney comes back with, but as a non-lawyer I am guessing they are going to find this very difficult to do."

California's rent control law, which limits rent increases to 5 percent plus inflation, doesn't apply to expiring affordable covenants.

Cedillo's motion directs HCIDLA and the city attorney to come up with recommendations for implementing a rent freeze based on "health and safety findings regarding undue tenant displacement during the COVID-19 pandemic."

It's possible that a public health justification could save a rent freeze from the legal challenges that such a policy might normally attract.

Eviction moratoriums—an extraordinary policy that also interferes with landlords' normal property rights—have been imposed by governments, and in some cases upheld by courts, on the grounds that they're needed to protect public health during the pandemic.

However, the pandemic doesn't give the city a carte blanche to do whatever it wants.

Cedillo's effort to fund the seizure of a 124-unit apartment building with an expired covenant using COVID-19 relief funds was shot down by city staff on the grounds that the councilmember's efforts to take over the building predated the pandemic. That was in spite of Cedillo arguing that the impact of the pandemic justified the use of relief funds.

Even if Los Angeles does manage to freeze rents of currently affordable units, it will be a temporary fix for a small number of the city's tenants. Market-rate rents these renters could be exposed to are so high because of how difficult the city makes building new units that would bring prices down.

Instead of trying to preserve the existing stock of publicly subsidized affordable housing, policy makers could repeal the reams of red tape that effectively prohibit private developers from building the affordable housing of tomorrow.

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  1. 1. Why would anyone productive want to move to CA?
    2. Why would anyone productive want to stay in CA?
    3. Why would anyone capable of knowing what profit is want to have property in CA?

    Local story.

    1. Nick Gillespie bet his Leather Jacket that California would have its Libertarian Moment once illegal immigrants from Mexico were allowed to vote.

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    2. Why would anyone productive want to stay in CA?

      I was born here, my parents were born here, my grandparents grew up here, and most of my family (not to mention lifelong friends) still live here.

      The other two are completely legitimate questions.

      1. So you are the only productive person in your extended family?
        Take them with you.

        1. Gramps has lived in Long Beach since the ’40s, and is north of 90 now. He ain’t going anywhere.

          Besides, I’m really looking forward to Gavin’s recall. Our candidate pool from the last recall including Gary Coleman and a stripper, and we got an action-movie hero!

          1. Didn’t you reelect the guy you kicked out though?

      2. Sounds like you’re looking for a reason to stay.

    3. Great weather. If you’re retired, have a good chunk of change in a Roth IRA, and live in Orange County it’s wonderful. My fear is that the fiscal situation will become so bad that the state can’t keep up with infrastructure, etc. At that point I’m out of here.

      1. As the amount of spending on improvident promises by past politicians to government unions decades past begin to come home to roost, more and more of your taxes go to that rather than on state upkeep as an ongoing concern.

        Bon appetit.

      2. if one wants to “keep up the infrastructure” all one has to do is hold an election evry year. the politicos force the repair companies who get their money from gubbmint funds to do the work they’re paid to do till the elections are over, then it’s back to bidness as usual.

  2. If we don’t work to save the endangered California Slums, who will?

  3. It really is astonishing. You could have copy/pasted this article from the ’80s, or the ’70s.

    They just keep making the same mistake over and over again. I don’t understand how this message never gets through.

    I get the incentives. By allowing liberal zoning and development, you threaten the property values of expensive condominiums and homes. If someone puts up a huge high rise with a couple of thousand luxury units that are nicer than any others in the city, suddenly those formerly top of the line units have lost some of their luster. Depending on demand for high-end units, prices for those formerly elite units could plummet.

    That’s a very powerful and connected lobby against building new luxury high-rise units.

    Therefore it is funny that this problem always gets couched in terms of affordable housing. as if everyone involved doesn’t understand that if you build a bunch of new high-end housing, the stuff at the lower end will drop off and become cheap. It is a straight supply and demand situation. If you allow the supply to expand, eventually it will outstrip demand and prices will drop.

    That is exactly how apartment units work all across this country. Developers come in and build nice new units. They get them rented out and then flip the development to a management company after a couple of years. Maintenance and upkeep costs rise. Meanwhile, the development company has moved on and built another new apartment complex. The original complex is now a decade older and in need of a facelift. The new complex attracts high-end renters. The old one has to lower prices to remain full.

    It’s an entire business model. I have friends who are on the builder side of this equation. That’s exactly what they do. Build the place, fill it up, and flip it just before all of the heavy maintenance costs begin to rack up. It is the moment where it has maximum value. Revenues are high, costs are low.

    This stuff isn’t theory, it is the reality of housing everyday in this country and everywhere on the planet.

    How in the world city leaders can’t see it is beyond me.

    1. Because they have no idea what it takes to make an honest dollar.

    2. as if everyone involved doesn’t understand that if you build a bunch of new high-end housing, the stuff at the lower end will drop off and become cheap

      If you’re talking voters, I know a lot of people who don’t understand this. They think building new high-end housing raises the cost of other housing.

      How in the world city leaders can’t see it is beyond me.

      City leaders understand that they need to keep property values high. It’s one of the most fundamental principles of city government, not just because local governments depend heavily on property taxes, but because city debt burdens are often capped as a percentage of total value of property in the city.

      For city leaders talk of affordable housing can only be in terms of publicly-owned subsidized housing for people priced out of the housing market. Anything else is political suicide, as there are more than enough voters who sincerely believe that we can have both high property values and affordable housing. And now that I’ve eaten my cake, where the fuck is my cake?

    3. I’ve been saying this for years. It’s as if leftists believe that when someone moves into a new luxury development, they burn their previous residence to the ground.

    4. “They just keep making the same mistake over and over again. I don’t understand how this message never gets through”
      Yes indeed they do by electing the socialist democrats every election.

  4. Why do you use the Leftist’s term – “affordable housing”? All housing is affordable, if you can Afford it. You’re talking about Inexpensive, or Low Rent, or Cheap housing.

    Along the same lines – Red is the color of the Left. The Right is Blue.

    And – they’re not Progressives, they’re Leftists. Or better yet – Bolshvists.

    1. Fascists. They allow private ownership of the means of production, but it has to be controlled by the government through corporations. If you want to know what is coming, read the history of Italy.

    2. Even worse is that people are still calling them “liberals.”

  5. Around here I don’t know if you ever get out of the deal. In return for bypassing local zoning, you have a “low” income only unit as long as the property violates local zoning laws. “Low” in quotation marks because a family with $80,000 annual income can still qualify if there are a few kids.

  6. I don’t understand why every politician’s impulse is to make something they don’t own free (OK, I do)? Want people with lower incomes to be able to afford market rents, give them a voucher (or cash). Want everyone to have health insurance, give them a subsidy (or cash) or offer a subsidized plan in the open market for whatever you think insurance coverage should cost. The only reason to fix the cost side of the equation is to shield the taxpayers from knowing exactly how much all these wonderful things actually cost.

    1. The only reason to fix the cost side of the equation is to shield the taxpayers from knowing exactly how much all these wonderful things actually cost.

      Yup. It is much easier to do ‘one for you, two for me’ with your formula.

  7. “… we can’t create any opportunity for any resident to be unable to afford to stay in their own home.”

    Says idiot politician knowing full well isn’t “their own home” and that it actually belongs to someone else. Probably said not 10 minutes after kicking a homeowner out of “their own home” for not paying taxes.

  8. Gil Cedillo is a liar and a hypocrite. He is a cancer on the skin of Los Angeles and parasite on Angelenos.

  9. While it’s wrong for the city to try and unilaterally change the terms of their agreements with developers, my sympathy for the developers is limited.

    What did they expect? They knew who they were dealing with right from the start. As the old song goes “you knew I was a snake when you took me in”.

    1. Holding the government to its contracts and its constitutional requirements is already supposed to deal with the snake aspect.


  10. These covenants require building owners to keep their rents at below-market rates for a specified period of time, typically 30 to 55 years, in exchange for various government subsidies—including tax credits, low-interest loans, and relief from zoning restrictions.

    Absurd in the extreme. Anyone who believes that is a sustainable recipe is smoking meth.

    1. Such deals have been honored for a few decades now. This is the first year of the socialist, where wholesale expropriation suddenly looks politically feasible.

    2. Low interest loans is interesting. But tax credits and zoning easing are government getting off the back of the productive. This isn’t a subsidy, except in the lying, sophistry way that comes so easily to snakes and politicians.

  11. Can anyone say ‘breach of contract?’ Cities are bound by contracts just like anyone else. If they do this, the companies should be able to sue the city for breach. I’d sue them for reimbursement of all the lost rent over the last 30 years. By this logic, I should be able to simply decide not to pay city taxes because I find it inconvenient at the moment.

  12. More supply = lower costs. A maxim beyond the Progressive ability to grok, or simply ignored by them…

  13. Many of the commenters are missing the true motivation of the lefty politicians. They do not seek general affordability. Their aim is to concentrate people wanting subsidies into large buildings in order to create voting blocks. Then they can continually remind that block that the politician is preventing their rents from rising. It becomes a long term fertile place to harvest ballots.

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