CORRUPTION WATCH--Prop 10 represents that weird situation where “You cannot get there from here.”
While it will not solve any problem, its passage will place us in a new location were we might have a rational discussion of how to improve society.
Presently, people are fixed on rent control as the solution to Los Angeles’ alleged housing crisis. Rent control is a generic term which has no actual meaning separate from whatever rent control ordinance a city or county actually enacts. After Prop 10 passes, who knows if any city or county will pass a rent control ordinance. If some city does, what will its terms be? No one on earth knows. However, the Costa-Hawkins Act is a psychological barrier to a rational discussion about high housing costs.
Why Rent Control Alone Is Not the Solution
Los Angeles already has rent control. If rent control were the answer, then Los Angeles would not have such high housing costs. People prefer simplistic emotional memes to facts and thinking. Virtually no voter has any clue why housing prices in LA are so high.
Under Adam Smith and under Keynes, a major governmental function is to protect the Price System. No economic system can work properly unless people know the fluctuating values of goods and services. When the government is not diligent in protecting the Price System, terrible things happen to the people. In 1869, when Gould and Fisk cornered the gold market, the nation almost plunged into a great depression. Fortunately, the federal government intervened by selling $4 million in gold so that Gould and Fisk no longer owned enough gold “to corner the gold market.” http://bit.ly/2yhdvDB The Garcetti Administration has aided and abetted certain real estate tycoons to corner parts of the Los Angeles housing market. Blackstone owns a huge portion of the single family homes in LA. In prior decades, the custom and practice of financial institutions has been to place single family homes “for sale” soon after foreclosure.
By quickly selling the homes, banks kept the supply of single family homes adequate to stabilize the market. Since Blackstone withholds the homes from the market, the supply is artificially low which drives up prices of other homes. As a result, Blackstone justifies raising its rents. Higher sale prices of homes results in higher rents being charged.
City Hall Corruptionism is a Major Cause of the High Rents
The more damaging scam is the city’s allowing developers to get unanimous approval of each and every project they desire without regard to zoning or other restrictions. Because developers pay a premium to buy residential property as they plan to tear down whatever is there and build higher density, they will pay above the Living Space Value price. The unduly high prices the developers pay become part of the comparables for nearby homes. Each time a developer pays over-market for a house, the “comps” for the entire area are hyped. When a family wants to buy a home in which to live, it has to pay the inflated Developer Value.
Rent Control will not stop this upward spiral of home sale prices. The fact families have to pay the high developer value to purchase a home is the major factor driving Family Millennials out of LA.
Rent Control Does Not Stop Destruction of Poor People’s Homes
Rent Control does not stop the transformation of rent controlled apartment to market rate apartments. All a developer has to do is buy a rent controlled apartment complex, tear it down and then construct a new structure and he has a bunch of new apartments exempt from rent control.
When the intention is to demolish whatever a developer buys, it is logical to buy the cheapest apartments. Since rent controlled properties do not make as much income as newer units, rent controlled apartment houses cost less to purchase.
The city could have prevented this practice without violating Costa-Hawkins Act. All it had to do was pass an ordinance which said that wherever any formerly rent controlled apartment house is replaced, the density of the new project cannot exceed 1/3 the density of the rent controlled project. Lowering the density, or the FAR, for the new project would remove the developers’ incentive to destroy rent controlled properties. Remember, since Garcetti first took office, enough rent controlled apartments have been destroyed to house 60,000 people.
Destroying Rent Controlled Units Reduces the Supply of Cheap Apartments
Not every tenant whose rent controlled unit is destroyed ends up homeless. Those who can afford a market rate apartment in a cheap area, however, bid up the rents for the existing cheap apartments. The escalating rents of inexpensive apartments is not due to lack of construction, but due to the systematic destruction of supply. Rent control does not stop the destruction.
Pass Prop 10 and then Address the Real Issue - Corruptionism
Yes, we need to pass Prop 10. In the overall economic plan, we need to have some type of rent control. We must be free to fashion reasonable economic policies without one hand tied behind our backs.
The real problem is corruptionism. Unless we stop the corruption which is rotting city hall, we face disaster – just as Planning Director Gail Goldberg warned back in 2006. 2-27-08, LA Weekly How Density Hawks Changing LA, Steven Leigh Morris. When the government intentionally allows a huge portion of the supply to be withheld from the public, be it Gould and Fisk hoarding gold, be it Blackstone hoarding single family homes or allows Garcetti’s developers to destroy rent controlled units, the government violates its duty to protect the price system.
Let’s take back city hall from the crooks and then enact sensible economic measures based on improving the quality of life for Angeles and not to maximize the profits developers.
(Richard Lee Abrams is a Los Angeles attorney and a CityWatch contributor. He can be reached at: Rickleeabrams@Gmail.com. Abrams’ views are his own and do not necessarily reflect the views of CityWatch.)