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Virus Kills Landlords

DEEGAN ON LA-Being a landlord of a rent stabilized (RSO) property these days is more challenging than ever.

Like tenants unable to pay rent, these landlords are having a hard time. Even in the best of times, RSO landlords are capped at collecting an annual rent increase, currently at 4%. The pandemic is a black swan for many investors, and that would include those that have stakes in rent stabilized property. 

RSO landlords are not allowed to raise rents at all from now until one year after the pandemic is over. No definition of “over '' has been given by the politicos on the LA City Council who unanimously passed the rent freeze which was then signed by the Mayor. 

While RSO tenants may be pleased, their landlords are in limbo, unable to increase their revenues while still needing to pay mortgages and other expenses on the exempted properties. 

These are properties covered by the City's Rent Stabilization Ordinance (RSO) that were built on or before October 1, 1978. The ordinance prohibits rent increases on occupied RSO rental units. Generally, no rent increase that was to go into effect on or after March 30, 2020, is allowed. Rent increases cannot be imposed until one year after the Emergency Declaration period is lifted. And those rent increases are not retroactive and do not accumulate during the one-year period. 

With no end date in sight, the economic hit to landlords and, conversely, an economic boon to renters, has no boundaries. 

What about the thousands of out-of-work renters who are not given the RSO protection because they live in buildings built after 1978? Many people who do not need rent control live in rent-controlled apartments and duplexes, while many people needing rent control live in housing subject to rents being increased by their landlords without controls. There is no needs basis testing for occupying rent-controlled property. 

The 2015 Census data, shows that 46 percent of LA homes, condos, and apartments are renter, rather than owner, occupied. Of these, the protected properties include approximately 624,000 RSO units throughout the City of Los Angeles that fall under this ordinance, including apartments, condos, and co-ops. 

Another way to look at this is that over one-half-million monthly rent payments are frozen at current levels, severely cutting into landlords' cash flow. 

Although not all landlords are bad, until the pandemic activists complained a lot about landlords, especially the unscrupulous ones that manipulated the Ellis Act,  the California state law that allows landlords to evict residential tenants when they "go out of the rental business." Owners have used the Ellis Act to shut down their buildings, evict tenants, tear down the building and replace it with market rate housing. The LA Tenants Union reports that “Altogether, more than 20,000 rent-stabilized apartments (with more than 60,000 residents) have been lost since 2001, thanks to the Ellis Act. There are probably thousands more tenants that have been displaced due to indirect effects like threats and harassment. The law has contributed immensely to the worsening housing crisis in California.” 

While there has been some recent reform of the Ellis Act, renters can expect a more aggressive landlord class once the emergency is over and property owners seek to recoup their losses. 

But landlords may have more bad news on the horizon if a proposed measure to modify the Costa-Hawkins Act makes it onto the November 3 ballot. That 1995 state law places limits on municipal rent-control ordinances. If the ballot initiative passes, all housing built in 2006 or earlier would be subject to rent control, rather than just those built in 1978 or earlier. 

An RSO rent increase freeze, reform of the Ellis Act, and possible modifications to the Costa-Hawkins Act are all barriers to landlords enjoying the remunerations of being property owners. Landlords today may be able to relate to some words by Henry Wadsworth Longfellow that could also be a renter’s mantra: “Though the mills of God grind slowly, yet they grind exceeding small; Though with patience He stands waiting, with exactness grinds He all.”

 

(Tim Deegan is a civic activist whose DEEGAN ON LA weekly column about city planning, new urbanism, the environment, and the homeless appears in CityWatch. Tim can be reached at timdeegan2015@gmail.com.) Edited for CityWatch by Linda Abrams.