By Roderick Wright, Former California State Senator
The COVID19 (Coronavirus) pandemic is clearly a major challenge throughout the World, not just for those of us here in the United States. Sporting events have been cancelled, and many businesses like restaurants and bars are closed, all to keep people healthy and safe. However, most of the discussion about business losses also involves alternative sources of funds. Many restaurants have adopted take-out, and many businesses continue operating remotely by sending workers home. However, there’s a glaring omission from the discussion of adversely impacted businesses, namely, rental property owners.
Many local governments in California have adopted eviction moratoriums. They have legitimate concerns about people becoming unhoused as a result of contracting the Coronavirus or resulting financial impacts caused by job loss, reduced work hours or childcare requirements. Without any consequences for not paying rent, some tenants will simply not pay. But, when tenants are permitted to defer payment for what might be up to six months, who covers that cost? Mandating that rental property owners absorb this cost without any public funds should be considered an unconstitutional, illegal taking. For the height of hypocrisy, these same local governments just signed a letter to Governor Newsom, asking that their April 10th property tax deadline be maintained for fiscal reasons!
Does the city’s emergency authority override my mortgage contract with the bank? The Federal government has directed that the Federal Housing Administration (FHA) loans will not be foreclosed on. However, most multifamily loans are not FHA. Even if they were, what are the terms? As a rental property owner, I operate a business, just like the corner convenience store or the neighborhood dry cleaners. We have all invested our capital or personal funds with the intention of making a profit. The only difference in our businesses is the product or service we provide. Should the government be choosing sides in a business transaction between two willing parties? Everyone empathizes with “small business.” But there is no popular support for “small rental property owners” who actually provide the vast majority of affordable housing. It’s simply not fair!
The other day one of my tenants called me to report her garbage disposal had malfunctioned. I checked it out, and the unit needed to be replaced. I went to Home Depot to get another garbage disposal, and I asked the cashier if Home Depot got that pandemic free stuff memo? After the cashier stopped laughing, she proceeded to ring me up. My plumber didn’t get the pandemic free memo either. The point here is that there is no moratorium on repairs, mortgages, utilities and all the other responsibilities of being a rental property owner, so how can cities adopt this one-sided policy? As a rental property owner, I’m on call 24/7, and no consideration or even an ounce of appreciation is given to me by those in government. I also employ plumbers, electricians, landscapers and the like, who all want to be paid when they finish the job, go figure!
But there is another consideration, rental property is often called “Income Property.” Many of us small, “mom and pop” owners actually derive income from our investment. So, I buy food and pay my mortgage in part with rental income. Can I get free stuff because my tenants didn’t pay me and as a result, I have no money? Yea right! There is a perception, however misguided, that rental property owners simply pocket all the rent. People must think that I have no expenses, I pay no taxes, no mortgages. Having worked in politics for many years, I know there are more voters who rent than small investors who bring affordable housing to the market, and politics responds to the voter, sometime.
Before an eviction moratorium policy should be allowed to move forward, several things should happen. The government should secure a hold harmless agreement from all the banks who hold those mortgage loans, committing to cover any losses. The government should guarantee that if the rental property owner losses money because tenants are protected from having to pay rent, the government will assume the loss. The government could either elect to pursue the tenant for the delinquent funds or simply charge it off. The mortgage companies would agree that with the government guarantee, they will accept a smaller mortgage payment for those months from the rental property owner, as the government would cover the deferred portion thus eliminating any risk.
If the rental property owner agrees to accept the risk of tenant non-payment, rental property owners should receive tax credits (not deductions) from the government that would cover all costs. Moreover, if the tenant fails to pay after the specified time period, the government should then incur the costs for the subsequent eviction which in Los Angeles County could exceed $20,000!
Housing production has been lagging in America and California in particular for years. Much of this housing crisis is the direct result of government policies. Rental property owners have been villainized for years, with the effect of driving prospective investors away from business, and current investors out of business. If we are not careful, these “eviction moratorium” policies will further reduce the supply of housing and make the crisis worse.
Clearly, this pandemic is serious. We all know housing has been a political football for years. As a business owner, housing provider in America, I should have no greater obligation to shoulder this burden than any other business owner. We should all have to carry our weight, whether I own a dry-cleaning business, a restaurant or rental property. The fact that I’m in the rental housing business, does not make it any less a business. Unfortunately, as we often see in America, “Everybody is a Christian as long as somebody else is carrying the cross.”
Roderick Wright is a former member of the California State Senate and State Assembly. He developed Sections 235 and 236 housing with the Inner-City Housing Corporation and worked in the Planning Department of the City of Los Angeles. He also worked at the Southern California Association of Governments (SCAG). Mr. Wright has also been a rental property owner for more than 40 years and is also a member of the Apartment Association of Greater Los Angeles.