Why Vote NO on Proposition 21

Written by Apartment Management Magazine on . Posted in Blog

Let’s be clear about a couple of things right up front.  I am a small rental property owner, also known as a “mom and pop” landlord.  I have been in the rental housing business for over 40 years.  This business and the investments I have made in rental property are a major part of my retirement income and financial security.  I have several tenants who have been with me for over 30 years.  I am not the government; I am just a private citizen who invested in the rental housing business.  I should have no greater obligation to solve the housing crisis than any other business or taxpayer.  I think we can all agree that California has a major housing crisis.  The cause of the crisis is quite simple, demand for housing far exceeds the supply.  For those of you who remember the Economics 101 class you may have taken, there is the “Law of Supply and Demand.”   It is very simple: when demand goes up, if supply doesn’t keep pace prices increase.   

A major problem with Proposition 21 is that it attacks the very people, mom and pop housing providers   who are actually providing affordable housing in our community, and working to solve our housing problems. The actual villain and cause of today’s housing problems are government policies and Wall Street.  Instead, we housing providers are being made out to be the villains here.  It’s unfortunate that many of our elected officials pander for the votes of vocal renters by placing the blame on those of us who have risked our life’s work and retirement by making substantial investments in our communities to house our neighbors.  Yet, we are made out to be rent gouging, eviction loving and homelessness causing  “evil” landlords. 

Proposition 21 will make the crisis for California’s housing situation much worse!  Mom and pop housing providers own or manage over 80% of the rental units here in California.  This ballot proposition will force us out of business.  I am a small investor not a Blackstone or a Warren Buffet, yet this proposition treats all of us the same.  We have long-term tenants who pay less than 50% of the market price for their unit.  We actually derive some benefits from long-term tenants, which is why they receive a discount on their rent.  If they were to move, Proposition 21 would not allow me to charge market rents to the new tenant, as though this new tenant had been a resident in my building for the same time as the previous tenant.  It may cost me $10,000 or more to get a unit ready for a new tenant, I receive no consideration for these costs.  It’s just not fair for the government to set every aspect of my housing prices.  This type of price control, known as “vacancy control,” penalizes those of us who have provided homes for long-term renters with affordable housing.      

I own two single-family houses; one is in my name and the other is held in a trust left for me by my parents.  This ill-conceived ballot initiative could place my parents’ house under rent control.  I intended to place my home in trust for my children.  Both houses could now be at risk of facing severe forms of rent regulations under this proposition should it pass.  The same holds true for all the small owners who own property as LLC’s or otherwise.  By owning more than two single family rental units, under Proposition 21, all rental properties would be subject to local rent regulations irrespective of whether they are a single-family home, condominium, duplex or apartment building, or combination of any three rental units, and would also be subjected to Proposition 21’s price “caps” and vacancy control.  Under this type of severe rent control, property values could quickly plummet as has occurred in New York, which has a similar form of severe rent regulations.   Falling real estate values mean that property tax collections would fall leaving less money for our schools and less funding for our first responders and other government services.

Banks are already beginning to raise the stakes for those of us investing in rental housing. This ballot proposition will all but “slam the door” on the small, mom and pop, housing providers.  Our only option will be to sell out to the “big boys” like a Blackstone who can afford $25,000 to $50,000 to pay for the cost of an eviction and maintain a staff of lawyers and maintenance personnel.  They can afford to make “cash for keys” compensation payments (a/k/a, extortion payments) to tenants to voluntarily vacate their rental units.  They operate in a totally different financial universe than we small property owners.  They can afford to keep units empty for as long as necessary and work the system to make their investments more profitable.

So as the small, “moms and pops” are driven out of the rental housing market, fewer units, particularly affordable units, will be built and maintained.  As these large, often publicly traded investors, acquire properties from smaller owners, the properties are often knocked down and converted into condominiums or high amenity, expensive new rental units, or are substantially remodeled where tenants are asked to move-out.  The City of Los Angeles is currently losing nearly 6 rent-controlled units every day!  As we moms and pops are forced to exit the rental housing business and move our money to 401(k) plans, 1031 Exchanges, triple net leases or other Wall Street investments, the entire rental housing market will be totally controlled by “big guys” like Blackstone, Equity Residential and others like them.  You think gentrification and dislocation are problems now, just you wait!  Fewer rental units will be built because as the California rental housing industry consolidates, those remaining will have no need to compete against themselves.  Proposition 21 is an attack on mom and pop rental property owners like me, by people who have no respect for we small owners in the rental housing business, many of whom are democrats! 

Proposition 21 does nothing to solve California’s housing crisis.  It does not require or assist in the building of even one unit of housing.  Ironically, by removing the exemption from rent control for new construction down to fifteen years, Proposition 21 will make new developments more difficult and the housing crisis worse.  A standard mortgage is 30 years, this will severely impair new projects forcing banks to reconsider all new projects.   Many poorly conceived regulations and bad decisions have gotten us to where we are today.  The State’s housing and homelessness crisis, including the many failed housing policies have been in place and expanded over 40 years now.  Housing providers, especially “moms and pops,” have not caused the problems we are facing today and we are not the ones who should be blamed. 

We did not create the regulations that have caused so many to leave the housing business and stop investing in California.  Regulations federal, state and local that have deterred development of badly needed rental housing.  Perhaps it is time for our politicians to stop staring out the window and pointing fingers at those of us who have done nothing wrong.  Perhaps they should start looking into a mirror and getting to work to solve our worsening housing crisis and homelessness problem. 

Proposition 21 is a flawed initiative.  It is not the answer.  It is merely more of the same-old, retreaded housing policies that have not worked in the past and put us in the situation we find ourselves in today.  Please, be sure you VOTE NO on Proposition 21 on November 3rd

The author, Roderick Wright, is a former member of the California State Senate and Assembly.  He developed affordable housing with the Inner-City Housing Corporation.  He 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 been a rental property owner for over 40 years and is also a member of the Apartment Association of Greater Los Angeles and the Coalition of Small Rental Housing Owners.  

PayRent.com