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IMPACTS OF LOCAL RENT REGULATIONS AND THE 401(K) PLAN
Then if those financial changes weren’t enough, as the housing market became more constricted, local governments, responding to tenant complaints piled on with rent control and expensive rental housing regulations. Evicting a tenant in Los Angeles today can and does often take over a year! For an apartment that rents for $1,500 per month, legal fees and other costs necessary to evict a tenant today could easily exceed $30,000! There should be a binding arbitration process for mom and pop owners in the unlawful detainer process. No lawyers on either side, a legal arbitrator in place of court should decide these matters. The rights of both sides would be protected.
So where did all those housing investment dollars go? The 401(k) plan, which was a part of the Revenue Act of 1978 and other Wall Street investment plans are siphoning off dollars that once went into housing. For many the idea of owning an apartment building or even a single-family home is no longer attractive. The true villain in the mix here is Wall Street. Real Estate was once considered the most effective way to create generational wealth and save for retirement for average people. Today more families are choosing the stock market and other non-real estate investments. As you might expect, the resulting wealth gap has been growing during this period of time. Our friends on Wall Street; however, are doing just fine!
Government has proven itself inefficient at developing housing and easing the crisis. Things like rent control and an onerous eviction process discourage private investment in rental housing. Some estimates put the disinvestment in rental housing at over 40%. Government adds various costs in addition to time. This vilification of rental property owners is driving out private investment to the detriment of tenants.
The 401(k) plan is more insidious than most people realize. It effectively transferred money from real estate (a/k/a, Main Street) to Wall Street. It altered the mortgage underwriting business, so the cost of housing has no ceiling today. Fewer Black people own homes today than they did in 1970, two years after the Federal Fair Housing Act was passed into law!
We should consider ways to incentivize private rental housing investment. For example, what about reductions in property taxes and permits and fees in exchange for lower rents? What about restoring tax laws mentioned earlier to where they were before the roll out of the 401(k) plan? In particular, accelerated depreciation, allowing more than two properties to be
deducted from state and federal income taxes, and allowing front end tax deductions to be allowed as they once were; therefore, eliminating the need for the tax credit allocation committee.
Los Angeles County is losing rental housing stock every year. Particularly older buildings providing the bulk of affordable housing, so-called “naturally occurring affordable housing,” that in many cases only need some basic repairs. It is estimated that the City of Los Angeles loses 6 rent-controlled units every day! Why not create a fund to repair older buildings with grants? It would be much less expensive than building new units and a fair rent schedule could be negotiated with the owner going forward. This would be particularly useful for smaller “mom and pop” owners, as they have trouble getting financing due in part to rent controls and other “tenants’ rights” policies.
THE ROLE OF GOVERNMENT
While government has a role to play in housing, it should be the last, not the first resort. The problem is that government has too many inefficiencies that create added costs when you use their money. The first option should be the private sector. As mentioned before, many of the tax incentives that once created housing have been striped or modified making them useless, we know what has worked, why reinvent the wheel?
For the properties where the government intends to manage, why not look at triple-net leases? This is a development scheme where a private developer gets an agreement from say a city to lease a completed facility. The city could set forth all the specifications, how many rooms, amenities and dining areas, or whatever. A developer would then build the project to the specific needs of the city, but in this case the city would not advance any funds until the project was completed. With a signed triple net agreement, a developer could easily get financing, and the city would simply pay the lease agreement after the project was completed. Unlike the squandered money from Proposition HHH, here the city would hold on to its cash. Triple-net means the city would pay property taxes, maintenance, and insurance in addition to the fee to lease the property. No completion, no pay, the developer would assume the risk, and the city would hold onto the cash. In ‘n Out Burger and many other businesses use this practice today.
THE EVICTION MORATORIUM
The pandemic has really exposed the disdain for
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SOUTHERN CALIFORNIA RENTAL HOUSING ASSOCIATION - SCHRA.ORG 45