Page 63 - AAGLA-JULY 2022

Feature Story
Continued from page 60
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 rental property owners. Tenants don’t have to pay rent and can’t be evicted! This is called the Eviction Moratorium. I know small rental property owners who are owed more than $150,000. Never mind the fact that for many of these owners, this is their retirement income! Moreover, after the emergency is over, tenants have a year to pay owners before they can be evicted! While there are government programs like the state’s Housing is Key program to pay the back rent, these programs are slow to pay and inefficient.
Many tenants are wisely “gaming the system” by not paying their rent and using this period of opportunity as a savings account builder. For others, it’s a new car purchase, or event clothes and vacations at the rental property owner’s expense! Since there is no requirement placed on tenants to prove financial hardship caused by COVID, you are looking at tenants gaining a windfall of, $18,000 per year on a $1,500 per month apartment! As you might imagine many “moms and pops” are facing foreclosure or having to sell to guess who? Wall Street! This is simply unfair, should be illegal, and it constitutes a taking by the government, but nobody seemingly gives a damn about small, “mom and pop” rental property owners.
The Need to Enforce Laws
In Los Angeles, the city attorney recently announced proudly that he was charging a rental property owner for the gang activity in his building! Not clear why the police simply didn’t arrest the criminals there? Moreover, if the owner sought the eviction of the alleged gang members the city would provide legal services to the gang members at no charge!
We need to enforce laws related to camping on the streets, beneath bridges, and in alleys and along the freeways. Aside from being unsightly, it’s unsanitary and has become a source of disease and rodent infestation. We might just have to move the homeless to sites with or without their consent. People sleeping or camping on the street should not be a right. We must decide is housing a right? If it is, then what exactly does one have a right to? Unlike food (food stamps) and health care, (Medicaid), the federal government does not consider housing an entitlement.
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