Dialogue #6: My Takeaway

At the second roundtable dialogue #6 (August 13th), tenants and landlords seemed to find some areas of common agreement, including the formation of a tenant-landlord committee and that every apartment renting and leasing business should be registered and paying business tax. (Currently not all do.) But there were key differences in how we viewed these and many issues. Here is my takeaway from that meeting. Please read the full recap for all of the details.

At the second roundtable dialogue (August 13th) we tenants and landlords seemed to find some areas of common agreement:

  • We are on board with a tenant-landlord committee;
  • We agree that every apartment renting and leasing business should be registered and paying business tax; and,
  • We seemed to agree that code enforcement historically has not worked to the benefit of either tenants or landlords.

However tenants and landlords tended to diverge on some of these issues too. Landlords view the committee as primarily a dispute-resolution mechanism. Tenants, though, saw a policy role for the new body too. That divergence is perhaps most clear when it comes to enforcing unit habitability: landlords see tenants’ concerns about substandard maintenance and health-related conditions as a matter for code enforcement. They suggest staffing-up the enforcement ranks to address tenants’ problems.

Tenants, however, express reservations about the entire premise of our complaint-driven system. Why is it reliant on tenant complaints when tenants are fearful of filing a complaint? If tenants can be tossed out for “any reason or no reason at all” under the current ordinance, why would they complain?

More practically, the current system simply seems not to work for tenants (which was a finding of a decade-old city report).

The broader disagreement about the nature of the problem suggests a broader divide in how landlords and tenants see the city’s role in policing the rental housing market. Tenants in general favor a strong program backed by a rental unit registry; landlords, on the other hand, are fundamentally opposed to the city taking an active role.

Landlords’ concerns appear to be both philosophical (i.e., don’t interfere with the marketplace) and practical (stay out of my business). Let’s take a look at them.

Landlords at every turn seem resistant to the requirement that they register their rental units. Their argument against the fact of the registry (it is already implemented, after all) seems to boil down to opposition to the rent stabilization program entirely. We heard terms like ‘bureaucracy’ and ‘bureaucrat’ (and even old-school ‘paper-pusher’!) used disparagingly time and again. It echoed talking points made to City Council recently, an approach that paid a dividend when Council  delayed the registration deadline.

Doesn’t ‘bureaucracy’ have its place though? How else could the city identify apartment rental operators that neglect to register for a required business tax license? I simply don’t understand why any rental property owner at our roundtable would countenance a system that would allow any scofflaw operator to cut corners. (A registry, though, would put an end to that.)

Landlords change the topic to code enforcement. “We need more of it.” But that to me is disingenuous: code enforcement has never been up to the task of policing rental conditions because that’s not in the remit. to be sure; the whole system is reactive, not proactive; it is complaint-driven and city staff know that four-out-of-five troubled tenants are afraid to file a complaint. Ten years ago the city itself proposed a registry and mandatory inspection program to fix that. But landlords, their Chamber allies, and the industry lobby were able to shut it down.

Inspection program memo excerpt November 2006As the city concluded a decade ago, apartments must be periodically inspected to ensure that they’re properly maintained. But code enforcement’s charge is instead to deal with serious issues like building inspections and health-and-safety violations. (Fun fact: most of the complaints that code enforcement receives concern gas-powered leaf blower complaints, and (full disclosure) I’ve filed more than my share.)

As for the business tax scofflaws, some have flown under the radar for years and years. They are getting a free ride on the business tax. Moreover, those who are licensed need only self-report the ‘estimated’ gross receipts. That’s the figure on which the business tax is calculated but there is no proof required and no audit.It’s the honor system. While code enforcement used to routinely check for a business license when making a call on a problem rental property, it has not done that in some time (so I’m told). When the city fails to follow up or enforce basics like business licensing, I say, Bring on the bureaucracy!

The landlords’ opposition to the registry was focused on the registry form. Their concerns appeared to boil down to two issues: reluctance to sign-off on information that may be difficult for them to verify, like the presence of minors, seniors or disabled in the household; and their objection to reporting their actual rents.

We take their first point: the city could verify in some other way information about the tenancy such as the presence of any protected class of tenants, like minors, seniors or the disabled. Knowing that is in the public interest but perhaps landlords don’t need to be responsible for documenting it.

There is also the required square footage of units, which could be reported as ‘approximate’ to assuage landlord concern about liability. (City staff was amenable to tweaking the form.) But pointing to property tax records seems disingenuous: those records tally only total floor area, not per-unit area.

The reporting of actual rents remains the top issue. Landlords cite tenants’ privacy and the need to protect confidential business information as their key concerns. One landlord even talked about ‘data-mining’ the rent roll for marketing purposes. But these protestations simply don’t stand up. As we showed in a recent post, the form asks for no confidential information and asks nothing about any tenant’s personal information. (It’s a bit curious to see landlords stand up to defend tenant privacy, isn’t it?)

However there is a very good public policy purpose behind asking landlords for their actual rents. Each landlord and tenant party to a rental agreement should know what the lawful rent is for that unit. Under rent stabilization, that rent is certified by the city as the ‘maximum permissible rent.’

As for fears of disclosure – much fanned by the landlords – the maximum permissible rent is indeed a matter of public record because identifying the lawful rent is in the public interest. That protects tenants against unlawful rent increases and surcharges, for one thing, and in the aggregate the actual rents enable the city to set relocation fees according to market conditions.

What cannot substitute for a rental unit registry is hiring additional code enforcement officers or cross-checking water bills against business tax licenses.

The other big issue put on the table by landlords is the categorical carve-out. Should all duplexes be exempt from rent stabilization? What about 3- or 4-unit properties? What about means-testing households by asking for incomes and then exempting any unit occupied by an above-median household? These were all proposed by landlords.

Duplex to fourplex units pie chart
Duplex to fourplex account for 41% of all rental structures in Beverly Hills. A HUGE carve-out!

Exemptions from rent control (aka ‘carve-outs’) may sound reasonable until you remember that every exempt property or unit removes rent stabilization protection for tenants. Look at the numbers: duplexes are almost 20% of all of our rental properties. Add in 3- and 4-unit buildings and it’s more than 40%. Should we remove protections for so many tenants?

Exempting duplexes would put 420 households beyond rent protection (according to the city’s inventory of multifamily rental apartments). Exempting just owner-occupied duplexes would put 110 households beyond protection. As for 3- and 4-unit properties, giving a categorical exemption only to owner-occupied properties would mean that between 2 and 3 households in each of 257 properties would not enjoy rent-stabilization protections.

Given the 2-BR units more common in duplexes to fourplexes, these households are likely to include school-age children. Should they go without tenant protections like capped increases and relocation fees when told to go with 60 days notice?

The more one examines the landlord claims about privacy, confidentiality, and mom-and-pops safeguarding nest eggs, the more one realizes that they are a tactic. The objective: to distract from the key issue: the city’s obligation to ensure that Beverly Hills residents who rent are afforded the same basic protections that residents of other rent-stabilized cities enjoy.

We hear landlords deride our city’s “off-the-shelf” rent stabilization program as framed by city consultant Management Partners. But off-the-shelf may be the way to go. Other cities’ programs are time-tested and established. Their regulations establish an array of tenant protections. And those protections reduce tenant-landlord conflict. Their programs protect tenants because no tenants is a professional tenant but every landlord is an apartment renting and leasing business owner.

Clearly the most contentious issue is the allowed rent increase. Discussion will continue on it. Facilitator Singh has put pressure on our tenants committees to propose a magic number.

Our challenge is to ensure that any allowed annual increase be tied to inflation in some way (perhaps through an index of costs like consumer prices). We remain open to discussion on what an appropriate formula for the increase cap should be. So we guard against Singh’s “middle ground” number “plucked from the air” (as he said). Seven percent may well be a convenient magic number between the current 3% and the landlords’ 7% but that doesn’t mean it’s the best policy choice.

Our committee believes that tenants are best served by a less arbitrary solution. An inflation-indexed cap is already employed in the Chapter 5 ordinance; the city also goes by CPI when it notches-up relocation fees annually. There is no magic number here. Ultimately City Council will decide, so the best we can do now is make our best arguments and counter-arguments.

Onward to dialogue #7! Please contact the committee with any concerns or feedback you may have: committee@bhrentersalliance.org.

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