Vice-Mayor John Mirisch posted a rhetorical question on Instagram: Do Communists celebrate Christmas? “The Apartment Association of Greater Los Angeles evidently thinks so. They sent our mayor a ‘present’ equating our efforts to craft a rent stabilization ordinance with Communism.” The Apartment Association likes to equate rent control with socialism but the ‘red scare’ tactic invokes the specter of Leninism. That implies no classes, no private property and of course no religion. So it is ironic indeed to make a Christmas gift of the Communist Manifesto!
Even more ironic is that the Apartment Association of Greater Los Angeles (AAGLA) chose to gift our Mayor with the tract and other Soviet-era accouterments. Dr. Gold has been a friend to landlords during the rent stabilization policy process. He practically winced in January of 2017 when Council was about to adopt an urgency ordinance to reduce the allowed Chapter 6 rent increase from 10% to 3%. He winced again when Council was about to adopt an urgency ordinance to end no-just-cause termination this past November.
At every rent stabilization study session we heard Dr. Gold advocate for looser restrictions on landlords such as prorated relocation fees and a probationary ‘trial year’ for every new tenant. (Council spurned prorated relocation fees but embraced the trial year tenancy.) Back in January of 2017 then-councilmember Gold recommended to his fellow councilmembers a less-than-scholarly critique of rent control. It claimed that rent control discourages investment in new housing; that it leads to “decay and abandonment” of rental housing; and that by cutting into an owner’s profits inevitably leads to “improper maintenance and poor repairs.”
These claims are worth engaging, and indeed they have been engaged at length in many studies and the scholarly literature. But the ‘Rent Control‘ treatise cannot be counted among among them. It was published by a pro property-rights pet project of Liberty Fund, a libertarian organization formed nearly 50 years ago to seed the conservative movement with free-market and libertarian philosophies. It was instrumental in the rise and reign of Ronald Reagan.
Organizations like AAGLA see socialism as alive and well in today’s rent control movement. Executive director Dan Yukelson sees a potential Bolshevik Revolution right here in Beverly Hills as our city reforms the 30-year-old rent stabilization ordinance. To Dan it augurs the demise of free enterprise as we know it in the apartment leasing business. Here’s Dan talking to the Beverly Hills Weekly on September 13, 2018:
Along with rent control that dictates how much I can charge my tenants and negatively impacts my income and my ability to maintain my building, the worse “crime” of it all is that my investment, the value of my property, is also negatively impacted. While our City Council lives in their castles and enjoys the booming real estate economy and double-digit gains on their investment in property, I lose for becoming a housing provider…. (emphasis added)
Dan is not above putting the ‘red scare’ spin on his argument against rent control…especially once California voters were given an opportunity to pass Proposition 10. The measure would have returned to localities some authority over the regulation of rental housing preempted by Sacramento when the legislature drafted the Costa Hawkins Rental Housing Act.
Dan’s editorial against Prop 10 in AAGLA’s own Apartment Age magazine drew on classic socialist imagery to make his point.
Dan also underscored his concern about the creeping socialism of rent control and Prop 10 in an interview with the (landlord-friendly) Beverly Hills Weekly:
The audacity of the City Council wanting to protect tenants that can afford to pay $10,000 a month—who are we protecting in our city? It’s just ridiculous. It was so poorly thought- out, and it was an obvious political move. You have socialists on the Council who not only believe in rent control but also this ballot initiative that has been proposed which would basically bankrupt all these Mom- and-Pop owners of rental properties in Beverly Hills. — BH Weekly, April 26, 2018 (emphasis added)
Dan editorialized regularly in Apartment Age magazine in addition to issuing ‘red alerts’ about Beverly Hills City Council by email. He was particularly exercised at the prospect that the defeated Prop 10 may yet again return to the ballot in 2020:
Even before the November 6th election…our arch enemy and social justice [sic] Socialist advocate Michael Weinstein, the President and Chief Executive Officer of the A.I.D.S. Healthcare Foundation, had already put us on notice that he intends to push for and finance another Costa-Hawkins repeal ballot initiative for the 2020 election cycle. — Apartment Age December 2018 (emphasis added)
Stirring the anti-communist pot must also be good for business: such pleas brought $90 million in landlord money last year to the campaign to defeat Prop 10. The prospect of its return has Dan’s AAGLA passing the tin cup again. “Keep those contributions to our Political Action Committee coming, folks!” Dan wrote in the December issue of Apartment Age. “It looks like we are not yet done saving Costa-Hawkins.” AAGLA’s President Earle Vaughn concurred: “Every dollar counts in the fight to save Costa-Hawkins.”
Rent Control is Not Even Remotely Related to Socialism
Dan Yukelson seems to be doubling-down on the ‘red scare’ theme with his gift to the Mayor. But there is no support for the claim that rent stabilization is a harbinger of socialism (much less Soviet-era Communism as suggested by Dan’s gift). After all, Beverly Hills has had rent control on the books for four decades and residential rental property owners seem none the worse for it:
- Multifamily real estate property values have soared. Even a mom-and-pop landlord with a small rental property has effectively ’banked’ another million in appreciation over the past ten years alone.
- Landlord average about 66% margin on operations. According to city consultant HR&A Advisors, net operating income after expenses yields two-thirds of collected gross rents — a whopping profit margin in any business!
- Rental property owners enjoy federal and state tax breaks that are the envy of any business. That includes accelerated depreciation of invested capital, favorable tax breaks on capital gains, the ability to shift sale proceeds tax free into another rental property purchase, and very favorable treatment under the recent Republican tax law (especially for corporations).
I don’t hear Dan grouse about any of the tax breaks or the profit margin enjoyed by owner-operators of rental housing. His cash flow should be just fine over the long term too. As explained in Good News and Bad News on the Allowed Annual Rent Increase, the current maximum allowed annual rent increase for Chapter 6 tenants in Beverly Hills is 100% of the annual change in consumer prices (CPI). That is two-thirds higher than the increase allowed to landlords in neighboring West Hollywood. That city allows only an increase equivalent to 60% of CPI. (At 100% of CPI Beverly Hills allowed increase is 66% higher.)
Dan Yukelson’s equivalence of rent control with socialism rings false precisely because the claim is groundless. Ideological treatises like ‘Rent Control’ are not germane to the rent control policy discussion. A price cap on allowed rent increases has nothing to do with housing production. Every new building in California is exempt from price control (and they have been since 1995).
Nor does any observed decrease in maintenance, or decline in property conditions, or even property values, correlate with rent control. Landlords are doing fine in Beverly Hills. Not one has asked for a higher-than-allowed rent increase (they could not demonstrate their need for it) and we see no landlords fleeing the apartment rental business in Beverly Hills. It seems that Dan, too, is hanging on to his Olympic Boulevard fourplex. Dan and other landlords are not bailing out because the return on investment is too great to walk away from.
Now, some owners do choose not to invest in maintenance and they let their properties decline. Those landlords have chosen an alternative business model. Smart owners, though, do maintain their buildings to keep them attractive to prospective tenants.
The problem with the market for residential rental housing in Beverly Hills is that turnover is too low; longtime owners don’t want to part with their investment because it is a cash cow. Even when handed to heirs that next generation often doesn’t sell. So the supply of multifamily properties for sale is small and prices are reaching record highs. That makes it a challenge to renew the housing stock.
In conclusion, rent stabilization has been pretty good for rental housing providers like Dan Yukelson in Beverly Hills. Asset values are high because good location and top-quality city services keep their properties desirable. That burden is not borne by landlords (though they like to complain about the business tax). The fact is that sales taxes and hotel taxes relieve property owners of an onerous tax burden. Moreover, regulation of landlords is light here and code enforcement is somewhat lax too. Landlords like Dan should thank Beverly Hills for gifting them decades of free reign!
But Dan may feel otherwise. We invite him to invest in any one of the hundreds of cities in California that has no rent control. We will welcome a new fourplex owner to his neighborhood. Hopefully his buyer will recognize that providing rental housing is a privilege and that it also comes with a social obligations. That is not socialism, though, a distinction lost on landlords like Dan.