Do Communists Celebrate Christmas?

Vice-Mayor John Mirisch posted this rhetorical question on Instagram: Do Communists celebrate Christmas? “The Apartment Association of Greater Los Angeles evidently thinks so,” he said. “They sent our mayor a ‘present’ equating our efforts to craft a rent stabilization ordinance with Communism.” This ‘red scare’ tactic is all the more ironic because it invokes religion — an anathema to communists!

Even more ironic is that the Apartment Association of Greater Los Angeles (AAGLA) chose to gift our Mayor with these Soviet-era accouterments. Mayor Julian Gold has been more of a friend to landlords during the rent stabilization policy process than other councilmembers. He seemed to wince as Council was  adopting an urgency ordinance to reduce the allowed Chapter 6 rent increase from 10% to 3%. He winced again when Council adopted an urgency ordinance to end no-just-cause termination this past November.

At every rent stabilization study session we’ve heard Dr. Gold advocate for looser restrictions on landlords (like prorated relocation fees) and he backed a probationary ‘trial year’ tenancy. We recall that then-councilmember Gold recommended to his fellow councilmembers a critique of rent control that claims it discourages investment in housing and promotes “decay and abandonment.” The piece also rehashed other perennial claims like rent control 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 piece Gold circulated, ‘Rent Control,’  is not 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. The Liberty Fund was instrumental in the rise and reign of Ronald Reagan!

Red Scare!

An organization like AAGLA sees socialism as alive and well and locates its nexus in rent control. Executive director Dan Yukelson sees a Bolshevik Revolution right here in Beverly Hills, in fact; to him it augurs the demise of free enterprise as we know it and the end of the apartment leasing business in particular.

Dan is not above putting the ‘red scare’ spin on his argument against rent control…especially once California voters were given the opportunity to repeal the Costa Hawkins Rental Housing Act. Yukelson’s editorial against Prop 10 in AAGLA’s own Apartment Age magazine drew on classic socialist imagery to make his point!

Yukelson 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)

Yukelson also editorializes regularly in Apartment Age magazine and issues ‘red alerts’ to landlords about a Beverly Hills City Council run amok. 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 harps on the ‘red scare’ theme in his gift to the Mayor but there is no support for his insinuation that rent stabilization is a harbinger of socialism (much less Soviet-era Communism). 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. Consider:

• 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 Yukelson grousing about any of the federal tax breaks enjoyed by investors in rental housing. Those are effectively subsidies from the state. Yukelson’s equivalence of rent control with socialism rings false precisely because the claim is groundless:  a price cap on the allowed rent increase has nothing to do with housing production because every new building in California is exempt from price controls (and they have been since 1995).

Nor does any observed decrease in maintenance, or decline in property conditions, or especially property values, correlate with rent control.

Landlords are doing fine in Beverly Hills. We see none flee the apartment business here. Yukelson, too, is hanging on to his Olympic Boulevard fourplex.  Landlords are not bailing out because the return on investment is too great to walk away from even with rent control!

Now, some owners do choose not to invest in maintenance; they let their properties decline, unfortunately. Those landlords have chosen another business model: extracting the cash flow while tenant conditions degrade. Smart owners know that rental housing is a renewable resource and they maintain their buildings properly.

The problem with the residential rental real estate market is not the depressed demand due to rent control; it 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, the next generation often doesn’t sell. The supply of multifamily properties for sale is constrained. Prices are reaching record highs. Not a bad business to be in over the long term.

In conclusion, rent stabilization has been pretty good for rental housing providers like Dan Yukelson. Asset values remain high. Rents are among the highest in the region. Top-quality city services keep their properties desirable (and those services are paid for by sales hotel taxes, not so much Yukelson’s property and business taxes).

Moreover, regulation of landlords has historically been very light while code enforcement was somewhat lax. Landlords like Dan should thank Beverly Hills for gifting them decades of free reign!