To the City Council:
A week ago Monday, the City began a series of purported mediation meetings in order to attempt to reach consensus between landlords and tenants on the issue of the City’s rent control ordinance. I do not mean any disrespect to the moderator the City has hired, but the rent control ordinance has already passed, and in my opinion, these meetings are a big waste of City money. It is only the beginning as the City will continue to add onto what will surely become a very costly Rent Control Bureaucracy just like the cities of Santa Monica, San Francisco and Los Angeles that have also imposed strict rent control ordinances.
I am concerned that the entire mediation process is a charade to placate the property owners in hopes of causing us to believe there might even be the slightest chance of changing the rent control ordinance. I do not believe any changes will see the light of day. Once entitlements are handed out, they are impossible to take back. Rent control ordinances are entitlements.
Nearly 3 years ago, I sold my home of 13 years and invested in a 4 unit rental property. I did this in order to maintain a residence within the City and to better afford to retire someday. We made a huge sacrifice by cramming ourselves into 1,400 square feet from 3,300 square feet. After buying our property, we made substantial investment in upgrades, nearly $0.5 million. If I knew at the time that there would be a 3% rent cap, as a CPA, I can do the math, the investment could never pencil out. Study upon study has shown that costs of operating a rental property will surely increase by more than the 3% each year. We cannot look at the CPI to forecast costs of operating 50-70+ year old structures. My building was built in 1936!
Since none of our City Councilmembers actually own rental property, they just do not understand. They do not understand what it really costs to operate an apartment building, to collect rent on time, or deal with numerous other issues that come up during the course of owning and renting an apartment building. Until they do, our City Council members should stop making themselves feel good about helping people with my money.
The consequences of our City’s rent control ordinance will soon become perfectly clear to our City Council. As this rent control ordinance is implemented, there will be deferred maintenance on apartment buildings, increased City budgets necessary to fund the planned rent control bureaucracy, and fewer rental units as there will no longer be incentives to build new units and incentives in place to convert rental units into condominiums. Rent control should protect those that need it, not the mostly affluent that live in the City of Beverly Hills. There are many, many examples of rent control ordinances protecting affluent people such as Nora Ephron, who bragged about her $500 per month or so apartment in Sutton Place, one of Manhattan’s top, Eastside neighborhoods. This is just wrong.
Already, within the City Council’s agenda package for this past Tuesday, the City’s consultant, Management Partners, has reported the preliminary estimate of the rent stabilization program costs for the next two years. The start-up and one year costs are expected to be $1,492,200 of which $250,000 has already been appropriated. The fiscal year 2018-19 costs are expected to be $1,649,200. If we were to assume, in the unlikely event, that 5% of all tenants in the City are in need of assistance, the subsidy would be nearly $350 per month!
The City’s ordinance is unfair to property owners in so many ways. It is my investment, my capital put at risk, and my home. If the City wants to provide affordable housing, it is welcome to buy its own buildings and/or provide renters with subsidies.
Here are the issues that the City, if it really intends to take another look at the ordinance, must address:
- Rent Increases – The 3% increase is definitely not sufficient. I have already experienced cost of increases well in excess of 3%. Between the mortgage, water, gardening, maintaining our heating and air conditioning systems, etc., I will not be able to properly maintain my building for 3%. And, let’s not forget the terrible rains we recently had and the cost of repairs for my building’s 80+ year old windows that leaked in one of the heavy downpours. The City should consider no less than a 7% “cap” (which is still a significant reduction from 10%), and landlords should be able to “bank” missed increases. Under a 3% cap, I will be forced to increase every one of my tenants each year even though I may not have planned to – that’s the only way I can assure I will cover my future cost increases.
- Who Should Benefit? – Clearly, rent control ordinances should protect seniors (65+) that are on fixed incomes. That is without question. That last thing we want to see in our City is fixed income seniors being forced from their homes. However, for anyone else, the rent “caps” and “no fault” eviction fees should be based on real need. There are many examples of rent control ordinances that only end up protecting affluent people such as Nora Ephron, who bragged about her $500 per month or so apartment in Sutton Place, one of Manhattan’s top, Eastside neighborhoods. Rent control should protect those that need it, and not the wonderful tenants I have in my building that are professionals making above average incomes. Casting a “wide net” rent control ordinance such as the one in our City will only force moderate income people such as my wife and me into subsidizing the wealthy. Finally, small buildings should be exempted (e.g., 4 units or less) – as small operators, we have smaller margins and do not have resources to comply with the burdensome regulations imposed by the rent control ordinance.
- Rental Registry – The rental registry is burdensome, especially for small operators such as myself that have very busy, fulltime jobs. In reviewing the form proposed by the City, it reminds this CPA of an IRS Form 1040 – the long form. And, as for the required disclosures, I am very concerned about disclosing how much I charge each of my tenants for rent – the last thing I need is for my tenants to know how much I charge each of them, which would certainly not end well. While the City may say that this information will be kept confidential, that only works until one day the City does not keep this information
- Water and Capital Improvements – With the severe limitations on how much landlords can charge their tenants each year, landlords should be able to transfer water meters to tenants so that tenants share in the cost of water, sewage, etc. that the City charges us. An added benefit will surely be water conservation. In addition, landlords should be allowed to recover their capital improvement costs, which should be passed through to tenants and recovered over a 5 year period. Eligible expenses should be things such as painting, fences, landscaping, major appliances, window coverings, etc. This way, landlords would have incentives to maintain their buildings. And, by the way, my previously mentioned rain damage cost me in excess of $8,000 (this is more than double the amount a 3% rent increase would cover in a year!).
- Evictions – Sometimes, no cause evictions are necessary in order to avoid the expense of legal fees, court costs and lost rent. No landlord that I know wants to be in the eviction business, but it sometimes becomes necessary in extreme instances. The reason that landlords try to avoid evictions are that units become vacant and stay vacant until a new tenant can be found; vacant units very often require repainting, cleaning, repairs, etc.; and legal costs are often under the rent control ordinance, the City has required that landlords pay $6,000 to $12,000 or be forced to resort to a “for cause” eviction, the latter of which results in incurring legal fees in addition to the other previously mentioned repair costs. These required payments have no basis as if the City Council has pulled them out of thin air. Finally, the rent control ordinance should allow landlords to move-in themselves or their children, and/or a manager without having to pay relocation fees. (Note, again, seniors on a fixed income should be an exception to my proposals).
The City’s rent control ordinance is only encouraging professional tenants that try to get a landlord to evict them while seeking a payoff to move.
And, finally City Council members, it is obvious to everyone this ordinance was all about politics. Well, how did that work out for Nancy Krasne?
Very truly yours,