By far, the majority of rental properties in the City of Los Angeles and throughout the State of California, well over 80%, are owned by independent housing providers, who are best described as “mom and pop.”
WRITTEN BY: Dan Yukelson | Apartment Association of Greater Los Angeles (AAGLA) | 4 Minute Read
More and more, they have been forced to deal with complicated layers of regulations that restrict the ability to manage their property, and consequently, they face much greater risk of overzealous code enforcement inspections, increasing costs, and threat of litigation.
For nearly three years, March 2020 through January 2023, housing providers were subjected to moratoriums on evictions due to COVID-19, that not only made it difficult for them to collect legally owed rental income, but during that time, renters mostly stayed home while also, additional occupants and pets in rental units were sanctioned by the city which increased water usage and demand placed on fixtures and appliances causing increased water usage, maintenance and repairs leading to increased cost burdens being placed upon property owners. At the same time, the economy experienced severe supply chain issues with supplies and labor in short supply, and at the same time, inflationary pressures yielded 6% to 8% annual increases in the Consumer Price Index (CPI). To make matters worse, also during this time, the city increased many of its fees for water, trash hauling and inspection fees under the Systematic Code Enforcement Program (SCEP). All these factors placed significant financial burdens on the city’s housing providers, especially on independent, small owners. Some owners themselves were impacted by COVID-19 during this time and may have become ill or lost full-time work at the same time they struggled collecting rent and paying their ongoing building costs.
Despite the mounting cost increases and challenging environment for rent collections, the city instituted a rent increase freeze that will continue until January 31, 2024. No other business faced such government-imposed obstacles as restricted revenue collection and frozen pricing.
According to a recent Wall Street Journal article, over $1 billion in COVID related rental debt is still owed. However, this estimate could not possibly include the pay-outs made by many owners who sought to recover their units outside of the court system despite not receiving rent, nor the rent that has been just written off and forgiven, nor the rent owed by the many renters that merely took off owing rent and are never to be found again. While the State of California and other jurisdictions provided for rental relief, not all housing providers could take advantage of the funds because their renters failed to qualify for or participate in the application process, so many lost out.
Many rental housing providers have reported being in or near foreclosure today. Many have left the business entirely, and many had to liquidate retirement savings to stay afloat with little chance of ever recovering the savings they worked so hard and sacrificed for over many years of employment. Due to lack of rent collections, while interest rates were far lower at the onset of the pandemic, property owners were unable to refinance, and now face loans that are resetting in a 6% to 7% (or more) interest rate environment.
Yet to make matters worse, many rental property owners had been taken advantage of and left powerless to deal with problem situations. There are stories abound of housing providers who did not receive rent payments for protracted periods of time while their renters purchased new vehicles, went on vacations, and in some cases, purchased properties of their own. In some instances, after not paying rent for lengthy periods of time, renters vacated without notice but only after first severely damaging their rental units. I have seen evidence of several of these situations.
Sadly, and most unfortunately, the city’s response to the crisis imposed on its rental housing providers was more and extremely complicated tenant protection regulations, increased real estate transfer fees in part to hire private attorneys to go against property owners, and yes, maybe a bit of financial assistance (~$10 million) that pales in comparison to the more than $1 billion of uncollected rent and untold billions of missed rent increase opportunities. The city has gone way too far off the rails.
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