L.A. Does Not Want to Be New York

Two years ago, a billboard went up in Hollywood with a clear message: “Stop Mannhattanwood.” It was the start of the community pushback against rising rental prices and luxury housing development, and it was followed by two development measures to appear on the ballot in the following years: Measure JJJ in November 2016 and the failed Measure S in March 2017. The billboard’s message was a cornerstone of the group’s argument; they did not want Los Angeles to become New York, a city known for its severe housing supply shortage and exorbitant prices. This year, Los Angeles will see more pushback against the housing crisis on the ballot. This time with the Affordable Housing Bond Act, which will repeal Costa Hawkins and allow cities to implement rent control on all property types. Last week, the Apartment Association of Los Angeles officially opposed the measure, saying that it will exacerbate the affordability issue in Los Angeles by halting development and decreasing property values. We sat down with Daniel M. Yukelson, executive director of the Apartment Association of Greater L.A., to talk about the impacts of Costa Hawkins in the long- and short-term, and he took an interesting and familiar long-term position: if Costa Hawkins is repealed, Los Angeles will turn into Manhattan. Here, Yukelson tells us what he predicts will follow a Costa Hawkins repeal.

GlobeSt.com: If Costa Hawkins is repealed, how quickly will it begin to impact the housing market?

Daniel M. Yukelson: The effects of Costa-Hawkins repeal will immediately become evident.  Many local jurisdictions will place more and more currently exempt properties under rent control, will instill vacancy controls, and will in some instances, rollback rents to levels not seen in decades.

GlobeSt.com: How will property owners respond initially?

Rental property owners, in an effort to recover some portion of their investments will begin putting properties on the market.  We are seeing evidence of this already in Santa Monica with a record number of rental properties being listed for sale.  Santa Monica is one of several cities that has indicated it will roll-back rents, which in the case of Santa Monica, a proposal has been made to roll rents back as far back as the 1970’s when and if Costa-Hawkins is repealed.  This will result in many of the sold properties being razed and condominiums or other developments being put in their place, and the supply of rental housing will be reduced even further and at a rapid pace.

GlobeSt.com: And the development community? How will they respond?

Yukelson: In addition, developer incentives to build new rental housing will be significantly diminished—no longer can developers count on new developments being exempt from rent control when Cities like Los Angeles can merely move the rent control “line” forward from exempting properties built after 1978 to post-1990 and then to post-2005 and beyond.  Financial models used by developers to project income and returns for recent developments will no longer be valid.  Property values will decline.  Property owners will be forced out of business and/or no longer be able to afford to adequately maintain their properties.  Banks will foreclose as costs to continue to rise and rental income is being negatively impacted causing owners to operate in the proverbial “red.”

GlobeSt.com: Supporters of the repeal believe that this will help the housing crisis. What is your opinion? 

Yukelson: We will become just like another New York where tenants are forced to pay brokers huge finders fees to secure rent controlled apartments that have not been maintained or painted and cleaned prior to move-in.  Upon securing a rent controlled unit, tenants will be forced to pay for improvements that property owner can no longer afford. Before Costa-Hawkins, cities like Santa Monica had instituted “vacancy control,” which limited an owner’s ability to increase rent when a tenant moved out, and quickly become known as “skid row by the sea” when owners could no longer afford maintenance. We know what happens when strict price controls are placed on an economy.  One only needs to study Eastern Europe under Communism or read any economic study on rent control. Do we believe in capitalism in this country anymore? Apparently not.