Earlier this week, I gave the most difficult speech of my life to the Apartment Owners Association (AOA). First, read an overview of the key points, then learn why it was so hard to deliver.
Three Things California Has Done That Are Good for Rental Owners.
Many rental owners think that the government is taking away their rights. I decided it was important to outline some government actions that were good for rental owners. Here are the three most important ones.
Proposition 13 amended the California constitution in 1978. It sets the property tax at 1% of the sale price and limits increases to 2% annually. More than 80% of property owners nationally wish their state had this policy.
The Costa-Hawkins Rental Housing Act was enacted in 1995. It allows vacant units to be rented at market prices, even when rent control is sanctioned.
The way California divides sales tax revenue means that every jurisdiction in the state has an incentive to get all the retail they can and none of the apartments because apartments don’t generate any sales tax revenue. Plus, apartments require more police, fire, water, sewer, and school costs. Until and unless California changes that, the supply of rental properties will be limited, increasing their value.
All these things benefit rental owners, but you may have noticed that they all took effect some time ago.
The Trends Lately Have Been Very Different.
Lately, the State and local governments have done things that penalize the owners with the intention of helping tenants. However, if the policies don’t result in more rental housing, it won’t cure the housing shortage. Here are four examples.
California voters rejected rent control by a vote of 3 to 2. At the time governor-elect Newsom said to the legislature, “get me a rent control bill and I’ll sign it”. Within four months, the elected officials corrected the mistake made by the voters (their bosses), and we had rent control. Rent control didn’t create any new housing; it substantially reduced the incentive to upgrade existing housing.
The government has imposed unfunded mandates on rental owners. For example, let’s say your properties have balconies that were approved when they were built. Now, you must inspect those balconies every six years. If they need to be repaired, that expense is on you.
New regulations have made the process of renting more difficult and less effective. The State mandates that security deposits cannot exceed one month’s rent, regardless of applicants’ credit scores. California prohibits screening policies that reject a tenant’s application to a unit solely as a result of an applicant’s credit, criminal, or eviction record history.
When COVID-19 hit, government policies hit rental owners especially hard. The CDC, the State, the county of San Diego, and the city of San Diego all said you can’t evict somebody for not paying their rent, whether they were affected by COVID-19 or not. Landlords became the lender of first resort.
So, our state has been conflicted. Elected officials deal with thousands of issues, and rental housing is a tertiary issue for state, county, or city decision-makers. For most rental owners, their rentals are the majority of their retirement and net worth. For renters, it is their home.
Why It Was Difficult for Me
Many people have intense concerns, and the ideas of home, personal freedom, and retirement are heart-level values. For to many people, these topics strike at the core of their identity. Many people perceive someone with an alternate perspective as a threat or maybe an enemy.
When I was assigned this topic, I knew it would be high-risk.
Someone generated hundreds of fake reservations on the registration site. Many people who came reported that they had been informed that there was no room at the seminar. AOA said that was unprecedented in their generations of offering seminars.
In the next post, we’ll consider some of the options available to rental owners.
~
Whats your experience?
-o0o-
Terry Moore, CCIM, is the author of Building Legacy Wealth: How to Build Wealth and Live a Life Worth Imitating. Read his “Welcome to My Blog.”