On May 4, 2021, San Diego County Board of Supervisors passed a (temporary) ordinance, 3-2, which prohibits rental evictions regardless of the cause of the tenant not paying rent.
In 2020 there were 990 evictions in San Diego County, with 3,300,000 people. Some of the evicted renters had ample money and steady employment but simply did not choose to pay. Many residents were unable to pay their rent because of hardship.
It is unfortunate when any San Diego household cannot pay their rent. Minimizing misery is a worthy aim. Unfortunately, good intentions do not guarantee wise policy. The Supervisors could have passed an ordinance that spread the cost of tenants’ economic problems over the whole county. Instead, they voted to have 1% of county citizens bear the burden … the owners of residential rental property.
Supervisors did not eliminate property tax or force utilities to exempt owner from charges. They did not direct insurance firms provide free coverage to owners or tell lenders to write off that month’s payment. The Supervisors decreed that only rental owners absorb the consequence of unpaid rent.
When tenants don’t pay rent, the rental owners still must pay property tax, insurance, utility cost, and mortgage. Human decency and state law require that property meet health and safety code, regardless of residents’ payment. Three Supervisors imposed costs on a few taxpayers, housing providers, who did not cause the problem. In fact, the Supervisors imposed cost on these people only because they provide a service to lower income households. The ordinance does not provide any mitigation to the owner who did not receive rent.
Who owns rental property in San Diego?
Perhaps the Supervisors imagine that rental owners are so rich that they can bear this burden easily. Most San Diego renters live in condos, houses, duplexes, triplexes or fourplexes. Less than half live in a building with five or more apartments.
The two biggest groups of owners are retired people and teachers. Taking money from retired people and teachers is a poor way to help tenants who can’t pay their rent. There are about 1000 widows and single moms who own at least one rental, condo, or home. There may not be five owners with $100 million net worth. Surely in our county of 3,300,000 people, there some better way to assess this cost.
What is the long-term impact of the “penalize the rental owner” policy?
Penalizing one type of investment increases its costs and decreases its profit. That will decrease the demand for that investment. If the value of apartments shrinks, then property taxes from those buildings will drop. California re-assesses property when it sells. Higher prices bring in more taxes. Lower prices bring in less. The County imposing extra cost on one type of property will ultimately cause lower value and less tax revenue. Both owners and government will be hurt by discriminating against one property type.
Are there any better ways?
The current ordinance places all the cost on a tiny minority of taxpayers, who did NOT cause the problem. If this framework became permanent policy, it would hurt good renters because bad actors would not be evicted. That would boost repair and maintenance costs. Higher costs hurt cash flow and thus property values would drop. County property tax revenue and the equity of owners would also shrink. Wise investors shun assets that decline in value.
It seems right, fair, and sensible to spread the cost of helping renters over a wider group of citizens. Here are some other options, provide rental payment vouchers funded by:
* Impose new income tax on households earning above $400,000, or
* Impose a new property tax on each real estate parcels, or
* Collect a new tax on every retiree or
* Boost sales taxes.
Do any of those option seem fairer?
For generations before COVID some people could not or would not pay rent. That will still be true when COVID is only a terrible memory. Surely, we can find some better way to deal with renter distress, post -COVID. Don’t penalize only citizens who provide housing but did not cause the problem.
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.”