“‘People are always meaning well,’ said Edward. ‘That’s often the trouble.’”
― Penelope Lively, Passing On
I have no doubt legislators have good intentions. The vast majority seem to be wonderful, smart people. The failures of good intentions do get me down sometimes.
One big example is the housing cost issue. The common quip is it’s supply versus demand. There is certainly demand, but for moderately priced housing, and builders won’t build if they think they will lose money. The cost to build a house isn’t penciling out and permits for new housing dropped last year.
Industry folks and economists say the decline is due to costs to build. This leaves existing housing stock (and some in the pipeline) for the bidding wars of higher-income folks, and results in many people renting.
So, we have rent control for that, right?!
Immediately after the statewide rent control measure was passed in 2018, some landlords began evicting tenants at low rent price points.
Cities like Los Angeles passed stop-gap measures to prevent evictions. Lo and behold, in December 2019 reports came out that “Tenancy in Common” ownership stakes were making their way to Los Angeles from the Bay Area, where it is already in use. For a price slightly below the purchase price, you get to use the structure, you pay the property tax, but you don’t actually own the house.
Landlords who are worried about losses are taking their rentals off the market using Tenancy in Common as an alternative.
The Apartment Association warned, prior to the rent control bill passing, that some landlords who previously didn’t raise rents much would now raise it every year, and that maintenance would be deferred if rent didn’t cover costs. Rent control will make rental property a worse investment than it used to be, and rentals will be increasingly cash negative.
This is going to take small family-owned investments off the table and lead to more corporate ownership.
Toss in the proliferation of “Airbnb” type rentals and the game really changes. We love the Mammoth area and with business pretty solid right now, we thought about buying a condo as an investment and renting it out for most of the year, using it in the summer a bit for ourselves.
Purchase costs are so high that a monthly rental at market rates would not cover the mortgage, let alone property tax and other costs. Ever.
Over the life of a standard loan, at today’s low interest rates, this was a money loser no matter how much we wanted it not to be. A perfectly executed “Airbnb” operation wouldn’t be cash-positive for almost a decade.
I can’t overemphasize how important “perfectly executed” is in that stress-inducing scenario. After talking to a friend who only buys severely depressed properties and does a lot of renter laundry himself, it turns out I’m not crazy. We have entered into a loop. Housing costs a lot to build.
The way to afford property for many is Airbnb. Rent control means mom-and-pop landlords are exiting the market or not even entering it, leaving more corporate ownership. Corporations won’t stay in the rental market if they lose money.
We have legislation to ensure new projects don’t harm communities. We have rent control. We have various folks doing laundry and cleaning bathrooms to make the Airbnb model work for them. Each has some benefits. Yet, holistically, our current trajectory is fewer affordable homes and fewer rentals.
People are living on our bike trails, in our parks, and on our streets, both due to housing cost and a lot of other issues, some of it going back decades. We throw money at it and literally nothing changes.
When new business and amenities go in to a lower-cost area, people rightly jump on that and move in, further increasing demand and the resulting prices. Throw in income inequality and the gig economy model, and things get messy quickly.
Rather than help, current “solutions” don’t seem destined to aid lower-income folks long term and seriously risk dragging middle-income families down further.
Surely this was no one’s intent. Thomas Edison said, “A good intention, with a bad approach, often leads to a poor result.”
Maria Gutzeit is a chemical engineer, business owner, elected official, and mom living in Santa Clarita.