Money's Gettin' Cheaper: When Your Rent Is Out of Control

by Tony Chavira

So I was talking to a friend of mine in Culver City the other day about his new investment and getting pretty heated. My good friend is a 25-year-old junior executive who just bought a house as the market started diving and now has a mortgage. Something about being 25 and having a mortgage makes you feel really grown up all of the sudden.

photo: Johannes Seemann

But paying back a mortgage is kicking him in the wallet a lot harder than his former apartment rent fees did. He used to live just down the street from his current investment and had rent control (which, for that area, was something like 3.25%). Rent control for an area like Culver City or Santa Monica makes sense: people will be able to afford their apartments with a raise in rent just about the level of inflation. And you know what Los Angeles can be like, people move here from all over and never want to leave. It's strange, but I don't tend to see the same economic principles applied to lower-income neighborhoods.

Hit up an economics professor and the double-edged sword of rent control makes the whole argument unnecessarily convoluted: rent control for everyone creates saturation and slums, but rent control for no one creates huge disparities between who can afford what types of housing. If I moved into a spiffy new loft in downtown LA (now that the rates were dropping, I mean) and had rent control in my contract, the rate of appreciation of the spaces in downtown might actually push away people interested in buying the loft spaces. If I moved into a spiffy new loft in downtown LA and didn't have rent control in my contract, I'd probably have to figure out a way to buy that loft so my money would be worth it.

But that's the theoretical problem with a community full of apartments that are both rent controlled and non ... rent control makes the community cheaper, so the non-rent-controlled rates are lower as well. Does it create oversaturation? Does it create slums? Should I just live in a tent at Burning Man for the rest of my life?

Back in the real world, the communities in Los Angeles that tout their pro-rent control stances are areas like Venice, West Hollywood, and Santa Monica. Are they over-populated? That's arguable.

But are they slums? Hell no!

So here's my question to the city of Los Angeles: why so many exceptions to the L.A. Rent Stabilization Ordinance (RSO)? To be clear, here's the summary from the Declaration of Purpose in the L.A. City Municipal Code: "It is necessary and reasonable to regulate rents so as to safeguard tenants from excessive rent increases, while at the same time providing landlords with just and reasonable returns from their rental units."

Some of the exemptions to the RSO make sense: people living in "Luxury Housing Accommodations" don't need the RSO and "Hotels/Motels" make enough cash in L.A. to handle their rent. For our purposes, I really only have two big gripes with the heavy hitters of the exemption list: "Properties located in other municipalities or within unincorporated areas within the County of Los Angeles" and "Demolished RSO properties."

Unincorporated areas of Los Angeles County really get the shaft: the county has jurisdiction over development, but citizens in those unincorporated areas don't get to vote for any of these officials and don't have a mayor or city hall to complain to if they're pissed off about something. The RSO exclusion in this community is really irritating in that it makes unincorporated areas subject to the whims of the incredibly wealthy: if you have money to develop, you have free reign over your community's development. If you're broke, you're pretty much screwed, and basically no one has to care.

photo: Allen Conant

There's a larger and more widespread problem in terms of "Demolished RSO properties." Here's a hypothetical: the RSO can mandate jurisdiction throughout the city of Los Angeles starting January 1, 1987, then sit back and watch over the next 20 years as all of those spaces are demolished and replaced with "Luxury Housing Accommodations," until every potential space in the city of Los Angeles is marked up to high heaven. Sure, the other option for exemption is "affordable housing," but unfortunately developers don't think it's as lucrative as its oh-so-luxurious alternative. We can see this happening in downtown Los Angeles right now: all luxury and none of it affordable to us normal folk. The sad part is that even if you got a great deal on a downtown loft, the space's RSO exemption cuts you out of keeping your awesome rates. Good luck begging any of the lofts to let you sign renter contracts any longer than a year, because they know as well as you do that the property market will cycle back up eventually. If they can develop in downtown L.A., they definitely have the cash to wait it out.

So where does that leave my 25-year old comrades in Los Angeles with our associate-level positions? We'll need housing, but can't afford houses. We'll need accommodations, but can't afford luxury. We'll try to live in apartments, but fear changes in the property market. And, ultimately, many will be begging for some form of rent control enough to move to Venice, Santa Monica, West Hollywood, or Culver City to get it. I'm not saying it's a brain drain; we're just taking a hint from Jimmy Witherspoon:

"Well, I can't afford to live, I guess I'll have to try

Undertaker's got a union, and it costs too much to die

Times gettin' tougher than tough

Things gettin' rougher than rough

I make a lot of money, I just keep spendin' the stuff."