Moorlach: AB 828 Would Make California’s Housing Crisis Worse
Over at the Voice of OC John Moorlach has an article about AB 828, a bill to “help the poor” by making the landlords poorer.
Among other things, the bill would force most property owners to cut residential rents by 25 percent, even for tenants who didn’t lose jobs because of the economic disaster. Supposedly it would be “temporary” for 12 months. But “temporary” government actions commonly are extended. The Proposition 30 tax increase from 2012 even included “temporary” in its title, but was extended to 2030 by Proposition 55 in 2016, despite surplus revenues that year.
Any industry forced to make 25 percent cuts in prices would be devastated. Ting should ask such high-tech companies in his city as Uber and Twitter what would happen if they were forced to cut prices by 25 percent.
If AB 828 becomes law, many apartment owners would flood into already anticipated, overcrowded bankruptcy courts due to an inability to pay their own expenses, including mortgages, maintenance and staff. Their filings would compete with other businesses, especially restaurants forced to permanently close.
Under AB 828, what then is a financially strapped property owner to do? Consider converting an apartment building into condominiums? Selling or trading the units may avoid fiscal ruin for property owners, but it also will reduce the number of rental units on the market.
If bills like this become the norm, then do not be surprised when you see a freeze in new apartment construction. Why would anyone invest in apartments if their rents are reduced below the threshold of making a positive cash flow? And what would prevent California from forcing even more rental cuts? If 25 percent is needed today, why not 50 percent or 75 percent tomorrow?
This would hit some Los Angeles property owners particularly hard who in the last two years have been forced to retrofit their properties for possible earthquake damage prevention. As Moorlach notes in the article, this measure would kick landlords down and, combined with the recently passed statewide rent control measure, keep them there. In fact it is a double kick, as it doesn’t provide for reducing property taxes on these properties, only rent revenues.
Its time to make the phones in Sacramento ring.