Rent Control: An Enduring Symptom of Fear- Part Two

August 29, 2020by melissad0

By Neil Fjellestad

Well, the 80s and 90s had twists and turns that left us reeling nationally as individual rental owners. The triple threat of the highest interest rates we had ever experienced that were allowed by the government as a financial means to stall and/or slow down the paper value appreciation of housing beyond affordability. Then we had the complete government overhaul of our tax system that slowed down the after-tax cost and investment return of capital in income producing real estate. Finally, before the 80s decade was completed, we endured the government sponsored destruction of the savings and loan industry; a primary source of mortgage lending. 

Locally, housing prices were stagnant until 1986 and I was sure that in Southern California sluggish rents would mean continued price stagnation. I was stunned that median house prices dramatically inflated between 1986 through 1989 before the next plateau of the nineties.  Southern California prices seemed to be totally disconnected to underlying rents and stayed that way throughout the nineties which was not healthy for rental housing owners or the Association that represented us. This was a real test of volunteer leadership, and to the credit of those key individuals that held our Association together while many walked away. I have fond memories of the increased volunteer time invested, debates over tough decisions, the sacrifices required by all of us. The camaraderie and friendships sown during this period have lasted.

At the turn of the new century in Southern California a return of real estate optimism evolved into euphoria as ordinary people believed home prices could only go up. If only they could borrow the down payment their economic concerns and/or wealth would take care of itself. The definition of a bubble is when a complicated situation is fed by one point of view while the opposition is not considered; in this case that California property values would decline. Well, we know how this simplistic, but popular thinking turned out.

However, several things are forgotten about the effects of the “great recession” such as: the layers of misinformation and, in some cases, deceit revealed that there were “insiders and outsiders” (losers and winners) so enduring hardship became unfair to many. As a result, behavior changed as many walked away from mortgage responsibilities. Renting dramatically increased while some just stayed in the property and quit paying the mortgage. As renting increased and supply decreased, rental rates increased. Here again are winners and losers.  For California rental owners, the positive result over this extended period was to finally tie price to underlying rent. This was a win, bringing enduring economic value back into the long-term ownership of rental housing.

About 5 years ago it became clear to those of us who are experienced in similar economic regions that Southern California was changing dramatically and that the environment surrounding successful long-term rental ownership was becoming substantially more complicated. The technologies that connect us to property and service providers; renter demands and requirements; the regulations that surround maintaining and improving a physically old housing inventory and the supporting infrastructure have substantially shifted.  Even the logic that supports our defense against rent control; that it’s wrong, unfair and could never be supported by thinking people, continues to become more complicated in explanation. We also contend that it solves nothing and risks everything. However, our logic has not produced any housing either.

It’s time to look up and listen because currently we are not believable to renters. There is a setpoint for distrust in California, in this country and throughout the world that perhaps exceeds anytime in the last 100 years. It seems to be getting worse. A recent national survey to measure levels of “trust” versus “distrust” found distrust has spread from institutional mistrust to a general mistrust of individuals. Also, generational differentials stood out demonstrating that millennials are 2.5 times more likely to distrust than “boomers” possibly due to the loss and forced sacrifices experienced in their formative years. That lack of control and the fear of being left out of “the improbable American dream” can develop a perception that will require time and effort to penetrate.      

I have a passion for rental housing as an important contribution to self-reliance, fundamental to sustaining financial independence and necessary to community quality of life. I believe that my business purpose must be practiced in the spirit of the golden rule and with a long-term vision.  I celebrate the First Centennial of this Southern California Rental Housing Association as a singular organization that should be applauded, respected and supported as the only organization that in my 50 years of business has maintained and extended my best efforts to sustain my passion and purpose.

Rent Control is back again in the 2020 election. Prop 21 repeals portions of California’s rent control law that protects single family homeowners and has no plan to build affordable and middle-class housing or deal with the increasing problem of homelessness on our streets. Prop 21 includes no protections for renters, seniors, veterans, or the disabled, and it has no provision to reduce rents. For Californians losing jobs – and both renters and homeowners who are struggling – this poorly written initiative is the last thing we need. Please vote No on Prop 21!

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