Home providers face financial woes
By far, the majority of rental properties in the city of Los Angeles and throughout the state of California, well over 80%, are owned by independent housing providers, who are best described as “moms and pops.” They have been forced to deal with complicated layers of regulations that restrict the ability to manage their property, and consequently, face far greater risk of overzealous code enforcement inspections, increasing costs, and litigation.
For nearly three years, March 2020 through January 2023, housing providers were subjected to moratoriums on evictions due to COVID-19, that not only made it difficult for them to collect legally owed rental income, but during that time, renters mostly stayed home while also, additional occupants and pets were sanctioned by the city which increased water usage and demands on fixtures and appliances causing costs of utilities and repairs to increase. During this time, the economy experienced severe supply chain issues with supplies and labor in short supply, and at the same time, inflationary pressures yielded 6% to 8% annual increases in the Consumer Price Index. To make matters worse, also during this time, the city increased many of its fees for water, trash hauling and inspection fees under the
Systematic Code Enforcement Program.
Despite these mounting cost increases and challenging environment for rent collections, the city instituted a rent increase freeze that will continue until Jan. 31, 2024. No other business faced such government-imposed obstacles as restricted revenue collection and frozen pricing.
According to a recent Wall Street Journal article, over $1 billion in COVID-related rental debt is still owed. However, this estimate could not possibly include the pay-outs made by many owners who sought to recover their units outside of the court system despite not receiving rent, nor the rent that has been just written off and forgiven, nor the rent owned by the many renters that merely took off owing rent and are never to be found. While the state of California and other jurisdictions provided for rental relief, not all housing providers could take advantage of the funds because their renters failed to qualify for or participate in the application process, so many lost out.
Many rental housing providers have reported being in or near foreclosure today. Many have left the business entirely, and many had to liquidate retirement savings to stay afloat with little chance of ever recovering the savings they worked hard and sacrificed for over many years. Due to lack of rent collections, while interest rates were far lower, property owners were unable to refinance, and now face loans that are resetting in a 6% to 7% (or more) interest rate environment.
Yet to make matters worse, many rental property owners had been taken advantage of and left powerless to deal with these situations. There are stories abound about housing providers who did not receive rent payments for protracted periods of time while their renters purchased new vehicles, went on vacations, and in some cases, purchased properties of their own.
Sadly, and most unfortunately, the city's response to the crisis imposed on its rental housing providers was more and extremely complicated tenant protection regulations, increased real estate transfer fees in part to hire private attorneys to go against property owners, and maybe a bit of financial assistance (~$10 million) for the more than $1 billion of uncollected rent and untold billions of missed rent increase opportunities. The city has gone way too far off the rails.
Daniel Yukelson is currently the executive director of The Apartment Association of Greater Los Angeles. As a certified public accountant, Yukelson began his career at Ernst & Young, the global accounting firm, and throughout his career has served in senior financial roles principally as chief financial officer for various public, private and start-up companies.