TOM BUTT E-FORUM: Open Season on Landlords

Radio Free Richmond
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The adoption of rent control and just cause in Richmond seems to be driven by more than simply trying to help out people struggling with rents.

There is a visceral hate of landlords shared by the RPA-3, ACCE and others pushing rent control and just cause. I don’t know what it is, but the very word, “landlord” seems to be like fingernails on a blackboard to them. As an example, Councilmember Jovanka Beckles posted on Facebook that because of this ordinance, “…light will shine on those greedy, selfish, arrogant landlords. Should they evict people to get back at the City, they will be seen for who they really are: evil.”

In June, 2015, ACCE characterized the City Council direction to draft an ordinance as, “…the culmination of a yearlong effort to fight back against gentrification, greedy landlords and real estate profiteers targeting renters with huge rent increases and 30-day no cause evictions.

“Greedy” seems to be an accepted and necessary adjective for landlord in the RPA and ACCE lexicon. Is that what it is all about, punishing landlords for being greedy and evil?

Maybe it’s the stem term “lord” of the compound word “landlord,” that gets to them. Perhaps it’s too evocative of other pejorative terms like “drug lord,” “slum lord,” “lord of the manor,” “lordship,” “overlord,” “warlord” and “lording it over you.”

A “landlord” can be many things, including a large investment company, such as a REIT on one extreme, down to a mom and pop operation on the other end of the spectrum, who depend on rental property for their livelihood or retirement income. At last week’s City Council meeting we heard from many small landlords, many of them immigrants, who saved and bought rental property for income or retirement. Being a landlord is not like being a drug lord; it is a legal, legitimate business that provides for a critical human need. There is no reason to disrespect landlords as a class, just as there is no reason to disrespect grocers, doctors or nurses.

And amid all the anecdotal examples of greedy landlords, no advocate of rent control and just cause has ever dissected an alleged abuse to show, quantitatively, exactly why it is an abuse. They only look at it from the tenant’s point of view. This is unfair and biased. Despite requests by City Council members, notably Vinay Pimple, City staff has done no qualitative analysis of any alleged rent modification to determine if it had a reasonable financial basis.


I get it that shelter is an essential human need, as is food and medical care. For some, transportation and education are also necessities. On July 11, 2015, in the Contra Costa Times Guest commentary: “Rent control with just cause evictions is a human right,” Cecilia Cissell Lucas made the case that housing comes under the Universal Declaration of Human Rights:


Article 25 declares housing as part of the "human right to a standard of living adequate for the health and well-being of himself [sic] and of his [sic] family." The Yogyakarta Principles on the application of international human rights law say that "everyone has the right to adequate housing, including protection from eviction, without discrimination" and that "States shall take all necessary legislative, administrative and other measures to ensure security of tenure and access to affordable, habitable, accessible, culturally appropriate and safe housing."

The difference is that food, medical care, transportation and education are largely provided or subsidized by the public sector and augmented by the nonprofit sector. Rental housing is fundamentally different; it is predominantly provided by the private sector.

That may or may not be good public policy, but it is reality.

We make food more affordable by not taxing it (sales tax, on a state level), and providing SNAP (Supplemental Nutrition Assistance Program) on a federal level. Schools provide federally subsidized free lunches for qualifying students, and the non-profit sector provides community food banks.

Free or low-cost medical care is guaranteed by law to all citizens and legal residents through Medi-Cal, Medi-Care or the Affordable Care Act (Obamacare). Medical care (in Contra Costa County) to non-citizens is available through community based health centers located throughout the geographic regions of the county, including La Clinica de la Raza, Brookside Community Health Center and Planned Parenthood. Anyone can go to a hospital emergency room for care – free if they can’t afford to pay.

The common thread about food and medical care is that access is provided predominantly by tax-supported government programs, and secondarily by non-profits. In that sense, we all pay for it, and the cost is distributed, presumably fairly, to every taxpayer.

Shelter also has some public sector support. A limited amount of rental housing is provided directly by local public housing authorities and indirectly by Section 8 vouchers. Government (HUD) subsidies and low income housing tax credits make affordable housing projects feasible to both for-profit and nonprofit developers. All of these are directly or indirectly supported by taxes.

But rent control is different. Rent control functions uniquely by extracting from a single business sector (landlords), the subsidy required to keep the commodity price of rent at a level not determined by the market but by a rent board. It functions much like the regulation of an investor-owned utility by the government (in California, the CPUC), except that unlike an investor-owned utility, rental housing is not a monopoly.

There is a substantial amount of hypocrisy going on here.

RPA members on the City Council are all active or retired public employees. If they are members of CalPERS, their pensions are, ironically, paid through CalPERS investments that include large residential properties held by investment companies. The California education retirement system, calsTrs, is similarly invested in residential rental property. In other words, they are, indirectly, landlords themselves. CalPERS pensions are based on an assumption that the annual return on investments will be 7.4%, and if they fall below that, public agency employers, like the City of Richmond, have to make up the difference from their general funds. How ironic that the City Council would hold landlords to an arbitrary 2.3% (June 2014-2015 CPI) annual increase in rent, regardless of what their return on investment is, when public employees are guaranteed a 7.4% return on their pension investments?

Let’s look at Doctors Medical Center (DMC), which went under because Medi-Cal reimbursements were insufficient to pay the costs of care. Those costs are largely comprised of labor costs for doctors, nurses and support personnel. If the City Council applied the same logic to saving DMC as they are to rent control, they would have called for a ceiling on compensation for doctors and nurses, set by a board rather than by the market. But they didn’t; they called for the public sector to bail out DMC.

In two more days, rent control and just cause will come to Richmond. So will litigation, an expanding municipal bureaucracy, rising rents, increased evictions, higher standard for new tenants and disputes between tenants and landlords.

And by the way, the second shoe to drop in the open season on landlords will be the proposed Fair Housing Ordinance, also on the July 28 City Council agenda, that will force landlords to accept previously incarcerated individuals as tenants. The recidivism rate in California, although trending downward, is still at 54%, which means that a previously incarcerated tenant is more likely than not to engage in criminal behavior within three years of leaving incarceration. Re-entry challenges for previously incarcerated individuals is a huge challenge, and landlords should be encouraged to rent to low-risk individuals, but the Richmond City Council wants to go much further, defining the previously incarcerated as a protected and favored class and forcing landlords to take all comers.

Reposted from Mayor Tom But's "E-Forum"

Photo courtesy of Richmond Confidential

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  • Veronica Keeton
    commented 2015-07-27 20:23:14 -0700
    Let’s be clear, the four RPA councilmembers who passed this decision are unqualified, uneducated, and incompetence idiots when it comes to governing a city and now that information is full blast. Mayor Butt you tried to warn them. Lindsay tried to warn them. The public tried to warn them. So let the litigation, evictions, rate hikes, and displacement begin. And let them take for fall for all of it. Don’t you sign anything!!!

    I just hope it doesn’t take long for Richmond to recover from yet another mess they have created.
  • Terry Chenault
    commented 2015-07-27 16:40:37 -0700
    Did you include the costs of bonds? Who would buy the rental properties in Richmond under this burdensome rent control , taxes, and fees ? I have a single family rental home and will be selling it and purchasing in a different city. . I`m sure it won`t be to a future landlord that buys it as there will be no profit to be made. I Hope apartments and duplexes will be allowed to convert to condos. But from what I have heard that would be next to impossible. I do expect that there will be litigation payed for by all Richmond property owners. It seems unbelievable that just four people can control a person`s personal property and livelihood. I suspect that small Mom and Pop landlords will be unable to afford the cost of maintenance. Property blight will increase as a result. How will this effect future property prices ? If prices go down adding to the foreclosure issues the housing market will not be aided by investors. I also believe there will be a lot less rentals for everyone in Richmond. The rentals not covered by rent control (Properties built after 1995 ) will really spike higher.
    That`s basic economics. Less of a product causes the price to go higher .
  • Daniel Butt
    commented 2015-07-27 08:16:11 -0700
    Consider that all four of the majority votes on this issue are solely active or retired public employees, some or all of whom may have CalPERS pensions — funded by taxpayers and private investments. Consider that 10% of CalPERS total investment fund (A $300 BILLION dollar private investment fund) and 20% of CalPERS California fund investments are in…yes, Real Estate holdings. CalPERS has approximately $15 billion invested in multifamily residential real property – apartments.

    CalPERS has professional investors tasked with investing the fund where they believe they will get the highest return (law below requires their investment capital go to “market leading real estate investment managers globally”) — so it is unlikely they will invest (or have invested) in housing in Richmond. But CalPERS pensions are guaranteed a 7.4% annual return on investment. If the private investments don’t produce, taxpayer funded agencies, such as the City of Richmond, make up the difference out of their general fund. Imagine if you could invest your money in a guaranteed, risk-free 7.4% return. You certainly wouldn’t need (or want) to be in the residential income property business.

    The City Council majority has decided to limit the return that many hard-working private-sector residents — who invested their hard-earned money in providing a vitally needed service — housing in Richmond — to a 2.3% increase, regardless of their return on investment.

    Ironically, and notwithstanding the comments from the RPA, real estate is not such an easy business to be in. CalPERS, that huge $300 billion fund, with professional investors driving, lost HUGE in the real estate market. Luckily for them, public employees with CalPERS pensions did not have to pay the consequences, as the short-fall was filled from the general funds of various public agencies and cities.

    It’s easy to tell others how easy it is to get filthy rich in the real estate market when your own real estate investment (through pension funds) is bailed out by the taxpayers when its fund managers colossally mismanage the funds.

    “CalPERS has had well-publicized real estate losses — among them nearly $1 billion in a Los Angeles area residential development, $500 million in New York rental units, and $91 million on a stalled commercial development in Boston.”

    See:
    http://calpensions.com/2010/04/30/how-calpers-bet-big-on-real-estate-and-lost/
    http://www.bloomberg.com/news/articles/2015-06-30/calpers-pension-to-sell-3-billion-of-its-real-estate-portfolio

    Here’s an example to consider: There is a 4-plex (8 bd/4ba) for sale right now at 436 So 17th St. for $599,000 and a duplex (4bd/2ba) at 185 25th St. for $375,000. Per 2/1 unit is about $175,000.

    $175k invested in a CalPERS fund, would guarantee a return of 7.5%, or $13,125.00 per year. If it fell short it would be subsidized by the City.

    Rent for many 2bd apartments in Richmond is about $1200/mo.. Total revenue, assuming all rent is paid is $14,400/yr.

    Property taxes for the unit are about $3000 per year. If the owner is lucky, they only pay abut $500/yr in maintenance. Insurance costs at least $300, Trash is $360/yr, water $250, A business license is $235, Richmond’s rental inspection program is $150-200/yr., and this new program costs an additional $300/yr.

    That’s about $5000 in costs (assuming no surprises, and I’m sure I’ve missed some costs). Revenue of $14,400 minus costs of $5000 is $9,400, a 5.3% return on investment. In order to achieve close to CalPERS 7.5% return, the rent for that unit would have to be raised $310 to $1510/mo.

    But that also assumes no surprises. No bad tenants that destroy property, or don’t pay rent or engage in illegal activity. No large maintenance issues, no painting, no new roof, or new furnace. It assumes the drains don’t get clogged, or the gutters blocked, and no windows leak. To account for other losses, and still make a rate of return close to that guaranteed by CalPERS, the 2bd unit would have to rent for about $1800/mo.

    Is that a fair rate of return?
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