Dear L.A. Times:
“Who Supports Retrofits?”
You mentioned in your article on February 6th, 2015 that “many property owners and tenants have told the City Council that they support retrofits”. Bull. As President of the largest individually organized group of housing providers in the State, I can tell you that if one person said that, they assume that they do not have to pay for it! To say that owners support this ridiculously costly far-out idea is very misleading. Our industry is totally against any mandatory retrofitting unless someone can create all the money out of thin air. If you find a property owner who is in favor of it, they should have already completed the retrofit job (unless they are lying) or they think that they do not personally have to pay for it.
What is the Real Cost?
The experts have estimated that to retrofit wooden apartments would cost as much as $130,000.00 and millions for some concrete buildings. These numbers are very misleading and way too low! Let’s take a young couple who sacrificed and saved enough to buy a 10-unit building. Let’s assume that it will only cost $50,000.00 to retrofit it. They withdraw the money from their 401K or some other retirement fund to pay the bill. They are 35-years old.
Here’s the math: If they could leave the money in the 401K for their retirement as they had planned, how much would it return by age 65? Assume 7% a year in the stock market. Over the next 30 years that $50,000.00 that the politicians so freely required our young investors to spend would have grown to $400,000.00. That, my friend, is the real cost! Just think what the real cost is when the initial outlay is $130,000.00. Over $1,000,000.00 forever lost! Forcing individuals to spend this kind of money with no visible rate of return is immoral and unethical.
Most individuals and politicians have no understanding of this concept. It’s called “the miracle of compounding interest”. Making use of this concept is a major factor in being able to pay one’s own bills instead of having to rely on “big brother”. Politicians want to force housing providers to use this concept in reverse which is a disaster for the retirement plans of these housing providers. It’s this lack of understanding that causes our friendly politicians to consider forcing housing providers to pay for these politicians’ plans that might make them look good to the voters, but force some housing providers into bankruptcy and/or make a disaster of their retirement plans. The same concept goes into effect if owners are forced to borrow the money.
No politician in their right mind would vote to give up their lucrative government paid retirement plan to retrofit buildings or balance the city budget for their constituents. Fact: That is exactly what they are asking housing providers to do.
Some Facts to Consider That “Special Studies” in Los Angeles, San Francisco and Other Cities Overlook:
- Low-Cost Housing – Mandatory retrofitting destroys low-cost housing. When, not if, some owners cannot afford to spend or borrow this extra money, they will sell out. Speculators will buy the units at these lower prices, tear down the outdated units, build new units and collect double the old rents. Real smart, huh?!?
- Earthquake Coming – We know that the “big one” is going to hit some day. And guess what – buildings will collapse and people will be injured. However, retrofitting does not guarantee safety for everyone. But, it’s true, some lives will be saved and they unfairly expect only housing providers to pay the price for this “charitable act”!
- Special Studies – Follow the money. Who pays for these special studies and who commissions them? These studies end up being very biased. Example: The L.A. Study held more than 150 meetings and they did not even say “hello” to the largest individually organized group of housing providers in the state. How could they say the industry is leaning in favor of it without even getting input from AOA? Ridiculous! Fact: They do not want input that disagrees with their sponsors’ goals. They do not want a study on how devastating, right now, this retrofit idea is to the personal financial well-being of housing providers and tenants. How about considering those who have to sacrifice and pay the bills? How about the tenants who are going to lose their housing? Duh! Let’s not just consider what’s politically expedient.
- Free Choice – Guess what? Renters can choose to live in earthquake-safe apartments and thereby protect their and their family’s lives today. Nobody forces others to live in a building if they consider the risk too high. Can’t afford to move and pay a fair price for a better built building? Neither can housing providers afford to provide these retrofits.
- Morality – He who receives a service or benefit should pay for what he receives or the benefit/service should not be created / provided. America has become an economic leader because of our belief in this simple and morally justifiable concept. It’s called our “American Economic System of Free Enterprise”. Thieves and free-loaders do not appreciate this idea. Tenants would rather pay the lower rent then pay more to live in the earthquake “safe” building. So let’s let the free enterprise system work!
- Value and Taxes – Retrofitting does not increase the price of our buildings but could increase our property taxes as a result of this additional construction. Passing retrofit laws decreases the current sales price and thereby damages the owners even more who cannot afford the job and are forced to sell at a lower price. The value would be lowered by the amount that it cost to do the retrofits in the future.
- Tenant Welfare – Here’s what the politicians have done to housing providers – they passed laws requiring owners to supply housing at less than a fair market price and made it illegal to raise the rent. Then they pass another law requiring the owner to spend an unreasonable amount of money to give our welfare recipients even more than what they already pay for and receive. All for the ideology of redistributing wealth…. wealth that many mom-and-pop owners do not have. Or…….is it just politically expedient?
- Benefits – The bleeding heart politicians say that the primary reason for this retrofit is the benefit of saving the lives of tenants. If tenants are receiving all the benefits, why are we trying to charge housing providers for the cost? This is a concept that is hard for many politicians to grasp since they usually spend money that belongs to others instead of their own money. Nobody wants these retrofits – tenants don’t want them enough to be willing to pay anything either.
- Financing – This makes me laugh. These politicians are telling us that they “will work hard to find the resources…. state, federal and philanthropic”. They even suggest lowering property taxes. Sure. Like they are going to get a $50,000 reduction in taxes this year for the 10-unit owner! Who’s paying all the interest? And who are they trying to kid? They are saying this to suck us in then be “sorry, but we’ll all have to borrow the money from their ‘special’ source and pay it off over the next twenty years”. Owners are already in debt to buy the building – who wants more debt? Show us the money BEFORE they vote for this financially devastating and destructive idea!
- Politics – Ever wonder why housing providers are the only individuals who have to pay tenant welfare (rent control)? Same reason these power-hungry politicians are expecting owners to pay to do their retrofit job. They say, “Owners represent only 1% to 2% of the voters so we can do what we want to them. That guy didn’t donate money to my PAC, anyway. We’ll just force them to ruin their retirement plans, who cares? Just so the City provides a big fat retirement for all us politicians. What do we care about a housing provider’s financial well-being?” Thanks a lot!
- Raise Rents – They say the law will allow owners to raise the rent by $75 a month. How dumb do they really think the owners are? No, we can’t raise the rents by $75 for all the units. Some tenants in most buildings are already paying the fair market price and would move out. Besides, $75 a month doesn’t even come close to paying the real cost. It will take a lot more than $75 a month to make up for that $400,000.00 retirement loss. Some years ago, I remember one of my tenants moving out because I raised his rent by $10! (Bet the person making these devastating suggestions, and submitting the studies, has never provided housing for others.)
Who Supports Retrofits?
Mostly the despicably inconsiderate, or those who do not have to personally pay for it, and maybe some free-loading apartment owners, who want to be politically correct and should have already completed the job if they really believe it should be done.
Is It Practical?
Is there a better way to save even more lives? You bet there is. San Francisco, Los Angeles and New York may all be hit someday by Islamic terrorists. We also do not know when. So why don’t we double the police force now and thereby save hundreds of lives? Or, we could allow a maximum speed limit of only 45 mph on the freeways in the city – we’d save thousands of lives, but what a mess it would cause. We could provide housing and care for all the homeless and/or provide food for all the single mothers whose kids are starving. Both of these ideas would save lives right now – we wouldn’t have to wait for the “sky to fall”. We could help pay for one of these ideas by taking away the retirement plans of the politicians and other city workers but that would not be fair. No way would the politicians vote to spend their money and do harm to their retirement plans! Besides it would be just as devastating and unfair to them as it would be to force housing providers to destroy their retirement plans.
Why don’t we double the police force or lower the maximum speed limit or provide housing for all the homeless or provide food for starving kids? Because it is not practical to do it even if we borrow all the money and do it now!
Fact: Neither is it financially practical or affordable for building owners to retrofit their buildings now!!
Sincerely, Daniel C. Faller, AOA President
Please make copies of this article and send it to every politician and apartment owner you know!