Below is a letter that was sent to politicians from San Diego to San Francisco: 

Dear Friends:

Perhaps there are 20 or more cities that will adopt some form of rent stabilization ordinance, rent control, landlord-tenant mediation bureau or inspection or “just cause” eviction mechanism.

However, the essential feature of rent control does not provide a yearly adjustment or rental increase because the basis of the municipal rent adjustment is an irrelevant and illegitimate Consumer Price Index (CPI) formula.

There are 211 consumer items in the CPI basket.  Unfortunately, most of those items do not have any material or relevant correlation to the realistic and accurate apartment operating expenses.

For example, the following represent those items that are essential to apartment operations and yet excluded from the CPI formula:

  • Property taxes
  • Insurance
  • Parcel taxes
  • Municipal bonds
  • Business license fees
  • Municipal rent registration/inspection fees
  • Pest control
  • Water, sewage, utilities
  • Trash
  • Accounting
  • Membership in trade associations
  • Purchase of rent control and legal forms
  • Participation in workshops to learn best practices/fair housing protocol
  • Flooring
  • Roofing
  • Appliances
  • Water heaters
  • Paint
  • Screens/windows
  • Landscaping
  • Plumbing and electrical repairs
  • Smoke/carbon monoxide alarms and appliances
  • Exterior and common area security systems, cameras and lighting

This is not a comprehensive and exhaustive examination of all operating expenses; however, none of these operating expenses appear to be included in the CPI basket and to that extent, municipal housing departments that embrace and adopt the CPI are not providing a “fair return on investment” as mandated by the United States Supreme Court in examining the legitimacy of rent control.

Over the past 50 years, the California Supreme Court, as well as the United States Federal Courts has upheld rent control because the municipal system always allowed the owners to obtain sufficient rents to support their operating responsibilities and at the same time, enjoy an appropriate margin of profit.  However, Santa Monica and West Hollywood will not allow reimbursement for the required earthquake retrofit.

Many legal scholars believe that a lawsuit should be initiated to force 20 cities to use a formula for “fair return” based upon accurate operating expenses, and not rely upon an antiquated, arcane CPI formula.  Housing scholars will suggest that owners are able to meet their operating responsibilities because of vacancy decontrol.  Simply stated, when a unit becomes vacant, the owner can offer it for rent at the prevailing market rates.  New tenants are actually underwriting and subsidizing the older, long-term tenants whose rent and modest, inadequate adjustment is insufficient to meet operating mandates.

We strongly believe that small apartment owners should join their local apartment association, [AOA] and communicate directly with their local State Senators and Assemblypersons.

 

Michael Millman is an Attorney and a Mar Vista activist and can be reached at (310) 477-1201.