In times of economic uncertainty and market fluctuations, property owners are especially motivated to find innovative ways to mitigate financial challenges. This holds particularly true for real estate owners facing a dual threat: sinking property values and an unfavorable regulatory environment.
In San Francisco, Los Angeles, Santa Ana and other cities in California that suffer from restrictive local rent control laws, these factors have converged, prompting investment real estate owners to flood the counties with appeals to reduce their property assessments and tax payments.
San Francisco: A Tale of Shifting Fortunes
San Francisco, a city renowned for its vibrant tech scene and picturesque landscapes, has been grappling with a prolonged decline in real estate prices. As the city’s real estate market bears the brunt of economic challenges, property owners have increasingly turned to property assessment appeals as a means of reducing their tax burden.
For the fiscal year that ended June 30th, San Francisco tax filers asked for an average 48% reduction on property assessed at more than $60 billion, according to filings with the city’s assessor’s office compiled by Bloomberg. This approach enables them to lower their property tax payments, providing much-needed relief in an otherwise challenging economic landscape.
The Los Angeles Rent Freeze and Multifamily Property Value Implications
Meanwhile, in Los Angeles, property owners are facing a distinct challenge in the form of a four-year rent freeze, coupled with approximately 20% year-over-year inflation of goods and services related to property ownership, all of which has contributed to the devaluation of multifamily rental properties.
Rental properties are predominantly evaluated based on the income they generate, a principle that forms the foundation of real estate investment. In the context of Los Angeles, the implementation of rent freezes has introduced a unique dynamic. While these freezes aim to stabilize housing costs for tenants, they do not account for the rapidly rising costs of property ownership and have led to lost income and lower property values for housing providers. The constrained rental income potential has diminished the attractiveness of these properties to investors, causing a decline in their market value.
Interestingly, this stands in contrast to the trend in neighboring primary residences that are not for rent, where values have surged. These properties, unaffected by rent freezes and rent caps, have capitalized on the robust demand for housing in the vibrant SoCal market, resulting in substantial value appreciation. Likewise, multifamily properties in cities that don’t have local rent control restrictions have also seen a sharp rise in rental prices and property values. This juxtaposition underscores the intricate interplay between market policies, rental income, and property valuations within the broader real estate landscape. My sense is that cities and counties that continue to unfairly punish housing providers will see more lawsuits challenging these policies, and a reduction in the availability of housing as investments in these markets are no longer attractive.
The devaluation of multifamily rental properties in Los Angeles and other cities that have restrictive rent control laws, underscores the need for property owners to explore alternative avenues to mitigate financial strain. Just as in San Francisco, appealing property assessments could offer a viable strategy for rental property owners looking to navigate these challenging times.
Conclusion
In times of economic upheaval and market uncertainties, property owners must adapt and explore innovative strategies to weather the storm. The experiences of San Francisco’s real estate community serves as a valuable blueprint for rental property owners in Los Angeles and beyond. By proactively engaging in property assessment appeals, beginning with getting a property valuation from a qualified real estate agent, owners can potentially reduce their tax burden and alleviate financial strain caused by sinking property values and regulatory constraints. As with any investment, it’s best to explore your options with a professional to ensure you get the best deal and control risk.
Although obvious, it’s also worth calling out that the laws that target housing providers harm those they are supposed to help, violate the basics of our free market economy, and devalue the cities that enforce them. Devalued properties decrease tax revenue for cities, which in turn limits city services and benefits for visitors and residents. It also all but eliminates one of the most approachable versions of the American dream.
Attend housing provider conferences and you’ll realize the owners represent every walk of life, background, etc., that you can imagine. It’s just hard-working people trying to make a living and build a legacy. It seems many of the legislatures strangle these mom-and-pop businesses, and then feed the housing demand to large, well-funded institutions or chase housing providers to other counties. The city of Santa Monica, as an example, has strong tenant-favoring eviction laws aimed at housing providers. As a result the number of available units in Santa Monica has been going down as providers leave, turn their properties into individual homes, or can no longer afford to maintain their properties.
With so much change imposed by the government, it’s important to use your vote wisely, and pursue legal action when our rights are infringed upon. Housing providers are a critical part of our economy, and we need to more effectively represent our interests. In the short term, if you feel that your property may qualify for a tax reduction, a property assessment appeal may offer some temporary financial relief.
Mercedes Shaffer is a commercial real estate agent with Coldwell Banker. She can help you build wealth one door at a time or cash out and defer taxes. To learn about your options, or if you have questions, phone or text her at 714.330.9999, email [email protected] or visit her website at www.InvestingInTheOC.com. DRE 02114448. This article is for information purposes only. For legal advice, always consult with an attorney.