Opinion: A Fairer Way to Share the Costs of Retrofitting Rent-Stabilized Housing

Living in West Hollywood, most of us know a catastrophic earthquake may strike at any time.

One of us, Karen, went to law school in New Orleans, and moved away two years before Hurricane Katrina upended life for the city’s 460,000 residents. Everyone, including government officials, knew a devastating hurricane would strike the city some day. Many of us figured officials had a plan. Authorities surely had an evacuation plan for the jails, the hospitals, and the more than 100,000 people who did not own a car. Right? Surely, the levees were up to par in such a vulnerable city? Sadly, no. At least 1,833 people died, and many more were traumatized. Virtually the entire city was displaced. Less than half of New Orleans residents had come back as of 2006. Now, 13 years later, the population is still at only 391,000 — a 15% reduction.

We’re grateful West Hollywood’s head isn’t in the sand. And anyone who thinks Northridge’s relatively limited damage means an earthquake won’t be too destructive: If an 8.0 earthquake hit — like the 1985 earthquake in Mexico City — it would be about 89 times stronger than Northridge, which was 6.7. That Mexico City earthquake killed 10,000 people and caused more than 400 buildings to collapse.

The reality is that West Hollywood’s rent stabilized buildings are all at least 39 years old, and many include features that engineering experts now know are particularly vulnerable to collapse in an earthquake.

If a rent-stabilized building is destroyed, due to state law, whatever is built in its place will not be rent-stabilized. A little more than 40% of West Hollywood’s households (40.5%) are lower income, and 16.9% are moderate income. Most of our neighbors cannot afford market rent. While it doesn’t guarantee a building’s survival, retrofitting is known to strengthen structural deficiencies and improve performance of these buildings during an earthquake, which is key to West Hollywood residents being able to come back home.

West Hollywood is mandating that any necessary retrofitting be completed within five years of notification for soft-story building owners and 20 years for more costly retrofits. The question our City Council will grapple with Monday is who pays for the retrofitting?

Although both of us are Rent Stabilization commissioners, we were advised to conflict ourselves out of deliberations on this question because we are tenants in rent-stabilized buildings listed as probably needing retrofits. (The conflict rule includes an exception if 25% of residential units are similarly situated. Monday’s staff report shows an estimated 28.56% of units are similarly situated. However, staff was not able to provide a precise figure before the commission’s deliberations and we followed the city attorney’s advice to recuse ourselves so as not to call into question the integrity of the process and distract from the exemplary efforts of city staff to engage both tenants and landlords in the process.)

Our fellow commissioners recommended the cost be split between landlords and tenants. Under this proposal, for 10 years, landlords would be allowed to “pass through” a total of no more than 50% of the cost to tenants with an unspecified monthly cap. The recommendation urged including a hardship waiver for low-income tenants, who would not have to share in costs. It was unclear who would pick up the cost — landlords or the city.

The staff proposal before the City Council on Monday sets the cap at $38 per month, and limits the waiver to very low income individuals who are also 62 or older or disabled.

While we respect our fellow commissioners and staff we have a number of concerns with this proposal, and urge the City Council to consider an alternative approach.

Costs Should Only Be Shared with Tenants if Landlords Cannot Afford Them

One of West Hollywood’s primary reasons for becoming a city was to maintain rent-stabilized, affordable housing. In recent years, rents have been skyrocketing. In 2016, new tenants in rent-stabilized units were paying an average of $1,590 for studios to $3,753 for three-bedrooms. Landlords who have mostly newer tenants may be able to easily absorb retrofitting costs while earning a more than reasonable profit.

In the case of landlords who would be making a healthy profit even if they absorb retrofitting costs, we see no reason to burden their tenants with any of the retrofitting costs. In those cases, subsidizing retrofitting is also not a good use of city funds. The city should find a fair, non-cumbersome way of determining if landlords can easily cover the costs of retrofitting on their own.

Landlords Cannot Be Forced to Cover More Costs Than They Can Afford

As was noted, the pass-through that is being proposed would require landlords to pay at least 50% of retrofitting costs. That percent could be significantly higher because tenants’ monthly share is capped. Landlords may also have to absorb additional costs if tenants’ parking or storage is unavailable due to retrofitting, or if the city doesn’t cover hardship waivers.

City law generally limits annual rent increases to 75% of the Consumer Price Index (CPI — one measure of inflation). So, in buildings where most or all tenants are long-term, some landlords may be making a modest return.

Meanwhile, court decisions have found rent stabilization laws must allow landlords to receive a just and reasonable return. If landlords would not otherwise receive a reasonable return, they must be allowed to raise rents.

We believe that during community meetings, the impression was given that the pass-through would prevent rent increases. Importantly, that is not the case in any instance where landlords may not otherwise be able to receive a just and reasonable return. This is most likely in buildings with mostly long-term tenants paying low rents. Many of those tenants may be low- or very-low income.

Tenants Should Not Be Forced to Cover More Costs Than They Can Afford

Some tenants will not be able to reasonably afford a pass-through or rent increase for seismic retrofitting. For this reason, it is vital that not just low-income tenants, but all tenants who are already rent-burdened be exempted from paying costs they cannot afford. (The exemption should not be limited to only people who are very low-income and 62+ or disabled, as proposed to council.) Rent-stabilized tenants are already facing a 3% rent increase this year. Some rents — especially for our newer city residents — are so high that even tenants with more income cannot afford the added costs.

Alternatively, a case can be made that tenants should not have to cover any of the retrofitting costs. We have 15,234 rent-stabilized apartments in the city. More than 10,000 rent-stabilized units turned over in the past five years. Meanwhile, five years from now is the deadline for retrofitting. Realistically, many tenants who pick up some retrofitting costs will not benefit from the retrofit.

The City Should Be a Significant Partner In Covering Costs of Retrofitting

This brings us to who would pay for retrofitting costs that the landlord and tenant cannot afford. We believe the city should be a significant financial partner in retrofitting. West Hollywood has roughly $100 million in reserves, a booming nightlife industry, and the ability to generate revenue in a number of ways — such as increasing transient occupancy tax (TOT). Perhaps it could also tap into some federal or state sources of funding.

Of the three parties involved — current tenants, landlords, and the city — arguably the city has the strongest interest in retrofitting. West Hollywood is committed to having a lasting resource of rent-stabilized housing. Our largest source of affordable housing is our rent-stabilized housing stock, and — unless state law changes — there is no way to increase that stock at an affordable rate. While landlords and tenants will benefit from retrofitting, too, landlords likely have insurance and most current tenants will likely be gone before a major earthquake strikes.

Our Suggested Approach

In a case where a landlord can absorb the costs while exceeding a fair and reasonable return, he or she should be required to do so. In other cases, a presumptive 50/50 pass-through, for 10 years and with a monthly cap could work as a default. However, the hardship waiver should include both low-income, low-wealth individuals and anyone who is rent-burdened. In addition, to the extent a landlord or tenant demonstrates they cannot pay some or all of the retrofitting costs they would otherwise absorb, the city should cover those costs. In the case of a landlord, that should apply only if certain conditions are met. For example, the city could explore opportunities of loans that can be forgiven if there are commitments made to not remove the building from the rental market for a specified number of years.

The city should also assist property owners on “habitability” — help finding replacement parking and storage during construction and increase their efforts in coordinating multiple projects taking place in close proximity to each other to mitigate impacts on overall neighborhood. It is far better positioned to do so than hundreds of individual landlords and can better coordinate multiple projects to mitigate the overall impacts on a neighborhood.

We realize our proposed approach is more complicated than the one on the table, and that many details would need to be worked out. We also understand using city funds for this will need to be handled delicately and information will need to be publicly accessible so that it is not an illegal gift of public funds. However, we believe having a more comprehensive approach that involves greater investment by the city is more fair to the parties directly involved and commits the entire community in sharing the cost of protecting our rent stabilized, more affordable housing stock we all value.