Before I get into my problem with the article, I want to congratulate the author on what I think is a fair, reasonable account of the changes taking place in Highland Park.
Now, to the problem. Here’s the money quote:
“These [renter] residents have reason to be anxious about what gentrification may bring to Highland Park…[w]hile rising property values allow homeowners to cash out, there’s no economic upside to gentrification for renters, many of whom are likely already stretched financially…”
Can you tell what’s wrong with the above paragraph? Read it again.
Give up? Here’s the problem: It’s like the author has never heard of rent control.
It’s true that Highland Park has a large number of non-rent control apartment buildings plus plenty of single family rentals (which are non-rent control by definition). So there are definitely residents who are getting pushed out by the more affluent tenants moving into the area.
But there are also tons of pre-1978 apartment buildings which are covered by rent control, which limits rent increases for existing tenants to 3% per year. And, because much of HP is covered by a huge Historic Preservation Overlay Zone, most of those buildings can never be torn down, so matter how high market rents get.
What does it mean to be a rent-control tenant in a gentrifying area?
The market rent is the price put by the market on consuming a particular unit in a particular building. The price is determined in part by characteristics intrinsic to the unit (number of bedrooms, baths, condition, etc.). But it is also determined by extrinsic factors, principally how desirable the neighborhood is.
Rents in Highland Park are running up way faster than 3% / year, in large part because the neighborhood is gentrifying (better food, booze, retail, etc.). And legacy tenants get to patronize those new restaurants and coffee shops alongside the newbies.
So, one way (not the only way) to interpret the above facts is this: As a rent control tenant in Highland Park, you’re getting a better and better deal with each passing year (as your rent falls further and further below the market price for your unit).
In our business, we are frequently confronted by fairly complex problems.
A good example is the SCEP process, where you often get a long list of issues that needs to be addressed without clear guidance on how to address them. To make matters worse, many of these kinds of issues are related, so that you can’t solve one without first solving another one.
I like to think of these problems like complicated knots that you’re trying to untie. One way to go would be to try to get some kind of mental map of the entire knot and try to come up with a comprehensive strategy for untangling.
But I’ve found that it’s better to approach these problems a different way: Get the small, obvious wins first.
First, momentum / progress is important. If you have to climb a big mountain, you might as well start taking steps, because you and everyone who works with you will feel better if progress is being made.
But, second, there is also the issue of luck / opportunity. In my experience, once you get moving on an inter-related set of problems of varying complexity, often:
- In the course of solving the simple problems, an unexpectedly-easy solution to the complex problem(s) emerges
- Some external force removes the complex problem from your list before you even begin to focus on it
So, like in many things in life, it’s better not to spend a ton of time trying to come up with an optimal strategy upfront. Better to just, as the English say, “get stuck in”.
When someone comes to me for help buying an apartment building, the first thing that happens is we have a phone conversation.
During the talk, I give an overview of our process, then spend a bunch of time asking questions of the potential client, including: how much capital she has to deploy, what size deal she wants to do, what her return requirements are, which areas she likes, etc.
Based on the above information, I need to decide:
1. Whether it makes sense for us to work together at all. All we brokers have to sell is our time. On the buy-side, which is mostly where we work, there is absolutely no guarantee that any particular client is going to do a deal where we get paid. So, to make sure we have a functional business, we need to screen potential clients to ensure they are serious, have the necessary financial resources, and have reasonable return requirements. If yes, great; if no, we’ll very politely decline the work.
2. Which agent she should work with. This one is tricky. Obviously, target deal size and area play a very big part. But, ultimately, getting a deal done is about the agent and client working together as a team. Therefore, I try to balance the more objective factors with a big subjective one, too: Would these people get along?
I wish I had a great system to going back and checking on the decisions I have made about whether to work with clients and to whom to refer them. But I don’t.
With respect to the question of whether the prospective clients are worth the time the agents need to invest, all I can say is that the agents are making a living and continue to happily service the clients.
With respect to the question of whether I’m doing a good job matching agents with clients: We’ve had tons of repeat business. So I can’t be screwing it up too too badly.
Every 2-3 years, the Housing Department attempts to inspect every apartment in the city under the Systematic Code Enforcement Program (SCEP).
The inspections are at least notionally intended to ensure that landlords are running clean, safe buildings.
In practice, the standards of enforcement vary so widely as to be kind of a joke… I have been cited for tiny issues in otherwise spotless buildings and I have toured units which were absolutely horrific but which apparently passed their SCEP inspections with flying colors.
In any case, LAHD does SCEP on a neighborhood by neighborhood basis. Because all of our buildings are close together, this means that we don’t hear from SCEP for 2-3 years but then get flooded with inspections, citations, etc.
The process just started again and already we’re swamped.
Silver Lake / Echo Park landlords: Welcome to the SCEP-ocalypse.
If you’re reading this, you probably don’t know about LA’s Other Economy. How do I know? Because you can read English, and the Other Economy is not, for the most part, English-speaking.
What is the Other Economy? It:
- Comprises mainly immigrants and their American-born children
- Is conducted in Spanish, Chinese, Tagalog, Khmer, and other languages
- Is transacted in cash
- Is offline
- Has prices that are anywhere from 20-50% lower than those in the mainstream economy
Picture a food truck. If what comes to mind is a new vehicle with cool graphics staffed by hipsters with ironic facial hair, you’re a mainstream economy kind of person. The Other Economy foodtrucks are the original ones: usually a bit more beat-up, with hand-lettered signs, staffed by Latin people (often families), and charging much, much less (even though the food is often much, much better).
Car window broken? You can go to your dealership and pax X. Or you can go up towards Chinatown to the strip of places that specialize in just fixing windows, negotiate in Spanish, transact in cash, and get it done for probably 33% of X.
Need an apartment? All over LA, there are neighborhoods where no apartments get rented on Craigslist. Instead, when there’s a vacancy, the resident manager, who often speaks no English, puts out a sign in his/her native language advertising the vacancy. Unsurprisingly, the rents achieved this tend to be way, way less than what you would probably consider to be market.
One way to think about gentrification is as a process that moves physical assets (apartment buildings) from the Other Economy, where they generate lower returns, to the mainstream economy, where they generate higher returns. The negative side-effect of this process is that the Other Economy shrinks, making life more difficult to the people who live and work in it.
Right now, if the Housing Department catches a landlord with an illegal apartment, here’s what happens:
- LAHD cites landlord for un-permitted unit, orders her to either get it permitted or vacate it
- Landlord attempts to permit; discovers that it’s nearly impossible to do (because adding a unit always requires adding parking and adding parking is nearly impossible)
- Landlord decides to vacate unit
- Tenant is evicted; receives $8-19k from landlord (ouch), who must also pay to remove the kitchen and bathroom
The net result of the above is that the tenant is out a place to live and the landlord is out a bunch of money and receiving less rent going forward.
You can see why landlords and tenants have an incentive to band together to try to change city policy. And, lo and behold, they’re trying: The idea is to get the city to make it easier for the landlord to bring the unit into compliance so that the tenant can stay.
I’ve permitted a non-conforming unit before and it’s no joke. The problems break down into two categories:
- Bringing the unit itself up to code. That means appropriate ingress/egress, windows, fire protection, etc. This is almost always possible to do, so long as there is sufficient money… and the value-add from adding a unit would almost always justify the cost;
- Adding the parking. In my case, I was able to squeeze in another parking space by moving a giant electrical panel at the cost of $30k. But, generally, this is impossible, because there’s just not enough space on the lot and digging out subterranean parking would be totally financially infeasible.
So here’s the rub: If the city is going to make it easier to permit non-conforming units, it’s going to have to waive the parking requirements. And the city has generally been very wary of anything that would reduce parking and therefore anger neighbors.
Have rents got so high that politicians are willing to consider allowing alienating homeowners by allowing landlords to reconfigure existing buildings to add more units? I doubt it. But I hope I’m wrong… because my business would get much, much better if it did!
When I first moved out here, I had literally zero patience for all the trippy New-Agey bullshit floating around out here.
Everyone seemed to be on some new cleanse, to visit astrologers, to ascribe powers to crystals, to meditate, etc.
As someone who prides himself on being hyper-rational, I was not impressed.
But something has changed in me as I’ve begun building my career out here. (No, I’m not going dropping out and tuning in or whatever.)
I have found the following to be true: The energy you put out in the world comes back to you.
My job involves meeting lots of new people and then working with a subset of those people to make complicated deals happen. When you do a deal with someone, you are trusting them (and they, you) in all kinds of ways, big and small. It’s incredibly important that you build trust early and then do everything you can to keep / build that trust through the course of the deal.
The way you build those relationships is by presenting an open, honest, helpful demeanor. And the key is that it has to be genuine… people are incredibly good at picking out phonies.
If you are open, honest, patient and helpful, then I have found that the people with whom you do business will reflect that back to you. They will generally treat you well, keep their promises, and cut you a break when you need it from them.
If, on the other hand, you are closed off, suspicious, impatient, conniving, duplicitous, greedy or jerky, you will get those behaviors reflected back at you to. You will not get the best out of people and you will not get the best opportunities.
Can’t believe some of this New Age stuff turned out to be true. Next thing you know, I’ll be meditating…
I usually avoid giving design advice on this blog, mostly because my partner Jon is the design expert at Adaptive. I mostly do the numbers.
That said, I thought I’d draw your attention today to a classic error that landlords make when renovating apartments.
Look at this picture:
Can you see what’s wrong?
The owner decided to use tile or some kind of laminate for the dining / kitchen area.
The effect is to make the room feel considerably smaller than it actually is, because the eye is tricked into thinking it’s divided in two.
If, instead, the owner had continued the wood floor all the way to the far wall, the space would feel huge and open.
Why do people choose to do tile dining / kitchen areas? Well, I guess there’s an argument that they hold-up better when water is spilled on them. But tenants these days tend to cook a whole lot less than before.
That said, as between getting (1) higher rents but having to refinish the floors slightly more often; and (2) getting lower rents, I’ll take 1 every time.
How can you tell that Silver Lake and Echo Park weren’t always so nice?
The window bars.
Back in the 1980s and 1990s, both neighborhoods had plenty of shootings, burglaries, etc. People naturally responded by “up-armoring” their homes with strong doors, fences and window bars.
Now, both neighborhoods are very safe. It’s not that there’s no crime; it’s just that most of the serious stuff is gangster-on-gangster violence that does not involve civilians.
Meanwhile, those window bars are still up, mostly due to laziness on the part of homeowners and landlords.
But they send absolutely the wrong message about the neighborhoods. And, worse than that, tenant absolutely loathe them. No one likes to spend a lot of money to feel like they’re in jail.
So, do us all a favor and take a look at your Silver Lake / Echo Park property (properties?). If you still have those bars up, it’s time to send the handyman over to take them down.
I recognize that my continued harping on our antiquated zoning code is not the fastest way to build readership (to put it mildly). However, I am not going to stop writing about it, because zoning shapes LA in ways of which most people are not at all aware.
In any case, today I want to draw your attention to an interesting piece about the history of our code which was recently posted on the Recode LA website.
Here’s the money quote:
“[C]onflicts over the maintenance of the early postwar concept of good zoning have led to a great number of discretionary actions built into the Code. These have tended to increase the weight of those disinclined to allow change. This use of discretion has been at the expense of the creation of new housing. It has been at the expense of the environment and efficiency, displacing density from urban areas to exurban locations.”