An (almost) free way to stimulate the LA economy

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Previously, we’ve discussed how an equation embedded in the Housing Department’s Primary Renovations program is responsible for perpetuating slum conditions in rent control buildings. Today, I want to suggest a simple change to the equation that would, I believe, kick off a large wave of construction in LA benefiting all of us while costing very little.

To understand my proposal, you have to understand how the Primary Renovations program works. Without getting into all the nitty-gritty, the idea of the program is pretty simple: As a landlord, you’re allowed to recover 50% of the cost of capital expenditures benefiting your building from your rent controlled tenants, in the form of a rent increase of $55 / unit.

The reason this equation stinks is that no one on earth invests a big chunk of money in exchange for getting back only half of it back over a period of many years. Would you spend $20k re-piping an 8 unit building if you would only receive $10k back in the form of $55 x 8 = $440 / month over the course of 22.7 months? You might as well light half your money on fire and save yourself the aggravation.

But what if, instead of getting half your money back, you got 115% of your money back in the form of $100 rent increases on your tenants? Suddenly, it would make sense to invest in your building, because you’d actually earn a return on the investment. In our example above, you’d invest $20k and get back $23k in the form of $800 / month for 29 months. That’s equivalent to an interest rate of 6% / year, guaranteed.

I’d do that deal and so would many, many owners all over LA.

Who benefits from my proposal?

  • Tenants in slum buildings. Sure, their rents would increase by $100 / month for as long as it took to pay off the improvements to their buildings. But many are living in buildings with deteriorating, dangerous plumbing and electric systems left over from the 1920s because it’s in no one’s interest currently to fix them.
  • Owners. No one wants to own a slum building. It’s just what happens when you’re not allowed to earn a return on money spent improving your building. Compared to earning 0% in their money market accounts, that 15% return on investment would, I think, look pretty tasty.
  • The construction trades. My program would spur a ton of construction work, leading to increased employment for plumbers, electricians, roofers, foundation workers, etc.
  • Building supply stores. Think of the copper plumbing that would be purchased. The wiring. The roofing supplies. The tools.
  • The City. All work under the program would require permits, each of which earns the City money it desperately needs. And there is a public benefit to having safer buildings, even if you can’t measure it in dollars and cents.

I know most of you have much more interesting things to do than read about Housing Department bureaucracy. But I sincerely believe that making this one little change would have cascading, positive effects all across our city. Do you know someone in a position to do something with this idea? Pass this piece along!

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