WOW... Your hard work paid off... Prop 98 was defeated by almost 2 to 1, and Prop 99 -- the good eminent domain initiative -- won by an even bigger margin. Will the park owners and landlords get the message? Who knows. As long as they're motivated by greed and can find some allies like the Howard Jarvis anti-government folks (aka the gang that brought us Prop 13 in 1978) we have to be careful. But for now, let's give ourselves and the wonderful groups that helped out on this -- AARP, CARA, the League of
Cities, tenants' advocates throughout the state, and the League of Women Voters and many others -- A HUGE THANKS AND A HEARTY HIGH HIGH FIVE. Special thanks in Sonoma County to those great residents of Sequoia Gardens senior park who manned tables at supermarkets throughout Santa Rosa for several weeks to get the word out. To all of you, THANK YOU!!
Sunday, June 15, 2008
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2 comments:
"As long as they are motivated by greed" you say.
What motivation is being used when a group of people votes a law restricting how much rent they can be charged? It's not greed if a group does it?
The problem with the current mobile home rent control ordinance in Sonoma County is that rent does not revert to the market price upon turnover. Instead, a current rent-controlled occupant can sell the mobile home or pass it on to heirs with the controlled rent still in place. The mobile home owner can in effect sell the right to low rent on to the next occupant.
This takes the gain on appreciation of the land (in excess of the change in CPI) out of the hands of the land owner and puts it in the hands of the person who owned the mobile home at the time the rent control ordinance went into effect.
"Good!" you say. "Why should the greedy landlord get it? The appreciation should go to the people who pay the rent."
Ah, but it doesn't. The appreciation only goes to the first mobile home owner in the chain. When he sells the mobile home on to another person he sells it for whatever price the market will bear. The price the buyer pays for the mobile home is partly the value of the structure and partly the value of the low rent. For example, suppose there are two identical mobile homes standing side by side. Suppose one has space rent at the market price of $650 per month. Suppose the other has rent limited to $350 by rent control. Suppose the first sells for $60,000. What will the second (rent controlled) unit sell for? Answer: It will sell for about $105,000.
"Yay. The first owner profits."
Yes. But what happens next? Mobile homes are not like real homes. They are cheaply made and deteriorate fast. Both mobile home owners now want to replace their coaches. They sell them for fair value (of the coach) and replace them with new ones costing $90,000. What is fair value of the coach? It's the $60,000 paid by the first guy minus $5,000 for demolition and hauling. The first guy bought for $60,000 and sold for $55,000. He's lost $5,000. The second guy bought for $105,000 and sells for $55,000. He loses $50,000. Oops. Where did the money go? Well, the second guy bought $45,000 worth of 'low rent' which he can't recover until he sells and moves away. He can't afford to replace his deteriorating coach.
In my opinion, if there is going to be rent control, it needs to be such that each new buyer is subject to new market rent at the time his occupancy starts. This will keep the coach valuations in line with their replacement cost - and each occupant will know what he can expect going forward.
This leaves the appreciation in the hands of the land owner, doesn't it. As unpopular as that may be the land is what is actually appreciating, not the coaches. The appreciation should belong to the owner of the asset that is appreciating.
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