Landlords in LA Push for Tenants to Bear Costs of Earthquake Retrofits

Martha Barrios has a gift: she can turn scraps of cloth into haute couture.

She sewed the dresses for all of the dolls that fringe the ceiling of her small one room apartment where she lives alone in the shadow of the 110 Freeway in Los Angeles. She worked as a seamstress when clothing manufacturers adorned the 110 corridor like sequins. When the clothing manufacturing industry unraveled in Los Angeles, Barrios turned to cleaning to pay her bills. She is now 60, and her work has slowed of late – her business has been squeezed by a slew of other younger cleaners willing to work for less. She only gets about two or three full days of work a week. Not one dollar of the money she earns is spent on anything other than basic necessities.

Barrios’ rent just went up another $35 to $738 a month. She spends roughly $100 a month on her telephone bill – expensive long distance calls to her family in Guatemala means it’s rarely less. She spends about $40 a week on groceries. That her local 99 Cents store now stocks fruit and vegetables and milk has proven a godsend. She buys her clothes at Goodwill. There’s no room for luxuries: She considers the time her friend drove her up to Bakersfield for a baby shower as her last big extravagance. Her friend paid for the gas there and back.

Every time her rent increases, she has to go without a little more, and she’s scared that she’ll soon be forced out of her home of 10 years.

“If I were to get another big rent increase, I’d have to find somewhere else to go,” she told me, via a Spanish-speaking translator. “I wouldn’t want to but I’d have to leave here and find somebody to share with. I don’t like to share but I’d have to do it.”

However, Barrios’ greatest fear is what could happen to untold numbers of struggling renters in LA as a result of the largest seismic retrofit program ever undertaken in California.

The Largest Retrofit Program in California

At the unveiling last December of a year-long comprehensive study into the potential impact a major earthquake could have on the city, Los Angeles Mayor Eric Garcetti revealed plans to mandate earthquake retrofits for thousands of vulnerable buildings in LA.

Under Garcetti’s proposal, soft-story buildings – those with large open sections such as garages or parking spaces beneath the first floor that can pancake during an earthquake – will be retrofitted within five years after the law goes into effect. Building officials estimate that there are 13,000 of these types of buildings across the city. Owners of concrete buildings will be given 30 years to complete the retrofits. The cost to retrofit a soft-story building could be as high as $130,000. Some concrete buildings are likely to cost significantly more. And under current law, tenants could see an increase of up to $75 a month if they were to carry the full cost of the program.

The question garnering heat therefore is this: Who should bear the cost of the retrofits, tenants or property owners?

Negotiations are currently underway between the city and various tenant and landlord rights groups. But there has already been much posturing by officials as to who should be saddled with the costs. Last year, former council member Bernard Parks said tenants should shoulder 100 percent of any retrofit costs. Council member Gil Cedillo, head of the City Council’s housing committee, has vowed to ensure that won’t happen.

Garcetti, meanwhile, has suggested a number of incentives to help property owners – including greater access to low-interest loans and tax breaks – but has remained tight-lipped as to exactly what burden renters should carry. One of the proposed tax breaks, AB 428, which would establish a five-year, 30 percent tax credit for homeowners to offset some of the retrofit costs, is waiting to be read a third time and voted on in the state Senate.

But with LA proving the poster-child of a national trend in rising rents that far outpace wage increases, many tenant’s rights organizations fear that even the smallest rent increase could prove a kidney punch for the city’s lowest-income tenants at a time when the poorest are already being pushed further to the fringes of the city.

“The landlords are going to benefit in numerous ways,” said Larry Gross, executive director of the Coalition for Economic Survival, who remains circumspect about the possibility of AB 428’s successful passage through Sacramento. “Under the current proposal, they are not going to bear any of the financial burden. They will have safer buildings. They will be able to get tax breaks. Their property values will increase, and they’ll assume or recover these costs quicker because they can raise the rents upon vacancy and make up the costs that way. Clearly it should not be the full responsibility of tenants to pay for this, because they cannot afford it. It’s totally unjust.”

Soaring Rents in Los Angeles

Last year, a UCLA study painted a stark picture of life for low-income renters in Los Angeles. The study found that LA has the highest median rent of any US city.

On average, renters in LA are paying 47 percent of their income towards housing – the national average is 30.2 percent. Predictably, those among the lowest 20 percent of the income distribution ladder get hit the hardest. Of the city’s lowest earners, 77.8 percent devote half or more of their income to housing, and 11.5 percent pay 30 to 50 percent of their income on rent.

Other recent studies corroborate UCLA’s findings. In March, a report by the Economic Policy Institute found that a household with just one parent and one child would need to bring in $60,600 a year to live comfortably in the city. While a study by USC found that in Los Angeles County – which has the region’s highest average rent at $1,716 a month month – rents are projected to rise 8.2 percent by mid-2016, to $1,857 a month.

The LA Times’ rent map is another useful tool to gauge affordability in the city. According to the map’s calculations, not one area of Los Angeles is affordable for someone earning $31,200 a year – a wage of $15 an hour – who pays only the recommended third of their income toward housing costs.

These figures take on added weight when coupled with a recent spike in evictions, along with declining hourly wages for the bottom half of the workforce. Many tenant advocates worry that the most vulnerable are simply in no position to bear a rent increase under current laws, which could come in addition to a minimum raise of 3 percent a year as part of current rent control laws.

A cost recovery analysis of the Rehabilitation Work Program, for example, shows that a retrofit costing $3,400 per unit would leave tenants shouldering a $56.67 increase per month to be paid off over 60 months. A retrofit that costs $4,300 per unit translates into a $71.67 increase per month, again to be paid off over 60 months. The program is capped at a $75 a month increase, to be paid off over 67 months.

How much each retrofit will cost is something of a guessing game. Of the recent soft-story retrofits that have been completed voluntarily, the costs per unit have ranged between $1,429 and $7,987. According to Harold Greenberg, chair of the Apartment Association of Greater Los Angeles, the actual costs are likely to hover around the upper end of those estimates.

“Once that law passes, it’ll be an issue of supply and demand,” he said. “The sky’s the limit as to how much it’ll cost because you won’t have that many people qualified to do the work.”

Current negotiations will lead to tenants shouldering between 30 percent and 40 percent of the overall costs, Greenberg predicted. And in order to ensure the work is done quickly and that the costs are kept to a minimum, he said there should be an incentive for banks to come in with low interest loans.

“Banks are the ones who are going to get hurt if you get a massive earthquake and the building collapses. If there’s not much equity in the building, people are going to walk away from the building, and banks aren’t in the business of owning property,” he said.

Why shouldn’t landlords be responsible for the full cost of the retrofits? Greenberg says that “mom and pop” homeowners are already squeezed by current rent control laws and rising insurance costs, and may well be unable to take on the full expense.

“You would see the smaller minority home owners pushed out of business only for the big syndicates and conglomerates to swoop in,” he said.

“Means Testing” for Tenants Is Not a Solution

LA, isn’t alone in its attempt to preempt the next big one – San Francisco is ahead of the curve when it comes to retrofitting vulnerable buildings. After nearly a decade of negotiations, the city finally gave the go-ahead in 2013 for a mandated retrofit of approximately 6,600 earthquake vulnerable buildings.

As in Los Angeles, San Francisco’s rents are skyrocketing. The citywide median rent last year was more than twice the median rent in places like Seattle, New Jersey and Denver. Evictions have increased sharply in recent years. San Francisco saw the largest overall rent increase of any US city last year: nearly 15 percent.

The retrofits are projected to cost anywhere between $60,000 to $130,000 per building. Landlords are allowed to pass the full retrofit costs to tenants over a 20-year period, with officials giving homeowners the green light to waive rent control limits on rent increases.

Low-income tenants have been thrown a lifeline, however. Tenants eligible for a hardship waiver (those who receive some kind of public assistance, for example) are exempt from contributing toward the costs of the retrofits. But only about 4 percent of the mandated retrofits have been completed. And as such, it’s too early to gauge if and how the retrofits have hit low-income tenants, said Tommi Avicolli Mecca from San Francisco’s Housing Rights Committee.

“I suspect that we will see a problem as more and more buildings get retrofitted,” said Avicolli Mecca. “Rents here are incredible. It’s unbelievable how high they are.”

According to Sandy Gartzman, senior administrative law judge at the Rent Board, 51 tenants who have been issued with a Capital Improvements rent increase have filed for hardship since the start of the year. It’s not determined, however, how many of the 51 applications pertain to Capital Improvement petitions for earthquake retrofits.

“It’s a lot, but given the number of Capital Improvements petitions that are filed and get decided in our office each year, it’s not enormous,” Gartzman said. “And most of them have been granted. Few tenants who file the application are not eligible.”

Tenants advocates in Los Angeles have observed what’s happening in San Francisco, and while the hardship waiver reads like a good idea on paper, said Thelmy Perez, LA Human Right to Housing Collective coordinator, in practicality it comes with drawbacks.

“We do agree that there should be a hardship exemption, but what we don’t agree with is having means testing for tenants that could put some tenants at risk of a lot of other things,” she said.

Means testing could have serious repercussions for those low-income renters scrabbling to eke out an existence month-to-month on hourly wages and with unstable jobs, she said. Privacy rights issues arise, as does the possibility that some tenants could face the risk of not qualifying for subsidized housing in the future.

“We have 70,000 eviction actions filed a year here in Los Angeles County,” she said. “We have a lot of antagonism from landlords here as well. There’s not a healthy relationship between low income tenants and their landlords, and if tenants are forced to give up their financial information or how they’re making their money, some might end up proving to their landlord that they might not necessarily be able to afford their rent and that will put a lot of people in a worse situation.”

A Lack of Affordable Housing Nationwide

Rising rents are squeezing those at the lowest rungs of the income ladder nationwide. Since 2000, rents have grown at roughly twice the pace of wages, with many other cities experiencing sharp annual rent increases like San Francisco’s. Last year, rents in San Jose rose by 13.4 percent, and in Denver, rents rose by 10.2 percent.

With rising rents come myriad problems. Studies have shown that the nation’s gross domestic product is being strangled by the rents being paid by workers in high-growth cities like San Francisco. Then there’s the added burden placed on the nation’s shrinking inventory of affordable housing.

Garcetti’s “Resilience by Design” study singles out New Orleans as an exemplar of the imperative behind disaster preparedness, but the city is also experiencing a dearth of safe, livable affordable housing – due to a post-Katrina cull of over 5,000 affordable housing units – being fought over by a swelling number of low-income tenants. What is more, these tenants are frequently being saddled with the costs of building maintenance and upkeep.

More than 35 percent of the city’s residents spend 50 percent or more of their salaries on rent. Overall, rents have increased by nearly 10 percent over the past six months alone. The cost of repairs to crumbling housing stock that was never properly fixed after Katrina is coming out of renters’ pockets, said Monika Gerhart-Hambrick, policy director for the Greater New Orleans Fair Housing Action Center.

“We don’t have code enforcement for rental properties, and renters have basically three options. They either fix the units themselves, or they can put up with it or they can move out,” she said. “There’s really no process by which a landlord would ever have to fix a rental.”

Then there’s the encroaching effect from rising rents upon the middle class in cities where even Pulitzer Prize winning journalists cannot afford to live. Social worker Martina Steiner, 34 – who lives in Silverlake, in LA, in an apartment that she shares with a roommate – is one of the many middle-class individuals who are struggling with this trend.

Since Steiner moved into her two-bedroom apartment in 2011, her rent has increased by $159, from $1,275 in 2011 to $1,434 this July. Yet for a long time, she considered herself one of the “lucky ones.”

During this period, she went to graduate school to get her master’s degree in social work, and found a job at a nonprofit organization that paid enough to cover the additional rent costs. Even so, her monthly expenses spread what remains of her income after rent thinly. And what with a 10-year-old old Honda Civic that may soon need to be replaced and student loans that will increase by another $100 to $400 next year, Steiner is unsure how she will cover any kind of rent increase should the soft-story building she lives in fall under the mayor’s mandated retrofits – especially now that her roommate, who recently lost her job, has to move out soon.

“She doesn’t have the savings to pay rent next month,” she said. “I’ll be paying the full rent until I find someone else. I added up the costs for the next month and I’ll be back to putting about half of my monthly income on rent and utilities and cutting costs where I can. The savings I accrued over the last few months while having a roommate have been eaten up instantly.”

Steiner said that she would be hard pressed to cover a $75 rent increase if it were enacted this month. And she’s concerned that rising rental costs will make it harder for her to find a roommate.

“I took another look online to consider moving, and it’s not an easy fix because rents are high everywhere and the cost of moving is also very high” she said. “I really think before taking that sort of money away from renters, there would have to be a really high bar to show that it’s actually an economic burden on landlords.”