In the late 1970s, when many Santa Monica apartment owners were raising rents at a feverish pace, Paul and Louisa Kot were models of restraint.
A two-bedroom apartment in their modest building could be had for about $190 a month, compared to $500 elsewhere. Louisa Kot said the rental income was sufficient. Besides, they could always charge more when they needed more.
"At the time, my husband was still working and we thought we didn't need that much rent," said Kot, who is 68 years old. "We didn't know anything about rent gouging. Now we know, but it's too late. We're stuck."
The Kots lost the authority to raise their rents in 1979, when the city's strict rent control law was enacted. The law froze rents and allowed for only modest yearly increases. The Kots, who were charging less than market value at the time, have been stranded in a kind of financial time warp ever since.
Now, for the first time in seven years, help may be on the way. The Rent Control Board has announced that it will study ways to increase profits for owners saddled with unusually low rents. The rent board study is a rare public acknowledgment of the plight faced by landlords such as the Kots.
Suffering From Generosity
"The board is interested in looking into situations where an owner is suffering from their earlier generosity," said rent board administrator Howell Tumlin. "If we find situations like that, we want to find out what we can do to help the owners without hurting the tenants still in place."
Tumlin said the board does not know how many landlords fit that category. But James W. Baker, a spokesman for apartment owners in Santa Monica, said that 40% to 55% of the city's landlords could be considered hardship cases.
Apartment industry studies show that roughly half of the landlords were renting at below-market prices when rent control was enacted, Baker said.
"One of our arguments against the rent board's process for figuring rent increases is that it is based on the assumption that all rents in the past produced a fair return," Baker said. "But we are keenly aware that many of our amateur owners did not raise their rents for years and years."
Baker's words are echoed by many landlords. But City Councilman Dennis Zane, a tenant activist, said rent restrictions are warranted in most cases.
Exceptions to Rule
Zane said the overwhelming percentage of apartments would be priced out of reach of the average renter if it were not for rent control. He maintained that apartment owners such as the Kots are exceptions to the rule.
"Mr. Baker and his group regularly make statements like this that have little factual grounding," Zane said. "They are distortions. . . . I don't know of anyone who has gone bankrupt because of the rent control law."
The Kots have not gone bankrupt. But they are not strolling down easy street either. Louisa Kot said they are barely able to survive on the rents they receive from their five-unit building, which is located on Broadway.
After 30 years in America, the immigrant couple--she is from Italy and he from Poland--seem genuinely mystified by their inability to capitalize on capitalism. "I do not feel like I am in a free country," Louisa Kot said.
The Kots had higher hopes in 1971, when they purchased the building for about $75,000. They lived in one unit and paid their $352-a-month mortgage with the money earned from the remaining four units. Before the passage of rent control, Louisa Kot said rents in the building ranged from $122 to $190 a month. Their total monthly income from the four units was about $450.
Since the passage of rent control, landlords have been limited to rent increases of less than 7% each year. The rents on the Kots' units now range from $175 to $270 a month. But two of the units are vacant because the Kots said they cannot afford to make the repairs needed to make them habitable. Their monthly income today from their two rental units is $445, they said
After paying their water bill and other minor charges, Louisa Kot said she and her husband hardly break even.
"We do not have enough rent to cover all of the costs of the building as it is. As a result, it's not in very good shape," Louisa Kot said. The Kots, like many Santa Monica landlords, have not made any major improvements to their building since rent control was enacted.
Paul Kot said the building needs a "complete repair." The water heaters won't last much longer, he said. In addition, the building's stucco exterior is peeling. And some of the bathroom plumbing isn't working.
The Kots said they cannot sell the building because they wouldn't make enough of a profit to relocate.
"This building was supposed to provide for our retirement," Louisa Kot said. "But it hasn't worked out that way."