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Rent Control's Effect on New Construction

October 05, 1986|RUTH RYON

Selden Ring, whose Ring Bros. owns and operates about 5,000 apartments mostly in Marina del Rey and Los Angeles, looked at The Times on Sept. 7 and made some conclusions about rent control.

"First I saw an article in the Business Section on the Orange County apartment market, saying that the renter there is king. In the same paper, I read an article in the Real Estate Section about the Promenade Towers, an apartment project in downtown Los Angeles that is taking students as renters to fill it up."

The thought occurred to Ring that there are three jurisdictions, two that are similar and one that is very different.

The two that are similar: Orange County and the city of Los Angeles. In Orange County, where there is no rent control and landlords give tenants concessions just to fill up the buildings, "there is a free marketplace and so much new construction of apartments that there is a force downward on the price of rentals," he said. "In Los Angeles, which has a moderate rent-control ordinance with moderate rental increases, there is also new construction, which is clearly visible in Westwood, the San Fernando Valley, the east side of the city and even downtown, where (management of) the Promenade Towers had to take what were intended as posh apartments and rent them to students with three to a unit."

The third jurisdiction? Santa Monica, which he described as having "a very restrictive rent-control law and no new apartments being built." Santa Monica has the "tightest supply/demand situation of anywhere in Los Angeles," he said. "People are paying under the table to get apartments because the rents are abnormally low."

It all points to an age-old message espoused by real estate interests and repeated by Ring: "When you let the free market run its course, competition comes in. Builders build more than in rent-controlled areas.

"But even in Los Angeles, where there is a moderately free market, there is a lot of building going on."

Under tight rent controls, tenants fare worse though they pay less, he said, because there are fewer vacancies and less attention to maintenance.

That's why the so-called yuppies are getting the few vacancies that come on the market in Santa Monica, says Wesley Wellman of Wellman Realty in Santa Monica. "Given a choice, a landlord will go to the highest-income person as a tenant, because they are most likely to do interior cosmetic improvements to benefit their life styles. There is no financial incentive for owners to do that."

Penny Griffith, who owns and runs a Los Angeles tenant relocation service, agrees. Since she formed her company 3 1/2 years ago, she has been relocating tenants for developers building on the West Side. "Most of my tenants want to go to Santa Monica, but it's impossible for them to get in," she said. Most are elderly on a fixed income. "And I've found that landlords in Santa Monica rent to young professionals. The landlords take 100 to 200 applications for one apartment, and invariably they choose a young attorney or other professional. The senior isn't even in the bidding."

It's a tight market even for professionals, she added, but she knows of one real estate firm that placed three of her tenants, who are not seniors, in the past month.

"The realty firm charges the tenant the difference between three months rent and the market rent," she said.

On an average, rents in Santa Monica are 50% or more below market value, said Wellman.

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