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Affordable Housing

December 09, 1988

The Nov. 27 article emphasizes the very real cost of rental housing to tenants, but does not balance rent increases with the increased cost of owning and operating an apartment house, thus creating an impression of "rent gouging" on the part of the owners. I just sold a "typical" six-one bedroom apartment house in Hollywood.

At the time I purchased the poorly maintained property in 1970 for $40,000, the annual rent was $6,000. ($80-$85 per month per unit). The purchase price was 6.7 times the annual gross income. In the first few years I spent $60,000 over and above regular maintenance costs in restoring and upgrading the building and grounds. When the property was sold this year for $300,000, the annual rent was $28,000. ($206-$550 per month per apartment, $389 average). The purchase price was 10.7 times the annual gross income, a reflection of high land costs. My annual net income, after loan payments ($30,000 loan), maintenance, taxes and insurance was $10,500, a return of 3.9% on my investment.

Ahh, you say, but look at the profit he made in selling the property! The Los Angeles-Long Beach Consumer Price Index indicates that the 1988 dollar is worth about one-third of a 1970 dollar. So in "constant dollars," I came out about even, before being subject to a 28% capital gains tax. True, I did receive some tax shelter, but I could have made more money by buying certificates of deposit. My point is that an apartment house owner is also a "victim" of high costs--particularly land costs.

The real culprit is "social engineering" by those who believe rent control is the answer. Look at the straight-line "sky-rocketing" line on your graph which occurred after rent control!

As long as economic opportunity exists in Los Angeles, we will have immigration. No-growth and rent-control policies will not stop this. The sad truth is that the more affluent will always push the less affluent into crowded quarters, out of the city, or worse, into homelessness. As tough as it may sound, the answer is a return to a housing market free of control and restraint.

CUTLER DIPPELL

Los Angeles

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