L.A. Politicians Want To Seize Private Apartment Building to Prevent Rent Increases

Los Angeles politicians will make housing affordable, by force if necessary.

On Friday, City Councilmember Gil Cedillo introduced a motion that asks city staff to draft plans for using eminent domain to seize Hillside Villa Apartments, a 124-unit, privately-owned development in the city’s Chinatown neighborhood to avoid rent increases at the property.

The property is currently under an affordability covenant that requires its owner to rent out a number of its units at below-market rates. That covenant is set to expire soon, meaning rents on some 59 units will increase to market rates—which means rent hikes of up to $1,000 per unit.

“We think it is important enough that we need to take action to preserve those units. We don’t want to generate more homeless people,” Conrado Terrazas Cross, Cedillo’s communications director, tells Reason, saying that many tenants would not be able to afford the coming rent increases.

“I think it’s a brilliant idea but I need to know: Are we in Cuba or Venezuela?” says Tom Botz, the L.A.-area developer who owns the building, about the proposal to seize his property.

Botz tells Reason he purchased the development company that built Hillside Villa roughly 20 years ago. The building’s construction had been financed by a number of government grants and loans, including a $5.4 million loan from Los Angeles’ since-abolished Community Redevelopment Agency in 1986.

A condition of that loan was that the developer rent out units in the building at below-market rates for 30 years. Other government grants and loans that helped finance the building came with their own specific affordability requirements.

The affordability requirements from the redevelopment loan were supposed to expire in June 2019. Beginning in May 2018, tenants in Hillside Villa started to receive notices that their below-market rents would be increasing in a year’s time. In March 2019, tenants were given the option of signing new leases at the increased rates or face eviction.

In June 2019, several tenants, with the assistance of the Legal Aid Foundation of Los Angeles and the National Housing Law Project, sued Botz, claiming the eviction notices tenants received did not give them proper notice.

That lawsuit was dropped in July after a compromise was tentatively reached in which Botz agreed to extend the affordability covenant on his property for another 10 years in exchange for the city wiping away the debt he still owed on the redevelopment loan.

Botz eventually decided to not go through with that deal. He says that he had no hope that once the extended affordability requirement expired, activists and the city wouldn’t just try to pressure him again into maintaining below-market rents at the building.

The past six months have seen bitter feuding between Botz, tenant organizers, and Cedillo’s office. Activists picketed his home, according to The Malibu Times.

Cedillo has accused Botz of reneging on their agreement to not raise rents. Botz contents nothing concrete was ever agreed to. The dispute has now culminated in Cedillo asking the city to seize Botz’s property.

Extreme as it might be, this use of eminent domain could well be constitutional says Jim Burling of the Pacific Legal Foundation, a public interest law firm.

“It’s theoretically possible for the city to thread the needle to make this work constitutionally,” Burling tells Reason, saying the government would probably be within its rights to condemn a property for the purpose of preserving affordable housing.

But the devil is in the details, he says. “If [the city] get[s] sloppy or they get greedy and don’t want to pay what this property is actually worth, there could be some serious constitutional challenges.”

Regardless of whether this seizure meets constitutional muster, it will certainly erode property rights, says Burling.

“Why are you going to spend 30 years maintaining a property and keeping it in good shape if you know that at the end of the day, the government can basically rip up the agreement?” he says.

Terrazas Cross says that eminent domain could be deployed to seize other properties where affordability covenants are set to expire.

Cedillo’s motion asks the city’s Bureau of Engineering to consult with the city attorney and then prepare a report on seizing Hillside Villa within 30 days. Botz says he will fight any effort to seize his property in court.

Ideally, tenants currently receiving subsidized rents at Hillside Villa would be able to find adequate market-rate housing, even if rents at their current residence shot up. That they can’t is a product of Los Angeles not allowing enough construction of new housing at rates that would keep rents stable over time.

The solution to that, however, would be allowing more private housing construction. Instead, the city is now looking at just taking over the limited number of private developments government regulation has allowed to be built.

In 2019, the Los Angeles City Council voted unanimously to oppose SB 50, a state bill that would have legalized four-unit homes on most residential land and mid-rise apartment buildings near major transit stops and job centers.

Should the city go down the path of seizing private developments to preserve units, it will discourage investment in developing new housing.

The Los Angeles Times reports that Cedillo’s motion will now head to the city council’s housing committee, which he chairs.