* rebuilding apartments in L.A. after the earthquake
Topics: Safety, Regulation
09 May 1994
From: ervan
There was a piece on tonight's MacNeil/Lehrer Hour about the problems of
rebuilding apartments in L.A. Not even one of the numerous people they
interviewed layed the blame where it belonged: zoning.
The first clip was from Housing Secretary Cisneros complaining that it was
absolutely essential that old apartments be rebuilt as it was impossible to
build new apartments to meet the demand. Huh? Why is it impossible to
build new housing? Because zoning makes it illegal. His second complaint
was there was insufficient excess capacity to absorb the now homeless. They
didn't list the numbers buy my impression was that < 5% of apartment
dwellars had to move out. 5% excess capacity is common where there is no
rent control. But, where there is rent control and landlords cannot make a
decent profit there is no incentive to build new units (for any sort of
demand).
The landlords were complaining because they were not making a profit before
and could not begin to borrow to make repairs. Well, same problem. Rent
control does not let them raise their prices. Instead, they are just
walking away and defaulting on the loans. A lose-lose situation for
everyone.
In fairness, not all of the L.A. area is rent controlled but it is all
heavily zoned. Where rebuilding at market prices really is possible, there
is no problem with raising rents to cover the loan costs. But even in these
cases, multi-year, multi-$K hoops must be jumped through just to get
regulatory approval to rebuild. Months later, apartment buildings sit while
government officials wrangle over what to do. Oh yeah, don't forget: this
is a 'market failure'.
What were the suggestions? More 'free' money from government. A more
curious one was that FSLIC & FDIC should not raise rates on banks which make
loans to rebuild apartment buildings, loans that have a high chance of going
sour. In other words, while we are still paying for the last S&L bailout,
people are already advocating that banks (and S&L's) be encouraged to make
bad loans! FDIC has already agreed to this concession.
---Ervan
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