Are We In Cuba Or Venezuela?

On January 31, a motion was put in front of Los Angeles City Council to expropriate an apartment building because the affordable rent covenant was due to expire after being in place on the property for 30 years.

The motion 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 59 units to be affordable for the first 30 years. The owner of the building sent notices to tenants over a year ago warning them of the increase, which will increase to market rates. That translates to an increase of up to $1,000 per unit.

The owner of the building is Tom Botz. He said, ”I think it's a brilliant idea but I need to know: Are we in Cuba or Venezuela?"

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 due to expire in June 2019. In May 2018, tenants started to receive notices that their below-market rents would be increasing in a year. In March 2019, tenants were given the option of signing new leases at the new rate or face eviction.

In June 2019, several tenants, with the assistance of the Legal Aid Foundation of Los Angeles, sued Botz, claiming the tenants received did not receive proper notice.

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

But after a period of time, Mr. Botz 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 even picketed his home.

Traditionally, eminent domain is used for projects that are considered in the public interest. These are situations where you need to build a freeway or an airport. The act of condemnation is not usually used for a city to simply buy a property. It’s not clear whether eminent domain would survive a court challenge. If the city  succeeds in condemning the building, it will erode property rights, possibly on a national scale.

If this is a legitimate use of eminent domain, then it could be used again to seize other properties where affordability covenants are set to expire. The affordability covenants are usually set by HUD in Washington which is the primary source of funding and loan guarantees for these types of projects.

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.

It should come as no surprise that the increasing cost of housing follows the laws of supply and demand. Many within Los Angeles have opposed development and intensification. Intensification allows for more units within the city. Even though 70% of the land mass in Los Angeles is made up of roads, congestion is a major issue.

For example, in 2019, LA Council voted unanimously against SB 50, a state bill that would legalized four-unit homes on most residential land and mid-rise apartment buildings near major transit stops.

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