Judge Limits Hikes in Formerly Subsidized Rents

A federal judge in Los Angeles has issued an order preventing the owner of a federally subsidized apartment building in Echo Park from raising rents to market value after exiting the government program.

The ruling by U.S. District Judge George H. King has raised hopes among advocates of affordable housing that other landlords can be stopped from fleeing subsidized housing programs--thereby removing thousands of low-cost units from the market.

But building owners say the decision unfairly defies federal law and could discourage other landlords from entering into pacts with the government to supply low-cost apartments.

King’s ruling rejects the contention among many owners of subsidized apartments that federal law allows landlords to exit the program and raise rents.

Owners contend that the federal statutes supersede provisions of Los Angeles’ Rent Stabilization Ordinance, said Deputy City Atty. Kenneth Fong.

The city ordinance requires that HUD rental units immediately become subject to rent-control laws when the owners opt out of the federal program. Rents, therefore, must remain at levels that often fall far below the current market value.

King’s ruling earlier this month stems from a September 2000 lawsuit filed by developers Topa Equities Ltd. against the city of Los Angeles.

The company, which owns the 66-unit Morton Gardens complex in Echo Park, claimed that, under the government’s 1990 Low Income Housing Preservation and Resident Homeownership Act, landlords are allowed to raise rents when they leave the federal subsidy program.

King ruled, however, that federal courts have repeatedly recognized Congress’ intention that federal housing programs should benefit residents of low-income housing, not commercial developers, and that there are no definitive policies that preempt local law.

“This is a tremendous decision that will send a message to owners thinking of prepaying their [Housing and Urban Development] mortgages and getting out of federal rent restriction,” said Larry Gross, executive director of the Coalition for Economic Survival, a nonprofit tenants’ rights organization.

“Tenants will no longer fear being pushed out of their homes.”

Jim Grow, staff attorney for the National Housing Law Project, concurred. “This ruling is tremendous because it says that the federal government has no business telling local governments how to regulate their local housing stock,” he said. “The owners will now have less incentive to convert to market rate.”

The attorney representing Topa Equities, which is considering appealing the judge’s decision, called the ruling unfair and said it will discourage developers from participating in federally subsidized housing programs.

Susan Azad said Topa joined the program with the understanding that it could opt out at 20 years, raise rents, then adhere to the city’s rent-control ordinance.

Without the rent increases Topa Equities anticipated, the company will not be able to generate enough income to maintain the building properly, she said.

“The owners were sold a bill of goods,” Azad said. “They had a deal with the federal government. It was changed several times, and now the city says they can’t raise rents.

“Had the owners known this at the outset, they probably wouldn’t have gotten involved,” she said.

Federal housing programs helped build most of the state’s low-income units from the 1960s through the early ‘80s.

In one program, the subsidy required tenants to pay 30% of their monthly income toward the rent, with HUD paying landlords the difference. In exchange, building owners agreed to rent the units to low-income tenants for 20 years, after which they could exit the federal program and raise rents to market levels.

Today, many owners of subsidized apartments want to get out of the federal program to take advantage of rapidly rising market rents.

In California, about 350,000 tenants live in subsidized apartments. The majority of those renters are single parents, elderly or disabled tenants who subsist on incomes of $9,000 a year or less.

Since 1996, California has lost one out of seven of its subsidized apartments.

In Los Angeles, 16,000 units are subsidized and could be affected by the recent court ruling, said Sally Richman, manager of policy and planning at the Los Angeles Housing Department.

The loss of perhaps thousands of low-income units would put further pressure on Los Angeles’ already inadequate supply of affordable housing.

With King’s ruling, low-income housing advocates are hoping landlords will think twice about opting out of the program early.

“The real impact of this decision is that it will be harder for those who want to get rid of affordable housing,” said Jan Breidenbach, director of the Southern California Assn. of Non-Profit Housing.

“It really means that affordable housing will stay affordable.”