Chairman, Subcommittee on Commerce, September 30, 1975 page 3 MANAGING THE COMPLETED PROJECT Finally, as owners operating a residential housing development under the Rental Accommodation Act we will face problems which include non-recoverable increased operating costs, an inflexible rent structure, onerous administrative requirements, and invasions of our right to business privacy. In a normal free-market rental situation rents rise in anticipation of and simultaneously with the general inflationary cost increases which occur in the economy. Under the new law, because of the use of cost history to determine future rents, we will be totally unable to recover cost increases that precede rent increases. All federal regulatory agencies utilize cost forecasting in determining allowable rate increases. Such a procedure is a necessary but missing part of the new Act. Additionally, we will be unable to adjust rents for some time because our rates of return exceed 8% according to the arbitrary and fictitious formula set forth in the law. The rate of return ignores highly significant facts such as the amount of financing, rate of interest paid for borrowed funds, inaccuracies in assessed market values, and differences in relative rates of operating cost In addition the rate of return formula arbitrarily imposes a limit on management fees and depreciation expenses and fails to recognize the diverse nature of residential property in the District of Columbia. increase. We The law, while limiting our ability to deduct management fees as a legitimate expense, places administrative burdens on us that will substantially increase that very expense. We must register and certify registration for every apartment unit, every three months. We must pay a $2.00 fee per apartment each year. We must file for permission to use a fair depreciation rate as an expense. must respond with extensive paper work to audit requests of tenants, the rent administrator, or the rental commission. The law complicates an already difficult court eviction process by requiring not only lengthy notice to tenants but also by significantly restricting the conditions under which a tenant may be evicted. These provisions violate the landlord-tenant relationship which was negotiated when the lease was signed. They also confer upon tenants unfair property rights with respect to the leased apartment. Under the Act, the rent administrator has been granted excessive authority including the right to require landlords to produce federal and/or District of Columbia income tax forms. This requirement, coupled with the requirement to post registration statements in public locations constitutes an invasion of our right to business privacy. Chairman, Subcommittee on Commerce, September 30, 1975 page 4 SUMMARY For these reasons, our company and our related investment partnerships have decided we will no longer engage in any rental residential construction in the District of Columbia. To date, thirty-six of our residential units are unrestored and vacant and were closed as a direct result of proposed and enacted rent control legislation. We were unable, under the burdensome administrative provisions required, to effect any meaningful rent increase in order to meet accelerated utility and maintenance costs. These units will remain closed until either the climate for rental development changes or an alternative use is found. If it is the intent of the City Council or Congress to socialize or make a public utility of the housing industry, such a goal should be clearly stated so that the public in general, rather than the lobbyists representing existing tenants, can judge the advisability of such a course. If this is not the intent, not only do we believe that this Act is confiscatory, but that it arbitrarily transfers property rights to existing tenants at the expense of landlords. This Act, in addition, will continue to transfer such rights as landlords are forced to accept lower or no returns on their investments in city housing. - apart No benefit will accrue to future seekers of rental housing in the city ments will not be available. Low income tenants both current and future will bear with landlords the brunt of this legislation. Buildings which will be closed will not be of the middle to high income variety, but rather they will be low income housing units where increases in utility costs have a higher percentage effect on return because of lower per unit rental amounts. The Federal government will be increasingly forced to provide new and expensive housing programs. And if past performance is any indication, neither Federal nor City housing programs will provide any significant housing to counter these closings. We would urge this subcommittee of the House of Representatives to exercise its authority and move to block passage of this Act. A strong and healthy housing market is synonymous with the federal interest in our nation's capital. Legislation should be constructive and creative rather than punitive in nature. Chairman, Subcommittee on Commerce, Housing, and Transportation District of Columbia Committee United States House of Representatives Mr. Chairman: My name is Jesse C. Williams, I am one of the owners of 69 rental units in the District of Columbia which are located in the Northwest and Northeast sections of the city. I cannot pay the operating expenses and mortgage fees for the properties I own and cannot get more rent. We have not had a rent increase since 1969 and the costs of all utilities and services have escalated at a substantial rate. These increased costs have already drained the little reserves that we had. Unless there is a substantial rent increase, it will be a disaster for us. My right to operate a business has been denied because I am no longer free to manage its activities without restrictions over which I have no control. Therefore, I believe the Rental Accommodations Act should not become law. The Landmark Companies "DEVELOPERS AND MANAGEMENT SPECIALISTS OF RESTORED PROPERTIES IN THE NATION'S CAPITAL LANDMARK REALTY, INCORPORATED LANDMARK CONSTRUCTION COMPANY September 29, 1975 (202) 244-0201 R REALTOR Chairman, Subcommittee on Commerce District of Columbia Committee United States House of Representatives RE: Rental Accommodation Act 1-157 Mr. Chairman: My name is David P. Bindeman. I am President of The Landmark Companies, I believe rent control is a needed fact of life in 1975, for the Washington area. However, under the controls established in Bill 1-157 the real losers are all property owners, all tenants, and the District of Columbia. While rent control is needed, this rent control bill will cause housing to deteriorate, investors to abandon the District of Columbia, and lenders to deny financing for improvements. In order for any city to remain viable, improvement is continually However, unless improvement is continued on a regular basis, these majestic structures will decay from the inside out. Plumbing, electricity, kitchens, bathrooms, elevators and all other facets that make up an apartment building must be updated. The amenities that today are demanded were not even conceivable fifty years ago. What seemingly is a fine apartment house from the exterior may have original utilities and services that are overloaded and therefore a serious hazard to the welfare and safety of occupants. Moreover, the economic life of these structures have been exhausted so that rehabilitation is drastically called for. Section 209 of the present Rent Control Bill states "if the Rent Administrator deems that...(1) a rental unit is to be substantially rehabilitated, (2) such rehabilitation is in the interest of the tenants of such unit and the housing accommodations in which the unit is located ...then the Rent Administrator MAY approve...an increase provided that such increase is no greater than the equivalent of 125% of the rent ceiling ...This subsection allows the Rent Administrator solely to deem what may Moreover, without a be improved. It does not give any guidelines nor does it take into consideration the property owners rights of ownership. basic comprehensive housing program for the District of Columbia, the Rent Administrator has no guidelines in which to follow. While the percentile formula itself is most generous, it is not the proper solution. No formula can be used in establishing after rehabilitation rentals. Varying economic factors enter into every rehabilitation project. Providing the structure is completely rehabilitated, it is not uncommon to spend between $10,000 and $15,000 per apartment in construction costs alone. This would not include the purchase price, financing costs or overhead factors. Therefore, a fifty unit apartment house requires expenditures in excess of $500,000 to $750,000. Rehabilitated properties must be exempt from controls in order to add incentive for development. This decontrol of substantially rehabilitated apartments will encourage improvement and will allow a developer to risk his capitol to improve our city. |