Supreme Court Refuses to Protect Inclusionary Housing

State Legislation Urgently Needed to Protect Affordable Housing Laws

by Dean Preston

California’s Supreme Court last week continued the judicial assault on affordable rental housing in communities across California. The Court denied review of Palmer / Sixth Street Properties v. City of Los Angeles -- an unprecedented and erroneous appellate court ruling that the state’s Costa Hawkins Act preempts a local inclusionary housing law in Los Angeles. Any hope that the Supreme Court would step in to correct this harmful appellate decision has now vanished. We need legislation to reverse Palmer, and we need it now.

The City of Los Angeles had filed a petition for review with the state Supreme Court seeking to overturn the erroneous appellate court ruling. Housing groups, including Tenants Together and the Tenderloin Housing Clinic, submitted an amicus brief in support of the City’s request. The Supreme Court rejected the request without explanation on October 22, 2009.

As with the original decision, there has been virtually no coverage of the Supreme Court’s decision. Few news outlets even bothered to cover the Supreme Court’s decision to leave Palmer standing, notwithstanding the fact that the decision will have devastating effects across the state.

Over 150 jurisdictions in California have some variation of inclusionary laws. As the California Coalition for Rural Housing notes, “inclusionary programs are putting roofs over the heads of tens of thousands of Californians.” Inclusionary housing laws exist are essential to the development of affordable housing, especially at a time of ever-shrinking government funds for affordable housing.

Because of the Palmer decision, inclusionary housing laws across the state are in jeopardy of being tossed out by over-zealous judges. Developers will aggressively assert the court’s decision to contest requirements that they include affordable rental housing in new residential developments.

The Palmer decision is simply wrong. The appellate court ruled that Costa Hawkins preempted an inclusionary housing law, notwithstanding clear legislative history to the contrary. The Legislature passed the Costa Hawkins Rental Housing Act in 1995 to limit the reach of local rent control laws. No appellate court has ever found that the Act preempts inclusionary housing laws, because the Act has nothing to do with inclusionary housing laws.

With affordable rental housing for tens of thousands of families at stake, it is extremely disturbing that our state’s highest court would not even deem the matter of enough significance to review the decision. It is now up to the state legislature to do what the Supreme Court should have done -- overturn the Palmer case and make clear that Costa Hawkins does not preempt inclusionary housing laws.

Predatory Equity: The Survival Guide

Thanks to Dr. Pop.org for leading us to this today.

The Center for Urban Pedagogy in New York connects artists/designers with advocates to produce Making Public Policy four times a year. The end product of the collaboration is a beautiful, brilliant, highly informative, and easy to understand pamphlet that unfolds into a color poster.

According to their website:

The series aims to make information on policy truly public: accessible, meaningful, and shared. We aim to add vitality to crucial debates about our future. At the same time, we want to create opportunities for designers to engage social issues without sacrificing experimentation and for advocacy organizations to reach their constituencies better through design.




The latest issue of Making Public Policy is called "Predatory Equity: The Survival Guide." Predatory equity, of course, is the notorious real estate investment model in which buyers pay more for rent-regulated housing than can be justified by the rental income, and then force out tenants so that they can raise rents. You can read our recent post about how CalPERS has invested California public employee pension dollars in predatory equity schemes in NYC and East Palo Alto.

Here's what the folks at Making Public Policy have to say about their latest publication.

During the boom, a new breed of speculator used private equity and oversized bank loans to buy up affordable housing. They tried to make a quick profit by converting it to luxury housing – putting over 65,000 families and their affordable apartments at risk. Post-crash, these predatory equity speculators can’t pay off their loans or sell their buildings. Foreclosure looms. Predatory Equity: The Survival Guide explains the financial mechanics of predatory equity and how to prevent it from happening again in the next boom. It provides tenants, advocates, and policymakers with information on tools like loan modifications and preservation short sales to save the hundreds of buildings in imminent danger of foreclosure. The poster was produced through a collaboration between Tenants & Neighbors, the Urban Homesteading Assistance Board, and Glen Cummings.

To purchase Predatory Equity: The Survival Guide through paypal, click here. To buy more than 20 issues, or to purchase by check, please email us here.

To download a pdf version, click here.

People's Victory! US Court of Appeals Rules to Protect Section 8 Tenants

Guest Post by Larry Gross, Executive Director of Coalition for Economic Survival

The Coalition for Economic Survival (CES) scored a major tenants' rights victory when the 9th Circuit US Court of Appeals ruled in BARRIENTOS v. 1801-1825 MORTON LLC, that Los Angeles' rent control law is not preempted by federal laws or regulations.

The decision, which has a national impact, specially provides Section 8 tenants living at Morton Gardens Apartments in Echo Park protection against their landlord's attempt to evict them.

In its ruling, the US Court of Appeals, 9th Circuit, stated that "a landlord subject to the Los Angeles Rent Stabilization Ordinance ("LARSO") served notices of eviction upon tenants whose rent is subsidized by the federal government, because it desired to raise the rent on the apartment units. Though LARSO prohibits eviction for that purpose, Morton asserts that a U.S. Department of Housing and Urban Development (HUD) regulation permits the eviction of an assisted tenant during the lease term for "good cause" grounds, which "may include [the] desire to lease the unit at a higher rental." We must decide whether HUD's "good cause" regulation preempts the operation of the City of Los Angeles's eviction control ordinance. We hold that it does not. We affirm the district court's grant of summary judgment in favor of the tenants, permanent injunctive relief, and award of attorney's fees."

City of LA and HUD Lent Support

The City of Los Angeles and HUD, as well as the AARP Foundation, filed amici curiae ("Friend of the Court") briefs in support of our case. LA City Council President Eric Garcetti, who represents the Morton Gardens tenants, provided important backing and helped in securing HUD's support.


CES' Long Efforts to Stop Evictions & Preserve This Affordable Housing

For more than the last 20 years, CES has been assisting these tenants' efforts to fight off evictions. Morton Gardens was developed in 1971 as a low-income rental housing project through a HUD subsidized mortgage-secured low interest loan program.

Morton Garden apartments is a 66-unit building which is situated just over a hill from Dodger Stadium in Echo Park.

In 1998 the prior owners prepaid the subsidized loan in advance of the original loan maturity date, thus removing the federal rent restrictions. As a result, tenants in residence received "enhanced" Section 8 rent subsidy vouchers, which entitled them the right to remain in their units, paying the same rent and requiring landlords to accept these vouchers as long as the tenants decide to stay and Congress provides the funding. In addition, other tenants holding regular Section 8 vouchers have since moved in.

In 2003, the City and the tenants had obtained an earlier ruling from the 9th Circuit Court that upheld the application of the City's rent control law to the units, rejecting the owner's claim that federal law "preempted" local rent protections.

Eric Sussman, who along with other partners bought the building for $8 million in 2006, is not just any landlord. He teaches real estate at one of the nation's preeminent business schools, the UCLA Anderson School of Management. CES and tenants have argued that he should have known when he bought Morton Gardens that Section 8 tenants lived there and it is unethical of him to try to evict them just to increase rents.

The Morton Garden case involves two related, but distinct, federal tenant-based housing subsidies: "enhanced Section 8 vouchers" and regular Section 8 "housing choice vouchers."

The landlord was challenging the Congressionally enacted right to remain for the enhanced voucher holders, as well as the applicability of the city's just cause eviction law, which protects Section 8 tenants living in rent controlled units. Tenant attorneys citywide have been defending tenants against a wave of 90-day Section 8 termination notices, arguing that a Section 8 contract cannot be terminated until there is a vacancy and there needs to be a "just cause" reason under the rent control law to evict a tenant to secure a vacancy.

In 2007, tenants, outraged by eviction notices they received, rode a school bus to UCLA to protest outside his class. They held signs, chanted and then presented Sussman with a ceramic piggy bank, an award as the "Greediest Landlord in L.A."


Larry Gross is the Executive Director of the Coalition for Economic Survival (CES). He has been with CES for over 36 years, since its inception in 1973. CES is a grassroots, multi-racial, multi-ethnic tenants' rights organization serving low and moderate income renters throughout the greater Los Angeles area. CES is committed to organizing tenants to fight to ensure tenants' rights and preserve affordable housing.


Among CES' impressive track record of empowering tenants, securing concrete victories and achieving institutional change include leading campaigns to win rent control in the cities of Los Angeles and West Hollywood. CES also led the effort to incorporate the City of West Hollywood and elected CES tenant leaders to the City Council.

http://www.CESinAction.org

CalPERS loses $600 million in predatory equity schemes that relied on mass displacement of tenants to turn profits

CALIFORNIA TENANTS DEMAND REFORM

CalPERS will lose hundreds of millions of dollars in predatory real estate investment schemes according to recent reports in the New York Times, the Wall Street Journal, the San Jose Mercury News, and other publications. What has not been adequately reported is that these schemes are classic examples of what housing advocates call “predatory equity,” over leveraged investments that rely on the displacement of tenants from rent-regulated housing in order to turn profits.

CalPERS has effectively invested (and lost) the retirement funds of working people in projects that were designed to displace working people from their homes.

Tenants Together is calling on CalPERS to adopt predator-free real estate investment policies that will prevent it from ever again committing funds to these types of schemes that have displaced tenants and have proven to be such financial disasters. Tenants Together is also demanding a full investigation into the circumstances of CalPERS investments in predatory equity schemes to determine what CalPERS knew about these investments at the outset.

“CalPERS must never again make investments into schemes that are so devastating to local communities and to the retirement accounts of working people,” said Dean Preston, Executive Director of Tenants Together. “We need to know exactly how this happened so we make sure it never happens again.”

CalPERS, the nation’s largest pension fund, will lose $600 million in two separate real estate investment deals: one in New York City with partners Tishman Speyer Properties and BlackRock Realty and another in East Palo Alto, CA with partner Page Mill Properties. Both investments have been the subject of considerable controversy as they have involved the mass displacement of low and moderate income tenants from their homes. They have also spawned multiple lawsuits and raised the ire of tenants, community organizations, public officials, and labor groups.

For more than a year, Tenants Together has been working with tenants, advocates, labor unions, and city officials in East Palo Alto, where CalPERS’ investment partner, Page Mill Properties, has been engaged in open conflict with the city and its residents. In 2006 Page Mill Properties began buying up some 1800 units of rent-controlled housing on the west side of East Palo Alto bordering an affluent neighborhood of Palo Alto. After acquiring the properties, Page Mill began implementing drastic rent increases (many far in excess of the annual increase permitted under the city’s rent stabilization ordinance) and forcing many tenants to leave their homes through unaffordable rents, harassment, and eviction lawsuits.

After learning that CalPERS was a principal investor in the project, Tenants Together, along with advocates and tenants from East Palo Alto met with CalPERS staff and testified before the CalPERS Board of Administration bringing the crisis to their attention and calling on them to intervene with their partner Page Mill to move it to rescind the rent increases and cease the unjust eviction of its tenants. Tenants Together also warned that predatory equity investments were extremely risky financially and reputationally for CalPERS.

Yet for months after, the situation continued to deteriorate in East Palo Alto as evictions and litigation continued. Finally, last month, Wells Fargo Bank reported that Page Mill was in danger of losing its properties after missing a $50 million mortgage payment. Soon after, its properties were put into receivership as an initial step towards foreclosure. If the foreclosure proceeds, as appears to be likely, CalPERS will lose all of its $100 million investment.

At the same time as its troubles in East Palo Alto reached a critical stage, CalPERS’ investment with Tishman Speyer Properties and BlackRock Realty in New York City began to go bust as well. In this instance, a half a billion dollars worth of CalPERS retirement money was at stake. Again, it appears CalPERS will lose the entire investment.

Three years ago, Tishman Speyer and BlackRock devised a plan to buy Stuyvesant Town and Peter Cooper Village in New York City for $5.4 billion, a purchase that would amount to the largest real estate deal in American history. But as is the case with all predatory equity investment schemes, the buyers paid more for the property than could be justified by the rental income that the property was earning at the time of sale.

However, as the Wall Street Journal reports today (“An Apartment Complex Teeters,” 10/15/09), “the new owners predicted they would be able to convert thousands of protected apartments to higher market rents. These projections convinced CalPERS and the pension funds of several other states to make large equity investments in the deal.”

In other words, profit was expected to come at the expense of lower income tenants who would be pushed from their homes and replaced with higher-rent-paying tenants and knowing this, CalPERS signed on.

Apparently, like Page Mill, Tishman/BlackRock did not count on the fact that tenants would not so easily be forced from their homes. In the case of both of these schemes, tenants organized and resisted displacement. They dug in, brought their stories to the media, staged rallies, and filed lawsuits against the predatory investors. It now appears the tenants may outlast their landlord foes, though the future of these soon-to-be foreclosed properties remains uncertain.

Tenants Together, along with many other organizations and advocates from the affected communities, have pointed out that CalPERS, a co-author and signatory to the UN Principals for Responsible Investment, should never have invested in these kind of schemes that seek to displace low and moderate income tenants.

It remains unclear how much CalPERS initially knew about the nature of its investment with Page Mill because, as real estate reporter Sharon Simonson explains, (“Palo Alto Developer Losing $340 million with CalPERS Money,” The Registry, 9/9/09) the pension fund has “remained stubbornly mute on Page Mill’s activities or plans.”

Tenants Together requested from CalPERS a copy of Page Mill’s investment proposal to CalPERS, and the resulting investment agreement, via a Public Records Act request but the pension fund denied the request on the grounds of confidentiality.

The fact that CalPERS remains “stubbornly mute” on its investment with Page Mill leaves observers to guess between two troubling possibilities. Either CalPERS was unaware of the true nature of Page Mill’s plans for East Palo Alto, which is quite problematic in terms of the fund’s fiduciary responsibilities to its members, or it was aware of Page Mill’s plans, which is terribly problematic in terms of basic humane practices from a public pension fund that takes pride in its reputation for ethical investments.

Either way, “predator free” real estate investment policies must be adopted to prevent further investments of this type in the future.

Tenants Together has proposed “predator free” investment policies to CalPERS, similar to guidelines recently adopted by the Comptroller in New York City, to prevent pension fund investments in predatory equity schemes. To date, CalPERS has done nothing to move forward on adopting such a policy.

Right to Housing Event at Manilatown Heritage Foundation

Last night Tenants Together was one of several co-sponsors for an event hosted by the Manilatown Heritage Foundation in San Francisco.

Chester Hartman (pictured left) gave an insightful presentation on "Right to Housing." Hartman is an urban planner, author, and Director of Research for the Poverty and Race Research Action Council in Washington D.C. and Adjunct Professor of Sociology at George Washington University.

Hartman actively organized the resistance to stop eviction at San Francisco's International Hotel in 1977. The event was held at the New International Hotel Senior Housing/Manilatown Center where the original International Hotel once stood.

Other co-sponsors for the event included St. Peters' Housing Committee, Housing Rights Committee of San Francisco, Just Cause Oakland, Fair Housing of Marin, Asian Law Caucus, Bay Area Legal Aid, SF Human Rights Commission, National Housing Law Project, and Chinatown Community Development Center.


Emil de Guzman of the Manilatown Heritage Foundation

Hartman stressed that as a society we must reframe our thinking when it comes to housing -- it can't just be a goal to provide housing for all, we must consider it a universal human right. He also stressed the need for housing advocates to work hand in hand with advocates in the fields of education, public health, etc. as the issues and struggles in these different fields are closely connected. Only by building coalitions across disciplines will we ever be successful in achieving adequate and affordable housing for everyone.

Hartman explained that we must rethink the entire housing system and not leave it merely to the mercy of the free market. We need to emphasize grants vs. loans for housing, and create more community land trusts etc.

When asked about predatory lending and the foreclosure crisis, Hartman noted that tenants are the hidden victims in the crisis and that it's vital that their rights be protected and that lenders be held accountable for their treatment of the tenants in foreclosed properties.

Chester Hartman is the author of several books including City for Sale: The Transformation of San Francisco, and There Is No Such Thing As a Natural Disaster: Race, Class & Hurricane Katrina.

Governor Signs Two Tenant Bills, Vetoes Mobilehome Park Resident Bill

In a big victory for tenants, Senator Mark Leno's bill, SB 290, was signed into law by the governor this weekend. The law makes the 60-day notice requirement for no-fault evictions permanent. The 60-day notice requirement has been law for six years, but was scheduled to sunset at the end of this year. The law provides much needed time for tenants who are evicted through no fault of their own to locate new housing. Tenants Together thanks Senator Leno (pictured left) for his continued advocacy for fairness and justice for California renters.

Please note that in the foreclosure context, federal law continues to provide 90-day notice.

In another significant victory, Senator Alan Lowenthal's bill, SB 120, was also signed by the Governor. The bill strengthens tenants' rights against utility shutoffs, especially for tenants in single family homes who have been denied protections that apply to other renters. The law is particularly important for tenants in homes going through foreclosure, as defaulting landlords and banks are notorious for failing to maintain basic utility services for their tenants. To read the new law, click here.

Tenants Together congratulates and thanks Senator Lowenthal for his successful effort to protect tenants from utility shutoffs. And thanks to Assemblymember Alberto Torrico (D-Fremont) who passed similar legislation last year that was vetoed by the governor. Tenants Together also thanks the Western Center on Law & Poverty, a nonprofit organization that sponsored both SB 120 and 290, and worked tirelessly to make sure these measures became law. Finally, we sincerely thank all of you who have supported these bills and who contacted your legislators and the governor to make sure these bills became law.

We will continue to work to make sure no tenant is denied basic utility services. This law is a big step toward that goal.

Unfortunately, the governor vetoed Assemblymember Pedro Nava's bill, AB 566. The bill would have required majority resident approval for mobilehome park conversions. Park conversions undermine rent control, making it particularly crucial that residents have a say in conversions.

According to the Governor's veto message: "While the intent of this bill is to preserve low-income housing, the fact that a majority of mobilehome park residents do not support a conversion is not an appropriate means for determining the legitimacy of a conversion. The law is not intended to allow park residents to block a request to subdivide."

We certainly disagree with the Governor and look forward to working with mobile home residents to oppose unfair conversions of mobile home parks.

Torture memo author rules against rent control

Remember Jay S. Bybee, one of the torture memo authors, rewarded by George W. Bush with a lifetime federal appeals court appointment? The NY Times called for his impeachment earlier this year, noting: "These memos make it clear that Mr. Bybee is unfit for a job that requires legal judgment and a respect for the Constitution."

Well, Judge Bybee is up to no good again, this time authoring a 2-1 decision in which a federal Court ruled against a CA mobilehome rent control ordinance. In this preposterous decision, the court bends over backwards to conclude that a park owner was denied "investment backed expectations" because of the ordinance, notwithstanding the fact that the park owner bought the park with full knowledge of the rent control law. Judge Bybee was joined by Judge Alfred T. Goodwin, a Nixon-appointee.

That's right, the very person that couldn't find a right to be free from torture in our constitution has now found a constitutional right of mobilehome park owners to be free from a City's rent control law.

The decision is flawed on many levels. Let's hope the Ninth Circuit reviews the case en banc so that this decision will not stand.