The Dangers of Government Interference in Real Estate
By Clarence Jones
Clarence Jones is my father, and prior to his battle with Alzheimer’s disease, a huge advocate for the rights of real estate investors. He was the founder of several Ohio REIA groups, including Cincinnati, Dayton, and Columbus, and a key force in the founding of the Ohio Real Estate Investor’s Association.
I am an idealist. The words of Marx sing to me the wonderful song of a world as it should be.
Everyone should work to his (or her) full ability for the common good. No one should ever be denied benefits of the good life because they are handicapped by lack of skill, health, intelligence, ambition, etc. Those people blessed with superior talents should produce at their full capacity with no thought of reward. Those unfortunate people with handicaps who still work to their full abilities should receive the same benefits as anyone else that works to full capacity.
Communism is the perfect form of government. It only has one fault. It doesn't work.
In a real world inhabited by imperfect people, no one invests their time, money or energy in those things that do not provide a personal benefit. Few people will work at full capacity for strangers who take away the control and profits of their enterprises.
Despite thousands of years of human history bearing witness to these facts, and a 200+ year tradition of “democracy” and “free market capitalism” in the United States, politicians and regulators still seem to think that they can create more and better housing by over-regulating and overtaxing the housing provider until there is no profit left in the business of renting or renovating properties.
You may think that I am overstating my case, but in my 50 years as a landlord, renovator, and real estate entrepreneur, I’ve seen the rights of property owners–rights guaranteed by the 3rd and 5th amendments to the Constitution–eroded away bit by bit. A successful housing provider from the 1950's, transported suddenly to the 21st century, wouldn’t recognize the state of private property rights today. Furthermore, he’d probably wonder how in the world we manage to eke out a profit with all of the restrictive regulations, taxes, and fees we operate under.
And do you think we have MORE quality, affordable housing now than in the 50's? Do you think we have LESS homelessness and hopelessness? All that 40 years of stupid regulation have gotten us is more liability and, fewer people who are willing to tackle the problems of being a housing provider. Let me give you some quick examples.
Fair Housing. I am all for people living wherever they can afford to live, no matter what their skin color, religion, handicap, and so on. In fact, I think it’s a dumb business decision to refuse to rent to a qualified applicant because of his race or of any other feature that will have no effect on profit.
However, the fair housing community has taken a fine idea to ridiculous extremes, and continues to push the borders every year. For instance, federal fair housing law makes it illegal for landlords to discriminate against families with children by refusing to rent to them or by charging a higher rent or deposit. Yet every experienced landlord knows that children can do more damage to a unit in a month than adults can do in a year. And the government has the right to tell me that I have to rent to a woman with three teenagers at the same price that I’d rent to an elderly couple with no kids? Apparently, it’s fair that this particular social program be balanced on the backs of housing providers everywhere.
Another amazing development in fair housing law is the advent of local regulations stating that landlords can’t discriminate based on marital status. In other words, you must rent to unmarried couples under the same terms as married ones. No matter what you think of their potential stability as a couple. Or what your own morals or religion says about people shacking up. Religion is a protected class–but only if you’re a tenant.
And it doesn’t stop there: fair housing advocates all over the U.S. are pushing for legislation that makes it illegal to refuse Section 8 tenants, despite the fact that, by participating in the Section 8 program, landlords subject themselves to government inspections, rent limits, and government-approved leases—not to mention that most Section 8 tenants do not have income that is garnisheeable if they do damages to your unit.
Clearly, the government has taken control of your ability to freely select the tenant that you think is best qualified. Furthermore, it has done so without compensation to you. Not only does this violate the takings clause of the Constitution (Amendment V), but it also seems to violate Amendment III, "No Soldier shall, in time of peace be quartered in any house without consent of the owner.” Amendment III says nothing about quartering civilians, but I suspect that is because it never occurred to the writers that the government would ever force private owners to accept civilians they did not want.
Government Housing. Government and government-backed low income housing programs have been a disaster for both the working poor and the taxpayers. I think that everyone is aware that the public housing experiment failed miserably. What you may not know is that you—the taxpayer—are still paying for new low-income housing projects. Here’s a typical example of what happens in a government grant program:
Some years ago I lived in Gaylynn Apartments in Texas. The complex contained some 200 units. The government guaranteed the construction loan based on a projected rent of $150 per unit, a rent that would pay off the government-backed loan and provide a nice profit.
Zimmer Construction Corporation completed the project and collected the construction money. Then they tried to rent the apartments for the projected $150. It couldn't be done. No problem! They’d already paid out all of the money in the form of salaries, contractor wages and materials; there were no assets left. The corporation filed bankruptcy and let the government pay off the loan and repossess the project.
Now the government put the complex up for bid. Guess who the high bidder was? Zimmer Management Company! They purchased the project for half the construction cost with another low interest government-guaranteed loan. New rents were $80 a month–LESS THAN real market rent for that area at that time.
Sure, this was awhile ago, but this scam is repeated over and over today because everybody wins except taxpayers and existing landlords. I got a nice apartment at a reasonable price, the Zimmers got a nice profit for building the complex, construction workers got excellent jobs, all the businessmen in the city got more business, and the politicians got re-elected. Rents dropped on apartments all over the city because of the competition from these nice new units, so all tenants won. You couldn't find a person (other than a landlord) in the county that didn't approve of the deal.
As for the existing landlords? Because of the sudden spike in vacancies and decrease in market rents, many had to go into their pockets for the SECOND time to support the government’s “new and improved” housing.
People live in older housing because it meets their needs and their budget. If there are enough low-income (or moderate income, or high income, for that matter!) renters out there to justify building new living units, the free market will take care of the problem very quickly.
But asking the typical middle-class taxpayer to fund these money-losing scams is just wrong. Do you think it’s fair that you subsidize housing for the poor that is newer and better than the home you and your family can afford? It’s just ridiculous.
And yet, nobody cares that these programs are often rip-offs of the taxpayer. As long as government can borrow money and use it to create jobs, the public feels prosperous and the politicians get re-elected.
Building Codes and Licensing. In the last 30 years, Cincinnati, Ohio has lost over 35,000 housing units in the downtown area. Most of these were older units with very reasonable rents. Why? Because the government’s policy of applying modern building codes to century-old properties, and of forcing owners to renovate using only licensed contractors have forced the owners of these buildings to either abandon them or rehab them for higher income people.
Most housing is abandoned because the cost of repair exceeds the value of the repaired building. Now, I’m all in favor of providing safe, livable housing, and of keeping the exteriors of properties in a condition that doesn’t detract from surrounding property values.
But when “building code” requires that I place an electrical outlet every 6 feet in a 150-year old masonry building, I start to rethink whether I want to buy and renovate such a building. Particularly when I can’t even do it myself–I have to have a licensed electrician (at $45 an hour) pull the wire! And particularly when the final rent on the unit is only going to be $350 a month, because it’s in the inner city.
Requiring owners to bring very old buildings up to modern code is a recipe for abandoned buildings, especially in the poorer areas of town. And requiring them to do the work with extremely expensive, licensed workers is a guarantee of it. I guess are cities are going to have to decide what’s more important–having livable low-income housing, or continuing to see block after block abandoned. Providing livable low-income housing, or letting the trade unions have their way. And since the trade unions donate millions to politicians every year, I think we all know the answer to that.
Lead Paint, Landlord Licensing, Occupancy Permits, Zoning Laws, Water Billing...I could go on for many pages about all of the ways that the government is “taking” your properties little by little, but there just isn’t space enough here.
And in any case, it’s not enough to complain about these problems or even to become more educated about them. The only way that we’re going to reverse (or even stop!) the slow erosion of our rights as citizens and property owners is for all housing providers, renovators, building managers, real estate agents, and real estate entrepreneurs to band together and fight these things. It hasn’t been done in the past: that’s why we have been the silent victims of all of these heinous regulations. And it won’t happen in the future unless every single concerned person makes an effort to learn what the issues are and how to get them before elected officials, bureaucrats, the media, and the public. It’s easy to just keep your head down and hope you aren’t personally affected by these laws and regulations.
But it’s right to do everything you can to stop them...starting today.