Mary Cummins, Real Estate Appraiser, Animal Advocates, Los Angeles, California

Mary Cummins, Real Estate Appraiser, Animal Advocates, Los Angeles, California
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Wednesday, April 5, 2017

Real estate cycles - "Gentrification" - Mary Cummins Real Estate Appraiser Appraisal in Los Angeles California

What some call "gentrification" is actually just a real estate cycle. There are four stages through which an improved property will pass in its lifetime. The stages are caused by ordinary physical deterioration and market demand. Those four stages are as follows:

1. Growth -  When improvements are first made and property demand expands.

2. Equilibrium or Stability - When the property undergoes little change.

3. Decline -  When the property requires an increasing amount of upkeep to retain its original utility while demand slackens. Rents and property values decline.

4. Revitalization or Rehabilitation - When demand increases for any reason serving to stimulate property renovation. Demand generally increases when people are priced out of adjacent areas and need more affordable housing. 

The first three stages of a property's life cycle are also termed development, maturity and old age. The principle of growth, equilibrium, decline and revitalization can also apply to entire neighborhoods.

Los Angeles’ neighborhoods are ever changing. One example of this is downtown Los Angeles. It’s gone through many cycles of change. It currently is nearing a peak with all the new construction and rising interest rates. Read this article as of today’s date of April 5, 2017. 

In a year or so there may be an oversupply of luxury apartments, condos and lofts (happened October 2017 with 12% vacancy rate for luxury units) like there was during the great recession which started November 2007. The great recession was caused by a real estate bubble bursting while at the same time poor quality home loans were made and sold on the derivative market.  Downtown Los Angeles (DTLA) properties went down just a little over 50%. Some luxury loft projects which weren’t finished at least six months before this date were foreclosed upon. HOAs even went bankrupt. Some luxury loft buildings became rentals instead. 

A real estate cycle which irks renters in the DTLA areas is “revitalization.” They like to call it “gentrification.” Gentrification is defined as “the process of renovating and improving a house or district so that it conforms to middle-class taste.” People living in say West Los Angeles can no longer afford the rent or cost of a home in West Los Angeles because their wages have been stagnant. They seek out cheaper up and coming areas to rent or buy such as Boyle Heights. It's about money.

Current renters in Boyle Heights are upset that the area has improved, new luxury condos were being built and more importantly their rents have risen or they’re being evicted so the building can be renovated or torn down and a larger, newer one built. They feel their rent should stay the same even though the landlord’s property tax, utilities, interest rates, repair costs ... have risen significantly. There’s also new development, new stores, boutiques, coffee shops, more people and more demand for housing. The area has improved so market rent will of course be higher. Rents correlate directly with property values. In 2020, 2021 home values increased 15% or more a year. So did the corresponding rents.

Some of these lower income renters go so far as to say it’s wealthier whites pushing out poorer Hispanics, Blacks and their culture. They even broke the windows of and vandalized a new coffee shop and book store to hopefully “scare” away the newcomers. One of the coffee shop owners is Latino. They don’t realize that before Boyle Heights was a Hispanic community it was a Jewish and Chinese community. Before that it was Mexico. Before that it was part of Spain. Before that the land belonged to the Native Americans. These people are only upset about “their” rents rising. They don’t care about the people who own the buildings with rising costs who are generally also Latino or Black. They didn’t care about the people who were there before them whom they pushed out. These people are actually guilty of and benefiting from what they call "gentrification." They took someone else's home. If the area were not improved, it would still be unimproved farm land, vacant land or small run down single family residences. They would not want to live there. The rent they are paying supports revitalization. And the people moving in aren’t all whites. They’re also Hispanics, African Americans, Asian.... The main difference is income.

The main change in the race, color, ethnicity ... of an area has to do with changing socio-economic factors such as income, buying power, marital status, single mother household with young children under 18, credit scores ... The more income you have, the more wealth you have, the more expensive home you can buy, own or rent. Research has proved that whites make more money than blacks and Latinos. This is the cause of the wealth gap between most whites, blacks and Latinos. For this reason whites buy, own and rent more expensive homes than blacks, Latinos. Below is Tobias Peter and AEI's report which shows this. If the government wants to end the white black/brown wealth gap, they need to end the income gap and help people increase their income and buying power. 

It’s never the property owners who complain about their property values going up. It’s a few maybe 3% of very low rent people who intentionally moved to the area to take advantage of the low rents in a debilitated area. Some of these “artists” living in “lofts” even have the nerve to state they are the reason why the area improved in value. They think they attracted new businesses. They are never the reason why the area improved. They merely took advantage of then low rents during that cycle. Or maybe they are long time renters who took advantage of the rents staying low because the area declined. 

97% of the people in the community, property owners, business owners, tenants paying market rents, cities, counties, states getting increased taxes are happy about revitalization. There is more income to pay for lower income programs and low rent projects not to mention community improvement projects like cleaning, beautification, parks and improved schools. Should we stop revitalization to make 3% of the lowest income people happy by subsidizing their low rent because they don't have to move to another low rent area? Everyone has to move for one reason or another. It's a good thing for everyone overall. FTR I'm not a property owner. I've had to move to lower rent areas.  I understand. 

Instead of complaining these people need to move to another area with low rents if they want their rent to stay the same. That’s why some Los Angeles artists moved to Santa Ana, Anaheim and Long Beach industrial areas. They’re cheaper than LA. Many people moved out of California for this reason. If they want to forever pay low rents they’ll have to ride the real estate cycle. They could also increase job skills and seek out higher paying jobs. I realize not everyone can do this but it's an option for some. If they really want to take advantage of this cycle, those that can, can work hard, save money, buy property in dilapidated areas and ride the wave as values increase. If they want to rent out their properties for $1 to people with less income, they can do that and lose money. 

Commercial, retail, industrial tenants have also had their rents raised or buildings razed. They move to a cheaper area. They don’t yell “gentrification” and break the windows of coffee shops. They're business people who know it’s purely economics and move. 

As stated earlier people who are pushed out of more expensive areas move to lower cost areas. It's not just in California. It's all over the nation and the world. This has been happening forever, since time immemorial. Right now people are leaving expensive California and going to Texas, Arizona, Nevada, Montana. Relative to California those places are "cheap." This has caused home prices and rents to rise in those other states. They're not yelling "gentrification" even though it's the same economic process at play. It's basic economics. 

All that said we desperately need affordable housing in Los Angeles. It’s a separate issue from revitalization. The main reason some poorer people can’t afford rent is there aren’t enough units. It’s supply and demand. NIMBYs and red tape has made construction almost impossible in LA over the last 30-40 years. We are years behind the number of units we need. Another big reason is that poorer people’s income hasn’t risen along with rents. This is caused by big business and government keeping lower income people’s wages low. This is caused by the upper 1% using their money and lobbyists to get bills passed which hurt lower to middle income people. I’m talking about Walmart, Walgreens paying poverty wages. These are the real reasons why poor to middle income people can’t afford rent in LA. 

Mary Cummins of Animal Advocates is a wildlife rehabilitator licensed by the California Department of Fish and Game and the USDA. Mary Cummins is also a licensed real estate appraiser in Los Angeles, California.

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