A coalition of real estate organizations has filed a "friend-of-the-court" brief with the U.S. Court of Appeals for the Ninth Circuit in a case that will have important implications for investors, owners and developers of federally-assisted or insured apartments. Coalition members include the Affordable Housing Management Association Pacific Southwest (AHMA Pacific Southwest), the Apartment Association of Los Angeles County, Inc., the Institute for Responsible Housing Preservation (IRHP), National Affordable Housing Management Association (NAHMA), the National Apartment Association (NAA), the National Leased Housing Association (NLHA), and the National Multi Housing Council (NMHC).

In the case (TOPA Equities, Ltd. v. City of Los Angeles, No. 02- 56034; No. CV 00-10455-GHK, RNBx, C.D. California. April 8, 2002), a private owner purchased an apartment property and prepaid the U.S. Department of Housing and Urban Development's (HUD) Section 236 mortgage. As a result of the mortgage payoff, HUD no longer required the owner to maintain the Section 236 program's below-market rents. The City of Los Angeles, however, used its rent stabilization law to prevent the owner from raising the rents, even though the owner was no longer receiving the federal subsidy making up the difference between the 236 rents and market-rate rents.

Filed on November 27, the real estate industry's brief argues that the Low Income Housing Preservation and Residential Homeownership Act (LIHPRHA) of 1990 (P.L. 101-625) preempts local rent regulation laws, including the Los Angeles rent stabilization law.

The brief notes that Congress established LIHPRHA to create incentives for private housing providers to invest in, build and operate affordable housing. Included in those incentives was providing them with an "exit strategy." LIHPRHA preempts any state or local law that "restricts or inhibits the prepayment of any mortgage." In crafting LIHPRHA, Congress specifically recognized that private owners would be discouraged from participating in federal subsidy programs if states or localities could enact and enforce laws that prevent the private market from making a reasonable return, including by selling and converting their properties to market-rate housing after federal subsidy contracts expire.

The brief supports the need to maintain the partnership between the government and the private sector to create, maintain and operate affordable rental housing, and that if local rent stabilization laws interfered with the ability of the private sector to reap financial benefits, that future investment in affordable housing will be curtailed making affordable housing more expensive, less desirable and less available.

"This case will not only set an important precedent for the real estate industry, it could also have a detrimental impact on the nation's ability to provide affordable housing," noted NMHC/NAA Senior Vice President Clarine Nardi Riddle. "Many older apartment properties in the country need expensive capital improvements to maintain them as safe, sanitary and affordable housing. If cities can ignore federal laws and force owners to maintain artificially low rent levels, owners will not be able to afford those improvements and more of the nation's affordable housing stock will be lost."

Harry Kelly of the law firm Nixon Peabody, LLP prepared the brief for the allied real estate trade associations.

NMHC and NAA operate a Joint Legislative Program and represent the nation's leading firms participating in the multifamily rental housing industry. NMHC/NAA's combined memberships are engaged in all aspects of the development and operation of apartment communities, including ownership, construction, finance and management. Together, the organizations jointly operate a federal legislative program and provide a unified voice for the private apartment industry. One-third of Americans rent their housing, and more than 15 percent of all U.S. households live in an apartment home. For more information, contact NMHC at 202/974-2300, e-mail the Council at info@nmhc.org, or visit NMHC's web site at www.nmhc.org.

Published: December 5, 2002

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