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July 15, 1977 - Image 4

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Text
Publication:
Michigan Daily, 1977-07-15

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A2 landlording--pro fits make perfect

The way the average person
understands the housing rental
business is this: the landlord
collects rent, pays out a por-
lion of the rent in expenses and
taxes, and pockets the rest as
profit.
But there are some hidden
profits in housing rentals which
landlords gloss over when they
subtract expenses from rent to
come up with profit. And if you
take a close look at some of
the "expenses" that landlords
deduct, you'll see that some of
these so-called expenses are ac-
tually just more profits.
That was the message con-
veyed by )an Luria, an econo-
mist in the research depart-
ment of the United Auto Work-
ers (UAW), at a meeting of a
tenants organization in Detroit

last month.
Luria, one of several housing
experts who addressed the Pal-
mer Park Citizens Action Coun-
cil on housing issues, explained
some of the ways in which
landlords earn hidden profits
at the expense of tenants and
taxpayers.
Luria cited the example of a
landlord written up in the De-
troit News who "opened his
books" to the public, disclos-
ing the income, costs and pro-
lit from the buildings he owns.
The realtor, Luria said, was
described as "a major land-
lord and apartment developer,
and it said he has taken an un-
usual step and opened his
books on costs and profits to
the public and to his tenants.
And it says the guy only makes
about 8.7 per cent. When you

think about it, you'll realize
that you can't be a major land-
lord and apartment developer if
you only get 8.7 per cent of the
rent paid to you as profit at
the end of the year."
One of the costs the Royal
Oak landlord cited in his open-
ing of his books was deprecia-
tion in the value of his build-

makes, the landlord owns more
and more of the building. Part
of the mortgage payment is in-
terest earned by the bank, but
the rest of it adds to the land-
lord's stock in the building.
When Luria recalculated the
Royal Oak landlord's balance
sheet, putting questionable op-
erating costs in perspective, he

ijlenanti Corner
By STEPHEN HERSH

The Michigan Daily
Edited and managed by Students at the
University of Michigan
Friday, July 15, 1977
News Phone: 764-0552
Porn, offensivve to some ,
deserves press freedoms
JUST LAST WEDNESDAY, the Ann Arbor City Council
voted 9-1 in opposition of the proposed pornogra-
phy ordinance. The ordinance,. which barely passed its
first reading in the Council last month, solicited but two
favorable comments from at least a dozen persons speak-
ing at public hearings.
That ordinance did, however, earn several deroga-
tory comments. Citizens, and some members of the press,
think the extension of First Amendment freedoms is
more important that potential offense caused to a hand-
ful of persons within this community.
Unfortun-stely, members of a small but vociferous
cliqite within Ann Arbor seek to stifle state and federal
freedoms for those they would call pornographers. These
citizens - - sponsors of anti-porn petitions, sponsors of
tireatened legislation in the City Council, and writers
of a drudgingly long series of anti-porn articles in the
local press consider themselves more important than
the Council and those who cared to speak before the
Council.
Whether we are offended or not, Michigan pornog-
raphers are protected under state and federal laws. The
former declares any person can speak out on any topic.
In somewhat different, less lenient wording, our Con-
stitution declares freedom of speech the first of several
national rights.
It's time citizen groups in Ann Arbor finally recog-
nize those rights.
Contact your reps-
Sen. Donald Riegle (Dem.), 1205 Dirksen Bldg., Washing-
ton, D.C. 20510
Sen.- Robert Griffin (Rep.), 353 Russell Bldg., Capitol Hill,
Washington, D.C. 20515.
Rep. Carl Pursell (Rep.), 1709 ILongworth House Office Bldg.,
Washington, D.C. 20515.
)Sen. Gilbert Bursley (Rep.), Senate, State Capitol Bldg.,
Lansing, MI 48933.
Rep. Perry Bullard (Dem.), Ilouse of Representatives, State
Capitol Bldg., Lansing, MI 48933.
TODAY'S STAFF:
News: Lori Carruthers, Lani Jordan, Stu McConnell, Ken
Parsigian
Editorial: Linda Willcox

ings. Depreciation in the value
of buildings is something land-
lords write off as an expense on
their income taxes, and it can
mean huge tax savings.
The funny thing about this
is most buildings don't really
go down in value over time -
rather, building values go high-
er with inflation. It's a para-
dox, Luria said: "The tax sys-
tem makes the assumption that
houses lose value over time."
It's a paradox that means mon-
ey in the bank for landlords-
and the tax savings landlords
make on depreciation deduc-
tions mean higher taxes for
other taxpayers.
Another "operating cost"
which i9 actually a profit to
landlords is something called
"management fees." The man-
agement fee is a payment the
landlord usually makes to him-
self as a compensation for the
trouble it takes to run a rental
company. The landlord takes
money out of one pocket and
puts it in another - and calls
that a cost.
When a landlord calls mort-
gage payments a cost of man-
aging rental units; that, too, is
a kind of sleight of hand. The
landlord uses part of the rent
he collects to make mortgage
payments to the bank.
On his taxes he calls the
mortgage payments an ex-
pense, as though he would
never see that mortgage money
again. In fact, however, with
every mortgage payment he

came out with a considerably
higher profit figure. "Instead
of getting 8.71 per cent, I got
38 per cent," he said.
With the prices of buildings
"rising, Luria noted, if a land-
lord buys a building, holds it
for a whole, and sells it, he'll
make a profit. And due to the
fact building .prices are not just
rising but skyrocketing in plac-
es like, Ann Arbor, landlords
can make huge profits on the
sale of buildings. The profit a
landlord makes on a building
sale - called "capital gain" -
is taxed at a lower rate than
other earnings. Thus, the land-
lord gets a subsidy from the
taxpayer when he sells a build-
ing.
As buildings get sold and re-
sold, at, constantly higher pric-
es, the costs of paying mort-
gages goes up - and rents go
up with the mortgage pay-
ments.
It's no secret rents are rising
fast, in Ann Arbor as in the
rest of the country. Rising
taxes, utility costs, insurance
costs and the like contribute to
the rent hikes, it cannot be de-
nied.
But neither can it be ignored
that the rents would not be so
high if landlords did not earn
such comfortable profits on the
money they invest in housing
- and if banks did not earn
such comfortable profits from
the compounded interest on
mortgage loans.
Rent control could be one

way to take some momentum
out of the skyrocketing of rents.
Rent control measures can in-
sure fair profit to landlords, at
the same time keeping rents
from rising all out of propor-
tion.
But the reasons for our high
local rents . go much deeper
than rent control laws could
reach. The buying and selling
of buildings, and the resultant
inflation of the prices of houses
and apartments, is at the heart
of the problem of high rents.
Luria said, "Of the big politi-
cal movements in Europe
which eventually matured into
socialist and generally anti-
capitalist movements, a lot of
them had their origins in the
whole issue of housing. I don't
think that's any accident. Hous-
ing is one df the clearest ex-
amples that there's something
screwy about the whole sys-
tem of private ownership.
There's a very clear reason
why when dissident or socialist
or radical governments come
to power, the first thing they
do is abolish private owner-
ship of land and housing. And
that's the reason why in social-
ist countries, housing is always
a tiny, tiny proportion of in-
come, while other things like
food and clothing, may be just
as high a proportion of income
as they are here."
There are many ways, short
of the outright nationalization
of the entire housing market in
the country, to build toward a
fairer housing system. In this
country and abroad, many hous-
ing complexes are cooperative-
ly owned and managed, with
no landlord to collect profit,
and no danger that the build-
ings will be sold and re-sold at
rising prices.
In such cities as New York,
rent control does an efficient
job, keeping rents at manag-
able levels. In Bologna, Italy,
the city government has been
acquiring real estate to stop
inflation caused by the buIng
and selling of buildings, and
has provided incentives for ten-
ants to cooperatively take over
buildings which had been own
ed privately. Gradual reforms
which are effective can negen-
der wider reforms.

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40

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THE MU*AVKEE MXhJUNA

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