The number of tenants in rent controlled apartments who received a buyout offer to vacate and sought counseling from the San Francisco Tenants Union has increased from 90 in 2007 to 175 in 2013.
While the maximum offer reported to the Tenants Union was $80,000, the average offer was closer to $21,000 with a median of $16,000, a median which increased to $20,000 over the past year.
The highest concentration of reported buyout offers over the past year, and roughly since 2008 as well, has occurred in the Mission, Castro, Noe Valley, Western Addition, Haight-Ashbury and NoPa. And the median monthly rent for the tenants in two-bedroom apartments who reported receiving a buyout offer was $1,700 over the past year.
With a market-rate rent for a two-bedroom in San Francisco currently averaging closer to $4,200, the payback for a $20,000 buyout, assuming the unit could be re-rented at an average market rate, would be all of eight (8) months.
Keep in mind that the buyout data above is based on intake forms prepared by tenants seeking counseling from the Tenants Union and is not a comprehensive picture of all buyout activity in San Francisco. In addition, the data likely understates the actual averages, as those tenants seeking counseling are less likely to have received offers which were “too good to refuse” and initial offers are often countered and increased.
As noted by San Francisco’s Budget and Legislative Analyst’s Office which compiled the data for Supervisor Campos:
Compared to current City requirements pertaining to No-Fault evictions, tenant buyouts: 1) allow landlords to re-rent their apartments at market rate to new tenants, with no obligations to re-rent to existing tenants at rent-controlled rates, 2) release landlords from tenant notification time requirements of the Rent Ordinance; and, 3) keep open the possibility of converting the rental units to condominiums for sale which could be prohibited as current City law does not allow condominium conversions at buildings where No-Fault evictions of tenants have occurred after March 31, 2013, or where multiple No-Fault evictions occurred prior to March 2013.
Supervisor Campos has been working on legislation which would categorize buyouts as No-Fault evictions as well, disallowing landlords to re-rent cleared apartments at market rate, requiring notifications, and restricting future condo conversions of buildings where buyouts occurred.
Old Mission/Noe/Dolores is gone
RIP and thanks for the memories
No, it’s not gone. It’s just evolved with the times. Still great neighborhoods to live in.
Change doesn’t equal death. One of those basic truths in life that a lot of pessimists/naysayers seem to forget.
Yes, old is gone.
New may be better worse or otherwise but different
Damn straight, SF, except for a “gated” community or two, is a disgusting ghetto that any rational person would avoid. I am selling all my SF props. Nothing but a headache.
I live on lower 24th, and this seems accurate. In fact my neighbor just got paid money to leave.
$1700 for a 2BR is insane. I know it’s wrong of me to be jealous, but at the same time I don’t feel too bad since over 40% of my income goes towards rent to live in this city. we need more housing stock.
Over 40%? You may want to seriously rethink that. I would recommend moving to Temescal in Oakland, hell give it a few years and it’ll be more interesting than the neighborhoods here.
40% is way too much. You should find a place where you can live for <25%. Otherwise will never save money. If you're financially responsible now, you can save up and buy in a few yrs
Rent control is such a complete and utter farce.
And there ain’t nutin’ campos can do about it too 🙂 hee hee hee.
I have never understood the Tenants’ Union opposition to tenant buyouts. To me it is the ultimate expression of tenant supremacy and power — no one ever has to accept a buyout and leave, and if they don’t want to leave and do so anyway with a puny buyout then they’re just plain dumb. I am an SF homeowner now and was a happy renter for decades and got a buyout myself (mind you that my rent was not below market at all for rentals, but the landlord wanted to cash out of the building — this was during the housing bubble when rents were not skyrocketing but condos were due to the loose financing practices). The rental market wasn’t as crazy as it is now and I was thinking of getting my own place without roommates, so a little extra cash gave me some incentive. But no one pressured me into taking it and I knew I could just say no and go on and live my life.
Did you have to report your buyout on your taxes? Did your landlord give you a 1099 for the payment? I would think the buyout would be taxable to you and an expense for the landlord.
Only if the LL reports it and sends tenant a 1099. I’ve always had smooth and friendly tenant buy outs, so I don’t want to burden them with it. But if I get the prick-insincere-money-maximizing-tenant, then I’ll probably 1099 them.
I have a question about the 1099. Say a landlord has agreed to allow a tenant a year of no rent as part of the deal to get the tenant out of the building. Should the amount of non-paid rent be included in the 1099 as a payment?
It’s taxable whether or not you get a 1099. But any landlord would be crazy not to give the tenant a 1099 after a buyout as that is required for the landlord to expense the payment.
I don’t think so. I simply put it as a capital expense, and I have proof of payment, signed contract, etc. to back it up. My CPA had no issues doing it that way.
There is no substitute for lots of data, but my own take on this is that the Tenant’s union numbers are very low. I have three close friends with 2-3 unit buildings who bought out their tenants (one to sell the building, the other two because they wanted to not be landlords anymore). In all three cases, the tenants were there for 10+ years, and received 40-60K.
This would make sense. Why would you complain to the TU for a $75K offer? You wouldn’t. You’d take the money and keep your mouth shut!
Can I legally buy out my 8-year running rent controlled tenants and re-rent my condo at market rate. Maybe they’d be interested in such an offer.
Yes.
I thought condos (with limited exceptions) were immune to rent control?
Condos are considered single family homes (SFH) and not covered under rent control. Maybe Invented’s “condo” is really a TIC. A TIC unit still owned by the original owner is covered under rent control.
if he is the first subdivider, he’ll be subject to rent control too even if it is a condo. in other words, let’s say he condo convereted his place from TIC to condo, the unit won’t get the benefit of being treated as a SFH (for rent control purposes) until the first arms length sale of the unit.
yes you can
I have recommended to friends that they do a hard nosed economic analysis of the value of their discounted rent before taking a buyout. Considering they are paying more than $1k under market rent, I calculated for them that they should consider the discount rate for what their rent bonus is worth. Assuming 5%, that means that their rent discount is worth $240,000. It is not liquid, so worth less than that, but not a whole bunch less.
In their situation I would not take less than $120,000. And I would start negotiations at $240,000, showing the work I had done above. Under no circumstances should they take less than $100,000.
Another analysis would be to consider that a vacant two unit apartment building would rent for vs. one with two below market tenants. It depends on the neighborhood, but these are in prime Noe, so I would estimate at least $400k. Split that 50/50 between the tenants and you get $200k again, perhaps with some kind of discount.
Tenants who take a $20,000 buyout are doing themselves a disservice.
Great, you’re helping the least productive people entrench themselves, resulting in reduced units available for those looking to move to SF to start careers.
Landlords new the bargain when they signed up for this business. They were on notice, hard to fault the tenant for maximizing their position. In fact it’d be insane not to.
It is interesting that those who believe that tenants should “maximize their position” then seem surprised and appalled when landlords do the same. Rent control has created such a poisoned relationship between businesses and customers.
You’re assuming all rent controlled folks aren’t productive. Great mindset. I expect this level of ridiculousness from someone from Noe, not Potrero. (Guess you got priced out.)
Point the middle finger at the city for limiting the number of housing units being built. Take the western SOMA plan, for example, with its height restrictions. A huge development opportunity wasted.
western SOMA plan is the worst, non-forward thinking plan ive ever seen. such a crock of beauracratic non-visionary BS
“someone from Noe, not Potrero” now? ha. Noe is the new Marina to some I guess.
“Leave Britney alone!
I mean Noe.
how do you know they aren’t productive? just because they rent rather than own? sorry just don’t get it…
Unless the owner is willing to Ellis. With no hope of condo conversion (thanks short-sighted Supes!) there is essentially no negative to Ellis acting your building and selling as TIC, which are going up in value now.
Should, in addition to the quarter of a million dollars, your friends also be asking for a unicorn and free waffles at IHOP for the rest of their lives? I mean, you get what you negotiate, right?
NVJ – Would you be willing to show us the math you used to calculate your discount rate for rent bonus? I would like to have that for future use. A URL would be fine.
Look up perpetuity. He is projecting the value of 12k per year forever. $12k/0.05=$240k
Compared to that thinking, the unicorn is cheap.
What do you think an appropriate discount rate is? I wonder how much an annuity that pays out $12,000 for the rest of your life and is inflation adjusted is worth. I have heard that non-inflation adjusted lifetime annuities have a payout rate of about 6% right now.
The appropriate amount is some polite value greater than the Campos Ellis buyout value, which would be closer to $25k.
Asking for a quarter of a million dollars would at least assuage any guilt a landlord might have had about an Ellis eviction.
So the discount rate should be about 50%.
Uh huh. Serious answers only.
Give us the year your friends signed their lease and the monthly rent. Those are necessary input to calculate the Ellis payout. If we are only talking about a 1k discount to market, the payout will be around 24 months times the discount. The idea that the renter has created a perpetuity is bogus and exactly why the Ellis act exists.
I suspect you have not been a landlord in this city for long, have you soccermom?
NoeValleyJim is spot on with this advice. The landlord voluntarily entered into a contract, which by law is enforceable by the tenant for life with limited increases in the rent (with some avenues for an out, see Ellis and OMI). The landlord now wants out of the long-term legal contract he/she signed because it turns out the landlord made a bad deal — should have asked for higher rent. That will, and should, cost money.
Now, one can argue that the law is stupid (I agree, but it is not going anywhere in our lifetime). But it is, and for a long time has been, the law, and the landlord (presumably) knew this when he/she decided to enter into the contract. This is not a matter of “good” landlord or “bad” tenant. It is a simple business transaction. And NoeValleyJim has basically the right analysis to value it (I think there should be some discount for the potential of an Ellis or OMI, and there should also be some add-on factor for the increasing “under market” value over time).
All true, but I would also suggest that “some discount for the potential of an Ellis or OMI” not be casually dismissed. Just as a tenant might look at the PV of their tenancy, a landlord can easily do a similar calculation either to sell the units as TICs or to re-rent the units in 5 years at market rates.
As noted above, the tenant and landlord voluntarily entered into a contract knowing that the tenant could be evicted at some point in the future either through Ellis or OMI.
Landlords “voluntarily entered a contract*.” *That the Supervisors have amended multiple times since it was first enacted.
And you and many other seem to dismiss the fact that many small landlords purchased their buildings before rent control existed in any form. Add to that the multiple times the law has been changed for the sole benefit of tenants over the past thirty years and you have a recipe for what is happening today.
Agreed these pro-rent control opinions are presented as a “well, it is what it is” or “hey, people make their bed…”.
The reality of the situation is that tenants all have a landlord. These landlords can be the original owners, or the heirs, or investors who took their chance. For all of them some new law was voted to close a gap in the system. But many investors went into the business because there was such a gap. For instance investors will do an Ellis because they are not interested in renting out. An Ellis is a law but it is also a tool, and a necessary safety valve.
These “tools” can be found in many other sectors of the economy. One prominent example is being able to short-sale shares in a listed company. The tool itself is an opportunity that facilitates market discovery. It is in a way a safety valve for a market that can be too oriented towards bulls. Without short selling ups would go higher and downs would be more brutal.
Similarily, safety valves like Ellis evictions will accelerate the correction of some anomalies. Say Pop Landlord bought his building in 1970. He has no heir. Today he is in his 80s and needs expensive medical care, but his building is sucking cash from his account month after month. He cannot sell because who would buy a business that loses money from day 1? The end result is buildings hat nobody will maintain, for a decade or more. Cheap rent for filthy living, aka slums. Even if the landlord doesn’t want to do an Ellis, he knows he has the option and will accept to sink some cash into the place because there’s an underlying value that is to be realized.
An Ellis allows for Pop Landlord to get out cleanly of a very bad situation. Curbing its use breaks the last option that can make this whole crazy rental system still workable in the long run.
Dude we know your little fairy tale is not how Ellis actually works in this city though. For “pop landlord” substitue Jerk and Unpleasant, LLC. And for building sucking cash substitute JaU LLC realizes more cash can be made with a flip, evict and TIC sale than long term rents.
Show me a building in San Francisco that no one will buy and I will believe your very tall tale.
Jake, you haven’t read all of my post obviously. I said an Ellis was a tool, just like short selling is a tool for the stock market. It can be used in many ways, but it is essential to trigger necessary market recognition.
Yes speculators will use it. Pop Landlords will also use it. More often than not emotional Pop Landlords will sell to sharks who will be the ones doing the Ellis. But the result is the same, and Pop Landlord prices his property with the potential for a speculator to realize the cleaning up of the bad rental situation through an Ellis.
Now imagine a world without this safety valve. Landlords will see their building has become virtually worthless since the punitive amount imposed on Ellis kills any chance for speculators from doing what they are supposed to do: reset the clock. The landlord will isolate his personal finances from the building, and let it rot, stop paying his taxes, and eventually they will be abandoned, seized.
Potential equity is what keeps the money-losing rental buildings standing in San Francisco. Kill any chance at equity realization and get ready for all the unintended consequences.
I am not expecting any San Franciscan who thinks his rent subsidy is paid by unicorns to grasp this very basic concept.
NVJeem, you’re off your rocker! Might as well do a FU Ellis eviction, sit on empty bldg 5 years, then rerent it. (Or, I’d just rent it out to friends. Looser tenant can report the unit is being “rented” all they want to idiot-rent-bored, but unless they can prove payment, they’ve got nada.) Waaaayyy cheaper than your ridiculous suggestion. I think there have been very few, if any LL’s who are paying out $200k. Get real dude. $10-60k is the normal range. And with the exception of one, all my tenant buy outs have been on the lower end of that scale.
Your tenants are very foolish and short-sighted then. They got what, two to three months rent for permanently reducing their cash flow? Bad financial planning.
If you leave it empty for 5 years, you would lose much more than $100k-200k. I thought you were all about maximizing profit.
In all seriousness there are a few of serious flaws in your financial model.
1- unlike a financial instrument, the person lives in the apartment. In reality there are very few people who will be happy living in the same place for 20, much less 50 years. They have a 1br, what if they start a family? Live in a 3br with two roomies, what if they want to live alone? Tired of the neighborhood? Job change? Etc. you know, life happends and not everyone will maximize a discount if it ties them to a bad place.
2- owner always has the option to Ellis/tic, or just sell the bldg to someone who will.
3- in actuality, buy outs of that magnitude are extremely rare. So this model is rarely used in practice. But it’s a nice idea on paper 🙂
I already discounted the value 50% due to it not being liquid. That is in response to your argument #1. The amount to discount very much depends on the person and situation. My friends are very happy where they are, currently have roommates and plan to raise a family there. They do not want to ever move. Never. They are in their late 30s and wish to be pulled out by their ankles.
Ellis act evictions almost don’t happen. Less than 7% of all evictions are Ellis Act evictions and less than 1% of tenants are evicted each year. Yeah it is there as a club if needed, but almost no landlord actually uses it, in spite of all the Sturm und Drang about them recently.
The main reason I think that tenants accept mediocre buyouts is that they are financially unsophisticated, compared to their landlords. Hmm, maybe this is an idea for a second career for me, help tenants negotiate better buyout packages. 🙂
that’s only true if the landlord has no other option to evict. the tenant has to weight the probability of an Owner Move In (OMI eviction) and Ellis Act. If the landlord is pushed, it may decide to OMI instead and you’ll get <$20k. Tenants need to research their landlord and its other options and weigh accordingtly
NVJ, looks like you calculated the benefit as a perpetuity, a ($12K / year) benefit, divided by the discount rate of (5% / year) is $240K. However, the calculation complicated by the fact that the tenant will not live there forever, but will eventually leave, by death or other means. The landlord has to guess when that will occur in order to calculate the true benefit. There is no reason to pay $240K to a tenant who the landlord expects to leave in five years. I suspect that is why the cash payout money is much lower than your calculation.
In this particular instance, my friends are in a 3db in Noe and they are in their 30s. There is no way that they can afford to buy anything and they are happy living where they are. I fully expect them to live there as long as they possibly can. The difference between the value of a payment for 50 years and perpetuity is very slight, as I am sure you know.
NVJ, Ha! You just described the worst-case scenario for the landlord: an apartment with tremendous potential for a family to live their entire life under rent control. A rational landlord would have to determine what path gives the greatest possible return: 1. Buy out the tenants and reset the rent to market rate (and calculate the risk of a repeat situation in several years’ time with new tenants); 2. Perform an Ellis Act eviction and sell the building as a TIC, and invest the proceeds in other investments; 3. Sell the building as-is and invest the proceeds; 4. Continue to rent the apartment for maximum cash flow by deferring maintenance and place all profit expectations in land price capital gain; 5. Continue to rent the apartment with the expectation that the tenants leave because of a significant life event.
Which is the most profitable path depends on the landlord’s assumptions of events decades in the future that may not materialize. Simple!
Another alternative: do a buy-out while the rent differential is not too high, then furnish the place and do corporate housing with whatever system that fits the landlord’s needs. The key is to get out of the rent control trap before it drags you down.
i would say this is such a situation where the landlord needs to get them out immediately. as a landlord renting out a place this large, i would only rent to tenants new to the city who have the kind of salary that is clear they will either eventually buy or will move to another area. its important to select tenants that you believe have a 75% chance of moving out in <5 yrs and 95% chance of moving in <10
Maybe we are all missing something here. Maybe there is an implicit threat when a landlord offers a tenant a buyout and a tenant is not only intimidated but a little bit afraid. It may be for many tenants a situation with a great feeling of powerlessness, while the landlord can have the attitude of “I’ll make him an offer he can’t refuse”.
In SF, there is no powerlessness feeling on the side of the tenants. That’s the wrong city.
The tenant’s unions are “opposed” to buyouts because they want their cut. If they are officially opposed, they maintain the high ground to negotiate bigger cuts for themselves. Down the line, this allows them to receive grants from the city to build museums dedicated to the Tenderloin. Personally, I would like it if THC built a Tenderloin Zoo instead. It could feature live tweakers and crackheads – but beware, if you anger them they may pick a scab and throw it at you.
Insane situation: you have a tenant costing you money and you have to buy him off to get rid of him. This is what happens when short-sighted politicians forget common sense to focus the voter’s attention on their persona. Campesino is only the last one in a long list of arrogant arrivistes.
The end result is one of the most unaffordable rental market in America. EPIC FAIL.
its called extortion. the tenants union is extorting owners
UPDATE: Keep in mind that Supervisor Campos has been working on legislation which would categorize buyouts as No-Fault evictions, disallowing landlords to re-rent cleared apartments at market rate, requiring notifications of any buyout, and restricting future condo conversions of buildings where buyouts occurred.
Campesino should eminent domain the SF rental market already, just to save us time and taxpayer’s money.
Keep in mind, that would only work if it’s reported to the Rent [Board]. I’d only do a buy out if tenant agrees not to report it (you don’t report it, and I don’t give you a 1099, Kapish?). Most buy outs are private anyhow, and I sure as hell would keep them that way. So screw you, sup [Campos]!
Also, Chris Daley…tried something similar, and it failed….something basic about state law prohibiting SF from restricting private parties from creating contracts. Go figure.
I realize that I’m probably in the minority, but I’m a renter and I’d probably demand a 1099 form (or, more accurately, my accountant would probably demand a 1099 form). There’s no way I’d hide that from the IRS. For those renters who would, your bank is going to report the deposit of a 5-6 figure check in your bank account, so failing to report the income is very risky.
You can always declare it. I simply write it off as a capital expense, just like I do with my contractor’s labor charges for the work he performs.
After reading these comments my conclusion is that there’s a lot of greed on both sides of the issue.
Also, people think that SF is some kind of utopia. On the contrary…it’s just an expensive, dirty city with crap transit and a crumbling infrastructure.
Mark, that’s right. Please spread the word as just about everyone else seems to be misinformed and thinks SF is a great place. Perhaps if you get the word out, those misinformed, mistaken masses will stop flocking here.
Greed from a landlord is healthy. After all you own rental units in order to make money.
Greed from a tenant, by opposition, is unnatural. I understand why you’d want to have a lower rent. But paying less than 1/2 of market rate without means testing is just an encouragement to making tenants feeling more special than they are. And if tenants have to receive actual money for no other reason that they are in the way, we are compounding to the disconnect between the function of a tenant and where he thinks he stands.
agree. the purpose of a business is to make profit, and these rules keep business owners from profiting. Instead the tenant or customer is profiting. Imagine if you could walk into any business and get half off and then 10 years later, they pay you 10x what you paid to get the product back.
That’s even worse, since the tenant got the product already (the use of the place)
Paying off a tenant 10,000s to vacate amounts to REFUND the rent already collected!
Say tenant Lambda rents a unit for $1500 instead of $3500. To buy him out you’ll give him $75K. This amounts to FIVE YEARS OF RENT. This means that the tenant lived these past five years for free.
I’m not greedy, I’m fair.
Please provide us with your definition of “fair”.
My tenants like me and think I’m fair.
That’s some one-sided logic. Of course a tenant is going to try to get the lowest possible rent. $0 if possible. Nothing wrong with that any more than with a landlord seeking the maximum possible rent. We’re currently negotiating rent with our commercial landlord. You think I’m trying to get anything other than the best deal possible? Got to keep those pesky tenants beaten down so they don;t start feeling special – works with dogs, right!
And there is a reason for a buyout other than the tenant being in the way. The tenant has a legal, contractual right to stay in the unit at the contracted-for legal rent. Come on, let’s not be ridiculous about the issues here (“tenants = bad, landlords = good”)
How many laws in the last 40 years to favor landlords? You are the one being ridiculous there for trying to paint a quasi-taking as a simple contract issue.
Now everything would be different if a landlord had the option to opt out of the contract anytime a new rule weakening the application of the contract is enacted.
But they can’t. The contract keeps changing, always in favor of the tenant. Tenants throw their weight around and get more every time. That’s not a balanced relationship.
Prop 13.
Prop 13 wasn’t specific to landlords, but to all homeowners. Hey there is one!
People following what’s going with the BoS can testify that there’s a new proposal almost every week. some of them are rejected, others are merged, a few manage to make it. How may new restrictions on OMIs, Ellis, TIC conversions, airbnb, buyouts in the last 2 years alone? This is a whack-a-mole fight. The market still keeps popping its head.
I think that would be a good clause in any rental agreement: “If, during the duration of the rental agreement, any local laws are being enacted that would change the nature of the present agreement, then either party will be given the option of being freed from the constraints of the agreement”.
I could work with that, and put my property back on the open market.
“Change the nature of” is hopelessly vague.
You could do something when you signed the lease. Then later a law is enacted and you cannot do this thing anymore. Clear enough?
I am a strong advocate for our existing rent stabilization protections for tenants which ensures stability in their lives and doesn’t subject them from having to painfully uproot their families and their lives and kick them to the curb just because the market goes up and down and their incomes haven’t kept up with it. It’s not punitive to landlords in the slightest — other than specific capital upgrades to their own buildings, landlords do nothing to cause the rise in value of their rentals — that is society and the City’s overall influence. That’s why we have vacancy de-control (i.e. it’s not true rent control) where all vacant units revert to whatever the market will bear to the advantage of the landlord.
I am also a strong advocate for new housing production, including market rate. Supply and demand are real, and suggestions to the contrary are rubbish. Also buyouts are also perfectly consistent with the notion of rent control — everyone benefits in that circumstance, both tenant and landlord, since it is a mutually-agreed to deal that the tenant is under no obligation to accept. I think tenants just need to understand the economics more and not settle for less than it’s worth it to the landlord.
What spoils this all is the exploitation of the Ellis Act for its unintended purposes — speculatively buying buildings and emptying it of tenants in order to sell it. The idea behind the Ellis Act is that long-time landlords should be able to “get out of the business.” This warm-and-fuzzy vision is that grandma and grandpa who have owned a little building for 30 years are tired of being landlords and want to cash in for their retirement and their families. I support that. It’s hard not to. There are a small number of actors who are ruining it for everyone.
ensures stability in their lives
Mmmh. There’s a process that ensures stability.
It’s called homeownership!
One is not born a tenant or a home owner just like no one today is born as a slave or a master. This very simplistic view is part of the problem. People will lock themselves into an us-vs-them position, and this behavior becomes self-fulfilling. Landlords that feel victimized will get whatever they can, becoming the “greedy” landlords that tenant advocates are depicting. Tenants that fear Ellis evictions will fight tooth and nail ANY push from their landlord, making them the “leech” caricature, and making the landlord a heartless evictor.
“It’s not punitive to landlords in the slightest”
I would suggest that limiting annual increases to 60% of CPI is punitive. Over the long term, rent increases do not keep up with inflation and erode any profit from renting a unit. Over the short term, no big deal. But over a 20 or 30 year period the rent does not keep up with the other associated costs of owning property. Hence you see the Ellis Act being invoked. The “small number of actors” you reference are merely the facilitators that allow “grandma and grandpa” to cash out of their building.
thats right. thoughtful eludes to the ups and downs and whims of the market. i can agree to some point with that. If rents go up 20% in a year, thats tough for a lot of people, and its reasonable to get some protection from that (although i think it should be means tested, meaning no one making 6 figures should be allowed)
But to keep rents rising at or below 60% of CPI means the tenant is actually paying less and less every year. at the least, landlords should be able to raise by CPI. or even 120% of CPI
I agree that the allowable rent control increase should equal inflation. Most of the problems with rent control in San Francisco are because the cost of running rental property goes up faster than the rents associated with it.
True. How about using the same cost of living increase for rents that is used for city employee’s pensions. If it’s good enough for them, it’s good enough for landlords.
Inflation is a mix of many different things. For instance the electronics sector is pushing the inflation rate down. Construction costs I believe, increase faster than inflation. In addition to these costs, regulation in the RE industry always goes in the direction of more safety, better construction standards. A new foundation in 1964 is not the same as a foundation in 2014. One (not so small) factor in housing cost inflation in California is the improvement of building standards. With rent control, there’s no way you can ever follow the increase in costs of long term repairs and necessary upgrades. This means sacrificing safety for the sake of affordability.
This is not something people realize when they ask for the perpetual gravy train of rent control.
Response to parklife: I assume you are trying to imply that city pensioners get “good” COLAs. In reality, the COLAs are limited by City charter to 2% per year and are given in multiples of whole percentages, i.e., 0, 1 or 2%, based on the CPI. Thus, landlords would likely do better as long as the CPI is 2% or less. However, my experience in life is that, over time, the CPI exceeds 2% more than not. In fact, I remember many, many years on end with the CPI in double digits. Thus, city pensioners in general see their purchasing power degrade seriously over their retirement. Landlords would likely be worse off in that scenario than they are now. But then, according to you, “If it’s good enough for them, it’s good enough for landlords.”
This is an example of “bad facts make bad law.” When RC was passed in the ’70s, inflation was running at around 10%. SF was far from a “hot” market then – it had basically been stagnant or in decline for 25 years. So there was really no upward pressure on rents except for the high general inflation rate. But people were angry about those 10% rent increases every year. Just keeping up with inflation, but try telling that to a tenant who is on the receiving end of that increase (or a whole city full of them). That was too high for them, so they passed the law limiting it to 60% of CPI increases – a 6% rent increase each year is enough! (nb: similar considerations drove Prop 13 – 2% each year is enough!)
Of course, inflation plummeted after that. And starting in the mid-90s, SF truly did start to get hotter and hotter, with upward rent pressures driven by economic factors more than general inflation. But it is hard taking away a vested benefit from the proles. The easiest game in town is to identify the problems with RC. But as I’ve said, SF is a renter city, and renters believe (falsely) that RC benefits them, and so it ain’t going anywhere, and it ain’t changing except, perhaps, to make it stronger.
@CityRetiree,
Rent increases are 60% of the CPI and haven’t equaled 2% in years. For some reason it seems to be a very common misconception that rents can increase at the CPI. So, like retiree’s, landlords are seeing their purchasing power decrease every year. Of course, the common retort is that the value of the property has increased thereby making it perfectly fine to limit increases. Unfortunately, often times the only way to unlock this increased value is to evict the tenants!
What I can deduct from your post (building a few straw men but not so far from the meaning of your prose)
Comrade Landlords should accept that the people’s republic of SF is like a kind parent:
– Comrade Landlords do not deserve the appreciation of their property and as a result should forfeit it to renters through low rent and expensive buy-outs
– Everyone benefits from rent control, by decree. Every one, I tell you! Even Comrade Landlord.
– Ellis evictions are abused by evil capitalist forces.
As I said before, why not cut to the chase and eminent domain Comrade Landlord’s property? It’s for the collective good, as as a consequence, his own.
“the exploitation of the Ellis Act for its unintended purposes — speculatively buying buildings and emptying it of tenants in order to sell it. The idea behind the Ellis Act is that long-time landlords should be able to “get out of the business.” This warm-and-fuzzy vision is that grandma and grandpa who have owned a little building for 30 years are tired of being landlords and want to cash in for their retirement and their families.”
You understand, right, that grandma and grandpa sell the building to the ‘greedy’ developers? It doesn’t matter if grandma and grandpa do the ellis, or the greedy developer, the untenable situation goes away. The market corrects many of the inefficiencies thrown into the system.
Well put.
And the next hurdle added to prevent the market from working simply adds an extra inefficiency. The new inefficiency will create 3 things: – 1) a lower supply – 2) lower volume that will itself create higher demand (no absorption, duh) – 3) an adapted extraction method to exploit the resulting increase in price.
The market reacts the same way a forest does when you insist on preventing cyclical wildfires. The fuel accumulates and the delayed fire becomes more devastating than it should.
You are drinking the Ellis Act kool aid, and you shouldn’t. The Ellis Act amounts to a paltry total when it comes to the San Francisco rental landscape.
How much do you all think a 5 unit 2 bed/1.5 bath units reno’d in late 2000s with all units delivered vacant would go for in southwest Bernal?
Consult a realtor.
One may not be “born” a renter or tenant, by there is no question that people with wealth pass on wealth and opportunity to their children, which can allow them to be able to buy a house. If everyone could afford to buy, then there would be no renters–and that has never been the case. And it’s not because the renters aren’t productive. Many work much longer hours than others making the big bucks. Do keep in mind, though, that without rent control, there would probably be no “task rabbits” or pink mustache drivers or fedex or UPS drivers to deliver everything bought on Amazon. I guess, of course, Google or some other tech company could set up a system where the “poor” people are bussed in to SF every morning to be sure the wealthy can use an app to get their farm-to-table meals.
It may be easier for people with inherited wealth or economic advantage to purchase property. However, the decision to rent or buy is not based solely on a persons economic status. A number of factors should go into the decision to rent or own. The fact that the cost of entry in a market is high is not justification for trying to keep rents artificially low.
what % of SF owners who bought in last 15 years do you think bought because they had an inheritance. My guess would be <10%. this city, more than most allows people from all walks of life to make a lot of money. you dont need to be from a wealthy family to get a degree in computer sci or biology and find a job at many of the local techs and biotechs, which are paying a lot. out of the 20 closest people i know in the city, 14 own and only 1 came from money. thats a small sample size and anecdote, but i feel this city is full of opportunities. of course, its different on the fringes. the poorest 10% and the richest 10% are worlds apart. but that 80% in the middle have a lot of the same opportunity
Yes wealth and opportunity can indeed be passed on. But with my family background I should never have become a landlord if things had been really cast in stone. Some people still move up in real life. Some people will go down, but it’s less likely under the current system. The world is less and less equal but that’s a trend and not a rule.
Also what you are not describing is the possibility that someone can be both at different times in their lives. You have your first job and need to build a downpayment and are going to rent. A good proportion of tenants in the US are actually “homeowners in training”. This is the way things still work in many communities.
For most people I know, there is no “decision” to make as there is no opportunity to buy. There is also no justification for keeping wages artificially low compared to corporate earnings. It depends what kind of a world you want to live in, I guess.
i want to live in a capitalist world with a safety net for the very poor. thats why i live in the US. if i wanted to live in a more socialist society, i would move to France.
Jill, oddly enough I started my adventures in Capitalism in the great country of France. Yes there were punishing tax rates, overreach on what you can and cannot do with your property, but there are 2 things that actually helped me in my investments:
1 – Rent control is reasonable and has some safety built in to keep a level field.
-> Every 3 years you can correct the rent by 10% if you can prove the tenant is underpaying by more than 10% compared to market rent. It works both ways, up and down.
-> At time of sale, you can ask a tenant to vacate the premises. Provided you respect the rules (wait for the 3-year lease to be up, give 6 months notice, offer the place to the tenant at a price that cannot be higher than the actual sale price)
2 – Renters are offered rental aid, at any tranche of income, if their rent is too high compared to their income. This means I can rent a $2000 place to someone making $5500 since he’ll get $200 in subsidy from the government. This greatly increase the pool of prospective tenants.
I did purchase property with the tenants already there (and the tenant discount) and performed successful tenansectomies. None of the affected tenants ever complained. These were my places after all, and even in “socialist” France people respect the benefits that come with homeownership.
Is that why you live in the US? What country were you born in Jill?
That is fascinating. Rental aid would dramatically change what is happening in SF, as would the rental corrections, up or down. In that situation, a 3-year lease is less of a problem for the renter because you know you aren’t going to be priced out. There is both stability and options. It sounds so sane.
One detail about the 3-year lease system in France. The tenant can decide to leave at any time after the first year, with a 2 or 3 months notice. The landlord has to respect the 3-year lease and has to provide a valid reason: OMI of a family member or yourself, or a SALE. This last option is what keeps the French rental market pretty balanced. It helps in terms of turnover. SF could use a whiff of fresh air like this.
Maybe the money that builders are paying to the city instead of building BMR units could go toward the rental aid fund. And maybe all the big tech firms could make a nice big donation to the fund as a way to demonstrate they are giving back in the sharing economy. I think you and I need to meet with the Mayor!
Did anyone receive the deceptive flyer from Noni Richen of the SPOSF? It implies the proposed speculator tax would impact all homeowners and asks you to call the Supervisors to complain about it. The reality is the law excludes single family homes and is directed at multi unit rental properties which Noni Richen owns.
no. but I wish I had. the proposed tax is a travesty. imagine this scenario: 1. decrepit, unliveable, vacant, multi unit is bought from a trust. 2. new owner fixes all units, adding to the rental pool 3. new owner rents units out, creating homes for people who want them 4. new owner sells 5. new owner gets assessed crippling tax.
This is a very real scenario. Prop 13 keeps people in properties for far too long, often resulting in trusts selling off long-neglected and decrepit housing.
Why should a builder be so horrifically penalized? He/she has actually added to the rental pool!
This is a joke. A horrible joke. And if you don’t get that, you’re not intelligent.
Umm bro…news flash…plenty of people own and live in 2+ unit bldgs. They would all be effected. Kapish?
The tax is not narrowly tailored and, while it is directed at multi-unit buildings, it taxes any change in ownership without regard to speculation.
I was joking when I suggested the City should save everyone some time and Eminent Domain property instead of forcing cheap rent down the throat of private landlords.
But the City might start a rental property purchasing program!
Even though this is a far cry from Eminent Domain, and the budget is ridiculously undersized, the City will soon discover that 250K per unit doesn’t cut it for most landlords today. Once they go down that road, and see they cannot make it work at this price, I am certain they will try and change the rules to have the landlords be more cooperative… In a few years we might have a de-facto eminent domain system to keep rent controlled units underpriced.
Heyyyy…I got a total POS 4 unit, all studios, with low rents. Crap bldg. Crap location. Crap everything. Ok, I’ll take $250k/unit! (And other than that, no, most units in most bldgs are worth more than $250k.). Only exception is probably a few POS’s in the loin. So great, the city will buy the worse bldgs….and…..I’m sure they’ll manage them really well. Last I heard they plan on hiring consultants from HUD. (Yes, that’s a sick joke.)
As others have said, rent control is more like a long term lease than a subsidy.
And an Ellis is a way to handle a breakdown in a long term commitment, more like a bankruptcy or a foreclosure. And just as there are rules for how to compensate affected parties in a bankruptcy and a foreclosure, there can be rules for how to compensate affected parties in a Ellis act.
Those owning a building prior to the enaction of rent control certainly have cause to complain. But those who bought a building recently or have had the opportunity to use vacancy de-control should have been able to control their income and/or expenses with the knowledge of the commitment they were entering into.
Do I think that the city should require long term leases for some set of buildings? No. For various reasons I think the current system is inefficient. But there’s a difference between thinking the current system is inefficient and thinking that people should be able to break long term commitments purely for personal gain. Much of the commercial market has long term leases or lease options and companies can’t just break those leases simply because they’d make more money at current market rate.
Put in another context, I’m against minimum wage and “living” wage laws, but that doesn’t mean that I think companies should be able to void people’s stock options after the share price surges simply because honoring them would cost too much money.
That’s a good way to put it.
One additional point. While it is a valid statement to say that those owning a building prior to the enaction of rent control certainly have cause to complain, that only goes so far. Laws affecting existing contractual relationships change all the time, either by statute or court decision. Some examples: insurers were put on the hook for billions of dollars of asbestos coverage on decades-old policies after courts determined that incorporating asbestos into buildings was “property damage” that was “continuing” (who knew?). Jury waivers were routine in business contracts for decades before the courts ruled that they are not allowed (who knew)? Thousands more examples out there. That’s life in a legal system where the state has the right to govern contractual relationships. There is a point where the government can not alter a contractual relationship, but that is the exception and not the rule (I know all about the Contracts Clause – that’s what I’m talking about here, and it is a high bar to clear to make such a claim). Again, one can complain about this, but anyone entering into any contract knows (or should know) that the government can change the terms to a fairly significant point after the fact. You don’t like that? Don’t enter into a leasing contract. One may feel bad for landlords who entered into deals that now look like a bad one for them, but only to a point. I’m not saying these laws are not dumb – they are – but dumb laws are all over the statutory code.
Yes comparing rent control with an asbestos infestation is the best prose you’ve written so far. It’s toxic and I recommend immediate removal.
As far as the rest is concerned, that’s a lot of short-cuts in logic. We’d think we do not live in the same country. Get out of the 7X7 once in a while and see the markets at work.
As others have said, rent control is more like a long term lease than a subsidy.
How are these incompatible? Yes these are long term leases that includes a subsidy. The subsidy is real. It is the main motivator for the tenant to stay in his unit. It is pretty material, and at the core of the rent control discussion. Of course if you say contract instead of subsidy, then you’re looking at the “obligation” side of the transaction. Whereas if you take it from the “subsidy” question, all sorts of questions arise, like 1) does the tenant DESERVE the subsidy? Without means testing, there’s no way to know! and 2) if there’s a subsidy, who is at the paying end of this subsidy? Answer: the landlord. The next question is of course whether the landlord should be the right person to pay such subsidy. Short answer: there’s no valid reason he should.
Minimizing the “subsidy” side of rent control is a good way to get rid of some very annoying questions. Nope, not letting this pass…
And an Ellis is a way to handle a breakdown in a long term commitment, more like a bankruptcy or a foreclosure.
What? This has noting to do with bankruptcy or foreclosure. Anyone can choose to close a business at any time he wants. You can decide to do it while things are good (any business owner will tell you that), or do it under hardship (never a good idea). Your choice. As long as you are provided with the choice, which the Ellis act ensures. Of course rent control laws create artificial difficulties for landlords, and they will use the Ellis act. But the problem is not the Ellis act in itself, but the fact that landlords often have no other choice when they see their property rights are not very strong.
And just as there are rules for how to compensate affected parties in a bankruptcy and a foreclosure, there can be rules for how to compensate affected parties in a Ellis act.
You should be in politics. You started with the wrong premise and make up a conclusion based on this wrong premise. Say a bookstore closes shop. Is he going to compensate anyone around him aside from his suppliers for what he owes them? Nope. What does a landlord owe a tenant? Shelter, as long as a tenant pays his rent. If the contract is moot, the landlord releases the tenant of the duty of prying rent, and gets the use of his property in return.
Those owning a building prior to the enaction of rent control certainly have cause to complain. But those who bought a building recently or have had the opportunity to use vacancy de-control should have been able to control their income and/or expenses with the knowledge of the commitment they were entering into.
Wrong. Someone who buys a property does it knowing all the rules he has to respect. And he purchases it with either the intent of keeping it as a rental or the intent to vacate it of tenants and do something else with his property. Do we want to punish intent? Is that what it is? Do we want to force people to do what WE want them to do with THEIR property? As I have been saying let’s Eminent Domain property if we want to supersede the owner’s right. But Eminent Domain in SF would look too much like Collectivization, which would have the tenant advocates show their true colors.
Do I think that the city should require long term leases for some set of buildings? No. For various reasons I think the current system is inefficient. But there’s a difference between thinking the current system is inefficient and thinking that people should be able to break long term commitments purely for personal gain. Much of the commercial market has long term leases or lease options and companies can’t just break those leases simply because they’d make more money at current market rate.
People want to make money from property they own. What is it to you? Is this your property? Why would you have a say in what people do with their own stuff as long as they do not harm anyone? Are landlords obligated to provide shelter? This is a free country. A landlord wants to lose money not renting, his problem. Provide the right conditions for him NOT to want to Ellis and you’ll have solved the current issue.
Put in another context, I’m against minimum wage and “living” wage laws, but that doesn’t mean that I think companies should be able to void people’s stock options after the share price surges simply because honoring them would cost too much money.
Do you mean tenants OWN the landlord’s property and therefore are owed SHARES? What a novel concept. It’s clean cut. Own. Rent.
tl;dr: what a pile of myopic self-serving 1/2 truths
lol, you’re making all sorts of leaps. It is not necessarily the case at all that “anyone can choose to close a business at any time he wants.” Some examples. You run a bookstore, and you signed a 20-year lease for the store. You can’t just “close the business.” You have a contractual obligation, enforceable in court, to keep paying the rent whether or not you’re selling any books.
Or let’s say you’re on the other side of that transaction – you are the landlord. You can’t just “close the business” because you’ve contractually promised to make that space available to the bookstore owner for the next 20 years, and you’d have to pay to make the owner whole.
A landlord with a residential lease that the law says is enforceable by the tenant for life is not any different. The landlord has to honor that lease. Again, you might argue that the law is dumb or unfair (I agree) but that is the law. The landlord knew that going in. The Ellis Act provides a procedure to get out from under that lease, just like a bankruptcy or foreclosure would. anon2’s points were quite valid. It is the landlord, not the tenant, who is getting around the contractual arrangement. Your “tenants = moochers and marxists, landlords = good and noble” schtick is simplistic and invalid. We put all sorts of rules and restraints on property rights and contracts. Yeah, landlords with a RC-controlled who made a bad deal are going to complain. I get that. But they are not a victim.
“It is not necessarily the case at all that “anyone can choose to close a business at any time he wants.”
Exactly.
Would we let someone start up a life insurance company, collect premiums for decades and then just decide to close up business right as the wave of claims started to hit?
Life insurance is a very different animal. A rent is not an actuary calculation. A landlord is not covering a potential/future risk but providing shelter. Pay $$$ for one month. Get shelter for one month. There is no clause for compensation to the tenant if market rents go up. Apples and Oranges.
No, a lease in SF is not for one month. If the landlord does not appropriately set the rent for the legal term of the lease – i.e. the RC term – then the landlord screwed up. The landlord knows that the tenant may stay for years and years, and he should set the rent to factor that in. Nobody to blame but himself if he set it too low and the “market” changes.
Leases are month-to-month, even if the landlord cannot end his side of the deal as he wishes, except with an Ellis eviction. With an Ellis eviction, there’s no further obligation from the landlord to provide anything, no money (aside from relocation aid), shelter… The Ellis eviction law ensure there is a way out. It’s the very last resort of the landlord cornered by the crazies at the BoS.
The Ellis Act provides a procedure to get out from under that lease, just like a bankruptcy or foreclosure would.
You’re starting with a good premise, then add a judgmental comment.
Does a landlord have to justify himself to invoke an Ellis eviction? What if decides to install his extensive cuckoo clock collection in his Ellised building? What if he wants to build an S&M dungeon for his pals? What if he wants to house homeless people for free? What if he just loves having a lot of space for himself? What if he wants to cash out and pay for his kids’ college?
Are you going to tell him what’s right and wrong in his personal choices?
He just wants out.
He doesn’t owe any explanation
He doesn’t owe an excuse
He doesn’t owe any justification
This is a question of personal freedom. You cannot deny this.
Cuckoo clocks and S&M dungeons? I have no idea what you mean by this post.
Better say that you have no idea how to respond to the actual arguments.
A landlord can choose to remove his unit from the rental pool for any reason he wishes. Easy enough for ya?
Got it. Spout nonsense, and then claim that any inability to respond to it is an admission of defeat. Come on. You used to be more mature than that. This rent control issue really has you unhinged.
OK. Under the Ellis Act, the landlord does not have to demonstrate any particular reason. That is apropos of nothing, but we are in agreement on this point! Hell, we’re in agreement on all the major issues, as far as I can tell – i.e. the stupidity of rent control. Where we differ is your position that tenants are nothing but evil and greedy and selfish when they insist on sticking with a legally binding contract whereas landlords are victims and tread upon and nothing but good when they want to breach that contract.
You were the one not understanding the cuckoo clock reference. I am just putting it in simple words since you’re playing that card.
Did I say tenants were evil and greedy? Not evil. But entitlements can make you greedy, yes.
It’s up to each individual to determine for him or herself if any behavior within the letter of the law is justified or moral.
But it’s also possible to logically predict the consequences of some actions.
In the past, someone could rack up huge college debts and then soon after graduation declare bankruptcy with nothing to lose. Some people would do the same with credit cards, racking up huge bills and then simply declaring bankruptcy. During the bubble, people took on impossible loans and then simply stopped paying.
All of these above cases caused predictable backlashes. Student loans are no longer dischargeable in bankruptcy, general bankruptcy laws have been tightened, mortgage lending has become tighter and more restricted.
It might be within the letter of the law to Ellis not because of unforeseen circumstances, but merely to flip and extract the value of the implicit lease option, but all the backlash that this behavior has created is predictable and as in the above cases will probably end up overcompensating.
So the people really hurt by the very small number of Ellis fips will be the mom & pop’s who have truly gotten themselves in a bad situation and need to Ellis but will face more restrictive terms. Just as how previous borderline bankruptcy practices
ended up hurting those for whom circumstances truly justify a chance to clean the slate and start over again.
“Minimizing the “subsidy” side of rent control is a good way to get rid of some very annoying questions. Nope, not letting this pass…”
It’s not a subsidy because the landlord can hold out for whatever rent they want during the initial lease to cover the cost of what is essentially a lease option.
If I can pay $7 for an option to buy a stock for $100 over the next five years, I’m not getting a “subsidy” of $20 if the market price goes to $120.
This is the fundamental flaw with your logic in most of your posts on this topic.
“Do you mean tenants OWN the landlord’s property and therefore are owed SHARES? What a novel concept. It’s clean cut. Own. Rent.”
Not really. There are a variety of ways by law and contract that various rights and obligations of assets can be bundled up and traded or sold. I do find it deeply ironic that many on the left who advocate rent control for the wrong reasons are also the ones who decry these types of financial instruments/arrangements in other contexts. But that just goes to show that people on both sides of an issue can be deeply mistaken.
“tl;dr: what a pile of myopic self-serving 1/2 truths”
You must be looking in a mirror this morning.
There you go with your stock options analogy. A tenant does not own any part of the landlord’s property. He is not owed any profit sharing, or any part of the increase in equity. Once the lease is moot, he is on his own.
The only thing a landlord might “owe” the tenant if he decides to do an Ellis is relocation fees, since the tenant will incur that expense and didn’t have to per the original lease terms.
Again, wrong premise. Self-serving conclusion from the wrong premise. It’s all very transparent. All your arguments have been debunked many times in the years we’ve been discussing rent control on SS.
Rent control is social housing using landlord money.
That’s just semantics. You can argue that a tenant does not “own” the landlord’s property. But the tenant certainly has a legal property interest in the unit. That is a result of the contract that the landlord chose to enter into, which assigned property rights to the tenant. Landlords complaining about a RC tenant simply made a bad deal. They should have charged more. Cry me a river. And the law gives them an out from their bad deal anyway through the Ellis Act (the tenant also has an out — he can just move). Rent control is dumb because it drives rents higher through the scarcity it creates, to the benefit of landlords and the detriment of tenants. I’m certainly not going to come out swinging in favor of the landlords in this debate.
My comment was specific to anon2’s recurring fray into the stock option analogy. Yes landlords can get into a bad deal, but most of the time it’s unknowingly, since they couldn’t possibly know that extra laws would weaken their business model. And these laws keep coming, week after week, Landlords have an exit door, the Ellis eviction. What I am disputing is that the landlord can invoke an Ellis and not provide any unrealized future rent subsidy. They can decide to get out of the rental business simply because they want to. And they shouldn’t owe anyone anything, since the rental contract is the supply of shelter for money. The only hardship is that the tenant has to move, and there’s compensation for this. But does the landlord have to provide funds to cover the potential rent increase incurred by the tenant? Nope. The tenant doesn’t OWN the subsidy after the lease is moot.
Notwithstanding your continued ranting. It is effectively a lease option. The tenant has the option, but not the obligation to keep renting at pre-determined rates.
Since the party writing the option, i.e. the landlord, assumes the risk in the deal it would behoove them more than anyone else to understand and correctly analyze the situation as it actually is, not as some make-believe world in your head.
Yes, insults aside, you are correct, except that the Ellis act is also well known among landlords. They know there’s an exit strategy in the case they need it. It has some destructive (read punishing) consequences and therefore it is not a neutral action. But making sure a landlord will not renege on his name by pulling units away from the rental market is not the same as paying the tenant for a non-existent hardship.
You still haven’t defended the stock option analogy mentioned twice. Calling people names doesn’t make up for accountability. Please note I have not insulted anyone during this debate. But rent control supporters are showing they can’t defend their positions without throwing invectives. A big sign of weakness and it shows they are defending a pretty obsolete law.
“You still haven’t defended the stock option analogy mentioned twice.”
Well, you haven’t really attacked it.
The tenant clearly has the option, but not the obligation to keep renting at some pre-specified prices.
Given two identical apartments, one under RC and one not. It’s obvious that any prospective tenant would pay more for the one under RC. A landlord looking at both apartments would want a higher initial rent for the RC unit. Where buyers and sellers intersect is the option premium.
Stock options are fungible and well traded so the analogy is to help you understand how these things are priced. You can literally go online and look at option prices for different prices, time periods and for stocks of different volatilities. Apartments are all unique and pricing is more difficult, but the analogy is to help you understand the basic concepts.
I think that in San Francisco, unlike most jurisdictions in the world, the rent control ordinance does convey a certain interest to the tenant. This is why I have repeatedly said that buying any rental property subject to rent control in SF should be left to the big boys who can deal with it. Small holders should look elsewhere. If one cannot afford the risk of loss in the investment, one should not invest, both in SF property and stocks.
The City government, long a tool of the most left-leaning residents, will not even allow rent control to be means-tested. By including rich people in the benefits of rent control, they guarantee support for the law even from those not logically entitled to receive it. I think I once mentioned here about an elderly friend of my wife, an heiress to a large ranching enterprise, who lives in a very fine rent controlled apartment at about $500/month. Although should could easily afford market price or much more, she lobbies to preserve her benefits. If she were ever removed from rent control, she could and would buy a condo or coop in a most expensive building in Russian Hill. In other contexts, this would be called corruption, but here it is perfectly legal.
I agree about your logic in why rent control is also supported by wealthier tenants.
One thing I strongly disagree about is that the landlord business should be limited to the “big boys”. This is wrong on so many levels. People are able to move between class layers. The opportunity to move up is part of the American Dream. Doing it through through real estate is one way to achieve it. Why would we create the conditions that would prevent the little guy from getting his chance?
In San Francisco, the City so quick to denounce big corporate interests and willing to prevent chain stores in select neighborhoods, I find this deeply ironical.
Small investor buys building. Kicks out tenants. Remodels the units. Sells as TICs. Rince. Repeat. It’s all happening in SF. You might not like it, but it is what it is. And the harder the job, the more profitable.
UPDATE: Tenant Buyout Regulation And Penalties Proposed.
UPDATE: Evictions Are Up In San Francisco, As Are Reported Buyout Amounts