Supervisors Aim to Cement Support for Expansion of Rent ControlJuly 27, 2018
If adopted by voters in November, California Proposition 10 would overturn the state’s Costa-Hawkins Rental Housing Act which prevents rent control from applying to single-family homes, condos or any multifamily building which received a certificate of occupancy after January of 1995 (or earlier if a city had already adopted a rent control ordinance, which is the case for San Francisco which adopted rent control in 1979).
While the passage of Proposition 10 wouldn’t directly change the existing rent control laws in San Francisco, it would allow the laws to be amended and expanded to all property types without the above prohibitions. It would also allow for the potential adoption of vacancy control, which would limit the amount a landlord could increase the rent on a newly vacant unit.
And while not binding, a formal resolution in support of Proposition 10, “reaffirming the City and County of San Francisco’s support for repeal of the Costa-Hawkins Rental Housing Act,” has been drafted by Supervisors Peskin and Fewer and will be presented to San Francisco’s full Board of Supervisors for potential adoption next week.
Comments from Plugged-In Readers
So glad I will be putting my rental property up for sale soon. I’ve had enough of this city and state’s attack on the housing industry. Enough is enough.
If passed, Prop 10 will exacerbate the state’s housing crisis.
I’m totally for it passing. If you don’t like it, you are free to move to a regulation-free paradise like South Sudan.
I don’t think he’s advocating for a Sudanese-style approach to housing policy.
I’m not stating whether or not I agree with Prop 10, just pointing out one of its consequences.
Thanks for thoughtfully giving out your advice, Wonton. Seeing as how you offer a “solution”, will your thoughtfulness extend to paying the costs of moving his building from California to South Sudan? Or maybe you hadn’t considerate that while it’s easy for people to move, it’s pretty hard for them to move the real estate in which they have invested their hard-earned money.
And if Prop 10 DOESN’T pass, and YOU don’t like it, airfare to Venezuela is quite inexpensive these days. You might consider it. There are plenty of governmental price controls there, which might warm your price-control loving heart.
I’m assuming you never invested any of your hard-earned money in any real estate that you would have to take with you…. 🙂
The problem with rent control is that it effectively taxes landlords to fund a subsidy to tenants. But you only want to tax negative externalities and wealth; and you shouldn’t link taxes to expenditures (hypothecation). So it’s a very broken policy. If you want to subsidize people, just subsidize them. Like we do with food stamps. We don’t force grocery stores to sell discounted food of course.
I hear North Korea is accepting visa applications, for those who prefer state control over the economy.
If fixing the housing crisis is your goal, you’ll have to go after Prop 13 and nobody is brave enough to do that. Instead we create workarounds like Prop 10 so that renters can get a share of the subsidy that their landlords have been enjoying.
If the landlord’s balance sheet doesn’t pencil out after Prop 10, they can sell the house to someone who will both occupy it and pay their fair share of property taxes. That seems like a win for the city as a whole.
You are absolutely right.
Even if cities like SF don’t immediately extend rent control to new/newer properties, the fear that they could do so at any time, at the whim of a local elected body, would be enough to virtually shut down new housing development.
And the fear (or reality) of vacancy controls, in which municipalities tell property owners what they can charge new tenants, would drive massive losses of existing rental housing. Small landlords will opt to sell their units or keep them unrented rather than renting them. Large apartment owners, especially newer ones (nearly every newish building is condo-mapped, allowing the units to be sold individually) will likely start selling their units off rather than re-renting them, if their future viability is in question. Those who are on the fence will be pushed in that direction, certainly.
Passing Prop 10 will reduce the housing supply and increase scarcity. It might help existing tenants by capping rent increases in newer buildings, but they’ll never be able to find another rental if they ever want to move.
Small landlords will not leave their rental houses empty. Lol.
Prop isn’t a good thing. But landlords with a couple rental houses in the Central Valley or East Bay are not going to leave them empty d
I’m seriously laughing out loud.
I was thinking more of mom and pop landlords in SF. The folks in the Central Valley don’t need to worry, their municipalities aren’t going to enact rent control. It’s the cities we are talking about.
Folks in the East Bay will sell those rental homes rather than having to rent them for a price somebody else sets. And while that may be good, in many ways — I think we’d be better off if more people owned their homes — it will lead to more gentrification and shutting out folks who are always destined to be renters.
Small landlords are not going to fix the housing crisis. We need increase the housing stock at an unprecedented rate and scale, which means the focus should be on large developers, who are *extremely* sensitive to uncertainty and reduced rates when a lot of projects already don’t pencil out.
With Prop 10 making the ballot, the large developers have set one foot out the door of California. If it passes, they will put both feet out – and go work where they are welcome.
This is one of the reasons many residential projects are not going forward at this time in SF. This change to the rent control laws if enacted would bring residential construction to a halt in SF. Many projects don’t pencil now and some are on the borderline of go/no go. Rent control on new construction and vacancy control will make new projects in SF financially unfeasible. Keep in mind that while this proposition would allow localities to impose strict rent control on all housing it does not mandate such. Some localities won’t go there. SF will – in the unlikely event the Supervisors don’t go for the full enchilada, renter groups will put initiatives on SF’s ballot to impose all the controls that the initiative permits. This will, if passed, only worsen the housing crisis.
What becomes of major apartment projects planned for the coming decade. Park Merced for instance. The plan is to add thousands of rental units – will that plan still be viable should this come to pass? Or HP/CP and projects with a planned mix of apartments and for sale units. Will the developer come back and ask to re-do the project without rentals ad make it all condos? Would the city allow such a change? I told a friend who benefits from a rent controlled unit she has been in for a decade and makes almost 200K that developers would only build condos and not apartments in the city if 10 passes. Her response – that future residential development be required to include apartments as well as condos. This is SF and it is not too far-fetched to see the possibility of such a scheme coming about.
Dave, thank you for stating the obvious. Unfortunately most voters in SF and CA in general are stupid. They vote by emotion and ignore the unintended consequences of their vote.
Also, it is important to note the the financial underwriters who fund new construction are watching Prop 10 closely to see if it passes. If Prop 10 passes you can kiss funding for new condominiums and rental apartments good by. Think this is hyperbole? Think again. The cost of risk for funding and underwriting projects will cost the developer additional interest on borrowed funds making development even riskier to developers.
SPUR should do a full frontal assault on this misguided proposal. If Prop 10 passes watch the “Central SoMa ” plan evaporate into thin air.
Yep. Some rental projects already don’t pencil out under current conditions where high rents on unregulated units can help offset the hard costs of required affordable housing units. In all cases, soft costs will increase.
The Hub with it’s up zoning contingent on a 33% (thereabouts) BMR component could also collapse. One Oak has been abandoned as it is. Mission Rock might no longer pencil either. The irony being the Giant’s agreed to a 40% BMR component. If Mission Rock stalls that would be a ton of BMR units not built.
I shudder to think what will happen when development dramatically slows down (and possibly grinds to a near-halt). Peskin pops a champagne bottle and everyone else shrugs?
Peskin’s dream seems to be returning SF to the 1950’s. Good luck funding SF’s $300,000,000.00 a year for “the homeless” with 1950’s tax revenues. Peskin – “The Fool on the Hill”.
And no, others will not “shrug”. They will weep, as there will be almost no rentals available (few landlords will re-rent any new vacancies (they’ll sell them as TIC’s), and no one will build new rental housing) – and then businesses will move out of town or fail when they can no longer find new employees, because no one can move here if they can’t find a rental (unless they move here with a large down payment to buy).
On the plus side, as rentals are converted to TIC’s and sold to owner-occupants, a larger % of homeowners versus renters in SF will shift the politics Rightward – eventually. After a severe local economic turndown, current policies like endless funding that draws junkies to SF, and even extreme rent control here, will eventually go away.
And the $11,000,000,000.00 annual SF governmental budget will plummet – forcing large layoffs in the public sector – to a more normal per capita “government employee” to citizen ratio.
Hell, if SF keeps on its current course of increasing “regressive progressive” policies, before long, as people get more and more fed up, new politicians will emerge who run on platforms of “law and order” and “business friendliness” – and they will start winning.
Even I, a millennial renter in SF with no buying power, despises the idea of Prop 10. Folks who think this is a good idea are completely misguided. If passed this would open the flood gates for even more gross overstepping by the CA government. To a reasonable extent, home owners should be allowed to do what they wish with the property they purchased.
It should not affect all housing, just rentals, existing or new. Condos, owner occupied properties would not be affected. Existing rental units will continued to be sold but now they will likely be purchased by owners who will live there as opposed to renting it out to tenants, depending on vacancy control limits. Prospective buyers can always evict existing tenants through OMI.
But the above posters are right, one wrong legislative move will damage a city in terms of growth and prosperity for generations and decades.
Some days I look enviously at Hong Kong developers whose new developments bring massive crowds of fully funded buyers like the post-Thanksgiving Black Friday sale, and setting new price per sq ft records.
“Some days I look enviously at Hong Kong developers whose new developments bring massive crowds of fully funded buyers like the post-Thanksgiving Black Friday sale, and setting new price per sq ft records.”
So, massive building drawing massive crowds setting new price records. Your example is an argument for stronger rent control…
No, take a look at the Hong Kong skyline. Developers buys land from the government and then are allowed to build accordingly with clear, and transparent rules without onerous reviews.
SF is a small city in size and population. Even with a disproportionately large budget, it still is unable to get simple economics right. It is more reactive as opposed to proactive planning.
“[…] simple economics […]”
I love it. You boast that the policies you favor in Hong Kong are “setting new price per sq ft records.”…
I think you’re unclear on the concept: why would renters and non-wealthy prospective buyers want “new price per sq ft records”?
The policies you favor don’t seem to be making housing more affordable in Hong Kong, eh?
But thank you for inadvertently making an argument for expanding rent control!
Easy answer. I want more top shelf luxury housing, not more affordable ones, in Hong Kong and elsewhere. I am not looking at the renter and non-wealthy segment. You are.
This is a thread on a proposition to expand rent control, not top shelf luxury housing.
Most of the posters here (many if not most of whom are RE pros or small-fry landlords) claim that expanding RC will make housing more unaffordable You take the refreshingly honest approach that eliminating gummint intervention has the opposite effect and instead increases housing prices.
I applaud you for your candor which reveals the hypocrisy of the RE types who scream that expanding rent control will exacerbate the crisis of unaffordable housing.
Unlike the bleeding heart landlords and used-house salespeople who populate these boards pretending to be concerned with the crisis of housing unaffordability, you admit that your aim is higher housing prices.
For which I thank you.
If you think condos would not be affected, you are misguided.
I live in a large condo building. Probably ⅓ of the units in my building are being rented by their owners. If they suddently became subject to rent control, I would anticipate 2 things: Many of them would try to sell, all at once, possibly leading to a vast oversupply of units on the market and a collapse in prices; the rest would probably try to raise rents to the most they think they could possibly get before any control went into effect. Even if they had to accept a period of vacancy due to the high asking rent, they might do it in anticipation that in the long run they’d be better off.
So the net result would be a collapse in sales prices and a jump in asking rents. Is this what the Supes want?
It makes sense for condo owners to increase rents now, either the tenant pays and stays, or moves out.
Either scenario works, higher rent now translates to a higher base rent later. If tenant moves out, owner keeps unit vacant until November. Vacant units in desirable locations will command the highest sale prices. If Prop 10 passes, then the unit may fetch even higher rents because there will be less rental units on the market.
I think Supes want a massive city budget to play with. More property turnover and sales means higher revenue to the city. Run down rent controlled properties which have rarely changed hands mean low annual property taxes, and less revenue for the city, despite their “must save rent control units” rhetoric.
If said condo owners are currently collecting market rents and an acceptable return on their investment, the cost basis of which would not change, why would they rush to sell?
And if said owners are collecting market rents, which, by definition, should represent the most the market will currently bear, what would be the benefit of raising their asking, but not obtainable, rents?
Keep in mind that higher than expected vacancy rates sink more real estate investments than lower than expected appreciation in rents.
The idea is not many will want to hold real estate as an investment. Vacant units are easier to offload for buyers who will live in the unit. It eliminates the additional expense of doing an OMI. You should ask any real estate broker.
Investor buyers look at numbers only, cap rates, appreciation potential. Low cap rates used to be desirable if there is also a high appreciation rate. But, any further limits on rents will kill off the high appreciation potential and the investor is better off buying in Ohio where cap rates are higher and prices are a fifth of prices here.
Many owners have accepted low ROIs in anticipation of rapid price appreciation in SF. It’s not clear that many/most of rented condos are getting “acceptable” returns as it stands. Whether or not it’s a rush, most likely there will be a greater inclination to sell.
Any idea how many rental condo units there are in the SF? Most condo buildings limit the % of rentals in the complex. I have a condo in downtown Portland and rentals are capped at 10%. This is common as valuations are impacted when owners want a mortgage. Owners also generally don’t want their building to turn into an apartment house. Every condo I looked at restricted rentals quite severely. I assume the situation is the same in SF.
This is where most miss the mark. Rent control in SF is not about controlling the price of rent. It’s ALL about who controls the property. Ask any landlord who has gone through the nightmare of having a crappy tenant and the eviction process.
Absolutely the case, especially for small landlords. I don’t need or want a ratchet beyond my costs. I’d be infinitely happier with the OPPOSITE of the current system: preserving my right to evict or non-renew troublesome tenants (in my in-law), and vacancy control (or rent stabilization a la NYC) to level out the boom and bust cycle and to keep all of the renter friends I love in the city.
Also, as a 39yo, Peskin and his boomer anti-development ilk like THD are utterly infuriating. It’s not the 70s, dude, your battle is over—go shout at a cloud like Grandpa Simpson already. Your self-serving anti-development mindset is getting in the way of change. Try serving the real needs of young people for whom a place to sleep is trumped by BS “neighborhood character.” Honestly no different than all the “squares” of the 50s or whatever hellscape you’re from.
Pretty sure Peskiest already shouts at clouds, while simultaneously trying to extort bird seed from the North beach pigeons. It is a failure of SF democracy that people like him are in office. They have zero interest in building a better tomorrow for the next generation.
With a single post SS reveals its’ Marxist leanings and lack of real world investor experience. You should probably stick to reporting the minutiae of SF deals lest you alienate the real business class. It is so much safer to report on the action from the sideline than to actually take risk.
“I live in a large condo building. Probably ⅓ of the units in my building are being rented by their owners. ”
That is the core problem. Housing should be a place to live, not an investment vehicle.
I say let them take the hit
I believe he indicated that 1/3 of the units were rented. As in, someone lives there.
If you’re saying that we should prohibit rental housing, then fine. But I suspect that many current renters would have an issue with that. Unfortunately, what I believe you are thinking is that the government should essentially confiscate all rental property on behalf of the current tenants. This would be a one-time boon to those provided the housing, but would result in exactly zero new housing, thereby forcing all future residents to be homeowners.
“I say let them take the hit.”
This is exactly the lack of understanding that makes Prop 10 attractive to those who cannot see one step ahead.
RENTERS will be the ones who will “take the biggest hit” if Prop 10 passes. Rental housing will dry up. No new rentals built, and many existing rentals sold off to owner-occupants once they become vacant.
In this case of condos, since they’re currently non under rent control, most all are rented at market rates – so unlike long-term existing tenants in rent controlled units, these tenants are not “sticky” – clinging onto a “killer deal” – so they will move when their lives’ normal changes dictate that their housing needs have changed (new job, or start family, or whatever).
And as soon as they move, will that condo come back on the market as a rent-controlled rental? No way.
The main beneficiaries of Prop 10 would by those who plan to buy a single-family dwelling (house, condo, TIC) in the next few years – as current rentals will be sold off upon vacancy, creating somewhat of a glut in the sales market. I could see the cost of single-family dwellings dropping a good 20-25%. (This should be a talking point of the No on Prop 10 campaign – explaining to homeowners that their home values will fall).
So, new buyers gain. And renters? S*** out of luck, as there will be very few rentals available. And with those that are, there will be lines of 200 applicants out the door. It will be as hard to find a new rental as it currently is to win the lottery for a BMR unit.
Good point. For those owners who want to remain landlords watch for more than a few tax free exchanges to other more lucrative markets. As it is the ROI in SF is poor for most mom and pop landlords. A little research would show them they could get a much better flow in a less landlord antagonistic city. Personally my belief is it is a mistake and too much of a risk to own rental property in SF. I’ve felt that for quite a while and, should 10 pass, it would become downright foolish to own rental property in SF.
New buyers gaining at the expense of rentiers, is an easy choice over rent seekers continuing to be framed as benevolent masters over tenants while also profiting.
Plus, the more pressure to produce government funded housing the better.
You miss the point, ca152. New buyers won’t gain at the expense or “rentiers” (landlords), they will gain at the expense of RENTERS – who will no longer be able to find available rentals as they are sold off to new owner-occupant buyers.
As for government funded housing, the government funded project at 16th and S. Van Ness pretty much shows how that goes – $900,000+ per unit, which, with cost overruns, will probably exceed $1 million per unit. Good luck solving SF’s housing crisis THAT way.
jeremy, it’s right in the first paragraph of the Realtor preamble that it’s in the nation’s best interest to have the widest distribution of land ownership. It is you who is missing the point that addressing the housing crisis begins with decoupling interests tied like these.
To your second point: price isn’t an issue since the dollar is a fiat currency. Housing initiatives of the scale required here should be taken up by HUD, and backed by the fed.
The sooner people are put to recognize the difference between a fiat currency vs hard money, and the properties of a currency issuer vs a currency user, the better.
Well, yes increased home ownership seems like a worthy goal. Please explain to me how keeping renters glued into rental units (because they have an artificially low rent) expand home ownership.
Or how creating impossibly Byzantine laws (ever READ the Rent Ordinance??), which are too complex for mom and pop owners to deal with, so when they sell, the buyers are usually large corporations who can navigate the labyrinth due to costs of scale, leads to wider distribution of land ownership. It’s doing just the opposite in SF.
And if your solution to the huge costs of building new housing is…have the Fed trash and inflate the currency so the Government can print up new dollars to spend, I don’t think you’re seeing all of the knock on effects and unintended consequences of your solution.
Nice strawman attempt, nowhere did I argue rent control would expand home ownership. Though, I would argue renters should receive rent control protection similar to land owners being protected by prop 13. When designing tax breaks it was awfully short sighted to create ones that wouldn’t include all levels below the intended group.
Large corporations buy/develop large projects, not usually SFH’s because costs don’t scale. Byzantine laws discouraging mom and pop owners from becoming rent seekers is a desirable result.
To think the fed printing new money for housing will cause inflation to the point of trashing its value, might be how you would do it. A healthy amount of inflation would occur as long as the housing market and labor market isn’t over saturated. With unemployment at 3% (and underemployment an unaccounted factor) and the housing crisis being what it is, a band for improvement exists between what we have now and hyperinflation, which I don’t think you’re seeing. I also don’t think you’re seeing enough of the consequences of how things are currently ran, if you reject printing money to address these issues, at no cost to you, just to maintain the status quo.
“Housing should be a place to live, not an investment vehicle”
If they’re rented out, don’t people live in them?
Yep-Maybe I take my rental property off the market. I can afford it. This will fix the housing problem.
The RE game will be played by fewer & fewer of the elite.
I oppose Prop 10 on the basis that dream of ownership gets further away – and this is what you get from Progressives.
Can any lawyers weighing in on the impact of this eventually ending RC all together?
Doubt it will end all RC. It will probably result in more litigation.
lawyers: “more work for us”!
I’m with benwa. If Prop 10 passes, I will never re-rent the condo I rent to long-term tenants. When they leave — and they will, they’re young and upwardly-mobile — I’ll probably just keep it and renovate it for my own use as additional living space or for visiting guests. There’s no way I’d ever rent it out again. There are lots of other folks like me out there who will come to the same conclusion.
Especially owner-occupied real estate. I own a prime two-unit building and I’ve left the second unit vacant since my close college friend moved out. Like several others on my street I’ve renovated the building into a large owner’s unit and a smaller in-law. I won’t even rent the in-law to friends because the incentives are so terrible. Better to keep it as an occasional space for guests than create an irrevocable life tenancy attached to my largest single asset and domicile.
Pacific Heights with Michael Keaton, anyone? Or even Scott James’s real life experience [namelink]
I am in a similar place—I live on property zoned for 2 units and after a buildout I would never dream of renting out a second unit to a long-term tenant given the climate against landlords here. “irrevocable life tenancy attached to my largest single asset and domicile” indeed, what a massive risk to expose myself to.
And I’m not some kind of savvy landlord / investor, just a person with (I think) common sense. How many others like me are out there in SF? And how many more units does Prop 13 allow people to afford keeping off the market?
I’m another, in the same boat. You’re going to see fewer units on market.
I think the supervisors are misguided or just plan stupid if they believe this will help. The net result over time will be an increase in owner occupied housing with likely an immediate uptick in Ellis evictions. I know for certain there will be at least one additional Ellis eviction if they impose vacancy control. That would be my rental unit.
Maybe they are banking on repealing the Ellis Act next if they are able to get Costa Hawkins reversed? Another reason I am selling my property. The rules are getting worse and worse.
Vacancy control is beyond insane.
Proposition 10 is being pushed by people who have very little understanding of the housing market they are proposing to further regulate. The ramifications will be dire. I predict 10,000 lost rental units (combination of cancelled new projects and existing units being pulled from the market and/or sold) in the first year alone.
A 2nd ramification will follow. As it is now, there are tons of rentals available in SF and other rent-controlled cities in the Bay Area – expensive, but available. If Prop 10 passes, instead of seeing 1,000 available units in SF on Craigslist, there will be very few (perhaps at lower prices, but each one with 200 applicants, 199 of whom will be out of luck). What sane landlord would re-rent a unit at below-market rates, instead of just selling it to a new owner-occupant, at market price?
This will mean: businesses will start to fail, or leave town. They cannot hire new employees (or replacement employees) when there are no available local rentals for them.
Renters who lack Econ 101 knowledge might cheer increased rent control, and then cry when they get laid off as their employer goes bye-bye.
If they sell… that’s a good thing. Neighbors can become communities again. Instead of a few owners surrounded by renters.
You’ll probably also see the rise of east-coast style “key money” — if prices are regulated, the rentals will go to the folks most willing to slip some under-the-table money to the landlord. That’s bound to happen when there are 200 applications for every one rental.
Is “key money” legal in other rent-controlled jurisdictions? (I know it was popular in NYC for a long time – I remember reading tales of $20,000 fees up front (non-refundable) to rent a vacant NYC apartment, but don’t know if that was being done legally or not.)
I’m sure that places like SF, Berkeley, Santa Monica, etc. would try to ban it – but would their ban hold up legally?
One cluster**** that will immediately happen if Prop 10 passes – since 2011, most all SF landlord attorneys have been advising clients to NOT issue 6.14 notices to new, unapproved subtenants within 90 days of their occupancy (which would ensure the right to raise the rent to market using Regulation 6.14, when the last Original Tenant vacates and subtenants remain) – and to instead simply rely on Costa Hawkins, which doesn’t require any kind of notices. So if Costa Hawkins is repealed, their owner/clients will be instantly lose their ability to raise the rent to market when everyone on the lease has moved out, but some “revolving roommates” remain (as is the case in most SF rentals).
All the SF owners who relied on their attorneys’ advice will be scrooed, and quite upset at their attorneys.
Not all attorneys gave that advice. Ask around.
Got some names? All 4 I know and use gave that advice. I need a new attorney,
Good point! I handful of prominent landlord attorneys did give that advice at that time.
Rental housing is a product that costs lots of money to build, if you tell developers how much they can rent it for, do u think anyone will build any? What happens when there’s no new rental housing built for 2 years, 5 years, 10 years?
We had almost no new rental housing built for 30 years. That’s what got us to where we are today. The stuff that’s been built in the last decade is a fraction of what we didn’t build (but should have) for decades.
So yeah, when housing development stops — as it will if Prop 10 passes — we’ll be back to digging an even bigger “housing hole” for ourselves, as we watch housing shortages get even worse and even more people get forced out of their homes.
….and the irony is that candidates who running for running for SF Supervisor positions in Nov (say all those in D6: Trauss, Johnson, Haney, all renters) are ALL touting ‘more housing, more housing’ but are pro-repealing Costa Hawkins – which will ironically halt housing. Keeps the SF RE game fun for lawyers.
The SF Rent Ordinance is often jokingly referred to as the SF Landlord/Tenant Attorneys Full Employment Act.
As for the politicians, it’s mandatory for SF politicians to be Pro-Prop 10, since uneducated voters (95% of the electorate) think it’s “Pro-Tenant”. The politicians couldn’t care less about tenants, or any other constituents for that matter. The only thing that matters is Winning, and the personal perks and power that comes with that.
Of course, if Prop 10 passes, and new rental housing comes to a halt, the politicos will just come up with new “solutions” that will no doubt be as misguided as Prop 10, and exacerbate the problem even more.
As Mr. Natural says, ” ‘Twas ever thus.”
You’re refuting the argument that expanding RC would cause a complete crash in housing development. “We had almost no new rental housing built for 30 years” – yet any housing built in that time wasn’t subject to rent control. Goes to show that the housing market is more complex than RC vs. no-RC.
My view: Prop 10 and the follow-on city ordinances will slow housing development for a while as investors and existing landlords try to figure out the new landscape. While this may cause rental prices to rise (from lower supply), it may be partially offset by lower values for existing rental properties, so investors may find some deals or see opportunities where low purchase price and market rents offsets the risk of newly-applicable RC policies. After all, plenty of small and large landlords are making money on current RC apartments, taking advantage of turnover and high demand.
The key will be how far SF will go to expand RC if Costa Hawkins goes away.
You may have noticed how planning keeps pushing for more BMR units? Construction costs rising too? You will see many entitled projects left on the drawing board, even after payment of huge fees along the way, just because they no longer pencil
If you search, you can find a few economists who have written pieces in support of rent control but they are few and far between. It’s the one issue that conservative and liberal economists of whatever academic school seem to agree upon. Rent control reduces the quantity and quality of housing stock and increases overall levels of rent. Even Paul Krugman wrote: “The analysis of rent control is among the best-understood issues in all of economics, and — among economists, anyway — one of the least controversial…. Sky-high rents on uncontrolled apartments, because desperate renters have nowhere to go…”
In SF in particular, rent control reduces turnover and locks up a huge portion of the rent-controlled rental supply where tenants stay in places longer than they otherwise would or longer than makes sense. We all know lots of stories like this. A lot of people in SF feel stuck while a lot of people trying to get into SF find it impossible. It is also a wealth transfer from younger renters to older renters.
On a side note, I’ve at times wondered what certain neighborhoods’ demographics might look like with and without rent control; the notion would be that rent controlled apartments might cause aging of neighborhoods while limiting younger entrants to certain professions/levels of income. I wonder what % of current SF residents could afford to live in their respective neighborhoods if they had to pay market rents.
Despite this, I always think there is more gray area than a binary– rent control is good or bad. I think its current implementation is terrible and causes distortions in both rental and purchase markets and that there could be a way to change rent control to reduce these distortions. However, politically, it’s hard to see that it would ever happen in SF.
It is a transfer of wealth from younger renters to older renters.
If you are offended by generational transfers of wealth, rent control in SF is mouse droppings.
Everything you wrote above is true of Prop 13 a hundred times over. It is economically and morally unjustifiable and a drag on the state’s economy.
Unlike rent control, Prop 13 isn’t limited to primary residences and can be passed across lifetimes using a corporation. The only thing that will stop the increasing property tax distortion is voter action.
And now, back to Prop 10…
It’s a different topic, but I agree with you. Commercial properties should be stripped from Prop 13’s protections; it should be limited to primary residences and (let’s be generous) perhaps one vacation home. If you inherit a home with a low assessment, you should lose the reduced assessment after a couple of years unless you make it your primary or secondary residence. That would solve the bulk of the problem with corporations and properties that keep their low assessments forever for unjustifiable reasons.
I believe the original reasons for Prop 13 are still valid. But I don’t think anybody was thinking about commercial property when they voted for Prop 13.
Take away Prop. 13 and what incentive is there to own in CA? High taxes, onerous regulations, decreased quality of life, wasteful government expenditures, and social issues over economic ones. The only good part is the weather and even that is changing.
Personally I think NYC properties hold their value much better. It is a city with 8M people and this means commerce can thrive 24/7. SF is less than 1M and dependent on tech. SF is no longer hungry or eager for new business, instead it is the grumpy curmudgeon who has intellectually atrophied.
Let it pass, roll out more rent control and let’s see a good case taken to the new Supreme Court and see rent control all finally struck down for good.
The courts have upheld rent control but 10 passing would lead to more lawsuits. One challenge that seems obvious is a landlord having tenants under rent control who make huge salaries. That is common in SF. Rent control is not intended to subsidize someone making 200K a year – making a lot more in some instances than the landlord. If 10 passes and SF imposes draconian rent control laws on SFHs and condos I’d expect a slew of lawsuits.
Most of my rent control tenants are high income — this ensures prompt rent payments, high credit scores, and good lifestyle habits.
What experienced landlords would voluntarily rent to tenants with unstable incomes, are financial risks, and/or judgment proof? So the argument about the current tenant profiles versus intended recipients of the rent control does not help the reduce rent control. Do you want the government to require landlords to rent only to people making less than $50K a year or tenants who have trouble finding any type of housing?
This right here. A rent-controlled tenant making 200k is like buying a high grade bond… low risk.
Agree. My units are 6.5k+ a month.
I hope some attorneys show up and weigh in on this question.
My understanding is that rent control (including vacancy control) has been upheld by the California Supreme Court, but has never been “upheld” by the US Supreme Court, although they did “decline to hear a case, without prejudice” about 6 years ago.
If that’s the case, with the new makeup of a more conservative US Supreme Court, I suspect that they could easily ban some or all aspects of rent control as a “Taking” if a case comes before them. Currently the California Apartment Association has 2 cases in process, working their way up the courts, and willing to go to the US Supremes – the new laws voted in by Richmond and Mountain View recently.
RC is a State issue, I don’t see a conservative SCOTUS every imposing Federal rules on Local/ State legislation regarding rent control.
This would just even the playing field for the majority of city rental housing already subject to rent control. Why should new buildings be exempt? Everyone should have the same set of rules.
So new buildings will continue getting built and resulting commerce flows.
Your scenario can be best analogised to taking the bad aspects of the Tenderloin (drugs, homeless, mentally ill, crime) and spreading it throughout the entire city so things are equalized. Not just isolated crap, but if crap is everywhere…
Rent control doesn’t preclude construction, it simply demands different financial models.
People still want to live in California and can still get good jobs in San Francisco. Life would go on.
This is the kind of non-thinking that gives people the notion that Prop 10 is a good idea.
How do you think new buildings get built in cities? Jimmy Carter erecting high rise apartment buildings with volunteers and contributions???
SF intentionally excluded any new construction when rent control was enacted in 1979, so as to maintain the incentives of developers, builders, and those who finance new construction. Without that exclusion, no one builds apartments. There’s always a risk/reward equation to taking on such a massive project. Cap the potential reward, and the risk is overwhelming, so it just isn’t done.
It almost sounds like you’ve never pondered how major investments are made, major projects undertaken, and just now opening your eyes for the first time and seeing, “Huh, there are buildings all over – they must have just magically appeared. Why should they be treated unequally?”
I think most new buildings are rented after they are constructed and not before. So, the developer gets to start with a blank slate, just like when a rent controlled apartment turns over now. You can still build a pro forma NOI off of the projected market rent. You just introduce uncertainty around tenant turnover and re-rental.
I’m not saying rent control is a good thing, but if it is applied to one group of buildings, it’s difficult to see why an arbitrary date should allow for different economics. My building is rent controlled – why shouldn’t yours be too?
It’s not really an “arbitrary date” – it’s the date which law was passed saying “We will impose rent controls on existing buildings, but we’ll exempt new rental construction so as to not disincentivize it.”
Yes, developers could do their pro forma on projected rents, but rents rise and fall. When you have vacancy control (which passing Prop 10 will now allow), that projection means “when the market value rises, I cannot increase rents – and when it falls, I must reduce rents to keep my good tenants (or leave units vacant until the market recovers, resulting in years of 0 income on that unit), and once my rents are reduced, they are reduced PERMANENTLY.”
That’s a pro forma projection that no sane developer will go for. Any new private housing built will be for owner occupants – not renters.
And from what I’ve read, most all large apartment projects built in SF were condo-mapped when constructed, and then all rented out. This gives the owners the option of selling each new vacancy down the line – they’re not dumb, and knew that the “promise” to never impose rent control if they built new housing, was subject to political whims, and planned ahead for that.
Personally,, I’ll probably benefit if Prop 10 passes, as the halt in new construction will increase the value of my investments. Although the knock on effects of exacerbating the housing crisis by disincentivizing new construction (decreasing available rental units, which will make it hard for anyone to move here, which will be tough on local companies that need to hire new or replacement skilled employees) would be a major hit to the local economy. So that’s a downside, for my interests….
But the ones who would be most hurt by this would be renters – the very people who are pushing for this. As it is now, if they stay in their current rent controlled unit, their rent is stable – although they’re stuck there, even if their life circumstance gives them reasons to move. But once they need to move, this thinking that “Wow, rents will now be cheaper because of vacancy control” is delusional. There will be a dearth of available units, and a ton of applicants to compete against. They’ll have no options but to leave town – moving to a place that hasn’t yet enacted vacancy control.
I’d feel bad for them, but if renters choose to shoot themselves in the foot by passing Prop 10, oh well….
Hey, you’re entitled to your opinion, but I have to tell you that your fake concern for tenant interests comes off as smarmy. It’s like somebody with body odor who dumps on an ounce of cheap perfume to hide the stench: they’re aware that they have a problem, but their non-solution is just as revolting.
Certainly new apartment construction will come to a near halt. New construction, to the extent it occurs, will be condos – though as One Oak shows those are not guaranteed moneymakers at this time. The other factor will be conversion of apartments to condos in buildings so mapped. I don’t know how big a number that is. The troubled project across from Baycrest is all apartments with no mention made at SS if it is mapped for condos. If 10 passes you can be assured the project will be built as condos. IIRC one of the Howard towers not yet built out is apartments mapped for condos. Those likely will become condos if 10 passes. Condo owners renting out their units will, to an extent, choose to sell. Exchange to robust markets with no rent control. I have no idea how large that number is. Surprised to see someone post 1/3 of their condo building is rented out by the owners. Before I purchased a Portland condo last year virtually every building I looked at was restricted to 5% or 10% rentals max. One building was at 15%. I wouldn’t purchase a condo in a building that allowed more than 10% rentals. If that is true in SF – the building mentioned by a poster above being an outlier – then the overall number of lost condo “apartments” may not be huge but it will factor into a drop in apartment availability in SF if 10 passes.
Prop 10 is actually the type of thinking that eliminates handouts to those who need it the least. It’s like you’re just now realizing your vulnerability and dependency, and are trying to cling onto this handout like people who receive handouts normally do when their entitlements are threatened.
Berkeley had strict rent control for 20 years and the sky didn’t fall. Landlords bought properties and rented them out and made money doing it. The price of real estate didn’t collapse when they originally passed the law.
Berkeley has underdeveloped their properties for several decades. Only recently has that housing shortage led to the mass building of market rate units to house the bulk of their student population.
Question: If Prop 10 passes, would SF have to amend its rent control ordinance to include SFR and condos or is the language already in existence whereby the repeal of Costa-Hawkins automatically includes SFRs and condos? Thanks!
This is not an answer, but if you’ve been following the history of votes by SF supervisors, their mode has been to ‘pass legislation & also make it retro-active at the same time’ so that owners can even make any changes even if you want to. I find it mind-blowing that this is even legal. I’ve been burned several times on housing issues by SF supervisors, so beware.
If you own an SFH or a condo raise those rents now, or keep vacant until the Nov election.
I’m not a lawyer, but a reading of Section 37.2 of the SF Rent Ordinance defines “rental units” as any rental unit occupied by a tenant for 32 consecutive days. When you get to the exclusions, exclusion 7 excludes any rental units whose rental increase limitations are exempted by Costa Hawkins- (i.e. – single family dwellings – houses and condos) . So if Costa Hawkins is repealed, and no longer exists, I’d presume that that exclusion disappears on its own, immediately.
I’m curious how many rentals are currently available in SF proper? Craigslist has about 3700; Trulia shows about 1800. The answer is probably somewhere in the middle. Has anyone been keeping track of this? Redfin has about 600 condos and houses for sale while Socketsite has actual inventory hovering around 650. These numbers seem frighteningly low to me.
I don’t really see prop 10 passing as having much immediate impact on rents since we’re likely at a breaking point anyway, but the slowdown in construction concerns me. The Mercy post has an interesting breakdown of cost per unit, but the real cost of building units that aren’t affordable housing is still astronomically high and getting higher.
I would really loathe to see a slowdown in construction simply because numbers no longer pencil out for developers and/or because of the possible passage of prop 10.
I would be shocked if this gets anywhere near passing. What homeowner in CA would vote for this bill?
Homeowners in SF regularly vote Yes on rent control ballot measures. They’re not well-educated on the consequences, and just go along with “Yeah, rent is high – poor renters. I’ll back them….”
There’s been no polling I’m aware of on Prop 10 in California. I thought it would be unlikely – until the California Democratic Party endorsed it in a 90-10 vote. That carries weight when they issue their recommendations in mass mailings to voters, who lean heavy D in California. I now see it as likely to pass.
The kind who give money to public television and the Audobon Society. The kind of people who go on the Viking Cruises advertised on Downton Abbey. They show up with matching nylon travel pants with zip-off legs and technical windbreakers. Socks and sandals. They’ve never had a tenant (being a landlord would be like taking advantage of people). They want things to be nice for those poor renters and they feel like they earned their Prop 13 tax basis. Nice golden retriever people. People who still think Nancy Pelosi cares.
You forgot, the kind of people who receive, or will receive, a pension that is heavily invested in real estate investments.
I’ve often thought that SF public employees’ pensions, particularly elected representatives, should be 100% invested in SF rental properties. Provided, of course, that such pensions were converted to DC plans rather than DB plans.
Does anyone know what the vacancy control rules might look like for small rental apartment buildings? Specifically wondering: 1. Is the rental rate expected to be held at the previous rate or some city-dictated ‘fair market rate’? I ask because I have tenants paying $500 for a $2,500 unit and I do not want to re-rent it for $500 if they vacate. 2. how long would the previous rental rate need to stay in place after the previous tenant vacates? 3-years? 5-years? Indefinitely? If the answer to #1 is that it stays at the previous rate, I would like to know how long I need to keep the unit vacant until I can revert to market rates.
There’s no crystal ball with respect to what SF will do with respect to vacancy control should Prop 10 pass. For example, Santa Monica which had vacancy control prior to Costa Hawkins is concerned that rents will be reduced to 1978 rates for certain tenancies. Fortunately, SF did not have prior vacancy control so anything that might be proposed is only conjecture. However, given the pandering to tenants rights groups that takes place with regularity in our fair city, I would guess we will see some sort of vacancy control in the event that Prop 10 passes.
Section 1.21 – “A landlord is permitted to impose an unlimited rent increase pursuant to Rules and Regulations Section 1.21 when there is no tenant in occupancy of the rental unit.”
I imagine this statement would apply when the unit is vacated/returned to landlord. This is in the rules and regulations of SF’s rent ordinance. Costa Hawkins has a similar provision. But since SF ordinance spells it out, the repeal of CH would be moot on this issue. IMO
It’s interesting that the rent board says that under “topics” when Section 1.21 itself says NOTHING about an owner’s ability to raise rent to market when ‘there is no tenant in occupancy’. It just defines what a “tenant in occupancy” is – and one requirement to meet that definition is “actually resides in a rental unit”. So the section isn’t referring to a vacancy, but (I believe, but am not an attorney) only to whether or not an “original tenant” is still living in the unit, or if the last original tenant has permanently vacated the unit, leaving behind subtenants, upon whom a rental increase to market value might be issued, if all conditions for doing so have been met (conditions being different under Costa Hawkins than they are under the Rent Ordinance’s Section 6.14).
An added note: in my dealings with the rent board, they always are supposed to say “we cannot give legal advice”. One good reason for this disclaimer is that, on MANY occasions, I’ve talked with supervisors and Chief Administrative judges at the rent board, trying to get an understanding about one clause or another, and have often been told something that they are “absolutely sure of” and when I point out clauses in the rules that contradict what they just told me, they say “Oh, I guess i was wrong….”
The Ordinance is so poorly written that even if you ask the top 3 Landlord attorneys for an accurate interpretation of a clause, you’ll get 8 different opinions. With many crucial clauses, no one really knows what they mean – and won’t until a court case works its way up as high as it will go and finally interprets it – at which point the idiots on the BOS will probably just change it if they don’t like the court’s determination.
I suspect that it’s written by Tenant attorneys who intentionally wrote it to be so unclear that it’s impossible to know what things actually mean, so that everything is subject to litigation, which keeps the attorneys’ schedules full, and sets up landlords who wish to “follow the rules” to being subject to all sorts of extortionary legal challenges.
Those were interesting readings of non-conversant codes, thanks for that.
Rent control is the kind of populism that would make Trump proud
Nice guilt-by-false-association you got there. As if shyster real estate conman extraordinaire Trump would support rent control.
I guess if one can’t make a sound logical argument against rent control (granted, there are none), then one has to resort to this type of gaslighting.
The prediction that expanded rent control and vacancy control will slow down new rental unit construction isn’t a bad thing in the minds of the reactionaries who support it. That’s exactly what they want. They get to stay in their subsidized units, and most would-be newcomers simply can’t move to SF because there won’t be any units to rent. No rent increases and no more evil techies to remind them of their own failure. Win-win! Good news for sellers of homes and condos, though. Until the Politburo comes up with a way to fog that up too.
How is that “good news for sellers”? Please elaborate. Thanks!
More people will buy vs. rent.
On the other hand, there will also be more single-family dwellings for sale, offsetting the higher demand. If vacancy control is enacted (or even if it starts to seem like a possibility), owners of smaller buildings will not re-rent vacancies if they cannot rent them at market rate. They will sell them as TIC’s (or single family homes, or condos, whatever they are).
What can we do to stop this craziness of econ illiterate supervisors?
UPDATE: San Francisco Formally Supports Expansion of Rent Control
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