June 28, 2012

Fear, Uncertainty, Doubt And An Eviction

With respect to whether or not a potential crackdown on illegal short-term rentals as facilitated by services such as Airbnb is simply FUD ("fear, uncertainty, and doubt") or waiting in the wings, a plugged-in reader reports:

There has been a case won by [CitiApartments in San Francisco] to oust a long-term tenant, on the implicit basis that the city of SF was an implicit 'interested party'. Got an eviction based on 'use of premises for illegal purposes' with only evidence of [an Airbnb listing and feedback].

As we first reported, Supervisor Chiu is working on legislation which would make it easier to institute proceedings for injunctive and monetary relief against anyone renting an apartment, or room therein, for less than a 30-day term of tenancy in San Francisco.

Airbnb: A Potential Civil And Criminal Penalty Hit List? [SocketSite]
Clarifying, And Perhaps Even Enforcing, Existing Rental Laws In SF [SocketSite]
CitiApartments Is No More! Well, Sort Of… [SocketSite]
Airbnb Hit List Take Two (Months Later) [SocketSite]

First Published: June 28, 2012 10:30 AM

Comments from "Plugged In" Readers

Funny... Talk about unintended consequences. Chiu's crackdown on AirBnB etc. might turn into a great way for landlords to get rid of long-term, rent-controlled tenants.

Posted by: Denis at June 28, 2012 11:02 AM

Greed works that way. It's not enough to underpay your rental, but you can even cash out the difference with Airbnb and make someone else's property your own personal cash cow.

This amounts on some level to property confiscation. The landlord would be crucified if he tried to step sideways to try and make an extra buck. But having renters acting as proxy landlords is OK because, you know, they're poor [ /end snide ]

Then again, renter protection and its little evil sister rent control often feels that way. It's just that technology now allows this idiocy to materialize for everyone to see.

Posted by: lol at June 28, 2012 11:27 AM

Glad there was an eviction!

Posted by: Robert R at June 28, 2012 11:37 AM

An eviction is never a good thing. I've done end-of-lease kick-outs (out of town) a few times in my life and it's hard not to be emotionally attached when you've known the person for 10 years.

But your family comes first, then your friends, then your tenants. Rules in SF make it hard to respect this order though. Rent control means less income to take care of your own.

Posted by: lol at June 28, 2012 11:45 AM

"Rent control means less income to take care of your own"

Don't agree at all. Rent control is the best thing that ever happened to SF landlords. Artificially constrains supply and creates far higher rents. There is an exception for the few landlords who only have a unit or two where the tenant has been there a very long time and pays way below market. The vast majority of SF landlords make far more because of rent control than they would without it. It never ceases to amaze me that landlords rail against RC while tenants vigorously defend it - just the opposite of their respective interests.

On this specific topic, a tenant of course should be subject to eviction if he turns the unit into an illegal hotel. Glad to see that can happen.

Posted by: anon at June 28, 2012 11:56 AM

^^^ anon, that's true for landlords lucky enough to have an available unit for rent. But for 90% of the rest who have rented for more than 2 years on a pre-1979, they're stuck with tenants paying way less than their fair share.

Posted by: lol at June 28, 2012 12:03 PM

I have plenty of personal horror stories about rent control fiascos.

I have several friends who make six figures living in rent controlled appts. One couple we know pays 1200 for a 2bed near BiRite and they easily make more than 300k.

That's my biggest beef with rent control, the people who don't need it have it, while those who do need it can't get it or are subsiding the ones who don't need it.

The worst abuse that I personally have seen is an acquaintance who is has been illegally subletting his rent controlled one bed as corporate housing for 500 more than he pays. Meanwhile he owns and lives in a condo in Oakland. The sublet rent is covering his mortgage.

Posted by: hello at June 28, 2012 12:34 PM

Point is, the "market rate" or "fair share" is artificially inflated BECAUSE of rent control as it restricts the supply. Lots of landlords feel screwed, but they are actually coming out ahead because of it. What they really want is the high market rents caused by rent control, but just not on THEIR units!

Posted by: anon at June 28, 2012 1:06 PM

anon,

The brush you are using to paint the rental situation is so wide you're hiding the sun and not seeing what's going on in real life.

They? Who is "They"? As I said earlier, roughly 90% of landlords own a rent-controlled property. Turnover is so low that only very very few are seeing current market rents.

The "They" is a lucky minority. Not the overwhelming majority of landlords who. don't. see. one. extra. penny.

Posted by: lol at June 28, 2012 1:14 PM

lol, you're failing to take into account that the "current market rents" you would like to get would be much lower were it not for rent control keeping all those tenants in place (that low turnover you mention) and compelling would-be landlords to keep units off the market altogether.

ALL landlords - other than the unlucky few who only have a unit or two that happen to be rent-controlled and rented out to a 15+ year tenant - come out ahead because of rent control. You are making the same mistake I just explained above by neglecting to focus on the other effects of removing rent control.

I agree with you that rent control is poor policy. My point is that it is poor policy because it screws tenants and enriches landlords.

Posted by: anon at June 28, 2012 1:28 PM

On this specific topic, a tenant of course should be subject to eviction if he turns the unit into an illegal hotel. Glad to see that can happen.

Exactly. As I pointed out previously, this is also not San Francisco-specific, as at least one other AirBnB "host" on the other side of the country got their lease cancelled for unauthorized subleasing via AirBnB.

And this is true regardless of whether or not the tenant's unit is rent stabilized, so all of the above bellyaching about rent control is completely irrelevant.

But on socketsite, any post about anything is a jumping off point for certain obsessed individuals to talk about how evil rent control is and how poor, poor oppressed landlords are being deprived of their livelihoods by it's existence.

Please spare us. You're not Oliver Twist asking for another bowl of gruel.

Being a landlord is a business. People buying property in S.F. to lease out know when they purchased it whether the unit they are purchasing was/is covered by rent control or not. If these folks can't "take care [their] own", that is entirely due to their own lack of business acumen and personal financial decision making skills, not the fault of the current public policy milieu in The City.

Posted by: Brahma (incensed renter) at June 28, 2012 1:33 PM

anon, your comments fly in the face of economic reason. Laws that put ceilings on prices hurt tenants and help landlords? LOL.

I would be willing to agree that, at the margins, there may be a pool of tenants who are paying more than they would in a non-rent-controlled market. But the system as a whole surely cannot favor landlords.

True, removing rent control would create a new equilibrium where the aforementioned high-paying tenants would find lower rent. But that pool of tenants would be outweighed by the existing, locked-in pool of low-paying tenants who would have to pay more.

(A caveat is that my theory depends on all parties being rational actors.)

Posted by: NJ at June 28, 2012 1:39 PM

I think rent control hurts tenants and landlords, but different tenants and different landlords. Rent control artificially raises prices for non-rent controlled tenants which benefits their landlords. On the other hand, it keeps rents artificially low for long term rent controlled tenants which benefits them while hurting their landlords.
To see how rent control elevates rent, watch the commercial market which is not rent controlled. During booms, it goes up; during busts, it goes way down. Meanwhile, SF residential rates have just continued to rise. I live in a non-rent controlled apartment and my rent has never gone down in 10+ years. It is now almost twice what it was when I first moved in. My last increase was close to 25%. That is because of rent control.

Posted by: Jabba at June 28, 2012 1:46 PM

NJ, your post reads like economist satire. Econ 101 says that price ceilings reduce supply - which leads to shortages (and lower quality) and ultimately higher prices than without the ceilings. This is particularly so where the price ceiling is a loose one, like rent control.

Posted by: anon at June 28, 2012 1:51 PM

What good does it do a landlord who has been renting for 3 years or more if current market rents are twice of what he collects today? Tenants will cling to their low rent as long as is humanly possible, possibly sublet or more frequently simply adjust.

Is he seeing ANY of the current high rents? Nope.

Will he see any of this money anytime soon? Nope.

Maybe his place will be freed up when rents are high. Maybe not. But he will have missed out on tons of extra income before that happens.

Let's take a landlord who has been renting a 2/2 apartment since 2004. Starting rent: 2000. I am assuming a 2% legal annual increase (optimistic).

2004 annual rent: 24000 / market rent 24000
2005 annual rent: 24480 / market rent 26000
2006 annual rent: 24970 / market rent 28000
2007 annual rent: 25468 / market rent 30000
2008 annual rent: 25978 / market rent 32000
2009 annual rent: 26497 / market rent 34000
2010 annual rent: 27027 / market rent 36000
2011 annual rent: 27568 / market rent 40000
2012 annual rent: 28120 / market rent 44000

collected rent: 234K
potential market rent: 294K

These 60K are gone. They're never coming back.
Now this sample rent controlled unit is rented for 2340. Do you think the tenants will want to leave anytime soon? Nope.

This is the overwhelming majority of the situations in this City. Your comment only applies to a few.

Posted by: lol at June 28, 2012 1:53 PM

A poster with no prior record of comments, makes a semi-anonymous claim of some random case victory with no other information-- and this constitutes a "plugged in tipster" report? Nice.

I'm sure there is no dispute that a landlord could evict a tenant on the basis of a breached lease term (i.e., subletting as proved by abnb listing) but how is this proof of anything related to the amendment to Chapter 41A.

The major aspect of 41A "FUD" is the $1000 per day fine. So unless the fine was levied here, or an actual case can be established beyond that of an anonymous poster....FUD.

BTW, I'm happy have a case that proves the city has some teeth and I'd love for the city to start enforcing some of these rules. I guarantee that if we started seeing wide-spread $1000/day fines for abnb hosts that there would be a big drop in the number of listings for SF. But that doesn't seem to be happening.

[Editor’s Note: What’s anonymous to you isn’t always to us. And if you’re looking for proof that an amendment that hasn’t been passed is being enforced and its fines levied, that’s going to be a little tough.]

Posted by: eddy at June 28, 2012 2:02 PM

I think you'll start seeing some enforcement... Particularly for popular units. I've noticed a few fishing e-mails on airbnb asking for addresses so "prospective guests" can do a "drive-by" to see or locate a rental..

However, Airbnb is an SF based company hiring local employees... I can't imagine Lee is going to double down on enforcing anything. I say tax it and move on... If tenants violate a lease agreement, evict them... In condos, the HOA should explicitly ban them. You don't need the $1000 a day fine.

My initial post though, was that thanks to the recent notoriety of airbnb brought by Chiu (and the Chronicle) large landlords like citi will start trolling airbnb looking for units in their buildings and start evicting long term tenants.

Posted by: Denis at June 28, 2012 2:23 PM

Ugh. Here come the rent conTROLLS again.

Perhaps you should consider the hefty property tax savings Prop 13 affords property owners before you cry about rent control. If you had to pay property taxes based on current market value (like most rational states), I might feel bad for you.

Question: If you don't like your tenants(or want more monthly rent), can't you write one year leases and then go month-to-month with a provision to end the short-term lease with 30-day notice?

Posted by: moz at June 28, 2012 3:45 PM

"can't you write one year leases and then go month-to-month with a provision to end the short-term lease with 30-day notice?"

Uh, no. The rent control ordinance does not allow this, at least for the units covered by it.

Posted by: anon at June 28, 2012 4:03 PM

Moz, your comment doesn't apply to the enormous amount of properties that have been sold on the open market since the mid 2000s.

Posted by: anon1 at June 28, 2012 4:04 PM

"[Editor’s Note: What’s anonymous to you isn’t always to us. And if you’re looking for proof that an amendment that hasn’t been passed is being enforced and its fines levied, that’s going to be a little tough.]"

Look, if you have independently verified the facts here just say so. Veiled assertions only give the appearance that your withholding, or lack, specific information. Any eviction would probably be a matter of public record so I don't see why the need to create a conspiracy. Maybe a plugged in tipster will look it up, ebguy?

And your making my point perfectly clear about FUD. No ratified amendment, no enforcement, no fine. FUD. Maybe if this amendment is passed and maybe if we start seeing it enforced and fines levied than we have a story here. I actually hope it happens.

Posted by: eddy at June 28, 2012 7:30 PM

@anon: Your arguments make no sense. Because of Rent Control there are large numbers of tenants paying below market price for their units. If rent control was eliminated, some of those tenants would pay more and some would leave to make room for new tenants who would pay more. The increase in supply (caused by tenants leaving) would probably decrease the market price for rentals somewhat. But because everyone would be paying full market price, the aggregate amount paid by all tenants for all rentals would increase.

So removing rent control would benefit landlords (as a whole) and anyone who wants to live in the City but currently does not have a rent-controlled unit, and it would negatively effect tenants who currently have rent-controlled units.

This really is economics 101.

Posted by: NoeNeighbor at June 28, 2012 7:34 PM

One thing is for sure, San Francisco has some of the most horrid examples of apartments of any major North American city. Rent Control, whether one likes it or not, is used by landlords as the reason why buildings are not maintained, and they really are NOT maintained. I've noticed the same thing in Santa Monica (rent control), but not Chicago (no rent control) where apartment construction is so massive, so older buldings need to compete by offering new rooftop pools, gyms, "car spas", spotless common areas, doormen and security. Cities with rent control have crappy apartments, and cities that do not have rent control have much more attractive housing, period.

Posted by: FedUp at June 28, 2012 7:45 PM

"But because everyone would be paying full market price, the aggregate amount paid by all tenants for all rentals would increase."

noeneighbor, this is the flaw in your argument. It is only a very small segment of renters that is paying significantly below "market." And by "market" I don't mean the inflated rents caused by the rent-control induced constraints but the rents that would prevail were it eliminated. It is true that a few would see their rents go up. But far more would see rents fall.

And, as FedUp accurately observes, the quality of SF housing would also get much better as landlords would have to upgrade to compete. Landlords LOVE rent control, except, as I said above, they just want it to apply to all other landlords and not to them.

Posted by: anon at June 29, 2012 6:57 AM

Berkeley, East Palo Alto and SF. I see Santa Monica mentioned above.

Does anyone else know any other cities with rent control?

Posted by: Inclinejj at June 29, 2012 8:01 AM

Berkeley, East Palo Alto and SF. I see Santa Monica mentioned above.

Does anyone else know any other cities with rent control?

Posted by: Inclinejj at June 29, 2012 8:02 AM

Berkeley, East Palo Alto and SF. I see Santa Monica mentioned above.

Does anyone else know any other cities with rent control?

Posted by: Inclinejj at June 29, 2012 8:02 AM

California Cities with rent control:


Berkeley
Beverly Hills
Campbell
East Palo Alto
Fremont
Hayward
Los Angeles
Los Gatos
Oakland
Palm Springs
San Francisco
San Jose
Santa Monica
Thousand Oaks
West Hollywood
Westlake Village

Posted by: Inclinejj at June 29, 2012 8:03 AM

Many of these cities have far looser rent control restrictions than SF. For example, San Jose's Rent Control Ordinance covers most apartments built before September 7, 1979; however, it allows rent increases of 8% annually without a hearing. If rent has not been increased for more than two years a 21% increase may be made.

If memory serves, I think SF's rent increase maximum is closer to CPI which is currently MUCH lower than 8%.

Posted by: Rent Control at June 29, 2012 8:34 AM

Ha! The last six years of allowable rent increases in SF total 8%.

March 1, 2012 – February 28, 2013 1.9%
March 1, 2011 – February 29, 2012 0.5%
March 1, 2010 – February 28, 2011 0.1%
March 1, 2009 – February 28, 2010 2.2%
March 1, 2008 – February 28, 2009 2.0%
March 1, 2007 – February 29, 2008 1.5%
March 1, 2006 – February 28, 2007 1.7%
March 1, 2005 – February 28, 2006 1.2%
March 1, 2004 – February 28, 2005 0.6%
March 1, 2003 – February 29, 2004 0.8%
March 1, 2002 – February 28, 2003 2.7%
March 1, 2001 – February 28, 2002 2.8%
March 1, 2000 – February 28, 2001 2.9%
March 1, 1999 – February 29, 2000 1.7%
March 1, 1998 – February 28, 1999 2.2%
March 1, 1997 – February 28, 1998 1.8%
March 1, 1996 – February 28, 1997 1.0%
March 1, 1995 – February 29, 1996 1.1%
March 1, 1994 – February 28, 1995 1.3%
March 1, 1993 - February 28, 1994 1.9%

Posted by: R at June 29, 2012 9:02 AM

Yes, I was being very generous with a 2% typical allowed increase. But the market rent evolution I have put is not too far off from things I have seen...

Overall rents have roughly doubled in 8 years. And rent-controlled rental rates have only gained 14%. The sick side of this is that it's a geometric scale, meaning that the distortion not only gets worse and worse, but the accumulation of rental deficit explodes very quickly after 6-8 years.

Now without rent control, rents would have grown less. By how much, we'll never know. And seriously who cares. Time to sunset it.

Posted by: lol at June 29, 2012 9:26 AM

That was "Overall market rents"

Posted by: lol at June 29, 2012 9:27 AM

Not only are rents going up/supply being constricted, but that rate of change is changing as well.

Before, you had to have been renting an apartment for a number of years to have a significant disincentive to move. Now, I know people who signed a lease less than a year ago who say they can't afford to move because of how much rents have gone up. This further constricts supply which further accelerates rents, etc.

How does this break? I have no idea. . .

It's interesting because I know two people who have situations where they have to move and are looking to buy even though they don't want to because of what's available currently in the rental market.

Posted by: nanon at June 29, 2012 9:35 AM

Prices are always a set of waves fluctuating together. We happen to be at the confluence of a national recovery (a tepid ~2% recovery, but recovery nonetheless) and a local event (new tech wave is coming of age).

The question is whether these waves will change historical averages.

I left a rent-controlled apartment to purchase in 2010. I had rented for 2 years and we were already 15% or more under market rent. This makes you think twice. I could have kept the place and do an Airbnb, thinking of it...

Posted by: lol at June 29, 2012 10:59 AM

I'm sorry, I don't think I am following this correctly.

Are we (SF) trying to forbid owners from letting out their own property for less than 30 days, or prohibiting renters from subletting their rental unit for less than 30 days?

Posted by: wc1 at June 29, 2012 1:39 PM

^^^ "Uncertainty".

Posted by: Eddy at June 29, 2012 2:43 PM

After reviewing the proposed legislation, I believe that it will only apply to buildings of 4 units or more. Although there are others that disagree with this interpretation, I think it is the only logical outcome (after diagraming the sentences).

With a city the size of SF, this makes sense as there must be some amount of vacation rentals - it is a segment that deserves attention as some people need the service.

I'd love to get Chiu's take on this! How about some help Socketsite?

Posted by: Consigliere at June 30, 2012 7:13 PM

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