The two-unit building at 446-448 Missouri Street is on the market in Potrero and asking $1,199,000 for the whole shebang. According to the listing, however, while “both units enjoy classic details,” it’s only the upper unit that “enjoy[s] panoramic City views!”
Unfortunately, while the lower two-bedroom unit is vacant, the upper two-bedroom is currently tenant occupied at a rent of $2,119 per month. And as a plugged-in tipster captures, the tenants have recently made their intentions clear.
446-448 Missouri Street Sign
∙ Listing: 446-448 Missouri (2/1 + 2/1) sqft – $1,199,000 [zephyrsf.com]
Rent Control In San Francisco: The Real Rules [SocketSite]

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Comments from “Plugged-In” Readers

  1. Posted by Marten

    But if there is a new owner move-in to the upper unit, then there is nothing the current tenant can do, right?

  2. Posted by LD

    They’d better plan on making an offer and having it accepted if they think they are “here to stay”!

  3. Posted by R

    That’s the way to start off on the right foot with your new landlord!
    @Marten: not much legal the tenant can do, but they can make it a giant pita for new owner if they want.. the joys of being a landlord in SF!

  4. Posted by futurist

    Further evidence to end rent control now.

  5. Posted by The Milkshake of Despair

    They’re gonna at least put up a fight. I wonder whether there are any doctors around who specialize in the diagnosis of disease and disorder that could confer protected status to tenants who don’t want to be bothered to move to a market rate unit. Certainly plenty of doctors are willing to prescribe disabled placards for parking. The stakes are a bit higher here.

  6. Posted by Guest666

    I was at the open house last Sunday for a two building in the Inner Sunset with a similar situation. I heard a realtor mention that the tenant in the lower unit had already hired an attorney to protect their tenancy. Of course, with their rent at a little less than $1.2k a month and the building needing work, the future owner is going to have their work cut out for them.

  7. Posted by loftlover

    Excuse my ignorance, but if the building is sold, doesn’t the existing tenant have to move out if the new owner requests they do so?
    Where does this sense of entitlement come from?

  8. Posted by CH

    “But if there is a new owner move-in to the upper unit, then there is nothing the current tenant can do, right?”
    Wrong. Hard to OMI an occupied unit if there is a comparable unit in the building that is vacant. Vacant lower unit could be a problem.

  9. Posted by mikey woodz

    In order to OMI, if the owner has a comparable Vacant unit “aka the bottom one” they have to offer that to the tenant at that same price. This is why if you “play by the rules” its tough to get a multiunit building vacant

  10. Posted by lyqwyd

    @loftlover
    This is due to San Francisco’s rent control ordinance. It’s very difficult, if not impossible, to evict a tenant for any reason other than failure to pay rent.

  11. Posted by futurist

    The sense of entitlement comes from our insanely biased rent control laws.

  12. Posted by bossmillion

    What time is the next open?
    I want to see the view from up there…
    I know the landlord has the right to show the unit, does anyone know how often, when and for how long (hours/day)?

  13. Posted by lol

    I believe it’s very hard to defend doing an owner move-in if you have an available unit so close. If both units were occupied, it would be easier. But renters can claim you do not need to do an OMI, you simply want and therefore are acting as a dirty entitled capitalist pig.
    Or you could set up a TIC with a partner for the lower unit. Then do an OMI. But the issue is whether the OMI might kill the prospects for the building: condo conversion? future rental? A lawyer specialized in SF RE will be a good first investment, imho.
    If it were up to me I’d just Ellis these tenants, then set up a TIC and sell the lower unit. Never give one more penny than is legally imposed. Otherwise you’re simply feeding the machine.

  14. Posted by R

    OMI doesn’t harm Condo conversion. Ellis does.
    Easiest route here is for multiple owners to buy as TIC, then OMI.

  15. Posted by lol

    ^^^of course the Ellis eviction I would do would kill my resale value for a long time, plus kill my chances at renting and condo convert also for a long time. But I am never allowing any renter abuse.

  16. Posted by Lori

    I did an OMI for a single unit condo and that almost pushed me over the edge because the tenant decided to squat. I can’t imagine doing that again.
    (Thankfully he eventually cooperated and did move out.)

  17. Posted by mikey woodz

    I believe if you purchase with a partner you still cant move in one and OMI the other

  18. Posted by lol

    I also believe that you can only do one OMI per building except under very precise conditions. Therefore, you ever manage to do it there, it could be the last one that will ever be done for this building.

  19. Posted by R

    No, only one unit can ever be OMI’d. So if you did upstairs, that would forever be considered the ‘owner’s’ unit.. and you could do it 20 times.
    Presumably, the upstairs folks are just shooting for a larger payout.. It’s their initial negotiating tactic. I think it’s a little tactless, but hey, to each his own.

  20. Posted by Brahma (incensed renter)

    I can’t defend the upstairs tenant for putting up this sign (that was obnoxious). OTOH, the seller could have written a clause into the tenant’s lease to not put up signs in the window.
    But there is an opposite, if not equal “sense of entitlement” on the part of S.F. landlords.
    The owner could put the upstairs tenant out via the Ellis Act before the sale and be done with it. The buyer would put the upstairs tenant out via the Ellis Act after the sale and be done with it.
    But of course, the seller and eventual buyer probably have some “sense” that they are “entitled” to keep one or both of the units on the rental market in perpetuity, and an An Ellis Act eviction would tend to hinder that.
    I love how landlords want to portray themselves as poor, defenseless put-upon property owners just trying to defend their “rights”, but somehow when tenants exercise their “rights”, it constitutes some unacceptable outrage.
    At least ranting about S.F. rent control laws is apropos for this thread. Go nuts, bellyaching landlords.

  21. Posted by lyqwyd

    How was the tenant able to squat? Couldn’t you have the sheriff remove them once the eviction was complete?

  22. Posted by CH

    “In order to OMI, if the owner has a comparable Vacant unit “aka the bottom one” they have to offer that to the tenant at that same price.”
    You can not OMI if there is a comparable vacant unit. If there isn’t a comparable unit, then vacant non-comparable units have to be offered but at market rents.
    “Easiest route here is for multiple owners to buy as TIC, then OMI.”
    Wrong. Only one OMI per building.

  23. Posted by R

    “Only one OMI per building.” Yes, the top unit.

  24. Posted by lol

    In the rest of the country, a lease is 1 year, then month-to-month. Each party can choose to terminate the lease. Market rates apply. Abusive landlords lose tenants. Abusive renters lose rentals. It’s pretty balanced.
    Why is any different in SF?
    And enough already with the “bellyaching landlords”. You’re obviously stuttering.
    Exhibit A:
    https://www.google.com/search?q=bellyaching+landlords
    Come up with some new material, or expect hecklers to boo you out.

  25. Posted by CH

    “Yes, the top unit.”
    Not if the bottom unit is considered comparable and vacant. If it is the same size, doubt a difference in views would make it non-comparable.

  26. Posted by Robert

    The real lesson being, if you are going to pay a lot of cash and get into the business of being a landlord, review the laws and regulations that you are subject to before pulling the trigger.
    The amount of complaining on this site by self-entitled landlords is beyond belief.
    You would think they just became aware of the laws the moment they were blocked from doing something, and are now shocked, shocked that they are subject to regulations in the conduct of their business.

  27. Posted by simpr

    Agree with “R” that the best route is to partner up as a TIC then OMI. Even here the parties should talk to counsel before hand.
    Something like this is a great opportunity for the right people as single owners will be scared away unless they have the ability to write a check large enough to entice the tennant out.
    Wife (pre me) and sister did this. Worked out well for them.

  28. Posted by Samuel

    I believe an OMI of the upper unit is perfectly ok if its a TIC and both owners want to move into the building. Assuming of course that the upper unit tenant is not protected, which judging by the rent, probably isn’t. And assumming of course that no prior OMI happened at the bottom unit.

  29. Posted by Robert

    In the rest of the country, a lease is 1 year, then month-to-month. Each party can choose to terminate the lease. Market rates apply. Abusive landlords lose tenants. Abusive renters lose rentals. It’s pretty balanced.
    Why is any different in SF?

    Because San Francisco is a constrained area, and the market forces that you speak of don’t work. That’s why we got rent control in the first place — landlords failed to pass cost savings due to prop 13 onto to tenants in the form of reduced rents, but responded by increasing rents. That highlighted that the market is not always efficient, and so the second best option — regulation — was applied.
    What you describe is the first best option, but it cannot work as long as the market is not competitive. A competitive market means bad businesses need to be driven out. But there are so many subsidies to landholders in constrained California areas that they are not driven out, the market never gets to work, and so we turn to things such as rent control.
    End the subsidies to landholders, and we can get the first best solution.

  30. Posted by Guest666

    Rent the bottom flat and then, and only then, OMI the top flat. Easily solved. This does mean that the top flat will forever be the “owners unit”, but if the views are substantially better then what’s the problem.

  31. Posted by lyqwyd

    You can OMI multiple units in the same building for family if the owner is living in, or also OMI’ing a unit.
    On the other hand you cannot TIC and OMI more than one unit if you are not related, you can only Ellis if you want to occupy more than one unit.
    IANAL, so I could be wrong.

  32. Posted by lol

    Robert,
    Many landlords bought with a certain set of laws, then saw these laws changing (always against landlords) from under them.
    My strategy for renting is seasonal furnished rental. No long term tenant will ever get into my property. The same happened with my rentals in Paris. I went from 100% regular rentals to 100% seasonal. All units gone from the regular market and I am obviously not alone in doing that. I’ll do the same in SF.

  33. Posted by xxy

    I did an OMI in a similar situation. Bottom and top are not comparable in the eyes of the ordinance. They have to offer the bottom unit, but they can set the rent to whatever they want. A good lawyer can get this done.

  34. Posted by lol

    Guest666,
    sometimes owners will want the nicest unit, sometimes they’ll want the best cash flow. Like a landlord I know who lived in an unwarranted backyard cottage while renting all units in the main house.
    It’s always nice to have the option.

  35. Posted by mikey woodz

    So Are “seasonal” rentals exempt for rental rights? Do they have to be furnished?

  36. Posted by Robert

    Many landlords bought with a certain set of laws, then saw these laws changing (always against landlords) from under them.
    In that case, they are receiving far more subsidies in the form of a low Prop 13 tax basis then any costs imposed by them on rent control. So still they are coming out ahead, in that the balance of regulatory changes favor them.
    I went from 100% regular rentals to 100% seasonal.
    Lol, you should check with your lawyer, as usual, but you cannot just have a seasonal rental. If the tenant continues to pay rent, then they can continue to stay in the property. Your lease cannot contain a clause that says “You will move out after X months” if your property is subject to the general rent control ordinances.
    What you can do, is rent to people who you know are just visiting san francisco.
    Obviously that means that your unit will be vacant much of the time.
    From a financial point of view, this is irrational, but I understand where you are coming from. People have various cognitive biases and often will spend hundreds of thousands of dollars to make sure that they are not “taken advantage of” by receiving one or two thousand less than they deserve. Look at all the vacant buildings on Church Street to see landlords sticking to their guns for years, rather than lower the asking lease by 30%.
    It is this irrational behavior that prevents the market from working. The reason why people get away with it is because they are not required to pay high property taxes on their land.
    If they were forced to pay the risk-free long bond rate on the current market value of the land, then they would be forced to put the land to the best use, earning a return in excess of the risk-free return on their land. They would be less likely to let the land sit idle in order to assuage their cognitive biases.
    This is exactly the market failure that I am describing. Until we address the underlying market failure, we aren’t going to make any progress in making sure that SF land is put to the best use.

  37. Posted by Robert

    It reminds me of a story of my friend’s mom. They are an immigrant family, coming from the middle east where the only legitimate form of saving was land. It was all land. If you didn’t own land you were nothing. Her husband died, accumulating several rental properties, and they were left in her hands to manage. Of course she knew nothing about the business, and so was always getting into trouble violating all the ordinances — tenants are informed in this city. Her son was the clean up man.
    So one apartment came back on the market, and she remodeled it, and wasn’t sure how much it would rent for. A friend of hers was a realtor and just happened to mention — in an offhand comment — that she thinks it could get X. And that X stuck. It was absolutely anchored. She tells the son — rent it for X.
    He says “Mom, I don’t think it will rent for X. Let’s advertise for for .8X”.
    “What? Are you trying to rob me?”
    They want back and forth, and it was about a year before the apartment was finally rented for .6X. She was willing to lose several years rent in order to not get robbed. It is like when you give a dog a bone, and then try to take it away, he will turn vicious, and defend that bone with all he has, even much more effort than what he would expend to get a new identical bone, even though he did nothing to “earn” the bone in the first place.
    Land ownership, particularly in a place like SF, is done by primarily by part-timers and amateurs who are holding onto their bones. In that type of environment, the market really doesn’t work. There needs to be mechanism by which the amateurs lose the land and it falls into more capable hands — into the hands of professionals who do not feel that they have some honor to defend or lesson to teach society, but who are merely trying to maximize their profits at every step.
    It is only when that happens that you can wave the magic pixie dust of “the market” and expect to get better outcomes than you have now.

  38. Posted by R

    “If they were forced to pay”
    Yes, what we need to help with affordable rent is to add more regulations.
    “landlords failed to pass cost savings due to prop 13 onto to tenants in the form of reduced rents”
    What? Why would they? You do understand landlords are there to make money? And also, they don’t pick the rent they get, the market picks that (a stunningly common misconception)..
    And the market is heavily distorted for a variety of reasons, not the least of which are rent control and prop 13.

  39. Posted by lol

    Robert is politely calling me a cognitively biased landlord…
    Hey, whatever. What I am doing is legal (not daily or weekly rentals, but more than 3 months).
    I agree about prop 13 which should be repealed. I am not profiting from it because I bought 2 years ago.
    Wait… I am actually benefiting from prop 13 after all! I’ll go pay my “save prop 13″ membership now…

  40. Posted by Robert

    lol, if you bought two years ago, then the law was not changed on you, and you knew exactly what you were getting into.
    But you are benefitting from the requirement that property tax rates cannot be changed except by a super-majority, and that rates are generally too low overall.
    You are also being punished in that you must pay taxes on the structure. Ideally, you would pay property tax only on the land, and you would be free to add more structure, tax free.
    In terms of irrationality, yes, that is your right, but when you choose to be irrational with the dispensation of land in a constrained area, then other people react to that and there are political consequences. You cannot appeal to pure politics when the decision to allocate resource is made for non-economic reasons. People pick up on that, and as a result are less likely to trust “the market” to do the same thing.
    So lol, do whatever you want with your land. But do us a courtesy and stop appealing to letting “market forces” work. You have no intention of maximizing your profits or following market signals.

  41. Posted by lol

    And robert is now calling landlords “dogs”.
    Really helpful.

  42. Posted by Robert

    And robert is now calling landlords “dogs”.
    lol,
    You have some serious reading comprehension problems.

  43. Posted by Zouaf

    @Robert – Interesting what you say about landlords not being allowed to impose seasonal limits on rentals. I do hope lol checks with his lawyer, or one of these days a ‘seasonal’ renter may wise up on him.

  44. Posted by lol

    And the “Robert” insanity goes on.
    You collect 30% more doing 3 to 12 month rentals, without having the burden of a “sticky” tenant.
    Plus I am underpaying my property taxes today thanks to prop 13 and that the property I purchased 2 years ago is roughly 20 to 25% under-priced compared to today.
    But keep going. Enlighten us please.

  45. Posted by Robert

    Lol,
    Please tell us how you manage to obtain 12 month leases without having the burden of a sticky tenant.
    Inquiring minds want to know.

  46. Posted by redseca2

    To perfectly maximize profits, lol would also own the moving company that moved the tenant 1 from short terrm apartment A he owned in one part of town to short term apartment B he owned in another part of town while simutaeneously moving tenat 2 from apartment B to apartment A.

  47. Posted by Robert

    Redesca,
    To perfectly maximize profits, lol would also own the moving company that moved the tenant 1 from short terrm apartment A he owned in one part of town to short term apartment B he owned in another part of town while simutaeneously moving tenat 2 from apartment B to apartment A.
    No.
    Profit maximization is not the same as revenue maximization.
    Suppose, for example, that the moving company employs $100,000 of capital, on which it earns $10,000 profit. Say the risky return on capital is 10%.
    I wanted to make my own, competing moving company, I would also need to deploy capital in order to do that, and the only way that I would be able to beat the moving company is if I could move people more efficiently somehow so that I earn, say, 11% on the capital investment.
    If i don’t have any special skills or advantages in doing that, odds are I would be better off outsourcing the moving company and deploying my capital elsewhere.
    The whole point of demanding high land taxes is that if the owners pay the required return in taxes, then they will be forced to at least earn the required return from their tenants.
    This may seem paradoxical, but the biggest problem with landlords in the city is that they earn too little of a return on their investment, not that they earn too much. The enemy is inefficiency, because non-economic factors cloud their judgement. This inefficiency is what creates all the problems. The purpose of taxes is to put a floor on the (pre-tax) return that landowners receive.

  48. Posted by lol

    3 month to a year is perfectly legitimate for corporate rentals.

  49. Posted by Brahma (incensed renter)

    I’m going to keep on using the term “bellyaching landlord” because it’s descriptive, accurate and frankly appropriate and I’m not stuttering.
    Robert’s allusion to Captain Louis Renault is a good one. The law in San Francisco is what it is, and if you don’t (or didn’t) do your homework prior to making what is, after all, a business decision (buying property with the intent of leasing it), then you’re just a whiner and deserve to be called one, early and often.
    No one should have to make apologies to potential landlords from elsewhere in the country, or in the world for that matter, for San Francisco’s laws being what they are. If you want commercial property to be governed by a set of rules that you’re used to in some other municipality, you are always free to buy your property in that municipality.
    And you can’t even say that there’s something special about San Francisco and rent control, as someone pointed out the other day, there are close to 100 cities in California with rent control.
    Which brings us to this:

    Many landlords bought with a certain set of laws, then saw these laws changing (always against landlords) from under them.

    Many landlords? How many? I’m calling baloney. Name the change in the law and the year it became effective and provide a link.
    The legal landscape for landlords hasn’t changed, that I am aware of, since 2006 and that was for disabled tenants. If you don’t have a disabled tenant then the rent control regulatory landscape hasn’t changed substantively since 2000 that I am aware of. I’m willing to read any link you provide in good faith.
    In fact, now that I think of it, the Costa Hawkins Rental Housing Act became effective in 2006, so its arguable that the law changed in favor of landlords more recently, not against them.

  50. Posted by wc1

    Let’s keep subsidized housing but let’s means test it and have it be paid for by the City.

  51. Posted by lol

    non-economic factors cloud their judgement
    Interesting concept. But please go on. I am zapping a large pack popcorn waiting for whatever next will come from your very fertile imagination.

  52. Posted by lol

    Brahma,
    I’m calling baloney
    Not so fast…
    Landlords who purchased before 1979 got the shaft (apart from the prop 13 idiotic gift). Plus all the additional limitations like the expansion of rent control to SFH when the tenant has been there since prior to 1/1/96 which was added around that time.
    There are new protections coming up year after year, being either on the renter/landlord relationship, or what the landlord can actually do with his property if he wants to get out of the landlording business.

  53. Posted by Brahma (incensed renter)

    “R” wrote:

    …And also, they don’t pick the rent they get, the market picks that (a stunningly common misconception)…

    I believe the underlying idea you’re perhaps not aware of is that in the city, we have this phenomenon where landlords arrive at an asking price, and rarely reduce it to a lower, market-clearing price. If they don’t get their desired rental amount, they can just hold the unit off the market in any number of ways.
    From The Chron’s On The Block blog, Why so many vacant homes in San Francisco?:

    San Francisco, one of the most coveted places in the world to live in, has more than 30,000 empty homes according to 2010 U.S. Census data. That means about 8.3 percent or about one in every dozen homes is vacant – more than any other surrounding county.

    To be fair, some of these that are sitting empty are pied-à-terres for the global elite, and that’s why you get opposition to projects like the development of 8 Washington Street. Why approve variances to enable developers to build more units for the global elite when there are so many units already? But a significant number are rentals that the owners refuse to rent out at the market clearing price, for whatever reason.
    Some, including some prominent voices on this blog, assert that this phenomenon is a John Galt-type “strike” to punish tenants with a “sense of entitlement” by reducing available supply, until they come to their senses and vote for a repeal of rent control (and lose their “sense of entitlement” as a side effect). I haven’t seen any polling on that among the population of S.F. landlords, so who knows. Would be interesting if true.

  54. Posted by lyqwyd

    @Robert
    Your example of the mom is exactly how the free market works. The owner wanted more than the market would bear and was unable to rent it until they changed their expectations to the reality. That is how things are supposed to work. In your example it took them a long time to get to the appropriate price. Other people find it quickly.
    On your other topic, I’m not sure why you keep talking about prop 13 and land taxes, most people on this board who are opposed to rent control are also opposed to prop 13

  55. Posted by lyqwyd

    @Brahma
    According to the original article the statewide average is 8.1% vacancy. I think the meme that SF has an astoundingly high vacancy rate is more of a myth.

  56. Posted by Robert

    lyqwyd,
    The problem with the mom being that the unit was out of commission for a year. On an on-going basis, this restricts the supply. The former site of Veteran’s Liquor on Church has been “for lease” since what — 2008?. I count 3 retail spaces between 29th St and 30th Street that have not been able to find a tenant for at least a year. @Home on Church and Market has been sitting empty for about a year now, too, right.
    The fact that, *eventually* the space is rented out does not change the fact that at any point in time, the market is not clearing, which means that at any point in time, prices are higher than they should be, and quantities transacted are lower. I’m sure eventually — say 2025 — Veteran’s liquor will be rented out again. Perhaps the current owner needs to die and pass the property onto someone who is a bit more realistic. But if they would have to pay some serious taxes on their land, then they would have sold their land or found a tenant in 2009, and we would have had one more retail establishment, with jobs and services supplied. As it is, because of the excessively high retail rental prices, we have fewer jobs and fewer stores. Because of the excessively *marginal* rental prices, we also have fewer jobs because of reduced worker mobility and reduced demand for structural improvements.
    On your other topic, I’m not sure why you keep talking about prop 13 and land taxes, most people on this board who are opposed to rent control are also opposed to prop 13
    This is why I am harping on land taxes. High land taxes are necessary in order to make the market work efficiently enough that we can eliminate rent control and trust the market to allocate rental units with reasonable efficiency. In the absence of such taxes, it really is better to have something like rent control. As I am not trying to contradict anyone per se, it’s good to see support for repeal of both, as I would favor that as well.

  57. Posted by R

    @Brahma: So then they don’t pick the rent they get, as I said.
    And I’m not sure how many of these mythical landlords that don’t rent out their properties for years trying to get more money really exist. I think probably not many.

  58. Posted by Robert

    And I would also add that we need some serious reform in zoning laws. Shadow ordinances should be repealed, height ordinances should be repealed, as well as aesthetic fitting into the neighborhood B.S. As long as it is structurally sound and meets basic habitability requirements, you should be able to build as high as you want on your land, adding as many units as you want, and any investments in structure made should be property tax free.

  59. Posted by EH

    So wait, “in the rest of the country,” there are no bad landlords because the lack of rent control forces the bad ones out through market forces? Is that how it works? Does it actually?

  60. Posted by lyqwyd

    Robert, this one anecdotal story you have has no significant impact on supply. But even if you were somehow able to show this as a widespread issue it wouldn’t matter as this has nothing to do with rent control.
    There’s almost always a time between one lease ending and a new tenant being found. Sometimes turnover is quick, other times it is slow, that’s part of the market, and not a sign of inefficiency. This is even more true with commercial spaces, which usually take 6 months or more for a new tenant to be found, and that is not unique to CA.
    I’m certainly opposed to prop 13, but it has very little effect on market efficiency. Either the landlord will rent it or they won’t, they don’t make that determination based on their property taxes. Prop 13 has a bigger impact on the sale decision, but not much on the rental decision.
    Rent control on the other hand does tend to lead to longer times between tenants. The landlord needs to be extra certain that they won’t get the current price, so they are more reticent on lowering. Once they get the new tenant they are locked at that price for an indefinite amount of time.
    The real estate and rental market is inherently inefficient due to the variation in the product, no 2 places are alike, so it always takes some effort to find the right price.

  61. Posted by Denny

    You guys are so cute when you’re mad.
    Poor downtrodden SF real estate investors.

  62. Posted by Robert

    lyqwyd,
    A competitive market requires that better firms take business away from worse firms. To compete requires losers that are driven out of business.
    But with land, if there are two landlords across the street from each other, there is no mechanism for the better landlord to force the worse out of business. Under current zoning laws, they cannot increase the number of units they supply. And as long as the poor landlord can avoid paying the true carrying cost of the land that they are occupying, there is no mechanism that would force them out.
    So what is needed is to impose the opportunity cost on holding land so that only those landlords who meet or exceed that cost stay in business. At the same time, we need to liberalize zoning laws so that more competent landlords can supply more housing, taking business away from other landlords.
    Basically, we need enforcement mechanisms to ensure that the rental market is competitive. Merely asserting that it will be competitive as a result of de-regulation isn’t enough.
    Remember why we have rent control in the first place — because landlords failed to pass cost savings onto tenants as a result of Prop 13 being passed.
    That means that the rental market failed to be competitive even before rent control was passed. So rent control is not the fundamental problem creating a lack of competitiveness, it is a response to the lack of competitiveness, albeit not a first-best response. The fundamental cause is that in constrained areas, low land tax rates and zoning restrictions allow non-competitive landlords to remain in business, just as union protections can allow non-competitive city workers to stay in business.
    Anytime someone is sheltered from competition, the markets are going to fail.

  63. Posted by Victor C

    @Robert.
    I have one question for you.
    Do you own real property in San Francisco?

  64. Posted by GaryFolsoma

    Remember why we have rent control in the first place — because landlords failed to pass cost savings onto tenants as a result of Prop 13 being passed.
    I think you’re making a circular argument in that prior to rent-control there must have been less shelter from competition than after. Rent-control IS shelter from competition.

  65. Posted by Robert

    Rent-control IS shelter from competition.
    Agreed. But the point is that the body politic thought the competitiveness was insufficient even prior to rent control being passed. So we need to do a lot more to restore competitiveness than merely repeal rent control. We need to ensure that everyone is paying the true opportunity cost for holding land, and also make it much easier for developers to increase the supply of structure. And repeal rent control.

  66. Posted by anon

    “It’s very difficult, if not impossible, to evict a tenant for any reason other than failure to pay rent”
    My coworker bought a multi-unit building in SF and evicted the residents of all 5 units in the building. It was a major pain, and he was restricted from renting out the units for the next five years after the eviction, but it was do-able and worth it from a long-term financial perspective.

  67. Posted by Brahma (incensed renter)

    lyqwyd wrote:

    According to the original article the statewide average is 8.1% vacancy. I think the meme that SF has an astoundingly high vacancy rate is more of a myth.

    Fair enough, but I think the implicit point relies on the following: if demand is outstripping supply and rental prices are rising, shouldn’t vacancies be substantially lower than the statewide average?
    That link to socketsite quotes a survey of apartment buildings and concludes that the rental vacancy rate had dropped toward the end of 2011, but I believe that the methodology doesn’t count units deliberately held off market.

  68. Posted by Robert

    Vis-a-vis vacancy rates, to get data you need to wait for ACS data to be released.
    Historically, SF has has vacancy rates of about 10% during booms and up to 25% during busts.
    For a constrained, supposedly in-demand area, that is far too much.
    The above counts all uses of land — e.g. land kept off the market deliberately as well as land where the seller was looking for a tenants/owner and could not find one. It does not include vacation rentals, which historically are not a large contributor to vacancy in San Francisco.
    ACS data is available for 2010. We can see 2011 data during the fall.

  69. Posted by lyqwyd

    Rent control did not happen because landlords didn’t pass savings on, as that was never going to happen. Rent control happened because renters believed a lobbyist when he claimed to speak for all landlords. Then when the obvious reality happened the renters felt suckered.
    The problem with your theory about prop 13 letting bad landlords stay in business is that you have to have been a good landlord (from a business perspective) for years to decades before you get any noticeable benefit from prop 13.
    The reality of competition is that there can be more than one business in any field. There are thousands of restaurants in SF. In business there are more and less successful businesses, and then failed business. The successful ones grow, and the less successful ones don’t, and the failed ones either go bankrupt, or sell for a loss. The same is true in the land-lording business in SF as well as other places, prop 13 has nothing to do with that.
    Although I will repeat that I think prop 13 should be repealed.

  70. Posted by redseca2

    Robert, I still think you should look more seriously at moving companies.
    If all 212,000 rentals in San francisco were short term managed by poster “lol” per his solution to SF rent control and the tenants moved once every year, that would mean about 580 house moves every day, holidays included.
    If they were limited to 6 month stays 1160 house moves would happen every day.

  71. Posted by GetOffTheIvy

    If you are going to pick on prop 13 then aim at the biz property first, not Granny and slackers.
    Also why not exempt individual owner occupant for up to a fourplex from rent control after 3 years of continuous occupancy, if it sells to an investment company the complex falls back into the rent control pool.
    Maybe this is a Vodka induced wild hair.

  72. Posted by futurist

    Come on Robert. You’re beginning to sound like you’re smoking some funny stuff.
    I agree with you about repealing the shadow ordinance.
    I agree that some height limits could be adjusted upwards, but not unlimited.
    Some of the residential design guidelines are obscure. Some could be revised and/or repealed.
    But no: you seriously think a property should be allowed to build as high as they want and add as many units as they want? Seriously?
    And no property tax on investments in structure?
    WTF.

  73. Posted by MoneyMan

    I read a couple of months ago that the Supreme Court was considering taking a new case that would rule on the constitutionality of rent control under the “takings clause”. It’s been ruled on before, but the writer of the article thought that there was a good chance that this conservative court would rule rent control unconstitutional. I for one hope that rent control is overturned. I would also like to see Prop 13 returned to the courts, as the unfairness of the law is much more pronounced than it was ever envisioned when the courts ruled that it was constitutional (although I believe it only went to the State level).

  74. Posted by Brian

    It’s always interesting to see posts that scream “I’m the tenant of this apartment!”, even if they may not be.
    Anyway, I’m one of those “evil landlords”, and I hope and pray that they don’t overturn Prop 13 OR rent control. Even though I bought my building near the very height of the insanity in early 2007, I only have one long term tenant (15+ years) and the other two are new since I bought the building.
    Now, take away rent control and I honestly believe that rents will drop in the city. It will make it easier to do business here, and more folks will be willing to deal with renters. I don’t want that, not for a second. Hell, how else could I justify the rents I get, if the “market” were to revise downward substantially?
    As far as prop 13 goes, it’s a total shaft-job for pretty much everyone, but since that’s the game, let’s play it. I’m on board, I pay my taxes at their slowly increasing rate, and since I can only increase my rents by 60% of the artificially depressed CPI (talk to some of your economist friends about what the rate of inflation really has been like lately) I’m glad my taxes can only go up by so much per year…

  75. Posted by killrentcontrol

    Only way to remove this lifetime squatter is for two “unrelated” buyers to purchase the building and each new owner deem each unit “the owners unit”.
    If a single buyer purchases the whole building only one unit can be deemed “the owners unit”.
    The single buyer has a tenant for life…..and U R Screwed………
    Rent control in SF is not “rent” control….it’s “property” control…..
    I have owned several “rent” controlled properties over the years in SF, I speak from experience and from several years of lawsuits…..your at your tenants mercy and courts favor tenants in this town. Never….ever buy a rent controlled property in SF unless you are a Masochist with a big bank roll.

  76. Posted by anon

    The day rent control ends is the day SF rents fall like a rock. Amuses me that landlords are asking that their cash cow be slaughtered. Fortunately for them, the even more clueless tenants’ union has their back!

  77. Posted by Killrentcontrol

    Rent control…..uh I mean property control will never be repealed in SF. The California Supreme court has time and time ruled that SF has jurisdiction over it’s Social Justis/welfare programs even if it goes against the U.S. Constitution.
    And I agree rent control has been a boon for landlords in SF. That is once you figure out how to game the system and control your own destiny. All my lowlife…lifetime tenants have since moved on and I figured out how to screen tenants to keep from becoming a slave to their control. Sorry I can’t share my secrets for fear Ted will have the laws changed to circumvent my methods.
    The real fear for landlords should be any attempt to enact “vacancy control laws”. That will mean no more market based rents for vacant units…..then U R really screwed. Game over…..pass your keys over to the city and pack up and leave.

  78. Posted by lol

    Brian,
    I understand why you think rent control benefits you with your recently signed leases. But the great rents you are locking in today will not change much in the long term.
    Let’s take 2 hypothesis: 1 – rent control 2 – no rent control. Let’s assume the rent without control is 30% less than with rent control (rent adjusted to actual resident’s incomes) , and that non-controlled rents would increase by 5% a year.
    numbers are for rent control rents / non rent control rent.
    Year 1 – 3000 / 2100
    Year 10 – 3400 / 3250
    Year 20 – 3900 / 5300
    Even with a relatively small market rent increase, you will collect more rent than rent control in the long run. Over the next 20 years you’ll have collected roughly the same amount, but now your tenants are in a position where they now pay way less than market rent, and therefore will not want to move. In the mean time, all your fixed costs related to your ownership will have increased at a rate probably higher than the allowable rent increase. Say “Squeeeeeze”.
    Actual numbers from the past 20 years are actually much much more dramatic than the sample I give, which is forward looking.
    Rent control ends up costing landlords in the long run.

  79. Posted by lyqwyd

    @Kill, like I said above, unrelated buyers cannot OMI more than 1 unit of the building, only relatives of the owner can OMI any additional units.

  80. Posted by anon

    lol, we’re in agreement here. You’re right that under rent control a landlord will do worse –> starting at about year 17 of a tenancy. They make MORE under rent control up to that point because of the artificially elevated rents it creates by limiting openings. But it is an extremely tiny percentage of tenants who stay that long, maybe 2 or 3 percent. For the 97% of tenancies that turn over in less than 17 years, the landlords come out ahead with rent control. It is landlords’ irrational fear of being stuck with one of these very rare two-decade tenants that drives them to oppose rent control, which is, in fact, their best friend!

  81. Posted by R

    @lqwyd: as I said before, there’s only one unit to omi…

  82. Posted by Rillion

    Lol – Nice try to show how the landlord is better off without rent control but if you actually dig into the numbers you show, the landlord is better off with rent control as long as his average tenant stay is less then 20 years. If every tenant moved out after 19 years the landlord is still better of with rent control.
    Go back and calculate the TOTAL rent paid under each example. After 10 years the rent control unit has generated a total of $31,962 in rents while the non-rent controlled unit has generated $26,413 in total rent. After 19 years its $64,785 w/Rent Control vs. $64,131 w/o Rent control. In year 20 its $68,692 vs $69,438.
    But if a smart landlord were to take the extra rent control income and invested it and generated a 2% annual rate of return you get an extra year out of the deal (assuming that the account would then be drawn against to make up for the difference once the non-rc price exceeded the rc price). So after 20 years you are +$977 total under the rent control scenerio while in year 21 you are -$613 under rent control.
    So basically a landlord is better off under rent control in your scenerio whenever a tenant does not stay 20 years.

  83. Posted by lol

    anon,
    The numbers were forward looking and with very conservative assumptions. The truth is that rent controlled landlords are already losing today if the tenants moved in before 2008.
    I’d love to see where these 2 or 3 percent come from. Around me I see many renters who have been there for 15+ years simply because it corresponds to the dot-com rent inflation period. For instance, across my place there’s a guy who specializes in buy-outs. He picks older buildings with poor maintenance. It usually means an older landlord with too many rent controlled tenants and therefore no incentive to even do the simplest paint job. He’s gotten his 3rd buy-outs in 12 years. There’s a 3-unit building 2 doors up that got sold but still has 2 long term tenants paying 40% of market rent. They’re all over the place and they’re the norm rather than the exception.

  84. Posted by lol

    Rillion,
    Read carefully. This was forward looking. The past has been much more in favor of renters.

  85. Posted by Mark F.

    “The real fear for landlords should be any attempt to enact “vacancy control laws”.
    Illegal under current state law, but that could change.

  86. Posted by Mark F.

    “It usually means an older landlord with too many rent controlled tenants and therefore no incentive to even do the simplest paint job.”
    I lived in such a place once. It was slum “quality” and the rent controlled rent was still more than you could rent a decent place for in many cities.
    Rent control means you will usually end up living in a garbage dump if not enough units turn over.

  87. Posted by lyqwyd

    @R
    So what? I wasn’t responding to that, I was responding to Kill’s statement from 7:05 AM that two unrelated people need to buy to OMI both units.

  88. Posted by odub

    I haven’t read through all the comments, but why can’t you find a renter for the lower unit at market rate and then sell the duplex. Then new owner can move into top unit and boot renters without offering lower unit at their current rate?
    Or does that drive down the value of the property if you lock in new renters in lower unit. I guess seller should weigh pros and cons.. not sure what is the better option/or if I have all the rules straight.

  89. Posted by resp

    ideas:
    1) remodel the lower kitchen and bath. very slowly and very loudly. get the buzz saws going at 8:01 every Sunday
    2) verbally offer a buyout.
    3) move into the lower unit and move your elderly parent into the upper unit displacing the tenant.
    4) have lots of barbeque parties. invite lots of smokers.
    5) wait for tenant to die while collecting a not-too-shabby rent.
    6) Ellis as a last resort.

  90. Posted by Helmut

    The tenant has the right to the quiet enjoyment of their unit. Making excessive noise, such as your 8:01 buzz saw idea, is not only illegal, it is also morally the wrong way to approach the situation. Whomever the owner is, they will need to communicate nicely to the tenant, find out if their is any room to make a deal, and if not, then be willing to follow the rules and uphold their duty to be a good landlord.

  91. Posted by mksf

    Thinking of ways to be mean to your tenant to entice them to move is not a good use of anyone’s time. There is something called constructive eviction under which the tenant you’re planning on harassing can sue you for. The Rent Board also does not look kindly upon repeated buyout offers once the tenant tells you they’re not interested.

  92. Posted by erdoc

    Remember people. Every single time a rent-controlled tenant gets evicted, and Angel gets its wings!

  93. Posted by grumpy

    so what’s wrong with $2,100 in rent? Not market rate but its what’s there now.

  94. Posted by Brahma (incensed renter)

    MoneyMan wrote:

    I read a couple of months ago that the Supreme Court was considering taking a new case that would rule on the constitutionality of rent control under the “takings clause”. It’s been ruled on before, but the writer of the article thought that there was a good chance that this conservative court would rule rent control unconstitutional. I for one hope that rent control is overturned…

    No such luck.
    From the New York Times in late April of this year, U.S. Supreme Court Declines to Hear Suit Challenging the Rent Stabilization Law:

    Tenants in nearly a million apartments subject to New York City’s rent regulations could breathe a sigh of relief on Monday. The United States Supreme Court, after indicating it might be interested in hearing a challenge to the regulations, decided to let them stand.

    The challenge to the rent law was brought…the owners of a five-story brownstone on West 76th Street near Central Park. They live on the lower floors and rent out the six apartments above them.

    Three of those apartments are subject to New York’s rent-stabilization regulations, under which the government sets maximum permissible rent increases and generally allows tenants to renew their leases indefinitely.

    According to the Harmons’ lawsuit, filed in 2008, the tenants in the rent-stabilized units pay around $1,000 a month, or about 60 percent below the market rate.

    The Harmons said that requiring them to accept below-market rents amounted to an unconstitutional taking of their property.…Last year, the United States Court of Appeals for the Second Circuit, in New York, ruled against [them] A three-judge panel of the appeals court said the couple knew what they were getting into when they acquired the building.

    It was that decision that the Supreme Court declined to consider.

    Emphasis mine.
    Like they say in the blogosphere, go read the whole thing. The most recent actual ruling, which The Times story mentions, was in 1992 regarding a mobile-home park in Escondido.

  95. Posted by Helmut

    Rent control is not going anywhere. It will updated and revised, but its highly unlikely to ever be eliminated.
    If you are going to be an owner, learn the rules and follow them. The San Francisco Apartment Association has great San Francisco specific classes for owners & property managers, in addition to solid lobbyists who do a good job of representing owner’s interests at City Hall.

  96. Posted by Debtpocalypse

    Why not buy the property, install a powerful stereo system in the bottom unit, and blast Celine Dion 24/7/365 until the upstairs squatters relent and move on voluntarily?
    Or does San Francisco afford tenants rights to silence an owner’s Celine Dion?
    And if so, my gawd, what will they do next?

  97. Posted by lol

    I do not see how that could work long term. Celine Dion at 120dB medium term will crack your foundations. Plus you’d have to first replace all glass with multi-layered-kevlared-Polycarbonate. Not cheap.
    Easier and cheaper: inform the renters that PG&E has installed up a new kind of SmartMeter everyone complains about. They’ll get nauseous all by themselves through the old Pavlovian effect.

  98. Posted by MoneyMan

    One thing no one mentions is the affect of rent control on the potential sales price of the property. If a property owner is fortunate enough to only have a small number of units at far below market rates, then perhaps he can sell the property for a true market price. But if he has a duplex and both tenants are renting at $500 per month, when the market is $3,000 (and both tenants are protected), then his ability to sell the property at would have been its real value is diminished.

  99. Posted by balloon

    We had a landlord in the late 90s in Mission Dolores that put a balloon clause in our lease. Rent was $2k but we only had to pay $1k as long as we moved out in 3 years. If we stayed past 3 years, the $36k deferred rent would be due. We stayed 2 yrs 11 mos. Talked to an attorney and the SF Tenants Union, both advised us to move out, that the lease might hold up in court and we’d have to pay the money. It’s what motivated me to become a home owner.

  100. Posted by Rillion

    lol – forward looking? You mean pure speculation? Yes if market rents increase faster then 5% per year in the future while rent controled prices rise slower then 1.4% the 20 year break even figure is going to come down. But by the same token we can not accurately predict what is going to happen to rents over the next ten years so your forward looking calculations are just guesses. The underlying theory still holds that landlords are actually better off with higher initial rents and rent control then without rent control if their average tenant stay is below whatever the breakeven point is. Under the numbers you presented that point was 20 years.

  101. Posted by NoeValleyJim

    Historically, SF has has vacancy rates of about 10% during booms and up to 25% during busts.
    When is the last time we had a bust Robert? I can’t remember ever having those kinds of vacancy rates in residential property in San Francisco.

  102. Posted by tipster

    balloon, that wouldn’t hold up unless prevailing rents at the time you moved in were $2K.

  103. Posted by anon

    I think the balloon would hold up. There is no legal requirement that a rent be fair or “prevailing” to be enforceable. Unconscionability is a very, very high bar. And the risk to the tenant is too high to fight it as it could mean financial ruin if they lose and not a whole lot of upside if they win (just get to stay in the apartment at a rent which is not far from market rate anyway). This would be a question for a judge (not the jury or the rent board) and the SF judges are much less dogmatic about tenants’ rights than others. They follow the law. and a contract is enforceable unless unconscionable.

  104. Posted by conifer

    As long as there is rent control, SF residential rental property is best reserved for those with the stomach to deal with an impossible system. Small investors should look elsewhere.
    That is the intent of the rent control advocates, and they have won the battle. Life is not long enough to wait for it to change.
    On the other hand, buying a SFR or one that can become a SFR gives people the chance to live in a nice city, while they do their investing in other places or other investment vehicles.

  105. Posted by lol

    @Rillion
    The underlying theory still holds that landlords are actually better off with higher initial rents and rent control
    A theory disproved by 30 years of empirical value. This is one bad theory.

  106. Posted by futurist

    And, to add to what Rillion said: Buying a SFR in SF and holding it for a long time, say 25 years, will reward you with a handsome profit with the increased value.
    Noe house price about 25 years ago: $145k av.
    Noe house price today: $1.3 m ave.

  107. Posted by Rillion

    Lol – Way to trunicate the statement to remove the qualifier “if their average tenant stay is below whatever the breakeven point is”. You are being completely dishonest and it reflects poorly on you.

  108. Posted by lol

    I’ll do as if Rillion hadn’t called me dishonest. It’s posturing not too far from the tenants of the above picture.
    very vague “if their average tenant stay is below whatever the breakeven point is.”
    “if… whatever…”
    Are we supposed to make anything of this?
    It could be 3 years (like what happened between 2009 and 2012) or 20 or 100. Whatever indeed.
    But let’s take a less “if… whatever…” approach.
    Simply look in the past few years.
    Someone offered me to rent a 2/1 for 1800 in 2006 with parking on Dolores close to 25th. Today the same would rent for 3200. With rent control the landlord lost the fight after just… 3 years.
    then again, “if… whatever…” he’s probably winning.

  109. Posted by Robert

    The best way to understand rent control is in terms of supply and demand.
    Suppose, for example, that, out of a population of 600,000
    600,000 people are able to pay $800/month or more 500,000 people are able to pay $900/month or more
    400,000 people are able to pay $1000/month or more
    300,000 people are able to pay $1100/month or more
    200,000 people are able to pay $1200/month or more
    100,000 people are able to pay $1300/month or more
    50,000 people are able to pay $2000/month or more
    5,000 people are able to pay $3000/month or more
    average of the above is:
    If you limit the turn-over to 5,000 people, the “market” price is 3000/month. But, you will find, that the average person is still paying $1116.
    That is why you get such high discrepancies between census data of what the average person is paying, and things like craigslist asking rents.
    Rent control creates an environment in which those paying below the marginal rates can continue living in their unit and pay the $800.
    But removal of rent control would not create a city in which 600,000 people are paying $3000 per month. They don’t have that kind of income and can’t afford to pay that much.
    What repeal of rent control would do, under a competitive market, would be to lower the marginal rent to something close to the asking rent. Not exactly the asking rent, because some tenants would be forced out of the city, but there is not a sufficiently high influx of high earners to replace the low earners living here. So the average rent may increase, say, to $1300/month instead of $1110/month, but the marginal rent would fall to $1300/month from $3,000 per month.
    Obviously this is just an example. To get the real data, you would need to do some demographic assessments on what renters are earning in the city — I think household income is about 50K, which if 1/3 is devoted to rent, would correspond to roughly $1400 per month in what the average tenant can pay. So while these are back of the envelope estimates, they are in the right ballpark.
    What can go wrong is when the market does not clear. In the late 70s/early 80s, we had a 25% vacancy rate. Now we have a 10% vacancy rate. The effect of that is to increase the rents again, because only the top 80% or so of tenants would be able to live here, and the remaining 20% of units would remain empty.
    In any case, the idea that the typical landlord is somehow missing out on the possibility of obtaining marginal rents is truly idiotic.
    The landlords in this city, if they believe that they can really get the marginal rent now with the removal of rent control, are not very bright.
    I just laugh when they say that they are “losing” money by not all being able to rent to the top 0.1% of candidates, being stuck with the rent paid by the median candidate.
    The stupidity is so enormous that you can’t make this stuff up.

  110. Posted by lol

    I’ll add it gets a bit annoying for a 15-years-in-business landlord sticking his neck out to be given lessons on numbers. You’re frustrated, we get it.

  111. Posted by Robert

    lol,
    Given your comments on this blog, if there was no rent control, you would have been forced out of business long ago.

  112. Posted by lol

    Robert,
    Are you trying to have a discussion or just throw theories followed by insults?
    I question the 1300. I think the hit would be more like a 30% decrease. Pushing therefore rents to 2100.
    SF is not working in the void.
    1 – There are people on the outskirts who would move to SF if it were just a few 100s cheaper.
    2 – Many people who pay 1100 today could afford 1500 or 2000, changing the equation. Remember that many rent control apartments are 1st or 2nd rentals. You’re 25, move into a 2BR, stay 5 years, think of moving up but the deal has become so sweet you’re staying put. Many renters could afford much more.
    Anyway. Trying to stay polite there.

  113. Posted by anon

    Nice analysis, Robert. Again, I’m astounded that landlords hate rent control when it’s their greatest friend, and tenants love it when it’s their greatest enemy. Fortunately for the landlords, there and more and louder tenants!
    I think the roots of this dual against-their-interest mentality are:
    a) The rare 35-year tenant who pays a pittance (landlords fear this sceptre and tenants dream they will become it)
    b) basic economic ignorance by landlords and tenants alike who think that – magically – if all units cast their rent control shackles then high-earners would miraculously appear to fill every unit and then pay high rent increases annually after that
    c) vested interests (supes, tenants union, etc.) who pander to tenants’ fears and make a good living by doing do
    d) short memories as in times of higher rental demand landlords and tenants alike forget that just as often would-be renters call the shots
    e) a bizarre acceptance of the sh**ty housing stock that rent control spawns – people in fly-over parts of the country marvel at the comparative squalor people in SF (or NY) are willing to live in, and at very high rents.

  114. Posted by lol

    Rillion or Robert (or both?)
    You’re making bold statements with no insight whatsoever.

  115. Posted by Robert

    lol,
    No, I don’t believe renters could afford a lot more. There is a small minority of protected tenants that could afford more, of course. But not enough to move average a whole lot.
    If current asking rents are 3000, then a 30% reduction would correspond to an income of 75,000.
    Using 2010 ACS data:
    Median income in San Francisco for renters is $51,000. Median contract rent is $1300, which is already roughly the most that they can pay.
    Median income for home owners is $107,000 — again, still far too low to purchase the property in which the homeowners are living. You have the exact same situation with owning and renting, in that small turnover allows a large divergence between median and marginal rents.
    Now, maybe rich people will flood into the city. That is, however, doubtful, as median income for the bay area as a whole tends to be lower than in San Francisco. Using 2009 data, we have about 48K for marin, 45K for Santa Clara, etc.
    http://blog.sfgate.com/ontheblock/2011/03/07/bay-area-tops-state-again-in-median-income/
    So no, there isn’t enough income to support median rents of 2,000/month. The only way to maintain rents at that level in the absence of rent control would be with a lot of vacancies.

  116. Posted by Robert

    Look, census data is generally available. It gives you a pretty good survey of income data, contract rents, etc. It even breaks things up into income deciles.
    Go look there, do some research, and then make a case that the average tenant is going to pay $3000 — or even $2000.
    Rule #1 in any attempt to determine prices is that people can only afford to pay so much. Housing may be purchased with other people’s money, but rents are not.

  117. Posted by lol

    Robert,
    Homes are rented by households, not individuals. I believe you are quoting individuals. Median household incomes are more in the 70K range.

  118. Posted by Robert

    Actually, a good proxy here would be Boston, or rather Suffolk County.
    They eliminated rent control, and are similarly a constrained area as san francisco. Median HH income in Suffolk county is 50K (2010 ACS data). Median contract rents in Suffolk County — without rent control — are $1102.

  119. Posted by lol

    Another comment:
    Many people who cannot afford the new rent in SF would be moving to cheaper areas (EB, Daly). This would increase the median income.
    Others would bunk up together, with 2 co-tenants together paying 900 to 1100 each for a 2BR instead of 1400 to 1600 today.
    I guesstimate a 30% hit. You’re more in the 55% range (from 3000 to 1300). I guess we have to agree to disagree.

  120. Posted by Robert

    lol,
    I am giving you median HH income statistics for renters.
    Renter households have a median income of 53,555. homeowner households 107, 725
    Link is here:
    http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ACS_10_1YR_S2503&prodType=table

  121. Posted by Robert

    One other to keep in mind is that if we remove rent control, then in order to obtain the top tenants — the ones who can pay 3000/month — landlords would need to both be blessed with a great location *and* they would need to heavily invest in structural improvements.
    So another way that removing rent control reduces landlord profits is that by forcing landlords to compete and invest in structure, tenants will obtain more for their housing dollar, as well as spending less, on average per unit of housing obtained.
    But the key is that we need to force competition. We don’t want to get back to the situation of 25% vacancy rates and excessively high rates that we had before rent control was enacted.

  122. Posted by lol

    ^^^ Yes, for the first year, they’d have to give more for the rent.
    I am all for a more fluid market. Even if I see your point that a smooth market could in certain cases cause pain to a landlord who leased his place at today’s rates, we’d all be better with a functional housing market.
    Rent control should go along with prop 13. The medicine is slowly killing the patient.
    And I do not think a city as attractive as SF will ever see 25% vacancy rates.

  123. Posted by anon1

    A new buyer could rent out the lower unit at market rate, and then do an OMI on the upper. Lots of bad advice was given by people who don’t know what they’re talking about in this thread, as usual.

  124. Posted by Robert

    lol,
    I agree. A more fluid market is better. Getting rid of rent control is good. Whether the hit is 30% or 50% doesn’t matter nearly as much as having a market that clears.
    But the possibility of high vacancy rates are very real. What happened in 1980 was that the city was less desirable and there was middle class flight.
    And yes, rather than lower asking rents so that units would be occupied, rents remained high and 25% of the units were left vacant.
    I can’t underestimate the need for competition to force land owners (both landlords and other land owners). Without this competition, you get terrible outcomes.

  125. Posted by Helmut

    OMI guidelines from the SF Rent Board
    http://www.sfrb.org/index.aspx?page=965

  126. Posted by Robert

    Another way of thinking about median renter income is to imagine what would be required to lift that number from 53K to 73K (for the sake of argument).
    Assuming 1.5 people per household, a general upward shift in household income by 20K would correspond to 7 Billion of additional payroll in this city, or a general increase in wages by about $6-$7 per hour worked.
    It is not a small task to replace a few hundred thousand households earning about 50K with a few hundred thousand households earning about 70K.
    The other alternative is that San Francisco swings to a bedroom community — i.e. even if the general wage rate in the city does not rise by $6/hour, a few hundred thousand people who work in other parts of the bay area will move to san francisco and commute outside the city to work. They will, ostensibly, move to San Francisco to pay more for rent than what they are paying now in the surrounding regions, and elect to commute to work.
    I think that would be difficult to achieve, and it would be even harder to maintain the anti-car pro transit model.
    So while I agree that there are many protected tenants living now in the city who would and should be forced to leave, allowing their units to be rented at market rates. I think we are talking about tens of thousands of people, rather than hundreds of thousands of people.

  127. Posted by lol

    It all depends on the distribution.
    Medians can shift much more than averages.
    But I agree that a few 10s of 1000s leaving would not have a very large impact on median incomes because the bulk of renters are in the 40 to 70K.
    I still have my ears on the ground on the Central Coast (Sta. Barbara) which has similar income distribution, lack of available units and close enough renter/owner %. They have no rent control. I can tell you that 1300 will only get you either a 1BR mobile home or a crappy studio with a microwave in lieu of a kitchen, not a 2BR. 2BRs will be more in the 1800-2200 range. Some friends had to scale down because of the pressure, or move to less desirable areas.

  128. Posted by Robert

    I still have my ears on the ground on the Central Coast (Sta. Barbara) which has similar income distribution, lack of available units and close enough renter/owner
    Yup, I would call that the “bedroom community” effect. If a location is really desirable, then the cost of living there can become disconnected from the available wages paid in the community.
    That is particularly true in constrained communities where households are earning money elsewhere — retirement communities and college towns come to mind, as well as resort communities.
    But I think this effect diminishes as the size of the community goes up. Some of that will certainly be true in SF, at least for some neighborhoods. The price of homes in Billionaire’s row is never going to reflect the prevailing wage. Nevertheless, city-wide, it will.
    But in the other direction, you have the fact that as incomes go up, households spend a smaller proportion of their income on housing generally, and renting specifically.
    Even as we are becoming more “european” in other respects such as transit, there is still a cultural bias against renting, so many high income families will buy property where land is cheaper and commute rather than be willing to pay the same proportion of their income to rent as their lower income peers.
    Therefore it is not clear that they would be willing to rent in the city, en masse, for the same proportion of their (higher) income as the current residents do.
    How all of that plays out is hard to tell. Increasing urbanization and rising fuel prices favor the landlord here.

  129. Posted by Robert

    Speaking of Santa Barbara, for Santa Barbara county (2010 ACS) we have
    median hh income of renters: $39,563
    median hh income of home owners: $76,848
    Median contract rent (monthly): $1,183
    It seems to be very similar to the SF data. Renters have about 50-60% of the income of home owners, and renters spend about 30-40% of their income on rent.
    It seems to be true in both rent controlled and non-rent controlled areas.
    Btw, to get this data, first log into factfinder:
    http://factfinder2.census.gov/
    Then, select the county by clicking on the geographies tab
    Then, select the topics. You can select housing/financial for median contract rent, and you can select people/income and earnings (households)/”income in the past 12 months” to get the breakdowns of renter versus owner incomes.
    Then you can do a comparison across regions to see how much people really are paying for rent.
    It is more accurate than looking at craigslist, but the data is always about 2 years out of date.

  130. Posted by NoeValleyJim

    According to Marcus and Millichap, vacancy rates in SF are 4.3%, not 8%:
    “Marcus & Millichap said the city’s vacancy rate is now 4.2 percent, compared with 4.8 percent in 2010 and 5 percent in 2009.”
    http://www.sfgate.com/bayarea/article/S-F-apartment-rent-rises-as-vacancy-rates-fall-2335872.php
    If you go to census.gov and download the data for the SF Bay Area, you see that rental vacancy rates are 3.2% and housing vacancy rates are 0.5%. As a comparison, Las Vegas rental vacancy rates are 17%.
    According to ACS, Las Vegas vacancy rates are 17% compared to SF vacancy rates of 10%.
    Why the difference here? What is ACS measuring, as compared to the census numbers?
    I find it really hard to believe that 10% of housing units are vacant in San Francisco right now. But according to ACS, the number was 4.9% in 2000, which at least makes sense.
    Any idea why these different sources report such varying numbers Robert?
    Also, I cannot find any source for your claim that vacancy rates in San Francisco were 25% during the 80s. Can you give me cite?
    I am trying to avoid getting pulled into the whole rent control debate, but the easiest way for rents to go up in San Francisco overall would be if there were more high income people living here. I am sure we increase our overall median income quite easily if we did something like a massive urban renewal of the Tenderloin. This would be a desirable area full of young professionals, if it was cleaned up, similar to what Manhattan did with Times Square.
    I am not advocating this though. I do think San Francisco would be better served if we moved our social services to a place more on the periphery but I can’t imagine where that might be. No neighborhood is going to welcome an influx of homeless. We could try distributing them all around The City but that has problems as well. San Francisco is trying to solve a regional or even national problem by itself and there is no way we can really hope to do so without help from the surrounding area.

  131. Posted by Robert

    NVJ,
    The discrepenancies are most likely due to what is being measured and the sampling method.
    Owners are leaving roughly 5% of their units off the market and are not renting them out or using them as vacation properties. Then, when owners do rent their units out, there is about a 4% vacancy rate.
    That would resolve the discrepancy. When discussing how low property tax rates allow misuse of land and/or allow owners to not receive the maximum return for their land, I think the larger figure is the appropriate one to cite.
    ACS data is also produced by the census. Here is the detailed breakdown for 2010 (latest available) of vacant units:
    San Francisco County, California
    Estimate Margin of Error
    Total: 40,765 +/-3,739
    For rent 9,911 +/-2,151
    Rented, not occupied 2,142 +/-889
    For sale only 1,570 +/-826
    Sold, not occupied 794 +/-579
    For seasonal, recreational, or occasional use 7,815 +/-2,008
    For migrant workers 0 +/-294
    Other vacant 18,533 +/-2,852
    source:
    http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ACS_10_1YR_B25004&prodType=table
    Subtracting out “For seasonal recreational, or occasional use” (e.g. vacation properties), then you end up with about 33K properties that are not being used at all.
    Alternately, you can look at the “SELECTED HOUSING CHARACTERISTICS” table here:
    http://factfinder2.census.gov/faces/tableservices/jsf/pages/productview.xhtml?pid=ACS_10_1YR_DP04&prodType=table
    Which gives 376K units, of which 40K are unoccupied. But only 4.4% of those that are being rented are vacant.
    Vis-a-vis the 1980 data, that is from the 1980 census. I have the data downloaded on my computer, but there is no easy online link. You can download the data yourself though, from the iPums project.
    http://usa.ipums.org/usa/
    I can look for an online link of the processed data.

  132. Posted by Rillion

    Lol – I am not the same individual that is posting under the Robert name.
    In my calculations I used the numbers you provided. If you change the numbers it is going to change the breakeven point to whatever the new numbers dictate. If you don’t like how math works, whatever, but no need to get snippy with me about it.
    Please go back and re-read my post, you will see I made no bold statement (you even mock my qualifiers so how bold could it be?) or claim to have any great insight (other then how to play around with excel spreadsheets). I simply did an analysis of the numbers you used to show how if the tenant stayed less then 20 years in your example the landlord made more money.
    You then quoted me out of context.

  133. Posted by lol

    Fair enough Rillion. I did provide a theoretical future-looking estimate to prove a point for long-term holding. When I got a response saying my numbers were proving the opposite of my point for shorter holds, I assumed you were mixing them with past proven numbers. Then I had 2 other posters smelling blood and pouncing on my perceived self-inflicted wounds ;)
    In any case. Being a landlord these past 20 years was probably a challenge if you were unlucky enough to have the same tenant. Same thing for 10 years or even 5 years for that matter.
    If inflation is kept under 2-3% as is done now and market rental prices do not shoot further to the moon (2BR for 3K, how much further can this climb?), then being a landlord with today’s rents will be an interesting proposition for a number of years compared with a totally free market. Everything goes out the window the day inflation really picks up as people in the 70s and the 80s have learned

  134. Posted by Rillion

    Something that would be interesting is to find out what are the mean and median duration of tenancies in SF. Obviously smaller landlords with just a few units are more at risk from a long term tenant but some of the bigger places like Park Merced or Golden Gateway could be benefiting despite having a few very long term tenants.

  135. Posted by lol

    Well, big landlords are not fully shielded from it neither. Notably in NY, Tishman Speyer Properties’s largest mortgage default in history was caused by its Stuyvesant Town boondoggle where the biggest roadblock was the conflict with the “stabilized” tenants who managed to revert all market rent correction!
    http://www.nytimes.com/2010/01/25/nyregion/25stuy.html
    I don’t know about Park Merced though. It would be interesting to see what the mix of rent is.

  136. Posted by Rillion

    My inlaws live in Peter Cooper Village, the issues leading to that boondoggle and foreclosure go way beyond just rent control. I also have a friend that works for a company that submitted a losing bid for the property when Tishman bought it. Tishman’s numbers on what percentage of units they could turn over and remove from rent contol were way to aggressive.

  137. Posted by lol

    Rillion,
    Interesting. I’d say everything in this failure was actually about rent control. The reason Tishman saw this as a busines oportunity was because units were rent controlled. The reason they thought it would pan out was because they thought they find a way to remove enough units from rent control. And the reason they failed is precisely because people defending rent control prevailed. It was a lesson given to all developers out there. Better have an exit strategy.

  138. Posted by Brahma (incensed renter)

    Interesting. I’d say everything in this “failure” was actually about the analysts at Tishman not being able to competently complete a valuation, or not being able to read a statute, or not taking their counsel’s advice on what the law actually was or (most likely) all of the above, and the executives at the same company not being very good at making business decisions.
    From the perspective of the marketplace, what happened was what should happen in a competitive environment. Rent control or no rent control, Tishman Speyer wildy overprojected and oversold the income that they’d be able to derive from the project. From Megan McArdle’s piece in The January 2010 Atlantic, Capitalist Fools:

    Take the Stuyvesant Town deal…according to TheWall Street Journal, when Stuyvesant Town was sold, lenders were projecting that the Tishman Speyer–BlackRock partnership would be able to triple its net income in five years through building upgrades and decontrol. That’s why the principals paid a premium for the property, and financed the purchase with loans totaling more than 80 percent of the price.

    Even before the financial crisis sapped demand in the rental market, this plan was questionable. The buildings simply weren’t built as deluxe rentals–the mosaic tile in the public areas has been replaced by marble, but in the cramped vestibules and narrow hallways, the effect isn’t luxurious; the buildings just look like they’re dressed up for Halloween. With mostly tiny kitchens, and no room in the lobbies for a doorman, these apartments were never going to command the kind of rents that would justify the partnership’s bid. Even though many of the apartments have been decontrolled, net income has barely risen.

    Emphasis added. Of course, if you go in looking for a rent control boogyman, no fact is going to change your opinion.
    Tishman Speyer just overbid, and the existence of rent control was a fact on the ground before they bid. They didn’t take that into account when they did their valuation and they got spanked, as they should have. This is going to be a business school case study someday in lack of competent valuation and overleverage.

  139. Posted by ph_goat

    Why wouldn’t the current owner find a tenant for the lower unit at current market rate. Then the new owner can move into either unit right? (and of course choose the upper) Just curious…
    _apologies if this was mentioned earlier_

  140. Posted by Rillion

    Yeah and I guess it was rent control’s fault when a bunch of residents complained that the air condition units in the windows were not sealed properly and the management took no action. Then after a severe rain & wind storm had to replace the floors because a bunch of units flooded from water coming in around the air conditioning units.
    As the article Brahma quotes says, and which agrees with my impression of the units from staying with the in-laws, they are not luxury units. Yet the marketing that Tishman did around the units (I’d walk by the leasing office on the way to the subway) was much trying to rent these places as high-end despite the fact that it was lipstick on a pig.
    Rent control was a contributing factor but not “everything in this failure was actually about rent control.”

  141. Posted by lol

    Brahma,
    No question. You are correct in your conclusions from this prospective.
    But this “case study” would never have seen the light of day if there had been no rent control in this development. This affected the premise, the execution and the outcome, and that was my point. Rent control creates Frankenstein situations where very valuable assets are greatly depreciated, causing unforeseen effects.
    Some idiot falls into the trap once in a while. That’s because the lessons they learned at school were about properly functioning markets. They cannot believe that laws in some cities actually create virtual confiscation of a certain class of asset.

  142. Posted by lol

    About the quality of the units, it won’t be the first time a below average development is being marketed (and sold) as “luxury”. What was the actual luxury was the very central location with the added luxury of actual greenery.

  143. Posted by Brahma (incensed renter)

    The point is that there was no way that Tishman Speyer was going to triple their net income inside of five years, and frankly whoever at the lender approved their pro forma that projected that should have been fired for incompetence.
    That, in and of itself, was the core of the story, and the rent control was just color around the edges.

  144. Posted by curmudgeon

    Tishman Speyer lost a lot of other people’s money on that deal. Including, I believe, about $500 Million of Calpers pension funds. Lovely.

  145. Posted by reanto39

    “Rent the bottom flat and then, and only then, OMI the top flat. Easily solved.” If you really want an unlawful eviction lawsuit, try doing this. Your rent board jury, 70% renters, is really going to find that you bought, rented the vacant unit, then decided “Oh, I think I’ll move into the building after all.” Get serious. And the 3x punitive damages will give the building to the tenant. Anyway, for all the acting out, someone bought it and ‘here to stay’ are presumably soon ‘on their way’, with $20k in their back pockets.

  146. Posted by anon

    No, this would not be decided by a jury. If the tenant were ever to sue, this is a pure legal issue and the judge would make the ruling, not a jury. As this is perfectly legal, the judge would rule in the owner’s favor immediately and, hopefully, sanction the tenant for bringing a frivolous lawsuit.

  147. Posted by Brahma (incensed renter)

    …the judge would rule in the owner’s favor immediately and, hopefully, sanction the tenant for bringing a frivolous lawsuit.

    I’m not a lawyer, but I’d say, not likely at all.
    That may be what you’d like to have happen, but try to join the rest of us in the reality-based community, umkay? You really should go down the courthouse, look up some past landlord-tenant actions that made it past the initial stages, and read the transcripts before opining. When you do that, try posting a reference to one, ONE case where the judge “sanctioned the tenant for bringing a frivolous lawsuit”, say within the last ten years.

  148. Posted by Anon1

    The poster said, “hopefully,” and that left no room for your hand wringing. Lighten up with your ill humored rants lately, already,

  149. Posted by anon

    Sanctions or not, the hypothetical lawsuit would get tossed pronto. The “70% renters” jury would never see the case and the “3x punitive damages” would never happen. The landlord would win quickly, and any lawyer who brought such a lawsuit on behalf of a tenant would not only be bringing a loser case but would at least risk sanctions on top of the loss.
    Brahma, maybe you can point us to a case that turned on a question of law that nevertheless went to a jury with a decision for a tenant over the landlord. Don’t bother looking because there aren’t any.

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