November 14, 2013

A Rush To Restrict Ellis Act Evictions And Buyouts In San Francisco

Reacting to the recent rise in Ellis Act evictions of rent controlled tenants in San Francisco, Mayor Ed Lee and Supervisor David Campos are in a race to draft proposed legislation making it more difficult to invoke the Ellis Act or even establish an outright moratorium on the evictions if possible.

Lee's staff said the idea is to make Ellis Act evictions so expensive for property owners that there is little incentive to pursue them. Options include requiring additional permits or hearings or placing limits on the sale and resale of a property after an Ellis Act eviction.
Campos is drafting legislation that would make it much more difficult - and less attractive - for a landlord to remove a tenant through a buyout, in part by preventing the property owner from charging market rate in the future.
He is also working on a proposal that would substantially raise the relocation payments owners must give tenants in an Ellis Act eviction. The current payment in an Ellis Act eviction in San Francisco is about $5,200 per person.

And while landlords in San Francisco can currently offer tenants a cash buyout to vacate an apartment in order to circumvent the restrictions associated with an official eviction, Campos' proposal "would require the city to track buyouts and place them under the category of "just cause/no fault" evictions, preventing the landlord from charging market rate to new tenants."

As Evictions Triple In SF, Mayor Triples Eviction Fighting Fund [SocketSite]
S.F. politicians: Restrict Ellis Act evictions [SFGate]

First Published: November 14, 2013 9:00 AM

Comments from "Plugged In" Readers

Can the state legislature please pass some laws to prempt this BS? I'd say do it with an initiative but I hate those, so would prefer it be done by the people we pay to take care of these things. In this case it would be the state reps who need to step in to reign in an out of control city representatives that trampling all over the property rights of a local minority (property owners).

Posted by: Rillion at November 14, 2013 11:37 AM

State law already preempts this.

These fools should be careful, if they go too hard it will go to court, and the State Supreme court will obviously give precedence to state law over city law.

A moratorium will obviously fail, as it tries to supersede state law.

Making fees so high they will prevent Ellis Act would likely be overturned as it also tries to supersede state law.

Preventing market rate after a tenant accepts a buyout will also loose, as it violates vacancy decontrol, which is also state law.

All this will result in is lawsuits that the city will have to waste time defending.

Posted by: lyqwyd at November 14, 2013 11:51 AM

I don't have a crystal ball letting me know whether or not the modifications discussed are going to make it into law.

But I will say that there's nothing sacrosanct about the Ellis Act, and it can be amended or even repealed if enough people want to, and if it does, those that think "property rights will trump tenant rights because of the Ellis act" are going to be shocked that their world view doesn't comport with the reality of living in a democracy.

The folks asserting that "rent control is the original problem", are either being dishonest or silly. Or maybe I don't understand what's being implicitly referred to as the problem.

Rent control is a response to the fact that back when it was proposed and passed in the late 1970's, rents were advancing significantly faster than the ability of S.F. tenants to pay higher rents. If you ask most people who aren't landlords or libertarian economists, my guess is that's what they'd call the original problem.

And there's nothing specific to S.F. about this, there are all kinds of other places in California and indeed the nation where the same thing took place and there are all kinds of cities in California that have rent control of one kind or another.

So "the original problem" was with the job market creating and sustaining a majority of jobs that didn't pay what it took to live here, or at least didn't support a trajectory of rising income (e.g., raises) over time that came even close to the rising trajectory of rents.

But since libertarians and market fundamentalists think that the marketplace is perfect, they can't accept that explanation as the proximate cause of rent control, so they have to go around asserting that rent control came out of nowhere so they can blame it as "the original problem".

If they want to say that rent control results in inefficient market outcomes or depresses new investment by landlords, or that there's very little evidence that rent control is a good public policy, they should by all means do so.

But they can't claim that there was no preexisting motivation for rent control when there was; that's just a historical fact.

Posted by: Brahma (incensed renter) at November 14, 2013 11:52 AM

None of this will fly at the state level.

They're throwing phantom punches and it would be entertaining if it weren't done using OPM.

Why are our taxes being used for such a ridiculous purpose?

Posted by: lol at November 14, 2013 11:52 AM

Rent control is a response to the fact that back when it was proposed and passed in the late 1970's, rents were advancing significantly faster than the ability of S.F. tenants to pay higher rents. If you ask most people who aren't landlords or libertarian economists, my guess is that's what they'd call the original problem.

Um, this is an impossibility. Or at the very least something that would have corrected itself rather quickly. If rents were increasing faster than the ability of the folks available to pay them, then rent increases would stop or the units would remain vacant. In the latter case, landlords would have then had to lower rents in order to fill their units.

Now...if the "problem" is that turnover was happening - eg new folks able to pay the rents were moving into the city and folks not able to pay were having to look for other places, well, that's not a problem. That's how markets are supposed to work.

If we wanted to ensure that no new people were allowed to move into the city, the correct fix should have been simply handing them cash subsidies to use for rent, and in large enough amounts to allow them to overbid new entrants.

I don't know why we would want such a discriminatory policy though. New entrants are good for the city, IMO.

Posted by: anon at November 14, 2013 11:57 AM

And Brahma,

Yeah, the 70s. I recall the bell bottomed pants, the haircuts.

Rent control should have died along with disco.

Posted by: lol at November 14, 2013 11:58 AM

"there's nothing sacrosanct about the Ellis Act, and it can be amended or even repealed if enough people want to"

The Ellis Act is state law, which preempts city or county laws. It can certainly be amended, but only at state or higher level. It provides some allowance for city restrictions, but certainly not something that would effective eliminate the viability of the Act.

Of course there's also nothing sacrosanct about rent control, and it can also be amended or repealed, but can also be eliminated at the state level.

Posted by: lyqwyd at November 14, 2013 12:04 PM

rent control ... can also be eliminated at the state level

I think it's the only reasonable way out of this dead end situation.

Posted by: lol at November 14, 2013 12:07 PM

Anon, I completely agree that neoclassical economics says that rents increasing faster than the ability of tenants to pay them is impossible.

But in the real world, it is.

Posted by: Brahma (incensed renter) at November 14, 2013 12:08 PM

The Ellis Act is state law, which preempts city or county laws. It can certainly be amended, but only at state or higher level.

I'm aware of that and indeed assumed it.

The sfgate article referred to was discussing amendments at the state level.

Posted by: Brahma (incensed renter) at November 14, 2013 12:10 PM

Ellis is state law but local jurisdiction dictates certain nuances like relo payment/benefit.

Posted by: jam at November 14, 2013 12:15 PM

How about the Ellis Act is repealed when RC becomes illegal in CA?

If this is really about protecting tenants to stay in their homes or allow them to pay way less than they're supposed to?

Posted by: lol at November 14, 2013 12:18 PM

"Anon, I completely agree that neoclassical economics says that rents increasing faster than the ability of tenants to pay them is impossible.

But in the real world, it is."

Actually it's not, given that rents are continuing to climb, and people are paying to live in those spaces.

Perhaps your misunderstanding is that it does not say that all tenants will be able to pay. Some people will have to find less expensive areas to live, and then those that can afford the higher rents will take over those apartments.

Posted by: lyqwyd at November 14, 2013 12:20 PM

Yes, it's a geographical redistribution of the population. The wealthy fled for the 'burbs 60 years ago. Now they're coming back.

Posted by: lol at November 14, 2013 12:24 PM

From the SF gate article:

"116 evictions under the law from March 2012 to February 2013, the most recent figures available in a recent city audit. It's far below the high of 384 such evictions in 2000 at the height of the dot-com bubble"

Wow, these numbers are trivial, and they are proposing declaring a "state of emergency".

Talk about a mountain out of a molehill.

Posted by: lyqwyd at November 14, 2013 12:44 PM

They are acting as if any landlord can really get away with only paying what is legally required under the Ellis Act.

Expect a minimum of $30-50K per apartment and 2-3 years of legal wrangling.

You see there are Dr's lined up by lawyers who will gladly write a letter stating you are disabled because of 'high blood pressure, neck pain, anxiety, etc.' That is enough to get the higher payment because the law doesn't give specifics.

Expect the legal move out dates of the Ellis Act to be ignored. Expect to be sued for random bullshit in an attempt to get your insurance to pay to make it go away. Expect the tenants to delay when they are available to meet for arbitration. Expect them to make ridiculous demands and end up with years of rent free living because you can't charge rent once they are supposed to have moved out or the Ellis Act gets voided.

The whole system is already broken. I almost think whatever they come up with will be cheaper and easier than it is currently.

Posted by: gribble at November 14, 2013 1:04 PM

Back in the 1970's, prices on just about everything were increasing too fast. That's called high inflation. When President Nixon put price controls in place, a disaster ensued. They failed miserably and didn't stop or slow down inflation.

But I guess San Franciscans thought they had the answer and decided to control rents. Well, it's a disaster too, and it should be unconstitutional since it takes property rights away from the property owner. I hate high rent too, but I always rented (or bought) what I could afford throughout my life, even if that meant I had to live in a cheaper locale. That is called living within your means. And not expecting a property owner to give you free rent, because that's what he us doing with rent control.

Posted by: MoneyMan at November 14, 2013 1:05 PM

400 Ellis Evictions in 2000
300 Ellis evictions in 2005
200 Ellis evictions in 2009
116 Ellis evictions in 2013

Wow, we have a crisis.

Posted by: Mickey at November 14, 2013 1:07 PM

The latest developments are that the moratorium on TIC conversions are creating a buzz, at least the people I talked to around me. I don't know if it is reflected into an actual surge in actual Ellis evictions procedures, but the fear is there of a huge backlash by fed up landlords.

Fear is all what's needed to panic the massed.

Posted by: lol at November 14, 2013 1:32 PM

That was "masses" and not "massed". I wouldn't dare to start an architectural debate...

Posted by: lol at November 14, 2013 1:37 PM

But in the real world, it is.

Please explain how rents can rise faster than the amounts that people are willing to pay for rents. That is an absolute impossibility, since every transaction requires a buyer and a seller.

Posted by: anon at November 14, 2013 1:40 PM

Rent control doesn't need to be abolished, it just needs to be made reasonable. What we have now is not rent control, it's rent fixing. Controlled rents are not even allowed to keep up with inflation.

Unfortunately it looks like the only way we will get rid of the current extremist rent control is by waiting until all pre-1980 rental properties are either Ellis Acted or collapse in the next large earthquake because the landlords couldn't afford to retrofit them.

Posted by: formidable doer of the nasty at November 14, 2013 1:43 PM

anon and Brahma,

Both of you are right, each in their own way.

The missing dimension is geography.

When looked with only the 7X7 in mind, Brahma is correct that rents can increase by much more than what the locals can afford.

But overall average rents should not increase by more than average incomes, when the country is taken as a whole.

The issue is simply that we are witnessing a reversal of the flight to the 'burbs. The rich and educated move to SF. The less affluent who are lucky enough to be there already are resisting because it ultimately means they'll be bought out or kicked out.

Posted by: lol at November 14, 2013 1:51 PM

@lol - I'm not even talking about now, but back in the 70s when suburban flight was in full swing. It is impossible that rents could be rising faster than willing renters for any sustained period of time, unless landlords are just going to let all units go empty and not fill them, which um, seems unlikely.

Posted by: anon at November 14, 2013 1:58 PM

Exactly. The case for rent control is not that it's good for tenants, it's that it's good for *existing* tenants. The fact that it screws recent and prospective tenants is the last thing on the supporters' minds.

Do you really think Brahma gives a carp about new tenants? Of course not, it's all "I got mine so the rest of you can go to hell".

Posted by: formidable doer of the nasty at November 14, 2013 2:07 PM

Yeah, the "everyone's welcome" mantra that brought all these people to SF in the 60s and 70s has become "hey stay right there where you are sir".

Posted by: lol at November 14, 2013 2:21 PM

@brahma, the sfgate article talks about proposed San Francisco specific Ellis Act exemptions and corollaries. It is city level stuff.

If the city wants landlords to comply with this socialist stuff, then the city should offer property tax breaks to the landlords. There are already plenty of barriers and repercussions to Ellis Act implementation. And yes, 116 from march 2012 thu feb 2013 is small potatoes. Enough with the "skyrocketing" type language from sfgate, too.

Posted by: Truth at November 14, 2013 2:48 PM

What is conspicuously absent from all discussion at the mayor’s office and board of supervisors is uncomfortable fact that prior to Rent Control, and other onerous legislation limiting construction and reasonable use of one owns real estate - our beloved city had plenty of housing at affordable rents and purchase prices. Factually most of San Francisco residential building construction was build – yes prior to 1979.

Certainly a majority can amend the law and change or even eliminate the Ellis Act, this is not effortless but does not require much work and its passage will not result in any additional housing or lower prices.

I am beginning to suspect that politicians love to address emotionally charged issues they can easily market to mathematically illiterate constituents. However we the minority home owners, renters, voters and anyone who understand how basic arithmetic applies to real life intuitively understand that Ellis Act is only a symptom of a larger problem.

We can proclaim David Campos a communist and Mayor Lee other insults but politicians will act of constraints and their rhetoric means nothing. I truly believe that both mayor and board of supervisors and all the Ellis Act using developers all want the same thing a stable housing market. It’s just they all have different means of getting there. Anyone reflecting on history both political and economic and yes they travel together will painfully learn the iron laws of supply and demand and conclusion that price controls with all its good intentions only lead to Ellis Act type behavior or it’s thousands of uncles and cousins.

Posted by: temporary shortage at November 14, 2013 3:24 PM

Any property owner with half a brain and a building with below-market rents should begin an Ellis Act TODAY (if it makes economic sense for them) - as any new proposals will likely go into force on the day of the proposal, and NOT the day of enactment.

And they WILL be enacted. In a city in which 65% of the voters are tenants, any politician can be a hero if they pass a law allowing the clubbing of baby seals, as long as the title of that law is "The Tenants' Rights Strengthening Act".

And it would be amusingly karmic if the response to these current trial balloons being floated would be 50,000 units being Ellis Acted tomorrow, as opposed to the 113 units being Ellis Acted in the last year.

Posted by: jeremy at November 14, 2013 4:27 PM

Now that the condo conversion lottery is suspended there is no incentive not to Ellis your building anymore. Amazing the BoS didn't see that in intended consequence.

The reason Ellis evictions dropped in 2006 was due to Ellised buildings being barred from condo converting. That was the "carrot" for building owners. Now that carrot is gone (in the name of "preserving affordable rental stock") expect Ellis evictions to skyrocket again and get sold off as never-to-be-converted TICs.

Owners now have an even bigger incentive to get moving with more restrictive legislation looming. Who votes for these morons?

Posted by: SF owner at November 14, 2013 5:28 PM

What I don't get is how Campos can justify punishing regular buyouts (not just OMI or Ellis related ones). If a long term (or short term) tenant of mine is happy to receive $50,000 to move and I am happy pay them $50,000 (and happy to have them stay if they don't want a buyout), how can it be justifiable to punish me after the mutually agreed to buyout?

Posted by: boggled at November 14, 2013 5:40 PM

Campos cannot. There is no earthly way that will fly. A lot of this stuff is truly looking, like, star chamber/ politburo in nature. "It's only an honest buyout if we say it is." Or, only landlords who we deem to be upstanding can utilize the Ellis Act." That is the kind if stuff they're talking about. Ca-RA--Zee. To combat this dangerous thinking, the paltry 116 Ellis Act evictions early 2012-2013 count cannot be emphasized enough.

Posted by: Truth at November 14, 2013 8:03 PM

Campos can do that because "mutual agreement" sounds suspiciously like something you'd do in a free market. We obviously can't have that in the People's Republic of San Francisco.

Posted by: formidable doer of the nasty at November 14, 2013 8:42 PM

it's called AirBnB. Landlords won't do long-term rentals anymore and will just turn to AirBnB. In the long run, you'll probably make more using AirBnB even if you use a third party manager. At least this way you'll have control over your property.

Posted by: oscar at November 14, 2013 9:07 PM

These guys sure haven't been complaining lately about the boom in property tax money that has come pouring in from TIC sales and building flips due to the surge of tech money. Or the "new" residents who can afford the $4 toast (and tax that comes with it). They spend freely, fix nothing. And then have the audacity to come back with this crap.

Agree with most comments - they started this chain reaction one law after another to protect those who got here first. They won't get this passed but if they did, they would move to tax the hell out of AirBnB next to close off the next act of supply and demand.

These guys are idiots simply feeding off the headline of the day. Thank god for the courts but why waste our tax dollars?

Posted by: wcsf at November 15, 2013 7:32 AM

I am definitely considering moving one of my units to permanent 4 week and under airBnb rentals, to test that market.

Posted by: Jack at November 15, 2013 7:32 AM

I do 1 to 3 months. You get tech bus people relocating. No sticky tenants. Shorter term is an hassle for me.

Posted by: lol at November 15, 2013 7:52 AM

"Why are our taxes being used for such a ridiculous purpose?"

The BoS has basically found a free source of campaign funds. Since the majority of the electorate are renters, any grandstanding that appears to protect or otherwise benefit tenants will improve chances of re-election. It doesn't matter whether this legislation is successful or not. Either way the sponsors will come off as the champion of tenants: the majority of their voting base. Defense of flawed legislation comes out of the city's general fund.

The same strategy is often employed on other popular but dead-wrong initiatives. All you need is a self-interested and/or ignorant electorate open to pandering.

Posted by: The Milkshake of Despair at November 15, 2013 8:43 AM

So much talk about putting units up on AirBnB; at what point does the supply in that specific marketplace start to drive prices down?

Posted by: Mr. E. at November 15, 2013 8:53 AM

With respect to AirBnB, keep in mind that according to San Francisco Administrative Code Chapter 41A, it is "unlawful for any owner to offer an apartment unit for rent for tourist or transient use," defined as "occupancy for less than a 30-day term of tenancy" with potential civil penalties of up to $1,000 per day.

Posted by: SocketSite at November 15, 2013 9:00 AM

Yes, "SocketSite". That was the reason why I decided to do 1 to 3 months. Enough to stay within the law, not too long though, because long term rates are closer to regular rentals. Also a 3 months period allows me to say: I am coming back. I bring my suitcase, stay one week, then move on to the new tenant.

There are a lot of hoops to go through in the SF rental alternate reality. There's no secret formula. All these hoops make the market more expensive, therefore it is worth it.

Posted by: lol at November 15, 2013 9:17 AM

Trying to regulate tenant buyouts won't work. How would the city know, if a tenant and LL have an agreement? Yeah, they can try and make it a technicality, but there are lots of silly rules broken all the time. The key is to make sure your tenant really wants the buy out. Even now, tenants can change their minds on a buy out, and you can't force them out. So besides pandering to renters, this stuff is not serious, not to mention that it will get over turned in state court. This is just scare tactics by desperate politicians trying to look good. Pathetic.

Posted by: poor.ass.millionaire (formerly 49yo hipster) at November 15, 2013 9:30 AM

It is this kind of BS that influenced me to sell my SFH in Noe Valley last month rather than try to hold it and rent it out. I am out.

Posted by: sanfrantim at November 15, 2013 11:58 AM

I love it when people rail against rent control, as they seem to believe it will solve all of our housing ills. It won't.

Removing rent control would basically flush out everyone from the city who can't afford to pay $3,200 a month in average rent. Which, honestly, is most people, regardless of their job.

So basically by killing rent control, you'd have a city filled with nothing highly-paid tech workers, lawyers and finance types. And if that happens, you can kiss your cultural diversity goodbye, as well as anything that's left that makes this a great cultural city.

Posted by: Gregg at November 15, 2013 12:12 PM

Getting rid of rent control will not solve all the housing ills. But getting rid of the Ellis Act does nothing to help make housing more affordable either. It just preserves the windfall of those long term tenets that are lucky enough to be benefitting from rent control (regardless of if they need the benefit or not).

Also rent control is not helping to attract cultural diversity to the city, it just calcifies a past version of it.

Posted by: Rillion at November 15, 2013 12:22 PM

Gregg, you're wrong about that.

It is true that ending rent control would result in rent increases for a substantial number of rent-controlled long-term tenants. Many can pay and would. And many would be forced out.

But the resulting large number of vacancies would drive down rents pretty substantially for all rental units - basic supply and demand (demand would stay the same but the supply would dramatically increase). So the new tenants would not be paying nearly as much as they are forced to cough up under rent control.

More important, it would result in the rental housing stock getting fixed up as landlords would have an incentive to do so (i.e. get higher rents). I am astounded by the hovels people in SF are willing to live in just because landlords can get away with it.

Savvy landlords know that the artificial restrictions on supply caused by rent control permit them to jack up rents and then spend nothing on maintenance once the tenant is in because there is no way the rent-controlled tenant will complain and leave. Amazing that the tenants union-types do all this work to favor the SF landlords!

Posted by: anon at November 15, 2013 12:24 PM

^lol

Gregg,

This population wouldn't be close to enough to fill all the newly available housing units in SF.

What landlords hate more than receiving low rent is receiving NO rent.

Therefore they'd have to lower their expectations to fit to what locals can afford.

The conclusion: market rent would fall without rent control. As everything is connected, sale prices would fall too. I think average market rent would fall 20 to 30%.

Yes we'd lose 1000s of people who didn't need to develop the correct marketable skills to survive in an expensive City, but the middle class would be able to rent, buy and simply move around freely in SF.

Rent control was designed for all the right reasons, but it has become a destructive force on too many levels.

Posted by: lol at November 15, 2013 12:25 PM

Please explain how rents can rise faster than the amounts that people are willing to pay for rents. That is an absolute impossibility, since every transaction requires a buyer and a seller.
Please spare me the didactic econotrolling, anon.

I didn't write that "rents can rise faster than the amounts" that any imaginable tenant is "willing to pay for rent". You should have saved the effort of setting up that strawman.

Posted by: Brahma (incensed renter) at November 15, 2013 1:02 PM

"It is impossible that rents could be rising faster than willing renters for any sustained period of time, unless landlords are just going to let all units go empty and not fill them, which um, seems unlikely."

If libertarian types persist in ignoring political realities they just look stupid. 'Um' (even with irony) doesn't change the stupidity of the statement.

It is not an issue of the pure flow of capital that the 'free market' ideology assumes. It is a regulated market in which the majority of voters are renters. If you cannot process the fact you live in a democracy, I dunno. Try therapy?

In any case, successful policy requires an ability to grasp reality - as a start.

Posted by: lark at November 15, 2013 1:16 PM

formidable doer of the nasty wrote:

Do you really think Brahma gives a carp about new tenants? Of course not, it's all "I got mine so the rest of you can go to hell".

One way you can tell someone doesn't have a very defensible position is that they go for the personal attacks right away.

It's not a matter of whether or not I care about new tenants now, we were discussing the state of affairs in the 1970's when rent control first passed. And at that time, I wasn't of voting age, so I wasn't in a position to vote against the interests of hypothetical new tenants that can afford higher rents than I could.

But that said, I wholeheartedly agree that describing those who, at the time, wanted to remedy the market failure of rents rising faster than household incomes via rent control as having the attitude that new tenants "…can go to hell" because it casts those in favor of rent control as being unwelcoming to newcomers and intolerant.

That's effective political rhetoric and it also has the nice side effect of removing the landlord or the job market's failure to keep up with the rental market from the conversation. Nice!

That's much more saleable than what anon wrote at 11:57 AM:

…if the "problem" is that turnover was happening — eg new folks able to pay the rents were moving into the city and folks not able to pay were having to look for other places, well, that's not a problem. That's how markets are supposed to work.

Emphasis mine.

I think the average longtime San Franciscan would disagree with the "that's not a problem" part of this, regardless of their level of understanding of "how markets are supposed to work". And that's independent of what Brahma thinks about the matter.

Posted by: Brahma (incensed renter) at November 15, 2013 1:44 PM

BTW, the State Supreme Court has actually recently said that "municipal affairs" are under the purview of local jurisdictions, at least when. and frankly what is more of a municipal affair than land use and protection of a city's residents. now no one has tested it with respect to land use (the case was about compliance with prevailing wages on local projects) but the logic still holds.

Posted by: MossyBuddha at November 15, 2013 1:46 PM

lyqwyd quoted this, from the SF gate piece: "116 evictions under the law from March 2012 to February 2013, the most recent figures available in a recent city audit. It's far below the high of 384 such evictions in 2000 at the height of the dot-com bubble" and followed it by pooh-poohing the number of evictions as "trivial".

Here's my thing: If the 2000-era was indeed a bubble, which the authors come out and admit in the very next sentence, then why in the world would you compare the number of evictions happening over the past three years, to that period? A bubble by definition is a condition that is unsustainable and therefore anomalous.

I don't expect high-level social science from newspaper reporters, but it seems obvious to me that what the reporters should have done, at the bare minimum, is compare that number of evictions to the historical mean.

Even better would have been to figure out what the number of evictions in the past three years is as a percentage of tenant households, and then compare that percentage to what the historical average number of evictions is as a percentage of tenant households.

Once you have that, you can decide whether we're talking about a "state of emergency" or lyqwyd is correct that they're making "a mountain out of a molehill".

Posted by: Brahma (incensed renter) at November 15, 2013 2:07 PM

@Brahma:

market failure of rents rising faster than household incomes

"Market failure" has a specific definition that does match your usage. You usage is something more akin to "not the way we'd like things to be".

Posted by: anon at November 15, 2013 2:12 PM

@Brahma, if you'd like to see what the term "market failure" actually means, go ahead and click my name.

The market was actually functioning exactly as it should. You (and others) may not like that, and it's fine if you want to distort the market (there are certainly legitimate reasons to distort markets, many of which I agree with), but to call it a market failure is simply ignorant.

Posted by: anon at November 15, 2013 2:17 PM

So the way to counter a personal attack is to make one of your own, eh Brahma? The high ground has more vacancies than the SF housing market.

No, I wasn't trying to sugarcoat it, but my translation of your position in favor of rent control is apt, unlike your assertion that my position is not defensible. My position, by the way, is that rent control needs to be relaxed, not abolished. I base that on what I think is fair to both landlords and tenants, current AND prospective.

Here's a proposal I've made before - it's simplistic but it's a starting point: Allow rent increases up to a maximum of, say, 10%. Require a notification period of one month per %-point increase, i.e. 3 months for 3%, 10 months for 10%, etc. After an increase, no new notification for 9 months. This gives any tenant sufficient time to make adjustments to their situation.

Tenants should NOT be entitled to a perpetually decreasing rent in real terms, which is what they have today because the allowable annual increase is always less than the inflation rate. That is unfair to landlords and it is unfair to new tenants whose rents are inflated because landlords need to charge a substantial risk premium to protect their investment.

You claim fairness is your concern too, but nothing about your position is fair. You want to maximize the benefits of existing tenants, i.e. yourself and others like you. Everybody else can get screwed for all you care.

There you have it. Clear enough?

Posted by: formidable doer of the nasty at November 15, 2013 2:19 PM

Yeah, the 70s. I recall the bell bottomed pants, the haircuts.

Rent control should have died along with disco.

It did. Or at least it's dead now, even if it's demise didn't coincide with the decrease in popularity of disco music.

In case you haven't been following the news, in 1995 a state-level bill called the Costa-Hawkins Rental Housing Act became law, so (among other things) no housing constructed after it became law can become subject to rent control (And btw, this was the same year that Massachusetts voters abolished rent control in a stand-alone referendum).

As they say, "It's all over but the shoutin'".

Posted by: Brahma (incensed renter) at November 15, 2013 2:46 PM

Come on people, stop bashing disco, and its not dead btw, rumor is ABBA may even reunite for a concert!

Posted by: Rillion at November 15, 2013 4:30 PM

lol wrote:

The conclusion: market rent would fall without rent control. As everything is connected, sale prices would fall too. I think average market rent would fall 20 to 30%.
And how long are you projecting that it would take to reach that state of rental rates falling 20 to 30%, lol?

We had one real world experiment in removing rent control, when Massachusetts voters abolished rent control in a state-wide referendum as I referred to above. And rents went…up 30% in Boston, Brookline and Cambridge and any other city comparable to S.F. as far as I can see, and within an 18-to-24 month time frame, if I remember correctly and haven't fallen since.

I'm drawing that conclusion not because I am a tenant and am arguing in favor of my personal pecuniary interests (like some on the other side here are), but from this paper:
Sims, David P., "Out of Control: What can we learn from the end of Massachusetts rent control?," Journal of Economics, 2007, 61(1), 129-151.

I read this on dead trees a while ago, but you can probably find it via a judicious application ofgoogle scholar.

Now, if you read this and the other academic literature in economics on this event, economists seize on to the fact that the quality and amenities available to the median tenant in the aforementioned cities have improved over that time period. This is the effect anon's getting at when he says "…it would result in the rental housing stock getting fixed up as landlords would have an incentive to do so (i.e. get higher rents)" but I don't think that part is controversial.

But everyone agrees that rents haven't gone down, and certainly haven't gone down 20 to 30%.

Posted by: Brahma (incensed renter) at November 15, 2013 6:08 PM

Brahma,

You are being a bit disingenuous. You are fogging the debate by knowingly NOT making the difference between Effective rents and Market rents.

Yes rents went up in MS. Actual overall rents. But market rents went down (what I say will happen).

That's the whole point: having one market where everyone is on an equal footing. People who have a distorted LOW rent see an increase. People who have a distorted HIGH rent see a decrease.

Posted by: lol at November 15, 2013 6:23 PM

To keep it simple:

Yes the purpose of ending rent control would be to have tenants paying low rent to pay more rent. But it will have the benefit to lower market rents for recent tenants.

But having your own rent controlled apartment already, you are not on the market for a rental. You probably care only about your type of situation.

Posted by: lol at November 15, 2013 6:32 PM

Oh geez, Brahma, no one is claiming that rents will go down 20-30%, but rather that market rents will - in other words, what you can rent a new apartment at. You're correct that the dude who has lived in his place for 30 years and is renting a 2000 sq ft flat in Pac Heights for $700 a month is not going to see a decrease. In fact, he'll likely see a 500% or more increase. That doesn't at all invalidate what we're talking about here.

But yes, as lol mentions you seem to have a drawbridge mentality - "All full here, move along".

Posted by: anon at November 15, 2013 6:41 PM

"economists seize on to the fact that the quality and amenities available to the median tenant in the aforementioned cities have improved over that time period. "

I don't completely agree with the definition of market failure that anon linked to, but even for that definition of a market failing (i.e. because a Pareto optimal outcome is unable to occur) you touch upon a market failure here.

A tenant may be perfectly happy renting a lower quality unit for a lower price. Their landlord also may be perfectly happy to accept less rent than a constantly updated high quality apartment would rent for in return for not spending the money to update and maintain the unit to high quality standards.

Removing rent control could seem to force some tenants into higher quality units than they need or want to pay for and correspondingly make their landlords spend money they would rather not spend.

But if you look deeper at this it's obvious that the "market failure" is due to an effective minimum quality level enforced by regulations and the legal climate. Currently with rent control, as someone pointed out above, tenants are unlikely to complain about a unit being in less than market rate quality so a market can operate at that lower quality level.

So the real solution here is not to keep rent control, but to realize that whenever you impose a minimum quality standard you are preventing transactions from occurring between a willing buyer and seller below that quality level.

As an example from the other thread, if you don't allow units without kitchens to be built, you are forcing some set of people to pay for kitchens that they don't want.

Posted by: anon2 at November 15, 2013 6:47 PM

Did market rents go down in Boston when they ended rent control? How much did they go down?

Posted by: NoeValleyJim at November 15, 2013 8:20 PM

Nope. Rents went up, according to The Economist in '98: http://www.economist.com/node/161526

Posted by: Don Coyote at November 15, 2013 9:13 PM

^ Rents went up for previously rent controlled units and for never rent controlled units. Also, investment in rental property went up. And evictions spiked in the first years after the end of rent control.

NEBR published a detailed study of the effects of the end of rent control in Cambridge (NEBR's one page summary at namelink).

From the summary:

abolishing rent control added about $1.8 billion to the value of Cambridge's housing stock between 1994 and 2004, nearly a quarter of Cambridge's total residential price appreciation in this period. Nearly $1 billion of this increase came from the positive spillover impact of decontrol on the valuation of residential properties that were not previously covered by rent control.

Posted by: Jake at November 15, 2013 10:01 PM

Sounds like it must have been a minuscule amount of units under rent control, with a ten year increase that small (in dollar amounts and in percentage of overall city housing stock increase).

Also, how did the rent control work there previously? Same as SF, or more like some of the lesser versions of rent control once common on the east coast?

Posted by: anon at November 15, 2013 10:53 PM

One thing rent control advocates forget to mention is that rent control is de facto in contradiction with the principles of equality.

Take 2 citizen A and B. Both work in the same occupation, make the same money, have the same age.

Citizen A started his current lease in 1980
Citizen B started his current lease in 2012

Both live in San Francisco in the same building, on the same floor, mirror floorplans.

Now a working rental market would want to have these 2 citizen to pay similar amounts. But in fact Citizen A probably pays a fraction of what Citizen B is paying. This is not the landlord's choice but a direct effect of rent control laws.

What this means is that some people have access to low rent. Just like family members of unionized workers often have more access to union jobs with the better benefits than the rest of us.

This is deeply unjust and contrary to some core values of our nation. Equal opportunity anyone? The money saved by Citizen A can help put his kids through college, while Citizen B can't.

This "social justice" system can have 2 people in the very same socio-economical layer, being offered 2 different opportunities based on an time criteria.

One comparison we could make is the fact that 2 home home owners can have 2 very different mortgages for a similar house on the same street. And this is perfectly normal. Purchasing allows you to choose to buy at a low or high price. But renting should not give you the privilege of right-timing.

Which confirms what has been said a few times here: rent control is a form of ownership, even if it can be temporary.

Posted by: lol at November 15, 2013 11:01 PM

They are not the same. A has been very stable (or NIMBY according to most posters here). Has no0t offended anyone too much or is an incredible D bag and the Land lord is frightened of him.

B is a Nicky new kid in the building. Same age but maybe has been a wanderer or just plain flighty and has never settled down and created a niche for himself.

what is wrong with luck or serendipity?

Posted by: contraian at November 16, 2013 9:09 AM

Contrarian,

It's very reassuring to qualify a new tenant as "wanderer" which implies that he gets what he deserves in your book. Judgemental much?

Reality is much more complex. And our democracy is blind to color, origins, education. There is no justification for treating tenant B differently from tenant A.

Rent control failed tenant B who has to overpay so that tenant A can keep his acquired privilege.

Posted by: lol at November 16, 2013 3:15 PM

Sure 65% of residents in SF are tenants. But 65% of tenants are not under rent control. I don't know the exact figures but all or most buildings built after 1979 are not under the most stringent form of rent control in SF.

Tenants living in newer buildings will not benefit from any changes in the laws..that is unless the politicians attempt to move the goal post and include all housing stock built after 1979.

That's what happened to owners of two unit building sometime in 1996-97. They awoke one morning after a election to find they were now in a choke hold by their tenant. Most two unit buildings were owned by small mom and pop landlords. That began the wave of landlords holding units off the market and keeping them empty and placed a squeeze on rental stock. It is said that there are 11,000 empty units in SF. I tend to believe that number is smaller since rents have escalated to where they are today.

If the politicians were to attempt to move the goal post again and make all residential units in the city fall under stricter rent control like they did to the smaller landlords years ago the building, development and banking community would bring residential development to a halt in SF. Game over, financing for new residential rentals would come to a end.

Now if Compos is elected to Tom Ammiano's assemble seat he will attempt to modify or repeal the Ellis act. Tom and Mark Leno gave it whirl and it got no traction, Compos will try again. You can take that to the bank.

But if Compos were successful at a repeal I would guess the whole mess would end up in court again and the court would make the same findings as before. The purpose of the Ellis act is to allow a landlord to go out of the landlord business. It's a relief valve for landlords. Without it landlords and stuck in servitude to their tenants for life.

The California Supreme court ruled SF has a right to control "it's rental stock with duly enacted local laws". But it also gave landlords the right to get out of the business.

I don't see the court reversing it's decision....

I think most of these tenant crisis stories are made to seem worst than reality to give politicians a platform to yell fire in a crowed theater. IMHO it's mostly smoke and little fire. But it always makes for good reading.

Posted by: Keepitup at November 16, 2013 8:02 PM

All condos and single-family houses are also outside of rent control - regardless of when they were built.

One problem is that most tenants in non-RC units do not realize they are not rent-controlled.

Posted by: anon at November 18, 2013 7:47 AM

^

1- very unlikely post 1979 will become rent controlled. That is a tenant of the state law Ellis act.

2- up until now, most rental ordinances passed in SF that interfered with the Ellis act were simply nulled in appeals court. But now, campos is working with state legislatures to modify the Ellis act to give local governments more flexibility on its enforcement. Any changes would need state approval. But if that happends, then the Ellis act will become more onerous in SF, I'm sure.

But the thing I'm most troubled with is campos trying to make private tenant buy outs defined legally as evictions, and that the units could not legally be rented in the future at market rents. That is invasive, not to mention legally dubious. I hope that notion crashes and burns.

So in relative terms, mayor lee's "competing" proposals would probably be "less bad" than the politburo type acts campos is proposing.

If any changes in Ellis acts do in fact become law (increasing the payments, adding hearings or required city "permits", etc.) then I am sure that will add value to existing tics and condos (and SFH by default), as tics will be much harder to create. Condo conversions (with the exception of 2 units, owner occupied) already are becoming white elephants with the recently passed condo conversion/lottery freeze laws.

So if you own, or plan to own soon in SF, all these shenanigans will put a tailwind on your property's future value. Market distortions create value, if you understand their implications properly. What else is new in the way this city handles it's RE affairs?

Posted by: poor.ass.millionaire (formerly 49yo hipster) at November 18, 2013 7:56 AM

lol wrote:

But having your own rent controlled apartment already, you are not on the market for a rental. You probably care only about your type of situation.

Hah! Nice attempt at a personal attack.

But it won't work. Did you not read this? I think you did and just forgot about it. I'm not arguing in my personal interest, but you are.

If you're trying to deflect attention to your own avarice, nice try.

Posted by: Brahma (incensed renter) at November 18, 2013 7:46 PM

Brahma,

Point taken, I need to keep a database of who said what 2 years ago like some did with fluj 6 years ago.

Avarice?

If that were true I would be joining HJTA fighting for the preservation of prop 13 because they make my property more rare and therefore more valuable. The same goes for rent control, because rent control makes airbnb a winning proposition in SF. Why rent to a tenant who could sink me financially 10 years from now, in a unit you can only go back once (OMIs), and who probably considers me as an "avare".

Why would I want to end the frozen clusterfudge we have today for a system where rentals and property would flow more easily? After all, I am ahead by 1000s a month thanks to the shortsightedness of a very successful activists (The THANK YOU note is in the mail by the way).

But nope. I could be like a few on this site who will say "I got mine, you can't get yours".

But I won't. I have been there before.

Without the help from previous generations I would be nowhere close to where I am today. Therefore I will NOT step on someone's knuckles to make him fall from the ladder. Rent control advocates are basically doing this, under the pretense of helping the needy.

Posted by: lol at November 19, 2013 9:27 AM

"Therefore I will NOT step on someone's knuckles to make him fall from the ladder."

Chaos is a ladder. Many who try to climb it fail and never get to try again. The fall breaks them. And some are given a chance to climb, but they refuse. They cling to the city, or their jobs, or love. Illusions. Only the ladder is real. The climb is all there is.

Posted by: Rillion at November 19, 2013 10:13 AM

Rillion,

I think everyone in the US has the ladder in front of them several times in their lives. Some get to see it once and it's gone. Others have multiple chances. A few make the ladder reappear just through pure will.

Rent control advocates got on the top of a ladder that they didn't even get to climb. It just grew from under their feet. If they failed all the other ladders, they'll fight really hard to stay on that one.

Posted by: lol at November 19, 2013 10:54 AM

restricting condo conversion from TIC's, from now for ten years, or forever is the cause of increased Ellis Acts. Duh - now that whether it is a four or a forty unit building, neither can ever become condos, it makes more sense to buy one 40 unit building and TIC it than a 4 unit, which might, someday and maybe soon, become 4 condos, which was the case until recently. As long as they try to over-regulate apts, and do so unfairly, there will be legal ways developer will take units off the market. If tenants union really wanted to be fair, and increase available units for those in need, they would support "means testing", ie, making sure those who have rent controlled units, are in a vulnerable, needy group. and making sure they prove this annually, ie, simple to just send in tax return annually. But, the TU supports those who were here first and no one else matters much. You can be making $300K/year, or have $3M elsewhere, or own other real estate, no matter, you can keep your rent controlled apt you have had since 1970. The system is broken and the anti-property solutions are backfiring.

Posted by: rAY at December 19, 2013 8:21 PM

Posted by: SocketSite at January 3, 2014 8:49 AM

Mayor Lee is hurting small property owners and transferring wealth to his big landlord friends like Jay Paul, Shorenstein etc. They continue to build and control new non-rent control buildings with unrestricted rents while small property owners subsidize the remaining population.

Posted by: theHitman at January 3, 2014 10:51 AM

Has anyone considered that rent control effectively encourages tenants to stay put for decades, which leads to having less residential inventory in the city, which leads to higher prices because there isn't enough supply. So the very thing that rent control was meant to fix...keeping rents lower, is actually contributing to making rents higher! To top it off, the long term rent controlled tenant benefits from lower rent irrespective of what their income may be...so even though they can afford to pay more, they don't have to. Rent control has not achieved its intended goal which was to make housing affordable to lower income residents. Instead, it has become a subsidy for rich residents at the expense of landlords while constructing housing supply and increasing rents for everyone else!!! In the end, rent control is not a sustainable approach to housing policy.

Posted by: L at January 8, 2014 12:48 AM

^Wowzers, yup, no one here has thought of those things!

Posted by: anon at January 8, 2014 7:08 AM

Noted hardcore libertarian and defender of laissez faire economics Professor Paul Krugman* came to a similar conclusion:

http://www.nytimes.com/2000/06/07/opinion/reckonings-a-rent-affair.html

*See what I did there?

Posted by: soccermom at January 8, 2014 8:24 AM

L, yes, it's called a perverse incentive.

Posted by: outtahere at January 8, 2014 9:32 AM

Krugman's column is dated June 7, 2000, and the rent control laws are now more draconian, just as he predicted.

Fair warning to anyone thinking of buying rental property in San Francisco.

Posted by: conifer at January 8, 2014 10:22 AM

Hang on ... Are you suggesting that there are laws in San Francisco (and California generally) that protect existing owners and occupants at the expense of new ones?

Oh, the humanity of it all!! Say it ain't so!

Now can we all please go back to finding ways to extract maximum profit from this situation?

Posted by: Jimmy the House Flipper at January 8, 2014 11:28 AM

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