November 25, 2013

The Soul Of San Francisco And The Backlash By The Bay

"As the center of the technology industry has moved north from Silicon Valley to San Francisco and the largess from tech companies has flowed into the city — Twitter’s stock offering unleashed an estimated 1,600 new millionaires — income disparities have widened sharply, housing prices have soared and orange construction cranes dot the skyline. The tech workers have, rightly or wrongly, received the blame." (Backlash by the Bay: Tech Riches Alter a City)

First Published: November 25, 2013 8:00 AM

Comments from "Plugged In" Readers

Just the free market at work. Sucks prices are going so high, but we have the power to move elsewhere.

Posted by: Yakezie at November 25, 2013 8:37 AM

A similar article:

http://www.weeklystandard.com/articles/silicon-chasm_768037.html

And Willie Brown on similar issues:

http://www.sfgate.com/default/article/Techies-must-nip-growing-scorn-in-bud-5006404.php

Regardless of your position on these issues, it's clearly coming up on the radar, both locally and nationally.

Posted by: Wonkster at November 25, 2013 8:42 AM

A one-sided article that focuses on the negative, unfortunately. The upside is the obvious building boom all over the city, well documented on this site, which will make SF a more fun and interesting place to live in future years, and perhaps more affordable once the money tide recedes.

BTW, the Yanez family in the Mission mentioned in the article has also been working the local press, i.e., Mission Local, and staging protests about the Ellis act. They rent two flats that each go for $450, so naturally they don't want to give them up.

Posted by: Snark17 at November 25, 2013 8:45 AM

Extract from a San Francisco Chromical copy I found in my basement this morning.

"That darn gold was found on my land and it will change everything about the San Francisco we all love else we start curbing the extraction of gold. Oh, and bring the army to protect my land. And stop those darn white buses. Did I mention we need more parking?"

Signed: Johann August Suter, January 24, 1848

Posted by: lol at November 25, 2013 8:53 AM

Boom and bust... gold flowed to SF last century and if i recall my local history from Washington High School, eggs went for $1 each. Ladies of the night became wealthy. Levi Strauss made his fortune, as well as other, by selling to the new rich.

I would say the same applies, folks just have to figure out how to get there...can they start their own businesses? Are they willing and able? Or is it the job of government to do the work and redistribute the new gold?

Boy that is such a last century idea huh?

Posted by: Gold Rush at November 25, 2013 9:01 AM

Get ready for the next mayor to be a literal socialist.

Posted by: Sam at November 25, 2013 9:01 AM

Snark17,

Yes, they are artists and therefore deserve special treatment. We are all "unique" and "special", but they are more unique and special than the rest of us and therefore deserve a life long free ride.

Another SF Comical article from this AM:

http://www.sfgate.com/bayarea/article/Lawyer-pumps-up-S-F-landlords-at-boot-camp-5008552.php

An extract (real this time):

The artist Keshav Jiwnani, 44, stood outside. He's been renting in the Mission for 15 years and came to the rally to learn about what was going on. "Even the landlords are real people with real problems," he said.

But he was wary of what he had seen at the rally and in the city in general. "It's a very real thing what's happening here. I see all these buses coming into the city," he said, referring to tech companies' buses. "And I want to know where I stand. Am I next in line?

Many great artists in the past lived in rock bottom misery all their lives, and their art often gained recognition after their death. Less great artists had to survive on other skills.

But in SF, it's not the quality your art that allows you to stay in SF, but the date that's on your lease. Younger artists who are deep into student debt and have to become barrista just to be able to pay for a shared room must be pretty bummed out.

Posted by: lol at November 25, 2013 9:06 AM

a nice problem to have. Beats the problem in Detroit

Posted by: as at November 25, 2013 9:09 AM

After living in SF for 26 years, I'm am so used to the inevitable over-reaction to any economic boom that this is all getting very tiring. I think it's time to move to Portland.

Posted by: curmudgeon at November 25, 2013 9:15 AM

This isn't go into change. SF is the economy of the present and future. Yes, it is a great problem to have. Unlike Detroit, which was at the behest of one corporation, SF is much more diversified, and has a solid foundation of leading research universities nearby, Stanford and Berkeley. The money is coming to SF. Even media, as it converges online in favor over traditional TV and movies, will become a powerhouse in SF and the bay, and may even take over Hollywood one day.

Posted by: sf at November 25, 2013 9:18 AM

The truth lies in the middle. A city cannot only be for the rich, and in this case, the rich and young. Anybody who does not realize this is a real problem is in denial. However, the answer is quite simply to build new housing in locations that will appeal to these people. The coming surge of Mid-Market high-end rentals in a new, stylish, urban environment with new restaurants and bars will be a huge attraction to this new resident. They will gladly stop competing for Victorian studios to try to snag one of the thousands of units that are coming up.

The question is, what after that? Tech is different this time around. It's not leaving. You can decry how tech is changing the city (because it is, absolutely) but you will have to fight it on a realistic level. As many have said, you can preserve the culture or the skyline of SF...not both.

Posted by: JWS at November 25, 2013 9:35 AM

"SF successfully ridding city of undesirables" would have been a perfectly accurate headline - depending on the point of view from which you are observing the changes to the city.

I'm not really that concerned about the "poets" and "activists" and "Longtime residents of the Mission District" who might be getting pushed out because they can't afford to live in SF. I know plenty of people from these three demographics and they tend not to be that interesting and not to add much to the character or desirability of the city. They could all move to Oakland and find less expensive housing. I'm far more concerned about the families with kids being priced out. This city will become dull indeed if even more kids disappear. No easy answers to this, although improving the public schools would be a huge step (no easy task, although going back to straight neighborhood schools would be a huge step in the right direction).

Posted by: anon at November 25, 2013 9:41 AM

The problem isn't just teachers and cops. The reason we're seeing so much national press lately is that even normal "upper middle class" professions are being priced out of SF... scientists, younger lawyers and accountants, medical residents, etc. For a normal person, a 900k 2 bed condo takes 200k income and 200k cash to purchase. That's what puts it on the NYT's radar, much more so than the people who've already been priced out years ago.

I don't see a way to relieve the pressure except allowing much greater development of dense areas of SF as well as increased investment in Oakland... Although even this will result in massive gentrification/displacement, but that may be unavoidable no matter what happens barring a recession.

Posted by: outtahere at November 25, 2013 9:44 AM

A one-sided article that focuses on the negative, unfortunately. The upside is the obvious building boom all over the city, well documented on this site, which will make SF a more fun and interesting place to live in future years"

Well they are mostly unrelated. The building boom is more about political will. The upper Market planning for example started like 20 years ago. Sure there was a lull because of the economy and financing issues after the last crash but the boom would have happened without Twitter

Posted by: Zig at November 25, 2013 9:47 AM

JWS,

Tech is different this time around. It's not leaving.

A big misconception about the dot-com bubble is that tech left after that. That's not the case. ALL of my friends from the dot-com years are still there. They had 3 or 4 jobs in the past 17 years.

I came in 97 as a make-it-happen code monkey and went through 2 start-ups, one IPO, 3 companies. Yes the 1st dot-com I started into was a flash in the pan, clearing 1M the 1st year, 20M the next, 100M the 3rd then nothing. We closed the doors and sold the servers in late 2001 after the towers fell. My next job was in a company that had survived the crash and did its IPO in 2004. My current SF job is in a pretty established tech that's very decently profitable. All my coworkers are pretty stable, many have families, most own their houses. Many live in the EB or Marin.

Each wave of tech was built on top the previous one. We are not invading SF. We ARE SF.

Posted by: lol at November 25, 2013 9:51 AM

Middle class families priced out of SF?

If you had been following SocketSite like many of us did, you would have known that middle class families could afford to buy a place between 2009 and 2011. A few of us were saying: this is the time to buy. Now it's too late, at least until the next downturn.

Posted by: lol at November 25, 2013 9:54 AM

Oh no, we have money flowing into SF? That's terrible! We must find a way to stop it.

I'm getting really sick of hearing complaints about how wealth is distorting the market. The Bay Area has plenty of living space for non-millionaires and even those low-income families people love to pretend they care about. Even in the 7x7 but especially beyond. So what if some people are getting priced out of SoMa? I'm priced out of Telegraph Hill and Pacific Heights and I accept that. I'm also priced out of Belvedere and Atherton for that matter. 15 years ago I was priced out of home ownership pretty much anywhere in the Bay Area and could only afford rent in unfashionable parts of SF. Times change and people's circumstances change.

If people want to advocate for a more equal or equitable distribution of the wealth then they should certainly do so. But pretending that having successful tech companies in SF is somehow bad for the city is downright moronic.

Posted by: formidable doer of the nasty at November 25, 2013 9:57 AM

There used to just be random people who would move to San Francisco I guess like most big cities. Cities offer people a place to start over and to move away from something.

My first place in SF as an adult there was a guy who worked for a recycling company, a lawyer, another who was a buyer at a grocery store. In my current building the rent controlled old timers: guy who owns a small software firm, retired fireman, artist/sign business owner, woman who works fitting people for glasses at Kaiser. The woman I know next door works at Bloomingdales. Just ordinary people.

My cousin who grew up in SF got a divorce a few years back. They sold the house and his wife took his daughter. He could no longer find a teamster job as there aren't any so he took a job driving gourmet food products around SF at like 50% of his previous pay without benefits. He looked for a place to live in SF but it was way too expensive so he had to settle in the ghetto in Hayward. Right or wrong I think in the past he would have been the type to start over his life in the City and find a new life.

Posted by: Zig at November 25, 2013 10:04 AM

"200k income and 200k cash to purchase"

um, this is not upper middle class. most professional couples in SF make more than this. upper middle class is probably more like 400-600 in SF.

there have probably been 1500 new millionaires in Bay Area in biotech this year too. there have been 5 IPOs and gilead has soared in value.

to me, this is all good news. this is much like 1999 dotcom bomb, except for the companies actually have products this time around. this boom will last for a few years more IMHO

Posted by: jill at November 25, 2013 10:26 AM

Well, I've had my reality check after being here a little while. I was offered a fancy tech job that people complain about, but instead took a more interesting academic job. But it's becoming clear I won't be able to have a comfortable lifestyle on this salary ("suffer for my art, etc.") I suppose I'll start looking again next year.

Posted by: outtahere at November 25, 2013 10:35 AM

http://www.newgeography.com/content/004050-affordability-seattle-s-ace-becoming-next-tech-capital

^^^ I am not sure I agree with this article, but it is interesting to consider whether or not the Bay Area can continue to be as attractive as it claims to be to business.

Posted by: ReadyForPortland at November 25, 2013 10:38 AM

jill,

Yes, it's a boom, and yes it will come down eventually. But to know what will become of the people behind these cycles, you have to follow the dynamics of tech workers. I'll give a first hand example around me.

All my dot-com friends from the 90s went on and got absorbed by GOOG, AAPL, ORCL, MSFT during the dot-com bust, some through direct hiring, but most through M&A.

Then the great recession hit and they decided to stick around in their Big Tech cocoons. Stable job, decent pay...

But something that has happened in the past 2 years: 2 created their own companies, and the rest are in start-ups again. Only 2 are left at GOOG and AAPL.

Everyone has gotten stronger and more resilient financially and in their jobs.

Posted by: lol at November 25, 2013 10:46 AM

What universities does Seattle have nearby that would make it more attractive to tech than the Bay Area?
The computer generation was born out of Stanford and Berkeley. Facebook started on the east coast but migrated to the Bay Area to be near the hub. I wouldn't lost any sleep about Seattle taking over the Bay Area. Seattle has Microsoft, a floundering corporation become more and more irrelevant to the new economy.

Posted by: sf at November 25, 2013 10:51 AM

To my point what percentage of workers in the Bay Area, SF 2001, SF 2013 work in "tech"?

We all realize they all make 300k a year but this is the point.

Posted by: Zig at November 25, 2013 10:58 AM

What universities does Seattle have nearby that would make it more attractive to tech than the Bay Area?

UW certainly isn't more attractive than Berkeley or Stanford, but it's probably still a top 10 CS school in quality, and by volume of grads a top 5.

Posted by: anon at November 25, 2013 11:06 AM

Much better than Seattle, Oakland is the place where "normal" people can live, even young artists:

http://uptownalmanac.com/2013/11/san-franciscan%E2%80%99s-guide-living-oakland

The post starts with a gem of truism:

San Francisco is a great town but thanks to all the artists squatting in rent-controlled housing, the price of living keeps increasing.

Posted by: lol at November 25, 2013 11:08 AM

I might be mistaken but an apartment in a relatively safe neighborhood in Oakland is expensive as well.

My brother manages auto mechanics in SF and he is dealing with a lot of turnover and people living in odd circumstances like dank in-laws in Ingleside.

Posted by: Zig at November 25, 2013 11:16 AM

"We are not invading SF. We ARE SF." (Posted by: lol at November 25, 2013 9:51 AM)

This is an incredibly arrogant statement in my opinion. SF remains a very diverse place, so how one industry has any claim to be the entire City is incredible to me. Perhaps the reason for a backlash become more clear if this is a typical attitude.

Posted by: Dont fear the REpa at November 25, 2013 11:17 AM

If decency is disregarded, developers and the real estate industry will face a backlash in the polls. The last story I read is about a 98 year old who is being evicted. Good luck defending yourselves from the voters if you choose to go with that sort of status quo.

If you were wise you'd figure out how to make an everybody-wins situation, rather than a winners-take-all result - because the latter is anti-democratic, and we live in a democracy, for all its flaws.

Posted by: lark at November 25, 2013 11:25 AM

Sorry, poor wording. I should have written "We ARE also SF". I am a tech guy, not a wordsmith.

Posted by: lol at November 25, 2013 11:33 AM

"This is an incredibly arrogant statement in my opinion."

No, he's responding to separating "tech workers" out from the rest of the city dwellers. Many of us have been here for quite a while now.

Posted by: Gary Keim at November 25, 2013 11:42 AM

at curmudgeon
Good luck getting traction in Portland, or most of Oregon. Once they find out you're a Californian you'll get the cold shoulder. Their utopia is a locals only.

Posted by: RonMonster at November 25, 2013 12:07 PM

I've been to Portland several times, there is a bias against Californians. I like the city well enough but its coolness (except the food) is real surface level. The music and other arts being produced there are nothing that notable. That said, you can rent a house for $1200 there.

The artists that I know that are leaving SF are moving to Oakland (a few), and LA/Brooklyn (the majority).

Posted by: Sam at November 25, 2013 12:39 PM

The techies need to organize politically. In the '70s, the gays moved to SF, were reviled by many who thought they were ruining SF. Harvey Milk championed them and got them organized into a potent political force. The techies need their Harvey Milk equivalent.

Posted by: Mickey at November 25, 2013 12:50 PM

Good luck to the ones seeking a cheap place in a decent part of Brooklyn! They can probably find a crappy place in a dangerous part of Brooklyn that is not horrifically expensive, if that is the type of living arrangement they are looking for.

That said, LA and New York have always put SF to shame in terms of an arts scene, so there are lots of good reasons for an artist to move to one of those cities.

Posted by: anon at November 25, 2013 12:52 PM

Jill: "most professional couples in SF make more than" $200K

Is this factual? I'd be interested to see the data.

Posted by: James at November 25, 2013 2:54 PM

"Good luck defending yourselves from the voters if you choose to go with that sort of status quo."

This is the stuff that irritates me about the so called progressives in SF. What are you going to do? Ban new development? The developers don't care, they will just build somewhere else.

It's not going to prevent more people from coming.

All you will achieve is even higher prices, and more pressure to get rid of the way below market rate rent protected folks.

You guys always make some sort of statement vote, but have no idea of the actual effects of the law.

There are many ways to promote affordable housing:

1) Support more housing development, and particularly simplify the development process. Luxury condos are the only thing being built because it's far to complex, expensive, and risky to build middle class housing in SF due to the ridiculous process

2) Support the section 8 program. This is a relatively successful program at providing subsidized housing for low income people. It's success is due to the fact that it benefits the owner as well as the tenant.

3) Support job training. Many of the people who require affordable housing need it because they don't have any valuable skills, or their skills have become obsolete. If people can improve their lot in life, they won't need subsidized housing.

There are many other ways as well.

On the other hand, rent control is a proven failure when it comes to affordable housing. We've had it for over 30 years, one of the few cities that has rent control, and one of the strongest in the country, and our rents are the highest in the nation.

"If you were wise you'd figure out how to make an everybody-wins situation, rather than a winners-take-all result"

Money coming into SF is already a win-win. That money gets taxed and funds all the social programs in the city. The payroll tax, sales tax, transfer tax, and many others are examples of how the money that comes into the tech industry goes into the city coffers.

It's not the fault of those of us in the tech industry that the money is squandered by the city leadership. You want somebody to blame for the lack of "affordable" housing (really subsidized housing), look in the mirror. It's your policies that are the cause.

Posted by: lyqwyd at November 25, 2013 3:09 PM

lqwyd - great post, except for one thing - there is no proof that eliminating rent control would have a significant effect on rents, sale prices, and construction. See MA and NYC for ample evidence.

That said, I still favor a phase out of rent control, but it's a low priority compared to other factors.

Posted by: Frank C. at November 25, 2013 3:48 PM

But the self-proclaimed progressives think the Mayor's eviction litigation fund is a better use of the city's resources than doing any of those things lyqwyd suggests.

The "tech workers" don't need to organize politically like the gays did because their detractors are losers with no real power. Sure they can keep electing communists to the BoS but at the end of the day money talks. "If you can't join 'em, whine!" turns out to be a pretty lousy strategy.

Posted by: formidable doer of the nasty at November 25, 2013 4:13 PM

Frank C.

Eliminating rent control IS a priority, because it messes up with market forces on so many levels.

This disfunctional market is happening at the edges. Low turnover means the richest are competing for very little supply. And "Market" rents are soaring, but do not reflect the true nature of SF resident's incomes!

Restore natural turnover, and many more will be able to get in. Maybe not a few who will have to move out or develop better more marketable skills.

Posted by: lol at November 25, 2013 5:45 PM

So the world doesn't owe people subsidized low rents on apartments?

And behold, people (landlords) who put their money into an investment (real estate) might want to earn a return when demand (and prices) are high?

This is shocking. Simply amazing. No one could see this coming at all.

I'm insulted. I'm going to participate in the "stop evicting tenants" protest right after I get down protesting new housing developments. Because obvious the first step to fix the housing shortage and high pricing is to prevent any new supply coming to the market!

Posted by: sfresident at November 25, 2013 9:24 PM

The irony of legions of parasitic [people] living in rent-controlled apartments labeling highly educated, hard-working, tax-paying tech workers as "entitled" is just too delicious.

Posted by: Onslow at November 25, 2013 10:41 PM

"The irony of legions of parasitic [people] living in rent-controlled apartments labeling highly educated, hard-working, tax-paying tech workers as "entitled" is just too delicious."

Couldn't agree more.

Posted by: Spencer at November 26, 2013 2:46 AM

If a landlord doesn't want rent control then he should only buy a building built after 1984 or whatever year it is that is not under the law. It's not like it is actually imposed on all of the city.

And communists don't win city wide elections. All of he mayors since the boom of the 90s have been very business friendly. If the tide was to turn against the new status quo it would have already happened decades ago.

Posted by: sf at November 26, 2013 5:10 AM

The funny thing is that no one cares that Twitter is losing money. On the bright side, they are losing more money each year and that is somehow a good thing in the tech world. Analysts are calling for profitability by 2015, but some of those analysts are also forecasting continued 100% revenue growth each year.

Maybe no one cares in real estate because it doesn't really matter if long-term value has been created in the companies as long as personal wealth has been created. (e.g. the Zynga guy has been featured on this blog and he's a lot happier than Zynga shareholders). The ceo of yelp said they could be profitable if they wanted to be but profitability wasn't important; it was better to lose money and grow to continue to get funding.

I know quite a few people working for start-ups at various stages who are making reasonable incomes and the companies continue to get funded even though they have no plan to ever be profitable. The exit now is rarely the IPO, but M&A, e.g. Marissa Mayer has bought around 25 companies this year thus far and the vast majority had no hopes of making any money. So you have a few big companies that are making money through personal data collection and advertising (Goog had $50B in revenue of which over 96% was advertising, FB is over 90% advertising). And then a bunch of other companies getting funded on the hopes they get bought by this handful of companies. I read an interview with one of the co-founders of Instagram shortly before being bought for a billion dollars (in stock) where he fully admitted they had no idea how to ever become profitable.

Again, while it's easy to see this changing in five or ten years where people realize that a company might actually want to make money at some point, it might not matter for real estate.

Posted by: gray at November 26, 2013 7:15 AM

If you're so much smarter than all the investors put together, then you must be a very rich man, gray.

Early-stage tech stocks are valued by growth and earnings potential, not current profitability. But hey, if you know better...

Posted by: formidable doer of the nasty at November 26, 2013 8:18 AM

The irony that this very hit & miss piece (in terms of its hard news accuracy versus its rumor mongering) is from the people who brought us wildly expensive 'toilet in the living room' apartments -- in the 1950's! ...should not be lost on us.

Posted by: Shut your face Manhattan at November 26, 2013 8:33 AM

But gray has identified the same mentality that drove the first dot-com bubble - profits don;t matter!

This is a new bubble. No doubt. I'm looking to short the tech industry, but not quite yet. The timing of bubble-breaking is hard to predict, and they generally go on far longer (and grow far bigger) that any rational person would suspect. It takes several months for a market bubble to "crash" and I'm waiting until this one gets going before I jump in (short, I mean). I'm guessing it gets going in about a year, but it could begin any time. Watching closely . . .

Posted by: anon at November 26, 2013 8:40 AM

lol, I don't get what you said. You just asserted that rent control is a major factor in supply. Theoretically it should be in a laboratory, but there are so many other factors that are bigger that it's meaningless.

MA eliminated it in Somerville and Cambridge, and there was no significant attributable increase in supply.

How would elimination of rent control in SF significantly increase supply given zoning constraints and profit incentives to build high end condos over rentals? No effect at all. Zoning (and political support for underzoning) is the key issue, dwarfing all others.

Posted by: Frank C. at November 26, 2013 8:47 AM

MA eliminated it in Somerville and Cambridge

Insignificant sample size.

Posted by: anon at November 26, 2013 9:08 AM

Frank C.,

It has been debated many many time but my take is the following:

PART I: SF is in a test tube, isolated from outside forces.

Say SF has 10 tenants. 60% are rent controlled. Income spread among SF tenants families are as follows:

3 are sub 60K/Y, renting places from 600 to 1500/month
5 are between 60K and 120K, renting places from 1500 to 3000/month
2 are 120K+, renting at 3000+

If rent control were to be repealed overnight, the sub-60K crowd would have to mechanically move out or find other arrangements, like sharing flats, switching from a 2BR to a studio, etc...

2 of the mid-range would have to do the same, and the rest would be OK.

In all, I think that 15 to 25% of the rent controlled pool would be freed up very quickly.

Now in real numbers, we are talking about 10s of 1000s of units suddenly freed up. Many would be renovated, but landlords will have to find new tenants for them. Some of those tenants will be local (moving up or down) and some will be from the outside.

PART II

The question is whether demand from the outside would be enough to fill the 20 or 30,000 available units in SF. And to do it with the same income levels as the current bus crowd. We're talking about 30 to 50,000 people moving in. Even if 10% of all employees from GOOG, FB, TWTR, and AAPL were to move in en masse, that would not be enough to fill all the slots.

As I said in my first reply to your original post, this market is done at the edges. Current prices DO NOT reflect what locals can afford, but what a few newcomers are ready to pay.

If this market starts flowing freely, this will be a totally different ballgame where tenants and landlords will be in a balanced relationship.

But I think we will never know. People will vote themselves more free lunches, or more precisely lunches paid at the landlords' expenses. And claim that rent control doesn't change anything. Yeah right.

Posted by: lol at November 26, 2013 9:41 AM

Total supply is: existing units + new units added to the market - units removed from the market.

Thousands of units have been removed from the market by condo conversions and Ellis Act conversions over the last few decades. Most of those would not have occurred without Rent Control. As for new units being added to the market, since new construction is not subject to Rent Control, there is less of a direct effect. However, most new multi-unit buildings from the last 10 years have been condos, despite condos being more expensive to build than rentals. I would speculate that developers are still weary of building new rental properties in SF because you never know when there'll be another land grab by the tenants-rights wing nuts and Rent Control is reintroduced. So it's safer to build and sell despite the added ROI risk. I sure as hell wouldn't invest in a rental property in SF, would you?

Posted by: formidable doer of the nasty at November 26, 2013 10:02 AM

"I sure as hell wouldn't invest in a rental property in SF, would you?"

Heck yeah! My small 1BR condo is going for $2400 a month (about $1100 a month profit, all in). I wish I had bought 20 of them 15 years ago instead of one. As smart landlords well know, rent control results in higher rents and thus more money for landlords (and less money for tenants). And, of course, that all goes double for landlords who own a condo or post-1978 place that is exempt from rent control. The day rent control ends will be a sad day for the landlords.

Posted by: anon at November 26, 2013 10:24 AM

The day rent control ends will be a sad day for the landlords.

You probably mean:

"The day rent control ends will be a sad day for some landlords. The other ones are stuck with no easy way out.

Posted by: lol at November 26, 2013 10:29 AM

lol, you're a big fan of "market forces," and I see that you are so nobly willing to forgo the profits you reap due to rent control in the best interests of working people, and to accept the lower rent you'll be forced to accept in the event rent control is repealed.

I suggest we take these free market forces further, and get the communist government off of property owners' backs!

In addition to the end of rent control (and we acknowledge the great sacrifice landlords will make in that eventuality), Free Market Property Owners hereby demand:

1. An end to the capital gains exclusion!
2. An end to the mortgage interest deduction!
3. An end to depreciation!
4. An end to property tax deductions!
5. An end to Prop 13!

All of the above tax laws represent government intrusion into the free marketplace, distorting the market, and forcing landlords to gouge their tenants!

Get the government off the backs of landlords, and repeal all of these onerous tax deductions, and let the Free Market work its magic!

Posted by: two beers at November 26, 2013 11:03 AM

1) I have no problem with that
2) Fine for owner occupied. For a landlord interest is a business expense and is legitimately deductible, unless you want to get rid of it for all businesses (which would be ridiculous).
3) Same as 2, plus depreciation is recaptured on sale, and can sometimes wind up in more taxes than had depreciation not been deducted. It depends on the situation.
4) Same as 2
5) Hell yeah, prop 13 is as bad as rent control

So most of the above are perfectly legitimate business deduction, which are available to any normal business, which is what a landlord is engaging in. Yes, a couple are unnecessary and should be eliminated

Posted by: lyqwyd at November 26, 2013 11:18 AM

two beers,

I am all for it.

I think that tax gifts to home owners distort the market. They make the job of being a landlord harder on the purchase side. Instead of a commitment of $100 on a rental property, tax gifts and low interest rates will make this price go up to $130 or $150. Even though it is nice to have a lofty valuation on your property, an artificial increase in valuation means more income to all the professions that life off RE: Realtors, Mortgage brokers, contractors (who can charge more on a kitchen or bathroom redo).

Oh, and the government should not be purchasing MBS's at a clip of $85B/month like today.

And because everything is more expensive than it should be, people have to play the appreciation game: catch the market on the way up and pump it up. Then the musical chair game stops and everyone runs for his life.

In a perfect world, an income should allow you to purchase property 4 to 5 times your annual income. CDs and MMs should bring you 3 to 6%. Property taxes should be 1.5% to 2% of value and no tax freezes like prop 13.

But all the incentives, meddling, distortions make everything more expensive. I understand how we got there and what these incentives are for, but in the end they only help the few who know how to navigate and time right (like I did so far).

Posted by: lol at November 26, 2013 11:20 AM

LOL at "two beers", only a hopelessly befuddled (or disingenuous) Leftist would actually attempt to spin Property Taxes as an element of the "Free Market".

Posted by: Onslow at November 26, 2013 2:20 PM

lol, and possibly anon - I don't agree, because the boost in supply you're forecasting is a drop in the bucket compared to what's needed - it would amount to a short term benefit.

SF needs literally 10s of thousands of units over the next few years, and hundreds of thousands beyond that. And finally, there is no way anything other than a gradual phase out would ever happen, so this is just fantasy.

Posted by: Frank C. at November 26, 2013 3:04 PM

While the repeal of rent control in SF is extremely unlikely, there are reportedly over 30,000 units being held vacant, off the market, according to the 2010 census.

Many believe these a large number of these units would come back on the market if rent control were repealed.

It's impossible to know exactly how many units are vacant due to rent control, but I believe it's safe to say that a large portion of them are vacant for that reason.

I agree any repeal of rent control would need to be phased in.

Posted by: lyqwyd at November 26, 2013 3:17 PM

You don't know that, Frank C.

Fact: median family income in SF: 73K. This affords you 1700 to 1800 maximum rent.

Fact: median asking rent in SF: $3400/month

What we can deduct here is that a median SF family CANNOT afford a median rent. They could roughly afford 1/2 of median rent.

These are pretty brutal realities. Let everything flow freely and watch median rents drop.

Yes, there's plenty of demand, but at what income levels? Sure many people in Daly, SoSF or Oakland would like a pad in the City, but their 60K/month cannot afford that, therefore this demand is not a realistic one.

Maybe 1000s over 1000s of wealthy techies from the SV will flock in to keep median prices up, who knows? If they can afford the current $4K rates, chances are they're already here, therefore they're gone from the demand side.

Conclusion: The numbers so far show a big disconnect between incomes and market rent. The logical deduction is that rent control maintains a lot of people in the City and maintains market rents very high due to very very low supply. The current market rates are based on the few 1000s who manage to find a place today, not the 100,000s currently here.

Posted by: lol at November 26, 2013 3:22 PM

LOL

I don't dispute your numbers and that Rent Control makes this situation worse but it is a fact that the the median income and respective rent they support in Oakland and Burlingame also don't come close to matching. Neither have rent control. There is a big supply issue regardless

Posted by: Zig at November 27, 2013 11:23 AM

Zig,

One big difference is that Oakland has a majority of homeowners vs renters. In that case the median dweller is typically a homeowner who doesn't need a higher income to qualify for a rental. To boot, Prop 13 would apply there, which helps most homeowners.

Posted by: lol at November 27, 2013 12:09 PM

lol,

59% of Oakland dwellings are rental units, according to SJSU Professor J.M. Podogzinski who interpreted 2010 census data in slide 9 of his course notes. Click the link in my name to see notes.

Posted by: Don Coyote at November 27, 2013 8:51 PM

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