Building owners with an unpermitted in-law constructed prior to January 1, 2013 will now have the option of legalizing the unit by way of the legislation adopted by San Francisco’s Board of Supervisors last night. As we wrote about the legislation when it was first proposed:

Unless a significant number of the illegal units are currently being kept off the market out of respect for the law, the proposed ordinance wouldn’t actually expand the effective supply of housing units in the City, but it could help the city ensure that the units are safe and habitable and allow the City to include the units in their official counts and reports of housing supply.

And while intended to help ease San Francisco’s current housing crunch, an unintended consequence of the ordinance could be an effective increase in rents as illegal units which are being rented at below market rates in exchange for flying below the City’s radar would no longer require a discount.

Legalized units will need to meet all Planning Code requirements for safety, will be subject to rent control, and will not be allowed to be subdivided for individual sale.
Unpermitted in-law units for which a notice of eviction was served after March 13, 2014 will need to wait at least five years before being legalized, a ten year wait if the eviction was of the no-fault variety other than for an owner move-in.

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Comments from “Plugged-In” Readers

  1. Posted by why bother

    What is the benefit in this?
    To renters? (Rents won’t change. This won’t increase the supply, because here units are already occupied. It will probably raise rents, since the cost of upgrades will be passed to the renters)
    To the landlords? (Why pay thousands of dollars to upgrade your unit when you can keep it illegal and still collect rent?)

  2. Posted by mkk

    Does this mean that those houses are now two unit buildings, with both units subject to rent control, where previously the main/legal unit was not?

  3. Posted by Mickey

    Whenever there’s a story on a vote at the board of supes, there should be info about who voted how. If it passed 8-2, tell us who the two were!

  4. Posted by Fishchum

    I’ve been reading about this, and I’ve always assumed that a SFH with an illegal in-law unit was still a SFH and not subject to rent control. But on the rent board website, it states that both units are subject to rent control – how does a tenant get RC protection while in an illegal in-law unit?

  5. Posted by rtg

    Once again the Board of Supervisors has adopted legislation for which the unintended consequences will be worse than the intended. Intended: make sure such units are safe and inhabitable. Unintended: reduction in the overall supply of rental units and therefore an increase in the overall level of rents. If I’m a landlord, subjecting the unit to rent control means that I’m going to have renters in the unit forever and if I ever want to get back that space for my own use, I’m going to have to negotiate with the renters (ie., pay them off) to get them out of there. Like the thousands of properties already in SF that are being kept off the rental market because the owners would rather leave the unit unoccupied than face SF’s rent laws, the same thing will happen with these unpermitted in-law suites.
    If the Board of Supervisors wants to make sure that there are plentiful, safe, and inhabitable rental units available, let the free market work. Fine, require that the units meet mininum health and safety standards, but show landlords that if they meet these requirements they can make a return on investment without the hand of the Board of Supervisors trying to control the outcome.

  6. Posted by Michael

    Yee and Tang voted against the ordinance.

  7. Posted by Sierrajeff

    I think there’s some benefit – when we’ve looked at buying a property, we’ve steered clear of units with illegal (or, in broker parlance, “uncertain”) in-law units, to avoid a legal morass. Now those properties will be more attractive to a larger pool of buyers (which thereby may have a de minimus effect on property prices).
    By similar logic, I disagree about the potential imposition of rent control having the net effect of reducing the housing stock – as someone who’s risk-averse, I’d have kept an in-law off the market in the past (rather than risk being sued by a tenant, brought to the attention of the city, etc.). Now, I’d be more inclined to go ahead and rent (even if subject to rent control), because the unit’s legal.

  8. Posted by eddy

    Rent Control and related laws should be phased out over 5-10 years and the only remaining and surviving laws that should be grandfathered are those of protected tenants who have no or limited ability to find suitable alternative housing. But I would not extend those protections to new tenants of protected status. The market should be free and landlords (in the long run) should be able to manage their properties under a normal legal contracts free from burdensome legislation that restricts, or otherwise discourages, owners from optimizing (in terms of both quality/quantity) the supply of rental units.
    Never going happen, but makes for good debate I suppose.

  9. Posted by soccermom

    “Does this mean that those houses are now two unit buildings, with both units subject to rent control, where previously the main/legal unit was not?”
    Yes it does, for pre-1979 buildings. Tenants rights people will say that even if it is an unpermitted unit a building should already be subject to rent control if it has more than one household, so getting the unit legalized in and of itself won’t change the landlord’s obligations.
    It seems the logical thing to do is to ride out whatever in-law unit you might have (wait until the tenant leaves, etc.) Re-take that space to single family use (taking another unit off the market) and sell or rent the larger space at a higher price you know won’t be subject to rent control.
    This [Legalized into 2 units] = [Formal Rent Control] will, at the margin, serve to diminish the more affordable housing stock in the city.

  10. Posted by poor.ass.millionaire

    I agree that this is largely a negative for SFH’s with an illegal inlaw, as you will not be able to reclaim that space for an addition to the main home, etc. Plus it will now be harder/impossible to shut down illegal units in the more SFH oriented neighborhoods, where higher density is not an asset to home values (scarcity is.)
    And of course this won’t do jack squat to help increase the rental stock, only hurt some homeowners and help some other property owners, per below.
    But for multi unit props this can be a boom. Now you can legalize an extra unit- Cha-Ching! Probably add an extra couple hundred+ G’s to the property’s value. I know I’m a fixin’ to take advantage of this in a new multi unit property I’m buying! Thanks BOS, your propensity for unintended consequences keeps going and going. :)

  11. Posted by david m

    was there no serious impact study/analysis done?

  12. Posted by anon2

    “Tenants rights people will say that even if it is an unpermitted unit a building should already be subject to rent control if it has more than one household,”
    I didn’t realize this was in dispute. The city seems pretty clear that unpermitted two units buildings do fall under rent control.
    One way that the issues with illegal units (rent control, insurance, being reported to the city) are dealt with is by renting to people who are not prone to go to the authorities. Sometimes via a below market rent as mentioned above, but also sometimes to people who aren’t fully in compliance with the law themselves.
    While this change won’t increase the total housing supply it may shift some units from serving the shadow side of the economy to being more supply for the mainstream.

  13. Posted by modernedwardian

    when we bought our 2 unit building – empty – it had an illegal 3rd on the ground floor behind the garage.
    we gutted it and plan to incorporate this space into the lower unit when finances permit.
    why would we turn a 2 unit which can fast track to condo conversion into a 3 unit which cannot?
    similarly, why would anyone turn a sfh which is not subject to rent control into a 2 unit which is? and on sale is this still a sfh w/ an inlaw or now a 2 unit building?
    aside from an illegal unit in an already multi-unit rent controlled building are there other situations where this might make sense?

  14. Posted by poor.ass.millionaire

    I think the net effect is that this will overall reduce available rental units. The 3 scenarios I see:
    1- owner keeps present illegal unit as is. No net effect.
    2- owner legalizes present unit. No net effect.
    3- owner shuts down/removes the rooms, to add to their home. Reduces rental stock. Why? Because once they turn it into a legal unit that’s it. It can’t be undone, prop is always 2 units with rent control, and you can’t reclaim that space to add parking or rooms to the main house.
    Rental building owners, like me, will benefit. But most homeowners with an inlaw will not, unless they’re cool with making it a 2 unit property forever. Matter of fact I can see a rush to get rid of these things quickly and reclaim the space into your main home, before it becomes impossible to do so. Meaning, I think if your unit gets “turned in”, the city may stick it nose into your business with “well why don’t you just legalize it; we will allow that, and no, you now can’t just merge it into your home, because we just decided that you’re going to be a housing provider! Courtesy of this legislation :)”

  15. Posted by SS

    Do illegal units that are converted have to comply with California building code rules? I.e., say you have a unit in a basement that doesn’t comply with light and ceiling height rules – would you have to address those issues before you can convert through the new SF process?
    This might continue to be a big barrier for a lot of people to legalizing units since illegal units are often illegal because the cost to make them compliant is high or because the space can’t be made legal.

  16. Posted by modinero

    Question….would a single family home(2,400 sq ft) command a higher premium vs. a 2 unit with a large owner’s unit (1800 sq ft) and small in-law (600 sq ft)?

  17. Posted by The Milkshake of Despair

    “2- owner legalizes present unit. No net effect. “
    Except that some units will require work to comply with building codes which has a positive effect on the quality of housing.

  18. Posted by anon2

    “which has a positive effect on the quality of housing.”
    And given the high level of rents these days and the types of people (tech/professional) that can pay those rents, I think the rent control risk is very low for a mainstream unit. It may be rational to hold some types of units off the market, but for a modernized/legalized unit at current market rents I don’t think many people would hold them vacant just for the chance to someday merge them into the main home.

  19. Posted by MysteryRealtor

    This benefits no one except lawyers.
    There is no way anyone who owns a SFH would add a rental unit, thus creating a duplex and now BOTH the house and the in-law being subject to rent control.
    Becuase it’s now rent controlled, the only way to get your tenent out will be to hire, you guessed it, a lawyer.
    Owners are then going to keep their units un-rented, decreasing supply and further driving up rents.

  20. Posted by poor.ass.millionaire

    Modinero- that probably depends on your neighborhood. High end hoods prefer the bigger SFH, lower end may want the legal second unit for extra income or extended family. Overall my gut says it’s better to have one big SFH in most cases.
    SS- I’m trying to get more info on this. Is the 7′ 6″ ceiling minimum (7′ ok for bathrooms, closets, etc.) a CA code or an SF specific code? I asked a bldg inspector about the minimums, as well as Chiu’s assistant, and both think that you need to meet those minimum heights. I know that zoning, yard space, and maybe light/air are more flexible.
    Anyone else with info or knowledge on this please chime in!

  21. Posted by SF Citizen

    quote -This benefits no one except lawyers.
    The author of this legislation is a lawyer, so your comment makes perfect sense.

  22. Posted by alfredo

    I’m a SFH owner in a low-end neighborhood. I’m not sure whether anything in my neighborhood will change, as the three SFHs nearest me all have these units. I guess the only difference is that before, if things got totally out of hand, I could complain to the city and have it just ignore me. Now the city will just tell me to f— off.

  23. Posted by Flipster

    One thing being missed is that if 600 sq foot gets legalized, the assessor will see that as 600 sq feet of “conversion” or “addition” that can and will get taxed. Also, if my 1,200 sq foot 2bd/1ba can now be legally marketed as a 1,800 sq ft 4bd/2ba, the city has just given most owners in this particular situation a $300-400k windfall. Thank you, Chew!!!
    Just watch as homes in the future are marketed with “can be legalized” in the wording somewhere.

  24. Posted by S

    This legislation is passively legitimizing what’s gone on here for years…increased density in SFH neighborhoods. It’s laying the ground work for a future where multiunit buildings might replace some of these homes. ie zoning changes. R1 to R2..
    This might actually make sense for some of us who plan on living in our homes for an extended period of time. A 30 year fixed mortgage has payments that don’t change so if I created a unit in my garage, they’d pay over half my mortgage. If that got rent controlled and they stayed there, it really wouldn’t make much of a difference since my payment is the same.
    Having rent controlled tenants in a building doesn’t seem to be making property here any less expensive so I’m not afraid about it being a hard sell if I need to move.

  25. Posted by anon

    It seems almost everyone here is extremely unclear about how this will actually work.
    I’d like to ask you to stop playing amateur lawyer, and to at least understand these issues before you start ranting about nonsense.
    For one thing, the rent control law is extremely clear on one fact: whether a unit is illegal or legal has ZERO effect on rent control.
    For another thing, having a legal in-law unit will not somehow make your property into a duplex.
    Finally, for those of you who think homeowners will legalize units only to then take them off the rental market and demolish them, please remove your heads from your asses and join us back in the real world.
    Thank you.

  26. Posted by Futurist

    More properties off the market due to landlords concern over the insane rent control laws.
    Result: few units, higher rents.

  27. Posted by anon2

    Hmmm….
    So if lower supply equals higher prices, what do you think higher supply equals????

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