Do rent controls work?
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It has contributed to people staying in their houses a lot longer than they'd otherwise be able to. This increases the amount of NIMBYism as older people don't vote (in general) for things which change the "character" of the places they've lived in for 40 years.
Proponents will say that it increases stability of communities, taking as an article of faith that community stability is something that should be optimized for.
Among other things such as lack of effective regional public transit, I consider Prop 13 to be a sizeable disadvantage to the bay area's continued viability as a tech hub over the next 20 years, as it even further constrains the amount of housing available, "affordable" or not.
Anyway, this is of course probably old news to you if you have ever considered buying property here, but for people who are not from around here, it bears mentioning. Are there such controls elsewhere in the world?
[0] https://en.wikipedia.org/wiki/California_Proposition_13_(197...
This saves big property owners a lot of money when it comes time to sell, but even seems to make sense for individuals.
Near my old neighborhood (where house prices are roughly $400k), 30-40% of the houses to the south of me were held in trust, and they appeared to be titled as individual's trusts.
There are many, many factors involved in dividing up an existing government into 6 new governments. Existing laws (namely Prop 13), significantly more abridged state Constitutions, existing contractual liability obligations (CALPERS & CALSTERS retirement plans), and other contracts would likely be renegotiated in light of a different set of laws.
The only thing I particularly liked about this is that California's population base is currently an outlier and our US Senate representation is vastly underpowered in proportion to other states. I don't think the founding fathers knew that one state would have 69x the population of another state without the people voting to change either the state composition or the method of calculation of senators.
It was admittedly second hand, but when I lived out there a friend (with local parents) noted that their property taxes went up even though their house value had plummeted, because the value was still above the assessed value. I remember being mildly surprised because I had also not heard of such a system outside California.
FWIW, the housing market is pretty far from a free market, so well-implemented rent controls could be a good thing. I think like all government policies, really it comes down to implementation - I can imagine Germany doing a much better job than the USA here.
They are not economically valid but today are a political means to use the power of govt force (i.e. the gun) to transfer benefits from the property owners to the renters.
If the answers to the first two questions are "yes", and the last question is "no", then I'm actually quite interested in hearing your thoughts on rent control. :)
I live in San Francisco [0], am not wealthy, and am trapped in my rent-controlled apartment by the skyrocketing rents of the non-rent-controlled (and reset-to-market-rate-after-vacancy) units around me. If it weren't for rent control, every rental in the city would be renting for at least $3000 per bedroom per month, [1] and I would have been pushed out of the city more than a year ago.
[0] SF has a serious and inexplicable allergy to new housing construction. It is this refusal to build enough housing to meet even a fraction of housing demand that is the source of the obscene rents in the city.
[1] That's at least $36,000 post-tax dollars a body must spend per bedroom per year. For reference, someone grossing $125k/year has ~$76k in post-tax dollars at their disposal. This means that someone making low six figures would be spending somewhere around half of their take-home pay on rent.
You're not trapped anywhere. You can no longer afford to live in San Francisco, and you're forcing someone else to pick up your tab instead of moving to a city you can afford.
I am. Over the past five years "my" apartment building has changed hands several times. The current landlord is a large company who actively attempts to remove long-term tenants, frequently neglects legally-required upkeep and maintenance and actively attempts to suppress tenants' attempts to organize.
In a reasonable market, this landlord would not be permitted to act as a slumlord; his rooms would remain empty, and his reputation would catch up with him. He can only behave this way because city wages don't track city rents.
The city's failure to build housing to meet demand has trapped a not-insubstantial slice of its population in substandard conditions.
> ...you're forcing someone else to pick up your tab...
Last I checked, the cost of durable goods and competent labor hadn't more tripled over the past five years. This is to say that the cost of renting a room in a building in SF has far outstripped the actual cost of running that same building in SF over the past five years.
I'm pretty sure that it's not me that's running up a tab.
It's abundantly clear that there's something rotten in the market, and that it's not rent control. :)
No, you're not. You're only trapped by your own insistence on living in that particular neighborhood in SF. I don't see why you think because you've become comfortable somewhere you're entitled to stay there forever.
>I'm pretty sure that it's not me that's running up a tab.
Yes it is. The value of what you're consuming has gone up, but you've used the government to force your landlord to provide you a place for less than its' worth.
One can make a pretty compelling argument that others in the city have very effectively used the government to make the value of their places far, far higher than their actual worth.
There are many things rotten in the market, and that includes rent control.
[0] Prop 13 means that property tax increases max out at 2% per year, rather than never increasing. Coincidentally, my rent controlled rent has increased by 2% per year for the past several years.
Circumstantial scarcity of housing aside, unless the landlord is paying more in building maintenance and property taxes, the assumed loss of revenue due to inflated land costs is not actually "costing" anything.
If instead of rent control the federal government forced cities to build an ample supply of housing for the local population within commutable distance, causing the price of investment land / buildings to drop, the cost of maintaining that land remains the same.
Sure it is.
It even has a name: opportunity cost.
If I had the opportunity to sell my underwear for 1000$, but I chose not to, this decision cost me 1000$.
Say you make $300 a day. One morning, I wave my gun in front of your front lawn and strongly suggest you don't go to work today. Your daily expenditure will be somewhat the same as every other day (mortgage, food, electricy, etc) ... Will you say I didn't cost you anything?
People who owned property with a certificate of occupancy prior to June 13, 1979 (i.e. a rent-controlled property in SF) can genuinely grouse that they bought an asset with a different expectation of return than what they got. Everyone else bought into a system knowing the rules of the game. It's no more "opportunity cost" than someone who buys a suburban property with land-use restrictions complaining that the laws prevent him from using his land to start a refinery.
If you buy a rent-controlled building today, you know that you're buying a building with a defined revenue stream. It is not "opportunity cost", except in the sense that you chose to buy the building in the first place.
If you buy a property today, it's the same as if I warned you about my weekly visits with my gun waving prior to you moving in. You should have already calculated the stay-at-home-day in your weekly income. You can be pissed by my behavior and find it unjust, but you should still have factored it in.
The opportunity cost came when I bought the house, not when I realized that Libertarians are insane and unpleasant. That part is called "buyer's remorse".
I'm not snarking; I'm genuinely curious and looking to understand what you're trying to say.
I expanded on my original analogy because Timr left me with the impression that he thought it wasn't an opportunity cost because it was a law (and that made it OK). Being a law isn't important. The predictability, when buying the property, is. My analogy also shows that even if the event is predictable, or as he would say, "the rules of the game", it doesn't mean it's just in any ways.
Here's a different analogy.
If you buy a farm land that gets flooded every single year on the last day of June (for the past 200 years, like clockwork), you can't really say you lost money when the next flood happens; you should already have factored this event in overall expenses... tho it still sucks that your land gets flooded.
> My analogy also shows that even if the event is predictable, or as he would say, "the rules of the game", it doesn't mean it's just in any ways.
I agree with your statement. However, in the specific case of being a landlord in a rent controlled district, I feel that -today- the rent controlled laws are entirely fair. In the late 1970s, there was good reason to complain about how you lost expected value in your "investment". Today? No. As timr said:
> If you buy a rent-controlled building today, you know that you're buying a building with a defined revenue stream. It is not "opportunity cost", except in the sense that you chose to buy the building in the first place.
I have no sympathy for landlords who purchase a currently occupied rent-controlled building with the expectation that they will be able to make money by removing the existing tenants. If the success of your business plan relies on very low probability events, or it relies on causing misery and human suffering, it's a bad fucking plan. :)
To speak to the "lost opportunity cost" angle: If one purchases a rent-controlled apartment, the correct thing to do is to expect the value of that property to remain exactly the same for the next seventy years. Any opportunity to increase the rent in a unit should be seen as an unexpected windfall. It's completely unreasonable to think otherwise: when one bought the property, one either knew what one was getting in to, or one is so unaware that one has no business running a business. :)
Sure it did. It cost him risk and opportunity. People who buy property are at the mercy of changing economic conditions, whimsical government bureaucracies, and easily-led voters. They could have bought T-bills instead without any of the headache.
I wouldn't buy rental property, especially in San Francisco. Nobody's going to come by and drop off a check if you lose money, but they'll certainly be there to collect if your property goes up in value.
I mean this in the nicest way possible:
Do you live in California, and/or rent in San Francisco?
Prop 13 ensures that property values -and thus the taxes due on that property- are only reassessed when a property changes hands. If you've held on to a property since Prop 13's passage, your property taxes have not increased in 37 years.
If you're a landlord in San Francisco, the following additional things apply:
You can recover the 100% of the cost of any legally mandated building improvements from your tenants through rent increases.
If you pay for your tenants' utilities, you can recover 100% of utilities cost increases from your tenants.
You can recover either 100% or 50% (depending on the number of units in your building) of capital improvement costs from your tenants.
In the case of increases in Operating and Maintenance expenses, you can permanently increase your tenants' base rent by up to 7%. Small landlords can do this every year. Large landlords can do this once every five years. Unlike the capitol improvements and legally-mandated-improvements recovery mechanisms (which end when the landlord has recovered what he can legally recover), this increase never goes away.
There are even provisions for increasing rents, if they are extraordinarily below "market rate" for extraordinary reasons.
Read this and be enlightened: http://www.sfrb.org/index.aspx?page=947
In the five years I've been here, I've only ever a landlord ask for an O&M rent increase once. His petition included a wide variety of line items that even a child could have seen were inapplicable, [0] so his petition was denied. [1]
Landlords who hang on to properties to provide housing see only slow, gradual changes in their operating costs, which can almost always be completely recovered from their tenants. Their property taxes will never go up for as long as they live. Frankly, they have a pretty sweet deal.
[0] The landlord was clearly using an O&M petition to attempt to recover the cost of renovations whose primary purpose were to double the number of "bedrooms" in each newly vacated unit in the building so they could collect 1.5x to 1.75x the rent.
[1] Given that a landlord can trivially recover increases in his O&M costs, why have I never had an O&M-related rent increase in five years? Is it -perhaps- that landlords in the city just don't see significant increases in their O&M expenses?
This is an often-repeated myth, but that is not how prop 13 works.
Property taxes do increase every year. What prop 13 does is that it sets the yearly increase to 2%. This makes the increases predictable so one can budget for it, but it certainly increases every year.
https://en.wikipedia.org/wiki/California_Proposition_13_%281...
(I bought a house in 1997. During the dot.com boom, the market value far exceeded the assessed value. Later when housing crashed, the market value dipped below the assessed value. In the current boom market value has again gone above the assessed value. I expect in the next crash values may reverse again. So all prop 13 does is that it damps the increases to prevent wild swings year to year.)
Ah. Thanks much for the correction! Coincidentally, my rent controlled rent increases by just about 2% each and every year: http://www.sfrb.org/Modules/ShowDocument.aspx?documentid=193...
A landlord can recover increases in the cost of servicing his building-operation-related debt from his tenants with an O&M rent increase. I expect that he can also recover increases in any kind of taxes that are related to running the building.
I would be pleased if you could find some SF Rent Board guidance or enough Rent Board decisions to form a pattern to demonstrate the incorrectness of my statement.
The poor are another separate issue. They need to be close to jobs or at least have a way to get to jobs easily. When I was poor, I didn't care to live in a cachet neighborhood, I just needed to be able to get to my job with reasonable public transit and I wanted to feel the area was safe. Of course, given the alternative, I'd want to rent a bungalow next to the beach for cheap, but it's not a necessity and it's not a necessity to live next to one's job.
That said, I would love to see more mixed use zoning.
Gross. I get that some people get to places in their lives where they don't want to deal with diversity, but I don't want cities to turn into places like that. Retirees (those who do want to stay, and don't want to live in a retirement community) are a part of that diversity. Shipping anyone off involuntarily (or even semi-involuntarily, in the case of ridiculous housing cost swings) is completely unacceptable to me.
And I don't think homogeneity is gross. Do you think Nigerians feel gross, or do you think the Japanese feel gross? It's neither better nor worse then heterogeneity.
I would hope the city would offer to partner with a shrinking small town to help relocate people who can no longer afford to live in the city to a town that is suffering from a high rental vacancy rate. A pensioner will only continue to be squeezed by living in a high-demand city as even rent-controlled units are allowed to raise their rents.
And these 2 are related ... how ?
California is broke, which is what causes those underfunding issues. Why ? Nobody is blaming rent control. It's there, but it's so small it registers on very few radars.
Rightist view: http://www.businessinsider.com.au/reasons-to-leave-californi... (TLDR: unemployment (due to various high taxes, rightist site indeed), debt (pension/unemployment liabilities), poverty)
Leftist view: http://www.huffingtonpost.com/bob-samuels/why-california-is-... (TLDR: tax exemptions for large corporations, including the claim they wouldn't leave for high tax because of good schools)
Re: the financial situation, California only recently paid off debts left over from the wake of Enron criminal fraud days.[1]
Obviously the underfunded retirement funds are huge looming unknowns, but they are partially (if not mostly) caused by local governments (such as the city of Stockton) underfunding during the bull market years and being unable to pay during the bear market years.
[1] https://en.wikipedia.org/wiki/California_electricity_crisis
Now. I live in SF but I don't believe it's my "right" to live here, so long as there were affordable units within commuting distances. By affordable I mean enough units at different income levels. But gov't needs to encourage building, not stifle building, which seems they work very hard at.
You live in SF, so you know that new construction will not be covered under rent control laws. [0] Why would you say this?
> But gov't needs to encourage building, not stifle building, which seems they work very hard at.
Agreed.
If the city government removes the anti-development zoning laws in much of the city and works to placate the rabid anti-development leaders in both the "DON'T SPOIL MY VIEW!" and "NEW CONSTRUCTION IS ALWAYS RENT CONTROLLED UNIT DESTRUCTION AND YOU SHALL NEVER DESTROY A SINGLE RENT CONTROLLED UNIT!" camps, and there is still barely any new construction, then perhaps it will be time to see why a law that controls rent only in buildings constructed prior to 1970-mumble is stifling construction of new buildings in 2015.
[0] Except in special cases like the Trinity Towers project. In that case, Sangiacomo got permission to destroy a building full of rent controlled units if he replaced each of those units with a rent controlled one in the new building. This was a 1:1 replacement. No rent controlled units were lost, no additional rent controlled units were created, and Sangiacomo got a new building full of "market rate" units in the bargain.
To see an analogy for why take something (unrelated) like a theoretical "monopoly" - currently illegal to establish one - , that becomes a monopoly, starts charging monopoly prices, and buys any new competitors while they're still tiny, for 100x earnings, so that it can retain a monopoly, including paying commpetitors not to enter the field at all. This happens, and happened.
They then charge based more on intrinsic utility rather than the competitive commodity price, and do all sorts of lock-in stuff to retain their monopoly advantage.
Now, let's say I want to run a monopoly like that. Are you forcing me to "pick up your tab" by supporting the law that makes my plan to set up that monopoly illegal? In other words, by supporting laws that make this business plan illegal, are you forcing me the businessman to pick up your tab as a consumer?
Remember, trusts and monopolies (a historical fact) happened through other simple, pure private contracts and normal market behavior.
If you're okay with regulating this (and unless you want to start paying 5x more for many of your everyday items, then you are), then I don't see why you shouldn't be okay with regulating the housing market: the natural market prices aren't somehow automatically morally afforded. Society gets to choose different priorities at times.
Edit: Boy do you guys not get an analogy :) (This is at -1.) I've made it a bit more explicit. First of all, to the respondent who said that is not how trusts/monopolies work, please look up the history of monopolies. They were by private contracts and transactions that are not illegal by themselves, but deprive everyone of a competitive market. Secondly, this is an analogy - because by regulating monopolies, you are removing someone's right to simply set a market price, or agree to a bundle deal with another company, or purchase certain other companies, and similar normal, everyday, market behaviors, that any company can do unless they happen to have shored up a monopoly position. The poster who called my characterization "mustache-twirling" is exactly right: this mustache-twirling behavior is precisely what is allowed if you think it is morally wrong to regulate markets.
This kind of mustache-twirling evil plan is insanely expensive. As in insta-bankruptcy expensive. Plus you'd have all kind of things backfiring, like business moving away because their rent, or their employees' rent are too expensive.
> Now, let's say I want to run a monopoly like that.
By all means, go ahead, I'll buy your properties at the foreclosure auctions.
The only way you'd be able to make your evil plan work would be with the support of a government. (With someone else paying the tab.)
Yeah, that happens in SF. Businesses can no longer afford the latest in a series of rent hikes, they close down, and get replaced with a bar or trendy coffee shop.
> ...would be with the support of a government.
Serious question: Isn't the institution and retention of rabidly anti-development zoning laws government support of what one might call a "natural monopoly"?
Even Adam Smith thought monopolies were the greatest threat to a functioning capitalist economy.
No, because there aren't enough people who are willing to pay $3000. Rent controls push the average rent down temporarily (until supply drops to regain equilibrium), but it pushes the clearing price up because it means that instead of 1000 people chasing 900 units there's 150 people chasing 50 units.
In S.F. there might be.
In Manhattan too.
S.F. and Manhattan are both geographically limited ultra-high-price islands within larger metro areas (and of course people can move in and out of entire metro areas in response to price too), which, among other things, seems like it should make the market more complex than a simple supply-demand curve from a micro-economics 101 textbook.
There are. There are far more than enough, because...
> Rent controls push the average rent down temporarily (until supply drops to regain equilibrium)
... there isn't enough supply to meet demand. There are literally _not_ _enough_ _apartments_ for the people who want to come into the city. There hasn't been enough supply to meet demand in SF for at least ten years. What little is being built will come nowhere close to meeting this year's influx, let alone next year's.
In almost any other city, I would agree that rent controls are obscene. Here in SF, rent controls don't go far enough. Units built before 1970-mumble should not reset to "market rate" upon vacancy.
"Want to come into the city" isn't a yes/no proposition. How much are those people willing to pay to come into the city?
I'm sure there are plenty of people who are living in SF right now who are not willing to pay $3000 to live there. Lucky for them, they don't have to, because their rent is controlled at a lower price than that.
In a free rental market, you would see some current SF residents leave because they're not willing to pay market rates, but the market rate would drop as a result. In other words, long time residents would move out to make space for the people who want to move in and are willing to pay for the privilege.
I don't get why there's so much agreement here that that's the desirable outcome. Allowing people to be quickly, dynamically uprooted out of their homes as price volatility swings up and down in different areas -- that has a lot of real human (read: economic) costs associated with it that are not obviously to account for. For example, the difficulty that children will face by being uprooted from their schools and friendships.
Obviously the cost-benefit of any particular program requires very careful analysis, but I think there's quite some value in the idea of stabilizing rent to allow people agility to make the appropriate life changes that correspond with changing housing.
I never claimed that it was. I was just refuting the claim that removing rent controls would result in everybody paying the pre-rent-control-removal market rate.
I'm not sure that's the case. For me, at least, I believe there are better ways than rent control to keep people of lesser means in their homes. A benefit of finding one of those means, and killing rent control, would be that the lower median rent would also benefit people of higher socio-economic status who feel the crunch but wouldn't be eligible for low-income housing.
So your argument is that the people who can't afford the asking price would move out, and the people who can afford that rate would take their place, and the net result would be that market rate would go down? Um.
What you mean to say is that market rate would go down for the average new arrival. But why should anyone who already lives here care about that person? Because they work for a startup?
I was taking the words "market rate" to mean "rate negotiated by people operating at arms length" as opposed to "rate dictated by government without any negotiations having taken place". But yes.
But why should anyone who already lives here care about that person?
They don't. And that's exactly the problem with rent controls: They benefit the current local residents at the expense of future residents, and hurt society as a whole. It's the same problem as property tax controls (current owners pay lower rates than future owners) and union seniority rules (current union members get paid more than future union members), which is why some states have laws prohibiting rent control in spite of the desire by local governments to impose it.
One man's problem is another man's social policy. I don't see this preference as anything more than a societal decision to give some value to social stability.
[0] To the knee-jerk downvoters: look up the demographic stats for those districts before you downvote. :)
timr has it right on the nose. The only way what you propose works is if that market (or nearby markets) is not supply-constrained.
I didn't win the rent regulated lottery and so face higher costs in the unrestricted market due to constriction of supply. It's an incumbent protection mechanism at a cost to newcomers. Those new housing restrictions you don't like are the same thing for owners.
Finally, as I understand it SF is different than New York in that it is physically small and only contains a small fraction of the MSA. Thus when you say you couldn't live in the city, the upshot is closer to saying you couldn't live in Manhattan.
> ...the upshot is closer to saying you couldn't live in Manhattan.
I'm not sure what you mean by "The upshot"?
Edit: I'm asking this question because I can't reply to the rest of your comment until I have its answer. I'm not snarking or trolling; I'm trying to have a productive conversation about a touchy topic with folks who probably don't share my views. I don't want to misinterpret what you were trying to say and say something incredibly dumb. :)
The latter would be dire, but the former not a particularly big deal. No needs to live in the trendy part of town.
From what I understand, folks in NYC can deal with hour-long commutes because of the reliability and continuous operation of the area's public transit systems. Perhaps I am mistaken? The public transit situation in the Bay Area is far more dire.
Because I have next-to-no knowledge of the character of each of NYC's boroughs, please excuse any such inaccuracies in the following hypothetical alternate-universe scenario:
Imagine that you live in The Bronx, and work and party in Manhattan. In order to get home from Manhattan in the late evening you either have to
* Be on the subway before midnight (because the subway shuts down from shortly after midnight till 04:00 every day of the week) [This assumes that you're lucky enough to live within walking distance of a subway stop] (the same caveats apply to the commuter heavy rail system),
* Hail and pay for a cab/Uber/Whatever, then spend 30->45 minutes inside of it,
* Or, -if you're spectacularly lucky- spend 45->90 minutes inside a bus, then walk for another 15->45 minutes to your apartment.
Your commute to work will be somewhat awful. Both the subway and the heavy rail is not infrequently late. The subway runs once every twenty minutes. [0] During rush hour, the heavy rail runs once every 15 minutes to once every 30. Outside of rush hour, it runs runs once per hour. Either system will be unable to get you to work at least twice a year due to service outages. Once you disembark from the subway or heavy rail, pray that your connecting bus is actually on time. If it's not, and your destination is within a 30 minute walk, you're almost certainly better off walking than waiting for the next bus.
The absolute best one-way doorstep-to-doorstep commute you can reasonably hope for here is 30 minutes, [1] but then -because of proximity to a subway station that's very close to Manhattan- your rent is almost the same as living in Manhattan.
If you decide to drive, remember that everyone wants to get into Manhattan, and that there are exactly three roads that serve the borough. If you don't like sitting in traffic for literal hours, make sure that you have a schedule that allows you to avoid the two+ hour stretch of rush hour traffic. Also, pray that there's not yet another accident on the damn road. ;) Also, make sure you can afford $3600/year in garage fees, as street parking is effectively impossible.
As an aside: I know that most of this can be considered #firstworldproblems complaining. I spent most of my life in both rural and urban Alabama. The best public transit available in the state was a few bus lines in Huntsville that took folks from downtown to the indoor shopping mall and back. ;) I know that the Bay Area has far better services for car-less people than most parts of the country. My reason for explaining all of this is to illustrate what I understand to be the vast gulf separating Bay Area public transit and public transit in many other major metropolitan areas, but NYC in particular.
[0] If you're lucky enough to live near a subway station that has multiple lines pass through it, this interval will be smaller.
[1] My absolute best one-way doorstep-to-doorstep commute time [2] was 90 minutes. My typical time was more like 120->150 minutes.
[2] Admittedly, from SF to a workplace ten to fifteen minutes away from a heavy rail station in San Mateo. However, reversing the commute direction would have had little-to-no impact on its total time, and surprisingly little impact on the rent I was paying.
I can't say you've convinced me on rent control but you have convinced me that the Bay Area has a somewhat different set of problems than greater NYC (though some of our regional transit systems -- e.g. LIRR + NICE bus -- have similar issues).
I understand that designing and running a public transit system isn't easy. Having said that, I wish that public transit was universally recognized as a very important public service and an excellent stimulator for a region's economic growth. As it stands now, it seems that shortsightness and greed seriously impede the development of an effective system in the region.
In re: rent control: Remember that -in SF- rent control is actually rent stabilization. When a unit is vacated (or the last tenant on the original lease moves out), the landlord is free to set the price of that unit however he wishes.
Rent control was instituted in a time when rents were spiralling out of control. [0] AIUI, one of the reasons Prop 13 passed was that landlords made the claim that a dramatic cap in property tax increases would allow them to stop dramatically increasing rents; that the primary reason for the rent increases was property tax increases. Prop 13 passed, rents continued to spiral out of control, [1] and about a year later rent control was instituted. [2]
If it was the city's policy to construct enough new housing to meet demand, I would agree that rent control had no place in the market. However, in the past five years, for every five people added to the city's population, one new housing unit has been added. Even during the real estate boom from 2000 to 2008, the human population grew by ~2,700 units more than the housing population. [3][4]
[0] Much like now, heh.
[1] Surprise, surprise.
[2] For information on what cost increases landlords can recover from tenants in rent controlled units, see these comments: https://news.ycombinator.com/item?id=10150827 https://news.ycombinator.com/item?id=10153973 For a big apartment construction project that managed to create a bunch of "market rate" units without removing rent controlled units, see this comment: https://news.ycombinator.com/item?id=10150724 (Frankly, the city should be trumpeting this deal every chance it gets. This sort of thing is what's going to solve the rent crisis.)
[3] This is a HORRIBLE way to phrase this, but I can't word right now. If it doesn't make sense, I'm happy to clarify.
[4] Citation for these numbers is the Paragon Real Estate graphs found in this article: http://sf.curbed.com/archives/2015/02/04/sfs_population_is_g...
The balance of supply and demand would remain the same if there was a vast increase of supply?
SF's problem remains zoning and NIMBYism, from both the "my view!!!!1" types and the "only 100% affordable housing!!!!1" types. I also suspect a number of these groups are being funded by property developers and landlords looking to drive prices even higher.
Rents increasing at the same rate as inflation is 100% okay. I don't think that anyone thinks that this is a bad idea. (Indeed, the SF Rent Board allows an annual rent increase for rent controlled apartments that is slaved to the CPI for the area.)
Rents increasing by 75% per year, every single year is not okay.
Whether it's morally bad for new people in the community to have to incur this extra 'tax' is an exercise left for the reader.
Neither rent control as usually implemented nor construction seems like much of a silver bullet, though.
I completely understand why cities are reluctant to change construction policies on short-term trends. Building a ton of new stock for a boom, and then running into a bust, could lead to massive vacancies that would ultimately impact the quality of the city for everyone left there after the people the boom attracted are gone.
It's also obvious that current residents will prioritize themselves over future replacement residents. And this doesn't seem too unreasonable to me. If you think their government policies are so terrible, you should take that into account in your calculations of what you'd be willing to pay to live there.
So I support rent control for existing tenants, so that long-term residents who never had a job that let them build enough capital to buy don't get forced out just by the vagaries of the market. Affordable housing programs can be useful too to enable lower-income workers to still live locally, but in my experience this is more commonly abused in new-construction situations where much more attention is paid to the letter of the law than the spirit; rent control is a more practical alternative.
I rabidly support every new apartment development. Trinity Towers (across the street from the main branch of the SF Library) should be a model for how these things work:
* Remove rent controlled tenants. They will be displaced for 6->12 months.
* Tear down old building.
* Build Phase 1 of new, far denser building, as quickly as possible.
* Move rent-controlled tenants back into their new units at the same rate they had when they were displaced. Those units are covered by rent control forever. The rest of the building is at "market rate".
* Build the rest of the building at your leisure.
The only thing I might add to the plan is city-sponsored housing to put the displaced residents.
Too often, the debate about development ignores those people, or makes great promises but fails to deliver.
He probably caused the start of rent control in SF with his "promise" to increase rents in his buildings by something like 100% per year, every single year. [0] AIUI, he never sells buildings; he buys or builds them to rent apartments to people. And now, there's the Trinity Towers deal! He's rich as fuck from the landlording business, but -from what I know of him- he deserves every penny.
> Too often, the debate about development ignores those people, or makes great promises but fails to deliver.
The city's schizophrenic attitudes with regards to housing development confuse me. Something stinks in this city, and it's not just the Combined Sewer System. ;)
[0] IIRC, the story goes that he publicly made this proclamation shortly after the passage of Prop 13.
I really should ask around; this detail seems to be something that the various newspapers aren't covering.
I agree that having to figure out alternative housing for yourself would be very, very bad for a few classes of tenants. I mention a mitigation in the last sentence of the comment to which you replied. :)
Consider:
* New construction is not subject to rent control.
* Newly built units are renting for $2,200 -> $3,000+ per bedroom per month.
* Again, those rates are not subject to rent control and may be increased at any time.
* Folks with apartments to rent often hold hours-long open houses where dozens of people attend to be interviewed, present their proof of financial stability, and jockey to make the best offer (read: pay the most) to their prospective new roommate/landlord. [0]
In any reasonably managed city, I would agree that rent control stifles construction. In this city, rent control is hardly even a bump in the road; there's no rational reason not to build.
[0] Source: I recently had a friend attempt to find a vaguely affordable place to live in the city. fully 80% of the places she looked at (and she was looking at at least one a week) did this.
TL;DR: I think San Francisco rent control (1979) and (seemingly unrelated) California Prop 13 (1978?) are short term political stopgaps which are almost certainly doomed to fail the citizens they aim to protect in the long term.
Rent control in San Jose is weaker than San Francisco, but they both suffer from the same common problems. Ultimately they do nothing to reduce demand or increase supply, while rent control may actually increase demand somewhat (by allowing people who might otherwise be priced out of a high demand area to stay).
I've met many people who were interested in adopting a dog (I volunteer with local animal rescues), but couldn't/wouldn't because they were stuck in their rent controlled place with no leverage to negotiate a dog into their rental contract and didn't want to risk irritating their landlord. Shopping for a rent-controlled place is a cut-throat proposition so making two tiers of rental properties will necessarily lead to abuse of tenants in the more restrictive one.
San Francisco's rent control has giant loopholes which work against the tenants the law was designed to protect:
* Any property built after 1979 is exempt so there is a shrinking supply. Rent controlled tenants will be in progressively more cutt-throat competition. * Apartments and rental rooms in single-family homes are categorized differently so someone converting an existing apartment building into a single family home to be able to jack up rents to market rates which effectively was an eviction notice (a HN article covered this scenario a few months ago). * Your landlord may evict you in order to sell the property, whereby the new landlord can rebuild the property, eliminating the 1979 rent control grandfathering.
San Francisco also has some of the strongest tenant support laws in the nation. While they are beneficial to tenants, they are also a hidden tax on landlords which increase the risk associated with owning a rental property in SF.
San Francisco is at the middle of a perfect storm of multiple sources of housing demand:
* Large, established Asian immigrant community making it desirable for new Asian immigrants (including a current influx of Chinese real estate investment cash) * Liberal politics which attract liberals fleeing rural red states in a self-sorting mechanism many sociologists have observed about US migration patterns (partially responsible for hyper-polarization) * Tech (web and biotech) sectors * City and state tax incentives for businesses to start up in certain districts * Coastal population centers like LA, NYC, Miami have long attracted young adults leaving their boring small towns after school
My observation is that most municipalities which seek to enact some form of rent control do so as a short term political fix for some other systemic issue that voters & politicians are unwilling to address. San Francisco's rent control is an attempt to counter the shortage of housing you mentioned, but is entirely its own doing.
The supply of housing is restricted:
* San Francisco is nearly fully built and is surrounded by water on 3 sides. * NIMBYs prevent rezoning for high density and/or 4+ stories in most parts of the city * NIMBYs prevent alteration of the waterfront skyline * NIMBYs prevent demolition of Victorians
Prop 13 (1978?, the California property tax growth cap) has loopholes. Prevent property tax is re-assessed at market rates if a property is transferred, but not if the transfer is between family members. Prop 13 also imposes a penalty on real estate transactions because to buy a new property would be to get your property tax set at current (IMHO inflated) rates. It is self-reinforcing because the existence of Prop 13 inflates real estate values by suppressing many property taxes. Prop 13 is also partly to blame for the housing shortage because it's possible that a long-time homeowner in San Francisco would rather leave a house vacant than sell it (because to sell and "take profits" would mean that another real estate purchase would come with a high recurring tax).
Ultimately California is very expensive to live in, especially if you are on a fixed income. I, personally, would rather not underfund schools, police, and fire departments for the sake of a politically powerful minority who are property-wealthy but cash poor. There are plenty of small towns that need investment and demand and could provide a vastly cheaper cost of living than a very high demand + low supply city.
This isn't surprising at all. Whenever you have a constrained resource with a price cap you still pay more. It's just that you don't pay more in money (at least, not directly). It becomes a matter of who you know, and people with money are better able to get to know people.
Other provisions of the rent controls are just as restrictive.
The result is rental buildings here are in poor shape, as owners let their buildings degrade and then sell them. Few are being built.
Well ... there are more rental voters than landlord voters.
The more perverse side effect of rent control shows up in the cases where rental tenants on a 30 year old lease, paying peanuts per month is posting their apartment (or multiple apartments) on AirBnB at market rates. All the while, the property gets much more wear and tear, increasing maintenance costs.
But that's not going to happen.
The solution is one of two things, more housing units, or fewer residents in a given area --look at any town/city where there is a pronounced long-term population decline, do you see a similar, "minimum rent" control? No, but you do see rent go down and typically the place suffers many ills.
All it comes down to is everyone wants in when the going is good and everyone wants out when the going gets bad.
The article mentions building limits. Call it "zoning" or "neighborhood preservation" or "green belts" but it's all State control over what should be private property decisions made by individuals. Artificially limiting supply through a restrictive building permitting process will drive up costs. Hence, the need for rent controls.
So the State controls both the supply and price of housing in these metro areas. Any public figure or pundit who blames "capitalists" or "failure of the free market" for the housing woes should be laughed out of the room.
How can we solve the problem? Stop trying to fix it with government. Allow rents to equalize at the market rate and allow supply to be determined by the market. Until the statists relinquish control, the problem will never be resolved. But the upside is that we will get to read these nice Economist articles forever.
The other thing is, the moment you do get true price discovery, you're popping a giant financialized bubble, and potentially triggering another self-reinforcing downward cycle (we'll be facing that soon anyways though).