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.
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. :)
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".
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.)
Even Adam Smith thought monopolies were the greatest threat to a functioning capitalist economy.
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"?