Hacker News Reader

Comment by forrestthewoods | Hacker News Reader

Once upon a tech TechCrunch did an amazing write-up on San Fran housing issues. One of my favorite points was the following cascaded issue caused my rent control.

1) Rent control keeps rent prices down 2) This leads to matching controlled property tax 3) This incentivizes small cities to prefer uncontrolled commercial zoning over controlled residential. 4) Which means smaller cities have way too much commercial space and not nearly enough residental.

Oh what a tangled web we weave when we practice to artificially constrain rents. Wait. I think I did that wrong. Ah well. Close enough!

View on HN

You have #1 and #2 inverted.

Prop 13 happened first. After rents failed to stabilize [0], Rent Stabilization ordinances were enacted.

[0] One of the several arguments for Prop 13 was "Prop 13's enactment would keep rents in check, because increases in property valuations (and -thus- property taxes) are a significant contributor to spiralling rents.". Turns out that that argument was fabricated. :P

The fascinating thing about Prop 13 [1] is that the Property Taxes can only increase by 2%/year unless the property is sold, or there is a change of ownership of the entity that owns the property. But, if the property is purchased by a group, and no member of that group owns more than 50%, then members of the group can change, and the property tax is never reset to market rates.

[1] https://en.wikipedia.org/wiki/California_Proposition_13_(197...

Yep. There needs to be some careful, real, honest thought put into it, but I'm strongly of the opinion that Prop 13 needs to be repealed, yesterday, with an allowance for a -say- ten-year gradual ramp-up in assessed property values for landowners who own a property for their use and/or the use of their family.

Real estate investors and non-human owners can go take a hike. ;)

What about retired people? A friend's single mom paid off her house 35 years ago in a relatively poor neighborhood in southern California. She worked as many jobs as she could to do that, all would be considered menial today; laundry, sewing, cleaning houses.

That area is now expensive enough that even with Prop 13 her children have to pay her property taxes for her. Her family, friends, church, etc. are all there, so it's not a trivial thing for her to move someplace cheaper (which would be at least 50 miles away, not a reasonable bus ride in that area).

I prefer Texas's solution to that problem, which given my leftish politics, doesn't happen that often. :) In Texas, people over 65 can stop paying property taxes entirely, but the taxes are not waived, instead they're just deferred and accrue as a lien on the home. When the home is eventually sold (either by them, or their heirs), the taxes are paid out of the proceeds (the state eats the remainder if the proceeds are less than the back taxes).

This way a retired person never has to move because of an increase in the value of their property making the taxes unaffordable. But if and when it's sold, and they actually realize that gain from the property's value, at that point they do have to pay the taxes. Proposition 13 instead lets them have their cake and eat it too: they pay property taxes as if there were no value increase, but then can sell the property and get a big windfall.

I really like that solution.

1. After a hard life she is now a millionaire

2. Assuming she is living almost alone she probably doesn't want a [big] house and could move into a smaller unit nearby (and have some money left over)

3. But, there probably are not any smaller units since zoning effectively blocked them being built.

I'm never in favor of a solution that kicks homeowners who use their property as a home out of their homes.

However, as you say, this mom is a millionaire. If she can deal with a change in location, she stands to make a metric shitload of money.

> That area is now expensive enough that even with Prop 13 her children have to pay her property taxes for her.

I'm not sure I believe that.

As I understand it, Prop 13 caps property tax increases on a given property to a maximum ~2% per year. [0] Your property's value is not reassessed, no matter what happens to other properties in the area! The only way for a property to be reassessed (and -thus- for its tax to dramatically increase-) is for it to change hands, or for major improvements to be performed to the property.

Even in the case of major improvements, the value of just the improvement is assessed and added to the value of the property as a whole. The unimproved portion of the property is not reassessed.

Am I dramatically misunderstanding something about Prop 13?

Or were you saying "The cost of living at this mom's place is now so high that she can't even afford to pay the Prop 13-suppressed property tax on her property."?

[0] Inflation is generally understood to be ~3% per year, and has been for at least a decade... so this means that property taxes increase at a rate that is lower than inflation.

Better approach, from British Columbia, is after 65 (or some age), you can defer 100% of your property taxes on your principal residence, subject to certain income/wealth tests - they just become a lien against the property.

Oh wow. You're totally right. I feel quite silly now!

No worries. If you're still within the edit window, it might be nice if you'd reorder the list in your second 'graph.

Few small cities in the Bay Area have rent control ordnances, including Mountain View, which is the city that originally wanted Google to build all new offices and no residences. So no,it's not Rent Control that is driving commercial-only zoning restrictions. Perhaps it's the fact that commercial office tenants pay property taxes, but require few city services in return -- no schools, limited police and/or fire services, little demand for parks or recreational activities, etc.

Even in SF, only buildings built prior to 1979 are covered under rent control rent restrictions, so rent control wouldn't affect new zoning decisions.

I think this is the piece you're referring to: http://techcrunch.com/2014/04/14/sf-housing/

The preference for commercial zoning is a quirk of California law. California cities are allowed to tax people based on where they work, but not where they sleep. Payroll taxes are fine but income taxes are forbidden by state law.

Devil's advocate: you think your landlord should be allowed to double your rent at the end of your lease? (If they can choose to not continue the lease and evict you, I guess it's the same thing.) In Ontario, for example, there is essentially an inflation-adjusted rate that landlords are allowed to increase their rent by every year (http://www.landlordselfhelp.com/RentIncreaseGuideline.htm) without prior approval. I'm sure there are many flavours of rent control, tilting either towards landlords or tenants.

Of course I do. You had a lease for a negotiated price for a year. That year ended. Now you can negotiate a new price based on current market conditions.

A co-worker got tired of moving every year due several years in a row of homeowners wanted to sell their house when his lease ended. So he asked to sign a two year lease. The homeowner said no. Then he offered an extra $200 a month and two years. And the homeowner said yes. Voila!

I work at a small company (<20) and we're looking for new office space. For some locations we can lock-in a pretty good price if we're willing to sign a 5-year lease.

If you can afford an additional $200/mo, then that's great for you, but there are a lot of people out there who can't.

Housing is a necessity, and while, in our current system, we allow the free market to provide that, it runs counter to the goals of a stable and healthy society to allow landlords to force people out of their homes arbitrarily.

Like health care and education, there are significant long-term and short-term benefits to treating housing as more than just another contractual transaction (for example, tenants who develop a sense of ownership of their place and treat it with respect and take care of it, vs. 'who cares we'll be out in a year anyway'), or building a sense of community in an area (a psychological necessity, and one which has tangible benefits like reduced crime, which in turn improves property values).

> it runs counter to the goals of a stable and healthy society to allow landlords to force people out of their homes arbitrarily.

Italy makes it very tough to kick people out of a rental even if they decide to stop paying.

This creates all kinds of problems for people trying to rent, as landlords vet them very, very carefully, and flat out refuse people they think might not pay up. They won't come right out and say it's because you're a foreigner, or a young couple that look like they might decide to have kids, or something like that, but it can be tough to find a place if you're the wrong kind of person.

Helping people with housing is a worthwhile goal, but dumping it on landlords is probably not the best way to accomplish it.

"it runs counter to the goals of a stable and healthy society to allow landlords to force people out of their homes arbitrarily"

I don't think you'll get anyone many people that disagree with the premise of stability. The devil is in the details of implementation.

Rent control causes as many problems (or more) than it solves. You get much larger price swings in the rental market, for example, because the effective market size is highly constrained.

No system is perfect, obviously.

SF's rent control only applies to buildings built prior to 1979, so rent control is not what's stopping developers from building new apartment buildings.

Yes, SF is a special kind of stupid.

It still is about 70% rent control, if I remember correctly. So, even before construction capacity/permit issues, 100% of the people who want to move to SF are competing on price for 30% of the inventory. Naturally, the people willing to pay the most for those units get them, so you get massive rent inflation and huge incentives to cater to the luxury market.

> So, even before construction capacity/permit issues...

Which -let's be real- is nearly 100% of the cause of the insane rents in the area. [0]

> ...100% of the people who want to move to SF are competing on price for 30% of the inventory.

You make it sound like people never move out of a Rent Stabilized apartment. I know this not to be true. In my building, we get at least one entire-apartment vacancy every two or three months. Those apartments that are going for $3k+ per month that I talk about? They're often covered by Rent Stabilization. :)

Also, remember that SF's Rent Stabilization is the reset-to-any-rate-upon-loss-of-original-tenants flavor of rent control. So, once any Stabilized apartment loses all of its original tenants, [2] the landlord is free to set the rental rate to any rate.

[0] http://my.paragon-re.com/Docs/General/SixtyFortyImages/3-15_... via [1]

[1] http://www.paragon-re.com/Bay_Area_Apartment_Building_Market

[2] Known as Master Tenants, these are the first set of folks whose names were on the lease signed that established the base rate of that unit for that occupancy period. Tenants added after the initial lease signing do not count as Master Tenants.

I strongly urge you to make a study of the fucked-up residential construction situation in SF and the SFBA before making any claims about the effects of Rent Control/Stabilization on housing prices in the area. :)

I also urge you to read https://news.ycombinator.com/item?id=10551005 .

Oh yes, SF's lack of new capacity is the driving factor in rental pricing, no argument. Holistically, rent control, density restrictions, and poor public transit all combine to form the final price.

And, -holistically- severe hunger killed the starving man who just got shot in the gut, struck by a speeding bus, then set on fire.

But, reasonable people see that starvation is an insignificant factor in the man's demise, so -if they bring it up at all- they bring it up only in passing. :)

1. Can you find an economist who would agree with you?

2. Healthcare and education costs have far outpaced inflation. we're doing something seriously wrong there.

3. You are asking the owner of the house to subsidize your rent. Doesn't seem fair. Maybe her costs have also increased. Painters, plumbers, insurance, taxes, etc all increase over time.

> 3. You are asking the owner of the house to subsidize your rent. Doesn't seem fair. Maybe her costs have also increased. Painters, plumbers, insurance, taxes, etc all increase over time.

Oh my no. Not in San Francisco or the SFBA.

God no.

Five years ago, the place I'm living in rented for ~$1,500/month. Now? It's north of $3,000. Now, either materials costs and wages have not DOUBLED over the last five years, or I am in ABSOLUTELY the wrong line of work, and need to get me a piece of that delicious building-maintenance-and-management pie before it runs out!

Additionally: In California, Prop 13 caps property tax increases to a maximum of ~2% per year. Coincidentally, the San Francisco Rent Stabilization rent increase cap works out to be ~2% per year. SF also lets a landlord pass through all sorts of expenses and rate increases directly to their tenants.

Moreover: The landlord knew the score when they became a landlord. In SF, Rent Stabilization was enacted around late 1970. It only applies to buildings built before late 1970. So, if you decide to rent a building, you ALREADY know whether or not you'll be subject to Rent Stabilization, or if you'll be able to rent at "market rate". It's not like this shit is a surprise in most districts! :)

2. I assume he was referring to health and education in places other than the US. In many European countries they are socialized and costs are far lower than in the US.

3. The notion of costs outstripping rent growth in the Bay Area is so far from reality as to constitute trolling. Owning real estate there is like a license to print money.

That would allow a really dangerous behavior: the landlords would put flats under the market price, in order to get new tenants, and after one year living there (furniture bought, new friends, school for the children, etc.) the landlords would be able to rise the fee as much as they want.

The situations where there's an asymmetrical negotiation like landlords-tenants or employer-employee must be regulated by law in order to make them fair.

Law, not wealth, should give rights the people.

Much of the US lives just fine without rent control. My landlord raises rents every year, in lockstep with local union raises. Doubling rent annually is hyperbole, and if you really think landlords can afford to pull bait & switch leases, local only movers cheap enough that clever people should exploit them by moving every year for the discount rent.

At this point it seems like the only places with rent control are where rents are refucking-diculus.

Doubling annually probably happens rarely enough you can ignore it. Where I live now, though, in a medium-sized Pacific NW city, rents in various of my friends and relations buildings/complexes have seen increases 50% in four years.

That's still pretty bad, and I know several people myself who were forced out due to rising rents becoming unaffordable.

That kind of disruption to people's lives doesn't make the kind of society I want to live in.

Where I live, once you rent a flat, the landlord is legally allowed to rise the fee only by a small amount every year (related to the CPI). Also, most of the rentings are long term and the landlord is not allowed to kick you out (except for some exceptional events).

So, when you choose a place to live, you know that you can plan your life there. Also, you don't need to be scared for the landlord blackmailing you.

I guess that both systems work. It's just different models of society.

The majority of the US has had free market pricing for renting for two centuries, and the scheme you're describing has historically been the extreme rarity, not the common.

Further, in a market system there's no such thing as: "landlords would be able to rise the fee as much as they want." Not even close. I don't believe anyone can fail to understand what happens next when a landlord tries to command ten times their prior rent. People are not hostages, they move.

In the DC area many apartment buildings offer first year deals (months free, waived fees, etc). But you forget that there is nothing forcing you to stay in that apartment after the year is up. I have friends that purposely move from apartment to apartment nearly every year to take advantage of the deals. It's not like there is only one living unit available in a school district.

> Law, not wealth, should give rights the people.

Why do you think you have a right to live in a home that someone else owns, and to control the price they can charge you?

That might work for you. For a lot of non-wealthy people, this would be extremely disruptive. Landlords have a lot of power of such people already.

Or anyone who has kids, which is why they instead buy and US cities look like they do.

If the market rate for your apartment is double what you're paying (the landlord wouldn't double your rent if they couldn't get anyone to take it), you're trapped in that apartment: You presumably can't get any other place, because they're all double the price you pay.

  Thus the landlord has no motivation to keep you there, and your landlord can screw you over in any number of ways without worrying about losing tenants -- because that's good for them!

  I used to think rent control was good, but the more I think about it, I worry about trapped tenants who can't get out of their situation financially.

Thus I believe we need to worry about controlling the other factors in housing pricing, so that people can afford market rate, which surely includes making enough supply available at all rates: Luxury condos through to places minimum wage workers can afford.

How do you "[control] the other factors in housing pricing ...making enough supply available" for low wage workers? How do you do that if luxury units only cost a fraction more to construct than low rent units? How do you induce, by policy the construction of affordable housing?

"How do you induce, by policy the construction of affordable housing?"

Relax planning restrictions. Allow owners of single-family homes to demolish them and use the land for tall blocks of flats. If everyone could do this, supply would increase by 10x, and anyone making minimum wage or more could afford to live in SF.

What would happen is that developers would buy up blocks of housing, demolish them all, and build more luxury units.

The average owner of a single-family home can't afford to demolish it and build a new block of flats. All this would accomplish is to make it financially feasible to buy up single-family homes and build more luxury units in them, concentrating even more wealth in the hands of property developers.

This is basically exactly what's happening in Vancouver; build a condo tower that starts at $1m/unit, it gets bought by either the rich elite or property speculators (or individuals attempting to 'hide' their wealth in other countries), and then sits idle. Even with rent control, new housing being built is predominantly geared towards the upper class, or the top end of the upper middle class. Property values go up, and the only thing keeping rents even remotely reasonable is the rent controls.

Then, because rent is controlled, property values are kept lower than they would otherwise be, because the 'buy-and-rent' landlords can't pay for a mortgage that costs less than market rates for rent, so fewer landlord tycoons buy as many units. This means lower mortgages and more supply for people who actually want to purchase a home and have actual security.

Your proposal would still concentrate power in the hands of developers and landlords; developers would buy up all the houses that would sell, knock them down to build rental units, and then, if rents risked dropping 'too low', they'd stop building for a while and just hold on to the properties.

"All this would accomplish ... build more luxury units ... concentrating even more wealth in the hands of property developers."

Building more units is the point. Having enough supply that anyone can afford (to rent) a place to live is the point. I don't see how concentration of wealth is relevant here.

"This is basically exactly what's happening in Vancouver"

Vancouver has plenty of undeveloped and underdeveloped land. Supply of residential units available for new renters is constrained by (1) rent controls, (2) NIMBYism preventing new homes near existing homes, (3) the city government not wanting to re-zone industrial land as residential.

A luxury $1m condo isn't that price due to something inherent in the condo. It's due to its location and the supply/demand in the city. The same condo in Detroit wouldn't cost the same.

Additional supply (of whatever types of units) would increase supply and, by definition, allow more people to afford to live in the area.

It's in the public interest to have more population density and more units that will keep the pressure of competition high.

It makes sense to provide incentive for desired development. Urban planning should balance office, housing, and retail space. The city/locality/region/nation should make those desires public, and if there is an imbalance incentive should be provided to correct it. This might be a tax incentive, or it could be financing conditional on some most units always being beneath market median as well as only a limited spread in rent difference.

Planning might also want to focus on building a city at more than just a /building/ level. It makes sense to have parking at the edges and covered walkways, maybe with 'people mover' belts (like at airports and theme parks) for major routes. This would make for safer streets and more efficient pedestrian commutes.

"covered walkways, maybe with 'people mover' belts"

Like in Hong Kong: https://en.wikipedia.org/wiki/Central%E2%80%93Mid-Levels_esc...

> if luxury units only cost a fraction more to construct

Now there is an interesting point. If it's true does it mean that "rich" people are suckers paying 4x more for a house or apartment that cost barely any extra to build? Or that the building codes mean that a "modest" house costs a immodest sum to build. Probably something in between, but it sounds like the risk-reward ratio has been screwed up by the poor incentives in the valley.

EDIT: OK, derp... The price difference is obviously because of the location premium.

> How do you induce, by policy the construction of affordable housing?

By making -as San Francisco does- a condition of the building permit that the developer either make X% of the newly constructed housing "affordable housing", or pay the city what it would cost the city to build that many units of "affordable housing". This is far from unprecedented. :)

How's that working out for San Francisco?

Mandating some percent of units be "affordable" or charging various taxes which go towards building affordable is not unprecedented. But those strategies succeeding might be. ;)

> How's that working out for San Francisco?

Kinda hard to tell, since they only allow a few new residential buildings to go up each year. If they didn't allow NIMBY interests to prevent _any_ housing from going up, we might actually see this in action and be able to tell.

This was done in Toronto when I lived there in the 90s. And it appears to have been successful. Society benefits in many ways (including saving money) by not having poor people live in slums.

Like thedufer says, as soon as the real blockers to development get the fuck out of the way, we'll see how well Rent Stabilization and the "Affordable Housing" mandates work in SF.

As it stands now, it's next to impossible to build in the city.

Frankly, subsidized housing succeeds in many districts. Once SF and -more generally- the SFBA decide to stop lining the pockets of real estate speculators and investment firms and start building housing to meet the current and future demand, we'll see a change in the character of the area for the better.

I suppose if you are living somewhere where the market rate and the rate one tenant is paying have gotten that far out of whack, you probably have more problems than rent control. :)

>you think your landlord should be allowed to double your rent at the end of your lease?

Of course! It's not your house/apartment and that's the entire point of the lease having a predetermined length.

Yes; their right to do so might be the very thing that holds the rent down in the first place. If you're a landlord considering making a deal for a good tenant in a slump year, or making a deal to keep a good tenant despite a chance to capitalize on rising market rates, wouldn't you be more likely go for it if you know you have the option of changing your mind a year later? If you're instead making a possibly decades-long commitment, are you not much more likely to squeeze out every penny on that crucial day of initial lease-signing?

I guess Ontario's policy is okay if you think taking 30 years to double the rent is reasonable. I don't. There should be plenty of time to move out, but rents should reach market rate.

Maybe 7% a year (double in ten years) would be reasonable.

Something that I've learned: HN reacts really poorly to Devil's Advocate positions.

It's almost as if it doesn't understand the point of the practice. ;)

I don't appear to be downvoted to oblivion, so I don't see what the poor reaction is. :P

At the time I made my comment you were downvoted to at least -1. :)

People think playing the "devil's advocate" card exempts their poor arguments from criticism. It doesn't.

Downvotes in response to an honest, well-formed, well-founded argument are the lowest form of criticism.

If someone is making an honest, earnest, well-founded attempt to play the Devil's Advocate, then they deserve a decent response. :)

> Downvotes in response to an honest, well-formed, well-founded argument are the lowest form of criticism.

I agree, which is why I singled out poor arguments in my comment.

> I agree, which is why I singled out poor arguments in my comment.

And that would be why I specifically only covered Devil's Advocate arguments (rather than poor arguments) in my comment. :)

I've seen many examples of knee-jerk downvoters attack Devil's Advocate comments without consideration for the quality and earnestness of the comment's content.

Mountain View doesn't have rent control.

Mountain View is part of a ecosystem that does. And they're covered by prop 13 which is what directly incentivizes commercial over residential.

Seem more like your injecting you pet issue into the conversation than any sort real analysis. Why would i even matter? Any single issue is hugely overshadowed by the reality of rapid growth in demand.

Reply on news.ycombinator.com