Rent control is keeping rents high in San Francisco
philip.greenspun.com
philip.greenspun.com
However, this serves to illustrate: keeping rents high is rather a combination of being bad at mathematics, tacit collusion among landlords and protesting rent control.
These things are never as simple as they seem...
I’ve been renting for 8 years and I’m the shortest tenancy in my building (as an example).
And the math about keeping it empty doesn’t factor in the sales price. A realtor explained it to me - if you have a 3 unit building, the sales price can go up by several hundred thousand dollars if one of those units is empty. That could easily be 5+ years worth of rent, so keeping a unit empty for a couple years can be a financially smart move. The reason is because evicting a tenant (owner move in) is a very expensive and lengthy process that few buyers are willing to put up with.
But a dramatic drop in rent will result in someone locking in that rate and literally never leaving. Taking that apt off the market essentially forever.
I know a few people with rent controlled apartments in SF who have held them for decades so their rent is impossibly low. They'll never leave. At least one hasn't even lived in SF for many years now but the rent is so low it's worth it to them to keep it as an occasional weekend crash pad even though they live elsewhere.
People like to point out that sf rental market does not have very high rental mobility.
While it's not a good thing (people living in homes inappropriately sized because they can't afford to move), it's also not a bad thing (moving frequently sucks, and should be more at the behest of the tenant, rather than landlord).
The state-wide rent control allows CPI + 5% or 10%, whichever is lower, which doesn’t seem like much of a limit.
Just increasing it to CPI in SF seems like an improvement. Even pensioners get CPI adjustments.
A better description is that it makes rents get jacked up unfairly before you even move in. Property prices are about the same in Zurich and SF, but rent is about half in Zurich as in SF. So the effect of rent control is that everyone's rent is about doubled. I'd rather take my chances and move if my landlord doubles the rate after 2 years than be forced to pay double from the start as I'd have to in SF.
I also don't know how well correlated property prices and rent are, especially across countries. I think there are a number of confounding factors such that I'm not sold on how directly it translates.
"I asked how much rents have fallen and he responded with "30 percent." Why not rent the units out at the current market rate? "If you ever rent to someone in San Francisco," he replied, "you can never raise their rent more than about 2 percent per year after that. You're locked it at whatever rate you start with. So I am waiting until the shutdown ends, hoping that market rents will come back closer to what they were when I bought the building."
Tax property more when it's vacant.
Problem fixed.
Fortunes don’t magically rise and fall with the “market”, the market is merely an abstraction that represents the multitude of transactional choices that anywhere from thousands to billions of people make on a day to day basis.
I am not arguing that we need landlords to make more money. But until leftists overthrow our current capitalist system, we do need to incentivize capital owners to invest in rental properties to increase the supply of rental properties (which should decrease the cost with all else equal). (That last sentence is positive and not normative.)
I know landlords of rent controlled units in SF, and believe me, those tenants are making a huge tradeoff. Yes the rent is low, but forget about ever really liking the place you spend your life in. There is zero incentive to upgrade anything ever. If your toilet is leaking it will be fixed. But get ready to live with 30 year old fixtures, cabinets, carpets, etc. So sure, rent is low and that’s great. But it doesn’t come free. It’s definitely a major sacrifice to be making as a tenant.
How can this be?
Of course they will charge more in rent to adjust for the fact that a percentage of their tenants will be long term, and therefore short term tenants end up subsidizing long term tenants, exactly as I claimed.
I get that you don't like landlords. But think this through and try to use reason rather than emotion.
Rent control is bad because over time it screws up supply and demand, and increases the the rent that the market can bear. Not because it gets in the way of the landlords' natural charitable instincts.
So you cannot argue that you will make a unit more valuable, thus increasing demand for the unit, but that a landlord who has market power will not be able to raise prices to fully capture that benefit.
Rent control is such a benefit that makes a unit more valuable, and landlords are able to charge more, fully capturing the benefit to the average renter.
This means long term renters underpay, short term renters overpay, the landlord does not pay any more, on average, given the mix of short and long term tenants, but the short term tenants subsidize the long term tenants.
So all of these plans to pass laws preventing or obligating landlords in some way will always result in higher rents to fully push the value of that benefit onto tenants, assuming that landlords have market power, which is a safe assumption in constrained areas like San Francisco.
Just pointing out that if you happen to get that $800/mo rate locked in, it's a pretty sweet deal, 30-year-old cabinets and all.
The parent comments made it look like it's not.
They just have to ask voters nicely first, and if tenants really are fleeing in numbers and new tenants can’t or won’t move in at these prices, that’s not looking more likely to happen.
We could cut rent control, then landlords might want to rent out at a sane, well, saner, price again.
Besides leaving properties vacant, rent control distorts the market in other ways. Because rent control also lowers the supply of rental unit, builders are more incentivized to sell to owner-occupants (since rent control depresses the value of rental units and thus a landlord's willingness to pay for a given unit). This increases the pool of housing available to richer people who can afford to buy a house, and decreases the pool of housing to people who can only afford the rent.
Rent control also incentivizes renters to stay in their current housing, even when moving would be more efficient. (Consider someone living in an rent-controlled below-market rate apartment in San Francisco who gets a new job in the South Bay. They would like to move, but that would cost them extra in rent.)
Even if you create policies that address these issues, there are likely more problems rent control creates. At what point do you give up and conclude that rent control is the issue?'
If you want to control gentrification and enable people to stay in the neighborhoods that they grew up in, there ways to achieve that which don't have the negative side effects of market-wide rent control, like below-market-rate housing for people who make less than a certain amount or have lived in an area for a certain amount of time.
Since builders do not want to build, then the State needs to provide leadership, take control, establish eminent domain, and send in the army, to build government backed buildings. Then rent these out to people that need them, at affordable rates.
The sacred market, is ultimately what is killing the quality of life in California.
Show me a builder that doesn’t want to build, and I’ll show you a city planning department that makes it impossible to do so.
Builders are like any business. They want a margin. If they can’t make a margin, they don’t build.
The only way government can build cheaper than a builder is to bypass its own regulatory morass. At which point one might ask, why not just let the builders operate on the same rule set.
All these regulations increase the cost of building, and decreases the builder’s profit margin.
The only solution here, is to roll back these burdensome regulations and environmental review policies.
Look, you are not going to cause rents to fall by adding more costs to landlords. To get rents to fall you will need to either build more units (increase supply) or make the city less desirable (decrease demand). For example, don't allow construction of office space in the city unless it's matched by construction of housing units.
Landlords will always charge the absolute highest rate that they can get away with, regardless of the taxes they have to pay.
So raising taxes on vacant units will not raise rents even one single penny, as they'll already be as high as it's possible for landlords to charge and rent in that market (or, in the case of vacant units, even higher).
The one exception is if a tenant can’t afford the rent and the landlord decides to give a temporary hardship discount. There is a very strict procedure the landlord has to follow for that discounted rent to not become the new base rent.
I assume that tenants, if they are willing to put in the work, could very well force their landlord to keep the discount offered during Covid.
There could be many ways to enact rent control, every city is different, Covid is not always a thing, etc.
Maybe all possible implementation of rent control are always bad in all real world scenarios, but having a single example of a particular concrete implementation in a particularly odd set of circumstances doesn't prove that.
Making it more viable for him to sell the apartments outright would be a massive win. Why let this failed slumlord keep property he can't use productively?
You’re either lucky on the inside, or completely shit out of luck.
What annoys me about this is that you can do the research instead of relying on your a priori thoughts, which are wrong. There are 5x more empty units than there are homeless people pre-pandemic [0] and it's the case for all cities with rent control because landlords don't want to be stuck with submarket rents for decades.
[0] https://sf.curbed.com/2019/12/3/20993251/san-francisco-bay-a...
Both of these systems are widely regarded as unfair by everyone other than their beneficiaries (e.g. long term property owners for Prop 13 and long term renters for rent control).
Both of these systems end up raising prices for newcomers, so that old timers are subsidized (newer home sales have Prop 13 benefits baked into higher asking prices, just as newer rental contracts have rent control benefits baked into much higher rents).
Nothing prevents a landlord and tenant signing a contract in which future rent increases are controlled for a long period of time while allowing the tenant to move out whenever they want. Obviously such a contract would require a higher asking rent than a contract in which the landlord had the option of raising the rent after 1 year. This is because the former contract has an embedded option value that the latter contract doesn't. Thus rents in rent control cities are always higher than the same rents would be without rent control.
That doesn't mean that there isn't a (small) population of incumbent renters who massively benefit from the option, even if a larger group of renters loses from the option. Like any lottery type system, those who end up being able to stay in the same place are winners and the other renters are losers.
This situation creates massive transfers from a majority of the renter population to a small minority of very long term renters, just as Prop 13 creates massive transfers from new home purchasers to long time owners.
The issue is why the city makes it illegal to have any other kind of contract. Most renters suspect they won't be living in the city for a long period of time, and don't look forward to paying twice as much in rent than their long term renter neighbors. I understand that some people are very risk averse, but why should everyone be forced to buy so much insurance?
Landlords, on the other hand, are subject to more volatility (the risk of having a very long term renter) and so demand higher rents in exchange for bearing this risk. Landlord are effectively selling insurance in this system together with housing services. Some landlords may want to sell this insurance and others won't. This forcing of selling insurance is why landlords don't like rent control, because some landlords are also risk averse.
If tomorrow, rent control would be eliminated, then rents would fall quite a lot and many people would be evicted. A small group of long term tenants wouldn't be able to pay the new (lower) market prices, but a larger pool of newer tenants would see their rents fall as they would get an unbundling of the rental price from the insurance price.
This may come as a shock, but no one has a right to live in Monaco, or the Upper East Side, or Nob Hill, etc. You live where you can afford to live. Housing is quite affordable in the US, but it is not affordable in the most expensive areas, which are very few.
Some areas are more expensive to live in than others, because if prices were lower there would be shortages -- more people would want to live in those areas than are available units. Thus prices increase until the number of people wanting to rent an apartment are equal to the number of apartments available.
Food works perfectly fine as a market, with out "food rent controls".
Nobody is going in to restaurants and telling them that they must sell a hamburger for less than 15$.
No one is going in to walmart and forcing them to sell cereal for less than 5$ a box.
Compared to rent and housing, it is way way way more free of a market, regardless of any negligible government regulations that you can find that are in no way on the same scale as rent control.
Also: farmers get 7.8c of every food dollar.
https://www.washingtonpost.com/news/wonk/wp/2018/05/02/why-f...
[..] Economists say those trends, coupled with low commodity prices, caused farmers’ share of consumer food spending to fall 1.2 cents in 2016, reaching the lowest point, adjusted for inflation, since USDA began the measure in 1993. (It's the latest year for which data is available).[..]
You agree that nobody is going in to restaurants and telling them that they must sell a hamburger for less than 15$?
That is the kind of thing that I am comparing it to.
Rent control does this, whereas the government is not forcing restaurants to sell a hamburger for less than 15$.
Just had to chime in re: food prices.
Im tired of seeing 'poor landlords arent making profits' comments.
And 'Support local businesses' everywhere. Why? Are they taking care of their workers? Are they paying them better for taking risks during the pandemic? Probably not. Restaurant/fast food chains still open are making a killing with a leaner workforce and collecting far more money, but no workers got a raise ir even sick leave.
Are they helping their communities? No. But at least they serve a purpose. Paying rent every month instead of to a mortgage to build someone else's wealth instead of your own.
At what point in society did building wealth become married to screwing over fellow humans?
A perverse incentive system for landlords locked in by governmental rent stabilization strategy? Perhaps a during the great reset which could dramatically shift the out of whack supply-demand curves due to work from home, which allows Twitter or FB workers freedom from being tethered to the physical offices and certain neighborhoods would allow a freer market wherein lower income workers could contribute to a vibrant streetscale of shops and restaurants to serve customers all along the economic stratum.
Behold better neighborhoods and communities by not locking out workers and families who contribute to the base resource needs of say the Tenderloin by allowing them a vested property interest in those communities. Sounds like a reasonable strategy to me and leads to Lee’s government interference and picking winners and losers based on solely economic factors such as maximizing rent.