Rent Control Creates Higher Rents in SF

http://www.nickstefan.net/blog/view/sf-rent-control

by nickstefan12 • 11 years ago

170 281 11 years ago

xenadu02• 11 years ago

Tech kids don't vote. An informal poll of my coworkers reveals those that live in SF didn't vote last election, some because they thought you had to live here for over a year before you can vote. Tech companies don't seem to do anything to encourage people to register either.

I voted (especially for pro-building, pro-housing candidates). Maybe if everyone else did the same we could change a few things.

ktothemc2• 11 years ago

Bingo. Please register here: http://registertovote.ca.gov/

It's very easy!

ChuckMcM• 11 years ago

Wish I could vote this up twice. The people who approve (or don't) the building of new housing units, The people who vote to control or not control the rents, and the people who make the rules about what you can and cannot do on a saturday night when out with your friends are all elected. If you don't like it you can easily affect the outcome of a city council election by getting your friends together to vote as a block.

mahyarm• 11 years ago

How about people on visas? Like H1-Bs and so on? That is a significant part of the industry.

cskozmo• 11 years ago

You do have to be a U.S. citizen to vote.[1]

[1]http://www.usa.gov/Citizen/Topics/Voting/Register.shtml

GuiA• 11 years ago

A lot of "tech kids", myself included, are immigrants and can't vote.

And, on a separate note, it's ridiculous that I have lived here for over 4 years and paid hundreds of thousands in taxes but do not have any way to influence the democratic process (it is equally ridiculous that I can still vote in my home country despite not setting foot there for more than 2 weeks per year for the past 6 years and not contributing to its economy at all. The current definition of citizenship is completely outdated in the globalized world)

Kalium7• 11 years ago

Also, a lot of "tech kids" like myself aren't in SF proper and thus can't vote on things like SF rent control. It's amazing how privilege acts to protect itself.

toephu22• 11 years ago

"it's ridiculous that I have lived here for over 4 years and paid hundreds of thousands in taxes but do not have any way to influence the democratic process" really? what about the reverse? Can I easily become a citizen of your country if I moved and worked there for 4 years? Most countries don't even have options for immigrants to become true naturalized citizens of that country, in this regard, America is actually pretty progressive.

hkmurakami3• 11 years ago

There are more responsibilities of citizenship than just paying taxes.

I actually tell my H1B friends that getting a green card but not naturalizing is likely their best ROI.

raldi• 11 years ago

Instructions for how to register to vote-by-mail:

https://www.reddit.com/r/housingforsf/comments/22xoht/help_h...

It's easy and takes five minutes! Give it a shot and post a reply below either confirming or denying that it's really as fast as I claim.

kelnos5• 11 years ago

Tech companies don't seem to do anything to encourage people to register either.

My company (a tech company) sent a bunch of emails about registering to vote and voting, and also had a drop box for voter registration forms, and encouraged people to get out of the office to vote.

Yes, this is just one anecdote, but there are people at tech companies who recognize that political issues are important and push people to get involved.

ghouse2• 11 years ago

And Prop 13 creates higher home prices in CA.

Both do little to protect their intended target (artists and elderly) both do a lot to protect the non-mobile (and in fact discourage mobility).

digikata2• 11 years ago

Talking to relatives who live out of state, Prop 13 really does protect the elderly from rising property taxes. I think you don't really see it because it has largely solved the problem of rising-propery-tax-based evictions without much fuss, so you don't really feel it in action.

One issue with Prop 13 is that it should maybe only protect property owners who live in their property as a primary residence, but currently covers commercial properties, vacation homes, etc..

Higher home prices get locked into the tax rate if the property changes hands so I'm not sure what the link is to Prop 13 creating higher prices....

dragonwriter3• 11 years ago

Higher home prices get locked into the tax rate if the property changes hands so I'm not sure what the link is to Prop 13 creating higher prices....

Prop 13 has several provisions, the two most important being:

1) It limits the nominal rate of ad valorem property taxation.

2) It limits the increase in the tax basis value of property except when a reset to the full assessed value is allowed for certain qualifying events (changes of ownership and certain improvements.)

The first directly increases property values by making it more attractive to own property because of lower cost of ownership and less tax risks regardless of length of ownership.

The second restricts mobility (and therefore, both supply and demand) because it discourages exchanging one property for another, because doing so increases almost always increases effective tax rates (and total tax costs for like valued properties.) Because the it affects supply more than demand (insofar as some demand comes from people moving from out of the state, who aren't affected by Prop 13 on the demand side), this also increases prices, though its main effect is to reduce market clearing volume independent of price and thereby increases price volatility.

shittyanalogy• 11 years ago

Rent Control is about enabling community through housing stability. Places where the housing costs have skyrocketed out of the reach of anyone but investors are also the places with the lowest community participation and highest Landlord rights. If you want to run a city where only the rich have rights then don't have any rent control. But if you rent to people who aren't rich, and then when housing goes up you try to throw them out to make more money, they're going to want to get together, contact their politicians, and secure their housing stability. Just because you want to piggyback on the poor and lower middle class to float your investment until it starts making real money doesn't give you the right to complain about the poor and lower middle class for still being there. If you consider housing in one of the densest cities in the planet to be solely for investment purposes I think you have something wrong with your moral compass.

taeric• 11 years ago

These sound like bold claims, honestly. I have never lived in a rent controlled area, but I have also never had the money to enter into the only rent controlled areas I know of. Such that it is easier for me to understand the possible negatives of rent control over the positives. Do you have good reading on why they are false? (Basically, your moral argument sounds like I could see the appeal, but mostly false. Whereas the other arguments lack any appeal to morality, but seem much more likely.)

Kalium7• 11 years ago

How do you propose addressing the problem of the high market rents in SF, then?

Karunamon3• 11 years ago

Perhaps I'm misunderstanding basic economics here, but:

The 20 people who originally couldn't find houses in SF (who formerly would have needed to bid $4), can bid $2 on some of the formerly rent controlled houses. They get leases.

If the market rent is $4, and the control is $1, and the control disappears, why on earth wouldn't the landlords in possession of the formerly-controlled properties immediately raise their prices to the market price?

stephencanon3• 11 years ago

Because there aren't 100 people in the model city willing/able to pay $4 rent. The landlords might attempt to do what you suggest, but as they fail to rent their properties month after month, they will gradually drop the rent they are asking until equilibrium is reached.

hiou• 11 years ago

Here are a few reasons[0] you might want to look into about this fabled "equilibrium" in commercial real estate.

[0] http://www.ezracompany.com/2012/04/30/why-do-landlords-let-s...

sefu• 11 years ago

this assumes a perfect system, with specific conditions. the real estate market tends to be neither. apartments go vacant all the time waiting for the $4 swm.

astrodust• 11 years ago

This highly simplified example doesn't have sufficient information to calculate what the equilibrium will be.

Obviously it will be lower than $4, but what?

endtime• 11 years ago

If supply goes up and demand is fixed, prices go down.

Karunamon3• 11 years ago

..in an ideal system with completely rational actors. People will sit on properties that are not selling and not touch the price.

nickstefan123• 11 years ago

Because the old market price was $4 due to there only being 20 houses that could freely move on price.

If there's 100 houses there will more supply and the market rate will drop. Basically market rent is simply the price at the available margin.

gravity13• 11 years ago

And here I have no doubt that there's sufficient demand to account for the increase in supply.

There's probably not 120 people, and 100 houses. I think it's 500 people and 100 houses. Higher rent has driven a lot of people out who would have preferred to stay but couldn't because of the price.

Rent control is the only thing keeping some of them here.

- written from my cold, moldy dying home in the Sunset.

metaphorm2• 11 years ago

they are free to ask for $4. if the market is working efficiently then the renters in the market will start a bidding war between landlords to lower their price. as soon as one landlord reduces the asking price below $4 its all over, and the $4 "market price" is proved to no longer be the market price.

acomjean2• 11 years ago

I live in cambridge MA. We had rent control on some units, now we don't. It seems to have done little to stem the tide of expensive rental units.

I think building more adding more supply is the only way to help keep rents and sales prices at a reasonable level.

They charge higher taxes to non-resident owners, which is an interesting tactic. But rents have gone up enough that people who leave my building often opt to rent their units rather than sell them.

It doesn't help that my state doesn't seem to make public transit outside the city core a priority (Boston, Cambridge, Somerville, Brookline), meaning commutes into the city from outside can be painful.

vonkow• 11 years ago

I grew up in Cambridge. When rent control went away, the rent skyrocketed and a large swath of the lower/middle class was forced to move to the suburbs.

It sucks, because only 2 or 3 towns in MA had rent control, but developers scared city councils across the state into voting to ban the practice.

driverdan• 11 years ago

It sucks

Why does it suck? The market should be allowed to work.

psychometry• 11 years ago

The other problems in the Boston area are oppressive zoning laws and height restrictions that discourage or make impossible the construction of cheap, high-occupancy buildings. Boston, despite its liberal reputation, is a very conservative city economically speaking and is a perfect example of what happens when NIMBYism runs amok. Cambridge and Brookline are probably worse in this respect.

Shivetya• 11 years ago

To be blunt, altruistic behavior is seemingly assigned to liberals without question the end results of many of those actions seems to have the opposite effect but when you dig down it had the effect they desired.

simply put, they don't want the type of people associated with that type of housing messing up their neighborhood. The lesson learned in the 60s is that it takes regulation to control who can move into an area by simply pricing it beyond the means of the undesired groups from moving in.

The separation is now more money based than race, but a little of the latter still exist; actually a lot of the latter still exists

jff• 11 years ago

SF is the same way, down to the oppressive height restrictions.

ghouse2• 11 years ago

A more constructive discussion would be regarding what % cap in rent increases best balances competing interests. Last year in SF rent-controlled housing (muti-unit, built before 1978) had a cap of 1.9%. http://www.sftu.org/annualincrease.html

meddlepal2• 11 years ago

Rent control isn't the only problem. We don't have rent control in Boston/Cambridge but we also have skyrocketing rental prices. The fact is supply needs to at a minimum match demand or outpace it to suppress severe rent inflation. You can only get to that happy place if you make development easier; both San Francisco and Boston have very strong NIMBY groups in the various neighborhoods.

TheOtherHobbes• 11 years ago

You can't have skyrocketing rental prices. That's economically impossible.

If you do have skyrocketing rental prices, you should buy yourself an Econ 101 textbook and educate yourself about why this is impossible.

Then the problem will go away.

both San Francisco and Boston have very strong NIMBY groups in the various neighborhoods.

Well, yes. In the real world - the one that doesn't consider 'just so' stories an explanation of anything - it's well known that rents depend on a mix of factors, not least of which is strong government support for affordable social housing.

Germany has a very strong rental culture, and excellent availability. Rentals remain reasonable, because there's a critical political mass of renters who would cause problems for politicians if they stopped being reasonable.

London, meanwhile, has limited housing stock and no rent control. The result is that rents are increasingly insane, landlords are increasingly disinterested in spending money on repairs (...so much for that argument) and most ordinary people are either sharing in overcrowded conditions, living in spare rooms, or moving elsewhere.

As a test case, this is hardly a resounding success for the no-control lobby.

London used to have a solid reservoir of social housing, but that was deliberately eliminated in the 80s. The result has been a steady cycle of manic-depressive boom/bust explosions.

Currently property prices are being driven up by foreign speculators. Wherever there's boom, capital flocks to it - until prices crash again, and then the greater fools are left behind, trying to capitalise on decrepit slum properties.

Rent control on its own isn't a solution to this. But an integrated and thoughtful housing policy certainly can be.

myrryr• 11 years ago

"You can't have skyrocketing rental prices. That's economically impossible."

"If you do have skyrocketing rental prices, you should buy yourself an Econ 101 textbook and educate yourself about why this is impossible."

ok, this made me laugh more then it should :)

meddlepal2• 11 years ago

"You can't have skyrocketing rental prices. That's economically impossible."

"If you do have skyrocketing rental prices, you should buy yourself an Econ 101 textbook and educate yourself about why this is impossible."

Please explain; genuinely curious.

bhickey3• 11 years ago

Cambridge is a great study in rent control. After rent control was thrown out in 1994, as you might imagine, prices in the city began to rise. The twist is that never-controlled units rose faster than controlled units! Since a tenant doesn't care if about the historical rent control status of unit, this strongly implies that never-controlled units were of higher quality.

zyxley• 11 years ago

Rent control wouldn't have nearly this much of a distortive effect on the SF housing market if SF actually had enough housing in the first place.

mathattack6• 11 years ago

Rent control is one cause (of many) of the housing problem. People are less likely to invest in real estate, especially targeting low income, if there are restrictions on how they can monetize it.

Joky• 11 years ago

Maybe there would be more housing built if the area was not under rent control?

x0x05• 11 years ago

New housing in sf is not rent controlled.

100k3• 11 years ago

There is no way San Franciscans renters should give up rent control without landlords giving up Prop 13. Landlords can hold property for decades without seeing their taxes go up, yet they cry crocodile tears about rent control (which resets every time a tenant leaves).

Rent control and Prop 13 are two sides of the same coin.

sologoub3• 11 years ago

Prop 13 for individuals/families serves largely the same purpose as rent control - to ensure that the place they live in stays affordable.

If property values increase and there is no rent control, do you really expect landlords to not pass the property tax increases to the renters?

In fact, I would argue that more home ownership would be a lot better than rent control, because if the home owner chooses to leave a given area by selling, he/she is able to benefit from the increased values. Renters on the other hand cannot.

While it would be very interesting to contrast the tax situation in Washington state (property taxes adjust every year there from what I understand) with that of California, I doubt the current situation would greatly improve prop 13 gone, and I know for sure a lot of people would be squeezed.

michaelt• 11 years ago

In the UK, houses are placed in 'council tax bands' based on the estimated value on 1st April 1991. So the tax band stays the same regardless of housing market fluctuations.

The tax rates for the bands are then set by the local council, as a political decision. Band A property? £1000 a year. Band E property, maybe it's £3000 a year.

Admittedly, assessing a tax band is a little subjective - but it seems to work OK. Any idea why local government taxes in the US aren't calculated the same way?

batbomb• 11 years ago

If Prop 13 were limited to primary residence OR to those aged 65 or older, or had means testing, that would make a lot more sense.

Of course, somebody decided it would be easy to apply it to everyone, even large commercial properties. The fact that it applies to commercial properties is kind of insane.

http://www.sfgate.com/news/article/Bill-to-close-Prop-13-loo...

kansface3• 11 years ago

The point is that home owners have the very strong and perverse incentive to stop all new construction under prop 13. Currently, their homes appreciate 15% each year while their taxes move less than 1%. They are minting money with no down side. New construction means they make less money, plain and simple.

| In fact, I would argue that more home ownership would be a lot better than rent control...

This may be the case, but its an experiment that will never happen. SF is at an extreme housing deficit, and refuses to build new housing commensurate to its population growth (1 unit per 10 new people for the past decade). Prop 13 is a large part of the problem - minus squeezing, home owners have no incentive to allow new construction.

newman314• 11 years ago

That's not going to happen without some sort of equalization.

Prop 13 benefits people that have owned property for a LONG time. I cringe every time I see my prop tax bill while my neighbors who have been here for decades pay a fraction of taxes only because they were here first [1]. But Prop 13 props up housing prices which would drop like a rock if Prop 13 were outright abolished. So there would need to be some sort of retro tax event to help lessen the pain.

Additionally, I would make the distinction of this tax event for primary residence, investment property and commercial property. Maybe it should just apply for primary residence, I don't know the right answer to this but longer term, I agree that rent control and Prop 13 need to be revisited.

[1] http://www.planetizen.com/node/40895

kansface3• 11 years ago

The repeal of prop 13 is straightforward. Let property taxes rise more than inflation each year. It could be capped at 2x or 3x, etc. It would be slow enough to let people prepare, but fast enough to be painful.

rconti3• 11 years ago

How do you think prop13 props up prices? It's an incentive for people to stay in a house, which reduces churn, but it's arguably a disincentive for a renter to buy, because of the outlandish tax rates they'd need to pay (which offset the low taxes of long-term owners). I don't understand your logic.

kelnos5• 11 years ago

Is it feasible (from a reporting/enforcement perspective; I'm sure it's not feasible politically) to modify prop 13 so that live-in owners receive prop 13 benefits, but owners of investment property & rentals are still subject to normal increases?

MRSallee• 11 years ago

There is no way San Franciscans renters should give up rent control without landlords giving up Prop 13...

What do these have to do with each other? And I guarantee if you gave landlords the option, they would jump on that offer. Prop 13 is saving long-time owners a few thousand dollars a year, which would be easily made up (and more) with higher rents.

Lazare• 11 years ago

According to the headline (and also economic theory and extensive empirical evidence), rent control hurts renters. On the other hand, Prop 13 does not.

Your argument is that renters shouldn't give up something that hurts them, until another group gives up something unrelated?

Can you articulate why you think that negotiating strategy might lead to optimum outcomes for renters?

ahomescu1• 11 years ago

According to the headline (and also economic theory and extensive empirical evidence), rent control hurts renters. On the other hand, Prop 13 does not.

I think (guessing a bit here) is that the argument goes like this: repealing Prop 13 would drive down house prices, allowing some renters to instead buy/mortgage, therefore reducing the demand for rentals, driving rents down.

aetherson4• 11 years ago

Prop 13 applies to all of California. Most of California does not have rent control.

I have complex feelings about Prop 13, and I'm not by any means unilaterally a fan. But to suggest that it necessitates rent control sounds, at the very least, under-argued. How does San Jose fit into this picture?

100k3• 11 years ago

I'm not saying it necessitates rent control. I'm saying that Prop 13 and rent control both came from the same place, the high inflation 1970s (see the TechCrunch article: http://techcrunch.com/2014/04/14/sf-housing/).

Repealing rent control without repealing Prop 13 would result in a MASSIVE wealth transfer from renters to landlords. I don't think that's fair.

jekdoce2• 11 years ago

Both of these laws are designed to benefit people who moved here long time ago and make it economically harder for new people to move here. Whether they are landlords, renters or home buyers.

Prop 13 makes new property buyers pay more for property taxes. Rent control makes new renters pay more for rent.

As long as there are more people benefiting from these 2 laws than hurting, they will be in effect. It would be interesting to see organized efforts in changing these laws.

100k3• 11 years ago

Agreed. I think the entrenched property owners and long-time renters are a big part of the anti-building coalition in SF. For owners, lack of building is actually in their interest. For renters, at the very least, the lack of building doesn't affect them.

Both have "got theirs" and don't want to let new people into the city.

ChainsawSurgery• 11 years ago

Not to sound like a complete dick, but... duh? Is this a controversial opinion really from a finance perspective? I was under the impression that almost all arguments surrounding rent control are:

1) Moral/legal arguments

2) Whether rent control is the small problem and lack of housing development due to zoning laws or NIMBYism or conspiracy or whatever is the much bigger problem - i.e. rent control is one small facet of the housing issues in SF.

nullc• 11 years ago

There are efficiency arguments as well.

The solution where each participant in a market acts to optimize their own returns is sometimes nowhere near the global optimum allocation of resources (for basically _any_ theory of optimum allocation other than "whatever the market did").

mathattack6• 11 years ago

This just seems very basic.

Rent control discourages investment in real estate. Less investment in real estate means lower quality and fewer apartments. There are some lucky winners who get cheap apartments, but the rest pay higher prices to live in worse places. The same thing happens in New York City.

The economically sound answer is to make it as easy as possible for builders to make large buildings with lots of apartments. Right now it is so hard to build that only luxury apartments are profitable.

ktothemc2• 11 years ago

They considered that financial disincentive for new construction when rent control was implemented in 1979. It does not apply to new housing units built after 1979.

mathattack6• 11 years ago

Valid point. My perception (Based on SF and NYC) is that many of the laws that go along with rent control make it difficult to build low income housing. The time to get permits, and the difficulty in rehabbing, make anything except luxury apartments unaffordable.

x0x05• 11 years ago

Rent control doesn't discourage investment in real estate in sf, because crucially, no new construction is rent controlled.

jvm2• 11 years ago

Rent control prevents existing rent controlled properties from being redeveloped (e.g. to increase capacity).

Of course, in the SF context that might also be impossible due to zoning/nimby opposition, but it is one huge factor.

cbhl• 11 years ago

It's worth noting that San Francisco sets a much higher burden on new construction: it either charges the builder an "Affordable Housing Fee" (~$200k to $522k per unit), or it requires a certain percentage of units (12% of on-site or 20% of off-site) be made available for rental or sale at a price specified by the city ("below market rate").

http://sf-moh.org/index.aspx?page=308

mathattack6• 11 years ago

Same issue in NYC. So a couple people win a lottery to get subsidized housing, and can't ever move again, at the expense of the people paying full rent, the developers, and everyone else who can't afford housing.

ADRIANFR• 11 years ago

If the City needs teachers, social workers and others with traditionally lower wages, wouldn't it make sense that their wages would also go up (based on demand) if the rent control goes away?

VLM• 11 years ago

Bingo, the most important question that is not being discussed.

This whole discussion is a social class issue. The folks there have defined their upper class and they actively don't want lower class people there.

Otherwise, if you insist on hyperinflation of tech salaries and hyperinflation of property prices, there's no reason not to glorify a similar hyperinflation in teachers salaries or a hyperinflation in social worker salaries. But no, there's agony and terror that a lower class human might soil our pristine streets if we paid them a living wage...

Kalium7• 11 years ago

Have you considered that it's simply a case where an unprivileged group is unhappy with being denied access to a good or service available to a privileged group?

I don't know anyone who wants to push out "lower class" people. I do know lots of people who want to live in a San Francisco where everyone can afford rent. Everyone includes programmers, teachers, social workers, and dishwashers.

s73v3r3• 11 years ago

The professions you mentioned are government positions, which are largely funded with tax dollars. As it is, governments are currently full of people who are extremely anti-tax, and are against paying these people more.

moron4hire2• 11 years ago

All of the arguments I have heard for rent control act like the vast majority of us who live in non-rent controlled areas are going through a Boschian nightmare hellhole of landlords jacking up our rents, driving us out of our ancestral homes, and sticking pitchforks in our collective asses.

<checks cranium> nope, no screw-vices here.

rmc• 11 years ago

It can happen in some places. In Dublin, Ireland someone's rent went up by 50% http://www.breakingnews.ie/ireland/dublin-couple-forced-to-l...

mrgordon3• 11 years ago

It's not relevant for less crowded areas but friends who live in NYC (or SF, without rent control) often see 20%+ increases amounting to at least a few hundred dollars per month. That's pretty rough after you found a place to live and spent a year setting it up.

moron4hire2• 11 years ago

That's funny, because NYC has the longest-running rent control program in the country.

x0x05• 11 years ago

I live in San Mateo.

In my building, rent has increased from $1800 to $2550 in the last 2.5 years; that necessitates $18k more in pretax income to service.

bcg1• 11 years ago

Price controls almost always lead to shortages, for the very reasons the author described. If rent control is used to keep prices down, it is self evident that the market clearing price must be higher for those units... otherwise you could just get rid of rent control all together and there would be no side effect.

I guess the real question in my mind is "cui bono?" Seems that this policy would greatly benefit any landlords with non-rent-controlled property, since the artificially low price would create an increase in demand... since the price of those units can't increase the effects would presumably be felt in the next best substitute(s), i.e. free market apartments and/or values in the surrounding areas. Seems like property developers in the both the city and the suburbs might have a strong interest in distorting the market in this way.

wuliwong2• 11 years ago

If I understood his argument, I think he was saying that only non rent controlled apartments are factored into things like average rental price. So, in this case, the rent controlled properties are basically just not part of the market right now. So his argument was that removing the rent control would more than double the apartments on the market. The price for the rent controlled properties would increase but since they previously weren't being counted, the average price would ultimately drop with the larger supply now available to be bid on in the open market.

btilly• 11 years ago

This is literally economics 101. If some of the supply is tied up in below market prices to people who would not have bought at the market price, then you shift the supply curve more than the demand curve and the price of the free market bit will be higher.

Anyone who cares to know this, does. People who don't want to know this won't be convinced by a carefully reasoned toy example.

But if you really want to understand the problems with the housing crisis, http://techcrunch.com/2014/11/02/so-you-want-to-fix-the-hous... is unusually good.

claudenm• 11 years ago

It's falicious to think demand is fixed in SF. Removing rent control does nothing to stem demand. Also arbitrary deeming '$2' affordable is made without any supporting evidence.

tdaltonc• 11 years ago

It's trivial to show out that rent control increases the cost of rent for new renters. It's been talked about in the academic literature since the 40's[0]. The harder question is, "is it worth it?" Do the people who build a community in a place, and contribute to it's value, deserve to be shielded from the price increase they helped create? Home owners are incentives to help build a valuable community, shouldn't renters?

[0] Friedman, Milton, and George Joseph Stigler. Roofs or Ceilings?: The Current Housing Problem. Foundation for Economic Education, 1946.

jim_greco• 11 years ago

You need more data. Just because 72% of apartments are under rent control doesn't mean that 72% of apartments are going for under market rate rent.

Even with rent control, San Francisco would benefit from being denser. There's a lack of all kinds of housing which is making it unaffordable. Manhattan is 70,000 people/mi2. Brooklyn is 35,000 people/mi2. SF is 17,000 people/mi2.

jskonhovd• 11 years ago

While you all are enjoying your high rents, I would like to brag about my hometown Memphis, TN. We just got some hype in the WSJ.

"In a nod to the youngsters, the survey found that the top markets offering “the right live/work/play environment” for millennials were Nashville, Brooklyn, Portland, and Memphis."[1]

In all seriousness, I think its a shame that SF can't keep up with housing. It's a tough problem. I don't envy the people in Government that have to balance all the different interests.

Then again, I would hate it if the majority of my paycheck went to my rent.

[1] http://blogs.wsj.com/moneybeat/2015/03/11/u-s-regained-top-s...

bmelton• 11 years ago

As a native, but former Memphian, while I've always thought that they get plenty of things right, it's hard to compare it to San Francisco.

For one, there's the freedom to sprawl, while San Francisco proper is constrained to a much smaller geographic space. That alone skews a lot of the comparisons.

I was reading this today, and it struck a chord especially after yesterday's "rent in SF" article, and while I feel that the Houston approach is indeed the enlightened one, I don't know that it's appropriate for every particular place.

http://joshblackman.com/blog/2015/03/15/the-economist-housto...

Beyond that, of course, as much as it pains me to knock my home town, we left Memphis because of the rapid rise in crime, and that hasn't seemed to improve terribly. Since we've left, they've apparently done a fantastic job of buggering up the schools.

The draw of home pulls strong on me, and I frequently contemplate moving back, especially with the craft brew scene producing what I believe are some of the best beers in the nation (especially High Cotton), but between the things I've already mentioned and the oppressive summers, it's a tough sell.

jkot2• 11 years ago

Prague had rent control for over two decades. Regulated rent was about 5x lower than commercial. Over time this lead to some interesting stuff:

- home owners would cut hot water and electricity, just to get tenants out.

- there was regular black market where one could buy contract for cheaper rent

- tenants with lower price would subrent apartments for commercial price

- in Prague it was highly discriminatory for students and other poor people, who had to live in Prague.

- It did not protected city center anyway, people eventually moved away.

- there was huge conflict of interest. Some PM, government members, town hall officials... lived in cheaper apartments.

mbca• 11 years ago

there was regular black market where one could buy contract for cheaper rent

A precursor to AirBnB!

jkot2• 11 years ago

It was more like buying new apartment. Contract (decret) was life-long cheap rent, transferable to children and other family members. Price was very high.

mcdoug• 11 years ago

Here's what I don't get about rent control: how is it actually benefitting the renter? If a landlord has a few different units, some under rent control, some not, and some cash to spend on improvements, why would he spend it on improving the rent-controlled units? The Facebook post that was here yesterday even said so much:

The few of us who still remain in San Francisco have no choice but to live in sub-par conditions like mold, windows that don't shut, rodents and countless other issues because there is no other choice, because the rents are so high you can't move so you don't.

This is what you get when you set the price artificially below market value: subpar product. Has anyone here seen Soviet-era apartments? They were exactly like this. So in the long run, the place will fall apart around the renter, and they will be pretty much powerless to do anything about it. And the bit about "can't move" because it's too expensive just means that the area is now too expensive for you and rent-control is the only thing allowing you to stay here.

If the excuse is that your job is here, well maybe your job is not paying you enough to live in SF. Perhaps founders should stop starting companies in this incredibly expensive area, and explore greener pastures.

radley2• 11 years ago

The price wasn't far below anything. The price has historically been average, if not above above average. Those problems persist because "bad landlord".

The only difference now is the skyrocketing rates in SF due to dot com 2.0 immigration. The same thing happened back in 1999-2000. EVERYONE had to be in SF for the boom back them, so rates skyrocketed. When the bubble burst, rents leveled off while the rest of the country eventually (almost) caught up.

Plus there's the "Google / Facebook" stipend. Google & Facebook were having a hard time hiring because employees couldn't find a place to live. Google / FB started offering $1k / mo above asked monthly rates to help employees get units quick. That also helped bump up even the worst apartments up to unrealistic levels.

sbw1• 11 years ago

I'm pretty sure this isn't a thing, at least as far as Google is concerned. At least, I work there and live in SF and have never heard of it.

Pay is higher in the Bay Area due to high cost of living, like for most companies, but I've never heard of a housing-specific "stipend" or anything like that.

superuser23• 11 years ago

That rent control has bad outcomes is uncontroversial. The question is, are they worse than forcing people out of their homes.

Obviously for many people, "People with money can't have something they want" is a better outcome than "people with less money will be required to leave their homes and go to less desirable places." You can, of course, disagree, but there is nothing strange or puzzling about this value judgement.

You can say "that's how capitalism works, tough shit" but SF has found a power which is in this case mightier than the market: law.

If it were the case that eliminating rent control would cause rents to settle somewhere reasonable and such an exodus would not happen, then that would be a compelling argument.

But HN instead argues that those people deserve to be forced out of their homes. Obviously if eradication of rent control is landlords' condition for building new construction, they intend to raise rents further, otherwise they would not demand the ability to do so. You may think that's fine, but you can't really say it's unreasonable for the people who lose in that situation to oppose it.

radley2• 11 years ago

This has little to do with rent control; It's all about development costs. New units get built with mortgage rates that are far above the standard rental rates. Buyers can't rent units significantly below their cost so they hit the market at the high rate. These units don't get rented, so they stay listed prominently.

Meanwhile, a tenant leaves an old building and the landlord starts looking at existing rental rates. What do you know, that one-bedroom I was renting for $1500 two years ago now goes for $3500. I guess I'll up the rate! It's not as nice as the new unit, but at least it's not stuck in BFE China Basin (people will pay a premium to be near food / park / Muni).

That's how rent rates got so high: development costs > listing rates > matching rates. Period.

crystaln• 11 years ago

This is absolutely incorrect. Pricing is based on what people will pay, not development costs. Developers have high loan costs, and can not afford to let units sit on the table simply because they'd be "losing money" when measured against a sunk cost. It is very common for developers to lose money by selling units under cost in a down market. While there may be some resistance to pricing under cost, developers are not idiots and understand that investment made is already made.

Further, any truth in your statement would argue against rent control. If owners could rent at discounted rates to fill their units, then raise rent to market, everyone would be better off. With rent control (in SF new units are not rent controlled) owners are incentivized to hold out for a higher initial rent.

spankalee7• 11 years ago

Rent control causes all kinds of bad effects.

As noted by others here, it discourages maintenance and property improvements to rent control units. The landlord has an incentive to create a terrible living situation to get the tenant to move out.

It also reduces tenant mobility. If you're a long time renter and have a great, but maybe just affordable to you, rate, and then have any life change where you'd normally want to move, you face a tough decision. Get a new job, want to move in with someone, have a baby, need to take care of a parent, sell or buy a car, etc... and when you would like to move, instead you're stuck.

Rent control also directly causes Ellis Act evictions, IMO. If your building has occupants who've been there for a while then you're getting much lower income than market rate. One way to retrieve the true value out of the property is to sell it someone who will convert to private residence, thus valuing the property much more than a landlord.

Rent control is a subsidy to renters paid by landlords. They bear almost all of the financial responsibility for this attempt to make housing affordable. Home owners don't, and employers and employees don't. And the subsidy is incredibly unevenly applied: You get more a subsidy the longer you've been in a rental, it's not dependent on how much you need the subsidy.

As long as the city deems it beneficial to have a rental subsidy, they should just go ahead and have a real subsidy paid by taxes, and get rid of rent control. There's a good argument that a diverse population is good for the the city, so a subsidy funded by income, sales, corporate, property, and hotel tax makes a lot of sense.

metaphorm2• 11 years ago

It also reduces tenant mobility

this is such a great point and I wish it was talked about more in the discussions of these issues. rent control basically traps people in a single apartment for the rest of their lives. it traps their sons and daughters there too (if they elect to "inherit" the apartment, which they frequently do).

this is one of the ways that ghettos come in to existence. the ability to move to somewhere else is really fundamental to preserving a person's freedom and quality of life. rent control takes that away and replaces it with a market dislocation and transfer payment.

netc• 11 years ago

Have you ever looked at the possibility where one's family has to move every year or so because landlord decided to increase rent to 'catch up' with market. This is what it looks like in communities where lot of people wants to move in but no rent control. One can move in but will not have any stability.

dreamweapon2• 11 years ago

rent control basically traps people in a single apartment for the rest of their lives.

It doesn't "trap" anyone; that's just hyperbole.

The main effect is that it gives a significant number of people a chance to stay in the city in a profoundly deteriorating market for middle-class housing stock (driven, in NYC's case, to no small degree by external factors such foreign investment, and radical and -- in the view of many -- essentially undemocratic "pro-building" changes to the local zoning laws).

this is one of the ways that ghettos come in to existence.

Perhaps. But given the vastly greater forces at play (racism/classism; the collapse of inner-city manufacturing base; and deliberate wholesale razing of neighborhoods in NYC, Boston and elsewhere; mistaken notions about the wonderful community-building effects moving people out of quirky single-family housing and into massive high-rise development projects; and just the inevitable effect of multi-lane freeways in high-density urban areas, generally) it seems you'd have a hard time pinning it as one of the major factors.

cyphunk2• 11 years ago

> It also reduces tenant mobility
rent control basically traps people in a single apartment for the rest of their lives.

so does buying a house. still, some people tend to appreciate it regardless of how bad the added lack of mobility is for them.

wpietri4• 11 years ago

I cannot fathom how this is a trap. If the resident can afford to move elsewhere, then it's certainly not a trap. And if they can't afford to move, then removing rent control doesn't "free" them. They're just fucked.

I know many people who have moved out of rent-controlled apartments for one reason or another. I've done it myself. I don't know a single one who says, "Whew! Thank goodness I escaped that terrible trap of being able to afford living in a place I liked!"

marincounty• 11 years ago

Yea, it doesn't work unless you're the one renting that chit hole. I have an old girlfriend who moved into one of these old houses(SF) at market rates in the nineties. The unit was not maintained back then--hot water pressure of a man with an inflamed prostate, no grounding, no functional heat(old electric units that just spin the dial), etc., but it had hard wood floors. She's still there and the place looks the same, except Mr. Chins greedy kids want her out. I don't think the kids will consider selling because they are charging new tenants unbelievable rates--for the same chit holes.

I'm sorry, but I've never met a Landord who cared about the condition of their units, unless it affected the property in a structural way.

I have never met a landlord who didn't try to get as much for their property as legally possible.

I don't have the answer, but human greed is palatable.

Kalium7• 11 years ago

I'm sorry, but I've never met a Landord who cared about the condition of their units, unless it affected the property in a structural way.

I have, but not one who cares and controls rent controlled units in SF. Landlords who know they have to compete care a great deal.

What you describe is a market that is utterly dysfunctional because supply is incredibly limited.

dreamweapon2• 11 years ago

As noted by others here, it discourages maintenance and property improvements to rent control units. The landlord has an incentive to create a terrible living situation to get the tenant to move out.

An enforcement in issue. In NYC the laws are actually aggressively pro-tenant on the issue of deliberate neglect; if you don't keep the basic services working (or keep the building reasonably free of infestations, for example), the tenant can use that to delay any attempted eviction processes (justified or otherwise) quite substantially. The smarter landlords in NYC all know this, and hence generally resort to buy-outs as a tool for vacating tenants. Overt harassment-by-neglect does happen, but is quite rare.

It also reduces tenant mobility.

To some extent, it reduces mobility within the local market (and this effect can be quite significant, in some markets). But in an unregulated environment, a great many of these people simply would not be able to continue renting in the local market, at all. So it's a tradeoff, basically.

Rent control also directly causes Ellis Act evictions, IMO.

A non-sequitur; there's no reason one needs to have something like the Ellis Act in order to have rent control. NYC's market (famously) does not, for example; and profit-driven conversions of the sort you mention are generally illegal, and easily blocked in landlord-tenant court.

In other words, the Ellis Act causes Ellis Act evictions; not "rent control."

shit_parade2• 11 years ago

"Rent is too high, I know let me pass a law to make high rent illegal".

Rent control is causing a shortage of suitable living areas and property owners are ignoring maintenance costs.

"Well then, let's pass another law!"

Property owners are passing rent controlled properties to their friends and family, or influencing local government regulations to do complicated rezoning laws or even straight up bribing inspectors

"hmmm, well let's just pass more laws then!"

How many times are you willing to try a solution that continues to fail before you give up? It would be funny except in the mean time your belief that a couple "smart people(TM)" passing laws is ruining the lives of the very people you profess to want to help.

EDIT: The fact you believe it is perfectly reasonable for landlords to be held hostage and forced to do 'buy outs' of tenants who refuse to leave an apartment that isn't theirs is all I need to know about your thug mentality.

mempko3• 11 years ago

We don't need landlords.

mempko3• 11 years ago

We need landlords, they serve a function. All hail the hypno toad.

shit_parade2• 11 years ago

People also ignore that those with power and closest to the laws will also benefit the most from them.

Rent control also leads to gross nepotism where the relatives and friends of the wealthy are given first dibs on rent controlled properties by the owner of the tenement building. A quick google search will reveal how common it is for those most well off to benefit from such government run schemes like rent control.

mempko3• 11 years ago

That is silly since there are so few well off people compared to the mass of people who are not. What percent of rent controlled tenants would you say are "well off" compared to say the 90% of people who are not?

cyphunk2• 11 years ago

Perhaps there are argument against rent control but im having trouble seeing it. Home owners also suffer from lack of mobility so this argument isn't a strong one. The importance of quality of building to stable cost of living is subject to opinion and many may put greater weight in the latter. So I'm not sure about the building quality argument either.

I appreciate rent control because I value so much the little free time I have from work, given to me by more stable cost of living (I live in Berlin). And I know I couldn't handle the constant necessity to fight for pay increases to cover dramatic increases in rent and insurance over time. Other people are more skilled at this nuanced life but my point is for some it works, and others not. I think having a Government that tries to keep large costs at steady is much better than them paying for subsidies which may just wind up inflating the prices.

erroneousfunk• 11 years ago

Homeowners are buying into houses that have inflated market rates because of the surrounding rent controlled units (same segment of the population fighting over inflated homes/apartments). Yes, it's difficult to move if you own a home -- you need to arrange buying and selling and transferring assets and all of that. However, you actually have more freedom to move to an area that does not have rent control (cheaper average home prices, all other factors considered), or move to a similarly priced home in the same general area.

You're trapped for logistical reasons that are surmountable with a little work. You're not trapped in the sense that you absolutely can't afford to move anywhere else in your city, because of overinflated residence costs.

ThrustVectoring• 11 years ago

Landlords charge what the market will bear - giving renters more money for rent is simply a round-about way to give landlords more money.

anigbrowl2• 11 years ago

Yeah, and proposition 13 and fixed rate mortgages are a massive invisible subsidy to property owners (of which I am one). It's disingenuous to focus on only one aspect of the market and ascribe all the distortions to that.

irascible4• 11 years ago

Damn good point.

throwaway342526• 11 years ago

"Rent control is a subsidy to renters paid by landlords"

I'd expand on this: Rent control is a subsidy to current residents, paid by future residents. The landlord is merely a conduit across which the wealth transfer flows.

klipt5• 11 years ago

And don't forget: Prop 13 is a subsidy to current landowners, paid by every other Californian taxpayer.

nwah12• 11 years ago

The law of rent... not just a good idea. It's the law.

stormbrew• 11 years ago

Eliminating rent control without also making it possible to build up (literally) to a degree that (afaik) is currently impossible due to building and zoning restrictions would do little to ease the problem. By my understanding, though, actually building new housing is about as unpopular with the locals than ending rent control. There's no point in 'signalling to developers that it's time to build,' as suggested in the article, if they literally can't build anything.

The annoying thing with the fixation on rent control over zoning is that at least rent control has some altruistic value to people who can't really afford their rents being raised. The zoning rules largely benefit property owners, I expect.

JimboOmega• 11 years ago

I support building new buildings - if we let them build new buildings, those buildings are exempt from rent control, too!

Also, let's not forget that SF also has a pretty large amount of subsidized housing stock in the form of BMR (below market rent) units and other things.

I don't see a problem with having the rent control stock transitioned to some sort of means-testing.

I'd love to see them building, building, building. The amount of fighting that went on to knock down a Walgreens in the mission that was right next to a BART stop though, leaves me wondering if that could ever happen.

Zoning protects owners, but remember that a tenant in rent control has a right not unlike an ownership right; it's a perpetual lease at a fixed price. They can sub-lease it, for instance. It is all but impossible for them to be evicted. So rising property values and quality-of-life in their area benefits them (the tenants) greatly; so opposing construction keeps the value and exclusivity of their position high. The tenants are accruing a large economic surplus that would normally accrue to the owner.

Anyway, I've heard of quite a few anecdotes that involve people making huge salaries and having incredibly cheap rent-controlled apartments, or even worse, sub-leases of one. Never mind the pied-a-terre accusations.

I have not seen any meaningful statistics, though.

x0x05• 11 years ago

There has been an abandoned gas station, surrounded by a chainlink fence, bums, and bumshit, at 23rd and valencia since 2008. It still, afaik, isn't being turned into housing.

http://sf.curbed.com/archives/2013/12/05/whats_the_story_wit...

http://missionlocal.org/2013/12/developers-turn-old-gas-stat...

fasteddie• 11 years ago

"I don't see a problem with having the rent control stock transitioned to some sort of means-testing."

I would guess this would make landlords avoid renting to low income tenants at all costs -- better to rent to someone who is not qualified for the means test, even at a cheaper rent, to assure flexibility.

mc322• 11 years ago

For me two of the biggest issues in the bay area, transportation and housing stock availability suffer from a lack of regional authority which could make decisions for the region as a whole. The Abag just does studies and isn't binding.

I wish we had some county/city mergers like miami-dade. I think a regional authority would weaken the nature of neighborhood politics which conflict with larger regional goals. We could have an integrated transit system as well as well planned -or at least better planned- housing policies and strategies.

Bay area nimbyism resulted in a fragmented Bart and uncoordinated transit system as well as wasteful low rise housing developments. I can only hope this changes. And also agree getting rid of rent control is a bitter but necessary pill. Build more and rent will go down.

kansface3• 11 years ago

I don't think better trains would necessarily be the result of merging. There is a good chance we'd just expand the 101 and build new Interstates through neighborhoods.

mc322• 11 years ago

Maybe not. But my wish is for a unified transit system and a coordinated and progressive (for progress) housing policies. Allow density in the cores and peripheries of cities. We're not a pastoral society anymore --not with the population growth we're experiencing.

unquietcode• 11 years ago

One thing I've never understood (but would still like to) is where does the imperative to build more and faster come from? I live in Berkeley, am very nearly priced out at this point, but see no reason why the community is required to take in more people. Permitting snd process ensures a snail's pace for new construction here, but from the perspective of those that live here (and most have rent control) why should they rush to grow?

All I'm saying is, market prices reflect supply and demand, but they also balance the demand which would otherwise threaten to overwhelm the place. Who am I to say 'I want to live here! Make it happen!!' We could be building the city of our dreams, of the future, a mere 30 miles away.

maxlybbert3• 11 years ago

The incentive is that people who own land (or even people who own existing buildings) can make money if they rent it out. It boils down to simple greed; as Adam Smith said, "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."

Adam Smith's big contribution was showing that, generally, if we assume people are greedy and will look out for themselves, we can still end up with a fair system. Lasseiz faire economics has a much better track record in that regard than the alternatives that try to ignore greed. You can set things up based on how you want them to work, or you can set them up based on how they really do work.

spankalee7• 11 years ago

You're right to a large extent. This king-of-the-hill attitude towards property is exactly what you see with Prop 13, rent control, severe building code restrictions, etc.

Prop 13: The long-time home owners get to put a disproportionate amount of the tax burden on newer buyers.

Rent control: long-term renters put a disproportionate cost of the rental prices on newer renters, and landlords.

Building code: Land owners want to be able to build when it's their turn, but as soon as they build they want to restrict others for obstructing their view, or changing the character of the neighborhood.

Public transportation: Residents who don't use public transport have typically fought against it coming to their neighborhood to keep the undesirables out, then find out that their property values are lower, or shops aren't doing well, because of this 30 years later. See Georgetown, DC.

Basically, everyone wants to lock in their position, then keep everyone else out. That's really only rational, so I can't fault it that much. Where I personally get annoyed is when those motivations aren't acknowledged and also get paired with complaints about super high rent and property prices.

The "rush to grow" is simply the reasonable response to skyrocketing prices. If the city doesn't want to grow, then it should be ok with those prices. What's not reasonable to want to be a desirable place to live, not grow, and have stable, affordable prices.

Kalium7• 11 years ago

Who am I to say 'I want to live here! Make it happen!!' We could be building the city of our dreams, of the future, a mere 30 miles away.

We could, and in a few decades we'd have the exact same problems there and people would look to move back to SF. This, incidentally, is essentially what happened when interstates led to suburbanization and now people are moving back to core cities.

rconti3• 11 years ago

You're almost priced out of Berkeley (if it weren't for your rent control), but you don't understand where the imperative comes from? Well, you will, once they find a way to evict you.

jvm2• 11 years ago

the imperative to build more and faster come from

From a consequentialist/utilitarian perspective, you'd say that the utility benefit if you allowed a million more people to live in SF at affordable rents would outweigh by orders of magnitude the disutility of incumbents.

Another framing is just the attitude that it's wrong to exclude the poor from a community via high rents. I think people that focus on this framing are also relatively friendly to rent control, but building more housing is arguably more radically inclusive.

mrgordon3• 11 years ago

This article seems to miss a few important points. The people who have lived in a city make that city what it is and you can't just switch in new higher bidding tenets at every juncture and expect that community to remain. In particular, the people in the middle who could pay higher than rent control rates will still move away more frequently if you increase their rent by a couple thousand to get it to (somewhat reduced) market rates. For example, when they have kids and need more space then they won't be able to afford it but with rent control they could have already locked in housing costs. Just as their landlord was allowed to lock in property taxes so they wouldn't lose the property due to tax increases.

tsotha• 11 years ago

Duh?

gress• 11 years ago

"A cost control normally afforded to the privilege of owning"

This is the most important line here. This article is about reserving rights to the already privileged. Nothing more, nothing less.

chaostheory3• 11 years ago

Here's something rent control proponents also ignore: there are also other nice places in the Bay Area, that are way cheaper than SF, where you can live with good access to public transportation. Most public transportation in the Bay Area has good, cheap access to SF.

chipotle_coyote• 11 years ago

It's hard to find places in the Bay Area that have good access to public transportation and are actually as cheap as rent-controlled apartments in San Francisco. Just being "way cheaper" than SF may not be enough if it still doubles your rent -- anywhere on the Peninsula down into Silicon Valley merely drops you from "most expensive in the country" to "in the top ten most expensive in the country," and even most of the supposedly "cheap" East Bay will run you far more than most other metro areas across the US. Apartments around Palo Alto, Cupertino and Mountain View, where there has never been any rent control, are not nearly as far behind SF's market rate as I think people sometimes imagine.

I'm not making an argument for rent control, per se -- it's hard to dispute that it's a distorting influence on the market in San Francisco itself -- but it's hard to appreciate just how banana crazypants the housing market across this whole region is right now.

nickstefan123• 11 years ago

this. Its actually cheaper for me to live in rent controlled SF than "close to BART" Oakland. Bart isn't cheap. Owning a car isn't cheap. With the state of our transit, I would never want to live in Oakland without a car, but I would definitely live in SF without one.

Basically, if we had the mass transit system of new york, the rest of the bay might actually not be that bad compared to walking to work.

chaostheory3• 11 years ago

Apartments around Palo Alto, Cupertino and Mountain View

If you're trying to save money, of course you don't live in those places. Are you going to list Woodside, Hillsborough, and Atherton as well?

There are plenty of other less expensive cities that have great access to public transportation and decent access to SF; like Redwood City, Fremont, Hayward, South SF, Daly City, Oakland, and others that are a lot less expensive (most of these places are also way more bike friendly than SF). Even really inexpensive places like Concord, Pittsburg, or Livermore have decent access to Bart.

even most of the supposedly "cheap" East Bay will run you far more than most other metro areas across the US.

Well yes, but your salary is higher as well compared to the rest of the US; so the East Bay is very affordable. Is is still more expensive than the rest of the US? Of course, but that's what happens when a lot of people want to live in a specific spot.

You can also just rent out a room too if you want to save money in pricier areas. In the past even with an engineering salary, I've rented a room in a cheap area just so I could save up money for house later on.

I'll tell you why this YC thread is really annoying to me: Hacker News is a forum supposedly filled with thinkers who aim to solve problems. Yet with a good number of HN people in this thread, instead of looking for alternative solutions (i.e. cheaper neighboring cities), they seem to be focused on how the problem is unsolvable without legislation.

kuni-toko-tachi• 11 years ago

Government interference in the free exchange of goods between free individuals causes problems? Why is anyone surprised?

j_baker• 11 years ago

The argument (or lack thereof) that the author is making is hardly based on sound economic analysis. This "thought experiment" ignores a few fundamental facets of SF's rent control ordinance. As a "second-generation" rent control ordinance, the economics surrounding the issue are less clear-cut.

For starters, the story doesn't account for the fact that new housing may be built without being rent-controlled. This allows new housing stock to be built without regard to whether it will be rented under rent-control.

Secondly, SF doesn't have a "rent control" ordinance per se. It has a rent stabilization ordinance. Landlords can indeed increase a tenant's rent, but there are restrictions on how much they can raise a tenant's rent. It's based on the Consumer Price Index (though I don't think this is a good choice of index to peg rental rates to).

What it basically boils down to is less about economics and more about social mobility. Between rent control and prop 13, the Bay Area is set up for social stability. It is intended to encourage people to stay where they are. Us techies, mostly being from elsewhere in the world, are more inclined to push for more mobility.

PublicEnemy111• 11 years ago

Aren't SF residents actively fighting the building of new apartment complexes to "preserve the skyline"?

Kalium7• 11 years ago

Generally, yes. Sometimes the goal is to stop the new construction to preserve the character of the neighborhood. Sometimes it's to preserve "historic" (read: old and I like it) buildings. Sometimes it's to demand that the new complex be entirely below-market-rate housing.

Opposition is pretty much guaranteed, though.

twblalock2• 11 years ago

Rent control is a case of the government forcing landlords to do something that is really the government's job.

If the government wants housing to be affordable, it can build more of it, or provide households with tax credits or vouchers to help them afford to pay rent. Vouchers are less desirable than increasing supply, but they cause fewer market distortions and bad incentives than rent control, which is a price ceiling, which we know for sure leads to shortages.

Instead of taking on this public policy responsibility, the government of San Francisco has decided to take the easy way out by capping rents on certain units, which unfairly forces landlords to shoulder the burden of a job the government ought to be doing. This incentivizes all kinds of crazy things, including removing housing stock from the market under the Ellis Act.

nedwin2• 11 years ago

Great point!

Property owners are the ones wearing the pain, not the government. Doesn't help that landlords are in the minority when it comes time to vote.

Spooky23• 11 years ago

Supply/Demand imbalance raises rents. Rent control is one contributor.

Rent control is more than an economic issue, it's a class and moral issue. Why should only people with the means to buy property have the ability to live a stable life? Imagine if your child had to change schools every year because your one of the overwhelming number of people who cannot absorb rent increases.

I personally have zero or negative sympathy for landlords charging usurious rents while simultaneously crying proverty and getting all puffy about property rights. If you can't handle the regulatory environment, nobody put a gun to your head and made you a real estate speculator.

gvr• 11 years ago

This times a thousand.

api• 11 years ago

San Francisco is a city with an exploding economy that sits on a fault line and is geographically constrained by mountains and the ocean. If that wasn't bad enough, it's also got quite a bit of NIMBYism among its residents who want it to retain its "quaint" character.

Tell me that doesn't explain basically all of it...? Rent control seems like a minor factor. I can see ways it might contribute, but if SF had plenty of land and no earthquakes I'm sure things would not be so bad.

allworknoplay• 11 years ago

Thank you. The contributors who don't understand that obviously rent control reduces supply by the number of rent controlled units but that it also vastly increases stability for longer-term occupants are dominating this discussion. So again, thank you.

tolmasky• 11 years ago

Rent control is more than an economic issue, it's a class and moral issue. Why should only people with the means to buy property have the ability to live a stable life? Imagine if your child had to change schools every year because your one of the overwhelming number of people who cannot absorb rent increases.

Rent control is more than an economic issue, it's a class and moral issue. Why should someone pay less rent simply based on when they originally moved into the apartment? Imagine if you are a poor immigrant just moving to the city and having to pay market rate while reasonably well off people get to pay a rate that made sense 5 years ago.

I personally have zero or negative sympathy for people paying lower rates than everyone else while simultaneously crying proverty and getting all puffy about the possibility of their rent going up. If you can't handle the price of the city, no one put a gun to your head and forced you to move here.

irascible4• 11 years ago

Straight up.

michaelochurch• 11 years ago

Also there's price inelasticity. If you reduce the supply availability by 5%, you don't just get a 5% price increase. For something like housing, gasoline, or illegal drugs (typical inelastic goods) prices could double. That's why San Francisco is so expensive: not desirability, but regulatory corruption pushing down supply of an extremely inelastic product.

I don't know if San Francisco has this problem, but New York has a lot of upper-middle-class, well-connected people who bought their way into rent control by paying "key money" and being named as family by a deceased beneficiary (who need not be related to them). They're now in an arrangement that is actually superior to ownership (because they don't pay property taxes). It's pretty disgusting. People actually used to follow obituaries as a way of finding available RC apartments.

dreamdu5t• 11 years ago

75% of the rental stock in SF is rent-controlled! Yet the city is "unaffordable." There are no statistics on how many of those people make salaries that can afford market rate... but in my experience as a property manager I more often than not saw people with totally middle-class jobs benefiting from it - not poor people.

Why should someone who banks 80k a year get to keep a $700 apartment in the Marina? That is the problem with rent control.

guhcampos• 11 years ago

I'm amused nobody brought the word Gentrification to the comments yet.

Yes, the arcticle does not mention that word. Neither the comments there or the comments here.

But this is what giving up rent control encourages: gentrification. And it's really bad.

I'm not a US citizen, I don't live there, but I've visited SF quite a few times. You can see gentrification happening yearly after every visit. It's sad.

Perhaps the discussion should not be "rent control" vs "no rent control" and really "how to effectivelly control rent prices".

In Brazil, landlords are allowed to raise the rent every year by the same ammount of one of the country's inflation indexes. It's not perfect, but people seem to be more or less happy with it.

Also the rent price can never be more than a small percentage of the property's declared value per month (if you want to change the declared value, your ownership taxes will change accordingly). This helps a bit.

This is just an example of my point: stop thinking binary - yes or no - and start thinking how.

fiatmoney• 11 years ago

"The city needs people who make less than X to live here (teachers, social workers etc). We shouldn't have a homogenous city of software engineers and bankers."

This is mistaken. The cost of living is routinely taken into account when people are deciding what wages they will demand. If literally no teachers can afford to live in your city, and you wish your children to be educated, you'll have to pay a lot in order to import a teacher who can then afford to live there. That drives up wages to equilibrium.

Furthermore, if literally no teachers can afford to live in your city, and you wish your children to be educated, you might very well decide to move to somewhere with a lower cost of living. This drives down demand to equilibrium.

The only argument in favor of rent control is that it reduces short-term volatility of rent. This only makes sense if moving entails huge negative externalities. You do see people making this argument (they talk a lot about long-term community cohesion).

chucksmart2• 11 years ago

Is there some reason a landlord can't pay a tenant to move out of a rent control situation? So they can renovate and clear the market?

anigbrowl2• 11 years ago

Of course it contributes, but this analysis is too shallow to be really useful.

irascible4• 11 years ago

The massive influx of money from .comers fleeing the psychosocial wasteland of Silicon valley is what is driving rents up.

irascible4• 11 years ago

It is really really sad. SF used to feel a loophole in the American lie.. where interesting artists,creators, and thinkers could afford to live in a beautiful place, without being wage slaves.. this freed people to make the city even better by enriching it's culture. Now it's just filling up with Bros and fauxhemians that bring nothing to the table.

azinman2• 11 years ago

The real answer is to increase supply. Build more housing in bigger and taller buildings. SF gov is living in a fantasy land.

littletimmy• 11 years ago

There seems to be an underlying thought in many answers here, something like "the markets should be allowed to function".

This is a very naive idea. The "market" exists only as a system protected by the state security apparatus. The state prohibits poor people to randomly capture property from rich people, in effect protecting landlords with the backing of violence. What do the poor get in return? Surely they must receive something to opt into the social contract? In general, that "something" is welfare. THAT is why welfare for poor renters is important, in the form of rent control or subsidies or whatever else they demand.

A market propped up on the spectre of state violence is not "free".

justin_vanw2• 11 years ago

https://www.youtube.com/watch?v=q3cUmHAs3yY

b_rad• 11 years ago

An explicit and anecdotal rent control inefficiency I was made aware of firsthand in SF:

A young man lived in a rent controlled apartment for many years. He eventually met a lovely woman and they began dating seriously. They moved into the apartment together and enjoyed several years there together.

Eventually, they were ready to have children and moved to the East Bay, but they decided to keep the rent controlled apartment for occasional weekends in the city. At this point, between both of their incomes, it was a drop in the bucket. That apartment to this day sits mostly empty, while a housing crisis dwells around us and rents keep going higher.

We talk about pushing people out of neighborhoods — this literally has taken a home away from someone that could be living and working in the city. No story is the same, but the inefficiency is clear.

swehner• 11 years ago

I don't think there is much reason to believe that SF would have lower rents without rent control.

Obviously, many people want to live there.

Keyword: delusion.

thowar2• 11 years ago

Is it possible to waive your rent control and eviction "rights"? Seems like one could negotiate a lower rent by giving the landlord some more optionality with their property.

alexnewman• 11 years ago

Rent control crashes websites

justin_vanw2• 11 years ago

This isn't a convincing argument. Regardless of the rates paid by the people in rent control apartments, unless they vacate, the supply doesn't increase, so the market isn't changed at all.

Since new buildings aren't rent controlled in SF, there is no discouragement to building due to rent control.

The real answer is just geometry. SF is geographically constrained in such a way that there isn't really a way to build more housing within commuting distance. A city like Omaha (or even Berlin) has the available land go up with the square of the commuting time. SF has the land available for development go up roughly linearly (the valley doesn't get much wider until all the way to San Jose)

The way to lower housing costs is to increase the available housing as a function of commuting time. The easiest way to do this is high speed rail.

It's not a coincidence that all the communities in the valley have fought tooth and nail against high speed rail.

http://www.cahsrblog.com/2011/04/anti-hsr-activism-is-a-rich...

Once it becomes possible to get to SF from Gilroy in 40 minutes, tons of housing will be built far from the city, where land is available and cheap. People won't have to choose between paying a huge premium to avoid a long commute, or spending 3 hours of every day sitting in a car.

This is economics 101. The marginal property is south of San Jose, and the premium for living in SF is about 2 hours * 20 days of commute time a month, which if you are making $200k per year is about $4166 of lost time per month, assuming a 40 hour work week and ability to convert that time into salary (a bad assumption, but this is the actual analysis to figure out how much more prices should be in SF, it just doesn't factor everything in appropriately). It's not a coincidence that this is roughly the difference in rental costs between these two areas.

yoanizer• 11 years ago

Price control (not just rent control) causes similar effects in all industries.

notlisted• 11 years ago

Simplistic model predicting major benefits, while none are likely.

Abolishing rent-control could never take effect immediately, but would be phased out slowly to protect current occupants. Hence, the number of apartments coming on the market would increase slowly, owners could rent this 'new' inventory out at "market rates" ($4, aka the max the market can bear right now and 'the norm') and the best we can hope for is a (temporary) drop or slowdown in rental rate increases.

With a more realistic ratio of people looking for apartments (250 for 100? 500?) there may be no slowdown or drop at all. End result: neighborhoods pulled apart as long-term residents are forced to leave, rents not affected measurably, $4 considered 'normal'.

PS I live in NYC, where local renters compete with people parking their money due to overly lax taxes on non-residents, making it worthwhile to own but not occupy. Many buildings are half empty as a result (many thousands of apartments). Rents meanwhile go through the roof.

A good way to affect housing stock in NYC would be to make non-residential ownership not longer interesting. I suspect the same is valid in SF. The suggestion below of increasing housing stock by allowing bigger buildings and improving commute times seems to be a much better long-term solution.

davidf18• 11 years ago

The housing shortages are caused by politically induced scarcity through zoning density restrictions and overuse of historic landmark status. This has been explained by many including Harvard economist Edward Glaeser and recently referenced by Economics Nobelist Paul Krugman. In microeconomics this polticially induced scarcity is called "rent seeking." Fix the "rent seeking" by overturning the zoning and landmark status laws that create the scarcity and your housing prices will drop.

Rent Control Creates Higher Rents in SF

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