There is no denying San Francisco is in the midst of a housing crisis as it is during every economic boom. Housing programs such as Section 8 and public housing help lower income residents and wealthy residents remain unaffected, but the middle class suffers.
It is time for us to look at Rent Control to see if it is really benefiting tenants as intended or, as economists have argued for years, it is actually making the housing market worse.
As I see it, there are five reasons we should reevaluate Rent Control immediately.
1) The Ability to Rent at Market Rate Doesn’t Necessarily Mean Market Rents
Landlords of multi-unit properties tend to gouge new tenants on rents because they know they are going to get tied into an agreement that can last years with minute rent increases. Landlords’ costs in the form of water, garbage, electricity and maintenance increase much more than the allowable annual rent increases dictated by the Rent Board. If there is no tenant turnover, eventually landlords’ costs exceed their income.
All my clients who own single-family homes, condos or apartments that are exempt from Rent Control are currently accepting below market rents. In some cases, they are asking $1,000 less than the market would dictate. Why would they leave money on the table each month? For some, having a great tenant with a on-time payment history who cares for the property is worth more than an increased rent that may cause a good tenant to move out. These clients take comfort in the fact that, should they meet tough financial times, they have the option of raising rents.
Landlords with rent controlled units do not have this luxury. Therefore, they must raise rents as much as possible each year in order to cover increased expenses that aren’t covered by rent control.
2) Less Ellis Act and Owner Move In Evictions
Eventually, landlords realize the only way to end the cycle of limited or negative profits is to go out of the rental business by Ellis Acting a building, selling to someone who may Ellis Act it, or moving into a unit themselves. The reason landlords enact the Ellis Act or move in to a property is because they are frustrated with rent control laws and need a way to increase the rents to cover their ever increasing expenses. Proponents of Rent Control argue that it allows tenants to stay in their apartments.
However, this is not a 100% guarantee, and we are creating an environment where landlords are incentivized to get tenants to move. Therefore Ellis Act evictions, buyouts and OMI’s have become common place.
This argument is further supported by the many tenants in non-Rent Controlled jurisdictions who live in their rental units for many years without threat of eviction.
3) More Units on the Market
There are an estimated 30,000 units in the city that sit vacant because these landlords do not want to deal with the intricacies of Rent Control.
Also, there are tenants whose apartments n