San Francisco is notorious for its extreme tenant protection laws. Of course, these laws were designed with the best interests of tenants in mind.
Rent control is one of these extreme tenant protections. The concept is simple and noble: let’s keep affordable housing for our residents, regardless of income, by keeping rent constant from move-in.
What a noble ideal! But, what if the noble goal of affordable housing isn’t achieved with rent control laws? What if these laws make more problems than solutions? I believe rent control in its current form is harmful for the City and reduces the availability of quality, affordable housing.
Here are some of the ways rent control laws directly affect you and me as City residents:
I have an artificially high incentive to retain my existing unit, even if it is not ideal. My reduced rent is ‘locked’ to that specific property. This incentive to remain increases each year as the controlled rent grows ever further from the ‘true’ market cost of rent in the City.
Why is this a problem? This ‘locks’ people into their housing even if there is significant non-monetary incentive to relocate. For example, a change in employment makes a work commute nearly unbearable, undesirable roommates, or poor landlord service.
In practice, rent control severely limits the supply of affordable housing, counter to its very purpose for existence. Developers can make a reasonable return on their building capital only if they build high cost rental units or condominium units for resale, not for rent.
Imagine you have a lot of money and you want to invest your riches in property in the City. What’s the best return on your investment? Chances are, it’s not in creating affordable housing. Why? Rent control.
Here is a chart of income distribution for a property with NO rent control laws:
Above: Revenue from the project is depicted in purple. I have omitted real numbers from the chart for simplicity. Rent increase may appear to be exaggerated, but given a long enough time-span it could well be appropriate.
Here is a chart of income distribution for a property WITH rent control regulations:
Above: Rent stays steady from move-in with a modest increase in rent over time which does not nearly match that of true market value increase. A new tenant moves in halfway through the time period, bringing the rent up to market value for one instant which then remains nearly constant after move-in.
Compare the two to see the revenue loss from rent control:
This is a significant loss. Any property developer with a brain would choose to NOT create affordable rental housing and would instead opt for extremely high cost rental properties (where the high margin could easily absorb the cost of rent control) or, more likely, create flats for sale only. Keep in mind that the margin for affordable rental properties is most likely pretty thin. Even if the income loss from rent control laws is slight, it may be enough to discourage affordable rental property development.
Do we see these issues in the City? You bet. Nearly all the new properties built South of Market are high-cost flats for sale. Where is affordable City housing? What little affordable housing exists is rotting away in old victorian era houses whose landlords don’t have enough income for proper upkeep.
Below-market rent makes it nearly impossible for landlords to afford maintenance and upkeep of property. It’s not just your landlord, almost all City landlords can’t keep up with proper maintenance. While rent remains constant, cost of upkeep services increase each year, eventually reaching a point where the landlord cannot reasonably afford either regular or preventative maintenance.
Don’t expect a new kitchen. No incentive exists for significant property improvements with current tenants since the cost will not be borne until new tenants move-in.
Finally, the low supply of housing means long wait times for those looking for apartments. Friends say (and I agree) looking for a place is a “full time job” and can take about a month. This is a waste of time for everyone involved.
What’s the solution?
I don’t know. What I believe is this:
- We want affordable housing for low-income residents.
- Our current rent control laws do not accomplish this goal.
Rent control at present is an exclusive, overbearing tax for rental property owners. It benefits low-income AND high-income renters and severely limits available supply of housing.
That’s the rub – what is a better solution than heavily taxing landlords? Society views landlords as evil moneygrabbers. Everyone hates paying their landlord. What could be a more popular piece of legislation than a law that punishes landlords at the benefit of tenants? What should be clear is that rent control does not necessarily benefit tenants as we had hoped.
A more effective solution may be rental credits for low-income residents. How do we pay for it? I don’t know. But, we should strive for as free of a market as possible. Who knows, with a market free of rent control perhaps median rents in the City would be lower than they are now. Only with enough supply will the true market cost of rental property decrease. Rent control limits housing supply, driving up costs. It needs to be repealed.