Saturday, May 07, 2011

Due to Rent Control, S.F. Has 31,000 Vacant Housing Units As Frustrated Landlords Give Up

The Bay Citizen -- "In San Francisco, one of the toughest places in the country to find a place to live, more than 31,000 housing units — one of every 12 — now sit vacant, according to recently released census data. That’s the highest vacancy rate in the region, and a 70 percent increase from a decade ago."

The reason? The city's pro-tenant, outdated rent control laws that make it difficult to raise rents or evict a tenant.  

"Increasingly, small-time landlords are just giving up, like one who has left two large apartments on the second and third floors of her building vacant for more than a decade, after a series of tenant difficulties. It’s just not worth the bother, or the risk, of being legally tied to a tenant for decades. 

“Vacancy rates are going up because owners have decided to take their units off the market,” said Ross Mirkarimi, a progressive member of the Board of Supervisors. He attributes that response to “peaking frustrations in dealing with the range of laws that protect tenants in San Francisco that make it difficult for small property owners to thrive.”

Perversely, that is hurting the city’s renters as well, as a large percentage of the city’s housing stock is allowed to just sit vacant, driving up rents that newcomers pay for market-rate housing."

MP: As we know from basic economic theory, rent control laws are doomed to fail with many predictable unintended consequences in the long run: fewer new rental units are built or made available, many apartments are removed from the market, a decline in the quality of housing, lower rental rates for long-term tenants but much higher rents for new tenants, inefficient use of housing space, etc.  In other words, rent control laws guarantee that there will be less affordable housing in the long run, not more.

31 Comments:

At 5/07/2011 9:31 AM, Blogger Che is dead said...

Confiscating property is what liberals and leftists do. It's their riason d'tere. Wherever possible, they will tax it away, regulate it away and, when in complete control, simply seize it. Theirs is an ideology based on enslavement through theft. Or, as our President likes to put it, "spreading the wealth around".

 
At 5/07/2011 10:42 AM, Blogger vakeraj said...

Has anyone seen the movie Pacific Heights (streaming on Netflix)? Matthew Modine plays an honest homeowner who rents a room in his newly-purchased home to Michael Keaton's character, a con man who uses San Francisco's ridiculously pro-tenant housing laws against Modine and his girlfriend. At every turn, Modine's attempts to get Keaton- who doesn't pay rent and is slowly destroying the home- evicted are undermined by the city government and the courts.

 
At 5/07/2011 11:17 AM, Blogger Buddy R Pacifico said...

From the San Francisco Tenants Union website:

There are 15 "just causes" for eviction under rent control.

Many of the "just causes" pay tenants relocation benefits. Households can receive $15,304 in relocation assistance, with even more for senior or disabled persons. If a landlord wants to make capital improvements or simply move-in, then it is enriching to the tenants that move out.

 
At 5/07/2011 11:47 AM, Blogger juandos said...

We know why rent control will not be dumped by San Franciscans any time soon if this story is any indication...

TWITTER TAX DEAL CAUSES LIBERAL FREAK OUT IN PROGRESSIVE SAN FRANCISCO

 
At 5/07/2011 11:58 AM, Blogger Seth said...

Results do not matter since those pushing such programs don't pay the costs of the unintended consequences. So they get by with just feeling good about the intentions.

 
At 5/07/2011 12:31 PM, Blogger Sam Random said...

People who do not live in San Francisco are often critical of San Francisco- but really, what concern of theirs is it anyways if a city full of liberals enacts local legislation that is very liberal? Housing regulation, especially of rental properties, is something of intense interest to the population- it is a very expensive city, and for many renters rent is the most expensive thing in their monthly budget.
Now, if you lived in San Francisco, you'd know that the dot-com boom gave cause for the building of many new residential properties in the city, intended for all the new rich being created in Silicon Valley. When the bust came, those new rich were suddenly far fewer in number. So there is an excess of residential capacity in the city because it is marginally cheaper for landlords to hold out for higher rent rather than accept market rates, which are regulated by the city.
Deregulating the housing market in the city would most probably result in the dislocation of many lower income residents who would be unable to meet the demands of landlords for increased rent. That dislocation could potentially be a serious liability for city social services, while significantly lowering the existing tax base.

 
At 5/07/2011 1:00 PM, Blogger Benjamin said...

Rent control is a bad idea.

 
At 5/07/2011 1:39 PM, Blogger Ron H. said...

juandos

Thanks for the great link.

From the article:

[a neighborhood group] "They complained neither the city nor the company have considered the low-income residents who would be adversely impacted by rising rents spurred by the prosperity Twitter could bring."

translation: "we don't like prosperity, and don't want it in our neighborhood, because our rents might go up."

 
At 5/07/2011 1:58 PM, Blogger Ron H. said...

Sam

Among the many problems with economic reality in your comment, this is probably the worst:

"So there is an excess of residential capacity in the city because it is marginally cheaper for landlords to hold out for higher rent rather than accept market rates, which are regulated by the city."

First, you cannot use the terms "market rates" and "regulated" in the same sentence. They have opposite meanings.

Second, you might want to reword this as follows:

"So there is an excess of residential capacity in the city because it is marginally cheaper for landlords to accept NO rent, than accept those which are regulated by the city."

 
At 5/07/2011 2:55 PM, Blogger bix1951 said...

I don't believe this.
31,000 vacant units sounds like a normal vacancy factor for a city the size of SF.
The recession has driven up vacancy rates across the state of California.
As a landlord in Santa Monica, which is an awful place to be a landlord, I know there has been no reason to hold units off the market since many years ago when VACANCY DECONTROL became the law of the land.
There may be units held off the market, but rent control is not a likely reason.

 
At 5/07/2011 2:57 PM, Blogger bix1951 said...

vacancy rates are higher lately because of the recession
end of story
rent control has nothing to do with it.

 
At 5/07/2011 5:02 PM, Blogger morganovich said...

buddy-

those "just causes" are largely illusory.

one of my ex girlfriends in SF is a property manager and another owns 6 rental condos.

it is virtually impossible to evict a tenant in SF even for non payment of rent or property destruction.

it's quite common for people to stop paying rent and manage to stay in a unit for 6-12 months. it's absolutely astounding.

bix-

your comment about the recession is pure nonsense. the SF real estate market has been one of the strongest in the country. sale vales are not down. nice neighborhoods still sell at $1000/ft. rents are WAY up too and finding an apartment right now is VERY difficult. it's easy to pay $5000 for a 2br in a nice part of town.

if the vacancy rates reflected recession then prices would be soft and availability high. the opposite is true.

you are speaking from no knowledge at all.

SF's market is nothing like LA.

 
At 5/07/2011 8:33 PM, Blogger Craig said...

what concern of theirs is it anyways if a city full of liberals enacts local legislation that is very liberal?

Gee, you might have bothered to read the post. It's NONE of our business -- but there's nothing nosy about discussing the negative consequences that result from liberal policies. You mention the supposed problem low-income renters would face in the absence of the rent-control laws but completely ignore the 33,000 vacant apartments.

Putting them back on the market might well lower overall rental rates -- but, then, it's none of my business, is it.

 
At 5/07/2011 9:01 PM, Blogger Buddy R Pacifico said...

morganovich, the quotation marks around "just causes" are the SF Tenants Union's and not mine. I can believe it is very difficult to evict for non-payment of rent in SF. A city that would outlaw Happy Meals, is capable of uber controls over private property.

 
At 5/08/2011 1:32 AM, Blogger randian said...

Rent control doesn't make housing affordable. In fact, it does the opposite, raising median rents in a rent-controlled jurisdiction.

Low-income renters who think rent control makes housing more affordable for them are simply ignorant.

 
At 5/08/2011 7:09 AM, Blogger juandos said...

Sam Random says: "People who do not live in San Francisco are often critical of San Francisco- but really, what concern of theirs is it anyways if a city full of liberals enacts local legislation that is very liberal? "...

Well Señor Sam from where I sit should we be overjoyed that San Francisco cursed the country with Nancy Pelosi and Dianne Feinstein?

 
At 5/08/2011 10:39 AM, Blogger PeakTrader said...

I suspect, the high cost of taxes, regulations, fees, etc. force businesses to cut corners.

I never had food poisoning in Colorado, but had food poisoning twice in California, although I've eaten out in Colorado much more often.

 
At 5/08/2011 11:24 AM, Blogger Michael said...

The rental vacancy rate is not due to the recession. Read the linked article and study the map at the bottom. The vacancy rates are much higher in rent-controlled San Francisco, Oakland and Berekely than in the surrounding cities. The difference is so dramatic you can trace the city limits from the vacancy rate.

 
At 5/08/2011 12:09 PM, Blogger Joe said...

I read the original article in The Bay Citizen, which is good, but unfortunately too short. But as soon as you read through the comments, you realize why this is a problem. The comments are mostly hostile to the article, and try to go out of their way to argue either that the laws aren't a problem, that the story's too anecdotal, that the author is some industry shill, or that the shortage is the fault of the rich. They don't seem to grasp that this situation is hurting poor renters (thought it's explicitly stated in the article); they seem to think that renters are someone entitled to the property they rent (namely that they have some sort of ownership rights over something they don't own); and they tend to view these things through the lens of class struggle (poor helpless tenants fighting huge, evil landlords). I don't think the law is going to change in SF anytime soon.

 
At 5/08/2011 12:26 PM, Blogger bix1951 said...

I would have a lot of vacancies if I held out for super high rents.
But to stay full I lower my rents.
I'm sure each unit is unique and each landlord is unique.
But is it really true that the 31,000
vacant units in San Francisco are being held off the market? Are they not being offered for rent?
Or are they being offered at very high prices that renters are not willing to pay?
My comments are not nonsense
supply and demand explains a lot about markets
careful, diligent,patient, and kind landlords tend to not have problem tenants
I once held a unit off the market in Santa Monica for about a year, then I had a change of heart.
But since there is vacancy decontrol now there is no rational reason to hold units off unless you are planning to convert or sell or demolish in the near future. etc.

 
At 5/08/2011 1:36 PM, Blogger Mace said...

Joe said:
"The comments are mostly hostile to the article,"

The most illuminating aspect of the Bay Guardian article IS the comments, made mostly by economic illiterates who don't realize the long run costs of such "fair" policies. I am amazed at how many seem to declare a form of "squatters rights" for any rental unit they live in. Anyone owning rent controlled property in SF is an idiot.

 
At 5/08/2011 1:45 PM, Blogger morganovich said...

bix-

your comments don't make much sense and are ignoring the reality of san francisco.

"careful, diligent,patient, and kind landlords tend to not have problem tenants"

this is just not true at all. in a city like SF where tenants are essentially unevictable, it happens to most of them. run a big building, and you will get rolled.

further, rent control means that you are always getting squeezed. rents stay flat but your property tax and maintenance costs keep going up. thus, when a unit comes available, you need to price it highly to compensate for the ones you lose money on. you cannot lock in a losing rate and have to keep it forever. new buildings and condos tend to rent for less because they do not have rent control (but can be renegotiated at lease end).

your recession comments are complete nonsense. there is nothing like that going on in SF.

further, the inability to get a tenant out makes people not rent. i know a ton of people who have a rentable unit in their home but won't rent it because of the risks and hassles. one bad tenant can wreck your life for 18 months and you may wind up paying 10-15k to get rid of them (exclusive of legal costs). if you want to rent a downstairs unit for a year while you wait to do a big renovation and make it all one unit, you wouldn't dare to rent it for fear you would not get it back.

it also prevents unit renovation. if you kick a tenant out to renovate a unit, you have to re offer it to them afterward at the same rent. so why would you bother?

"supply and demand explains a lot about markets" is essentially so broad as to be meaningless.

if you add in nasty costs for sellers that the buyers do not see or understand, you get a market dislocation.

let's say you have a unit that you would rent for $5000 and that i would like to rent for $5000. normally, we'd have a deal. but if you face a 5% of losing a year of rent then ($5000 X 12 x .05) adds in an expected cost to you or $3000/year = $250/month. so you'd only be willing to rent at $5250.

then add to that that fact that you cannot raise my rent or ask me to leave. what's the cost to you of that as your taxes and costs go up over time. it's not enough to make money now, you have to think about 10 or even 30 years done the line.

my neighbor 12 years ago in pacific heights had been in her unit for 35 years. she was paying $200/month for a nicer unit that the one we paid $2700 for.

any sane building owner will factor things like that into their price.

making them think about a decade while a renter only thinks about this year creates a market dislocation and a gap between what buyers will pay and sellers will sell at.

taking out rent control solves that immediately and drops prices.


so, sorry, but your notions here seem to be missing the point and uninformed by local data.

 
At 5/08/2011 1:49 PM, Blogger PeakTrader said...

Unless you're one of the 20% of U.S. households who earns at least $100,000 a year, when tenants pay high rent, they attempt to compensate by finding bargains elsewhere.

Unfortunately, San Francisco drives-up the costs of almost everything. So, it's difficult for consumers to find bargains, since producers are squeezed by low prices (which consumers demand) and high costs (which government imposes). Lower quality or failed businesses is often the result.

 
At 5/08/2011 5:38 PM, Blogger Ron H. said...

"Low-income renters who think rent control makes housing more affordable for them are simply ignorant."

Which could be one cause of low-income.

 
At 5/08/2011 5:47 PM, Blogger Ron H. said...

"Unfortunately, San Francisco drives-up the costs of almost everything. So, it's difficult for consumers to find bargains, since producers are squeezed by low prices (which consumers demand) and high costs (which government imposes). Lower quality or failed businesses is often the result."

Why do you believe this is unique to SF?

 
At 5/09/2011 11:46 AM, Blogger morganovich said...

oh, also:

this 31,000 number is very misleading.

when they talk about "san francisco real estate" they lump in a number of outlying areas that no one in the bay area actually thinks of as san francisco.

it's like piling newark into the manhattan stats.

 
At 5/09/2011 9:20 PM, Blogger Nick said...

The landlords are not "giving up", they are pricing up.

The law permits landlords to reprice their rents at market value after an apartment is vacant for a specified period of time, which I believe is two years (but I'm not sure).

So yes, rent control is the problem, but it's the evasion of rent control that is causing the vacancies. Vacancy rates for apartments are declining practically everywhere, and rents are either rising or will rise soon. Apartments are the best performing sector of commercial real estate in the nation with vacancy rates at or below long-run averages.

 
At 7/21/2011 6:42 PM, Blogger MC B said...

The idea of rent control has some merit but the application is, as usual, a disaster. Maintaining affordable housing for the low wage earners that any city requires to function is good in principle (or instead you can have better public transit that runs all night out to the suburbs). Affordable housing for our community elders is also laudable. But all of these community assets and ideals are being solely heaped on the landowners as if by virtue of owning property they are rich which is a fallacy. They might have been reasonably well off before they bought property but assets eat cash, sometimes all of it, and as the recent economic trends prove you can't even count on getting the money you paid for it back. Rent control should be a cost shared by the entire city that benefits from it. City taxes should reimburse land owners the difference so everyone, renters owners and visitors, contributes to the benefit they receive by being in a rent controlled city. Don't like to give city taxes to the landowners who are solely subsidizing rent controlled units now? Then abolish rent control!! To control costs, rent control should be means tested. Every 2 years a landlord should have the right to challenge a tenant to prove to the rent board with their tax returns that they are poor enough to deserve the subsidy. I myself am a renter in SF. I would probably qualify for subsidy but maybe not. My peers vote for rent control but have no idea the problems it causes as currently enacted. I have seen lawyers and doctors living in rent controlled apartments for decades when they have half a dozen other houses that they OWN! Fix rent control instead of enforcing the garbage now in place.

 
At 8/11/2011 1:15 PM, Blogger Kuestler said...

Unfortunately, your notion doesn't reflect reality. US vacancy rates on average are over 6% while San Francisco vacancy rates are only 4 to 5 %. The latest 2011 figures show vacancy rate declining, not rising. And it's not because landlords are irrationally petulant, witholding their property idly. San Francisco still has a very tight rental market. If vacancy rates are rising, it's because deluded landlords are holding out for more rent than the market will bear. There is no evidence landlords hold property idly off the market because of the "hassle" of rent control.

The only reason landlords may hold property idly would be to convert from rental to private ownership, or sell to someone doing such conversion, such as to TIC or condo property flippers, - in which case the number of idle vacancies can go up superficially during the process of conversion, while in reality vacancies are going down.

Abnormal increases in housing valuation drives speculation, and it's such speculation that drives superficial increases in vacancies, as seen perhaps in 2009-2010. When rental properties are flipped however, they are ultimately removed from the rental market, driving rental costs up by reducing vacancies in the long run.

In San Francisco, although housing valuation did not fall in the last few years, it still is going sideways which makes flipping on the basis of property appreciation alone difficult if not impossible. Because rental units somewhat depreciate the valuation of a property, such properties create an opportunity for an immediate turnover profit when converting to private ownership. In the current economic climate, rental conversions are rampant in some parts of the city because it happens to be the most lucrative game at the moment. Hence a great deal of rental space is being taken off the market to convert to private ownership, especially in certain desirable areas, like the Marina and North Beach.

Private housing speculation is what is driving lower vacancy rates, - rent control simply makes that speculative flipping a little more profitable.

Changes in TIC laws and financing have diminished the necessity of condo conversion, making TIC ownership not much different than condo ownership, hence condo conversion laws have been effectively side-stepped. And since countries like China have implemented new housing controls, limiting property ownership, you are also seeing foreign investors help prop up speculative runs in areas that people presume will hold value. Wealthy people are looking for safer places to park their money, and San Francisco just happens to be one of those places. However doing so cannibalizes rental properties because wealthy people don't invest in properties that may be illiquid.

I suspect eventually though, some of those same properties may end up back on the rental market, but only as individual owners begin to lease out their TIC or condo while waiting for housing values to appreciate.

So between increasing demand for rentals and a shrinking supply of rentals from conversions to private ownership, rents have been going up. If anything, stronger rent control laws are needed to put the brakes on the cannibalization of the rental market by speculators and dubiously rational speculation of that sort.

 
At 8/11/2011 10:54 PM, Blogger randian said...

Since rent control is what created the massive value differences that the "speculators" exploit, and rent control increases median rents, what is needed is to get rid of rent control entirely.

 
At 8/18/2011 7:39 PM, Blogger Kuestler said...

@randian, your conclusion implies that prohibitions are inherently problematic and therefore should not exist. Few people would agree with you that laws should not exist simply because people will find ways to break them. In that case, take out all traffic control at all intersections. Eliminate speed restrictions on all roads. Eliminating rent control would only expedite local speculation and displacement of a stable and productive long-term population. That is not a useful or desirable long-term goal for a city. You might as well make robbery legal while you're at it.

The broader financial crisis of our time itself is based on the damage irrational housing speculation caused. As everyone is witnessing today, the process of a market self-correcting itself can be devastating and not necessarily something short-lived or inconsequential. Not all stupidities should be left to self-correct.

If a local housing market is in dire need of expanding rental space, then what value is there in releasing the brakes on speculation to cannibalize remaining rental space? Any exploitation and theft of an effective subsidy given to one group would therefore be an example of breaking the law. There are many cases where vagueness in law leads to exploitation of it for gain. That doesn't make such exploitation right. It just means the law needs to be rewritten to eliminate loopholes.

 

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