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SF Murder #44
There have been four new laws proposed this year that would make it harder for landlords to raise rents and evict tenants. Three of the laws would increase the rights of rent-controlled tenants by allowing them to add roommates and by suspending or limiting rent increases that are a hardship. The fourth law would give eviction protection to tenants in non-rent-controlled units, specifically homes that are being foreclosed.
As noted in SF Gate's comments, the irony is that if it weren't for rent control and the strict eviction laws already in place, landlords often wouldn't have to foreclose. They have to pay their bills too. Additionally, there's still no protection for master tenants who end up with deadbeat roommates, who can't be lawfully evicted. Personally, we've always had awesome and sympathetic landlords, who were willing to work with us when needed. It pays to be a good judge of character from the get-go. How about you, readers, what's your input on this hot issue?
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I certainly think it would be great to allow a tenant to have additional roommates (within reason, of course... perhaps two people max per bedroom). With our economy in the state that it is, living with other people will become a necessity for some (as it already is for many).
I may be wrong, but people are already allowed to have roommates. Many people, however, voluntarily sign leases that prohibit roommates, thereby waiving that option. What this law would seem to do is to prevent landlords and tenants from agreeing to leases that restrict occupancy to just one tenant. The public policy behind restricting that freedom of contract escapes me.
Deadbeat roommates CAN be lawfully evicted, right? I think so.
Hmmm ... sounds like the will to create second class citizens out of the minority exists within San Francisco too ... not just the state as a whole.
"if it weren't for rent control and the strict eviction laws already in place, landlords often wouldn't have to foreclose." Really? I don't get that logic.
Anybody buying property in SF knows about rent control. With that in mind, they know the maximum rent that they'll be able to charge over a period of time. They can then make the business decision of whether they will be able to pay the mortgage interest, taxes, and maintenance and still make a profit off the rents. If they can, they should buy the place and rent it out. If they can't, they shouldn't. Really a pretty simple business calculation.
Any landlord in SF who is being foreclosed upon made a bad business decision. Either they did their math wrong, they over-extended themselves on other properties, or they gambled on a low-rate teaser loan. None of these have anything at all to do with rent control.
I agree. In fact,a building in my neighborhood went up for sale and the flyer spelled it out in black and white that if you bought this building, you were going to be in the hole for the next 20 years. And yes, it was spelled out that clearly.
So I don't feel too sorry for the landlords re rent control. They knew what they were getting into when they bought the property. (and that building did sell).
But suspending rent increases that are a "hardship"? Sounds a little too vague and fuzzy for me. Who determines if the raises are a hardship? And what if I suddenly get a kick ass raise? By this logic, my landlord should be able to double my rent, because hey, paying double would not be a hardship. The legislation sounds well intentioned but not fair at all (and I'm hardly gung ho for landlords).
I tend to agree that arguments against rent control based on sympathy for the landlord are misguided. The more compelling argument is that laws that restrict the terms of leases (such as rent control and the other measures described in this post) distort the housing supply. When you combine that with the highly restrictive zoning laws in this city, you have a recipe for extremely high rents, housing shortages, dilapidated housing stock, etc.
Many make the business decision not to. If you're going to sell anytime soon, a vacant building is worth more. There are quite a few vacant buildings in my neighborhood for exactly this reason.
So would be renters, when you see such a building NOT for rent, blame your friends at the Tenants' Union.
Yeah, and when another dot com (or equivalent) boom hits and landlords start tripling rents on non rent-controlled buildings, and I am safe, I will THANK the tenants' union. This is why I'm grateful for rent control. If people weren't such greedy bastards, there wouldn't be a need for it. But I heard enough horror stories of the dot com rent increases to make me damn glad it's in place on my building.
see this is where the market skewing occurs. landlords triple rent on non-rent control during boom times, and then lower them during busts. but landlords of rent controlled buildings 'triple' their rates at ALL times, boom or bust. as soon as a rent-controlled tenant moves out, the landlord jacks the price higher than market rate, knowing that they won't be able raise it (and keep up with market rate) until the new tenants leaves. that is why places that that are rent controlled tend to have higher rents once a unit goes on the market. so thank your tenants' union for raising the rents on everyone else's rent (just not yours, that is until you move).
and SF'ers need to get over boom & bust. I'm constantly hearing about that nonsense. SF was FOUNDED on boom/bust principles. It's what made SF what it is. We will always have boom/bust. If we'd stop trying to legislate/tax it, SF wouldn't be so darn expensive.
Yep, you've got yours, screw anyone who's coming after you.
Standard SF thinking.
really? you don't get the logic? maybe because "things change". just because at the time you bought the property (even with rent control) it made good business sense, it does not mean that it will continue to be due to unforeseeable changes, such as tax hikes and law requirements. i.e. say that in these 'eco hip' times the BoS (or voters) decide to pass a law that requires all rental properties to install solar panels. Who pays for that? The landlord. unfortunately, unlike other businesses which can pass along that cost to their customers, landlords can not pass that along to rent controlled tenants. that's how a landlord can be foreclosed on, not because they "made a bad business decision".
rent control does not work. that much as been proven in other cities (like nyc & boston, where rents went up after rent control & went down after rent control was repealed). rent control skews the market place and creates scenarios like the above example.
@natomah @2:10
Now you're just making stuff up. When did the BoS pass a law requiring landlords to install solar panels on all their buildings? Oh, right, they didn't. And as for "tax hikes"? Thanks to the numbskull Howard Jarvis, property taxes have increased at a slow and predicable pace since 1978.
If your point is that "things change," what don't you start by naming one real thing that changed in the last 20 or 30 years that significantly affects the profits that SF residential landlords would expect to receive.
learn to read, i said that as an example of something that could happen. I'm not going to go back 20-30 years and list every change in law. one quick example from the past 20 years is the 2004 law that requires property owners to clean up any graffiti within 30 days. and it's not just the laws, but the cost of ownership. during the last boom construction/maintenance cost skyrocketed. the cost of home repairs went much higher than rent control allowed rents to go up. there are and always will be unforeseeable changes to the cost of ownership, and it's ridiculous to keep owners from passing those cost along.
landlords make repairs??? This is news to me.
"None of these have anything at all to do with rent control."
Indirectly they do. Pretty much only an idiot that's completely out of ideas would by a rent-controlled building in SF as an investment. If I had, say, $1,000,000 lying around that I wanted to invest, just about the dumbest thing I could do is use that as a downpayment on a $5,000,000 building. I'd be better off just buying US treasuries -- I wouldn't have to manage a building, my principal wouldn't be at extreme risk, and I wouldn't have potentially huge and unknown future liabilities. That's why we're left with landlords that are stupid to the level that they think that they can get away with cutting floor beams to get rid of tenants. Landlords with a shred of intelligence got out, so we now exclusively have landlords that make bad decisions. By definition.
Some people think that rent control and SF's tenant rights gives them many of the benefits of homeownership without any of the risk. But it comes at a price.
That's a really silly argument.
As far as long term investments go, SF rental properties are pretty damn profitable. SF has the lowest vacancy rate in the country. And even if the landlord isn't making a bundle every year on the net of rents minus costs, in the long run he's left with a vastly appreciated building that he paid little or nothing for.
While the appreciation will vary from year to year, it has and will always go up in the long run (i.e. over a period of 10+ years). For example, if a landlord had bought the median home 10 years ago, he would have paid $346,000 and put about 10 percent down (so he's only got $34k at stake). Today, even with the worst economic collapse since the Great Depression, that median house is worth $487k. So even if he made zero money off rents (which, even with rent control, is highly unlikely), the landlord's 10-year return on his $34k investment would be 414%, or 41% per year. Show me a treasury bond that performs like that. And if someone's investment horizon isn't 10 years or longer, they have no business investing in real estate.
Nice try, but I have no empathy for the plight of the poor SF landlord.
before you call someone's argument 'really silly', make sure you yourself don't have a silly argument. in ur example, that would be a return of 314%, and it would represent a simple annualized return of 31%. and, that would be a simplistic look at it. assuming the rents covered the mortgage, what about taxes? What about repairs? What about other fees and expenses?
nice try, but I have no empathy for the plight of the poor SF tenant who thinks they should live cheaply at the expense of owners, tax payers, and market rate renters.
Uh, didn't think that this would turn into a debate about mathematics, but the traditional way of calculating a return is (FinalPrice-InitialPrice/AmountAtStake). In this case $487k-4346k/$34k = 414% But, even if somehow my calculator is broken and your number is correct, are you really arguing that a 31% annual return is shabby?
And back to my original point, it's not like interest, insurance, maintenance and taxes are all big surprises to landlords. If they are bad businesspeople and didn't make sure they could afford to pay these expenses out of the incoming rents, they never should have bought the building. They can't argue that this new-fangled thing called rent control (which, by the way, has been around in SF since 1979) is to blame for their bad business decisions.
But I'm glad there's someone out there sticking up for the big guy.
If you want to make housing in SF harder to find and more dilapidated, creating circumstances where the owner "never should have bought the building" is a great way to do it.
@Be Divine: Of course the real question is what is the justification for rent control? Why are the landlords the only ones who need to do some planning? Maybe tennants should figure out how to earn enough money so they don't need rent control? After all, inflation etc. is not something unpredictable. The fact is that rent control benefits only those who for whatever reason have no reason or desire to change their living situation over a long period of time. Why do we think that those people should be favored with a subsidy? There really is no reason, but people with vested interest will alway fight to preserve it.
The last 10 years was the biggest real estate bubble in recent times. Long term, the best residential real estate does is a percent or so above inflation. Commercial real estate is similar, and the loans are different and more expensive. Why aren't you factoring in insurance? What about maintenance? Refinancing costs? Legal fees? Property management fees? And very often the collected rent doesn't even cover the loan payments for long periods of time. Say that someone bought a residential property in the last 5 years and had to rent it out. There's no way that it would would even come close to cash flow positive at today's rents and with a sane loan. Where does that money come from? Do "The Rich" just conjure money from thin air, or receive payments from Satan for killing bunny rabbits when they need cash?
Buying rental real estate in SF is just plain stupid. My money is elsewhere.
Okay, if you don't like the 1999-2009 period, then let's do the 10 years before that (1989 - 1999). Median price went from $242k to $346k. Again with a 10% down, you'd be looking at a 429% return over 10 years. Obviously people disagree about where the SF housing market is going and of course you should put your money wherever you're comfortable. But there are plenty of people who think that the trend of the last 30 years is going to continue.
Turning the issue of housing policy into a game of "who is more sympathetic: landlords or tenants" is silly. The relevant question is not which interest group is sympathetic, but what policy will improve the supply of housing? All the evidence I have seen shows that rent control reduces the supply of housing, discourages construction, and discourages maintenance of existing buildings. The proponents of rent control favor it because it benefits particular interest groups: namely those who already have an apartment and do no plan on moving. The real issue is whether favoring that interest group justifies the effect on the housing stock.
Why would it discourage construction if new buildings do not fall under rent control laws?
Your math is so far off that I'm embarrassed for you. You can't just exclude things like interest on the loan, tax, insurance and maintenance. These are huge costs.
"when another dot com (or equivalent) boom hits and landlords start tripling rents on non rent-controlled buildings"
I'm totally for some sort of reasonable limit on rent increases, no less than 2 times CPI. But two thirds of CPI??? Almost any landlord that's anywhere near cash flow negative can get totally screwed by that. And I seriously doubt that the perfect storm of the dot-com bubble will happen in our city in my lifetime.
"then let's do the 10 years before that (1989 - 1999). Median price went from $242k to $346k."
OK sure. In absolute dollars real estate was flat to negative until the mid 90s; in real inflation-adjusted terms that was a large depreciation. Now add in about $5k per year in maintenance, 5 - 10% management fees, taxes and insurance. Now consider the fact the the property was almost certainly cash flow negative for the first 5-7 years. Where do the carrying costs come from? Not the tenant!
Now try this again from 1960 - 1980.
"But there are plenty of people who think that the trend of the last 30 years is going to continue."
And those are the people stupid enough to own rental property in SF. We have to accept the consequences.
Oops, meant "no more than 2 times CPI" of course...