Rental Market in San Francisco

One of the problems with making predictions about bad public policy is that sometimes you have to wait 20-30 years until after the policy was passed to see all the negative consequences play out, by which time people have forgotten about the initial policy changes that caused all the disruption.

But I got to skip those 30 years in San Francisco.  I never really paid that much attention to the city until I read a book called "Season of the Witch" written by a progressive about life in San Francisco in the 60's and 70's.  As I wrote previously:

What struck me most were the policies these folks on the Progressive Left had on housing.  They had three simultaneous policy goals:

  1. Limit San Francisco from building upward (taller).  San Francisco is a bit like Manhattan in that the really desirable part where everyone wants to live is pretty small.  There was (and I suppose still is) a desire by landowners to build taller buildings, to house more people on the same bit of  valuable land.  Progressives (along with many others across the political spectrum) were fighting to have the city prevent this increased density as a threat to San Francisco's "character".
  2. Reduce population density in existing buildings.  Progressive reformers were seeking to get rid of crazy-crowded rooming houses like those in Chinatown
  3. Control and cap rents.  This was the "next thing" that Harvey Milk, for example, was working on just before he was shot -- bringing rent controls to San Francisco.

My first thought was to wonder how a person could hold these three goals in mind without recognizing the inevitable consequences, but I guess it's that cognitive dissonance that keeps socialism alive.   But it should not be hard to figure out what the outcome should be of combining: a) some of the most desirable real estate in the country with b) an effective cap on density and thus capacity and c) caps on rents.  Rental housing is going to be shifted to privately owned units (coops and condos) and prices of those are going to skyrocket.  You are going to end up with real estate only the rich can afford to purchases and a shortage of rental properties at any price.  Those people with grandfathered controlled rents will be stuck there, without any mobility.

Since reading the book, I have paid attention to stories on the rental market in San Francisco.  In short, it is just as screwed up as would have expected 40 years ago when both density and rent caps were put in place.

As San Francisco's housing crisis continues to pit long-term residents against the recent influx of affluent tech employees, Airbnb and other short-term rentals have become a source of tension. Today San Francisco Mayor Ed Lee and Supervisor Mark Farrell hoped to ease some of that tension by introducing reforms to the city's short-term rental laws that put a 120 day yearly cap on all short-term rentals. The package of amendments also introduced the creation of a new Office of Short-Term Rental Administration and Enforcement for the city staff to "coordinate in the administration and aggressive enforcement of the law."

Airbnb and other short-term rental services have come under fire in San Francisco because they take rental units off an already limited housing market. The current law caps short-term rentals at 90 days when the host is not present. If the host is present -- for example a room rental in an occupied home -- there is no yearly cap. Today's amendment package sets caps for both types of rentals. Mayor Lee said in a statement, "this legislation will help keep our City more affordable for homesharers, preserve rental housing for San Franciscans, protect neighborhood character and streamline permitting and enforcement under a fair set of regulations."

This is from a tech site that has developed a reputation, at least with me, for being astoundingly ignorant of even basic economics, so one has to make some guesses at what is going on here.  For example, it seems odd to say that renting a space on a short term lease rather than long-term somehow takes rental units off the market.  They are still being rented, are they not?  How could one describe them as being taken off the market?

My guess at what is going on here is that short-term rentals are likely exempt from some of the most onerous portions of San Francisco tenant law.   Likely, renting short-term allows one to bypass rent controls and charge more.  It also likely gives one some relief from the city and the state's horrendous tenant protections that make it virtually impossible to evict a tenant.  You lease to someone in SF, and you are stuck with them for life like a shark with a remora on his back, even if that tenant refuses to pay rent for years or constantly trashes the apartment.

San Francisco has created a system where they are absolutely guaranteed to have a shortage of rental properties.  Rather than address those laws that create the problem, politicians put their whole effort -- creating brand new agencies, no less -- to stop entrepreneurs from circumventing the madness and trying to provide housing.

Postscript:  The war against wealthy tech workers in SF is in full swing.  What SF would really like to do, I think, is close its borders and institute immigration controls to keep these folks out.  I know there are many parts of the world, including unfortunately our country, that work to keep poor uneducated immigrants seeking opportunity out.  But has there ever been a time or place in history where a particular place worked so hard to keep out rich educated immigrants seeking only to spend their money?

  • Matthew Slyfield

    "If the host is present -- for example a room rental in an occupied home -- there is no yearly cap."

    Sounds like San Fransisco has an untapped market for long term occupancy Bed and Breakfast houses.

  • morgan.c.frank

    "What SF would really like to do, I think, is close its borders and institute immigration controls to keep these folks out."

    as someone who lived in SF for 15 years, i can tell you: they tried that. it was called the dot-bust. from 2001-3 people left sf in droves and a TON of money disappeared/moved away.

    guess what? sf hated it.

    people went nuts saying "we need business back". landlords had to slash rent. people lost jobs. real estate dipped. restaurants struggled and failed. so did stores. major shopping districts were littered with empty storefronts.

    it was AMAZING how quickly the "we must repel the yuppie scum and reclaim SF for bohemian artists" mantra was replaced by "help! i'm broke! bring the tecg boom back!"

    SF gets like this at the top of every cycle. in 18 months when the bust is getting rolling, they will change their tune.

    the SF complaining class is never, ever quiet.

  • Bram

    I truly believe that eventually the tech companies will flee California and Seattle and the real estate market around there will crash and burn like the Hindenburg.

  • Jim Collins

    I see the hotel industry's fingers in this. I also see the City losing their "hotel taxes" and not liking it.

  • anon

    Astonishingly, there are still people in London who think that driving a moped around is the way to riches and a black cab licence, despite uber, gps, and all the rest of the stuff which has eaten their cheese.

  • mesocyclone

    I fear that they might come here, and bring their crazy values with them! Let them stay bottled up in their coastal blue zones.

  • jdgalt

    I was living in SF when Milk was elected, and SF already had rent control then, pretty much the same as now.

    It's not what I would call a "strong" rent-control scheme because landlords are allowed to charge new tenants as much as they please. The increases are only limited during the time that a tenant is in place (and with SF's young, mostly-single demographic, very few people live there for more than a few years). The rent limits are really there only to enable SF's renters-rights law.

    Granted, it's not purist-libertarian. But it hasn't been abused anything like the "strong" rent controls you'll find in places like Berkeley or Santa Monica.

    The housing shortage is unrelated. I can say this because the housing shortage covers the whole Bay Area and at least a 50 mile radius around it (and I know people who commute that far to be able to afford a home), but most of the area doesn't have rent control. The housing shortage is the deliberate result of urban planning, particularly "smart growth" (AKA "sustainable communities" and "Agenda 21").

  • jimcraq

    ...renting short-term allows one to bypass rent controls and charge more.
    It also likely gives one some relief from the city and the state's
    horrendous tenant protections that make it virtually impossible to evict
    a tenant.

    Remember the 1990 movie Pacific Heights?

  • Mercury

    Similarly onerous and long standing rent control laws were successfully ended in Boston and Cambridge via the tactic of putting them up for referendum on the STATE ballot.

  • Mercury

    There’s some wisdom in letting and even encouraging San Francisco run amok with all kinds of crazy housing and real estate laws. Let them do it their way and let other cities do it their own way and let the market decide and us all observe what the outcomes are good or bad. Innovation, diversity of options and ancillary cultural benefits generally come from the bottom-up, not top-down central planning (conformity to state or fed norms in this case). Laboratories of democracy and all that.

  • CapitalistRoader

    The current law caps short-term rentals at 90 days when the host is not present. If the host is present -- for example a room rental in an occupied home -- there is no yearly cap.

    I wonder if/how "present" is defined. If the host knocks on the door once a day and steps one foot into the apartment, would that constitute being present?

  • Matthew Slyfield

    For that matter, how is "host" defined?

  • A Friend

    Um, Prop 13 - taxes don't go up unless you sell. Locks owners in.

  • jdgalt

    This was badly worded. The exception is that if the tenant is sharing the same dwelling unit as the landlord, rent control doesn't apply.

    This only makes sense. Discrimination laws don't and shouldn't apply in that case either. You're sharing your own home.

  • jdgalt

    Prop 13 limits taxes to 1% of assessed value (unless raised with 60% local voter approval, 50% if it's for schools) and limits assessed value to what it was reassessed to when you bought the home, plus 2% per year.

    Of course, when home values fell after 2008, a lot of assessments fell below that max allowed value. Which means they can go back up to it before the 2%/year increase limit applies again.

  • bjk

    Let's say that SF had NOT enacted the restrictive policies. Would it be such a nice place to live? Would it have the picturesque Victorians or would it have cookie-cutter condos? Would it have nice neighborhoods with good views or skyscrapers surrounded by windy canyons? You can't keep the one thing you like constant and then change all the other stuff and imagine it won't change everything. Nice cities are like ski resorts. They're not making more of them. The tickets to Vail and Aspen are only going to get more expensive. The same is true for SF and NY.

  • thomg875

    1% of assessed value? Did they change the reading of Prop 13? It was passed, what, 30 years ago and rolled taxes back to a specific date, didn't it, if you owned your home when it was passed?

  • jdgalt

    It's been modified at least twice since it was enacted. But the 2%/year limit on increases in assessed value has been there the whole time.

    The main thing opponents say is unfair is that reassessment (above 2%) is allowed when the property is sold, and only then. Thus people who've been in their homes for a long time pay less than their neighbors in similar homes.

  • jdgalt

    That's old news. I don't think a hotel has been built or expanded anywhere in SF since the Marriott (about 1980). The newer ones are near the airport (20 miles from the city).

  • Rob McMillin

    The first item on my link list here is a piece at Model View Culture, a howlingly hilarious feminist website that has one interesting claim relative to this piece, namely, the idea that people are getting kicked out of their apartments in favor of new tenants who can afford to pay more. What I would like to know is this: how much force does rent control really have in San Francisco if the authors feel obliged to pump for a purity test before renting? It appears the progressive authors of SF rent control never quite succeeded in making it as strong as they wanted, and so certain property types and ages are exempt (anything built after 1979, and anything that isn't a designated apartment, e.g. a single-family dwelling used as a rental).

  • jdgalt

    I heard about the age exemption at the time (it was a state law) but I'm surprised it has lasted this long. Somebody was concerned that without it, no one would build new rental housing.

    As for the "type" exemption, the rule when I lived there was, if you had 3 or more tenants you were covered. So a house or duplex is exempt if you own only one of them within the city limits. But I don't think there's a designation for "apartments" per se, unless it's in the part of the law limiting condo conversions (to a small number per year).

  • jdgalt

    SF is one small (in area) city within a much larger metro area, and is pretty much entirely built up. Without restrictions I'd expect that the nice Victorians would remain standing, but would gradually be bought up by owners who want to live there themselves.

    There is some "infill developement" (meaning tear down one thing and build another) going on in SF, but most of it is either tearing down buildings you wouldn't want to keep anyway (warehouses in the Mission district) or it's adding high-rise apartments to places like downtown and Parkmerced, which are already high-rises.

  • Mike Powers

    What they mean by "taken off the market" is that property owners are claiming that they're turning their rental property into "residential space" (that is, owner- or owner-family occupied and not generating rental income) and therefore they can kick out the existing rent-controlled tenants without the various legal requirements that would normally apply. Then they use AirBnb to rent it anyway. Since AirBnb doesn't bother to report anything to the government, AirBnb rentals are invisible to the rent control board and therefore aren't subject to rent control or renter protection laws.

    This is what creative disruption looks like.

  • Igor

    Beautiful city, populated by thousands and thousands of people sharing one brain cell. No thanks. They brought it upon themselves...

    One can only hope they WILL have another large earthquake and slide into the sea.

  • 4RentWeekly Phoenix Central

    San Francisco is a great city, this is definitely something to think about.

  • Cummbottom

    Read, allot upon the reason paradox is new residency whom not involved don't about social irresponsibility. Concisely, this false assurance land being sold by redevelopment where revenue benefiting housing and renters rights essential. Lee administration saying, enacting laws bought prosperity to whom? Supporters, of The Ellis Act whom? SFAA,NAIOP,CAA,EBRAH,Thelmp-SF,AOAUSA,CAAPAC,BOMA-SF,CAANET,Small-Pro-SF,PPMAOFSF and SIOR eager continue evictions. Baffling elements, why build or retain housing or fair employment since avid, resident is business savvy" where getting these distorted statistics. Irate, worse hit with evictions whom false myth we "GAYS" have wealth in culture fighting to retain residency in California displacement cause disparity! Ed is guilty where new housing these communities going calculated 30,000 units: many don't see damage optimistic eventually is present. Your not secure with rental due pressure to evicted you tenants rights are lowest. Mention tactics why sudden fires around Castro and Mission where if your care to vote for change Nov 3, 2015 89 Dolores next 35 Dolores St,Dobuce and Valencia,22nd Mission Street a man died in fire tenants suing the owner whom selling lot for how much to discuss $20 or 35 million. Next to Vida condo along fire Church street all tenants "rent controlled" naïve to believe going retain housing! Yes, many residents never have problems it's corporate greed turn over new industries whom? Mining,finanical,cartels,technology,health care,electronics and multi-media corporations. South Ness Street,3rd. Evans,Muni Depots for commercial development and 3rd Townsend development your saying. Never heard well Ed, approved the "Board of Supervisors you must understand pretentiousness business class don't care. Insult to "LGBTQ" remarks simply if can't afford rentals live mostly in box really Scott Wiener whom representing "LGBTQ" Castro lost many to TIC units. Yes,another how many 2,800 lottery system 2016 recommend you vote for repeal and empowerment where going face uncertain future ratio of foreigners detest those not affluent. Change is around us, Ed instead is impartial not a leader refuse allow renters rights allowing cartels tax exemptions! 3rd.Townsend Caltrans Depot prize worth billions shall be "BMR" units below market rate whom supporting new era. Now are enemies "NAIOP,Lawyers,Hedge funds,I-banking and insurance firms there investing commercial realty development. Cities are defeating rent control policies even Mt.View they lost the vote support those mention! Ed Lee is popular in "Asia" whom biggest investors for realty in California forget Sino-influence India,ASEAN free markets and Australia whom going build 36 tower above. California center Mid-Market and Tenderloin owned price out by cartels whom going sell not "BMR" only gentrified units. Avid rentals going increase downtown mid 2016 $ 3,800 to 4,500 for studio laugh. You could lose your unit fight for liberty rent control place Ellis Act on ballot 2016. See you at the polls Nov 3, 2015 "LGBTQ" never gotten housing due are suffering we lost 55 Laguna only two communities housing history. Demand new housing fight we pay taxes lottery is effecting the "Castro and Noe Valley" resolution place moratorium for these neighborhoods 15yrs. until new housing build place on ballots!

  • jdgalt

    Can someone please translate this into English?

  • Jason afraid losing my rental?

    Highly informative I comprehend, the logic rendering go troll. Someone else prick supporter, of gentrification yeah, we voted for "props" C,A and K eventually going. Change affordability comments valid,gentrification are employee of SFAA or CAA? Where losing "rentals" due growth economics rent control essential. I'm trying to retain my apt, go troll somewhere else!

  • jdgalt

    Pot, kettle, black. You can call me a troll when you learn how to write a coherent sentence.

  • Sick of the squabbles!

    Enough guess not bright nor, smart ask my landlord. Why losing my apartment gotten, knowledge this sight troll another Yuppy whom pretentious!