Monday, June 25, 2012

San Francisco Rent Control Madness

SF CHronicle's C.W. Nevius explains:
Well-to-do people are taking advantage of the [San Francisco's] long-protected practice of limiting rent increases to preserve affordable housing by using their cheap apartments as weekend getaways.

Attorney Andrew Zacks represents landlords who work with the city to push out these cheaters. He says these tenants are cynically playing the system.

"You have this class of very rich, elite people benefiting from rent control," he said. "They have a good deal on a $500 or $800 place on Nob Hill and they use it as a pied-a-terre when they come into the city."

Delene Wolf, executive director of the San Francisco Rent Board, is still fuming over a group from the South Bay that formed its own little housing cooperative.

"It drove me nuts," she said. "It was four doctors and their wives. They traded off on the weekends and used it to go to the Symphony."...

[Landlord attorney Andrew] Zacks has a case that involves a couple who own a condominium in Hawaii and have enrolled their children in school there, but wanted rent protection for a single-family residence in the Richmond District that they have rented since 1987. The landlord, who felt he had evidence the two were living full-time in Hawaii, wanted to increase the rent by $1,500 a month to $3,600.

Zacks' client won the case, but only after two appeals, $50,000 in legal costs and four years of wrangling...

"People are hoarding the units," he said. "You have these beautiful homes being used for storage."

Or to turn a profit. As documented in a Chronicle story on Sunday, the recent influx of travel sites like Airbnb, which allow people to rent out units for short periods of time, can allow these renters to both get a place at a bargain rate and make money.

New says the experience can be surreal for rental property owners.

"We have had cases where our owners go on the sites and see their own buildings, renting for more than they are getting," she said. "They are gaming the system and getting away with it."

That's aggravating. But, Zacks says, imagine what it is like to be giving tenants a break on the rent and then finding out they are renting the place out for a profit.

The situation is so out of whack it has accomplished the nearly impossible - some people are actually feeling sorry for landlords.
Bottom line: Rent controls distort markets, provide disincentives for new construction---which result in overall higher prices--which increases the desire for those who have rent controlled apartments to keep them,costing the landlords dearly.


  1. Surprise. People don't behave the way the overlords want.

  2. Obviously, in 10 years those landlords will be slandered as 'slum lords' for not rennovating or investing in their properties.

    Where is the motivation to improve your property if you cannot earn a higher return that justifies the cost to do so?

    Economics in 1 Lesson is in what, its 1 millionth printing? And there are still people spouting off these fallacies and lack the understanding of market clearing prices?


  3. It's definitely pathetic that Hazlitt's book doesn't get far more exposure, as successful as it is. Thank you government education. My friend out in San Fran rents a studio for 1225 a month. And that's a non-rent-controlled deal, out there. Large rent-controlled cities like that have lots of grown adults who have roommates. I find San Fran to be a good visit, but I wouldn't want to live there. It's quite possible that mainly the wealthy are keeping that city going--it has to be the welfare capital of America outside of Washington and New York.

  4. I live in San Francisco. As soon as a tenant gives up a rent controlled apartment, the landlord raises the prices way above true market rates. If you're a new comer to the city, or simply want to change apartments, you have to be willing to fork over huge amounts of money each month, or as another EPJ reader pointed out, move in with room mates. Room mates don't really fly with the wife.

    Rent control is a transfer of wealth from new comers and landlords to, well, doctors it seems.

    1. If prices are "above market rates" then they will sit empty. Period.


    2. When I say "true market rates", I mean the market rates that would exist if rent control wasn't in place in San Francisco. There's a distortion in the market currently.


  5. Having gone through the experience of being a residential landlord and dealing with a system that is stacked against your interests, I would rather let a home sit empty then rent it. Sure if you get a great tenant that is responsible and reasonable, life is good. But get one that knows how to game the system and its lights out for the landlord. You are already assumed to be a scum bag by the courts and government which will do everything in their power to help your tenant screw you. I dumped my last piece of rental property in 2006 and never looked back.