Rent Control Creates Higher Rents in SF(nickstefan.net)
nickstefan.net
Rent Control Creates Higher Rents in SF
http://www.nickstefan.net/blog/view/sf-rent-control
54 comments
> It also reduces tenant mobility
this is such a great point and I wish it was talked about more in the discussions of these issues. rent control basically traps people in a single apartment for the rest of their lives. it traps their sons and daughters there too (if they elect to "inherit" the apartment, which they frequently do).
this is one of the ways that ghettos come in to existence. the ability to move to somewhere else is really fundamental to preserving a person's freedom and quality of life. rent control takes that away and replaces it with a market dislocation and transfer payment.
this is such a great point and I wish it was talked about more in the discussions of these issues. rent control basically traps people in a single apartment for the rest of their lives. it traps their sons and daughters there too (if they elect to "inherit" the apartment, which they frequently do).
this is one of the ways that ghettos come in to existence. the ability to move to somewhere else is really fundamental to preserving a person's freedom and quality of life. rent control takes that away and replaces it with a market dislocation and transfer payment.
I cannot fathom how this is a trap. If the resident can afford to move elsewhere, then it's certainly not a trap. And if they can't afford to move, then removing rent control doesn't "free" them. They're just fucked.
I know many people who have moved out of rent-controlled apartments for one reason or another. I've done it myself. I don't know a single one who says, "Whew! Thank goodness I escaped that terrible trap of being able to afford living in a place I liked!"
I know many people who have moved out of rent-controlled apartments for one reason or another. I've done it myself. I don't know a single one who says, "Whew! Thank goodness I escaped that terrible trap of being able to afford living in a place I liked!"
The assumption is that without rent control, average prices would be lower. Therefore someone who couldn't afford to move previously now could.
Or if the intent is to provide a subsidy, to have a system where the tenant can receive the same relative amount of subsidy no matter where she may choose to reside.
This strikes me as an illusion based on conflating two different someones. The someone who feels trapped under rent control would often have been driven to move elsewhere years before if rent control didn't exist. The someone in the non-controlled apartment who doesn't feel trapped is likely to have a higher income.
The assumption is that without rent control, average prices would be lower.
So... the assumption is that left to itself, a good which is incredibly scarce in a market full of wealthy, fiercely competitive customers would see a price decline?
I mean, I can sort of see a long-term argument for it (the people who would occupy the housing are dependent on a much larger and much less wealthy serving class for their food and other necessaries and luxuries, and as that serving class was priced out of being able to live anywhere within an increasingly-large radius, housing would begin to become less attractive and thus prices would finally come down at least a bit). But I highly doubt that's the argument attempting to be made here, as one of the goals of rent control is to shortcut to the end of that cycle (where costs have come down enough that the serving class can afford to live nearby again).
So... the assumption is that left to itself, a good which is incredibly scarce in a market full of wealthy, fiercely competitive customers would see a price decline?
I mean, I can sort of see a long-term argument for it (the people who would occupy the housing are dependent on a much larger and much less wealthy serving class for their food and other necessaries and luxuries, and as that serving class was priced out of being able to live anywhere within an increasingly-large radius, housing would begin to become less attractive and thus prices would finally come down at least a bit). But I highly doubt that's the argument attempting to be made here, as one of the goals of rent control is to shortcut to the end of that cycle (where costs have come down enough that the serving class can afford to live nearby again).
Did you read the article? Absent rent control, the article plausibly claims equilibrium rent would be higher than the rent controlled rent but lower than the market rent, because "market" rent reflects the rent only on a very small share of the available housing.
But the situation is actually better than that because if we could convincingly get rid of rent control there would be a lot of new entry into the market, making the good less scarce.
Under tight rent control, landlords have an incentive to take apartments off the market and convert them into condos or luxury homes. Remove rent control and some of those apartments will come back, which grows the supply and drives down price. Under a true market where landlords can recoup development costs we should expect see an increase in both the supply and quality of available apartments compared to the current day.
But the situation is actually better than that because if we could convincingly get rid of rent control there would be a lot of new entry into the market, making the good less scarce.
Under tight rent control, landlords have an incentive to take apartments off the market and convert them into condos or luxury homes. Remove rent control and some of those apartments will come back, which grows the supply and drives down price. Under a true market where landlords can recoup development costs we should expect see an increase in both the supply and quality of available apartments compared to the current day.
The articles scenario assumes that the supply is elastic (and only bound by rent controls), while the demand is static, which is not even remotely plausible (e.g. see http://en.wikipedia.org/wiki/Urbanization - almost everyone wants to live in a city)
What would really happen is a massive influx of demand, because many people rich people (rich in this context: "Have the means to buy high-priced properties") who do not want an apartment today (because there are none which meet their 'standards', partly thanks to rent controls), would start to move in. This would lead to a situation where a) all new supply would be concretated in high-priced estate, which would still be bought up by the increased demand, while b) the bottom (i.e. todays rent controlled apartments, going with the assumption these are not well maintained and therefore 'cheap') would just go up in price, because there still wouldn't be any new options for the inhabitants of those properties. Result: Higher prices for the current occupants of apartments, a new crop of high-priced apartments bought up by rich people, no better supply of "main street" living room.
What would really happen is a massive influx of demand, because many people rich people (rich in this context: "Have the means to buy high-priced properties") who do not want an apartment today (because there are none which meet their 'standards', partly thanks to rent controls), would start to move in. This would lead to a situation where a) all new supply would be concretated in high-priced estate, which would still be bought up by the increased demand, while b) the bottom (i.e. todays rent controlled apartments, going with the assumption these are not well maintained and therefore 'cheap') would just go up in price, because there still wouldn't be any new options for the inhabitants of those properties. Result: Higher prices for the current occupants of apartments, a new crop of high-priced apartments bought up by rich people, no better supply of "main street" living room.
That's literally what the original article argues. The rent control leaves a smaller supply of houses to be bid up by a fixed pool of people who want to live in SF. Whether the toy model the author uses to illustrate this is correct or appropriate is of course debatable.
I wonder if you read the article at all or went straight to the comments. Your comment reminded me of the "banana" experiment that Ars Technica ran a while ago.
The article is so ludicrously oversimplified that I didn't feel it merited the dignity of a rebuttal, but if you can find an argument that doesn't rely on the frictionless-spherical-humanoids assumptions of efficient markets, feel free to bring it up.
I'm not sure I see the connection between this article's arguments about rent control and efficient markets theory. Efficient markets are those that incorporate all available knowledge about goods into their prices. Rent control isn't a problem of price uncertainty and asymmetric information.
Maybe I'm missing something, but if I'm not, I think you're hurting your point by waving terminology like that around. By trying to discredit an unrelated concept from econ, it's like you're saying "if you can find an argument that doesn't rely on economics of any sort, feel free to bring itup".
Maybe I'm missing something, but if I'm not, I think you're hurting your point by waving terminology like that around. By trying to discredit an unrelated concept from econ, it's like you're saying "if you can find an argument that doesn't rely on economics of any sort, feel free to bring itup".
For a more accurate model we would need:
* the actual number of people who wish to move to SF at any given time
* the number of people who pay rent control, but could pay more, and what that number is
* the actual rents that people pay under rent control
As obvious as parts of a toy model might be to people who are familiar with economics terminology, the toy model's conclusions are really quite 'new' to some people. For example: the rents in SF dont need to be 'supported' in the sense most of us think (by everyone). They merely need to be supported by a small amount of wealthy people bidding on a tiny amount of available apartments.
I think that's an important fact regarding how 'frothy' the market is. It can definitely go higher.
* the actual number of people who wish to move to SF at any given time
* the number of people who pay rent control, but could pay more, and what that number is
* the actual rents that people pay under rent control
As obvious as parts of a toy model might be to people who are familiar with economics terminology, the toy model's conclusions are really quite 'new' to some people. For example: the rents in SF dont need to be 'supported' in the sense most of us think (by everyone). They merely need to be supported by a small amount of wealthy people bidding on a tiny amount of available apartments.
I think that's an important fact regarding how 'frothy' the market is. It can definitely go higher.
I'd challenge you to accurately state the efficient market hypothesis then state the assumption in the article that is comparable.
Spoiler: I don't think there is one. You're using the term as a catch all for "economic arguments I don't believe".
Spoiler: I don't think there is one. You're using the term as a catch all for "economic arguments I don't believe".
This article goes into a lot of depth on the effects of rent control:
http://www.econlib.org/library/Enc/RentControl.html
"Economists are virtually unanimous in concluding that rent controls are destructive. In a 1990 poll of 464 economists published in the May 1992 issue of the American Economic Review, 93 percent of U.S. respondents agreed, either completely or with provisos, that “a ceiling on rents reduces the quantity and quality of housing available.” Similarly, another study reported that more than 95 percent of the Canadian economists polled agreed with the statement."
http://www.econlib.org/library/Enc/RentControl.html
"Economists are virtually unanimous in concluding that rent controls are destructive. In a 1990 poll of 464 economists published in the May 1992 issue of the American Economic Review, 93 percent of U.S. respondents agreed, either completely or with provisos, that “a ceiling on rents reduces the quantity and quality of housing available.” Similarly, another study reported that more than 95 percent of the Canadian economists polled agreed with the statement."
> 93 percent of U.S. respondents agreed
> another study reported that more than 95 percent of the Canadian economists polled agreed with the statement.
Well yeah, that's about as reliable as asking the members of the Supreme Soviet if socialism is a perfect society model.
Maybe we could do this study again and include the numbers for people which are not part of the "free market will save you"-propaganda group? Or add a few reasons why the answers should be correct besides "I want it!"? Come on ... american and canadian economists .. you can do better.
Well yeah, that's about as reliable as asking the members of the Supreme Soviet if socialism is a perfect society model.
Maybe we could do this study again and include the numbers for people which are not part of the "free market will save you"-propaganda group? Or add a few reasons why the answers should be correct besides "I want it!"? Come on ... american and canadian economists .. you can do better.
Can you do better? What study shows otherwise?
Meanwhile your argument is super hand-wavy. There is not an infinite quantity of rich people wanting to live in San Francisco. I don't think it's reasonable to assume a priori that demand can not decrease absent rent control.
I've witnessed a couple in a SF 1 bedroom rent controlled apartment (of many years) fret over when to have a child. A 2 bedroom at market rate is a non-trivial change. It certainly feels like a trap to them.
It's a liquidity problem for the whole marketplace. There's only a limited amount of space to rent in the first place. When people get older and don't need as much space, they don't move to a smaller unit to free up space for people who need more space for growing families. So you end up with one person living in a space for four people and four people living in a space for one person.
>> It also reduces tenant mobility
> rent control basically traps people in a single apartment for the rest of their lives.
so does buying a house. still, some people tend to appreciate it regardless of how bad the added lack of mobility is for them.
> rent control basically traps people in a single apartment for the rest of their lives.
so does buying a house. still, some people tend to appreciate it regardless of how bad the added lack of mobility is for them.
They stop appreciating it pretty fast when they're underwater and need to move for a job. See: 2007. Part of the contract between a lessor and a tenant is that the tenant is making some sacrifices in exchange for the ability to leave their apartment any time they want to. You can't have it both ways.
It seems to be a strange and repeated message board blind spot that we're very alert to equity in upside, but not in opportunity cost. The same thing happens in virtually every HN discussion about the stock market. Everything always seems to be based on the notion that prices are always rising, and our only concern is sharing those profits as uniformly as possible. No. The market is fundamentally structured around the likelihood that prices can go either way.
It seems to be a strange and repeated message board blind spot that we're very alert to equity in upside, but not in opportunity cost. The same thing happens in virtually every HN discussion about the stock market. Everything always seems to be based on the notion that prices are always rising, and our only concern is sharing those profits as uniformly as possible. No. The market is fundamentally structured around the likelihood that prices can go either way.
But pretty much everyone assumes that over the longterm, the market will rise.
Otherwise everyone investing in index funds for retirement is screwed.
Otherwise everyone investing in index funds for retirement is screwed.
First, renting is supposed to be an option for mobile people. Renters' mobility is more important than homeowners' mobility, who have self-selected to be somewhere for a while.
Second, rent control generally makes you more and more stuck each month. Selling your home and buying a new one is a one-time hit, and if there is sufficient motivation, it will happen after a while (technically, brokers' fees increase with the home value, but they are 6% or less, so doubling the broker's fee is a lot more palatable than doubling your rent).
Third, home ownership offers other options, like renting it out, if Prop 13 keeps you stuck with the house.
Fourth, home ownership is not subject to the tension between a tenant and a landlord who doesn't want them there.
Second, rent control generally makes you more and more stuck each month. Selling your home and buying a new one is a one-time hit, and if there is sufficient motivation, it will happen after a while (technically, brokers' fees increase with the home value, but they are 6% or less, so doubling the broker's fee is a lot more palatable than doubling your rent).
Third, home ownership offers other options, like renting it out, if Prop 13 keeps you stuck with the house.
Fourth, home ownership is not subject to the tension between a tenant and a landlord who doesn't want them there.
Owning a home means you are subject to housing market fluctuations.
If you want to move elsewhere, and housing prices have gone up substantially, you have increased equity in your current property to cover the increased cost elsewhere.
If you want to move elsewhere, and housing prices have gone up substantially, you have increased equity in your current property to cover the increased cost elsewhere.
You're completely ignoring equity.
Mortgage payments are based on the loan amount, not the value of the property. Excluding transactions costs, if you buy a $X house and have $Y month payments, then the property value doubles to $2X, you can sell and still buy another house that costs $2X, add $X to the down payment, and still have a $Y/month mortgage.
So if you own a home, not only do you have mobility, but if you move to another house of lesser value you can extract equity without increasing monthly costs.
Now Prop 13 is what restricts mobility for homeowners, because property tax can be 10x on a new purchase if you've been in the old house long enough. Rent control and Prop 13 both need to go.
Mortgage payments are based on the loan amount, not the value of the property. Excluding transactions costs, if you buy a $X house and have $Y month payments, then the property value doubles to $2X, you can sell and still buy another house that costs $2X, add $X to the down payment, and still have a $Y/month mortgage.
So if you own a home, not only do you have mobility, but if you move to another house of lesser value you can extract equity without increasing monthly costs.
Now Prop 13 is what restricts mobility for homeowners, because property tax can be 10x on a new purchase if you've been in the old house long enough. Rent control and Prop 13 both need to go.
> You're completely ignoring equity.
You're assuming equity is guaranteed.
If you buy a house at $X, and it adjusts to $X/2 because of speculation or job losses in the area, you're still paying down the $X + $Y mortgage, where $Y is interest, fees, and whatever else the bank tacks on, now or in the future, and have no way to recoup your losses. And you still have to pay property tax, based on the assessed value of your property circa pre-collapse.
You're assuming equity is guaranteed.
If you buy a house at $X, and it adjusts to $X/2 because of speculation or job losses in the area, you're still paying down the $X + $Y mortgage, where $Y is interest, fees, and whatever else the bank tacks on, now or in the future, and have no way to recoup your losses. And you still have to pay property tax, based on the assessed value of your property circa pre-collapse.
> If you buy a house at $X, and it adjusts to $X/2 because of speculation or job losses in the area,
Historically that is almost unprecedented - and no, a few thousand homes in a couple of areas does not make it any better an argument. Over time, property values go up - it's not a theory, it's a fact.
>you're still paying down the $X + $Y mortgage, where $Y is interest, fees, and whatever else the bank tacks on, now or in the future
The bank can't 'tack on' arbitrary 'fees, and whatever' in the future on any decent mortgage - in fact I've never seen a residential mortgage that allowed that. If you don't get a fixed rate mortgage then your rates may rise, but that's an argument against variable rate mortgages, not home ownership.
> And you still have to pay property tax, based on the assessed value of your property circa pre-collapse
No, at least not in California - counties were required to reassess property value down after the crash, and they did. In fact from what I've seen they haven't been assessing value back up enough to keep up with the market.
Historically that is almost unprecedented - and no, a few thousand homes in a couple of areas does not make it any better an argument. Over time, property values go up - it's not a theory, it's a fact.
>you're still paying down the $X + $Y mortgage, where $Y is interest, fees, and whatever else the bank tacks on, now or in the future
The bank can't 'tack on' arbitrary 'fees, and whatever' in the future on any decent mortgage - in fact I've never seen a residential mortgage that allowed that. If you don't get a fixed rate mortgage then your rates may rise, but that's an argument against variable rate mortgages, not home ownership.
> And you still have to pay property tax, based on the assessed value of your property circa pre-collapse
No, at least not in California - counties were required to reassess property value down after the crash, and they did. In fact from what I've seen they haven't been assessing value back up enough to keep up with the market.
> And you still have to pay property tax, based on the assessed value of your property circa pre-collapse.
Most jurisdictions have regular reassessment schedules, and while some have formulas that delay or limit the effect of market value increases, most don't for decreases which take full effect immediately.
Most jurisdictions have regular reassessment schedules, and while some have formulas that delay or limit the effect of market value increases, most don't for decreases which take full effect immediately.
I know people who had their homes re-assessed in 2009-2010 and their property taxes decreased significantly from the pre-collapse amount.
Have you ever looked at the possibility where one's family has to move every year or so because landlord decided to increase rent to 'catch up' with market. This is what it looks like in communities where lot of people wants to move in but no rent control. One can move in but will not have any stability.
I moved into an apartment in Westchester, NY two years ago. My landlord keeps increasing the rent by 20% every year. It is owned / managed by a large company which owns many apartments in the area; they just keep inflating the rental prices.
I can't deal with this anymore, as a result I have to move out now.
I can't deal with this anymore, as a result I have to move out now.
I see nothing wrong here. It's his apartment, and it's market. Want stability -- buy a house, (PS: I'm myself renting for a cheap price because of rent control, but I admit it's a bad system).
It's his apartment, but such high increase is not in line with the market prices, inflation and wage growth.
They are simply banking on the fact that moving for tenants is costly, time consuming and could affect kid's school. Moreover, they only gave me 3 days to decide if I want to renew or move out. They gave the renewal offer 33 days before lease end, and I have to give a notice of 30 days if I want to move out.
Last year, I fell into their trap and gave into the substantially increased rent; but now what they are asking is at least 30% higher than market.
They are simply banking on the fact that moving for tenants is costly, time consuming and could affect kid's school. Moreover, they only gave me 3 days to decide if I want to renew or move out. They gave the renewal offer 33 days before lease end, and I have to give a notice of 30 days if I want to move out.
Last year, I fell into their trap and gave into the substantially increased rent; but now what they are asking is at least 30% higher than market.
If your lease is being modified you are likely not bound by the 30 day notice...
I lived in an apartment complex where the owner raised the rent $50 every month. Rent was $850 and by the time I left it was at $1250. Best to get a lease and not rent month to month sometimes.
And with 30 days notice - not fun in an overheated rental market. In Denver as few as 7 days notice, if the rental is monthly.
http://www.denverpost.com/business/ci_27709567/apartment-dwe...
http://www.denverpost.com/business/ci_27709567/apartment-dwe...
There's a lot more "catching up" to do in a highly rent-controlled market (assuming you're not subject to rent control). For the same reasons "market rate" is artificially high (as pointed out by the linked article), the "market rate" goes up by a very large percentage each year. If all units were market rate, the market rate would not be increasing by nearly as much.
I live in Somerville, MA, which does not have rent control. My rent has gone up by at least 10% every year for the past 4 years. This is not sustainable.
No, it isn't. Unless inflation is at least 10% as well - and wages keep up.
But imagine if Somerville did have rent control. The minority of units on the market would have rents go up by much, much more than 10% a year, and people who need a new place would be screwed. This is what's happened in SF.
But imagine if Somerville did have rent control. The minority of units on the market would have rents go up by much, much more than 10% a year, and people who need a new place would be screwed. This is what's happened in SF.
rent control basically traps people in a single apartment for the rest of their lives.
It doesn't "trap" anyone; that's just hyperbole.
The main effect is that it gives a significant number of people a chance to stay in the city in a profoundly deteriorating market for middle-class housing stock (driven, in NYC's case, to no small degree by external factors such foreign investment, and radical and -- in the view of many -- essentially undemocratic "pro-building" changes to the local zoning laws).
this is one of the ways that ghettos come in to existence.
Perhaps. But given the vastly greater forces at play (racism/classism; the collapse of inner-city manufacturing base; and deliberate wholesale razing of neighborhoods in NYC, Boston and elsewhere; mistaken notions about the wonderful community-building effects moving people out of quirky single-family housing and into massive high-rise development projects; and just the inevitable effect of multi-lane freeways in high-density urban areas, generally) it seems you'd have a hard time pinning it as one of the major factors.
It doesn't "trap" anyone; that's just hyperbole.
The main effect is that it gives a significant number of people a chance to stay in the city in a profoundly deteriorating market for middle-class housing stock (driven, in NYC's case, to no small degree by external factors such foreign investment, and radical and -- in the view of many -- essentially undemocratic "pro-building" changes to the local zoning laws).
this is one of the ways that ghettos come in to existence.
Perhaps. But given the vastly greater forces at play (racism/classism; the collapse of inner-city manufacturing base; and deliberate wholesale razing of neighborhoods in NYC, Boston and elsewhere; mistaken notions about the wonderful community-building effects moving people out of quirky single-family housing and into massive high-rise development projects; and just the inevitable effect of multi-lane freeways in high-density urban areas, generally) it seems you'd have a hard time pinning it as one of the major factors.
It's not hyperbole in the least bit, I've seen it first hand.
A lot, maybe most by now, of my friends who live in SF cannot afford to move at all - they really are trapped in their current lease. It's often even worse because rent control encourages so many off-the-books subleases, so they can't directly deal with the landlord for fear of being caught. If the lease holder decides to give the lease up, they're screwed. This has happened to more than one of my friends who lived with someone else who had the lease and then moved out. The original leaseholder kept the lease as a courtesy, but it's actually a liability to them and they won't do it indefinitely. It's a shitty situation for all involved.
One argument against rent control is that it drastically drives up the price of the available units because there's such a reduced supply, exactly because the "trapped" can't move. This is a vicious cycle that causes even more renters to become trapped.
With subsidies instead of rent control, the available rental stock would be bigger, renters could choose from more options, and not be penalized for needing to move. Subsidies would still have an effect of increasing demand and ability to pay, thus pushing up prices a little, but the price inflation would be spread across the whole market, rather than concentrated on just the small portion of vacant units.
A lot, maybe most by now, of my friends who live in SF cannot afford to move at all - they really are trapped in their current lease. It's often even worse because rent control encourages so many off-the-books subleases, so they can't directly deal with the landlord for fear of being caught. If the lease holder decides to give the lease up, they're screwed. This has happened to more than one of my friends who lived with someone else who had the lease and then moved out. The original leaseholder kept the lease as a courtesy, but it's actually a liability to them and they won't do it indefinitely. It's a shitty situation for all involved.
One argument against rent control is that it drastically drives up the price of the available units because there's such a reduced supply, exactly because the "trapped" can't move. This is a vicious cycle that causes even more renters to become trapped.
With subsidies instead of rent control, the available rental stock would be bigger, renters could choose from more options, and not be penalized for needing to move. Subsidies would still have an effect of increasing demand and ability to pay, thus pushing up prices a little, but the price inflation would be spread across the whole market, rather than concentrated on just the small portion of vacant units.
I'm one of those poor, suffering people, "trapped" by my rent control.
If this is confinement, then I'll admit that I much prefer confinement to the life of freedom I would experience when my landlord kicks me out in order to get a richer tenant.
Thanks for your concern, though. It's really touching.
If this is confinement, then I'll admit that I much prefer confinement to the life of freedom I would experience when my landlord kicks me out in order to get a richer tenant.
Thanks for your concern, though. It's really touching.
You were (from your bio) one of the first engineers at Justin.tv (now Twitch.tv), a search and data mining engineer at Yelp.com, and a founder of Vayable, a YCombinator-funded startup.
You're comfortable with the idea that you get rent control? The market has been set up to essentially subsidize you, at the expense not only of the evil landlords but of all the potential SF tenants who do not get rent control, many of whom are (I can only assume, but it seems a pretty safe guess) far less economically secure than you are.
I'm sorry to personalize it like this (I'll forget your name soon after I write this comment). I really don't mean this as an attack. I'm just pointing out that you're a member of an undeniably elite class of worker, one that is essentially inheriting most of the economy (I believe "eating" it is the verb our industry prefers) and --- no moral judgement here --- displacing previous residents from the old outmoded economy. I'm a little startled to hear you suggest that you need a subsidy.
You're comfortable with the idea that you get rent control? The market has been set up to essentially subsidize you, at the expense not only of the evil landlords but of all the potential SF tenants who do not get rent control, many of whom are (I can only assume, but it seems a pretty safe guess) far less economically secure than you are.
I'm sorry to personalize it like this (I'll forget your name soon after I write this comment). I really don't mean this as an attack. I'm just pointing out that you're a member of an undeniably elite class of worker, one that is essentially inheriting most of the economy (I believe "eating" it is the verb our industry prefers) and --- no moral judgement here --- displacing previous residents from the old outmoded economy. I'm a little startled to hear you suggest that you need a subsidy.
Wait...what is this "subsidy" you speak of? My landlord's costs are mostly fixed. I pay the same portion of the mortgage that I did when I moved in here -- and it's not like I'm paying a tiny amount of money, either. I'm subsidizing my landlord, not the other way around.
My landlord's inability to exploit me at optimal efficiency to pay for her income-generating asset is not a subsidy, it's just a policy decision in favor of tenant's rights.
My landlord's inability to exploit me at optimal efficiency to pay for her income-generating asset is not a subsidy, it's just a policy decision in favor of tenant's rights.
Your landlord's costs are fixed --- modulo property taxes, which rise with the appraised value of the property --- but the value of the property fluctuates with the market. In San Francisco, that market is skyrocketing. Your rent should be too. It isn't: due to rent control, you capture the upside (below-market rent) instead of your landlord.
Respectfully: you are practically the poster example of the problem with rent control in a supply-constrained and rapidly gentrifying real estate market. Working class families get moved out of the city. That happens; it's part of economic growth. Meanwhile, a policy that should serve first and foremost to protect the interests of the least mobile workforce participants instead protects an elite startup founder at their expense.
Someone who wanted to make a case against SF rent control could literally just point at you. "We're distorting the housing market for the benefit of elite tech workers. We should stop doing that."
I don't blame you for accepting rent control. You're a rational actor, the option was available to you, and if you want to commit charity, there are probably more efficient vectors for that available to you than enriching a landlord. But I don't think your experience is a particularly good illustration of the public policy benefit of rent control.
Respectfully: you are practically the poster example of the problem with rent control in a supply-constrained and rapidly gentrifying real estate market. Working class families get moved out of the city. That happens; it's part of economic growth. Meanwhile, a policy that should serve first and foremost to protect the interests of the least mobile workforce participants instead protects an elite startup founder at their expense.
Someone who wanted to make a case against SF rent control could literally just point at you. "We're distorting the housing market for the benefit of elite tech workers. We should stop doing that."
I don't blame you for accepting rent control. You're a rational actor, the option was available to you, and if you want to commit charity, there are probably more efficient vectors for that available to you than enriching a landlord. But I don't think your experience is a particularly good illustration of the public policy benefit of rent control.
Crickets.
Hey, I am too, though I recently moved so I got hit with the reset.
I guess you're just ignoring the part where no rent control and direct subsidies would lower the prices of the available rental stock. Do you like being penalized for moving? I don't.
I guess you're just ignoring the part where no rent control and direct subsidies would lower the prices of the available rental stock. Do you like being penalized for moving? I don't.
Yes, I'm ignoring your completely unsupported hypothetical about subsidies.
You don't need to invent fancy theories to explain rents in SF: we're in a demand bubble, driven by the influx of venture-funded tech companies into the city. This is neither new, nor surprising.
You don't need to invent fancy theories to explain rents in SF: we're in a demand bubble, driven by the influx of venture-funded tech companies into the city. This is neither new, nor surprising.
I totally agree that we're in a demand bubble, but it's exacerbated by rent control and the historical difficulty of building new units.
This isn't a very fancy theory, it just effects supply and demand. I don't think you'll find many economists who would disagree with the assertion that rent control reduces supply, thus driving up prices. That reduction is caused by people incentivized to stay in a unit when they otherwise might have moved.
This isn't a very fancy theory, it just effects supply and demand. I don't think you'll find many economists who would disagree with the assertion that rent control reduces supply, thus driving up prices. That reduction is caused by people incentivized to stay in a unit when they otherwise might have moved.
Exacerbated by how much? Is the effect bigger or smaller than the huge, obvious and clearly explained demand changes over the past few years?
Well, at the very least, you should send your landlord a freshly baked pie and a letter of gratitude each month with your rent check as thanks for paying some substantial portion of your rent.
Well the landlord benefits from Prop 13 which is basically "rent control for property owners", so the landlord should really forward that pie and letter of gratitude to the California taxpayers who are subsidizing him.
Like most, my landlord's costs are largely fixed. So she should probably send me a pie for paying an unwavering percentage of her mortgage in exchange for zero equity.
But yeah, tell me more about how rent-seekers are getting a bad deal. We renters are such parasites, with our unreasonable need for stable living situations in exchange for the willingness to pay for other people's investments. We just take take take, don't we?
But yeah, tell me more about how rent-seekers are getting a bad deal. We renters are such parasites, with our unreasonable need for stable living situations in exchange for the willingness to pay for other people's investments. We just take take take, don't we?
When I went to UC Berkeley, I never lived in Berkeley. I knew people that lived in ultra cheap apartments and houses, but every time I went to an open house, there were 50 other people waiting with me. I always lived in Oakland.
A guy I worked with had lived in his apartment for 20 years when he finally bought a house (because he got married). He had been paying a ridiculously low rent for decades, and he just couldn't move and spend 10x more for what he got.
It may be counter intuitive to you, but it is not hyperbole.
A guy I worked with had lived in his apartment for 20 years when he finally bought a house (because he got married). He had been paying a ridiculously low rent for decades, and he just couldn't move and spend 10x more for what he got.
It may be counter intuitive to you, but it is not hyperbole.
right, so the question is, was he "trapped" in his apartment, or was he given the chance to stay there when he would otherwise have been forced out long ago by rising rents.
He wasn't trapped, he was greedy. Only to him, he was trapped, because the other people were being greedy for wanting market rates.
"Rent control is a subsidy to renters paid by landlords"
I'd expand on this: Rent control is a subsidy to current residents, paid by future residents. The landlord is merely a conduit across which the wealth transfer flows.
I'd expand on this: Rent control is a subsidy to current residents, paid by future residents. The landlord is merely a conduit across which the wealth transfer flows.
And don't forget: Prop 13 is a subsidy to current landowners, paid by every other Californian taxpayer.
Yea, it doesn't work unless you're the one renting that chit hole. I have an old girlfriend who moved into one of these
old houses(SF) at market rates in the nineties. The unit was not maintained back then--hot water pressure of a man with an inflamed prostate, no grounding, no functional heat(old electric units that just spin the dial), etc., but it had hard wood floors. She's still there and the place looks the same, except Mr. Chins greedy kids want her out. I don't think the kids will consider selling because they are charging new tenants unbelievable rates--for the same chit holes.
I'm sorry, but I've never met a Landord who cared about the condition of their units, unless it affected the property in a structural way.
I have never met a landlord who didn't try to get as much for their property as legally possible.
I don't have the answer, but human greed is palatable.
I'm sorry, but I've never met a Landord who cared about the condition of their units, unless it affected the property in a structural way.
I have never met a landlord who didn't try to get as much for their property as legally possible.
I don't have the answer, but human greed is palatable.
> I'm sorry, but I've never met a Landord who cared about the condition of their units, unless it affected the property in a structural way.
I have, but not one who cares and controls rent controlled units in SF. Landlords who know they have to compete care a great deal.
What you describe is a market that is utterly dysfunctional because supply is incredibly limited.
I have, but not one who cares and controls rent controlled units in SF. Landlords who know they have to compete care a great deal.
What you describe is a market that is utterly dysfunctional because supply is incredibly limited.
As noted by others here, it discourages maintenance and property improvements to rent control units. The landlord has an incentive to create a terrible living situation to get the tenant to move out.
An enforcement in issue. In NYC the laws are actually aggressively pro-tenant on the issue of deliberate neglect; if you don't keep the basic services working (or keep the building reasonably free of infestations, for example), the tenant can use that to delay any attempted eviction processes (justified or otherwise) quite substantially. The smarter landlords in NYC all know this, and hence generally resort to buy-outs as a tool for vacating tenants. Overt harassment-by-neglect does happen, but is quite rare.
It also reduces tenant mobility.
To some extent, it reduces mobility within the local market (and this effect can be quite significant, in some markets). But in an unregulated environment, a great many of these people simply would not be able to continue renting in the local market, at all. So it's a tradeoff, basically.
Rent control also directly causes Ellis Act evictions, IMO.
A non-sequitur; there's no reason one needs to have something like the Ellis Act in order to have rent control. NYC's market (famously) does not, for example; and profit-driven conversions of the sort you mention are generally illegal, and easily blocked in landlord-tenant court.
In other words, the Ellis Act causes Ellis Act evictions; not "rent control."
An enforcement in issue. In NYC the laws are actually aggressively pro-tenant on the issue of deliberate neglect; if you don't keep the basic services working (or keep the building reasonably free of infestations, for example), the tenant can use that to delay any attempted eviction processes (justified or otherwise) quite substantially. The smarter landlords in NYC all know this, and hence generally resort to buy-outs as a tool for vacating tenants. Overt harassment-by-neglect does happen, but is quite rare.
It also reduces tenant mobility.
To some extent, it reduces mobility within the local market (and this effect can be quite significant, in some markets). But in an unregulated environment, a great many of these people simply would not be able to continue renting in the local market, at all. So it's a tradeoff, basically.
Rent control also directly causes Ellis Act evictions, IMO.
A non-sequitur; there's no reason one needs to have something like the Ellis Act in order to have rent control. NYC's market (famously) does not, for example; and profit-driven conversions of the sort you mention are generally illegal, and easily blocked in landlord-tenant court.
In other words, the Ellis Act causes Ellis Act evictions; not "rent control."
"Rent is too high, I know let me pass a law to make high rent illegal".
Rent control is causing a shortage of suitable living areas and property owners are ignoring maintenance costs.
"Well then, let's pass another law!"
Property owners are passing rent controlled properties to their friends and family, or influencing local government regulations to do complicated rezoning laws or even straight up bribing inspectors
"hmmm, well let's just pass more laws then!"
How many times are you willing to try a solution that continues to fail before you give up? It would be funny except in the mean time your belief that a couple "smart people(TM)" passing laws is ruining the lives of the very people you profess to want to help.
EDIT: The fact you believe it is perfectly reasonable for landlords to be held hostage and forced to do 'buy outs' of tenants who refuse to leave an apartment that isn't theirs is all I need to know about your thug mentality.
Rent control is causing a shortage of suitable living areas and property owners are ignoring maintenance costs.
"Well then, let's pass another law!"
Property owners are passing rent controlled properties to their friends and family, or influencing local government regulations to do complicated rezoning laws or even straight up bribing inspectors
"hmmm, well let's just pass more laws then!"
How many times are you willing to try a solution that continues to fail before you give up? It would be funny except in the mean time your belief that a couple "smart people(TM)" passing laws is ruining the lives of the very people you profess to want to help.
EDIT: The fact you believe it is perfectly reasonable for landlords to be held hostage and forced to do 'buy outs' of tenants who refuse to leave an apartment that isn't theirs is all I need to know about your thug mentality.
There's no particular reason to think rent control is causing a shortage in SF. New construction is not under rent control, so it does not harm incentives to create new housing. And given the prices even rent-controlled buildings are selling for, it's clear that people are lining up to be landlords in SF.
Don't forget that new construction in SF totally stopped for a few years after Lehman, and rents actually fell a little.
If rent control were actually causing a shortage, we'd expect that rents would have continued to rise during that time. Instead, the far more likely conclusion, given the data, is that rents are being driven mostly by increases in demand.
It is difficult for the armchair libertarian economists of HN to accept that, while rent control probably puts some upward pressure on rents (in theory, anyway), that effect is likely totally swamped by the demand-side imbalance.
If rent control were actually causing a shortage, we'd expect that rents would have continued to rise during that time. Instead, the far more likely conclusion, given the data, is that rents are being driven mostly by increases in demand.
It is difficult for the armchair libertarian economists of HN to accept that, while rent control probably puts some upward pressure on rents (in theory, anyway), that effect is likely totally swamped by the demand-side imbalance.
I'm not sure how strong that is - after Lehman the housing market collapsed, wouldn't it follow that 2008 crash had a greater effect on lowering rents as well?
I don't live in SF so I can't speak to that, but in the Boston area it caused rents to go up. No one wants to buy a house when home prices are falling month-over-month. A lot of people looked around and decided they didn't want to get locked in and risk being underwater. A lot no longer qualified for standard mortgages. Many people simply lost their jobs, so home ownership was out of the question. Plus the glut of foreclosures. But people still need a place to live, so the demand for rental units shot up even as home prices and mortgage rates were falling.
Uh, you realize you are being an "armchair economist" right here, too, right?
So sad; poor landlord forced to share market gains with a tenant. It almost like kissing an untouchable.
People also ignore that those with power and closest to the laws will also benefit the most from them.
Rent control also leads to gross nepotism where the relatives and friends of the wealthy are given first dibs on rent controlled properties by the owner of the tenement building. A quick google search will reveal how common it is for those most well off to benefit from such government run schemes like rent control.
Rent control also leads to gross nepotism where the relatives and friends of the wealthy are given first dibs on rent controlled properties by the owner of the tenement building. A quick google search will reveal how common it is for those most well off to benefit from such government run schemes like rent control.
That is silly since there are so few well off people compared to the mass of people who are not. What percent of rent controlled tenants would you say are "well off" compared to say the 90% of people who are not?
Perhaps there are argument against rent control but im having trouble seeing it. Home owners also suffer from lack of mobility so this argument isn't a strong one. The importance of quality of building to stable cost of living is subject to opinion and many may put greater weight in the latter. So I'm not sure about the building quality argument either.
I appreciate rent control because I value so much the little free time I have from work, given to me by more stable cost of living (I live in Berlin). And I know I couldn't handle the constant necessity to fight for pay increases to cover dramatic increases in rent and insurance over time. Other people are more skilled at this nuanced life but my point is for some it works, and others not. I think having a Government that tries to keep large costs at steady is much better than them paying for subsidies which may just wind up inflating the prices.
I appreciate rent control because I value so much the little free time I have from work, given to me by more stable cost of living (I live in Berlin). And I know I couldn't handle the constant necessity to fight for pay increases to cover dramatic increases in rent and insurance over time. Other people are more skilled at this nuanced life but my point is for some it works, and others not. I think having a Government that tries to keep large costs at steady is much better than them paying for subsidies which may just wind up inflating the prices.
Homeowners are buying into houses that have inflated market rates because of the surrounding rent controlled units (same segment of the population fighting over inflated homes/apartments). Yes, it's difficult to move if you own a home -- you need to arrange buying and selling and transferring assets and all of that. However, you actually have more freedom to move to an area that does not have rent control (cheaper average home prices, all other factors considered), or move to a similarly priced home in the same general area.
You're trapped for logistical reasons that are surmountable with a little work. You're not trapped in the sense that you absolutely can't afford to move anywhere else in your city, because of overinflated residence costs.
You're trapped for logistical reasons that are surmountable with a little work. You're not trapped in the sense that you absolutely can't afford to move anywhere else in your city, because of overinflated residence costs.
Landlords charge what the market will bear - giving renters more money for rent is simply a round-about way to give landlords more money.
Tech kids don't vote. An informal poll of my coworkers reveals those that live in SF didn't vote last election, some because they thought you had to live here for over a year before you can vote. Tech companies don't seem to do anything to encourage people to register either.
I voted (especially for pro-building, pro-housing candidates). Maybe if everyone else did the same we could change a few things.
I voted (especially for pro-building, pro-housing candidates). Maybe if everyone else did the same we could change a few things.
A lot of "tech kids", myself included, are immigrants and can't vote.
And, on a separate note, it's ridiculous that I have lived here for over 4 years and paid hundreds of thousands in taxes but do not have any way to influence the democratic process (it is equally ridiculous that I can still vote in my home country despite not setting foot there for more than 2 weeks per year for the past 6 years and not contributing to its economy at all. The current definition of citizenship is completely outdated in the globalized world)
And, on a separate note, it's ridiculous that I have lived here for over 4 years and paid hundreds of thousands in taxes but do not have any way to influence the democratic process (it is equally ridiculous that I can still vote in my home country despite not setting foot there for more than 2 weeks per year for the past 6 years and not contributing to its economy at all. The current definition of citizenship is completely outdated in the globalized world)
"it's ridiculous that I have lived here for over 4 years and paid hundreds of thousands in taxes but do not have any way to influence the democratic process"
really? what about the reverse? Can I easily become a citizen of your country if I moved and worked there for 4 years? Most countries don't even have options for immigrants to become true naturalized citizens of that country, in this regard, America is actually pretty progressive.
Off the top of my head, Australia, new zealand, Canada, uk & Germany are all shorter(# years) and far easier(difficulty of visas, crap you have to put up with) to naturalize/obtain citizenship.
The US is one of the least progressive western countries immigration-wise.
How is the reverse process relevant?
That kind of mentality is just like "its ok to break the law because everyone else does it!!1"
That kind of mentality is just like "its ok to break the law because everyone else does it!!1"
Also, a lot of "tech kids" like myself aren't in SF proper and thus can't vote on things like SF rent control. It's amazing how privilege acts to protect itself.
I'm sorry, what? Why should you be able to vote on a government that doesn't have jurisdiction over you?
Remember that SF is an anomaly. Generally it's the wealthy in the suburbs and the underprivileged in the city. Suburbanites voting on urban policy (in general) is the last thing you should support if you are concerned about privilege.
Remember that SF is an anomaly. Generally it's the wealthy in the suburbs and the underprivileged in the city. Suburbanites voting on urban policy (in general) is the last thing you should support if you are concerned about privilege.
> * Remember that SF is an anomaly. Generally it's the wealthy in the suburbs and the underprivileged in the city. *
It's not an anomaly, it's a trend.
It's not an anomaly, it's a trend.
We can't afford to live and vote in the city where we work because those with privilege have used it to push us out.
>Generally it's the wealthy in the suburbs and the underprivileged in the city.
That's why rent in Manhattan is so cheap.
That's why rent in Manhattan is so cheap.
SF, New York, maybe parts of Chicago.
Consider the entire middle of the country.
Consider the entire middle of the country.
So vote in your community. Every municipality in the Bay Area has its own problems, mostly various forms of NIMBYism. You can make a difference where you live.
There are more responsibilities of citizenship than just paying taxes.
I actually tell my H1B friends that getting a green card but not naturalizing is likely their best ROI.
I actually tell my H1B friends that getting a green card but not naturalizing is likely their best ROI.
The upside of citizenship is you can travel outside the US for more than six months without losing it. Green cards can be quite easily lost if your company wants to move you overseas for a while.
You can file for exemptions.
Tech companies don't seem to do anything to encourage people to register either.
My company (a tech company) sent a bunch of emails about registering to vote and voting, and also had a drop box for voter registration forms, and encouraged people to get out of the office to vote.
Yes, this is just one anecdote, but there are people at tech companies who recognize that political issues are important and push people to get involved.
My company (a tech company) sent a bunch of emails about registering to vote and voting, and also had a drop box for voter registration forms, and encouraged people to get out of the office to vote.
Yes, this is just one anecdote, but there are people at tech companies who recognize that political issues are important and push people to get involved.
Instructions for how to register to vote-by-mail:
https://www.reddit.com/r/housingforsf/comments/22xoht/help_h...
It's easy and takes five minutes! Give it a shot and post a reply below either confirming or denying that it's really as fast as I claim.
https://www.reddit.com/r/housingforsf/comments/22xoht/help_h...
It's easy and takes five minutes! Give it a shot and post a reply below either confirming or denying that it's really as fast as I claim.
Bingo. Please register here: http://registertovote.ca.gov/
It's very easy!
It's very easy!
Wish I could vote this up twice. The people who approve (or don't) the building of new housing units, The people who vote to control or not control the rents, and the people who make the rules about what you can and cannot do on a saturday night when out with your friends are all elected. If you don't like it you can easily affect the outcome of a city council election by getting your friends together to vote as a block.
How about people on visas? Like H1-Bs and so on? That is a significant part of the industry.
You do have to be a U.S. citizen to vote.[1]
[1]http://www.usa.gov/Citizen/Topics/Voting/Register.shtml
[1]http://www.usa.gov/Citizen/Topics/Voting/Register.shtml
Not only that, but accidentally voting (e.g. because the person at the DMV said you could) can bar you from ever becoming a citizen and even get you deported:
http://www.immihelp.com/forum/showthread.php/91741-Denied-N-...
http://www.hg.org/article.asp?id=27445
http://www.gmanetwork.com/news/story/141110/pinoyabroad/pina...
https://beki70.wordpress.com/2011/03/03/fortunately-i-wasnt-...
http://www.immihelp.com/forum/showthread.php/91741-Denied-N-...
http://www.hg.org/article.asp?id=27445
http://www.gmanetwork.com/news/story/141110/pinoyabroad/pina...
https://beki70.wordpress.com/2011/03/03/fortunately-i-wasnt-...
There is no way San Franciscans renters should give up rent control without landlords giving up Prop 13. Landlords can hold property for decades without seeing their taxes go up, yet they cry crocodile tears about rent control (which resets every time a tenant leaves).
Rent control and Prop 13 are two sides of the same coin.
Rent control and Prop 13 are two sides of the same coin.
Both of these laws are designed to benefit people who moved here long time ago and make it economically harder for new people to move here. Whether they are landlords, renters or home buyers.
Prop 13 makes new property buyers pay more for property taxes. Rent control makes new renters pay more for rent.
As long as there are more people benefiting from these 2 laws than hurting, they will be in effect. It would be interesting to see organized efforts in changing these laws.
Prop 13 makes new property buyers pay more for property taxes. Rent control makes new renters pay more for rent.
As long as there are more people benefiting from these 2 laws than hurting, they will be in effect. It would be interesting to see organized efforts in changing these laws.
Agreed. I think the entrenched property owners and long-time renters are a big part of the anti-building coalition in SF. For owners, lack of building is actually in their interest. For renters, at the very least, the lack of building doesn't affect them.
Both have "got theirs" and don't want to let new people into the city.
Both have "got theirs" and don't want to let new people into the city.
Prop 13 for individuals/families serves largely the same purpose as rent control - to ensure that the place they live in stays affordable.
If property values increase and there is no rent control, do you really expect landlords to not pass the property tax increases to the renters?
In fact, I would argue that more home ownership would be a lot better than rent control, because if the home owner chooses to leave a given area by selling, he/she is able to benefit from the increased values. Renters on the other hand cannot.
While it would be very interesting to contrast the tax situation in Washington state (property taxes adjust every year there from what I understand) with that of California, I doubt the current situation would greatly improve prop 13 gone, and I know for sure a lot of people would be squeezed.
If property values increase and there is no rent control, do you really expect landlords to not pass the property tax increases to the renters?
In fact, I would argue that more home ownership would be a lot better than rent control, because if the home owner chooses to leave a given area by selling, he/she is able to benefit from the increased values. Renters on the other hand cannot.
While it would be very interesting to contrast the tax situation in Washington state (property taxes adjust every year there from what I understand) with that of California, I doubt the current situation would greatly improve prop 13 gone, and I know for sure a lot of people would be squeezed.
The point is that home owners have the very strong and perverse incentive to stop all new construction under prop 13. Currently, their homes appreciate 15% each year while their taxes move less than 1%. They are minting money with no down side. New construction means they make less money, plain and simple.
| In fact, I would argue that more home ownership would be a lot better than rent control...
This may be the case, but its an experiment that will never happen. SF is at an extreme housing deficit, and refuses to build new housing commensurate to its population growth (1 unit per 10 new people for the past decade). Prop 13 is a large part of the problem - minus squeezing, home owners have no incentive to allow new construction.
| In fact, I would argue that more home ownership would be a lot better than rent control...
This may be the case, but its an experiment that will never happen. SF is at an extreme housing deficit, and refuses to build new housing commensurate to its population growth (1 unit per 10 new people for the past decade). Prop 13 is a large part of the problem - minus squeezing, home owners have no incentive to allow new construction.
Disclaimer: I don't live in SF or Bay Area, but visit for work often.
That said, I do live in a place that is fairly constrained on new development, but not as badly as SF. For my part, the lifestyle that makes both of these places so appealing includes a certain level of density, but not much more than that. It's hard for me to fault people who bought their properties for defending the lifestyle they bought into.
On the commercial use of prop 13, I would tend to agree that it's not the best idea today. I am entirely against means testing and such for personal uses, including non-primary residences.
A simple use case for non-primary residence non-commercial use is if one is taking care of elderly parents. Should the parents be forced out of their home because their child happens to own the property? This is not commercial use to me either, unless rent is being charged of course.
That said, I do live in a place that is fairly constrained on new development, but not as badly as SF. For my part, the lifestyle that makes both of these places so appealing includes a certain level of density, but not much more than that. It's hard for me to fault people who bought their properties for defending the lifestyle they bought into.
On the commercial use of prop 13, I would tend to agree that it's not the best idea today. I am entirely against means testing and such for personal uses, including non-primary residences.
A simple use case for non-primary residence non-commercial use is if one is taking care of elderly parents. Should the parents be forced out of their home because their child happens to own the property? This is not commercial use to me either, unless rent is being charged of course.
The problem with that line of reasoning is that 15% increase isn't immediately available to the homeowner. To turn that into cash, they have to move. I imagine many homeowners could simply just not afford an uncapped property tax hike.
Part of the attraction of homeownership is security, in that homeowners aren't subject to fluctuations in the rental market. Prop 13 helps to reinforce that security, delaying the property tax increases to the point where the homeowner would be able to afford them -- at moving time. It's certainly not perfect, but I'm not convinced repealing prop 13 is the answer.
Perhaps a hybrid approach: live-in owners are subject to prop 13 caps on increases, but rental properties are not? Coupled with a repeal or loosening of rent control would allow landlords to pass on at least some of that cost increase to renters, which I think is a reasonable thing. Again, not perfect, but perhaps an improvement.
Part of the attraction of homeownership is security, in that homeowners aren't subject to fluctuations in the rental market. Prop 13 helps to reinforce that security, delaying the property tax increases to the point where the homeowner would be able to afford them -- at moving time. It's certainly not perfect, but I'm not convinced repealing prop 13 is the answer.
Perhaps a hybrid approach: live-in owners are subject to prop 13 caps on increases, but rental properties are not? Coupled with a repeal or loosening of rent control would allow landlords to pass on at least some of that cost increase to renters, which I think is a reasonable thing. Again, not perfect, but perhaps an improvement.
If Prop 13 were limited to primary residence OR to those aged 65 or older, or had means testing, that would make a lot more sense.
Of course, somebody decided it would be easy to apply it to everyone, even large commercial properties. The fact that it applies to commercial properties is kind of insane.
http://www.sfgate.com/news/article/Bill-to-close-Prop-13-loo...
Of course, somebody decided it would be easy to apply it to everyone, even large commercial properties. The fact that it applies to commercial properties is kind of insane.
http://www.sfgate.com/news/article/Bill-to-close-Prop-13-loo...
It would seem insane, except that one of the main purposes of the Proposition was to de-fund government. If you weren't around at the time, "drown government in the bathtub" might not ring a bell.
In the UK, houses are placed in 'council tax bands' based on the estimated value on 1st April 1991. So the tax band stays the same regardless of housing market fluctuations.
The tax rates for the bands are then set by the local council, as a political decision. Band A property? £1000 a year. Band E property, maybe it's £3000 a year.
Admittedly, assessing a tax band is a little subjective - but it seems to work OK. Any idea why local government taxes in the US aren't calculated the same way?
The tax rates for the bands are then set by the local council, as a political decision. Band A property? £1000 a year. Band E property, maybe it's £3000 a year.
Admittedly, assessing a tax band is a little subjective - but it seems to work OK. Any idea why local government taxes in the US aren't calculated the same way?
Property taxes in the US are mainly state law. Like anything else about taxes, California created a very weird system for its property taxes. Property taxes are a percentage of the property's value, but states have very creative ways to define the property's value. For instance, North Carolina automatically updates property values every few years ( http://www.ncga.state.nc.us/EnactedLegislation/Statutes/HTML... ), and there is a way to dispute the tax assessor's office.
California put limits on what property tax can be used for, how much it can change per year, and when the property's value gets reassessed (answer: when the property sells) in the '70s ( http://en.wikipedia.org/wiki/California_Proposition_13_%2819... ). It was done through a ballot measure, which means the legislature can't make any changes by itself.
California put limits on what property tax can be used for, how much it can change per year, and when the property's value gets reassessed (answer: when the property sells) in the '70s ( http://en.wikipedia.org/wiki/California_Proposition_13_%2819... ). It was done through a ballot measure, which means the legislature can't make any changes by itself.
... " and there is a way to dispute the tax assessor's value."
I'm sure they can, but like you said - it's all political.
From what I know, WA state uses real estate tax as one of the primary revenue streams (in addition to sales tax), whereas CA also has income tax. CA and WA seem to have similar sales taxes, so the main difference in funding is in WA not having an income tax.
There are many more differences, but I don't know if those are for a "good reason" or bloat. My personal biases make me lean to CA budgets being bloated...
From what I know, WA state uses real estate tax as one of the primary revenue streams (in addition to sales tax), whereas CA also has income tax. CA and WA seem to have similar sales taxes, so the main difference in funding is in WA not having an income tax.
There are many more differences, but I don't know if those are for a "good reason" or bloat. My personal biases make me lean to CA budgets being bloated...
That's not going to happen without some sort of equalization.
Prop 13 benefits people that have owned property for a LONG time. I cringe every time I see my prop tax bill while my neighbors who have been here for decades pay a fraction of taxes only because they were here first [1]. But Prop 13 props up housing prices which would drop like a rock if Prop 13 were outright abolished. So there would need to be some sort of retro tax event to help lessen the pain.
Additionally, I would make the distinction of this tax event for primary residence, investment property and commercial property. Maybe it should just apply for primary residence, I don't know the right answer to this but longer term, I agree that rent control and Prop 13 need to be revisited.
[1] http://www.planetizen.com/node/40895
Prop 13 benefits people that have owned property for a LONG time. I cringe every time I see my prop tax bill while my neighbors who have been here for decades pay a fraction of taxes only because they were here first [1]. But Prop 13 props up housing prices which would drop like a rock if Prop 13 were outright abolished. So there would need to be some sort of retro tax event to help lessen the pain.
Additionally, I would make the distinction of this tax event for primary residence, investment property and commercial property. Maybe it should just apply for primary residence, I don't know the right answer to this but longer term, I agree that rent control and Prop 13 need to be revisited.
[1] http://www.planetizen.com/node/40895
The repeal of prop 13 is straightforward. Let property taxes rise more than inflation each year. It could be capped at 2x or 3x, etc. It would be slow enough to let people prepare, but fast enough to be painful.
Indeed. Catch-up rates could also be a function of how far out-of-whack the current property tax bill is.
This could even be part of a hybrid approach where owners have some protection against rapid changes, but bills slowly catch-up to their neighbors… restoring equal protection under the law regardless of date-of-purchase.
For example, the increase-cap could be "the larger of 1% [like Prop 13] or a rate that, compounded 20 years, would reach parity with peer properties". As long as your bill is only ~22% less than comparable properties, you're still on the Prop 13 1% plan. But when things really get out of whack, your rates go up slightly more... and you have very strong visibility into the next two decades' of rises, if you assume property values hold. (If you're paying half your comparable-property new neighbors, your bill would go up around 3.5%/year.)
No surprises, small annual changes, but (over time) far less of a giant tax-handout to the already-property-rich.
This could even be part of a hybrid approach where owners have some protection against rapid changes, but bills slowly catch-up to their neighbors… restoring equal protection under the law regardless of date-of-purchase.
For example, the increase-cap could be "the larger of 1% [like Prop 13] or a rate that, compounded 20 years, would reach parity with peer properties". As long as your bill is only ~22% less than comparable properties, you're still on the Prop 13 1% plan. But when things really get out of whack, your rates go up slightly more... and you have very strong visibility into the next two decades' of rises, if you assume property values hold. (If you're paying half your comparable-property new neighbors, your bill would go up around 3.5%/year.)
No surprises, small annual changes, but (over time) far less of a giant tax-handout to the already-property-rich.
Is it feasible (from a reporting/enforcement perspective; I'm sure it's not feasible politically) to modify prop 13 so that live-in owners receive prop 13 benefits, but owners of investment property & rentals are still subject to normal increases?
Where I live-in owners get 150,000$ off their property value for taxs purposes. So it can be done.
How do you think prop13 props up prices? It's an incentive for people to stay in a house, which reduces churn, but it's arguably a disincentive for a renter to buy, because of the outlandish tax rates they'd need to pay (which offset the low taxes of long-term owners). I don't understand your logic.
It increases prices by reducing supply.
> There is no way San Franciscans renters should give up rent control without landlords giving up Prop 13...
What do these have to do with each other? And I guarantee if you gave landlords the option, they would jump on that offer. Prop 13 is saving long-time owners a few thousand dollars a year, which would be easily made up (and more) with higher rents.
What do these have to do with each other? And I guarantee if you gave landlords the option, they would jump on that offer. Prop 13 is saving long-time owners a few thousand dollars a year, which would be easily made up (and more) with higher rents.
According to the headline (and also economic theory and extensive empirical evidence), rent control hurts renters. On the other hand, Prop 13 does not.
Your argument is that renters shouldn't give up something that hurts them, until another group gives up something unrelated?
Can you articulate why you think that negotiating strategy might lead to optimum outcomes for renters?
Your argument is that renters shouldn't give up something that hurts them, until another group gives up something unrelated?
Can you articulate why you think that negotiating strategy might lead to optimum outcomes for renters?
> According to the headline (and also economic theory and extensive empirical evidence), rent control hurts renters. On the other hand, Prop 13 does not.
I think (guessing a bit here) is that the argument goes like this: repealing Prop 13 would drive down house prices, allowing some renters to instead buy/mortgage, therefore reducing the demand for rentals, driving rents down.
I think (guessing a bit here) is that the argument goes like this: repealing Prop 13 would drive down house prices, allowing some renters to instead buy/mortgage, therefore reducing the demand for rentals, driving rents down.
repealing Prop 13 would drive down house prices
By increasing supply, I would imagine, at the expense of older, retired home owners. In my community, there are a lot of old people that wouldn't be able to afford a fraction of my property tax. Many would be forced to sell and there would be a glut on the market of new homes, which would likely drive prices down.
I hate paying the property tax rate I do, but I would also hate to drive all the old people of my community to cheap, depressed housing stock in some remote place.
What's the way out of this? I really don't know.
By increasing supply, I would imagine, at the expense of older, retired home owners. In my community, there are a lot of old people that wouldn't be able to afford a fraction of my property tax. Many would be forced to sell and there would be a glut on the market of new homes, which would likely drive prices down.
I hate paying the property tax rate I do, but I would also hate to drive all the old people of my community to cheap, depressed housing stock in some remote place.
What's the way out of this? I really don't know.
If the intent of Prop 13 is to keep Grandma in her home then let's ammend it only to apply to Grandmas primary residence.
Prop 13 as it stands is simply a way to allow commercial landlords to avoid paying property tax at market rates.
Prop 13 as it stands is simply a way to allow commercial landlords to avoid paying property tax at market rates.
You're mistaken in your mechanism: it reduces demand. Repealing prop 13 should drive down prices by increasing the total cost of ownership. Suppose you can afford to pay $3000/mo for housing. If your tax bill is $500, that leaves $2500 for a mortgage payment. Higher taxes, less is leftover for a mortgage. With a $500/mo tax your maximum mortgage is $530k. If it rises to $700/mo, your maximum mortgage falls to $486k. The whole pool of people with a $3000/mo reserve have been pushed down the curve.
Those people could use the equity they've amassed in their property to pay the property tax, such as through a reverse mortgage. Although "house poor", don't forget they are still quite wealthy.
It would make sense for governments to formalize this arrangement and allow deferring of property tax payments until the house is sold.
It would make sense for governments to formalize this arrangement and allow deferring of property tax payments until the house is sold.
Prop 13 applies to all of California. Most of California does not have rent control.
I have complex feelings about Prop 13, and I'm not by any means unilaterally a fan. But to suggest that it necessitates rent control sounds, at the very least, under-argued. How does San Jose fit into this picture?
I have complex feelings about Prop 13, and I'm not by any means unilaterally a fan. But to suggest that it necessitates rent control sounds, at the very least, under-argued. How does San Jose fit into this picture?
I'm not saying it necessitates rent control. I'm saying that Prop 13 and rent control both came from the same place, the high inflation 1970s (see the TechCrunch article: http://techcrunch.com/2014/04/14/sf-housing/).
Repealing rent control without repealing Prop 13 would result in a MASSIVE wealth transfer from renters to landlords. I don't think that's fair.
Repealing rent control without repealing Prop 13 would result in a MASSIVE wealth transfer from renters to landlords. I don't think that's fair.
Repealing both would likely result in massive wealth transfer from renters to the government, though, with the landlord just being the conduit, yeah? The only way to avoid that would be to repeal prop 13 and keep rent control, but that's also unfair, as it tells landlords "hey, we're going to increase your costs, but give you no ability to recoup those costs".
This is literally economics 101. If some of the supply is tied up in below market prices to people who would not have bought at the market price, then you shift the supply curve more than the demand curve and the price of the free market bit will be higher.
Anyone who cares to know this, does. People who don't want to know this won't be convinced by a carefully reasoned toy example.
But if you really want to understand the problems with the housing crisis, http://techcrunch.com/2014/11/02/so-you-want-to-fix-the-hous... is unusually good.
Anyone who cares to know this, does. People who don't want to know this won't be convinced by a carefully reasoned toy example.
But if you really want to understand the problems with the housing crisis, http://techcrunch.com/2014/11/02/so-you-want-to-fix-the-hous... is unusually good.
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Supply/Demand imbalance raises rents. Rent control is one contributor.
Rent control is more than an economic issue, it's a class and moral issue. Why should only people with the means to buy property have the ability to live a stable life? Imagine if your child had to change schools every year because your one of the overwhelming number of people who cannot absorb rent increases.
I personally have zero or negative sympathy for landlords charging usurious rents while simultaneously crying proverty and getting all puffy about property rights. If you can't handle the regulatory environment, nobody put a gun to your head and made you a real estate speculator.
Rent control is more than an economic issue, it's a class and moral issue. Why should only people with the means to buy property have the ability to live a stable life? Imagine if your child had to change schools every year because your one of the overwhelming number of people who cannot absorb rent increases.
I personally have zero or negative sympathy for landlords charging usurious rents while simultaneously crying proverty and getting all puffy about property rights. If you can't handle the regulatory environment, nobody put a gun to your head and made you a real estate speculator.
> Rent control is more than an economic issue, it's a class and moral issue. Why should only people with the means to buy property have the ability to live a stable life? Imagine if your child had to change schools every year because your one of the overwhelming number of people who cannot absorb rent increases.
Rent control is more than an economic issue, it's a class and moral issue. Why should someone pay less rent simply based on when they originally moved into the apartment? Imagine if you are a poor immigrant just moving to the city and having to pay market rate while reasonably well off people get to pay a rate that made sense 5 years ago.
I personally have zero or negative sympathy for people paying lower rates than everyone else while simultaneously crying proverty and getting all puffy about the possibility of their rent going up. If you can't handle the price of the city, no one put a gun to your head and forced you to move here.
Rent control is more than an economic issue, it's a class and moral issue. Why should someone pay less rent simply based on when they originally moved into the apartment? Imagine if you are a poor immigrant just moving to the city and having to pay market rate while reasonably well off people get to pay a rate that made sense 5 years ago.
I personally have zero or negative sympathy for people paying lower rates than everyone else while simultaneously crying proverty and getting all puffy about the possibility of their rent going up. If you can't handle the price of the city, no one put a gun to your head and forced you to move here.
San Francisco is a city with an exploding economy that sits on a fault line and is geographically constrained by mountains and the ocean. If that wasn't bad enough, it's also got quite a bit of NIMBYism among its residents who want it to retain its "quaint" character.
Tell me that doesn't explain basically all of it...? Rent control seems like a minor factor. I can see ways it might contribute, but if SF had plenty of land and no earthquakes I'm sure things would not be so bad.
Tell me that doesn't explain basically all of it...? Rent control seems like a minor factor. I can see ways it might contribute, but if SF had plenty of land and no earthquakes I'm sure things would not be so bad.
Thank you. The contributors who don't understand that obviously rent control reduces supply by the number of rent controlled units but that it also vastly increases stability for longer-term occupants are dominating this discussion. So again, thank you.
This times a thousand.
Straight up.
An explicit and anecdotal rent control inefficiency I was made aware of firsthand in SF:
A young man lived in a rent controlled apartment for many years. He eventually met a lovely woman and they began dating seriously. They moved into the apartment together and enjoyed several years there together.
Eventually, they were ready to have children and moved to the East Bay, but they decided to keep the rent controlled apartment for occasional weekends in the city. At this point, between both of their incomes, it was a drop in the bucket. That apartment to this day sits mostly empty, while a housing crisis dwells around us and rents keep going higher.
We talk about pushing people out of neighborhoods — this literally has taken a home away from someone that could be living and working in the city. No story is the same, but the inefficiency is clear.
A young man lived in a rent controlled apartment for many years. He eventually met a lovely woman and they began dating seriously. They moved into the apartment together and enjoyed several years there together.
Eventually, they were ready to have children and moved to the East Bay, but they decided to keep the rent controlled apartment for occasional weekends in the city. At this point, between both of their incomes, it was a drop in the bucket. That apartment to this day sits mostly empty, while a housing crisis dwells around us and rents keep going higher.
We talk about pushing people out of neighborhoods — this literally has taken a home away from someone that could be living and working in the city. No story is the same, but the inefficiency is clear.
I live in cambridge MA. We had rent control on some units, now we don't. It seems to have done little to stem the tide of expensive rental units.
I think building more adding more supply is the only way to help keep rents and sales prices at a reasonable level.
They charge higher taxes to non-resident owners, which is an interesting tactic. But rents have gone up enough that people who leave my building often opt to rent their units rather than sell them.
It doesn't help that my state doesn't seem to make public transit outside the city core a priority (Boston, Cambridge, Somerville, Brookline), meaning commutes into the city from outside can be painful.
I think building more adding more supply is the only way to help keep rents and sales prices at a reasonable level.
They charge higher taxes to non-resident owners, which is an interesting tactic. But rents have gone up enough that people who leave my building often opt to rent their units rather than sell them.
It doesn't help that my state doesn't seem to make public transit outside the city core a priority (Boston, Cambridge, Somerville, Brookline), meaning commutes into the city from outside can be painful.
I grew up in Cambridge. When rent control went away, the rent skyrocketed and a large swath of the lower/middle class was forced to move to the suburbs.
It sucks, because only 2 or 3 towns in MA had rent control, but developers scared city councils across the state into voting to ban the practice.
It sucks, because only 2 or 3 towns in MA had rent control, but developers scared city councils across the state into voting to ban the practice.
> It sucks
Why does it suck? The market should be allowed to work.
Why does it suck? The market should be allowed to work.
They already told you. "a large swath of the lower/middle class was forced to move to the suburbs". Read.
Whether it sucks depends on whether you care more about humanity or markets.
I'd better to care about markets -- counter-intuitively, humanity will be better then. I've grew up in USSR, and I know what I'm talking about. The rent control smells so communist to me.
There are good reasons to care about markets, though it needs to be recognized that markets serve humanity.
If you go to the Marxist extreme of a centrally planned economy people aren't taken into account.
If you go to the extreme of a completely unregulated free market economy people aren't taken into account.
The happy medium is a free market that's regulated to prevent coercive and abusive practices. The US had a much stronger overall economy and greater general prosperity when it followed that model. The neoliberal extremist policies that have been been adopted since the 80s have been a series of unfolding tragedies for the poor and middle class in the US.
Rent controls don't appear in a vacuum, they are a response to the unfolding human tragedies of rentier exploitation that harm actual people. They may not be optimally implemented in SF, but to label them Communist is extremist.
The neoliberal shock-treatment approach in Russia was a human disaster as well, and the horrors in Chile, parts of the EU, and elsewhere show why extremism that cares more about ideology than humanity is a vice. It doesn't matter if the ideologues are Marxists or Capitalists, ideologues always promote policies that are bad for humanity, since they care more about ideological purity than practicality or humanity.
If you go to the Marxist extreme of a centrally planned economy people aren't taken into account.
If you go to the extreme of a completely unregulated free market economy people aren't taken into account.
The happy medium is a free market that's regulated to prevent coercive and abusive practices. The US had a much stronger overall economy and greater general prosperity when it followed that model. The neoliberal extremist policies that have been been adopted since the 80s have been a series of unfolding tragedies for the poor and middle class in the US.
Rent controls don't appear in a vacuum, they are a response to the unfolding human tragedies of rentier exploitation that harm actual people. They may not be optimally implemented in SF, but to label them Communist is extremist.
The neoliberal shock-treatment approach in Russia was a human disaster as well, and the horrors in Chile, parts of the EU, and elsewhere show why extremism that cares more about ideology than humanity is a vice. It doesn't matter if the ideologues are Marxists or Capitalists, ideologues always promote policies that are bad for humanity, since they care more about ideological purity than practicality or humanity.
Why? Why is the market considered the be-all, end-all of desirable outcomes?
Quite frankly, I consider "the market" forcing people out of areas they've lived in for most of their lives to be a far worse outcome.
Quite frankly, I consider "the market" forcing people out of areas they've lived in for most of their lives to be a far worse outcome.
I genuinely don't understand all of the native bias in these discussions. Like, if Joe lives in town A, and Frank lives in town B, and both would like to live in town A, and Joe and Frank are otherwise utterly equivalent people, lots of people seem to regard it as totally natural that Joe should have primacy over Frank.
I don't. I don't really know why anyone would. Like, ideally in a perfect world both Joe and Frank would be able to live where they want, but given that land is a persistently scarce resource, what's the basis for privileging Joe over Frank? And what is the magnitude of the privilege that we should regard as a natural right? Surely not infinite.
I don't. I don't really know why anyone would. Like, ideally in a perfect world both Joe and Frank would be able to live where they want, but given that land is a persistently scarce resource, what's the basis for privileging Joe over Frank? And what is the magnitude of the privilege that we should regard as a natural right? Surely not infinite.
because there's a high cost to moving - you lose the connections and communities that you've built up over time. the basis of these laws is that frank having more money than joe should not give him the leverage to force joe to pay that cost.
Why should Frank have primacy over Joe? Joe was there first. Should it simply be because Frank has more money? That's a pretty terrible way to decide these things. I mean, at what point do we say that Frank deserves Joe's other things simply because he has more money?
Basically, you're just making a "Might makes right" argument, but substituting wealth for physical might.
Basically, you're just making a "Might makes right" argument, but substituting wealth for physical might.
Why should the owner of the building have to lease the unit to Joe at a lower cost than he could rent it to Frank? (Joe and Frank are otherwise equivalent as stipulated by GP.)
Do I have to sell my labor to my current employer cheaper than a prospective new employer? Do I have to sell my used car cheaper to someone who once rode in it than I could to another buyer? Why then should landlords be subject to those restrictions?
Do I have to sell my labor to my current employer cheaper than a prospective new employer? Do I have to sell my used car cheaper to someone who once rode in it than I could to another buyer? Why then should landlords be subject to those restrictions?
Because housing instability creates social harm. Tech salaries would (probably!) keep pace with the demand for non-rent controlled San Francisco housing, but teachers, cops, firefighters -- let alone retirees -- incomes won't likewise scale. Folks like that will be rapidly priced out of living anywhere for longer than the length of a minimal-term lease.
A stable community is a thing not much valued by (young and transient) tech workers, though I would argue that even they derive some benefit from living near folks who make less money than they do.
Rent control doesn't create utopia -- and this article describes some of its acknowledged problems -- but neither would abolishing it be free of consequence.
Like most things in life, it's a trade-off. Don't overlook one side of the exchange.
A stable community is a thing not much valued by (young and transient) tech workers, though I would argue that even they derive some benefit from living near folks who make less money than they do.
Rent control doesn't create utopia -- and this article describes some of its acknowledged problems -- but neither would abolishing it be free of consequence.
Like most things in life, it's a trade-off. Don't overlook one side of the exchange.
The other problems in the Boston area are oppressive zoning laws and height restrictions that discourage or make impossible the construction of cheap, high-occupancy buildings. Boston, despite its liberal reputation, is a very conservative city economically speaking and is a perfect example of what happens when NIMBYism runs amok. Cambridge and Brookline are probably worse in this respect.
To be blunt, altruistic behavior is seemingly assigned to liberals without question the end results of many of those actions seems to have the opposite effect but when you dig down it had the effect they desired.
simply put, they don't want the type of people associated with that type of housing messing up their neighborhood. The lesson learned in the 60s is that it takes regulation to control who can move into an area by simply pricing it beyond the means of the undesired groups from moving in.
The separation is now more money based than race, but a little of the latter still exist; actually a lot of the latter still exists
simply put, they don't want the type of people associated with that type of housing messing up their neighborhood. The lesson learned in the 60s is that it takes regulation to control who can move into an area by simply pricing it beyond the means of the undesired groups from moving in.
The separation is now more money based than race, but a little of the latter still exist; actually a lot of the latter still exists
SF is the same way, down to the oppressive height restrictions.
The argument (or lack thereof) that the author is making is hardly based on sound economic analysis. This "thought experiment" ignores a few fundamental facets of SF's rent control ordinance. As a "second-generation" rent control ordinance, the economics surrounding the issue are less clear-cut.
For starters, the story doesn't account for the fact that new housing may be built without being rent-controlled. This allows new housing stock to be built without regard to whether it will be rented under rent-control.
Secondly, SF doesn't have a "rent control" ordinance per se. It has a rent stabilization ordinance. Landlords can indeed increase a tenant's rent, but there are restrictions on how much they can raise a tenant's rent. It's based on the Consumer Price Index (though I don't think this is a good choice of index to peg rental rates to).
What it basically boils down to is less about economics and more about social mobility. Between rent control and prop 13, the Bay Area is set up for social stability. It is intended to encourage people to stay where they are. Us techies, mostly being from elsewhere in the world, are more inclined to push for more mobility.
For starters, the story doesn't account for the fact that new housing may be built without being rent-controlled. This allows new housing stock to be built without regard to whether it will be rented under rent-control.
Secondly, SF doesn't have a "rent control" ordinance per se. It has a rent stabilization ordinance. Landlords can indeed increase a tenant's rent, but there are restrictions on how much they can raise a tenant's rent. It's based on the Consumer Price Index (though I don't think this is a good choice of index to peg rental rates to).
What it basically boils down to is less about economics and more about social mobility. Between rent control and prop 13, the Bay Area is set up for social stability. It is intended to encourage people to stay where they are. Us techies, mostly being from elsewhere in the world, are more inclined to push for more mobility.
Aren't SF residents actively fighting the building of new apartment complexes to "preserve the skyline"?
Generally, yes. Sometimes the goal is to stop the new construction to preserve the character of the neighborhood. Sometimes it's to preserve "historic" (read: old and I like it) buildings. Sometimes it's to demand that the new complex be entirely below-market-rate housing.
Opposition is pretty much guaranteed, though.
Opposition is pretty much guaranteed, though.
Price controls almost always lead to shortages, for the very reasons the author described. If rent control is used to keep prices down, it is self evident that the market clearing price must be higher for those units... otherwise you could just get rid of rent control all together and there would be no side effect.
I guess the real question in my mind is "cui bono?" Seems that this policy would greatly benefit any landlords with non-rent-controlled property, since the artificially low price would create an increase in demand... since the price of those units can't increase the effects would presumably be felt in the next best substitute(s), i.e. free market apartments and/or values in the surrounding areas. Seems like property developers in the both the city and the suburbs might have a strong interest in distorting the market in this way.
I guess the real question in my mind is "cui bono?" Seems that this policy would greatly benefit any landlords with non-rent-controlled property, since the artificially low price would create an increase in demand... since the price of those units can't increase the effects would presumably be felt in the next best substitute(s), i.e. free market apartments and/or values in the surrounding areas. Seems like property developers in the both the city and the suburbs might have a strong interest in distorting the market in this way.
If I understood his argument, I think he was saying that only non rent controlled apartments are factored into things like average rental price. So, in this case, the rent controlled properties are basically just not part of the market right now. So his argument was that removing the rent control would more than double the apartments on the market. The price for the rent controlled properties would increase but since they previously weren't being counted, the average price would ultimately drop with the larger supply now available to be bid on in the open market.
Prague had rent control for over two decades. Regulated rent was about 5x lower than commercial. Over time this lead to some interesting stuff:
- home owners would cut hot water and electricity, just to get tenants out.
- there was regular black market where one could buy contract for cheaper rent
- tenants with lower price would subrent apartments for commercial price
- in Prague it was highly discriminatory for students and other poor people, who had to live in Prague.
- It did not protected city center anyway, people eventually moved away.
- there was huge conflict of interest. Some PM, government members, town hall officials... lived in cheaper apartments.
- home owners would cut hot water and electricity, just to get tenants out.
- there was regular black market where one could buy contract for cheaper rent
- tenants with lower price would subrent apartments for commercial price
- in Prague it was highly discriminatory for students and other poor people, who had to live in Prague.
- It did not protected city center anyway, people eventually moved away.
- there was huge conflict of interest. Some PM, government members, town hall officials... lived in cheaper apartments.
Not to sound like a complete dick, but... duh? Is this a controversial opinion really from a finance perspective? I was under the impression that almost all arguments surrounding rent control are:
1) Moral/legal arguments
2) Whether rent control is the small problem and lack of housing development due to zoning laws or NIMBYism or conspiracy or whatever is the much bigger problem - i.e. rent control is one small facet of the housing issues in SF.
1) Moral/legal arguments
2) Whether rent control is the small problem and lack of housing development due to zoning laws or NIMBYism or conspiracy or whatever is the much bigger problem - i.e. rent control is one small facet of the housing issues in SF.
There are efficiency arguments as well.
The solution where each participant in a market acts to optimize their own returns is sometimes nowhere near the global optimum allocation of resources (for basically _any_ theory of optimum allocation other than "whatever the market did").
The solution where each participant in a market acts to optimize their own returns is sometimes nowhere near the global optimum allocation of resources (for basically _any_ theory of optimum allocation other than "whatever the market did").
Rent control isn't the only problem. We don't have rent control in Boston/Cambridge but we also have skyrocketing rental prices. The fact is supply needs to at a minimum match demand or outpace it to suppress severe rent inflation. You can only get to that happy place if you make development easier; both San Francisco and Boston have very strong NIMBY groups in the various neighborhoods.
Cambridge is a great study in rent control. After rent control was thrown out in 1994, as you might imagine, prices in the city began to rise. The twist is that never-controlled units rose faster than controlled units! Since a tenant doesn't care if about the historical rent control status of unit, this strongly implies that never-controlled units were of higher quality.
You can't have skyrocketing rental prices. That's economically impossible.
If you do have skyrocketing rental prices, you should buy yourself an Econ 101 textbook and educate yourself about why this is impossible.
Then the problem will go away.
>both San Francisco and Boston have very strong NIMBY groups in the various neighborhoods.
Well, yes. In the real world - the one that doesn't consider 'just so' stories an explanation of anything - it's well known that rents depend on a mix of factors, not least of which is strong government support for affordable social housing.
Germany has a very strong rental culture, and excellent availability. Rentals remain reasonable, because there's a critical political mass of renters who would cause problems for politicians if they stopped being reasonable.
London, meanwhile, has limited housing stock and no rent control. The result is that rents are increasingly insane, landlords are increasingly disinterested in spending money on repairs (...so much for that argument) and most ordinary people are either sharing in overcrowded conditions, living in spare rooms, or moving elsewhere.
As a test case, this is hardly a resounding success for the no-control lobby.
London used to have a solid reservoir of social housing, but that was deliberately eliminated in the 80s. The result has been a steady cycle of manic-depressive boom/bust explosions.
Currently property prices are being driven up by foreign speculators. Wherever there's boom, capital flocks to it - until prices crash again, and then the greater fools are left behind, trying to capitalise on decrepit slum properties.
Rent control on its own isn't a solution to this. But an integrated and thoughtful housing policy certainly can be.
If you do have skyrocketing rental prices, you should buy yourself an Econ 101 textbook and educate yourself about why this is impossible.
Then the problem will go away.
>both San Francisco and Boston have very strong NIMBY groups in the various neighborhoods.
Well, yes. In the real world - the one that doesn't consider 'just so' stories an explanation of anything - it's well known that rents depend on a mix of factors, not least of which is strong government support for affordable social housing.
Germany has a very strong rental culture, and excellent availability. Rentals remain reasonable, because there's a critical political mass of renters who would cause problems for politicians if they stopped being reasonable.
London, meanwhile, has limited housing stock and no rent control. The result is that rents are increasingly insane, landlords are increasingly disinterested in spending money on repairs (...so much for that argument) and most ordinary people are either sharing in overcrowded conditions, living in spare rooms, or moving elsewhere.
As a test case, this is hardly a resounding success for the no-control lobby.
London used to have a solid reservoir of social housing, but that was deliberately eliminated in the 80s. The result has been a steady cycle of manic-depressive boom/bust explosions.
Currently property prices are being driven up by foreign speculators. Wherever there's boom, capital flocks to it - until prices crash again, and then the greater fools are left behind, trying to capitalise on decrepit slum properties.
Rent control on its own isn't a solution to this. But an integrated and thoughtful housing policy certainly can be.
"You can't have skyrocketing rental prices. That's economically impossible."
"If you do have skyrocketing rental prices, you should buy yourself an Econ 101 textbook and educate yourself about why this is impossible."
ok, this made me laugh more then it should :)
"If you do have skyrocketing rental prices, you should buy yourself an Econ 101 textbook and educate yourself about why this is impossible."
ok, this made me laugh more then it should :)
"You can't have skyrocketing rental prices. That's economically impossible."
"If you do have skyrocketing rental prices, you should buy yourself an Econ 101 textbook and educate yourself about why this is impossible."
Please explain; genuinely curious.
"If you do have skyrocketing rental prices, you should buy yourself an Econ 101 textbook and educate yourself about why this is impossible."
Please explain; genuinely curious.
It's trivial to show out that rent control increases the cost of rent for new renters. It's been talked about in the academic literature since the 40's[0]. The harder question is, "is it worth it?" Do the people who build a community in a place, and contribute to it's value, deserve to be shielded from the price increase they helped create? Home owners are incentives to help build a valuable community, shouldn't renters?
[0] Friedman, Milton, and George Joseph Stigler. Roofs or Ceilings?: The Current Housing Problem. Foundation for Economic Education, 1946.
[0] Friedman, Milton, and George Joseph Stigler. Roofs or Ceilings?: The Current Housing Problem. Foundation for Economic Education, 1946.
Here's what I don't get about rent control: how is it actually benefitting the renter? If a landlord has a few different units, some under rent control, some not, and some cash to spend on improvements, why would he spend it on improving the rent-controlled units? The Facebook post that was here yesterday even said so much:
> The few of us who still remain in San Francisco have no choice but to live in sub-par conditions like mold, windows that don't shut, rodents and countless other issues because there is no other choice, because the rents are so high you can't move so you don't.
This is what you get when you set the price artificially below market value: subpar product. Has anyone here seen Soviet-era apartments? They were exactly like this. So in the long run, the place will fall apart around the renter, and they will be pretty much powerless to do anything about it. And the bit about "can't move" because it's too expensive just means that the area is now too expensive for you and rent-control is the only thing allowing you to stay here.
If the excuse is that your job is here, well maybe your job is not paying you enough to live in SF. Perhaps founders should stop starting companies in this incredibly expensive area, and explore greener pastures.
> The few of us who still remain in San Francisco have no choice but to live in sub-par conditions like mold, windows that don't shut, rodents and countless other issues because there is no other choice, because the rents are so high you can't move so you don't.
This is what you get when you set the price artificially below market value: subpar product. Has anyone here seen Soviet-era apartments? They were exactly like this. So in the long run, the place will fall apart around the renter, and they will be pretty much powerless to do anything about it. And the bit about "can't move" because it's too expensive just means that the area is now too expensive for you and rent-control is the only thing allowing you to stay here.
If the excuse is that your job is here, well maybe your job is not paying you enough to live in SF. Perhaps founders should stop starting companies in this incredibly expensive area, and explore greener pastures.
That rent control has bad outcomes is uncontroversial. The question is, are they worse than forcing people out of their homes.
Obviously for many people, "People with money can't have something they want" is a better outcome than "people with less money will be required to leave their homes and go to less desirable places." You can, of course, disagree, but there is nothing strange or puzzling about this value judgement.
You can say "that's how capitalism works, tough shit" but SF has found a power which is in this case mightier than the market: law.
If it were the case that eliminating rent control would cause rents to settle somewhere reasonable and such an exodus would not happen, then that would be a compelling argument.
But HN instead argues that those people deserve to be forced out of their homes. Obviously if eradication of rent control is landlords' condition for building new construction, they intend to raise rents further, otherwise they would not demand the ability to do so. You may think that's fine, but you can't really say it's unreasonable for the people who lose in that situation to oppose it.
Obviously for many people, "People with money can't have something they want" is a better outcome than "people with less money will be required to leave their homes and go to less desirable places." You can, of course, disagree, but there is nothing strange or puzzling about this value judgement.
You can say "that's how capitalism works, tough shit" but SF has found a power which is in this case mightier than the market: law.
If it were the case that eliminating rent control would cause rents to settle somewhere reasonable and such an exodus would not happen, then that would be a compelling argument.
But HN instead argues that those people deserve to be forced out of their homes. Obviously if eradication of rent control is landlords' condition for building new construction, they intend to raise rents further, otherwise they would not demand the ability to do so. You may think that's fine, but you can't really say it's unreasonable for the people who lose in that situation to oppose it.
The price wasn't far below anything. The price has historically been average, if not above above average. Those problems persist because "bad landlord".
The only difference now is the skyrocketing rates in SF due to dot com 2.0 immigration. The same thing happened back in 1999-2000. EVERYONE had to be in SF for the boom back them, so rates skyrocketed. When the bubble burst, rents leveled off while the rest of the country eventually (almost) caught up.
Plus there's the "Google / Facebook" stipend. Google & Facebook were having a hard time hiring because employees couldn't find a place to live. Google / FB started offering $1k / mo above asked monthly rates to help employees get units quick. That also helped bump up even the worst apartments up to unrealistic levels.
The only difference now is the skyrocketing rates in SF due to dot com 2.0 immigration. The same thing happened back in 1999-2000. EVERYONE had to be in SF for the boom back them, so rates skyrocketed. When the bubble burst, rents leveled off while the rest of the country eventually (almost) caught up.
Plus there's the "Google / Facebook" stipend. Google & Facebook were having a hard time hiring because employees couldn't find a place to live. Google / FB started offering $1k / mo above asked monthly rates to help employees get units quick. That also helped bump up even the worst apartments up to unrealistic levels.
I'm pretty sure this isn't a thing, at least as far as Google is concerned. At least, I work there and live in SF and have never heard of it.
Pay is higher in the Bay Area due to high cost of living, like for most companies, but I've never heard of a housing-specific "stipend" or anything like that.
Pay is higher in the Bay Area due to high cost of living, like for most companies, but I've never heard of a housing-specific "stipend" or anything like that.
Rent control is a case of the government forcing landlords to do something that is really the government's job.
If the government wants housing to be affordable, it can build more of it, or provide households with tax credits or vouchers to help them afford to pay rent. Vouchers are less desirable than increasing supply, but they cause fewer market distortions and bad incentives than rent control, which is a price ceiling, which we know for sure leads to shortages.
Instead of taking on this public policy responsibility, the government of San Francisco has decided to take the easy way out by capping rents on certain units, which unfairly forces landlords to shoulder the burden of a job the government ought to be doing. This incentivizes all kinds of crazy things, including removing housing stock from the market under the Ellis Act.
If the government wants housing to be affordable, it can build more of it, or provide households with tax credits or vouchers to help them afford to pay rent. Vouchers are less desirable than increasing supply, but they cause fewer market distortions and bad incentives than rent control, which is a price ceiling, which we know for sure leads to shortages.
Instead of taking on this public policy responsibility, the government of San Francisco has decided to take the easy way out by capping rents on certain units, which unfairly forces landlords to shoulder the burden of a job the government ought to be doing. This incentivizes all kinds of crazy things, including removing housing stock from the market under the Ellis Act.
Great point!
Property owners are the ones wearing the pain, not the government. Doesn't help that landlords are in the minority when it comes time to vote.
Property owners are the ones wearing the pain, not the government. Doesn't help that landlords are in the minority when it comes time to vote.
For me two of the biggest issues in the bay area, transportation and housing stock availability suffer from a lack of regional authority which could make decisions for the region as a whole. The Abag just does studies and isn't binding.
I wish we had some county/city mergers like miami-dade. I think a regional authority would weaken the nature of neighborhood politics which conflict with larger regional goals. We could have an integrated transit system as well as well planned -or at least better planned- housing policies and strategies.
Bay area nimbyism resulted in a fragmented Bart and uncoordinated transit system as well as wasteful low rise housing developments. I can only hope this changes. And also agree getting rid of rent control is a bitter but necessary pill. Build more and rent will go down.
I wish we had some county/city mergers like miami-dade. I think a regional authority would weaken the nature of neighborhood politics which conflict with larger regional goals. We could have an integrated transit system as well as well planned -or at least better planned- housing policies and strategies.
Bay area nimbyism resulted in a fragmented Bart and uncoordinated transit system as well as wasteful low rise housing developments. I can only hope this changes. And also agree getting rid of rent control is a bitter but necessary pill. Build more and rent will go down.
I don't think better trains would necessarily be the result of merging. There is a good chance we'd just expand the 101 and build new Interstates through neighborhoods.
Maybe not. But my wish is for a unified transit system and a coordinated and progressive (for progress) housing policies. Allow density in the cores and peripheries of cities. We're not a pastoral society anymore --not with the population growth we're experiencing.
This just seems very basic.
Rent control discourages investment in real estate. Less investment in real estate means lower quality and fewer apartments. There are some lucky winners who get cheap apartments, but the rest pay higher prices to live in worse places. The same thing happens in New York City.
The economically sound answer is to make it as easy as possible for builders to make large buildings with lots of apartments. Right now it is so hard to build that only luxury apartments are profitable.
Rent control discourages investment in real estate. Less investment in real estate means lower quality and fewer apartments. There are some lucky winners who get cheap apartments, but the rest pay higher prices to live in worse places. The same thing happens in New York City.
The economically sound answer is to make it as easy as possible for builders to make large buildings with lots of apartments. Right now it is so hard to build that only luxury apartments are profitable.
They considered that financial disincentive for new construction when rent control was implemented in 1979. It does not apply to new housing units built after 1979.
Valid point. My perception (Based on SF and NYC) is that many of the laws that go along with rent control make it difficult to build low income housing. The time to get permits, and the difficulty in rehabbing, make anything except luxury apartments unaffordable.
It's always difficult to build low-income housing:
* It's just not inherently very efficient. If you can build 12 luxury apartments that will rent for $3k per month or 20 low-income apartments that will rent for $1k per month, then you're leaving a lot of money on the table.
* Incumbent neighbors hate hate hate low-income housing and will fight to destroy the project during public meetings (because they believe that their property will become less valuable/their neighborhood less desirable with low-income neighbors).
* Low-income tenant are more likely to stop paying rent/force an expensive eviction process than high-income tenants.
* Much of the maintenance cost on an apartment is per apartment or per tenant, not per square foot, so your maintenance cost may be lower on fewer larger apartments.
* Low-income housing developers do not have the resource of market-rate housing developers to move through the (complicated, awful) permitting process, or to buy land. Financing of low-income housing is much more complicated than financing of market-rate housing. Mostly market-rate developers who occasionally put together a low-income project tend to give those projects low numbers of resources/backburner them.
Source: My wife is a project manager at Habitat for Humanity.
* It's just not inherently very efficient. If you can build 12 luxury apartments that will rent for $3k per month or 20 low-income apartments that will rent for $1k per month, then you're leaving a lot of money on the table.
* Incumbent neighbors hate hate hate low-income housing and will fight to destroy the project during public meetings (because they believe that their property will become less valuable/their neighborhood less desirable with low-income neighbors).
* Low-income tenant are more likely to stop paying rent/force an expensive eviction process than high-income tenants.
* Much of the maintenance cost on an apartment is per apartment or per tenant, not per square foot, so your maintenance cost may be lower on fewer larger apartments.
* Low-income housing developers do not have the resource of market-rate housing developers to move through the (complicated, awful) permitting process, or to buy land. Financing of low-income housing is much more complicated than financing of market-rate housing. Mostly market-rate developers who occasionally put together a low-income project tend to give those projects low numbers of resources/backburner them.
Source: My wife is a project manager at Habitat for Humanity.
Very interesting. A couple comments:
- The "Not in my backyard" is economically rational, but still wrong. I'm not sure how to fight it.
- My general view is to remove the roadblocks to let economics help out. Large public works doesn't seem to be the right solution either. (High crime, bad schools, etc)
- The better case is not "luxury vs low-income" but rather to put the lower (or even medium) income apartments somewhere that there's less competition from luxury. There's no natural law that says they need to be side by side. (But I would argue we should ensure the quality of schools for both is similar)
- The "Not in my backyard" is economically rational, but still wrong. I'm not sure how to fight it.
- My general view is to remove the roadblocks to let economics help out. Large public works doesn't seem to be the right solution either. (High crime, bad schools, etc)
- The better case is not "luxury vs low-income" but rather to put the lower (or even medium) income apartments somewhere that there's less competition from luxury. There's no natural law that says they need to be side by side. (But I would argue we should ensure the quality of schools for both is similar)
One could argue -- I'm not sure that I care to -- that the natural evolution of things would be for all new housing stock to be built well above the median of the market, and that as structures are a durable, but not appreciating asset, the deal would be that the rich live in new stock, the middle class live in older stock, and the poor live in yet older stock. As new stock comes into the market, it depresses the value of the older stock, and moves it down the income line.
In which case there would be no concept of "affordable housing" as a kind of development -- affordable housing would just be older housing.
Since structures are a significantly durable asset, this would operate over the course of decades, or even a century, not years.
In which case we could imagine that changes in the supply stock over 35 years (ie, rent-controlled stock in SF) would have a magnified effect on the well-being of the poor.
That said, I suspect this model is too simple to have that much predictive power. You are right to focus on schools (though note that in SF, public schools are built on a lottery system, and being local to the school gives you only limited access to it).
Many people are very hostile to the option to say, "Well, fuck it, SF is expensive -- people who want cheaper housing should live in more geographically remote places." It's hard for me to figure out where any concept of a right to live near place X begins or ends.
In which case there would be no concept of "affordable housing" as a kind of development -- affordable housing would just be older housing.
Since structures are a significantly durable asset, this would operate over the course of decades, or even a century, not years.
In which case we could imagine that changes in the supply stock over 35 years (ie, rent-controlled stock in SF) would have a magnified effect on the well-being of the poor.
That said, I suspect this model is too simple to have that much predictive power. You are right to focus on schools (though note that in SF, public schools are built on a lottery system, and being local to the school gives you only limited access to it).
Many people are very hostile to the option to say, "Well, fuck it, SF is expensive -- people who want cheaper housing should live in more geographically remote places." It's hard for me to figure out where any concept of a right to live near place X begins or ends.
Interesting idea. The main issue is that location matters. Most of the value of high value real estate is in the location. (This is why a 4BR house in Rochester NY costs 1/20th what it would cost in Manhattan or SF)
People would rather live in an old house with good schools and close to work (say Palo Alto or Los Altos) than new houses a significant drive away.
You can't tell someone "Take a risk on the schools, get a bigger commute, and pay up" but you can say "Get a nice new apartment, roll the dice on the schools, but save a lot of money and buy a nice car for the commute"
People would rather live in an old house with good schools and close to work (say Palo Alto or Los Altos) than new houses a significant drive away.
You can't tell someone "Take a risk on the schools, get a bigger commute, and pay up" but you can say "Get a nice new apartment, roll the dice on the schools, but save a lot of money and buy a nice car for the commute"
Rent control doesn't discourage investment in real estate in sf, because crucially, no new construction is rent controlled.
Rent control prevents existing rent controlled properties from being redeveloped (e.g. to increase capacity).
Of course, in the SF context that might also be impossible due to zoning/nimby opposition, but it is one huge factor.
Of course, in the SF context that might also be impossible due to zoning/nimby opposition, but it is one huge factor.
It's worth noting that San Francisco sets a much higher burden on new construction: it either charges the builder an "Affordable Housing Fee" (~$200k to $522k per unit), or it requires a certain percentage of units (12% of on-site or 20% of off-site) be made available for rental or sale at a price specified by the city ("below market rate").
http://sf-moh.org/index.aspx?page=308
http://sf-moh.org/index.aspx?page=308
Same issue in NYC. So a couple people win a lottery to get subsidized housing, and can't ever move again, at the expense of the people paying full rent, the developers, and everyone else who can't afford housing.
And Prop 13 creates higher home prices in CA.
Both do little to protect their intended target (artists and elderly) both do a lot to protect the non-mobile (and in fact discourage mobility).
Both do little to protect their intended target (artists and elderly) both do a lot to protect the non-mobile (and in fact discourage mobility).
Talking to relatives who live out of state, Prop 13 really does protect the elderly from rising property taxes. I think you don't really see it because it has largely solved the problem of rising-propery-tax-based evictions without much fuss, so you don't really feel it in action.
One issue with Prop 13 is that it should maybe only protect property owners who live in their property as a primary residence, but currently covers commercial properties, vacation homes, etc..
Higher home prices get locked into the tax rate if the property changes hands so I'm not sure what the link is to Prop 13 creating higher prices....
One issue with Prop 13 is that it should maybe only protect property owners who live in their property as a primary residence, but currently covers commercial properties, vacation homes, etc..
Higher home prices get locked into the tax rate if the property changes hands so I'm not sure what the link is to Prop 13 creating higher prices....
> Higher home prices get locked into the tax rate if the property changes hands so I'm not sure what the link is to Prop 13 creating higher prices....
Prop 13 has several provisions, the two most important being:
1) It limits the nominal rate of ad valorem property taxation.
2) It limits the increase in the tax basis value of property except when a reset to the full assessed value is allowed for certain qualifying events (changes of ownership and certain improvements.)
The first directly increases property values by making it more attractive to own property because of lower cost of ownership and less tax risks regardless of length of ownership.
The second restricts mobility (and therefore, both supply and demand) because it discourages exchanging one property for another, because doing so increases almost always increases effective tax rates (and total tax costs for like valued properties.) Because the it affects supply more than demand (insofar as some demand comes from people moving from out of the state, who aren't affected by Prop 13 on the demand side), this also increases prices, though its main effect is to reduce market clearing volume independent of price and thereby increases price volatility.
Prop 13 has several provisions, the two most important being:
1) It limits the nominal rate of ad valorem property taxation.
2) It limits the increase in the tax basis value of property except when a reset to the full assessed value is allowed for certain qualifying events (changes of ownership and certain improvements.)
The first directly increases property values by making it more attractive to own property because of lower cost of ownership and less tax risks regardless of length of ownership.
The second restricts mobility (and therefore, both supply and demand) because it discourages exchanging one property for another, because doing so increases almost always increases effective tax rates (and total tax costs for like valued properties.) Because the it affects supply more than demand (insofar as some demand comes from people moving from out of the state, who aren't affected by Prop 13 on the demand side), this also increases prices, though its main effect is to reduce market clearing volume independent of price and thereby increases price volatility.
> discourages exchanging one property for another, because doing so increases almost always increases effective tax rates
This is not strictly true, if you're 55+ and moving from Ca to Ca. http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm#1
This is not strictly true, if you're 55+ and moving from Ca to Ca. http://www.boe.ca.gov/proptaxes/faqs/propositions60_90.htm#1
I just don't think that people forced to sell property because of high taxes as a good way to encourage mobility...
Personally, I think people should be allowed to monopolize prime locations without having to pay a dime to anyone. It's only fair. They created the land. Before them, it didn't exist. But now that it does, it belongs to them forever and ever. Amen.
While you all are enjoying your high rents, I would like to brag about my hometown Memphis, TN. We just got some hype in the WSJ.
"In a nod to the youngsters, the survey found that the top markets offering “the right live/work/play environment” for millennials were Nashville, Brooklyn, Portland, and Memphis."[1]
In all seriousness, I think its a shame that SF can't keep up with housing. It's a tough problem. I don't envy the people in Government that have to balance all the different interests.
Then again, I would hate it if the majority of my paycheck went to my rent.
[1] http://blogs.wsj.com/moneybeat/2015/03/11/u-s-regained-top-s...
"In a nod to the youngsters, the survey found that the top markets offering “the right live/work/play environment” for millennials were Nashville, Brooklyn, Portland, and Memphis."[1]
In all seriousness, I think its a shame that SF can't keep up with housing. It's a tough problem. I don't envy the people in Government that have to balance all the different interests.
Then again, I would hate it if the majority of my paycheck went to my rent.
[1] http://blogs.wsj.com/moneybeat/2015/03/11/u-s-regained-top-s...
As a native, but former Memphian, while I've always thought that they get plenty of things right, it's hard to compare it to San Francisco.
For one, there's the freedom to sprawl, while San Francisco proper is constrained to a much smaller geographic space. That alone skews a lot of the comparisons.
I was reading this today, and it struck a chord especially after yesterday's "rent in SF" article, and while I feel that the Houston approach is indeed the enlightened one, I don't know that it's appropriate for every particular place.
http://joshblackman.com/blog/2015/03/15/the-economist-housto...
Beyond that, of course, as much as it pains me to knock my home town, we left Memphis because of the rapid rise in crime, and that hasn't seemed to improve terribly. Since we've left, they've apparently done a fantastic job of buggering up the schools.
The draw of home pulls strong on me, and I frequently contemplate moving back, especially with the craft brew scene producing what I believe are some of the best beers in the nation (especially High Cotton), but between the things I've already mentioned and the oppressive summers, it's a tough sell.
For one, there's the freedom to sprawl, while San Francisco proper is constrained to a much smaller geographic space. That alone skews a lot of the comparisons.
I was reading this today, and it struck a chord especially after yesterday's "rent in SF" article, and while I feel that the Houston approach is indeed the enlightened one, I don't know that it's appropriate for every particular place.
http://joshblackman.com/blog/2015/03/15/the-economist-housto...
Beyond that, of course, as much as it pains me to knock my home town, we left Memphis because of the rapid rise in crime, and that hasn't seemed to improve terribly. Since we've left, they've apparently done a fantastic job of buggering up the schools.
The draw of home pulls strong on me, and I frequently contemplate moving back, especially with the craft brew scene producing what I believe are some of the best beers in the nation (especially High Cotton), but between the things I've already mentioned and the oppressive summers, it's a tough sell.
All of the arguments I have heard for rent control act like the vast majority of us who live in non-rent controlled areas are going through a Boschian nightmare hellhole of landlords jacking up our rents, driving us out of our ancestral homes, and sticking pitchforks in our collective asses.
<checks cranium> nope, no screw-vices here.
<checks cranium> nope, no screw-vices here.
It can happen in some places. In Dublin, Ireland someone's rent went up by 50% http://www.breakingnews.ie/ireland/dublin-couple-forced-to-l...
It's not relevant for less crowded areas but friends who live in NYC (or SF, without rent control) often see 20%+ increases amounting to at least a few hundred dollars per month. That's pretty rough after you found a place to live and spent a year setting it up.
That's funny, because NYC has the longest-running rent control program in the country.
Sure, but whether a city has rent control wasn't relevant to my comment, which is why I mentioned San Francisco as well. I was saying that landlords in popular areas whose properties are not subject to rent control (whether or not the surrounding area predominantly has rent control) will naturally act in their own self-interest and raise prices quickly. If the tenant improves the property during their lease, then the landlord will immediately be able to charge more for it which is another perverse incentive.
Here is an excerpt from an article that discusses rent control in Singapore & Hong Kong, among other places:
"Rent controls [in Hong Kong] were renewed in 1973, to halt increases exceeding 90% of prevailing market rates or hikes above 30%, for two years"
They actually had to add rent control there because the landlords acted exactly as you described.
http://www.theonlinecitizen.com/2014/05/is-regulating-rents-...
Here is an excerpt from an article that discusses rent control in Singapore & Hong Kong, among other places:
"Rent controls [in Hong Kong] were renewed in 1973, to halt increases exceeding 90% of prevailing market rates or hikes above 30%, for two years"
They actually had to add rent control there because the landlords acted exactly as you described.
http://www.theonlinecitizen.com/2014/05/is-regulating-rents-...
I live in San Mateo.
In my building, rent has increased from $1800 to $2550 in the last 2.5 years; that necessitates $18k more in pretax income to service.
In my building, rent has increased from $1800 to $2550 in the last 2.5 years; that necessitates $18k more in pretax income to service.
I'm amused nobody brought the word Gentrification to the comments yet.
Yes, the arcticle does not mention that word. Neither the comments there or the comments here.
But this is what giving up rent control encourages: gentrification. And it's really bad.
I'm not a US citizen, I don't live there, but I've visited SF quite a few times. You can see gentrification happening yearly after every visit. It's sad.
Perhaps the discussion should not be "rent control" vs "no rent control" and really "how to effectivelly control rent prices".
In Brazil, landlords are allowed to raise the rent every year by the same ammount of one of the country's inflation indexes. It's not perfect, but people seem to be more or less happy with it.
Also the rent price can never be more than a small percentage of the property's declared value per month (if you want to change the declared value, your ownership taxes will change accordingly). This helps a bit.
This is just an example of my point: stop thinking binary - yes or no - and start thinking how.
Yes, the arcticle does not mention that word. Neither the comments there or the comments here.
But this is what giving up rent control encourages: gentrification. And it's really bad.
I'm not a US citizen, I don't live there, but I've visited SF quite a few times. You can see gentrification happening yearly after every visit. It's sad.
Perhaps the discussion should not be "rent control" vs "no rent control" and really "how to effectivelly control rent prices".
In Brazil, landlords are allowed to raise the rent every year by the same ammount of one of the country's inflation indexes. It's not perfect, but people seem to be more or less happy with it.
Also the rent price can never be more than a small percentage of the property's declared value per month (if you want to change the declared value, your ownership taxes will change accordingly). This helps a bit.
This is just an example of my point: stop thinking binary - yes or no - and start thinking how.
One thing I've never understood (but would still like to) is where does the imperative to build more and faster come from? I live in Berkeley, am very nearly priced out at this point, but see no reason why the community is required to take in more people. Permitting snd process ensures a snail's pace for new construction here, but from the perspective of those that live here (and most have rent control) why should they rush to grow?
All I'm saying is, market prices reflect supply and demand, but they also balance the demand which would otherwise threaten to overwhelm the place. Who am I to say 'I want to live here! Make it happen!!' We could be building the city of our dreams, of the future, a mere 30 miles away.
All I'm saying is, market prices reflect supply and demand, but they also balance the demand which would otherwise threaten to overwhelm the place. Who am I to say 'I want to live here! Make it happen!!' We could be building the city of our dreams, of the future, a mere 30 miles away.
The incentive is that people who own land (or even people who own existing buildings) can make money if they rent it out. It boils down to simple greed; as Adam Smith said, "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest."
Adam Smith's big contribution was showing that, generally, if we assume people are greedy and will look out for themselves, we can still end up with a fair system. Lasseiz faire economics has a much better track record in that regard than the alternatives that try to ignore greed. You can set things up based on how you want them to work, or you can set them up based on how they really do work.
Adam Smith's big contribution was showing that, generally, if we assume people are greedy and will look out for themselves, we can still end up with a fair system. Lasseiz faire economics has a much better track record in that regard than the alternatives that try to ignore greed. You can set things up based on how you want them to work, or you can set them up based on how they really do work.
You're right to a large extent. This king-of-the-hill attitude towards property is exactly what you see with Prop 13, rent control, severe building code restrictions, etc.
Prop 13: The long-time home owners get to put a disproportionate amount of the tax burden on newer buyers.
Rent control: long-term renters put a disproportionate cost of the rental prices on newer renters, and landlords.
Building code: Land owners want to be able to build when it's their turn, but as soon as they build they want to restrict others for obstructing their view, or changing the character of the neighborhood.
Public transportation: Residents who don't use public transport have typically fought against it coming to their neighborhood to keep the undesirables out, then find out that their property values are lower, or shops aren't doing well, because of this 30 years later. See Georgetown, DC.
Basically, everyone wants to lock in their position, then keep everyone else out. That's really only rational, so I can't fault it that much. Where I personally get annoyed is when those motivations aren't acknowledged and also get paired with complaints about super high rent and property prices.
The "rush to grow" is simply the reasonable response to skyrocketing prices. If the city doesn't want to grow, then it should be ok with those prices. What's not reasonable to want to be a desirable place to live, not grow, and have stable, affordable prices.
Prop 13: The long-time home owners get to put a disproportionate amount of the tax burden on newer buyers.
Rent control: long-term renters put a disproportionate cost of the rental prices on newer renters, and landlords.
Building code: Land owners want to be able to build when it's their turn, but as soon as they build they want to restrict others for obstructing their view, or changing the character of the neighborhood.
Public transportation: Residents who don't use public transport have typically fought against it coming to their neighborhood to keep the undesirables out, then find out that their property values are lower, or shops aren't doing well, because of this 30 years later. See Georgetown, DC.
Basically, everyone wants to lock in their position, then keep everyone else out. That's really only rational, so I can't fault it that much. Where I personally get annoyed is when those motivations aren't acknowledged and also get paired with complaints about super high rent and property prices.
The "rush to grow" is simply the reasonable response to skyrocketing prices. If the city doesn't want to grow, then it should be ok with those prices. What's not reasonable to want to be a desirable place to live, not grow, and have stable, affordable prices.
> Who am I to say 'I want to live here! Make it happen!!' We could be building the city of our dreams, of the future, a mere 30 miles away.
We could, and in a few decades we'd have the exact same problems there and people would look to move back to SF. This, incidentally, is essentially what happened when interstates led to suburbanization and now people are moving back to core cities.
We could, and in a few decades we'd have the exact same problems there and people would look to move back to SF. This, incidentally, is essentially what happened when interstates led to suburbanization and now people are moving back to core cities.
You're almost priced out of Berkeley (if it weren't for your rent control), but you don't understand where the imperative comes from? Well, you will, once they find a way to evict you.
> the imperative to build more and faster come from
From a consequentialist/utilitarian perspective, you'd say that the utility benefit if you allowed a million more people to live in SF at affordable rents would outweigh by orders of magnitude the disutility of incumbents.
Another framing is just the attitude that it's wrong to exclude the poor from a community via high rents. I think people that focus on this framing are also relatively friendly to rent control, but building more housing is arguably more radically inclusive.
From a consequentialist/utilitarian perspective, you'd say that the utility benefit if you allowed a million more people to live in SF at affordable rents would outweigh by orders of magnitude the disutility of incumbents.
Another framing is just the attitude that it's wrong to exclude the poor from a community via high rents. I think people that focus on this framing are also relatively friendly to rent control, but building more housing is arguably more radically inclusive.
Perhaps I'm misunderstanding basic economics here, but:
The 20 people who originally couldn't find houses in SF (who formerly would have needed to bid $4), can bid $2 on some of the formerly rent controlled houses. They get leases.
If the market rent is $4, and the control is $1, and the control disappears, why on earth wouldn't the landlords in possession of the formerly-controlled properties immediately raise their prices to the market price?
The 20 people who originally couldn't find houses in SF (who formerly would have needed to bid $4), can bid $2 on some of the formerly rent controlled houses. They get leases.
If the market rent is $4, and the control is $1, and the control disappears, why on earth wouldn't the landlords in possession of the formerly-controlled properties immediately raise their prices to the market price?
Because there aren't 100 people in the model city willing/able to pay $4 rent. The landlords might attempt to do what you suggest, but as they fail to rent their properties month after month, they will gradually drop the rent they are asking until equilibrium is reached.
Here are a few reasons[0] you might want to look into about this fabled "equilibrium" in commercial real estate.
[0] http://www.ezracompany.com/2012/04/30/why-do-landlords-let-s...
[0] http://www.ezracompany.com/2012/04/30/why-do-landlords-let-s...
this assumes a perfect system, with specific conditions. the real estate market tends to be neither. apartments go vacant all the time waiting for the $4 swm.
This highly simplified example doesn't have sufficient information to calculate what the equilibrium will be.
Obviously it will be lower than $4, but what?
Obviously it will be lower than $4, but what?
If supply goes up and demand is fixed, prices go down.
..in an ideal system with completely rational actors. People will sit on properties that are not selling and not touch the price.
And those people will eventually go bankrupt and the rental rates on their properties will reset. The market can stay irrational for arbitrarily long times, but not forever.
The time it takes that to happen may be so long as to be effectively meaningless.
A rational person holding out for the "right" renter willing to pay the higher price would lower their prices sooner, but as previously established, people are not rational. Given the landlords that are holding multiple properties, they may just let the surplus profit soak up the loss from leaving the place without tenant.
Hiou linked a few good (and actually rational) reasons why this may happen, as well: http://www.ezracompany.com/2012/04/30/why-do-landlords-let-s...
The end result is that it's not as simple as ECON101 supply and demand.
A rational person holding out for the "right" renter willing to pay the higher price would lower their prices sooner, but as previously established, people are not rational. Given the landlords that are holding multiple properties, they may just let the surplus profit soak up the loss from leaving the place without tenant.
Hiou linked a few good (and actually rational) reasons why this may happen, as well: http://www.ezracompany.com/2012/04/30/why-do-landlords-let-s...
The end result is that it's not as simple as ECON101 supply and demand.
> The market can stay irrational for arbitrarily long times, but not forever.
Civilization, OTOH, cannot exist for arbitrarily long times (the heat death of the universe presents a pretty firm outer boundary), so the fact that the market can stay irrational for arbitrarily long times, but not forever, should not be seen as reassuring, or even meaningful.
Or, to quote Keynes, "In the long run we are all dead. Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again."
Civilization, OTOH, cannot exist for arbitrarily long times (the heat death of the universe presents a pretty firm outer boundary), so the fact that the market can stay irrational for arbitrarily long times, but not forever, should not be seen as reassuring, or even meaningful.
Or, to quote Keynes, "In the long run we are all dead. Economists set themselves too easy, too useless a task, if in tempestuous seasons they can only tell us, that when the storm is long past, the ocean is flat again."
Prop 13 means carrying costs can be extraordinarily low.
I think any serious proposal to get rid of rent control would necessarily be tied to getting rid of prop 13.
Are you arguing that if supply increases in a real market the prices won't go down?
Because the old market price was $4 due to there only being 20 houses that could freely move on price.
If there's 100 houses there will more supply and the market rate will drop. Basically market rent is simply the price at the available margin.
If there's 100 houses there will more supply and the market rate will drop. Basically market rent is simply the price at the available margin.
And here I have no doubt that there's sufficient demand to account for the increase in supply.
There's probably not 120 people, and 100 houses. I think it's 500 people and 100 houses. Higher rent has driven a lot of people out who would have preferred to stay but couldn't because of the price.
Rent control is the only thing keeping some of them here.
- written from my cold, moldy dying home in the Sunset.
There's probably not 120 people, and 100 houses. I think it's 500 people and 100 houses. Higher rent has driven a lot of people out who would have preferred to stay but couldn't because of the price.
Rent control is the only thing keeping some of them here.
- written from my cold, moldy dying home in the Sunset.
[deleted]
they are free to ask for $4. if the market is working efficiently then the renters in the market will start a bidding war between landlords to lower their price. as soon as one landlord reduces the asking price below $4 its all over, and the $4 "market price" is proved to no longer be the market price.
"The city needs people who make less than X to live here (teachers, social workers etc). We shouldn't have a homogenous city of software engineers and bankers."
This is mistaken. The cost of living is routinely taken into account when people are deciding what wages they will demand. If literally no teachers can afford to live in your city, and you wish your children to be educated, you'll have to pay a lot in order to import a teacher who can then afford to live there. That drives up wages to equilibrium.
Furthermore, if literally no teachers can afford to live in your city, and you wish your children to be educated, you might very well decide to move to somewhere with a lower cost of living. This drives down demand to equilibrium.
The only argument in favor of rent control is that it reduces short-term volatility of rent. This only makes sense if moving entails huge negative externalities. You do see people making this argument (they talk a lot about long-term community cohesion).
This is mistaken. The cost of living is routinely taken into account when people are deciding what wages they will demand. If literally no teachers can afford to live in your city, and you wish your children to be educated, you'll have to pay a lot in order to import a teacher who can then afford to live there. That drives up wages to equilibrium.
Furthermore, if literally no teachers can afford to live in your city, and you wish your children to be educated, you might very well decide to move to somewhere with a lower cost of living. This drives down demand to equilibrium.
The only argument in favor of rent control is that it reduces short-term volatility of rent. This only makes sense if moving entails huge negative externalities. You do see people making this argument (they talk a lot about long-term community cohesion).
Eliminating rent control without also making it possible to build up (literally) to a degree that (afaik) is currently impossible due to building and zoning restrictions would do little to ease the problem. By my understanding, though, actually building new housing is about as unpopular with the locals than ending rent control. There's no point in 'signalling to developers that it's time to build,' as suggested in the article, if they literally can't build anything.
The annoying thing with the fixation on rent control over zoning is that at least rent control has some altruistic value to people who can't really afford their rents being raised. The zoning rules largely benefit property owners, I expect.
The annoying thing with the fixation on rent control over zoning is that at least rent control has some altruistic value to people who can't really afford their rents being raised. The zoning rules largely benefit property owners, I expect.
There seems to be an underlying thought in many answers here, something like "the markets should be allowed to function".
This is a very naive idea. The "market" exists only as a system protected by the state security apparatus. The state prohibits poor people to randomly capture property from rich people, in effect protecting landlords with the backing of violence. What do the poor get in return? Surely they must receive something to opt into the social contract? In general, that "something" is welfare. THAT is why welfare for poor renters is important, in the form of rent control or subsidies or whatever else they demand.
A market propped up on the spectre of state violence is not "free".
This is a very naive idea. The "market" exists only as a system protected by the state security apparatus. The state prohibits poor people to randomly capture property from rich people, in effect protecting landlords with the backing of violence. What do the poor get in return? Surely they must receive something to opt into the social contract? In general, that "something" is welfare. THAT is why welfare for poor renters is important, in the form of rent control or subsidies or whatever else they demand.
A market propped up on the spectre of state violence is not "free".
I support building new buildings - if we let them build new buildings, those buildings are exempt from rent control, too!
Also, let's not forget that SF also has a pretty large amount of subsidized housing stock in the form of BMR (below market rent) units and other things.
I don't see a problem with having the rent control stock transitioned to some sort of means-testing.
I'd love to see them building, building, building. The amount of fighting that went on to knock down a Walgreens in the mission that was right next to a BART stop though, leaves me wondering if that could ever happen.
Zoning protects owners, but remember that a tenant in rent control has a right not unlike an ownership right; it's a perpetual lease at a fixed price. They can sub-lease it, for instance. It is all but impossible for them to be evicted. So rising property values and quality-of-life in their area benefits them (the tenants) greatly; so opposing construction keeps the value and exclusivity of their position high. The tenants are accruing a large economic surplus that would normally accrue to the owner.
Anyway, I've heard of quite a few anecdotes that involve people making huge salaries and having incredibly cheap rent-controlled apartments, or even worse, sub-leases of one. Never mind the pied-a-terre accusations.
I have not seen any meaningful statistics, though.
Also, let's not forget that SF also has a pretty large amount of subsidized housing stock in the form of BMR (below market rent) units and other things.
I don't see a problem with having the rent control stock transitioned to some sort of means-testing.
I'd love to see them building, building, building. The amount of fighting that went on to knock down a Walgreens in the mission that was right next to a BART stop though, leaves me wondering if that could ever happen.
Zoning protects owners, but remember that a tenant in rent control has a right not unlike an ownership right; it's a perpetual lease at a fixed price. They can sub-lease it, for instance. It is all but impossible for them to be evicted. So rising property values and quality-of-life in their area benefits them (the tenants) greatly; so opposing construction keeps the value and exclusivity of their position high. The tenants are accruing a large economic surplus that would normally accrue to the owner.
Anyway, I've heard of quite a few anecdotes that involve people making huge salaries and having incredibly cheap rent-controlled apartments, or even worse, sub-leases of one. Never mind the pied-a-terre accusations.
I have not seen any meaningful statistics, though.
"I don't see a problem with having the rent control stock transitioned to some sort of means-testing."
I would guess this would make landlords avoid renting to low income tenants at all costs -- better to rent to someone who is not qualified for the means test, even at a cheaper rent, to assure flexibility.
I would guess this would make landlords avoid renting to low income tenants at all costs -- better to rent to someone who is not qualified for the means test, even at a cheaper rent, to assure flexibility.
There has been an abandoned gas station, surrounded by a chainlink fence, bums, and bumshit, at 23rd and valencia since 2008. It still, afaik, isn't being turned into housing.
http://sf.curbed.com/archives/2013/12/05/whats_the_story_wit...
http://missionlocal.org/2013/12/developers-turn-old-gas-stat...
http://sf.curbed.com/archives/2013/12/05/whats_the_story_wit...
http://missionlocal.org/2013/12/developers-turn-old-gas-stat...
[deleted]
You need more data. Just because 72% of apartments are under rent control doesn't mean that 72% of apartments are going for under market rate rent.
Even with rent control, San Francisco would benefit from being denser. There's a lack of all kinds of housing which is making it unaffordable. Manhattan is 70,000 people/mi2. Brooklyn is 35,000 people/mi2. SF is 17,000 people/mi2.
Even with rent control, San Francisco would benefit from being denser. There's a lack of all kinds of housing which is making it unaffordable. Manhattan is 70,000 people/mi2. Brooklyn is 35,000 people/mi2. SF is 17,000 people/mi2.
Rent Control is about enabling community through housing stability. Places where the housing costs have skyrocketed out of the reach of anyone but investors are also the places with the lowest community participation and highest Landlord rights. If you want to run a city where only the rich have rights then don't have any rent control. But if you rent to people who aren't rich, and then when housing goes up you try to throw them out to make more money, they're going to want to get together, contact their politicians, and secure their housing stability. Just because you want to piggyback on the poor and lower middle class to float your investment until it starts making real money doesn't give you the right to complain about the poor and lower middle class for still being there. If you consider housing in one of the densest cities in the planet to be solely for investment purposes I think you have something wrong with your moral compass.
These sound like bold claims, honestly. I have never lived in a rent controlled area, but I have also never had the money to enter into the only rent controlled areas I know of. Such that it is easier for me to understand the possible negatives of rent control over the positives. Do you have good reading on why they are false? (Basically, your moral argument sounds like I could see the appeal, but mostly false. Whereas the other arguments lack any appeal to morality, but seem much more likely.)
How do you propose addressing the problem of the high market rents in SF, then?
This isn't a convincing argument. Regardless of the rates paid by the people in rent control apartments, unless they vacate, the supply doesn't increase, so the market isn't changed at all.
Since new buildings aren't rent controlled in SF, there is no discouragement to building due to rent control.
The real answer is just geometry. SF is geographically constrained in such a way that there isn't really a way to build more housing within commuting distance. A city like Omaha (or even Berlin) has the available land go up with the square of the commuting time. SF has the land available for development go up roughly linearly (the valley doesn't get much wider until all the way to San Jose)
The way to lower housing costs is to increase the available housing as a function of commuting time. The easiest way to do this is high speed rail.
It's not a coincidence that all the communities in the valley have fought tooth and nail against high speed rail.
http://www.cahsrblog.com/2011/04/anti-hsr-activism-is-a-rich...
Once it becomes possible to get to SF from Gilroy in 40 minutes, tons of housing will be built far from the city, where land is available and cheap. People won't have to choose between paying a huge premium to avoid a long commute, or spending 3 hours of every day sitting in a car.
This is economics 101. The marginal property is south of San Jose, and the premium for living in SF is about 2 hours * 20 days of commute time a month, which if you are making $200k per year is about $4166 of lost time per month, assuming a 40 hour work week and ability to convert that time into salary (a bad assumption, but this is the actual analysis to figure out how much more prices should be in SF, it just doesn't factor everything in appropriately). It's not a coincidence that this is roughly the difference in rental costs between these two areas.
Since new buildings aren't rent controlled in SF, there is no discouragement to building due to rent control.
The real answer is just geometry. SF is geographically constrained in such a way that there isn't really a way to build more housing within commuting distance. A city like Omaha (or even Berlin) has the available land go up with the square of the commuting time. SF has the land available for development go up roughly linearly (the valley doesn't get much wider until all the way to San Jose)
The way to lower housing costs is to increase the available housing as a function of commuting time. The easiest way to do this is high speed rail.
It's not a coincidence that all the communities in the valley have fought tooth and nail against high speed rail.
http://www.cahsrblog.com/2011/04/anti-hsr-activism-is-a-rich...
Once it becomes possible to get to SF from Gilroy in 40 minutes, tons of housing will be built far from the city, where land is available and cheap. People won't have to choose between paying a huge premium to avoid a long commute, or spending 3 hours of every day sitting in a car.
This is economics 101. The marginal property is south of San Jose, and the premium for living in SF is about 2 hours * 20 days of commute time a month, which if you are making $200k per year is about $4166 of lost time per month, assuming a 40 hour work week and ability to convert that time into salary (a bad assumption, but this is the actual analysis to figure out how much more prices should be in SF, it just doesn't factor everything in appropriately). It's not a coincidence that this is roughly the difference in rental costs between these two areas.
Rent control wouldn't have nearly this much of a distortive effect on the SF housing market if SF actually had enough housing in the first place.
Rent control is one cause (of many) of the housing problem. People are less likely to invest in real estate, especially targeting low income, if there are restrictions on how they can monetize it.
Simplistic model predicting major benefits, while none are likely.
Abolishing rent-control could never take effect immediately, but would be phased out slowly to protect current occupants. Hence, the number of apartments coming on the market would increase slowly, owners could rent this 'new' inventory out at "market rates" ($4, aka the max the market can bear right now and 'the norm') and the best we can hope for is a (temporary) drop or slowdown in rental rate increases.
With a more realistic ratio of people looking for apartments (250 for 100? 500?) there may be no slowdown or drop at all. End result: neighborhoods pulled apart as long-term residents are forced to leave, rents not affected measurably, $4 considered 'normal'.
PS I live in NYC, where local renters compete with people parking their money due to overly lax taxes on non-residents, making it worthwhile to own but not occupy. Many buildings are half empty as a result (many thousands of apartments). Rents meanwhile go through the roof.
A good way to affect housing stock in NYC would be to make non-residential ownership not longer interesting. I suspect the same is valid in SF. The suggestion below of increasing housing stock by allowing bigger buildings and improving commute times seems to be a much better long-term solution.
Abolishing rent-control could never take effect immediately, but would be phased out slowly to protect current occupants. Hence, the number of apartments coming on the market would increase slowly, owners could rent this 'new' inventory out at "market rates" ($4, aka the max the market can bear right now and 'the norm') and the best we can hope for is a (temporary) drop or slowdown in rental rate increases.
With a more realistic ratio of people looking for apartments (250 for 100? 500?) there may be no slowdown or drop at all. End result: neighborhoods pulled apart as long-term residents are forced to leave, rents not affected measurably, $4 considered 'normal'.
PS I live in NYC, where local renters compete with people parking their money due to overly lax taxes on non-residents, making it worthwhile to own but not occupy. Many buildings are half empty as a result (many thousands of apartments). Rents meanwhile go through the roof.
A good way to affect housing stock in NYC would be to make non-residential ownership not longer interesting. I suspect the same is valid in SF. The suggestion below of increasing housing stock by allowing bigger buildings and improving commute times seems to be a much better long-term solution.
This article seems to miss a few important points. The people who have lived in a city make that city what it is and you can't just switch in new higher bidding tenets at every juncture and expect that community to remain. In particular, the people in the middle who could pay higher than rent control rates will still move away more frequently if you increase their rent by a couple thousand to get it to (somewhat reduced) market rates. For example, when they have kids and need more space then they won't be able to afford it but with rent control they could have already locked in housing costs. Just as their landlord was allowed to lock in property taxes so they wouldn't lose the property due to tax increases.
If the City needs teachers, social workers and others with traditionally lower wages, wouldn't it make sense that their wages would also go up (based on demand) if the rent control goes away?
Bingo, the most important question that is not being discussed.
This whole discussion is a social class issue. The folks there have defined their upper class and they actively don't want lower class people there.
Otherwise, if you insist on hyperinflation of tech salaries and hyperinflation of property prices, there's no reason not to glorify a similar hyperinflation in teachers salaries or a hyperinflation in social worker salaries. But no, there's agony and terror that a lower class human might soil our pristine streets if we paid them a living wage...
This whole discussion is a social class issue. The folks there have defined their upper class and they actively don't want lower class people there.
Otherwise, if you insist on hyperinflation of tech salaries and hyperinflation of property prices, there's no reason not to glorify a similar hyperinflation in teachers salaries or a hyperinflation in social worker salaries. But no, there's agony and terror that a lower class human might soil our pristine streets if we paid them a living wage...
Have you considered that it's simply a case where an unprivileged group is unhappy with being denied access to a good or service available to a privileged group?
I don't know anyone who wants to push out "lower class" people. I do know lots of people who want to live in a San Francisco where everyone can afford rent. Everyone includes programmers, teachers, social workers, and dishwashers.
I don't know anyone who wants to push out "lower class" people. I do know lots of people who want to live in a San Francisco where everyone can afford rent. Everyone includes programmers, teachers, social workers, and dishwashers.
The professions you mentioned are government positions, which are largely funded with tax dollars. As it is, governments are currently full of people who are extremely anti-tax, and are against paying these people more.
Is there some reason a landlord can't pay a tenant to move out of a rent control situation? So they can renovate and clear the market?
The real answer is to increase supply. Build more housing in bigger and taller buildings. SF gov is living in a fantasy land.
Here's something rent control proponents also ignore: there are also other nice places in the Bay Area, that are way cheaper than SF, where you can live with good access to public transportation. Most public transportation in the Bay Area has good, cheap access to SF.
It's hard to find places in the Bay Area that have good access to public transportation and are actually as cheap as rent-controlled apartments in San Francisco. Just being "way cheaper" than SF may not be enough if it still doubles your rent -- anywhere on the Peninsula down into Silicon Valley merely drops you from "most expensive in the country" to "in the top ten most expensive in the country," and even most of the supposedly "cheap" East Bay will run you far more than most other metro areas across the US. Apartments around Palo Alto, Cupertino and Mountain View, where there has never been any rent control, are not nearly as far behind SF's market rate as I think people sometimes imagine.
I'm not making an argument for rent control, per se -- it's hard to dispute that it's a distorting influence on the market in San Francisco itself -- but it's hard to appreciate just how banana crazypants the housing market across this whole region is right now.
I'm not making an argument for rent control, per se -- it's hard to dispute that it's a distorting influence on the market in San Francisco itself -- but it's hard to appreciate just how banana crazypants the housing market across this whole region is right now.
> Apartments around Palo Alto, Cupertino and Mountain View
If you're trying to save money, of course you don't live in those places. Are you going to list Woodside, Hillsborough, and Atherton as well?
There are plenty of other less expensive cities that have great access to public transportation and decent access to SF; like Redwood City, Fremont, Hayward, South SF, Daly City, Oakland, and others that are a lot less expensive (most of these places are also way more bike friendly than SF). Even really inexpensive places like Concord, Pittsburg, or Livermore have decent access to Bart.
> even most of the supposedly "cheap" East Bay will run you far more than most other metro areas across the US.
Well yes, but your salary is higher as well compared to the rest of the US; so the East Bay is very affordable. Is is still more expensive than the rest of the US? Of course, but that's what happens when a lot of people want to live in a specific spot.
You can also just rent out a room too if you want to save money in pricier areas. In the past even with an engineering salary, I've rented a room in a cheap area just so I could save up money for house later on.
I'll tell you why this YC thread is really annoying to me: Hacker News is a forum supposedly filled with thinkers who aim to solve problems. Yet with a good number of HN people in this thread, instead of looking for alternative solutions (i.e. cheaper neighboring cities), they seem to be focused on how the problem is unsolvable without legislation.
If you're trying to save money, of course you don't live in those places. Are you going to list Woodside, Hillsborough, and Atherton as well?
There are plenty of other less expensive cities that have great access to public transportation and decent access to SF; like Redwood City, Fremont, Hayward, South SF, Daly City, Oakland, and others that are a lot less expensive (most of these places are also way more bike friendly than SF). Even really inexpensive places like Concord, Pittsburg, or Livermore have decent access to Bart.
> even most of the supposedly "cheap" East Bay will run you far more than most other metro areas across the US.
Well yes, but your salary is higher as well compared to the rest of the US; so the East Bay is very affordable. Is is still more expensive than the rest of the US? Of course, but that's what happens when a lot of people want to live in a specific spot.
You can also just rent out a room too if you want to save money in pricier areas. In the past even with an engineering salary, I've rented a room in a cheap area just so I could save up money for house later on.
I'll tell you why this YC thread is really annoying to me: Hacker News is a forum supposedly filled with thinkers who aim to solve problems. Yet with a good number of HN people in this thread, instead of looking for alternative solutions (i.e. cheaper neighboring cities), they seem to be focused on how the problem is unsolvable without legislation.
this. Its actually cheaper for me to live in rent controlled SF than "close to BART" Oakland. Bart isn't cheap. Owning a car isn't cheap. With the state of our transit, I would never want to live in Oakland without a car, but I would definitely live in SF without one.
Basically, if we had the mass transit system of new york, the rest of the bay might actually not be that bad compared to walking to work.
Basically, if we had the mass transit system of new york, the rest of the bay might actually not be that bad compared to walking to work.
Oakland isn't the only place with access to bart. Plus if you live further from bart, you can bike to bart as well.
Of course it contributes, but this analysis is too shallow to be really useful.
"A cost control normally afforded to the privilege of owning"
This is the most important line here. This article is about reserving rights to the already privileged. Nothing more, nothing less.
This is the most important line here. This article is about reserving rights to the already privileged. Nothing more, nothing less.
Is it possible to waive your rent control and eviction "rights"? Seems like one could negotiate a lower rent by giving the landlord some more optionality with their property.
I don't think there is much reason to believe that SF would have lower rents without rent control.
Obviously, many people want to live there.
Keyword: delusion.
Obviously, many people want to live there.
Keyword: delusion.
A more constructive discussion would be regarding what % cap in rent increases best balances competing interests. Last year in SF rent-controlled housing (muti-unit, built before 1978) had a cap of 1.9%. http://www.sftu.org/annualincrease.html
Price control (not just rent control) causes similar effects in all industries.
The law of rent... not just a good idea. It's the law.
It's falicious to think demand is fixed in SF. Removing rent control does nothing to stem demand. Also arbitrary deeming '$2' affordable is made without any supporting evidence.
Rent control crashes websites
Duh?
75% of the rental stock in SF is rent-controlled! Yet the city is "unaffordable." There are no statistics on how many of those people make salaries that can afford market rate... but in my experience as a property manager I more often than not saw people with totally middle-class jobs benefiting from it - not poor people.
Why should someone who banks 80k a year get to keep a $700 apartment in the Marina? That is the problem with rent control.
Why should someone who banks 80k a year get to keep a $700 apartment in the Marina? That is the problem with rent control.
Also there's price inelasticity. If you reduce the supply availability by 5%, you don't just get a 5% price increase. For something like housing, gasoline, or illegal drugs (typical inelastic goods) prices could double. That's why San Francisco is so expensive: not desirability, but regulatory corruption pushing down supply of an extremely inelastic product.
I don't know if San Francisco has this problem, but New York has a lot of upper-middle-class, well-connected people who bought their way into rent control by paying "key money" and being named as family by a deceased beneficiary (who need not be related to them). They're now in an arrangement that is actually superior to ownership (because they don't pay property taxes). It's pretty disgusting. People actually used to follow obituaries as a way of finding available RC apartments.
I don't know if San Francisco has this problem, but New York has a lot of upper-middle-class, well-connected people who bought their way into rent control by paying "key money" and being named as family by a deceased beneficiary (who need not be related to them). They're now in an arrangement that is actually superior to ownership (because they don't pay property taxes). It's pretty disgusting. People actually used to follow obituaries as a way of finding available RC apartments.
The housing shortages are caused by politically induced scarcity through zoning density restrictions and overuse of historic landmark status. This has been explained by many including Harvard economist Edward Glaeser and recently referenced by Economics Nobelist Paul Krugman.
In microeconomics this polticially induced scarcity is called "rent seeking." Fix the "rent seeking" by overturning the zoning and landmark status laws that create the scarcity and your housing prices will drop.
The massive influx of money from .comers fleeing the psychosocial wasteland of Silicon valley is what is driving rents up.
It is really really sad. SF used to feel a loophole in the American lie.. where interesting artists,creators, and thinkers could afford to live in a beautiful place, without being wage slaves.. this freed people to make the city even better by enriching it's culture. Now it's just filling up with Bros and fauxhemians that bring nothing to the table.
Government interference in the free exchange of goods between free individuals causes problems? Why is anyone surprised?
This has little to do with rent control; It's all about development costs. New units get built with mortgage rates that are far above the standard rental rates. Buyers can't rent units significantly below their cost so they hit the market at the high rate. These units don't get rented, so they stay listed prominently.
Meanwhile, a tenant leaves an old building and the landlord starts looking at existing rental rates. What do you know, that one-bedroom I was renting for $1500 two years ago now goes for $3500. I guess I'll up the rate! It's not as nice as the new unit, but at least it's not stuck in BFE China Basin (people will pay a premium to be near food / park / Muni).
That's how rent rates got so high: development costs > listing rates > matching rates. Period.
Meanwhile, a tenant leaves an old building and the landlord starts looking at existing rental rates. What do you know, that one-bedroom I was renting for $1500 two years ago now goes for $3500. I guess I'll up the rate! It's not as nice as the new unit, but at least it's not stuck in BFE China Basin (people will pay a premium to be near food / park / Muni).
That's how rent rates got so high: development costs > listing rates > matching rates. Period.
This is absolutely incorrect. Pricing is based on what people will pay, not development costs. Developers have high loan costs, and can not afford to let units sit on the table simply because they'd be "losing money" when measured against a sunk cost. It is very common for developers to lose money by selling units under cost in a down market. While there may be some resistance to pricing under cost, developers are not idiots and understand that investment made is already made.
Further, any truth in your statement would argue against rent control. If owners could rent at discounted rates to fill their units, then raise rent to market, everyone would be better off. With rent control (in SF new units are not rent controlled) owners are incentivized to hold out for a higher initial rent.
Further, any truth in your statement would argue against rent control. If owners could rent at discounted rates to fill their units, then raise rent to market, everyone would be better off. With rent control (in SF new units are not rent controlled) owners are incentivized to hold out for a higher initial rent.
As noted by others here, it discourages maintenance and property improvements to rent control units. The landlord has an incentive to create a terrible living situation to get the tenant to move out.
It also reduces tenant mobility. If you're a long time renter and have a great, but maybe just affordable to you, rate, and then have any life change where you'd normally want to move, you face a tough decision. Get a new job, want to move in with someone, have a baby, need to take care of a parent, sell or buy a car, etc... and when you would like to move, instead you're stuck.
Rent control also directly causes Ellis Act evictions, IMO. If your building has occupants who've been there for a while then you're getting much lower income than market rate. One way to retrieve the true value out of the property is to sell it someone who will convert to private residence, thus valuing the property much more than a landlord.
Rent control is a subsidy to renters paid by landlords. They bear almost all of the financial responsibility for this attempt to make housing affordable. Home owners don't, and employers and employees don't. And the subsidy is incredibly unevenly applied: You get more a subsidy the longer you've been in a rental, it's not dependent on how much you need the subsidy.
As long as the city deems it beneficial to have a rental subsidy, they should just go ahead and have a real subsidy paid by taxes, and get rid of rent control. There's a good argument that a diverse population is good for the the city, so a subsidy funded by income, sales, corporate, property, and hotel tax makes a lot of sense.