Monday, June 6, 2016

San Francisco Response To More Housing Demand--Less Supply

It may take several years, perhaps decades, before we will witness the end of the ongoing social experiment in San Francisco, where the options for housing development decrease, demand increases, and the legislature tries to hold the pressure by imposing more and more rules, simultaneously trying to prevent the natural flow and exchange of tenants, and talking about the desire for more affordable housing. This is a categorical conflict of contrasting goals, too few dare to acknowledge.

A few of recently published articles illustrate the issue.

The first article tells us that, Mr. Eric Fisher devoted his skill and time to assemble a massive set of data, collected from old San Francisco Chronicle newspapers and Craigslist ads, to show us that this market is steadily growing for the last 70 years at 6.6%, give or take some hills and valleys on the road. Activists often cry about some peaking crisis happening now (and we know how easily that data can be misinterpreted), but the history suggests that this was always the same issue, ever since the city ran out of available land to build. The research also suggests that adding units at a steady rate  is the only cure to keep the prices at bay, currently requiring 5,700 units. So, here is an articulated need for more supply.

Now, 6.6% annual increase is not that bad, and when the rent-controlled allowed increases started in San Francisco, first two years the whole 7% were allowed, in 1982 and 1983. [7% is the maximum the rent can be annually increased for, see Sec. 37.3(a)(1)]. But it was 4% for the next eight years, and had never been over 3% since. It means the already-rented units are guaranteed to go under market, no matter when and for how much they were leased initially. Yes, it means the obvious, the landlord is screwed, but it also means that the tenant gets more and more invested to stay in that apartment, with each year being increasingly subsidized by the rent control program. That unit is less likely to re-appear as a vacant opportunity on the market, hence it is out from the offered supply pool.

Then we have a sign of hope coming from the Governor's office, proposing to deal away with city-specific restrictions on housing development in Los Angeles and San Francisco. This would greatly assist the supply increase. As an illustration of the problem, the article covers the struggle one developer has in the Mission, whose proposal does not displace anyone and does not destroy any existing housing. In other words, a sample of clear adding to the supply part of the equation. You would think such a sterile proposal would be greeted with open hands? Think again. Samples of opposition are presented in the article, but they are far from being alone.

Here is another example.  Projects which add more housing, including the low-income and affordable units, are steadily opposed to, even if the S.F. Planning Commission green lights it. Note how the projects are labeled: "Beast on Bryant" or “Monster in the Mission,” nobody calls it a "Savior of the Mission," even though it is the only known way to fight the price curve, save from abolishing the rent control.

Going back to the Governor's proposal to streamline development guidelines at the state level, there exists a similar reason to unify rental regulations as well. Reason lies in the profound imbalance of legal positions landlords and tenants have in this city. For the action towards a tenant, be it an eviction or a rent increase, or even a simple change of lease terms, the landlord has to go by the municipal-level rules, then rent- and eviction-control. However for the action against a landlord, the tenant can tap on a comprehensive set of statewide statutes, such as habitability regulations. If taken on the same (state) level, statewide habitability regulations appear to be in sync with the statewide options for eviction. In other words, if a landlord is unable or unwilling to provide a rentable residency, he can terminate that tenancy, and need no specific reason to do so. It logically follows that those who remain in renting business, do it by choice and then should abide with all the regulations applicable to that business activity. But in the rent-controlled municipalities, the landlord no longer has the choice of quitting, his options to evict are limited to some defined "causes," while his remaining in rental business is still judged by the same rules, if not by more of them. Case on point: San Francisco landlords can't even fix their rented houses at the time they decide it is needed, if they happened to rent to an "educator."

With an ever-increasing demand, and all these efforts to slow down supply production, why anyone could be surprised that the rent rates are growing? It does not seem to be an anomaly, not for the last 70 years at least.

If you are concerned about your rights and obligations in a landlord-tenant relationship, make your first step toward taking control over the circumstances, and call my office at (415) 987-7000. I will be glad to assist in guiding you through the jungle. The only thing you can't afford is to stay put and uninformed. My office provides a confidential assessment of your particular scenario, free of charge, and I will share with you the results of the analysis along with my thoughts on available solutions.

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