Is Rent Control Hurting San Francisco's Middle Class?
By Joel P. Engardio
The menace in 1999 was the SUV. It was a symbol of displacement, obnoxious behavior and dot-com greed.
Activists keyed SUVs and politicians tried to restrict start-ups in the Mission. Yet rents continued to rise and artists still got pushed out.
Today’s threat seems to be the Google bus, bringing well-paid tech workers into a city with a housing shortage. Longtime tenants are being evicted from their rent-controlled apartments under the Ellis Act, a state law that lets landlords sell a property and leave the rental business. It’s become lucrative to turn rentals into ownership units.
Now demonstrators respond by attacking Google buses and politicians seek to repeal the Ellis Act. They’re determined to save San Francisco’s soul this time.
Does anyone wonder if we’re trapped in a Groundhog Day of protest and populist legislation that feels good but makes things worse - like scratching chicken pox?
How did we get here? The story starts in 1979, when City Hall temporarily froze rents to combat rampant inflation. At the time, it appeared no one blamed tech for displacing working class natives. Hordes of hippie and gay arrivals, who reshaped neighborhoods to suit their tastes, were scorned instead.
Then, as community activists, they pushed anti-growth measures to discourage housing for future newcomers. They embraced permanent rent control, which became The City’s housing policy for 35 years.
A basic rule of economics is that price fixing eventually creates shortages. Sure enough, we have a supply and demand crisis. We control prices on aging housing stock while making it difficult to build enough new units for everyone who wants to live here.
Yet water always finds its way, as do real estate interests. The tenancy-in-common (TIC) initiative was eventually created, where flats in an old building – usually former rentals – are sold as ownership units. Landlords no longer were forced to subsidize their tenants as expenses went up and rents lagged behind. The Ellis Act provided an escape, resulting in evictions that made way for TICs.
But was the Ellis Act to blame or the rent control that led to it?
Tenant advocates pressured City Hall to make it difficult for a TIC to become a condominium, because condos are exempt from rent control. It didn’t matter that the TIC was a path for middle class renters to become permanent homeowners. In a city where the majority rents, there is political incentive to keep voters renting.
In 2013, progressive supervisors let a backlog of TICs convert to condos, but only after banning all future conversions for a decade. They didn’t seem to consider the unintended consequence of a condo ban: more Ellis Act evictions.
Ellis Act buildings were prohibited from condo conversion in 2006. That may help explain why there were only 64 Ellis Act evictions in 2012 compared with 384 in 2000. And there was little market for a building that couldn’t condo-convert.
Predictably, evictions skyrocketed in 2013 after the condo ban. Buildings that had avoided the Ellis Act lost their economic advantage.
Pent-up housing demand increased the value of any TIC, even if it couldn’t become a condo. Mom-and-pop landlords now had a way out -- if they evicted the tenants and sold to a TIC developer.
Was the Ellis Act to blame, or was it the condo ban and the rent control that led to it?
We seem to have a reactionary housing policy that plays whack-a-mole every time rent control creates another market distortion. Our gut always says, “Tighten rent control!” Perhaps it’s time to try a counterintuitive solution, like steering into the skid to avert a crash.
To save San Francisco’s middle class, we need what has been rejected for 35 years: more housing. We need a variety of new supply that accommodates families at every price point. We also need to rethink rent control and density restrictions.
To start, there’s no reason an investment banker making $200,000 should enjoy rent control.
We can do more to protect the vulnerable, like tying rental aid to a needy individual rather than a housing unit. Direct rental subsidies would let senior citizens live in a place that fits their needs instead of getting trapped in a rent-controlled unit with too many stairs. A community of taxpayers, not just landlords, can share the burden.
Most economists agree that rent control creates a housing shortage and increases prices, ultimately hurting the people it was supposed to help -- something a new teacher trying to move into The City knows all too well.
If outcomes matter more than ideology, rent control doesn’t have to be the iceberg that sinks the middle class in San Francisco.