Rent Control: The Winners and the Losers

Rent Control: The Winners and the Losers

For newcomers, buying into San Francisco’s real estate market or renting in the city is daunting. Yet, folks love it here, and they are flocking to the city by the thousands. If you just came to SF and you feel like you are losing the housing battle, you are not alone. According to U.S. Census Bureau data, 32,000 people moved to SF between 2010 and 2013. That is a 4% increase in population.

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Let’s take a look at who the winners and losers are in the San Francisco housing system:

The Winners

The blue ribbon goes to renters in rent controlled housing units. These lucky ducks managed to get into the market early and are enjoying rents not seen since the 1980s. Their units are located in TIC buildings or rental buildings that were built before 1979. About 75% of the housing stock is subject to rent control. There is no requirement that these renters actually live in their units full time which means that the unit might be used as a pied-à-terre for an owner who lives out of town or the owner could possibly be subletting his unit using services such as AirBnB. While this is illegal, there is no mechanism to enforce this unfair behavior.

The red ribbon goes to owners of new or non-rent controlled units (condos and single family homes) who bought three or more years ago. These folks took a huge risk when they tossed the dice to jump into the market. They paid a lot for their units and after 2011, the real estate market has steadily risen in San Francisco. Home prices in many neighborhoods have increased 40% to 50% since 2011. In addition, rents have gone up. The median rent for a one bedroom apartment in San Francisco is now $3,120. In 2011, it was $2,195–a 30% increase. Of course, the housing and employment bubble could burst at any time leaving these owners in the lurch. The massive number of foreclosures in 2008-2010 are proof of that. But, whether they live in their units or rent them out, long term real estate gain coupled with rent increases means the gamble to buy in San Francisco has paid off early for these buyers.

Third place falls to the developers of multi-unit buildings. While the price of buying one of these buildings is very high (for example, on Redfin, currently 50 and 16 Laguna Street in Hayes Valley are listed together for $30 million with an average rent range of $1587 to $1908), the current median rent in Hayes Valley for a one bedroom (without parking) is $3750. The median price for a two bedroom condo is $1,209,000. Developers with the money to purchase and build new and then rent the units (no longer subject to rent control) or sell them as condos stand to make a lot of money.

The Losers

Top booby prize goes to newcomers to San Francisco. These folks are entering a sizzling hot real estate market in which units sell for well over the asking price with multiple offers. Rent controlled units are nowhere to be found. One can reasonably assume that these units are almost never available on the open market. Tenants rarely vacate a unit unless it is for one of two reasons: an OMI (Owner Move In, in which case the unit is off the market for five years) or an Ellis Act eviction in which the whole building is removed from the rental market for 10 years. Remember, rent controlled units consist of 71% of the available real estate. Eighteen percent of the units are occupied by residents who receive some type of rental subsidy. That leaves only 11% of San Francisco’s available units for new residents. No wonder rents are screaming upward as the employment boom brings more and more jobs to the city.

Like the newcomers, San Francisco’s low wage workers are also feeling pain. Neighborhoods that were previously modestly priced are experiencing rent increases and building demolitions to make way for new building projects. Once they are forced to leave their apartments, low income workers have no place to go. Rents in the least expensive neighborhoods (Bayview at $1425, Portola at $1625, and the Tenderloin at $1645) would take up nearly the entire paycheck of a worker earning minimum wage of $10.74 per hour.

Mom and pop owners of TIC units who would like to move find they are in a tight spot, too. With the condo lottery (the City’s mechanism for converting TICs to condos) on hold until 2024, and the new Expedited Conversion Program exorbitantly expensive ($20,000 per unit), owners are faced with a tough choice: rent the unit out and assume it will be very expensive to eventually remove the tenant, or leave the unit vacant and lose money. With the new AirBnB law, short term rentals are now highly managed by the city so that a landlord must be a San Francisco resident. This means that renting the unit short term is often not an option. Units are more valuable when they are vacant, so it may be worth it for a TIC owner to just leave the unit vacant until it is sold.

In the end, the residents of San Francisco are the biggest losers no matter what their housing situation is. Many apartment buildings, especially those which are rent controlled, are in very poor condition, yet the landlord cannot make repairs without losing money. Many units have been removed from the market via the Ellis Act or an Owner Move In in order to eventually recoup higher rents. Vacancy rates are currently at 4.5%.  The cost of buying and renting housing in the City has made it impossible for all but the rich to move into the area. Long term city residents who are hourly workers are flowing out of SF, increasing their travel time to work. The gulf between the “haves” and “have nots” continues to widen.

This system is clearly broken. But until the voices of the residents of rent controlled apartments and speculators are outmatched by voices of the the low income workers and newcomers, no real relief is in sight. The city will continue to divide, and in the end, no one wins.

Rent Control: The Winners and Losers
Article Name
Rent Control: The Winners and Losers
For newcomers, buying into San Francisco's real estate market or renting in the city is daunting. Yet, folks love it here, and they are flocking to the city by the thousands. If you just came to SF and you feel like you are losing the housing battle, you are not alone.

Jackie Norgord

Expert Community Manager at 1World Online
Jackie Norgord is the Expert Community Manager at 1World Online. She lives in Silicon Valley and holds a BA in English from University of Wisconsin and an MA-TESOL from San José State. In addition to teaching writing, she enjoys travel around the SF Bay and beyond, fine dining, and sport in the Sierras.