Who Does Rent Control Really Help?

Posted in HOUSING

Updated 02/16/2012 at 6:01 p.m. PST

How Rent Control Subsidizes San Francisco's Super-Rich

A law meant to help the poor and working class will benefit the latest tech boom's new millionaires

By SCOTT JAMES on February 16, 2012 - 6:01 p.m. PST

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Scott James/The Bay Citizen

At a hearing on Monday, experts said all but the wealthy had been priced out of the city’s housing market

Thousands of people are expected to become rich in the latest Bay Area tech boom, and in San Francisco these newly minted millionaires will receive a benefit originally meant to help the poor and working class: rent control.

Not that they have a choice. The law applies to rental apartments built before June 1979, regardless of the tenant’s income. Rent increases are limited to less than inflation — last year the increase was 0.1 percent, an all-time low.

But with an estimated 30 percent of the city’s rental properties owned by mom-and-pop investors with four units or less, an unintended consequence of rent control is becoming more prevalent: people of relatively modest means subsidizing the housing of the extraordinarily wealthy.

Critics say it is just the latest failure of the city’s housing policies.

Noni Richen, a former school cafeteria cook, and her husband, who once worked on the Alaskan pipeline, put their life savings into buying a four-unit Western Addition apartment building in the 1980s. “We had $20,000,” Richen said. “That was a lot of money to us, and we put that down.”

The rents the Richens collect have changed little since then because of rent control: $1,000 for each two-bedroom apartment. “It’s a deal,” she said, noting that her tenants aren’t wealthy but that her expenses (insurance, repairs, utilities) have risen faster than the rents. “I don’t begrudge them. I’d do the same thing if I was them.”

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But what Richen sees as a basic question of fairness has prompted her to become an outspoken critic of rent control, serving on the board of the Small Property Owners of San Francisco Institute , a volunteer organization that advocates for small-time landlords.

Henry Karnilowicz, the group’s president, said rent control should be abolished, or at least reformed so that the wealthy do not receive subsidized rent. “There should be means testing,” he said.

Karnilowicz estimated that 5 percent of the city’s 212,000 rental units (about 10,600) are kept vacant by landlords who would rather not deal with rent control (others estimate the number is higher, about 25,000 units). He said that many owners would rent those homes if there were reforms, like requiring the rich to pay full market value.

Such a move is highly unlikely, however. In a city where 64 percent of residents rent, tenants have enormous political clout and it is unpopular to even discuss reforming rent control.

The cone of silence was evident Monday when a parade of economists and housing experts testified at a board of supervisors committee meeting about the city’s housing situation. Each presentation showed that housing had become increasingly unaffordable in recent years, pricing out people at every income level — except the wealthy.

Yet not one expert mentioned rent control’s impact on the market.

Voters approved rent control in 1979 to help preserve communities by limiting rent increases, a threat to working class and lower-income tenants. However, a new city analysis shows that for the first time upper-income households (annual incomes over $107,000) outnumber the poor (incomes under $35,000), 29 percent to 27 percent. And rents for vacancies average $2,600 a month, a record high.

Adithya Sambamurthy/The Bay Citizen

Renters check out a studio apartment during an open house in San Francisco's Mission district on Monday, November 28, 2011

According to Ted Gullicksen, executive director of the San Francisco Tenants Union, the market is much like it was during the 1990s dot-com boom that pushed rents and displacements to extremes.

Additionally, the number of existing rent-controlled apartments has been reduced by demolition or conversion to sale as private homes, like condominiums. “There’s a serious and steady depletion of housing rental stock,” Gullicksen said, perhaps 1,000 or more units annually.

Protecting that dwindling supply from further erosion has become a “ferocious” battle, said Sara Shortt, executive director of the Housing Rights Committee of San Francisco, a tenants’ advocacy group.

But just trying to determine the exact number of rent-controlled units — and their tenants’ finances — is difficult. The city’s last comprehensive research, undertaken in 2000, found that one-fourth of households in rent-controlled apartments earned more than $100,000 a year — a revelation that prompted I-told-you-so rhetoric from some landlords.

Since then, similar comprehensive research has been blocked, in part by tenants’ advocates who believe the findings would be “politicized” and become a referendum on rent control, Shortt said.

Both she and Gullicksen oppose means testing to exclude the rich from rent control. There are privacy concerns, they said, and it would create a situation in which landlords would then rent only to the wealthy.

And with so many tech nouveau riche around, that could make matters even worse for those of ordinary means.

This article also appears in the Bay Area edition of The New York Times.