The President’s Report
by Marc Wilson
I’m not sure, but I might be guilty of housing discrimination. Maybe I should call my lawyer. I might have an unconscious bias towards the perfect San Francisco tenant profile: high-income professionals with great credit and young children. I’ve always maintained that the perfect tenancy length is four to six years. Four-to-six-year tenancies allow the owner to achieve systematic market rent increases over the years without spending too much on turnover, leasing commissions and vacancy clean up. One to two years is too short and eight years or more is too long. But how can one guarantee a five-to-six-year tenancy in San Francisco? Rent to families with newborn children and then just sit back and let the San Francisco public school system do the rest.
Parents with newborns are virtually guaranteed to vacate your unit in five or six years. Why? Because the San Francisco public school system is a failure and we are all to blame. By any objective measure, our public schools are overcrowded, underfunded, pitifully mismanaged and grotesquely political; they are nothing short of a national embarrassment. And to add insult to injury, your kid literally has to win a lottery for the privilege of attending your neighborhood’s lousy school. We’ve got children being bused across town to attend schools that I wouldn’t let my worst enemy attend. If the San Francisco public school system were the only academic option for my child, I simply wouldn’t have children. Fortunately, public schools are not your, or your tenant’s, only option. If you can afford to live in San Francisco, you can afford to live anywhere. Your tenants can enroll their children in private school, parochial school or they can move to a city with reasonable school choices (which is exactly what they will do). Believe me, you don’t want to be standing between your tenants and the door after they get a good look at the city’s public school system. They will trample you on the way out the door. In fact, a San Francisco property owner could make good money referring his tenants with young children to residential real-estate agents in Marin or San Mateo counties. You want a five-or-six-year tenancy? Then rent your unit to a family with young children.
I simply do not appreciate my long-term, below-market-rent tenants. What possible benefit do the people of San Francisco accrue by the creation of this special class of citizens whose only distinguishing characteristic is that they pay less rent than anyone else? Do these people give their monthly rent savings to charity? Do they tend to volunteer more than their market-rent or mortgage-paying equivalents? Are they more engaged in the community? Since that does not appear to be the case, why in the world are these people subsidized? Why is my home mortgage interest payment not similarly capped? Am I a bad person? Am I undeserving? It might be difficult for us to understand the benefits of this protected class of citizen, but we sure won’t have any trouble determining the costs.
Seriously below-market-rent tenants (SBMRTs) tend to hog their apartment units and force other, usually younger tenants to pay higher rents. SBMRTs discourage their property owners from making appropriate and timely capital improvements to the housing stock. SBMRTs reduce the economic returns for many local property owners and, therefore, contribute significantly to Ellis Act evictions, TIC conversions and the reduction of rental housing. (When was the last time you saw a building with market rents get the Ellis Act?) But the primary problem with SBMRTs is the creation of this special political class whose other political and social considerations are dwarfed by their desire to maintain their benefits, in other words, to maintain and strengthen the San Francisco Rent Ordinance. Many SBMRTs do not care about the quality of our schools, the condition of our roads, the balancing of our budget or the amount of crime, vagrancy, graffiti and litter in the community. They don’t have the time. They are simply too busy clinging to their rent control entitlements and their status as members of a special political class. As a result, we get supervisors that don’t care about property rights, home ownership or the quality of life in San Francisco. They just want to get elected and that means pandering to tenants. Rent control wags the dog in this town. Quality schools, crime rates, infrastructure improvement, a balanced budget and the very quality of our lives in San Francisco are all ceremoniously crucified on the alter of rent control. Believe me, the fact that you are getting $300 less a month in rent from your SBMRT is the least of your problems.
There is hope. There are two kinds of prospective tenants in this world: tenants who will be tenants forever and tenants who aspire toward home ownership, better schools and a higher quality of life. Don’t get me wrong, I like living in San Francisco. I was born here; I am raising my son here; I will probably be buried here. But as I have always said, I would rather own in hell than rent in heaven. Your job is to find tenants with the same mindset. If you price your unit right, you will get multiple applications. Go with the educated, higher income tenant with good, long-term prospects; just be sure to check fair housing laws first. The irony is that you might have to accept less rent to capture this tenant. The market is competitive; other property owners are going to want the perfect tenant also. I got six applications on a flat a couple of months ago. I use an offer-to-lease form that gives applicants the opportunity to offer to pay more rent than the asking rent. I had the opportunity to rent to a group of four single people for an extra $200 per month. It’s not worth the money. The unit will incur more wear and tear. In an escalating rental market, I would run the real risk of never getting my unit back due to revolving tenancies. I went with the educated, high-income couple with a small child and a lower rent. They are virtually guaranteed to vacate after four years. They’re just too good for this town.
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or the San Francisco Apartment Magazine. Marc Wilson is the president of SFAA and has specialized in the brokerage of San Francisco apartment buildings for 20 years. He can be reached at 415-229-1275. Copyright © 2006 by the San Francisco Apartment Magazine. All rights reserved.