The President’s Report
Rent Control Rubbish
by David Wasserman
There is a generally accepted theory that too much of anything, even if that “anything” is good, makes for a terrible result. Popular culture has identified what is commonly termed the “tipping point,” meaning that often there arrives a time when the excessive expansion of some beneficial endeavor becomes unbearable, and causes the destruction, ruination and cessation of what was initially a noble and justifiable cause.
The tipping point may have arrived for our local rent law. In 1979, after the voters rejected the concept, the San Francisco Board of Supervisors passed rent control. It was not enacted because of some overly zealous landlord, as some would have you believe. The late 1970s was a time of massive inflation across the nation. As the cost of living soared, so did rents. When Prop. 13 became state law and froze property taxes, tenants in California wanted some measure of price protection as well. Consequently, cities throughout the state implemented a very basic form of rent control meant to curb the displacement of senior citizens, persons on fixed incomes and low- and moderate-income households. In the early years, landlords could impose a 7% annual increase, which seemed reasonable. Everyone was happy, at least for a while.
When it all began, the Legislature assured owners that rent control would never invade our homes. In other words, if the landlord occupied a unit in a building with four or fewer units, the entire building was not subject to the rent laws. In essence, rent control would only apply to those in the business of being a landlord. The forms of eviction control (grounds to terminate a tenancy) were easy to understand and implement, and improvement work, maintenance costs and other fee hikes could be passed along to the tenants in a fair and equitable manner. All in all, the law promoted good public policy: owners were afforded a fair rate of return, and vulnerable tenants in apartment houses were given financial security in exchange for the benefits their landlords were receiving under the newly passed Prop. 13.
Soon, though, political leaders learned that rent rules could serve to divide the populace and to provide a magnet for votes in a town containing more tenants than owners. In other words, if you get behind a rent law amendment, you may garner more political support from the constituency. And so the fun began.
By the early 1990s, the city’s rent regulations were being amended on a more regular basis than the federal tax code. In 1991, the law was changed to provide for stiff penalties against landlords who lost eviction actions. This enactment encouraged tenants and owners to wage their battles in courtrooms. In 1992, the voters elected to remove the 4% minimum allowable rental increase, which led the way to the almost-zero rent hike allowance we have today. The big hit came in 1994, when the politicos pushed Prop. I, which instantly made all pre-1979 buildings subject to the rent law. This meant that 2-4-unit owner-occupied dwellings endured the same restrictions as the apartment operators, which broke the promise made by legislators in the late 1970s.
In the mid-1990s, tenant advocacy groups vigorously pushed passage of vacancy control so that rent restrictions would apply to vacated units. But for the Herculean statewide effort to prohibit this draconian rule, we would be stuck with frozen rents even with unit turnovers. In 1997, our leaders responded to the desire for home ownership by limiting owner move-in evictions to one per building, prohibiting relative move-in evictions unless the owner also lived in the building, and exempting entire categories of tenants from being subjected to owner move-ins, even if the landlord needed housing for herself.
The late 1990s also saw the enactment of the first law to require subletting: one-for-one roommate replacement legislation. In 2000, despite the booming economy, a new amendment was passed which limited the amount of capital improvement passthroughs to tenants, thereby diminishing the incentives for owners to improve the housing stock.
In 2002, newly elected Supervisor Chris Daly paid back supporters with a measure seeking to curb tenant/owner buyouts and settlement agreements, by requiring tenants to have independent legal representation and court supervision for any settlement, as well as the imposition of subsequent use restrictions on the unit regardless of any private agreement. Most of this law was deemed unconstitutional, but our industry’s “audacity” to challenge Daly simply spawned a wave of massive amendments.
So, during the next five years, we were hit with several gimmicks. In 2002, the San Francisco Rent Board was authorized to annually calculate the interest rate to be paid on deposits. In 2004, operating and maintenance passthroughs were limited to 7% in any five-year period for the same landlord, even if the owner’s costs soared. In 2004, landlords became obligated to pass out key sets to tenants for their guests and service providers, even though such a policy promoted unlawful subletting and unquestionably posed a security risk for the building. Later in 2004, landlords were again forced to allow subletting for the tenant’s family members, even if the lease agreement limited the number of occupants. In 2006, we were required to provide disclosures to purchasers with regard to the building’s eviction history; and, in a significant modification to existing law, owners could no longer sever services like storage and parking from the tenancy without invoking a permissible just-cause reason to terminate the entire tenancy.
At the end of 2006, the voters passed another major amendment that required substantial relocation payments to tenants displaced for owner move-ins, unit demolitions, substantial rehabilitations or capital improvement evictions. As a result, owners trying to move into their buildings or seeking to temporarily suspend the tenancy to do improvement work could be paying in excess of $15,000 to affected tenants. In early 2008, buyers and sellers of rental property became obligated to distribute disclosures to tenants, at both the time of purchase and sale, which essentially set forth tenant rights as defined by the current rent laws, yet simultaneously inserted fear and distrust into occupants of buildings that were being sold. At the end of 2008, the tenant organizations capped off a decade of expansion with the “tenant harassment” law, and thereby added a new dimension to the fractured landlord-tenant relationship in that tenants who felt offended by the building owner’s conduct could now petition the Rent Board for a decrease in rent.
The transformation is startling. In 30 years, the law has morphed from a simple rent stabilization mechanism to an overly intrusive and complex regulatory scheme designed to invade every aspect of the owner-tenant relationship. To prove this point, go online to the Rent Board’s website (www.sfrb.org) and download the ordinance and the compendium rules and regulations so as to understand the sheer size of this legislation. (By the way, the Rent Board is not to blame, as this agency only implements the laws passed by the Board of Supervisors and the voters.)
Not surprisingly, by engineering this gross legislative expansion over the years, our civic leaders have made the owner-tenant relationship inherently hostile and rife with animosity. Landlords lament that our taxes and the costs of doing business continue to soar, and meanwhile we can maybe impose a .1% annual increase (and perhaps not even that, if the Daly “Renter’s Relief” initiative passes in June). Tenants can now tell the owner how many people shall live in the unit, and regardless of the increase in common metered utility usage, the rent remains flat. The city has mandated recycling, but owners cannot change trash services or the layout of the receptacles without getting hit with a decrease in services petition. Any offensive action, word or gesture by the owner could result in a harassment claim. The list goes on, and the abominations keep coming. It’s no wonder that many landlords and their tenants can’t seem to get along.
The last laugh, however, may be on the irresponsible politicians who have created this mess. Yes, some small segment of their constituency may reap a temporary gratuity for the newest layer of legislation, but the overall picture for tenants is gloomy. Each year, there is less and less rent controlled housing in the city as owners convert apartment buildings into tenancy-in-common dwellings. Other landlords, likewise disgusted with the environment, purposefully leave their units vacant. Condominium conversion, while pathetically dysfunctional, also accounts for the loss of 200 or so units per year.
Moreover, any honest developer will tell you that there is very little apartment construction in town because no one trusts this government. While new construction has historically been exempt from the rent laws in order to promote rental housing growth, our friends at City Hall have recently been on a rampage to—you guessed it—repeal the post-1979 exemption by imposing the rent law, minus rent increase limitations that state law protects, onto all rental units.
Is there really even a shortage of affordable housing to justify this bizarre level of
governmental intrusion? In the last two years, rents have plummeted and there
are “For Rent” signs everywhere around town. The city has stringent affordable housing requirements for all new projects, and the result, over time, has been a marked increase in affordable housing units.
Thus, the obvious is made clear: the rent law has become a serious political
tool to bolster bureaucratic agendas and personal power grabs.
So, here is the end result, at least in this writer’s opinion: the time will come in the not-so-distant future when many, if not all, of these rent control laws are discarded into the trash heap of history as yet another failed social experiment.
You think it can’t happen? Ask the people of Massachusetts, who threw out rent control, despite their progressive political leanings, because they knew it didn’t work. Go to New York, where there has been a gradual phase-out of vacancy controlled apartments during the last 20 years. As the State of California races closer and closer to utter financial ruin, my prediction is that much of our flawed political process will be scrutinized and, in many cases, abandoned or reworked. Business as usual cannot survive because we are out of money, out of answers and in dire need of common sense. Indeed, the tipping point for rent regulation may have just arrived.
The opinions expressed in this article are those of the author, and do not necessarily reflect the viewpoint of the SFAA or the SF Apartment Magazine. David Wasserman is with Wasserman-Stern Law Offices and can be contacted at 415-567-9600. Copyright © 2010 by Black Point Press. All rights reserved.