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The Case for Ending Rent Control 

Wednesday, Aug 9 2000

Page 2 of 6

Since then, the Residential Rent Stabilization and Arbitration Ordinance has been amended 54 times, sometimes by vote of the Board of Supervisors, sometimes by ballot initiative.

Before the late 1970s, rent controls had been enacted in the United States only during times of war and economic crisis. Policy-makers considered the controls to be of temporary use in damping inflation. With the exception of New York City, controls were lifted when the national emergencies receded.

Here, though, the temporary fix has become permanent.

San Francisco's initial form of rent control was temperate, especially when compared to what came later. Initially, rents could rise by up to 7 percent each year, meaning that landlords could adjust rents to keep up with even moderately high levels of inflation. Landlords were allowed to pass through costs of capital improvements that benefited an individual tenant, a provision meant to address concerns that landlords would cut back on maintenance of their properties once rent controls began limiting landlord income. When a tenant moved, a landlord was allowed to let the unit for whatever the market would bear. (But the unit, with the new rent, would then go back under rent control for as long as the new tenant inhabited it.) Importantly, all housing built after 1979 was exempt from controls; this exemption for new construction was meant to keep rent control from discouraging the construction of new rental housing, because new units could still be leased at market rates.

Over the years, however, the ordinance was amended to become more and more favorable to tenants, and unfavorable to landlords. In 1985, the formulas used to calculate allowable yearly cost-of-living increases in rent were lowered to 4 percent.

Fearful that the popular rent controls would be broadened to include new construction, developers became reluctant to build multifamily housing that might not pay for itself. They were also held back from residential development by related zoning and land use restrictions. In 1986, for instance, Proposition M capped the amount of new office space that could be constructed each year, potentially limiting the number of new jobs created in the city, and the potential demand for new rental housing.

In 1992, tenants started voting as a bloc to strengthen tenant privileges. Allowable rent increases were lowered to about 2 percent. Significantly, in 1994, voters lifted the exemption to rent control that had affected 45,000 units in small apartment buildings.

Then, in the mid-1990s, San Francisco's economy exploded.

The pressure for rental housing cooked as tens of thousands of people moved to the city, drawn by the Internet and telecommunications boom. Thousands of traditional blue-collar workers left San Francisco, as the city's bread-and-butter manufacturing and wholesale industry jobs evaporated, to be replaced almost overnight by financial, technical, and professional service positions. San Francisco experienced a net growth of 8,000 jobs as the urban center shed its industrial roots.

The median family income shot from $33,000 in 1990 to $50,000 a decade later. The population grew from 723,000 -- in 1990 -- to nearly 800,000 today. Accounting for births, there were about 60,000 adult newcomers to the city.

In the same period, fewer than 10,000 new housing units were built (even including live-work lofts, which are not technically classified as residential buildings under city law).

The math is simple. At California's statewide average of 2.8 people per housing unit, to accommodate the 60,000 people who moved to San Francisco during the last 10 years, about 21,000 more housing units were needed. Ten thousand units were built. There is, therefore, a current housing shortage of, at least, 11,000 dwellings.

The Association of Bay Area Governments predicts that 20,000 more people will migrate to San Francisco during the next decade, raising the need to about 18,000 dwellings.

But, according to government reports, fewer than 1,000 new units are being built each year, which is a 20 percent decline from the construction rate in the 1980s.

In classical -- and even socialist -- economic theory, in an unregulated market, a drastic increase in demand, combined with only a small increase in housing supply, inevitably produces an upward spike in rental prices that benefits landlords, and disadvantages renters, especially those of limited means.

San Francisco's rent control ordinances, of course, were meant to address just such a situation, keeping landlords from increasing rents during times of high inflation or high demand and protecting low- and fixed-income renters from the predations of market economics.

But a wide array of housing studies show that San Francisco's version of rent control has not only failed to limit or soften the effects of the current housing crisis, but has actually worsened San Francisco's housing problem, and hurt the poor people it was designed to protect.

In utterly predictable ways.

In the late 1970s and early 1980s, rent control took hold in 200 communities. It remains strong only in San Francisco, Berkeley, and New York City; weaker versions exist in Los Angeles, San Jose, Washington, D.C., and many cities in New Jersey.

Most state legislatures have, by now, outlawed rent control. There is a reason for this: Rent control is a price control, and history has shown, and shown again, that price controls do not keep prices down, except for short periods. In fact, price controls usually have the opposite effect of what was intended, raising prices in the long term above reasonable market levels by creating shortages in supply.

About The Author

Peter Byrne


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