Is San Francisco Addicted to Rent Control?

By Joel P. Engardio

There was a time when suntans were “healthy” and cigarette ads featured doctors. We found true health by questioning what we thought was good for us.

The elixir that charms San Francisco today is rent control. It’s the only tonic we trust in a housing crisis where a million dollars can’t buy a modest home and renting costs thousands a month. Yet home prices continue to soar.

Is our cure making things worse?

When Supervisors Mark Farrell and Scott Wiener proposed legislation that would help middle class families achieve homeownership and stay in the city, it was decried as an attack on rent control and amended until everyone was worse off.

Rent control is not a flawless solution. It only applies to units built before 1979 and only benefits residents who got in when prices were low. If a life change requires a move, renters must start over at vastly higher market rates regardless when the unit was built. And that’s how people get trapped despite needing more space for kids or fewer stairs to climb when they’re elderly.

Most economists say rent control eventually hurts the people it is supposed to help. Fixing prices reduces supply, which distorts the housing market until it’s only for the rich. All new arrivals have to pay top dollar, which excludes the next generation of working class teachers, firefighters and nurses.

Farrell and Wiener tried to help former renters convert their tenancy-in-common units into fully owned condos. TICs are an affordable housing option because neighbors pool resources to buy an entire building. But there are drawbacks like a shared mortgage and higher interest rates that condo conversion can solve.

Most TICs become permanent homes for middle class families who need more space and would otherwise be priced out of San Francisco. For them, the TIC accomplishes what rent control fails to do.

Yet condo conversion raises cries of “cannibalizing” rent control. So Farrell and Wiener’s legislation was amended to ban all new conversions for a decade -- dashing the hopes of current renters who are saving for a TIC.

Renters who can’t afford a TIC are afraid of being evicted to make way for condos. But this was prohibited in 2006. So how can lifetime renters benefit from more condo conversions, new development and less rent control?

A healthy and competitive housing market creates more units, which means lower rents. That gives renters greater choice and the ability to move when their needs change.

A free market approach is scary because it can be brutal without a safety net. Protections are needed, but for whom? Should millionaires enjoy rent control? Sensible reform might start with assisting senior citizens and the truly vulnerable through a means-tested housing policy.

Politicians know that 60 percent of the city rents and more voting homeowners would upset the political calculus. Meanwhile, the Westside homeowners who pay our parcel taxes resent being the city’s ATM. Perhaps more renters would like to own. Imagine if we worked toward that goal instead of using fear to keep the status quo.

If we really want to help our working class and seniors survive in San Francisco, we have to talk about the unintended consequences of rent control. It could take a while. Tobacco CEOs were testifying that “nicotine is not addictive” well into the 1990s.

Also published in the San Francisco Chronicle July 22, 2013

HousingJoel Engardio