The Case for Ending Rent Control

In the spring of that year, San Francisco landlord Angelo Sangiacomo abruptly raised the rent on 5,000 middle-class tenants. Renters across the city revolted, organizing themselves to put a strict rent control ordinance on the fall ballot. Then-Mayor Dianne Feinstein and the San Francisco Board of Supervisors pre-empted the tenants' initiative by quickly enacting rent controls that were more moderate than the ones headed for the ballot.

Feinstein's rent control law was intended to be temporary, lasting only as long as the hyperinflation that was then afflicting the economy. This initial version of rent control was intended to serve a definite group: "senior citizens, persons on fixed incomes and low and moderate income households." People, that is, who were having a hard time paying rent.

The new law limited a landlord's ability to raise rents while guaranteeing landlords a "fair return" on their investments. It also exempted two- to four-unit buildings from rent controls, if the owner lived in one of the units. The law instituted just-cause evictions, which meant that tenants could no longer be evicted at the whim of the landlord, but only for nonpayment of rent or for nuisance behavior. Related ordinances greatly limited the conversion of apartments into condominiums, a practice that had been shrinking the rental supply.

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.