Eminently Logical

Don't be too concerned with the originators of Proposition 98. instead, look at what they might deliver.

If you're an environmentalist, an antipoverty activist, or a member of any other well-meaning civic group, your fellow travelers have told you to vote no on Proposition 98, the so-called anti-eminent-domain initiative.

And well they might, given the devious and greedy intent of its property-rights-zealot backers. But just as I don't buy tasty sausages because of my belief in the philosophies of meatpackers, voters on June 3 might ponder possible outcomes rather than ideological inputs when considering Proposition 98.

A cool-headed analysis of the measure's potential real-life San Francisco consequences — effects that are separate and different from its backers' misguided intent — point toward a potential cascade of unintended events that might help the environment and uplift the poor.

A measure conceived as a right-winger's wet dream, in other words, could instead advance the goals of liberals.

First, the devious stuff. Proposition 98 is ostensibly about preventing governments' use of eminent domain to unfairly seize property. But there's no crisis of eminent-domain abuse in California. The measure's truly meaningful effect lies in 20 vague words, out of a largely irrelevant 2,000-word total, that may undermine rent control, zoning, and other regulation of real estate.

Governments will pay compensation for actions "limiting the price a private owner may charge another person to purchase, occupy, or use his or her real property," the measure says.

If Proposition 98 passes, for every rule that limits rent, stifles lucrative development, or inhibits profitable change of use on a property, governments might have to pay landowners the difference between what they could have otherwise collected.

This would make such rules prohibitively expensive to enforce, effectively banishing zoning, environmental restraints on development, and rent control. (To soften this last blow, the measure specifies that rents can't be hiked until apartments are vacated. Incoming tenants would then see rents rise with market demand.)

Thanks to that 20-word sweet spot, the California Farm Bureau backs the measure, apparently so its members can cash out to developers at top dollar. Developers stand to benefit by paving wetlands and orchards. Landlords — the measure's main financial sponsors — support it so they can jack up rents.

Prop. 98's authors, meanwhile, hope to manifest their extremist philosophy of property rights at all costs. They'd have us believe that land once stolen from Native Americans by Spain, seized from Mexico by the United States, and subsequently made valuable through extralegal water wars should now be imbued with an inalienable right to a high resale price. Logically speaking, that's piffle.

If Proposition 98 were to pass, its backers would be wise to delay counting their profits.

A market such as the one that has formed around California's half-century of real-estate regulation is like water: It looks for the path of least resistance. Suddenly removing such a regulatory regime is like plowing up a riverbed; it's difficult to know how the market will redirect itself.

Depending upon how courts interpret the aforementioned 20 words — and, if nothing else, this expansive and vaguely worded measure is a full-employment measure for attorneys and judges — a comprehensive nullification of controls upon development and rent could actually have the opposite effect from the one its backers desire.

Let's start with the desire of greedy landlords to charge sky-high rents. While rent control is an untouchable third rail in San Francisco politics, and thus immune from local cost-benefit analysis, it has been thoroughly examined in academic studies, government reports, and in the SF Weekly feature "The Case for Ending Rent Control" [8/9/2000]. After reviewing piles of research and interviewing dozens of experts on both sides, reporter Peter Byrne summarized the situation: "San Francisco's housing shortage, and the high residential rates it has created, are the result of two major factors: political impediments to housing construction and rent control itself."

Proposition 98's relevant words are phrased in a way that could erase both of these factors. As a result of rent control, landlords have withdrawn thousands of homes from the market by keeping them empty, occupying them, finding other uses for them, or selling them as condominiums and as tenancies in common. Tens of thousands of other apartments are kept off the market through "hoarding," as individual tenants remain in cheap and cavernous three-bedrooms, hang on to their old $200-a-month apartments long after they've moved in with a spouse, or are otherwise motivated to cling to their leases.

Studies also show that rent control discourages construction of new rental apartments. New housing construction fell by one third in the seven years after San Francisco's rent control law passed in 1979. During the 1990s, meanwhile, the number of rental units actually decreased by 7,500.

This squeezed supply, combined with the city's steady recovery from the 2000 dot-com bust, has escalated current rents. Two-bedroom apartments that rented for $1,500 per month in my neighborhood five years ago now go for $2,500 to $4,000. Self-described S.F. housing activists have long insisted that this price hike is unrelated to the principles of supply and demand. The number of people wishing to live in San Francisco is infinite, they say, without citing evidence.

The fact is, though, that San Francisco apartments are not immune from the relationship between scarcity and price. And far from being a panacea for landlords, Proposition 98 could cause rents to slide back down by dramatically increasing the supply of apartments in cities.

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