When you build dams on a river, when you control the flow by squeezing the riverbanks with high walls, you get unexpected disasters. When you put rules on a market, you often get much better results.
One of the other panelists, Farhad Manjoo, who writes for San Francisco Magazine and the Wall Street Journal, argued that tech firms want to be in San Francisco, that tech workers are going to move here – and that there’s really nothing anyone can do about it. If 15,000 new high-paid workers arrive in this city, and the city only builds a few thousand housing units a year, somebody with less money is going to get forced out to make room for the richer ones.
But that’s fundamentally untrue. There IS something we can do about it. We have, as a city, simply chosen not to.
We could, for example, have denied the tax break that Twitter demanded in exchange for agreeing to stay in the city. If city officials had insisted that the company pay taxes on stock options, there’s very little doubt that it would have set up shop somewhere else. We could, in fact, restrict the amount of office space we allow, putting a brake on the number of new companies that can come here. There are tradeoffs to that decision (as there are to any economic and policy decisions): Without Twitter and the current tech boom, the city’s unemployment rate might be higher. But it’s fair to ask: How many unemployed San Franciscans got jobs in the tech economy – and how many of those jobs went to people who moved here to take them?
The data shows that many, if not most, of those jobs did not go to unemployed San Franciscans. What happened to the unemployment rate isn’t a mystery: People who don’t have jobs were forced out to make room for people from somewhere else who came here for a high-paying job.
They say that every tech job creates five other jobs, and while I’m a bit dubious (that’s a pretty damn high multiplier effect), I can say: Every tech job doesn’t create five jobs that pay enough to live in San Francisco in 2013.
So we could have said: Wait – let’s take a look at the long-term unemployed who already live here, and let’s see what their job skills are, and let’s see what sorts of jobs they might be able to train for, and let’s work on that. Two years ago, when we were talking about the tax break, there weren’t a whole lot of involuntarily unemployed software engineers in this city.
The fact that we chose not to do that – that we accepted the job model that Twitter and its political allies wanted for San Francisco – was exactly that: A policy choice.
We wouldn’t have to say No to all new development or economic growth. In 1986, faced with an overheated office market, the voters approved Prop. M, which slowed the boom a little. It didn’t harm the economy; the sky didn’t fall. We simply said (the way the Federal Reserve does when it takes on inflation): Whoa. Too much, too fast. We aren’t able to handle it, so we need to slow down.
We could, for example, link tax breaks and new office space to housing construction and Muni improvements: First, you show there’s housing for the new workforce without displacing anyone, and you show there’s the infrastructure to handle the growth. Then you grow. All I’m saying is: That’s a policy option.
And in the same way, we can — in theory, anyway — put a halt to all displacement in San Francisco.
If the state Legislature would give us the tools, we could essentially bar all evictions for anything except failure to pay rent or creating a nuisance. We could ban all condo conversions and TICs. We could extend rent controls to vacant apartments. We could say: The first priority for this city is protecting existing, vulnerable populations, and all planning decisions will be based on that rule.
We could say that if you are a software engineer who makes $200,000 a year, you can’t move to San Francisco – unless you can find someone who wants to sell you his or her house, or you can find an apartment that has been voluntarily vacated. You want to come to the Bay Area at 24 years old with your big money? Find – live in Antioch, commute to your job, and get in line. After a few years, something in the Mission might open up for you.
(If we did that, the next Twitter might not be started here. That’s both good and bad. Imagine if the next great idea, the one that would bring in billions, wound up in Detroit. We might all, as an American society, be better off. It’s at least an interesting discussion.)
Now: That wouldn’t stop Mark Zuckerberg from buying a place in Noe Valley. You have enough money, you can entice an existing homeowner to sell. But that’s – and it’s a key word here – voluntary. If Zuckerberg told me he wanted my house in Bernal Heights, and he offered me $10 million, I might say: Sure. I’ll take that cash and move my family somewhere else. ButI might also say: Sorry, dude. This is my home, the place where my family lives, where my daughter and me spend days painting her bedroom to get it just exactly right, where we grow vegetables in the back yard and I can ride my bike everywhere I want to go. Take your money and shove it; I live here.
We could, as a city, take the position that tenants have the same rights.
The morning after our event, the head of the San Francisco Apartment Association complained on KQED Forum that too many tenants are paying below-market rent – that rent control is a huge burden on landlords. But there’s fundamental disconnect in that argument.
Let us assume, for a moment, that landlords – people who go into the business of buying and renting out residential property – are not idiots. That they are good capitalists. They look at a piece of property and say: Here’s the existing rents from existing tenants, which can’t go up because of rent control. Here’s the price of the building, the mortgage and property tax payments, the expected maintenance, the garbage fees, and the profit that I need to make.
If the numbers don’t add up, the place doesn’t sell. (It’s more than just landlords making that decision; no mortgage company will loan money on a building if the revenue doesn’t exceed the costs.)
So if you bought a building in 1990, and the rents were adequate at that point to cover your costs and bring in a profit, then nothing has changed: Property taxes are fixed. Your mortgage is fixed. Your profit is the same that it was when you bought – which at the time, you and the bank agreed was just fine.
Yes: You could get even more of a profit if you kicked those tenants out and raised the rent to market rate. But you’re not losing money. You knew the rules when you bought the place.
If you’re dumb and a bad capitalist, and you overpaid, well: I’m sorry, but that’s how business goes. Don’t blame the tenants for your mistake.
Yarne and his compatriot, Tim Colen, talked about the problems of rent control driving landlords not to maintain their buildings – or, in New York, simply letting them deteriorate and walking away. But San Francisco isn’t New York; you abandon a building in this small city, and everyone knows, and the city has and should exercise the right to take it over by eminent domain, and turn that housing over to the public sector.
And we have empirical evidence that strict rent control works.
Go back to Berkeley in the mid-1980s. San Francisco, coming out of the deep recession of the early part of that decade, was in a building boom. Highrise offices were going up everywhere; finance, insurance, and real estate companies were hiring, rents were rising, and places like the Haight were experiencing serious gentrification.
But across the Bay, Berkeley had rent controls on vacant apartments. The rule was simple: Once you set the base rent for a unit, and registered it at the Rent Board, that price could only go up with inflation. Tenants come and tenants go, but the rent can’t rise beyond the base.
Landlords howled and sued, and lost in the Supreme Court. And while rents were controlled, Berkeley experienced a boom in small business. Alice Waters and the Gourmet Ghetto were, some economists argue, the result of renters having more disposable income. And there weren’t a lot of evictions, since there was no economic incentive to get rid of well-behaved tenants who paid the rent on time every month. Berkeley was not beset by vacant abandoned buildings. Neither was Santa Monica, which also had effective rent control in the 1980s.
We tried really hard to get that kind of rent control in San Francisco. In a dramatic moment, Sup. Harry Britt got seven supervisors to approve a vacancy control measure – but Mayor Dianne Feinstein vetoed it.
The landlords eventually went to Sacramento and got the Legislature to ban rent controls on vacant apartments. They also got the Ellis Act passed. And now every tenant in San Francisco goes to be frightened of the next day’s mail, which could include an Ellis Act notice.
Let’s be honest: Rent control – working, effective rent control – is a transfer of wealth from landlords to tenants. It’s not perfect (nothing in a capitalist market is ever perfect), and there are always exceptions; some landlords have less money than some tenants. There are, and will always be, some abuses. That’s what happens when you take something as essential to life as housing and put it in the private market and then try to regulate it.
But overall, in the macro sense, most landlords are richer than most tenants, and in a city like San Francisco, that’s magnified many times, and this kind of income and wealth transfer is, on the whole, not a bad thing. In the same way that spending money at a locally owned business is good for the economy, since the owner will likely spend more of that money in town and create more activity and jobs, giving tenants more disposable income at the expense of landlords is likely to have a positive economic impact. (Perhaps that impact is even greater than the impact of bringing Twitter to town.)
When I met with a reporter from The Economist last week, and gave him my rant about housing and the Twitter tax break, he said: Yes, but if you lost Twitter and other tech companies, there would be tradeoffs. He’s the first reporter who got it right: Yes, there would be tradeoffs. But there were tradeoffs to the current policy – and it’s easy to argue that they were the worse option. Certainly for existing San Francisco tenants.
At the San Francisco Tomorrow holiday party last week, state Sen. Mark Leno made a point of talking about the Ellis Act, and how he was planning to move next session to reform what even Mayor Ed Lee agrees is a very bad law. The law, he noted, was aimed at allowing landlords to go out of business – but it’s not being used by landlords. It’s been taken over by speculators who buy and instantly Ellis a building.
One option I think we’ll see: Limit the Ellis Act to people who have owned a building for five years or more. That’s a start.
Ultimately, though, the state needs to give cities the option to limit these sorts of evictions. The Legislature is mandating development changes, but not giving local governments the tools they need to deal with the impacts.
But there are options that can happen on the local level. Cities have the right to set the statutory relocation fee for Ellis Evictions, and if that were linked to existing federal law – that is, if property owners had to pay the difference between a tenants existing rent and current market rent in the same part of town for four years – you’d see renters having a fighting chance to stay.
If the supervisors passed a law saying that all new housing construction had to be consistent with the city’s General Plan – which states that more than 60 percent of all housing needs to be below-market rate to serve the city’s current and expected population – we’d see a lot more affordable housing and less housing for millionaires.
The bottom line is these are policy decisions that we, as a community, can demand and make. It’s not a river that’s about to flood, it’s not an act of god, it’s not the invisible hand of Adam Smith tossing tenants out onto the streets. It’s about whom we elect and what they do. And we can change that.