The Board of Supes Land Use and Transportation Committee voted 2-1 Monday to move forward an expanded rent control bill, with Sup. Myrna Melgar voting no.
Melgar, who has the endorsement of the SF Tenants Union, which strongly supports the legislation, said she was worried about its impact on the city’s inclusionary housing program—and argues that one of the earliest advocates and creators of that program said it doesn’t hold water.
The legislation, sponsored by Sup. Aaron Peskin, would extend rent controls to the tens of thousands of units that are exempt under state law, if and when that state law is repealed or amended.
Under the Costa Hawkins Act, any apartment built after June 13, 1979 is exempt from any form of local rent control.
Prop. 33 on the Nov. 5 ballot would overturn Costa Hawkins. If that happens, and Peskin’s bill passes, every apartment build between June 14, 1979 and Nov. 5, 2024 would come under the city’s rent control law.
That would mean a lot more than limiting rent hikes. As Sup. Dean Preston pointed out, the tenants of those (somewhat) newer buildings don’t have access to the services of the Rent Board, including mediation, don’t have protection against arbitrary passthroughs in areas like utility bills and capital improvements, and can have their leases amended to reduce services at any time.
Now: every time anyone suggests expanding rent control, anywhere in the state, the landlord lobby says the move is “anti-housing” because it will discourage new construction. Corey Smith, director of the Housing Action Coalition, told the supes that Mayor London Breed has vowed to veto any “anti-housing” legislation that comes before her, and he suggested this would be included.
But both Preston and Peskin said repeatedly that this was factually wrong. “I reject the narrative of the large landlord and real-estate industry,” he said. His bill would not impact any new development built after this November.
“To call this anti-housing is hogwash,” he said. “Numerous studies have shown that rent control has no impact on new construction.
Preston: “Landlord lobbyists always say that anything that protects renters stops new housing […] it is ‘pro-housing’ to allow a rent increase that forces a longtime tenant from their home?”
Mitchell Omerberg, who has been a tenant advocate for more than 40 years and runs the Affordable Housing Alliance, said during public testimony that every tenant in every rental unit in the city, protected by rent control or not, moved in when the rent was set by the market. In other words, every landlord in the city was able to charge initial rent adequate to cover the mortgage on the building, the property taxes, the projected maintenance, and other costs, and still make a profit.
What rent control does is prevent a reasonable return on investment, as the courts have defined it, from becoming a speculative windfall as factors like the tech boom drive up housing prices.
Back to Melgar’s concern.
This one is a little wonky, and a little tricky, but let me try to explain. Since 2002, San Francisco has had a policy called “inclusionary housing,” meaning that developers of market-rate housing are required to set a small percentage of their units aside as affordable. That percentage has varied over time, and is now about 12 percent.
The city’s own studies show that anything less that between 25 and 40 percent affordable make the housing crisis worse.
Set that aside for the moment.
The inclusionary laws mean that each market-rate building has what Melgar said amounts to a contract with the city: We’ll let you build market-rate housing, and in exchange, you will rent some of it out at some price that’s below market rate.
When then-Sup. Mark Leno introduced this concept in 2002, it was fairly limited. It expanded over the years, as developers made vast profits building luxury condos and rental units.
After the sub-prime mortgage crisis hit the housing market in 2008, then-Mayor Gavin Newsom, and later Mayor Ed Lee, decided that the city needed to do a “nexus study” of how much private developers could afford to spend on below-market housing. (Remember, there were no nexus studies in the original Leno bill.)
Melgar argued that the inclusionary housing laws might cause a problem if the city attempted to impose rent controls on the market-rate units that support the non-market units.
“I’m not sure what that does to this structure,” she said.
She asked that the file be duplicated, and that the duplicated file be continued to the call of the chair, and that the City Attorney’s Office weigh in on the situation.
I’m sure the city attorney will brief the supes before this comes to the full board, probably next week.
But Welch, who helped Leno design the first inclusionary ordinance and has been involved in almost every significant piece of affordable housing legislation in the past half century, told me her argument makes no sense.
“The point of a nexus study is to determine the percentage of affordable units,” he said. It’s based on market conditions at the time the building is approved, not on some calculation of what the rent might be years in the future.
“The whole idea was a developer concept,” he said.
There’s no reason, Welch said, that the developer of a building that includes below-market units can rationally argue that rent control on the market-rate units—which, remember, have already been rented at the market rate necessary to make the financing and affordable-housing subsidies work—undermines the inclusionary program.
“It’s reading chicken entrails,” he said. “It kicks dust in the eyes of the supervisors.”
Peskin has four co-sponsors for his bill. He’ll need one more vote at the board to pass it, and three more to prevent Breed for vetoing it.
And if Breed vetoes a key rent-control bill just as the voters in a city where two-thirds of the residents are renters get their ballots in the mail, it could have an impact on the election.
Full disclosure: Both of my kids work on the Peskin for Mayor campaign.
