Two Bills Targeting Housing Crisis Reach Sacramento

On Shotwell, by Esther Reyes

On Shotwell, by Esther Reyes

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Two separate bills have reached Sacramento to amend the Ellis Act, also described as a “glaring loophole” that has affected hundreds of people in the city. Senator Leno’s bill would force building buyers to own a property for five years before deciding to evict.

Leno’s bill, which would apply only to San Francisco, would give the city the authority to force buyers to own a building for at least five years before they evict tenants using the Ellis Act, a state law that allows an owner to kick out renters if he or she takes the building off the rental market.

The law was originally intended to allow landlords to get out of the rental business . But what Leno describes as a “glaring loophole” in the law is now being exploited by cash-hungry buyers who were never in the rental business to begin with.

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18 Comments

  1. John

    Of these two, Ammiano’s hasn’t got a chance. He’s just grandstanding as he exits the stage.

    The Lee/Leno idea has more chance but it really misses the point. An Ellis eviction doesn’t happen because an owner has owned the building for a certain amount of time and eventually gets fed up of dealing with tenants and low rents.

    An Ellis eviction happens because the numbers do not crunch for a building and better returns can be had by closing down the business. And that is based on the cashflows and not on the duration.

    In fact, the numbers are worse for a new owner because he has a higher mortgage and prop tax basis, but his rents are the same.

    So the Leno idea is based on a misunderstanding of the logic behind Ellis. If it passes, which is doubtful, we will simply see owners Ellis and then sell, rather than sell and then Ellis.

    Or we may see sales dependent on the contingency of Ellis being completed before escrow closes.

    The real solution is to make running a rental business sufficiently attractive that people want to do it, rather than quit doing it.

    • marcos

      Because the favorable tax treatment and high rents are not enough?

      • John

        marocs, any favorable tax treatment is moot if you don’t make any profit, because only profits are taxed.

        If you have high rents then you are fine. Ellis usually happens because the rents are held artificially low, because you’ve been unlucky or unskillful with turnover.

        When you buy a SF building with low rents, you are really hoping for capital appreciation, because the rents alone are not competitive with other investments with a similar level of risk.

      • poor.ass.millionaire

        How many bldgs with even close to market rents (or a mix of below market and market rent tenants) do you think have been ellised?

        Answer: very, very few.

        John has it right wrt the financial calculus of rental bldgs. Basically, owners don’t want to own bldgs that loose money!

        I also agree that if Leno’s thing passes, more existing LL’s will need to do the Ellis, or at least set up a long escrow for the Ellis eviction to happen, before title is transferred to new owner.

        Amimiano’s bill is laughingly stoopid; for how long will SF housing shortage last? Andwer: forever. So yeah, let’s freeze Ellis acts w/o a game plan. Like I said, es muy stoopido.

        • John

          poor.ass, I actually know of one case where a building was Ellis’ed after the tenants had been there for just 2 years. So their rent was decent but I think the owner just wanted out of the business anyway.

          Funny thing is, he then kept the building but did nothing with it for years. After maybe 5 years he rehabbed it and eventually condo-converted it (this was before the law changed about that in 2005 or so) and then sold it.

          Ellis is usually used where the building doesn’t flow, but it can happen for any reason or no particular reason other than that the owner wants to.

          That’s the beauty of Ellis – no reason is needed and so there is no real defense of bad faith, like retaliation. The owner is retaliating – against being forced to run a business.

          • poor.ass.millionaire

            My point was that Ellis is mostly used as a necessity for bldg owners with low overall rents due to the oppressive rent control measures we have; and not as an elective lifestyle choice. Btw, I prefer you refer to me as PAM. Thx.

          • John

            Absolutely, PAM.

            Although I’d say that the constitutional underpinnings of Ellis goes further than just the control of rents, and target instead prior attempts by municipalities to compel property owners to choose one specific use for their buildings over others.

            This was even more pressing back when some cities had vacancy control, so that even when you got turnover, the rent could not go up.

            In that case, LL’s responded by refusing to re-rent their units, whereupon some cities (not SF) tried to force owners to rent them out against their will.

            Once you have that level of micromanagement and restrictions, a backlash is inevitable and desirable.

          • poor.ass.millionaire

            I understand what you’re saying, but I think that the tit for tat between housing socialists and normal people is generally too combative, which I’m sure you agree. That causes extreme legislation attempts on both sides, and when something passes, it can cause great market distortions. Of course that causes potentially profitable scenarios for long term tenants who get long term rent bargains and for savvy RE investors who know how to make bank in SF.

            But nevertheless, these shenanigans don’t make the city a level playing field for many people, and turns real estate into a blood sport, if you choose to play. I don’t think it’s necessarily a fair system, but I’m just glad I’m winning in all this craziness.

  2. Frank

    How much support is there in the State Legislature for these bills? They seem far-fetched. The fact that the vast majority of Ellis Act evictions occur in SF suggests it’s the result of local housing policies and (poor) planning.

    • John

      I’d assess it as near zero support for Ammiano’s bill and minority support even among the Dem’s for the Lee/Leno idea.

    • two beers

      Ellis only happens where there’s rent control. If a landlord wants to clear out a building in the rest of the state, he can just jack up everyone’s rent beyond their ability to pay.

      Ellis was a weasel loophole created by weasel legislators.

      The Real Estate lobby controls Sacramento, and many of the lawmakers on both sides of the aisle are landlords, so neither bill stands a good chance to pass.

      California: run by landlords, for landlords.

      • John

        Historically inaccurate, TwoBeers. To understand Ellis, you must first read up on Nash vs. City of Santa Monica. At the time Santa Monica had far stricter rent control than SF does now, and Ellis was the statutory implementation of an important constitutional principle that the court ruled upon.

        So do not blame Ellis. Blame the constitution.

        To the other, outside of RC, a landlord doesn’t need to “jack up the rent” to get rid of tenants. He simply issues a 60-day notice, since no cause or reason is required.

        That’s how 995 of the nation works..We are the outlier, not them.

      • poor.ass.millionaire

        Wrongo 2b. Although a state law, Ellis was passed specifically against SF, Santa Monica and Berkeley, places where the Rent Control Industrial Complex ran amuck. Apparently the state saw those distortions as so severe, that they needed to check these 3 cities.

        I highly doubt these two proposals will get much traction. But SF will make a lot of crying noises over the next several months, so get your violins out.

        • two beers

          You’re confirming what I said: Ellis only occurs where there’s rent control. There’s no point for it otherwise.

          Of course the bills won’t get traction. California is run by landlords, for landlords. When the peasants dare fight back, Sacramento squashes them, eg.viz Ellis.

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