Developments in development: Preserving rent-controlled stock

Old and new housing. Photo by Shani Heckman

Developments in Development is a “weekly” column recapping real estate, housing, planning, zoning and construction news.

When it comes to affordability, San Francisco is facing a tricky balancing act. Planners are making an effort in one illustrative case to make it clear to a developer who wants to replace a building on Mission Street with condos will face serious scrutiny if the project means removing rent controlled housing. 

The building that houses the Old Jerusalem restaurant on Mission between 25th and 26th streets is being considered for redevelopment. In their feedback to the developer, the planners have made it clear that a number of different area-specific restrictions like the Interim Controls and the MAP 2020 plan establish a high threshold for demolishing rental units. And there are two rent-controlled apartments in that building.

In its response to the developers, the planning department asks the developers to consider a relocation plan for the tenants prior to a hearing, among other conditions that must be met. 

That aligns well with the view that building new housing is much slower and more expensive than keeping an existing tenant (who would otherwise be creating more demand for the low-supply affordable housing being built) in place.In fact, 48Hills argues in an analysis of the city’s housing balance report, that the loss of affordable housing in San Francisco nearly eats up all of the progress on building it.

Building that affordable housing of course costs money. The state assembly (and then perhaps the voters) will vote on a bill recently approved by the senate that would pour $3 billion in bonds into building affordable housing. That bill is waiting for approval alongside former District 8 Supervisor and State Senator Scott Wiener’s proposal to give cities that aren’t meeting their housing production goals the legislative equivalent of a swift kick in the pants.

But while we are seeing some cities build rapidly for those who can afford market rate, they fall short of below market rate housing targets. Take Oakland, for example, which according to the East Bay Express last year reached a laughable 4.5 percent of its affordable housing goal.

That’s not to say that building market rate housing has no effect on prices. RentCafé and Yardi Matrix have observed flattening in rents in expensive markets around the country, San Francisco among them, and analysts there believe it’s because of production. Yardi’s analyst believes if the building trend continues, rents will continue to fall.

Also, when you factor in existing rents (what people are paying where they live, not what apartments are being listed for), rents are lower than headlines might suggest.

A less clear picture emerges in home sales – Two different condos on Valencia Street are being listed at a loss from their original sales. At the same time, San Francisco’s median home price is again record-breaking, now sitting at $1.5 million.

The other big factor often cited in conversations about why rents are so high, namely an influx of high wage earners, is also not slowing down. Recent reports of yuppie exodus certainly had me believing that the tide had turned, but one workforce study shows tech, for one, has no trouble attracting workers. Sure, some local workers are leaving for less expensive pastures, but plenty of East Coast folks are happy to move in.

In any case, building continues.

Condos have been proposed for the former site of Cole Hardware, where everything was obliterated in a June 2016 fire. Cole Hardware, meanwhile, is in negotiations to make a comeback.

Apartments were also recently approved (17.5 percent of them affordable) on the northern end of the Mission at an old sausage factory. 

For anyone ready to chime in with aesthetic feedback on any of these designs, a parting thought for this week: Broke-Ass Stuart wants to christen Salesforce Tower “the Butt Plug.” Apart from presenting an etiquette conundrum, it’s simply inaccurate.

There are plenty of alternatives to be found in the comments section of that story. But I humbly offer mine, which is to refer to Salesforce Tower as “The Finger.” This comes a little closer to describing its shape and still can be turned into a variety of cynical comments on the tech industry’s gifts to the Bay Area.

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4 Comments

  1. Marc Brenman

    Rent control in SF would be a much better and fairer program if it were means tested. There are many people living in rent-controlled units who could afford market rents. I don’t know how many rent-controlled units are occupied in this way, but I bet it’s substantial.

    • Ivan Ho

      I agree 100%. I know

      * A couple with two rent controlled apartments in the city who own a home that they live in in Burlingame. One is a high paid professional and neither wants to give up the units because ‘the rent is so cheap’. They stay in one apt on the weekends and the other is used occasionally as it is a block from his place of employment. Neither of these people need rent control.

      * A person making over $100k a year in a three bedroom unit who is paying $1300 a month and has no interest in downsizing or getting roommates because ‘rent is so cheap’

      None of these people need rent control, and if they were forced to pay fair market value they might be willing to give up some of that excess capacity.

      Rent control is controversial certainly, but subsidizing the rich shouldn’t be.

      Let’s see a means test for rent control.

      • Clara Winston

        According to the NYTimes, in 2000 25% of SF renters protected by rent control were making $100K or more. No similar comprehensive study has been done since then, due to political pressures from tenant advocates.

        Call city hall today and demand a study be conducted. That would give us a better sense of the percentage of tenants who are subsidized by landlords. It is quite likely that some of those tenants are being subsidized by owners who make less money than they do, such as retirees and minority/immigrant working class owners who bought earlier.

        http://www.nytimes.com/2012/02/17/us/san-francisco-rent-control-and-unintended-consequences.html

        Rent control has cordoned off a large supply of housing for people who do not deserve it, contributing significantly to a housing crisis. In response, city government ramp up pro-tenant policies that impose more cost on landlords, such as 1.3% annual rent increases and penalties for evictions. This drives more owners to Ellis their buildings and leave buildings vacant, feeding the crisis. We are stuck in a vicious cycle.

        I support equitable housing policy, but the current system is lopsided and short-sighted, forcing owners to pay the cost of social policies whose burden ought to be shared by all. The assumption that justifies such policies, namely, that owners can recover the costs by selling, defeats the very purpose of these policies, which is to keep the landlords renting. Once landlords sell, the housing is often removed from the affordable rental market, either because the new owners want to live there themselves, or because new investors buy out the tenants and jack up the price, forcing the rents up for newcomers.

        With means-tested rent control, moderate annual rent increases, and taxation on tech firms that bid up rents, more owners would be willing to rent, rents would drop, and tenants and landlords can save a lot of emotional distress, time and legal cost.

  2. What can we do as long term renters who want to preserve what is left? People complain of old timers and our rent control but few of us actually remain! Condos are never for the working class and that’s all that seems to be built these days. After paying a million plus dollars for their one bedroom places, these new residents are very entitled whilst walking about only on evenings and weekends since they are privately shuttled out of town hours away for their jobs.

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