Rich get richer: Who's greedy now?

The Bay Citizen / New York Times, February 17, 2012. By Scott James
How The Rich Get Richer, Rental Edition

Thousands of people are expected to become rich in the latest Bay Area tech boom, and in San Francisco these newly minted millionaires will receive a benefit originally meant to help the poor and working class: rent control.  Rent Control is never about helping the poor.  There is no income eligibility so everyone who rents gets the benefit of below-cost rents courtesy of the landlord.  If RC was supposed to help the poor, it would be abolished and banned for the damage it causes instead.

Not that they have a choice. The law applies to rental apartments built before June 1979, regardless of the tenant’s income. Rent increases are limited to less than inflation — last year the increase was 0.1 percent, an all-time low. Rent Control is government theft of a property owner's income and labor.  

But with an estimated 30 percent of the city’s rental properties owned by mom-and-pop investors with four units or less, an unintended consequence of rent control is becoming more prevalent: people of relatively modest means subsidizing the housing of the extraordinarily wealthy.  There was never any way this wasn't going to happen.  Rent Control has proven to be a  failed policy that politicians love because it uses OPM and makes them look like a hero to a powerful renter base.

Critics say it is just the latest failure of the city’s housing policies.  Government does not do anything well, least of all trying to control the market for goods and services. It can't be done.  Socialist governments have tried and failed to bend the laws of economics and human behavior to fit their plans.  

Noni Richen, a former school cafeteria cook, and her husband, who once worked on the Alaskan pipeline, put their life savings into buying a four-unit Western Addition apartment building in the 1980s. “We had $20,000,” Ms. Richen said. “That was a lot of money to us, and we put that down.”
The rents the Richens collect have changed little since then because of rent control: $1,000 for each two-bedroom apartment. “It’s a deal,” she said, noting that her tenants aren’t wealthy but that her expenses (insurance, repairs, utilities) have risen faster than the rents. “I don’t begrudge them. I’d do the same thing if I was them.”  There is a distinct benefit of rent control - to punish the archetypal greedy landlord.  But who are the true greedy ones here?  

But what Ms. Richen sees as a basic question of fairness has prompted her to become an outspoken critic of rent control, serving on the board of the Small Property Owners of San Francisco Institute, a volunteer organization that advocates for small-time landlords.  What would you do if you were Ms. Richen?  What burden is "fair" to place on a person's income?  Who decides what is "fair"?

Henry Karnilowicz, the group’s president, said rent control should be abolished, or at least reformed so that the wealthy do not receive subsidized rent. “There should be means testing,” he said.
Mr. Karnilowicz estimated that 5 percent of the city’s 212,000 rental units (about 10,600) are kept vacant by landlords who would rather not deal with rent control (others estimate the number is higher, about 25,000 units). He said that many owners would rent those homes if there were reforms, like requiring the rich to pay full market value.  Logical response to government regulation. Means testing can be done as rent vouchers when Rrent Control is abolished; The administrative system is already in place.  

Such a move is highly unlikely, however. In a city where 64 percent of residents rent, tenants have enormous political clout and it is unpopular to even discuss reforming rent control. Portland and other Oregon cities are tipping to a higher percentage of renters who are pro-rent control (i.e.: self-gratification), which gives them political power.  The same thing is occurring in Portland where Metro planners are planning a reversal of percentages of home owners to renters by 2040.  

The cone of silence was evident Monday when a parade of economists and housing experts testified at a board of supervisors committee meeting about the city’s housing situation. Each presentation showed that housing had become increasingly unaffordable in recent years, pricing out people at every income level — except the wealthy.  Housing "experts" are politically-motivated activist hacks who represent various public (political) and non-profit (biased), advocacy organizations. 

Yet not one expert mentioned rent control’s impact on the market.  Have they been conditioned to not discuss politically sensitive topics in an ultra-PC city?  Are the economists ignorant, incompetent, or paid consultants?  Rent control is a political issue - not an economically justifiable one.  RC ultimately hurts the people it purports to help.  

Voters approved rent control in 1979 to help preserve communities by limiting rent increases, a threat to working class and lower-income tenants. However, a new city analysis shows that for the first time upper-income households (annual incomes over $107,000) outnumber the poor (incomes under $35,000), 29 percent to 27 percent. And rents for vacancies average $2,600 a month, a record high.
According to Ted Gullicksen, executive director of the San Francisco Tenants Union, the market is much like it was during the 1990s dot-com boom that pushed rents and displacements to extremes.
Additionally, the number of existing rent-controlled apartments has been reduced by demolition or conversion to sale as private homes, like condominiums. “There’s a serious and steady depletion of housing rental stock,” Mr. Gullicksen said, perhaps 1,000 or more units annually.  What are the incentives for a landlord to be in a government-controlled business? It's easier to abandon the rentals than lose money on such businesses or be told how much one can profit. Unpredictability of government income limits inhibit investors' willingness to be in the rental market.

Protecting that dwindling supply from further erosion has become a “ferocious” battle, said Sara Shortt, executive director of the Housing Rights Committee of San Francisco, a tenants’ advocacy group.  Obviously few people in SF believe in Individual Property Rights.

But just trying to determine the exact number of rent-controlled units — and their tenants’ finances — is difficult. The city’s last comprehensive research, undertaken in 2000, found that one-fourth of households in rent-controlled apartments earned more than $100,000 a year — a revelation that prompted I-told-you-so rhetoric from some landlords.  That study was 17 years ago!  This is not an "unintended" consequence of rent control - it is a well-known and inconvenient fact that is swept under the rug and ignored for political reasons.  

Since then, similar comprehensive research has been blocked, in part by tenants’ advocates who believe the findings would be “politicized” and become a referendum on rent control, Ms. Shortt said.  Both she and Mr. Gullicksen oppose means testing to exclude the rich from rent control. There are privacy concerns, they said, and it would create a situation in which landlords would then rent only to the wealthy.  Can't discuss the truth about rent control, it might upset the irrational and political underpinnings of the law.

And with so many tech nouveau riche around, that could make matters even worse for those of ordinary means.  If new housing units were unhindered by inclusionary zoning and the threat of rent control, more landlords of pre-1979 units would rent vacant units and not tear them down, more housing would be built to meet demand and rents would be lower (than current market rates).  Poor renters could get vouchers, but that would mean the public would be subsidizing the poor rather than have landlords do it!  

Scott James is an Emmy-winning television journalist and novelist who lives in San Francisco. sjames@baycitizen.org