potrero view

July 2010

Property Owners Grapple with Rent Control Regulations

By Sarah Mcdonald

Potrero Hill resident Judy West runs 323 Gallery at 16th and Potrero, where she showcases local artists and sells Dolce Bella Chocolates made by her sister, Audrey.  She owns the building where her gallery is housed, and leases the upstairs apartments.  West is among a number of small property owners who believe that the City’s rent control laws have gone too far.  According to West, rent control hurts small property owners like herself, and prevents renters from becoming homeowners.            

The San Francisco Board of Supervisors adopted rent control in 1979 in response to skyrocketing rents, in part triggered by Angelo Sangiacomo, a large property owner who significantly increased the rents of roughly 5,000 tenants that year.  Under rent control, landlords who own buildings built before 1979 are prevented from raising rents by more than 60 percent of the annual increase in the Consumer Price Index (CPI), with an overall cap of seven percent.  The allowable increase for 2010 was .1 percent. 

The law also regulates how the costs of property improvements can be passed on to tenants, puts limits on evictions, and stipulates that tenants are entitled to rent reductions if their services are reduced.              

Owner-occupied buildings with four units or less were exempted from the ordinance until 1994, when voters approved Proposition I, which folded these buildings into rent control.  According to Ted Gullicksen, San Francisco Tenants Union manager, Proposition I was a response to property speculators moving into small buildings in order to raise rents or evict tenants.  “We had landlords who were essentially moving from building to building,” said Gullicksen.  

Tonia Macneil owns a duplex at 20th and Rhode Island streets, living in one unit and renting out the other.  She generally supports rent control, but thinks the policy should be amended to protect small property owners.  “I think the idea of someone being at the mercy of their landlord is a bad idea,” she said. “But I really believe in equity.”  According to Macneil, who is on disability, keeping up with her building’s maintenance and repair issues is challenging.  And she questions why she’s lumped with larger landlords.  “It seems massively unfair to me,” she said. 

While rent control makes it difficult for landlords to evict elderly or disabled tenants, Macneil doesn’t receive similar protections.  “I’d like to see consideration given...to the landlord’s ability to live in the property,” she said.

West believes that owner-occupied small buildings should be exempt from rent control, asserting that purchasing property and renting out the other units is a critical pathway for middle-income San Franciscans to become homeowners.  “I would never have been able to buy a house by myself,” she said.  West blames rent control and the City’s high tenant population for what she believes is San Francisco’s low-quality housing stock.  “Most of the voting people in San Francisco don’t have a vested interest in their property,” she said.

Gullicksen disagrees, believing that rent-controlled building owners have incentives to improve their property.  Housing upgrade costs can be passed on to tenants, while the property owner gets the benefit of increased property value, as well as a tax write-off.  “The housing stock here is very high quality relative to other cities,” he said.

Potrero Hill resident Bob Noelke owns several rental properties, and is a Small Property Owners of San Francisco Institute board member. “What began as a way to level the playing field has been tilted,” he said. “All the burden has shifted to the landlord.”  According to Noelke, the rent ordinance has become too complicated for many small property owners to wade through. While it’s easy for a tenant to file a complaint with the San Francisco Rent Board against an unfair landlord, he said, it’s more difficult for a landlord to evict a tenant suspected of breaking the law or being a nuisance.  “I think the rent ordinance ought to be looked at as something that could help both the landlord and the tenant,” he said.

Gullicksen disagreed, asserting that in relationships between landlords and tenants, “it is generally the consumer, or the tenant, who is in need of protection.”

West pointed-out that rent control applies to tenants regardless of income level, which she says is unfair to lower-income newcomers to the City who have to pay higher rents.  “Someone earning $300,000 can keep a subsidized apartment in the City while owning homes or other property, placing an unfair burden on small property owners who provide the majority of rental units in the City,” she said. She believes rent control drives up the rent for market-value apartments because it decreases the supply of available housing.  But according to Gullicksen high rents in the City are more a result of the demand to live in San Francisco.  “The market determines if the rent goes up,” he said.

Macneil believes that rent control should be evenly applied across the City’s building stock.  Older buildings, she said, are more likely to be owned by people with lower incomes.  If they are subject to rent control, newer buildings should be too.  “If I had my druthers,” she said, “I’d say I’d like to see all rental units required to be under rent control.” 

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