Update — As Cody pointed out, it might be nice to link to the actual article. Also, the original version of this post misspelled Ms Cutler’s second name.

Last week, Techcrunch’s Kim-Mai Cutler published an excellent – and detailed – summary of the history of housing, affordability and the housing development environment in the Bay Area. You may not be aware, but in the Bay Area in general and San Francisco in particular there has been a growing movement of people who are unhappy with gentrification and rising rents that they believe has been caused by the tech industry. Protesters have been blocking and vandalising Google buses and have even been known to harass Google employees at homes (full disclosure, I work for Google in Seattle). I highly recommend the post, it’s truly excellent, and a few interesting titbits jumped out at me, and I thought I would share them.

The big advancement in thinking in the article is about how rent control and NIMBYism interplay and create a startlingly hostile environment that pushes affordability out of anyone’s best interest:

San Francisco has a roughly thirty-five percent homeownership rate. Then 172,000 units of the city’s 376,940 housing units are under rent control. (That’s about 75 percent of the city’s rental stock.)

Homeowners have a strong economic incentive to restrict supply because it supports price appreciation of their own homes. It’s understandable. Many of them have put the bulk of their net worth into their homes and they don’t want to lose that. So they engage in NIMBYism under the name of preservationism or environmentalism, even though denying in-fill development here creates pressures for sprawl elsewhere. They do this through hundreds of politically powerful neighborhood groups throughout San Francisco like the Telegraph Hill Dwellers.

Then the rent-controlled tenants care far more about eviction protections than increasing supply. That’s because their most vulnerable constituents are paying rents that are so far below market-rate, that only an ungodly amount of construction could possibly help them. Plus, that construction wouldn’t happen fast enough — especially for elderly tenants.

So we’re looking at as much as 80 percent of the city that isn’t naturally oriented to add to the housing stock.

More below the fold.

You’ll also end up seeing demonstrations like this one at 16th and Mission, which protest a proposed 351-unit condominium development that replaces a Walgreens and a Burger King. It does not remove any existing housing or directly displace anyone.

At face value, this might not make sense. But there are a couple reasons that this happens. One is that gentrification raises the gap between market-rate rents and rent-controlled rents, strengthening the financial incentive for landlords to evict longtime tenants.

Carter discusses the history of gentrification, the “great inversion” (where millennials move to the city rather than the suburbs) and how bad housing policy has made the entire region unaffordable:

So the wealthy voting classes of the peninsula are also strangling themselves of housing too. The median rent in Mountain View is $2,700 compared to $3,400 in San Francisco, according to Zillow. Once you factor in the cost of owning a car — estimated at slightly more than $9,000 a year by the AAA — it’s not that much cheaper.

If you look even closer to the Caltrain stations, rents go way up. The newly-opened Madera complex in downtown Mountain View rents out 1-bedroom units starting at $3,299 all the way up to 2-bedroom apartments at $8,000 per month.

Ironically, I am writing this post from a two-bedroom apartment in the Madera complex in Mountain View. The article is really long, and I don’t agree with everything in it, but I think as rent control and protectionism rear their heads in our area, it’s useful to see what kind of mess they have made of Bay Area housing.

46 Replies to “Rent Control, Protectionism and Affordability”

      1. Not to beat up on you Andrew, but the author of the linked article is ‘Cutler’, not ‘Carter’.

      2. “Carter discusses the history of gentrification, the “great inversion” (where millennials move to the city rather than the suburbs)”

        Who is Carter again?

  1. This is mostly about ego. Old Cities are for rich people. They should be. But at the same time those who have jobs servicing those people should ask for higher wages.

    Transit should be able to provide access to these money mills for workers who serve them.

    Middle class and others should live in lower cost New Cities which don’t have all the amenities, but do offer clean, new housing and spacious living while at the same time being interconnected to the amenities by transit and highways.

    1. San Francisco residents do not like the idea that “old cities are for rich people”. They also don’t want new people, really, rich or poor.

      1. What exactly is a “San Francisco resident”?

        Is that a birthright?

        I don’t have rent control…I don’t get to live for $300 a month in a big city (not that I would want to).

        Having these special deals creates as much Asset Inequality as high tech salaries.

      2. I absolutely agree with you, John. It’s definitely unfair. An acquaintance of mine years ago owned an apartment building in Chinatown/North Beach in SF. He had one tenant who was paying basically 1940s rent because of rent control. He had good evidence (ie, death certificate) that the original tenant had died in the 1970s. He would have been 110+ years old if he were still alive, by his estimation the oldest man in America and possibly the world. The “new” tenant was probably in his 70s or 80s. My friend believe this was the third or fourth person who lived in this apartment under that name.

        The San Francisco tenant eviction board was not convinced by any of this. He wasn’t allowed to evict the tenant.

      3. Here they are sweating and slaving at Google and Facebook, after having earned degrees at prestigious universities, for which they paid thousands of dollars, and all they ask is a simple apartment in a place where they can have fun after work and he’s willing to pay $3000/a month for some ratty place downtown, and meanwhile, some guy who is on workman’s comp for the last two decades from his city job as file clerk is living in the same apartment for $200 a month!

        If anything the High Tech people should be protesting the Old Guard.

    2. But how are they supposed to get anywhere from the “New Cities” if we gut transit, John? Or did I misread things earlier, and you voted Yes to Proposition 1?

      1. I’d gladly vote to shift funding for Metro to Sound Transit if it would accelerate the building of a regional LINK network to all the suburbs and exurbs and provide more Sounder service.

      2. So John, it really is all about you, then? Hmm. I really thought that you had a rather quirky but still genuine interested non-professional take on these transit questions. But it’s really just that you’re envious that other people get to ride the train and you don’t, isn’t it?


    3. Is there anything about the 1950s suburban vision you don’t like? (Including highways and strip malls.)

      Sound Transit offers only regional transit, not neighborhood local transit. That means you have to live next to a station and go to only a limited number of places, or you have to use some other means of transport to get to the station. We shouldn’t force everyone to have a car, use carsharing, or ride a bike every time they leave their house. “Fine, those people can live in old cities.” But you just excluded old cities! You’ve relegated them to the rich, and you’re not offering any walkable transit infrastructure in the new cities. So 70% of the population will have to get themselves to a regional transit station somehow, even though only 33% of the population prefer that kind of car-and-station living.

      1. I’ve already given you an answer. Local government like Kent should support very narrow, shuttle type circulator routes that take people from low cost apartment complexes to stations, shops and job centers.

    4. And in the Bay Area? The flat, buildable land is built out. The “new cities” down the peninsula waste so much of it on highways and parking that there’s a land shortage, and refuse to allow walkable development near the regional transit infrastructure they have.

      1. Morgan Hill, etc. are still booming in the WAAAAAAY south bay. Far past the “peninsula” and nearly 70 miles from San Francisco. Eventually Gilroy and even Tracy will be far-stretching suburbs for the bay area.

      2. And you can live there with a non-horrific commute, maybe, if you work in southern San Jose? Clearly, given what housing costs elsewhere, this doesn’t address the real problem!

  2. Or we could massively build “affordable housing” by public means to the degree that all upward pressure on middle class housing is relieved. This would leave the high end market for the speculation development game and leave the rest of us in peace.

    1. The problem is that we could never raise that much money for public housing. Our current public housing levies have built 10,000 or so new units over the last 30+ years, which really isn’t all that much.

      1. Besides, in those areas we don’t allow the free market to build enough housing, why would we allow the government to built it? In other words, if someone doesn’t want a four story condo next to their house, what makes you think they would be delighted with a six story public housing apartment?

      2. Besides, in those areas we don’t allow the free market to build enough housing, why would we allow the government to built it? In other words, if someone doesn’t want a four story condo next to their house, what makes you think they would be delighted with a six story public housing apartment?

        Excellent point. Everything that you could demand from public housing, you legislate in zoning. Height, parking, units, open space, etc.

      3. Sure we could raise that much. Tax well paid tech workers like they do in Europe. Confiscate 50% of their income starting at $80,000 a year.

        Read the article linked article. It deals with what happens when one part of a region tries to enact such taxes on its own, with respect to SF’s ill-fated efforts to collect taxes on stock options. Without at least regional coordination, such efforts don’t really work at all, and produce perverse unanticipated consequences.

    2. I absolutely think we should be building a lot of subsidized housing. And I think the best funding source is what we’re using now – property taxes.

      But that’s just a piece of the low end. We can’t possibly build enough subsidized housing to meet the market demand across the board (at what point would property taxes pass 100%?). The best way to drop prices overall with the lowest cost is to just let people build.

    3. If the will of the people are involved, there is nothing we can’t do. The bonding authority of the county is not insignificant. If we want to spend a billion dollars on housing we could do it.

      If the state wanted to start its own bank ala South Dakota, we could do it and have all the money we need to finance such things.

  3. I think the answer in a lot of these cases is to build a lot more in the surrounding areas. Not Mountain View, which is a long ways from San Fransisco, but areas like Oakland and Daly City. From a housing standpoint, it would be great if San Fransisco added a lot more density. But there are a lot of problems with that. First, San Fransisco proper is tiny. It is already relatively dense (for the area). It is also arguably charming and historic. It is like a poor man’s Paris. You can’t expect either city to put up skyscrapers or huge apartments (although San Fransisco has a few skyscrapers and is considering a few more). But both cities are surrounded by a lot of people, and those areas should be dense. Doing so will add to the value of those areas, while greatly increasing the housing stock. Rent in San Fransisco will be high, but rent in Paris is high. In either case, you should have a simple, easy, affordable way to interact with the city.

    1. Lots of San Francisco isn’t “charming”. The entire mission bay/china basin/india basin area, and the rest of area between Soma and Portrello hill is mostly deserted. There are also tons of completely unremarkable one and two story buildings with parking lots. They could add 100,000 units without taking down a single interesting building.

      If you look at the second quoted section, people were protesting tearing down a burger king.

      1. Good point; there are certainly areas within San Fransisco that could improve with more density. That is one of the problems with reactionary “one size fits all” zoning. But I’m not sure how much you could improve the rent situation by adding more density in the city proper. Looking at the density maps, it seems like the areas of greatest potential are outside the city.

        We aren’t that different. You could mow down the Central Area but it won’t increase the housing stock fast enough to make much of a dent. The areas that need more density are outside the core. Unlike San Fransisco, these areas are within the city limits (areas like Northgate or Lake City for example).

      2. That is one of the problems with reactionary “one size fits all” zoning. But I’m not sure how much you could improve the rent situation by adding more density in the city proper. Looking at the density maps, it seems like the areas of greatest potential are outside the city.

        The linked article deals quite effectively with this kind of supply/demand trutherism.

  4. This sounds beyond-topic here, Andrew, but bear with me. I’d like your thoughts about Mountain View itself, especially as a place to live. On a visit to see light rail in the San Jose area, I took Caltrain into San Jose itself, and then light rail out to Mountain View.

    Came away with the impression that I would have really enjoyed living in either of those places, and especially San Jose, before both the walnut groves and the economy of the city collapsed. Now, in both places VAT runs though two communities that are both sureally weird.

    SJ looks like a very stately old town, with a beautiful art-deco skyscraper in the middle of it. Unfortunately, at its foot, there doesn’t seem to be anything going on at all. A non-corporate espresso didn’t seem to exist. It really looks like a beautiful place with a lovely past- which the new economy didn’t value enough to bring into present and future.

    Mountain View seemed even weirder. The homes, to get to topic, seemed like if the Body-snatching aliens set up their own paradise after they snuffed Donald Sutherland. Like most suburbs, and a lot of the reason young people rich and poor head for old cities, is that the homes look like a detailed magazine take on what a perfect home should look like. Meaning “must”.

    Likewise, while Downtown Mountain View had one very classy coffee-house, the rest of the town fit the homes perfectly. Clean, prosperous, and clear of Earthling life. Couldn’t flee aboard Caltrain fast enough.
    I suspect this aura of extraterrestrial spookiness trying to imitate our planet clings to the huge nameless white buses, too.

    What I’m really wondering if the word “housing” really deals with the real question of shelter, peace, and comfort while living a life- which includes work, education, enjoyment and art.

    Another observation: look how valuable old brick industrial buildings have become- for housing! The reason these buildings are left over from being worthless hulks fit only for brick piles is that they were built strong enough, and beautiful enough to be usable through dozens of economies and many years.

    How about if we start building like that again?

    Mark Dublin

    1. Mountain View seemed even weirder. The homes, to get to topic, seemed like if the Body-snatching aliens set up their own paradise after they snuffed Donald Sutherland. Like most suburbs, and a lot of the reason young people rich and poor head for old cities, is that the homes look like a detailed magazine take on what a perfect home should look like. Meaning “must”.

      This is very true. Outside of downtown Mountain View, which is nice, the rest is a bit of a alien landscape. It’s so sanitised and sterilised it appears to be totally alien or unliving.

      1. I’ve always liked Redwood City and Burlingame.

        And I agree, there’s a tremendous amount of room for San-Fran like density on the mid and lower peninsula. I know Menlo Park is supposed to be a swanky address, but personally its sterility gives me the creeps. Or maybe sterility is not the word…but it has a you’re-floating-lost-in-the-middle-of-nowhere kind of feeling…the exact opposite of “sense of place”.

        Love the Steinbeck-like mural in the Caltrain station in San Jose.

    2. Specifically, downtown San Jose has a very small urban core, so small it’s easy to miss. But they’ve finally promised more in the future, but that will take decades and still may be small. Going north on the light rail, you see tower-in-the-park office buildings on the left side, and strict 2-story buildings on the right side (with only a few exceptions). Walking east from these stations leads to more 2-story buildings and houses. When you reach the Santa Clara border, suddenly it changes to 6-story tower-in-the-park office buildings. Each block is half a mile long so it takes a full ten minutes to cross, and contans exactly one building with surrounded by acres of open space and/or parking. As you continue travelling north and west past the Convention Center and Great America (and the new stadium is off to your right) and pass into Sunnyvale, you start seeing some multifamily housing and a few more shops — the first places to live since you left San Jose, and minimal nods to TOD/urbanism. Going further west, you cross highways and industrial areas (like Boeing) and end up in Mountain View, the best mixed-use neighborhood so far, but very small, very expensive, and very tourist/yuppie oriented (not a full variety of services).

      It’s also worth looking at El Camino Real, which now has Swift-style BRT and 24-hour buses between San Jose and Palo Alto. So what do you find during the hour-long trip? Downtown San Jose looks something like downtown Seattle. Then you get into large blocks, each with one Safeway compex or Jo-Ann Fabrics surrounded by a sea of parking. A few isolated apartment buildings here and there. And that’s it, on and on and on. There’s so much potential there that’s not being realized. Oh, and the BRT detours into the Caltrain parking lot (Santa Clara station), where nobody is, because Caltrain is hourly and there’s little within walking distance.

    3. VTA is really such a shame — they actually went and spent money on infrastructure, which so many places aren’t willing to do! But then instead of focusing on speed, directness, and land use, they basically built SF Muni-style trains through auto-scaled office parks.

      Sunnyvale has a little Mountain View-like downtown area, but VTA is still running laps around north-of-101 office parks at that point. Palo Alto has a couple areas worth going to, but a VTA trip there would need sleeper cars. Caltrain goes all these places (and Santa Clara University). What they’ve really gotta do is find a way to run smaller, more frequent trains in that ROW.

      BRT on El Camino is a pale approximation of that, but it’s closer to what the Valley needs than VTA.

  5. Leaving entirely aside all the humungous policy and ethical questions of such a measure, any city that tried that would instantly be stopped by the state government, or else see >90% of tech workers leave within a couple years. I suppose that would depress housing prices, but that would certainly not be its only effect.

  6. Don’t forget that a lot of tech workers’ salaries are going to rent or mortgage payments, so their expenses would go down significantly too, and partly make up for the 50% loss.

    Basic income. We should try it. The Swiss are considering it.

  7. As I said up above, how could that fix things? Right now, you can’t build enough units to meet current demand. You are not allowed to (by law). We could give the developers billions of dollars and say “go, build more units” and they couldn’t, because they aren’t allowed to build as high as the market demands. So, now we are going to tax the hell out of people and put that money into building what, exactly? Big buildings? People don’t want big buildings in their neighborhoods because they don’t want big buildings in their neighborhood. They aren’t going to suddenly change their mind because the property is low income. Really, give it a shot. Go find a couple quiet, single family blocks of Wallingford and tell them you are going to buy all the land in the area and put up a twenty story low income building. Good luck with that. At best you might quiet the idiots out there who don’t want more units because they think it increases rent or don’t like “greedy developers”. Even if you build the new units, there wouldn’t be enough of them, unless you changed the zoning. Whatever you built would either be market rate (which is really expensive because you don’t have enough units) or be rent controlled. Doing that means you are in the same boat you are in now.

    It makes sense to address low income housing by first addressing middle class housing. The market would address this right now if it was allowed to do so.

    1. Na, since the real estate bust the projects that are coming back on line the developers are often decreasing the height of the originally permitted project. Sure there’s areas, like along the lake front in Kirkland, where greedy developers want to rewrite the rules but there’s also no shortage of land where you can go big. You just can’t go big on land you buy cheap. Lynnwood wants buildings the size of DT Bellevue. Federal Way too. Bring your money out to the Spring District and be the first on the block to go 12 stories. No takers?

      1. Oh, Bullshit. I live in a single family neighborhood. The only development I see in this neighborhood is .. (wait for it) single family homes. Big ones, too. Do you think a developer could build and sell some row houses or duplexes or apartments around here? Hell yes! They would sell like hotcakes. Tear down those tiny houses and instead of putting up a huge megahouse (where you get “only” 450 grand or so) build yourself a nice quad or a set of apartments that would sell for twice or three times that (and cost only a small fraction more to build). The only reason they don’t is because it is illegal. The law prevents them from providing middle class housing (especially if it doesn’t provide parking) but is just fine with building megahouses that few can afford.

  8. Protesters are pointing the finger at gentrification and tech money. Gentrifiers and techies don’t want to be the bad guy, so they are blaming rent control and protectionism.

    1. I thought you were somewhat free market minded? Why are you siding with those that blame people for just wanting to live and work without someone else telling them what they can and can’t do? You support government restriction on development?

  9. This is an interesting and thoughtful discussion that touches on the more difficult issue of it he growing gap of income/opportunity disparity in the country. Full disclosure– my view and experience is distinctly east coast in the greater NYC area. I have represented landlord interests throughout a 30plus year career as an attorney. In the 70s we grappled with whether government imposed price controls on housing space violated the constitution. That has long been settled however in order to counteract the use of this power, many states began exempting newly constructed housing from rent control. This proved to be a blessing to increasing the supply of multifamily housing but over the decades has stratified the industry into housing product with price controls and those without.

    This has created a struggle between those trying to hold onto their below market rents and those that don’t have access to them. The stories of the 110 year old tenant, the millionaire with vacation homes and rent controlled city apartment, are telling and oftentimes true. There is no means testing for rent control which allows access to these units by the fortunate but not necessarily those in actual need of below market rents.

    More important to tenants (IMHO ) is strong protection against rent increases while they occupy a unit, and stronger protections against evictions. In NJ tenants have a virtual lifetime tenancy in most multifamily properties and cannot be evicted unless they commit one of the 15 deadly sins –not paying rent, drug dealing, property distraction to na,me some of them. The rent can only be raised “reasonably ” and can be challenged by the tenant.

    Rent control does distort the marketplace and is an unfortunate holdover from the Nixonian price controls of daze best forgotten. The space government should fill now is in creative zoning incentives to motivate profit seekers to renovate areas solely in need of attention in every major city I have seen–SF included. Coupled with legal protections for tenants, the playing field gets more even this way but the wealth/opportunity gap will always keep it tilted to the benefit of the landed. They don’t call them landLORDS for nothing.

  10. One omission form Ms. Cutler’s piece is the issue of wealthy people’s disproportionate share of rent-controlled units. In 2002, the SF Board of Supervisors commissioned a study of housing, called the SF Housing Data Book (1). If you check out the page “Household Income by Rent Control Status,” it shows that 30% of rent-controlled units were occupied by households making over $80,000 (roughly $110,000 in today’s dollars). (2)

    When that study came out, there was an understandable uproar over the fact that so many well-off people were taking advantage of rent control, which was originally designed to protect low- and middle-income residents. The solution? the Rent Control Board forbid any future surveys from considering income, and came out strongly against any sort of means testing for rent controlled units.

    In 2005, the Board of Supes quietly tabled a motion to study the effect of means testing for rent control, as has been instituted in NYC. It’s is abundantly clear that rent control benefits tens of thousands of wealthy San Franciscans, and they are using the Google protests as a smokescreen to continue to protect their privilege. There are approximately 170,000 rent-controlled units in SF (2), so if means-testing was applied and only households making less than $110,000 per year were allowed those units, (3) theoretically 50,000 units of rent-controlled housing could become available to low- and middle-income residents.

    So among all the clatter and panic over evictions, I cannot but think that unless SF implements reforms of its rent-control policies and removes subsidies for the wealthy, the poor and middle class will continue to suffer—regardless of other efforts to make more affordable housing available.

    (1) Available here: http://www.sfrb.org/index.aspx?page=13
    (2) The study is based on 1998 American Housing Survey data, which notes the sample size is “relatively limited,” but illustrative.
    (3) http://www.spur.org/publications/article/2014-02-11/how-make-san-francisco-affordable-again
    (4) “Is $84,000 Enough for a Family of Four in San Francisco?” http://blogs.kqed.org/newsfix/2013/07/15/103615/84000-family-four-san-francisco

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