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Sympathy for the Landlord
Lauren Smiley | Photo: Brittany McLaren | August 30, 2013
They’re greedy. They’re parasitic. They’re trying to fleece us all. It’s a familiar battle cry in San Francisco’s raging rental wars. But the truth is far more complicated.
We burden mom-and-pop landlords with all kinds of expectations and baggage that we don’t impose on more corporate types. That’s partly because they are, well, moms and pops, with all the psychodrama that those words imply, and partly because they are such a prominent feature of the rental picture here. A 2003 study (old, but still the most recent solid data available) found that 75 percent of landlords in the city owned fewer than 10 units; 42 percent lived in a building that they rented out. They were also much more likely to manage their own rental properties than landlords nationwide, increasing the potential for friction with their tenants, and they held on to those buildings longer—three decades was not unusual. An estimated 80 percent of rent-controlled properties in San Francisco are mom-and-pop owned.
Mrs. Madrigal and Kip and Nicole Macy may represent the extremes of our collective fantasies and fears, but Jackie Tom is closer to the complicated reality. Tom’s day job is running Rentals in SF, a high-end leasing agency (she was named the San Francisco Apartment Association’s 2009 Leasing Agent of the Year), but she also owns 30 rental units (which earned her the same group’s recognition as 2010 Independent Owner of the Year). From her perspective, not surprisingly, “it’s a great market! It’s a really great market!” That’s not to say that she’s 100 percent thrilled by the nearly 10 percent uptick in prices last year. The new-normal rents—$1,900 for what she calls a “dark cave” of a basement one-bedroom in Alamo Square (bid up by $700 by a horde of hungry applicants), $3,500 for a pet-friendly one-bedroom in NoPa—exclude many deserving potential tenants, Tom admits. “I know schoolteachers, dog walkers who can’t afford to live in the city, so I’m kind of torn with it. I have a soft spot for those guys because they’re good people too.” Eighteen years ago, Tom might have been among the excluded. A native of the city with a business degree from San Francisco State, she was earning just $35,000 a year at her data sales job and she had a Great Dane—dog owners are a category of renters that many landlords automatically dismiss. Still, she was hardworking and very smart, managing to buy her first property at age 30 with a $6,000 credit card advance and other loans. She never doubted the wisdom of her overall investments, though sometimes the financial strain felt unbearable: “I remember lying in bed thinking, I’ve lost it, I’ve lost my shirt.”
These days, Tom’s job puts her on the front line of the San Francisco culture wars. Some of her landlord clients don’t like tech workers: “They think they’re arrogant and make too much money and don’t appreciate the [living] space,” she says. She, on the other hand, has no problem with techies. For her own rentals, “I tend to look at all the applications and pick the people with pets,” she says, ever the dog enthusiast. She also gravitates toward people who “love my units. Those make the best tenants.” And of course, they must have the income—she looks for at least three times rent. “I go through their bios and pick those who stood out to me and then run credit. I pick tenants based on total overall package.”
For the unit she posted online in early July, she was feeling especially choosy: It was the basement studio in her own home, a Lower Haight Victorian. Of her future tenants, she told me, “I don’t want to come home feeling like, ‘Oh God. They’re there.’ I want to like them.” So she set the rent under-market—at $2,100—to widen the applicant pool.
It was a fine idea, but also perhaps unintentionally cruel, raising vain hopes in many candidates who never stood a chance. More than 40 of them gathered for the 15-minute open house as if for a Banana Republic model casting call: designer glasses, red chinos, messenger bags. As soon as they walked in the door, the haggling began. “What if I wrote you a check right now for $2,400?” one woman asked.
Within a day, Tom had received applications from 16 hopefuls. They offered up to $300 more than the listed rent, leading Tom to conclude, “Anytime you price it below, it comes right back to market.”
One prospect, Jon, called to say that he really liked the place, his tone friendly but not pushy. He was a techie with a high income and good credit—and he had a dog. Tom decided to check his references first.
But when I emailed her a few weeks later, I was surprised—or not—to discover that Jon hadn’t gotten the place after all. “I got an offer to rent it furnished.... Much easier for me,” Tom wrote me. “A really nice guy here on business, moving in next week.” He’s a dog lover who happens to earn $150,000 a year; he’ll pay $3,400 a month. “I got so busy suddenly, sick mom, busy market, that one less thing I had to do [moving furniture] was very attractive,” she added. What Tom didn’t have to say is that short-term rentals tend to be far more lucrative than regular ones. In six months, she’ll be free once again to charge whatever the market will bear.
Any landlord of a San Francisco property knows why finding a high-paying tenant is so important: Once someone is in, it’s nearly impossible to get him out, and the landlord loses more and more money on that apartment with each passing year. Cue the rent control debate (though because so many S.F. voters are renters, it’s not a debate that gets very far). The first rent control laws, inspired by the aforementioned Sangiacomos, seem astonishingly pro-landlord by today’s standards—for example, owner-occupied buildings of four units or fewer were exempted. In 1994, price controls were extended to those mom-and-pop properties. That’s when landlord-tenant relations really turned ugly.
Many tenants will tell you, rightly, that there’s no way they could afford to live in the city today if it weren’t for the ordinance that regulates rent increases for tenants in properties built before 1979—some 171,609 units, or about 70 percent of the rental stock in San Francisco. This year’s allowable increase is 1.9 percent. “With the prices here now, Chinatown would not be Chinatown, the Mission wouldn’t be the Mission, without rent control,” says Delene Wolf, the Rent Board’s executive director.
Yet landlords—as well as respected economists on both the right and left—counter that this protection actually hurts many tenants. Artificial price controls encourage people to hold on to their units for dear life, freezing up the housing supply for the rest of us. When a unit becomes vacant, landlords often try to make up for lost income by charging as much as possible, further inflating the market. And rent control doesn’t discriminate by income level or neighborhood, so a programmer lucky enough to have scored an art deco Nob Hill flat after the 2008 crash is benefiting just as much as, if not more than, the grocery worker struggling to keep her Outer Excelsior home. (One survey of city tenants found that 19 percent of rent-controlled units were occupied by people earning more than $100,000 a year.) “You can’t go to the deli on the corner and say, ‘I’ve lived in the neighborhood for 25 years—can I buy a burrito for $1.99?’” says Bill Alvarado, a landlord who nearly went broke after inheriting his parents’ two-unit property in Cole Valley—and its tenant (he averted disaster by selling). “With a fixed sales price, you can’t run a business with rising costs.”
Then there are the city’s tight eviction controls. In most other parts of the Bay Area, landlords are like employers in a right-to-work state—they can fire a tenant at will. In San Francisco, tenants with rent control are the equivalent of union workers—they can be booted only for “just cause”: for example, failure to pay rent, habitual late payments, breach of lease, or being a nuisance. The law also provides a couple of “no fault” reasons to evict: The owner or his family want to move in, or the owner wants to take his units off the rental market altogether as permitted under the 1985 Ellis Act. In both of those scenarios, the landlord is required to pay out a city-mandated relocation fee. Disabled and senior tenants have additional protections, so in some cases they’re all but impossible to kick out. The effect of these laws is all kinds of distortion in the market. Landlords, for instance, whisper that the provision meant to protect the disabled and the elderly from being evicted discourages property owners from renting to them in the first place. (Prospective tenants who are lawyers also get the shaft.) Owners have an incentive to try to force out tenants who cost them money—maybe torturing them with nonstop construction or barraging them with trumped-up eviction notices to see what happens. (Indeed, attempted evictions are at an 11-year high—1,757 in the year ending in March—though still 16 percent below 2001–02.) One elderly property manager I meet at the Rent Board admits to installing cameras to catch tenants in violation of their lease. “The tenants don’t like ’em, but if you don’t like it, move!” he tells me. Other landlords just send notices to tenants informing them that their rent is being raised by an (illegal) amount, counting on the tenants’ ignorance or fear to keep them from protesting. “Most tenants do what their landlords tell them to do,” says Ted Gullicksen of the San Francisco Tenants Union. But one of the more dismaying things about the rent laws is that they can force perfectly decent people—like a mild-mannered retired firefighter from Las Vegas named Al Alcalde, whom I met this spring—into positions that make them look, and feel, like jerks.