Real Estate

Speculators or scapegoats? The city’s small property owners frustrated with city, state opposition

In Chinatown, SPOSFI protests Ellis Act reform legislation by State Senator Mark Leno, photo: Noni Richen

City Hall is buzzing with proposed legislation to address public worries over housing affordability in San Francisco in this current economic boom (see page 26). One group that isn’t being quoted much in newspapers or by supervisors is smaller owners of rental properties.

What are the economics of being a small landlord in San Francisco? Do regulations intended to protect renters have any negative effect on the rental market?

Last year, journalist Jacqui Kenyon researched the best and worst places to invest in rental property. Six of the nation’s 10 worst places were in California, and San Francisco was listed as being the worst of the worst. Kenyon’s data was based on just the economics of buying or renting, but it points to the challenges local landlords, especially small ones, have even before they deal with added costs of city and state regulations.

To hear their input, we talked with Noni Richen, president of the Small Property Owners of San Francisco Institute, a non-profit advocacy organization that represents about 2,000 small property owners in the city.

How long have you personally been involved in property ownership in San Francisco? How have things changed for landlords in the city during that time?

My husband and I bought a pair of flats in 1974. We still live in the upper flat and rent out the lower one. We also own a four-unit building near our home.

When we bought, pre-rent control, tenants seemed to stay for a few years then move on to continue their educations, or because they were expecting a child, or, frequently, because they’d bought a place. We seldom raised people’s rent because of this tenant mobility. Initially, owner-occupied buildings of four units or less were exempt from the rent control laws; 1994’s Proposition I brought these buildings into the rent control ordinance and, for many owners, changed the atmosphere of these rentals from a neighborly one to a somewhat adversarial one.

San Francisco’s elected leaders are moving fast to consider a flurry of rules changes regarding rentals, evictions, and rent control. What are the most important changes you see being considered?

We now operate in a system that regulates whether owners may ask a tenant to leave so that the owner or owner’s relatives may move into the unit. Owners who become disabled may not insist that a tenant in a more accessible unit leave. Yet, owners are required to allow as many of a tenant’s family members to move in, rent free, as are permitted under health and safety codes.

We are now facing possible legislation that would mandate that we allow the tenant to move in anyone, again, rent free. Legislation has been introduced that would force owners to pay two years of increased rent to no-fault evicted tenants, ignoring the fact that we have subsidized these same tenants with below-market rents for years, in some cases.

Another supervisor has floated the idea of an “anti-speculation” tax. We consider all of these and other attempts to stifle our ability to move into our property and to buy and sell our property as harmful to property owners. More important to the 65 percent of San Francisco’s population who are renters, these laws or threats of such increased regulation convince property owners to stop renting out their property to most applicants or to sell their property. With the passage of the Gonzalez Amendment that mandated free rent for relatives, my husband and I sold one four-unit building to a developer for TICs and have decided not to rent out future vacancies. Our last two vacancies are occupied by our adult son and daughter.

Do you anticipate that the state legislature will actually pass changes to the Ellis Act? If they do, will they have a significant impact on evictions in San Francisco?

The Ellis Act was passed in 1985 but was barely used in San Francisco until the passage of Proposition I in 1994. The Ellis Act simply allows owners to leave the rental business, just as any other business may close up shop. As the regulations surrounding our small businesses have grown, many mom-and-pop owners have decided to cease to operate their businesses.

The story of a couple who had lived in owner-subsidized housing for 35 years and now were asked to vacate so the owner could renovate the building and recoup his investment made the Ellis Act front-page news recently. There are a couple of facts about the Ellis Act that have been ignored. Of the Ellis Act evictions over the last year, 33 were in the luxury Park Lane building on Nob Hill. Another fact: Many of the Ellis Act “evictions” are not evictions at all. If a unit in a building is removed from the rental market by the Ellis Act, then it is counted as an Ellis Act eviction, even if it is vacant. For example, about one-third of the units in Park Lane were vacant.

Many owners invoke the Ellis Act out of frustration over a couple of holdouts who refuse to move after other tenants have accepted money in exchange for their willingness to move out or left voluntarily for their own reasons. The San Francisco contingents in our State Assembly and Senate have been busily lambasting owners with name calling and by introducing legislation to delay and prohibit selling and buying of property. The spike in Ellis Act filings is the result of fear that these introduced bills may become law.

What is your position on planned changes to recognize thousands of in-law units? 

When the opportunity to legalize many of the approximately 30,000 in-law units in San Francisco was introduced, owners were pleased with the opportunity to operate legally and without the threat of lawsuits by current and former tenants. The owners of most of the units live in single-family homes that have a space converted to a second unit. These units are under rent control.

However, since the legislation was introduced, Supervisor [David] Chiu, heavily influenced by the tenants’ groups, has made the legislation unpalatable for many owners. A main concern is that once the unit is declared legal, the building becomes a two-unit building under rent control (single-family houses are not subject to rent control) forever. It may not be restored to a single-family house. Other concerns are passing through costs of mandated renovations to legalize; amnesty from lawsuits from past tenants; lack of mandated notice to surrounding neighbors; high relocation fees; prohibition of ever creating condominiums from the two newly legalized units. The high costs and high risks associated with legalization may be out of reach for some owners of single-family homes. On the other hand, this legislation may be quite attractive to owners of buildings of three-units or more who want to legalize another unit — [such as] in a garage or storage room.

What does SPOSFI recommend to address concerns over housing affordability in San Francisco?

We recommend the obvious: Increase the supply. Older surveys have indicated around 15,000– 20,000 units held “vacant by choice” by owners who cannot operate their businesses under the restrictions imposed by the ever-changing rent control ordinance. Though it is anathema to the self-styled tenant advocates, easing restrictions would bring some of these units back onto the market. Remove small owner-occupied buildings from at least some of the most repugnant aspects of rent control. Allow us to limit the number of people in a rental, for example. Many units sit vacant for years because the owner has future plans for the building when financing, or building permits, or whatever conditions improve. If these units could be rented for a fixed period of time with the stipulation that the tenant would be required to move, those vacant units could provide housing for
many renters.

At this point we tell our members to consider every lease with a tenant to be a lifetime lease, because it is almost impossible to remove a tenant, even, as I found out recently with my own rental, when the tenant has not paid their rent.

Do you think landlords are being made the scapegoats in the housing affordability controversy? Why? And if so, what can landlords do about it?

Scapegoats? It is always comforting to blame someone else for one’s problems. The truth is that not everyone can live exactly where he or she wants. Some people cannot afford to live in San Francisco County. So what? Maybe I would like to live in Presidio Heights instead of the Western Addition where I hear gunshots at night. Sorry, just can’t do it. Increase the supply of housing to lower costs, and, as Willie Brown said, it probably can’t all be built in San Francisco.

Send to a Friend Print
John Zipperer is the former senior editor of Affordable Housing Finance and Apartment Finance Today, and the former new media editor of the CCIM Institute of the National Association of Realtors. E-mail: [email protected]