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Rent Control In Marin?

The following is a letter I sent to the Marin Board of Supervisors, today, about the realities of implementing rent control as a way to create affordable housing.


Dear Marin Board of Supervisors:

I would like to offer the following limited perspective.

San Francisco implemented rent control laws looking to protect those people being displaced by gentrification. We all want to protect our seniors and disabled. Rent control is not it. Most “age discrimination laws” result in discrimination against age. If there are age discrimination laws in place it is easier to avoid any conflict by just not employing someone older. So really anti-discrimination laws, discriminate against some to subsidize another.

Rent control will eventually lead to the opposite result of what the intent of the law was.

San Francisco passed their Ellis Act (Rent Control), June 1979. It passed so their elderly, disabled, and lower income workers could afford to live in San Francisco, close to their employment. What they got are run down units with squatters. The San Francisco board of Supervisors listened to investors and developers and conceded to allow the Ellis Act to cover only properties built before 1979 and exclude future developments. Why would San Francisco exclude future developments, yet cover pre-existing housing? If the Ellis act were to be required of all future developments, there would be no future development. No incentive for improvements leads to stagnation.

Coming around this puts more pressure on the pre-1979 smaller units, the mom and pops or second bedroom units, to be torn down for bigger developments rewarding speculators with non-restricted market rate rents. Newer buildings with larger footprints are not as affordable for tenants as pre-existing smaller units.

Right or wrong, developers are putting theirs (and others’) capital at risk when they speculate and build. All projects have potential downsides. Like any other investment if you diversify your investment you are at better odds, should a change of market condition occur. For development if there is not a large enough margin so as to cover some of the potential offsets, why take the risk? It would be reckless and possibly a breach of their fiduciary responsibility, if the developer moved forward with a project with only downside and no upside. Remember for every project that produces a profit there might be 3 others that become insolvent and end up in receivership. Remember profit is not realized today, it is realized over years. That is why the IRS allows property improvements to be depreciated over 27.5 years.

Think of the increase in the cost of doing business; from insurance, to employees, to materials, to supplies, to services, to maintenance, to utilities, etc. Over the last 20 years have these costs increased over 10%? Most have. It depends on too many individual variables to accurately answer that question in this short opinion.

In San Francisco rents have increased approximately 1.6% over the last 20 years; 1.5% over the last 10 years. What if you have a repair? A vacancy? An accident? You could be under water and forced to surrender your property to the bank. San Francisco’s 20 year rent increase of 1.6% is a bad rate of return when you add the risk factors. Would you put your money into a fund that had a down side and only a 1.6% upside, we think not.

Did the Ellis Act preclude rental increases in 2014? No; supporting the above with all the tears outs and new building in San Francisco rents increased 14.5% in 2014 (one year). What are pushing these rents upward?

What about the hidden future expense? If rent control is implemented who will enforce it? Looking closer to home we chose to look at 2014 statistics released in the Marin IJ stating that the average Marin County Employee receives approximately $130,000.00 (some articles supported $150,000/employee) in a total employment package including their wage, pension, and health benefits. This new Rent Control Bureaucracy will only lead to new taxes further pushing rents up or margins down. The result will again harm those who least can afford it, the renter.

The squeeze we are all feeling, both land lords and tenants, is driven by local taxation. If the cost of doing business and for this discussion the cost of building housing was more affordable; we would generate profits at all levels of buildings; not just at market rate. Thus affordable buildings and units would be built.

Over the last few years our local governments have asked those people who can least afford it to subsidize those people who can. (Please allow for 2014 approximate numbers to emphasize this point.)

Using my property located in the Ross Valley I have been similarly treated as other multi-family properties. After you get past your basic tax, many local taxes are on a per-unit basis. Not a per-parcel or value basis or use basis.

So if you have a 70 square foot living space or a 10 bedroom 12 bathroom mansion with butlers and maids and pools and cabana boys you are treated the same with many local taxes. Over the last couple of years both mansion and tiny apartment have been charged $195.00 each for the Fairfax Special Municipal tax. Both mansion and tiny apartment have been charged $125.00 each for each of the two Ross Valley School bonds. Both mansion and tiny apartment each have been charged approximately a $169.00 increase for the sewer usage (2014 was approximately $692.00 per unit/ mansion). Why should we ask those who can least afford it to subsidize those who can? All these taxes (expenses) are passed on to the tenant as part of the financial models required to satisfy the bank that the property is a viable investment.

What about conservation? Those tiny single toilet units cannot use as much water or sewage or municipal resources as a large mansion. Even the drought will have those who can least afford it subsidizing those who can. Smaller units use fewer resources. So when the draconian 25% cut back comes on our water, who is hurt? Those tiny units that use fewer resources and are already conserving out of necessity.

There are many supporting arguments why rent control will inadvertently hurt those we intend to help. Improvements will not be made until a bank can justify lending the money for the improvement; if the bank cannot see the profit there is no loan. Properties will fall in a state of disrepair until a profit to offset the investment can be realized. The realization of profit will come with tearing down the old and building bigger market rate units that are exempt for your rent control law, precluding housing built after your cut off year. What will the cut off year be, 1999?

The real discussion for affordable housing should be the fair assessment of taxation based on a usage basis not a per unit basis.

Please support your renters and say no more taxes, until we can control this run-away spending and the unfair taxation to those who can least afford it. Affordable housing will be achieved when we lower the cost of business so all levels of housing can be built at a fair rate of return.

This is just an opinion of a land lord who is watching our local governments give lip service to the relief they offer to the poor, when in reality they are the ones who give themselves jobs with raises obfuscated behind taxing the rich.