Sky High San Francisco Rents: Blame Rent Control

San Francisco is known for expensive rents and recently, nightmarish conditions for prospective tenants. Competition for apartments is fierce, and despite weak economic conditions in the broader economy, rents in the city have been steadily rising for months.

So who’s to blame? (Because after all, in America we are always looking for a scapegoat.)

Commonly cited culprits are Web 2.0 companies like Zynga and Salesforce who, gasp, are actually hiring and bringing a fresh wave of young professionals into the city. Armed with generous salaries, this influx in demand combined with limited rental supply and a diversified economy make San Francisco one of the  toughest rental markets in the country for tenants.

But what else is at work here? A report out a couple months ago looked at 2010 census data which showed a surprising fact: 31,000, or one in 12, rental units in San Francisco sit vacant. Which should make no sense, why would landlords hold back vacant units when rents are nearing all-time highs?

The answer: Rent control.

San Francisco has a maze of rent control ordinances, the intricacies of which fill reams of municipal regulations, to protect tenants against greedy landlords. You know, the 1%. Landlords face strict limits on how, when and where they can raise rents, among just about every other action landlords normally take. As a result, long-time tenants often enjoy super low rents and strong protections against landlords replacing them with tenants willing to pay market rents.

Anecdotal evidence suggests that most vacant units are being kept off the market by landlords complying with San Francisco rules that limit the rent they can charge if after a legal eviction. Via the Ellis Act or owner-move in rules, landlords can legally evict tenants despite on-time payment of rent, but are required to keep those units off the market for pre-determined periods of time.

The result: fewer rental units on the market and higher rents for everyone else. Do a few long-term tenants get the benefit of paying drastically reduced rents for years and years? Sure, but this is a classic case of politicians enacting well-meaning legislation that benefits the few (long-term tenants) at the expense of the many (everyone else).

So next time you show up to an apartment open house, deposit check and credit report in hand, only to find a line out the door just to throw your name in the hat, thank City Hall and the tenants’ rights advocates who are fighting so hard on your behalf.

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About Andrew Jeffery

Andrew is Co-Founder and Chairman of Cirios. Prior to founding Cirios, Andrew worked for seven years in New York in the mortgage finance business, managing a $500 million lending facility at The Winter Group, a mortgage investment company. Andrew is a published author, whose work has appeared in the Wall Street Journal, Bloomberg, Minyanville and HousingWire.Andrew is responsible for managing the Cirios investment portfolio.Andrew holds a degree in Economics from UC San Diego and is an avid trail runner.

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