Your Take: Rent Control Based On Tenant’s Income?

I saw this LA Times article San Francisco beefs up renter protections over at SavingFreak, and it nagged at me all day as both a recent renter and possible future landlord.

Here’s the quick summary. City Supervisor Chris Daly introduced legislation to add the following additional tenant “protections”:

  • Landlords cannot raise the rent above 33% of tenant’s income. An alternative amendment restrict this to situations where the tenant has a “hardship” – defined as being unemployed, having wages cut, or living on a fixed income and receiving a cost of living increase.
  • Allows tenants to add roommates other than family to help pay rent, even if explicitly forbidden in the rental contract.

My take. I think this going too far, and I am glad the mayor seems to agree and will veto it. Already 88% of rental units in San Francisco are subject to rent control, with annual rent increases being capped at an average of 2% per year. Now a landlord must charge rent based on a person’s future income? How can they control that? And then tenants can bring in whomever they want as additional roommates, also creating more wear and tear on the place?

This is different from having the government provide unemployment benefits, or even “bailouts”. This is forcing individuals to directly subsidize other individuals arbitrarily. Imagine being a cabinet maker and being forced to accept a 50% discount to any customer who lost their job recently, regardless of your own costs or financial needs. I echo the concerns of this editorial:

We all like the idea of businesspeople doing the benevolent thing when their customers are hurting, but it is not fair for a public entity to force such behavior on a private one.

Am I missing something here? Let me know in the comments.

Comments

  1. You are absolutely correct. This is none of their business. We are still in a (somewhat) capitalist society. You should be able to charge whatever the market will bear. If the landlord treats the tenant fairly, they will stay. If the landlord treats the tenant poorly, they will leave.

  2. I can say with confidence that this would never pass in Texas.

    It seems very short-sighted to force landlords to sell with ridiculous caps that don’t cover the real-world value of the rental.

  3. You are not way off base, in fact, you shouldn’t be so hesitant. This is a blatant disregard for peoples freedoms and rent controls should not be happening anywhere. We’re so worried about the tenants, what about the landlords? I’m sure some of them depend on this income for retirement and regular income. If the rent control causes the landlords income to drop below a certain amount, can he/she then charge more? It’s ridiculous.

  4. While I agree with your assessment, I thought I would make a point of clarification. Having worked in multi-family real estate and being particularly familiar with federal low-income housing guidelines, I offer this: The percentages and qualifications stated are very similar to the conditions required by HUD for housing programs by state Housing Finance Agencies. Most states are presently scrambling to make up shortfalls for low-income and workforce housing. This proposal in San Francisco may possibly be geared toward alleviating a tension there.

    Or it could just be a bad idea growing out of a cursory knowledge of federal programs. Either way, scanning the California Housing Finance website could be illuminating for someone wanting to pursue further.

  5. Why not control the amount you can sell a house for? Why discriminate only against renters in this legislation? If I want a $400,000 home and only make $30,000 a year, who will stand up for me and make the seller decrease the price of the house so I can afford it with a normal loan? I think as a US citizen, that that is my right!!! I mean, how can we let the home sellers push us home buyers around like that!?!?! Who’s with me??

  6. EricPSU says:

    Yet another example of Government sticking its nose somewhere it shouldn’t. Why not let the free markets sort it out? If the renters can’t make rent, they will be forced to move. Someone else will move in that CAN afford the rent. If no one else rents the apartment b/c no one is left to afford the *high* rent, then the landlord will lower the price to something that a renter COULD afford.

    Let me guess, the next step in SF will be to raise taxes on rental income, while lowering taxes on people who rent?

  7. I think you’re preaching to the choir here :) In any case, I didn’t realize that SF already had a 2% cap — that in itself is ridiculous. How are landlords supposed to keep up with inflation? I think that the cap probably actually serves to increase the initial rent that will be charged to new renters (at least, if I were a landlord, that’s how *I* would run it).

  8. California is trying to solve every problem by more regulation and more government. They have passed laws to curb urban sprawl, and prohibited developers from building upwards. Developers have their hands tied. Then demand for housing increases as places like SF declare themselves sanctuary cities. The result is increasing residential values which cause landlords to charge more in an effort to cover their mortgages and make a profit.

    SF is in danger of following NYC’s decline in the 60′s and 70′s. Regulation is necessary and consumer protections end up making society better for even the regulated, but this is a clear violation of property owners basic rights.

    With the erosion of traditional morals and values, more people seem to be driven by whats legal more than what’s right or wrong, causing an increase in the number and complexity of regulations.

  9. Rent control is already a terrible idea. This would be even more ridiculously bad.

    It would certainly hurt renters as well. If I want to rent a place that costs exactly 33% of my income, presumably a landlord would now never agree. They’d have to leave some margin for increases even if my income doesn’t go up (or drops some). So maybe now they would only rent to people with the rent ~25% of their income, which seems to be the opposite effect of what is intended.

  10. “To each according to their needs” is the new bail out nation mantra. The problem is no society has survived this. Why work harder when I can just force the landlord to reduce the rent. Why invest in rental property when I can just take it easy and pay 33% of whatever…

  11. Agreeing with the group here! Reading your post angers me that people could even think about this as a good idea!?
    The government further controlling the land is nothing short of communism:

    http://www.myjourneytomillions.com/articles/is-the-united-states-turning-towards-communism/

  12. I am with you. This is nonsense. How can they force the landlord to do what government say. They don’t protect the landlord when he cannot rent it continuously but want to force a limit on the rent he gets.As Andy said it will finally show effect on the renters. How did Chris Daly come up with this idea in first place.

  13. Paul just hit it on the head……….

    It’s the neo socialistic ideal. I call it socialism dressed up as capitalism!

    Capitalism on the way up

    Socialism on the way down

    etc., etc.

    Ya get the idea.

  14. It boggles the mind, the kind of idiotic thinking that believes we can just legislate our way to “consumer” utopia. Heck, while they are at it, why not mandate a maximum gas price of $1 per gallon…

  15. Heather Lee says:

    I have rented and have friends who are landlords in San Francisco and it is a completely adversarial environment for renter and owner. As far as i can tell, all of the hair-brained ideas, and this is only the latest, are the result of SFO being a boom-bust economy. Ever have a bright shiny new person come in and say – oh, I know a much better way of running this company that I just walked in the door of. Imagine a whole city run by those people…..

  16. I’m glad I’m not a landlord in S.F.

    If 88% of the city is already capped at 2% increases then this new law wouldn’t really change much. Thats already excessively restrictive on the landlord and leaning WAY overboard towards tenants ‘rights’ to get cheap rent at the expense of the landlord. But I don’t see how the landlord can manage rent at 33% of income. Tenant income will go up and down as they get fired, change jobs,etc. If a tenant gets a raise do the landlords get to jack up rent arbitrarily?

    Personally I dislike the 2nd item more since I really do not want my tenets adding additional people without my approval and authorization.

  17. MadisonGuy says:

    Paul Says:

    July 1st, 2009 at 9:17 am
    “To each according to their needs” is the new bail out nation mantra. The problem is no society has survived this. Why work harder when I can just force the landlord to reduce the rent. Why invest in rental property when I can just take it easy and pay 33% of whatever…

    Define hard work.
    Why is hard work necessary?

  18. SanDance says:

    Milton Friedman said a long time ago that rent control is a bad idea, along with a lot of other well intentioned measures to force benevolence resulting in harmful consequences.

    We’ll see how our capitalist economy survives in a country now run by an affirmed socialist.

  19. Econ 101 says that price caps lead to shortages. This has been true for hundreds of years of capitalism, and it will continue to be true. If you tie the hands of landlords, they will sell their property to an owner-occupant, thus reducing the number of available rental properties.

  20. Wow, I can hardly believe that. If the government wants to step in and subsidize people’s rent so that it doesn’t exceed 33% of their income, then I would be staunchly opposed to it but THAT is what they should try to legislate. To simply pawn off their idealistic price desires on the landlord? It’s outrageous. It’s like telling gas station owners they can only charge $1 for gas – meanwhile they still have to pay the market price to purchsase it from the oil companies!

    This is one prime example of why California is in such a mess, why I would NEVER live there, and why people and businesses are fleeing or will eventually flee the state.

    Landlords are likely to be the ones paying TAXES in this scenario (not the lower income and immigrant population they are renting to), and if they are forced to have continual losses due to this kind of regulation, all that does is decrease the tax base. While keeping housed the lower income folks who are already receiving all kinds of tax credits and other subsidies.

  21. Socialism rules the day right now – just look at the health care reform battle. Hopefully, we can ride the storm out.

  22. Christine says:

    To keep it short (’cause I could really go off here), I agree with your opinion in the post. Having lived in rent controlled and non rent controlled housing over the years (including SF) and been a landlord in a non rent controlled city, I think I can resoundingly agree that this would be “going too far”.

  23. These people who come up with the bills, have no idea what it is like to run a business. They should consult the business owners, in this case landlords, along with the consumers/tenants before drafting such a bill. They should also understand that it would cut down there own city revenue. I am generally left, and raised in CA, but sometimes SF just seems like a bunch of whiners. You can’t just complain and get everything you want, somethings you have to work for.

  24. I’m not exactly sorry for anyone foolish enough to be a landlord in SF. I don’t intend on land speculating in N. Korea or opening a chain of kosher delis in Iran either.

  25. DoneToZen says:

    This is outrageous! This seems to be another case when the government is penalizing the “rich” people for making good (or, in this case, bad, I guess) investment choices.

  26. chris in Boston says:

    This is getting out of control.

    Our Government is way out of control both at the state and federal level.

    Obama is bankrupting this country hook line and sinker. If cap and trade passes, it will be the largets TAX increase imposed on Americans in our country’s history.

    Spain tried it, and failed as a result their unemployment rate is over 18%.

    Obama wants to spread the wealth, and subsidize everything and give everyone below a certain income a handout. This will ONLY serve to keep people of a certain economic class down.

    Why learn to fish when the government gives you your fish for free?

    people are so blind to it. Obama is destroying this country.

  27. This is so stupid – it’s the kind of policy only Chris Daly would dare to introduce. It’s not enforce-able and it’s a waste time to even carry on a discussion about it.

  28. The socialist republic of san fransisco strikes again.

  29. The whole idea of limiting rent based on income is fine if that idea is a mutual and voluntary agreement between owner and renter. Otherwise, it’s just another case of government intrusion and interference with what is supposed to be a free market.

    Rent control goes too far to begin with. It’s a violation of private property rights. It inhibits investment, promotes disrepair of housing, and furthers the socialistic ideas of government do-gooders which only encourages more of the same.

    The market is self-correcting and works just fine if government would kindly step aside and stop governing.

    Interference in the marketplace diminishes competition, and it’s competition that raises quality, lowers prices, and increases options for the consumer. Interference in the marketplace also discourages investors, the very foundation and lifeblood of our economy.

    Those in government must keep in mind that all the wealth they consume is created by others – not the government – so they’re slowly eating the cow that they milk.

    Clair

  30. Jalpino says:

    I wonder if you could put a clause in the renters agreement stating that if their income falls to a point where the ‘protection’ would kick in, that its constitutes grounds for eviction.

  31. Wow, it is so encouraging to see every post is against this legislation. I guess it makes sense as the current government policies at the state and federal level will reduce income by higher taxation while simultaneously destroying the value of hard-workers savings as they monetize the growing debt.

    CA is embarrassing. To be 26B, or almost 25% over-budget and not be able to agree that trimming back programs, many of which are redundant to federal programs, is insane. To add to it this sort of ridiculous legislation – SF will get what it deserves – declining property values and net exodus. To ignore property rights is just wrong.

  32. My heart bleeds for the poor, downtrodden landlords of the world. It really, truly does.

  33. If I were a landlord, I’d beat the system by charging rent in units of gold. For example, I would charge 1 ounce of gold or the value thereof per month and never increase the rent. Therefore, if the dollar falls (inflation), I’m still making the same amount of money in real terms.

  34. There’s a good reason that most of the comments here are against this legislation. It’s because those who read this blog tend to be more intelligent than the average person. We understand economics 101, the free market and the concept of supply and demand. The type of person who would be in favor of rent control is probably sitting on his porch or on his way to cash an entitlement check, paying 29% interest on credit cards and renting a TV from the rent-to-own. His only thoughts on the subject are “what’s in it for me” and “landlord bad – renter good.” Has it dawned on these people that if they don’t like high rent, they should move and take their business elsewhere!

  35. Don’t tell me that this is going to become law!

    First, I do not think any landlord would raise the rent by 33% for no reason. but, our government CAN do this instead. In my case (as well as in our state), my rental property tax went up almost 100% this year (an angered landload paid his property tax with PENNIES loaded in a shopping cart!), but I have not really raised my rents yet. If our government moves first, we have no choice but to follow.

    Second, every city has some ordinance that limits unrelated people to live in a single-family house. a tenant can not decide how many roommates he can have…

  36. mapgirl says:

    Any landlord in SF can invoke the Ellis Act, evict a tenant and move in themselves for 6 months and then move out and re-rent at market rates. Don’t boo-hoo the landlords there. You guys have no idea. The property taxes are frozen at the time of the sale so they don’t go up over the course of owning the property. People who have owned a property for 20+ years are getting very wealthy off their renters out there. I don’t know any landlord who is not making money in SF.

    I lived in two rentals in SF and my first landlord was a lovely woman who Ellis Act-ed a long time tenant. She and her scary dog, Toby, moved in and scared the bejesus out of everyone. Toby was an unfriendly German Shepherd and my landlady could barely control him because he outweighed her. She was a ruthless landlord though. She asked my roommate if we’d pay an extra $50 a month for 2 ppl in the unit RIGHT IN FRONT OF ANOTHER PROSPECTIVE tenant. Then turned and said ‘sorry’ to the other guy after we said yes. (I was not there when this happened.)

    The other landlord pretty much wouldn’t let me stay in my apartment after my 2 roommates moved out even though I was on the lease. She claimed she was going to sell the unit as the reason for making me leave, but she promptly tripled the rent and leased it to three dingbats, er friends of my friend, which is how I found out about it. I thought about suing her for the blatant lie as were my rights.

    However, I also disagree with this legislation because it’s crazy stuff.

  37. mapgirl – The point is… No matter how much you didn’t like the behavior of your former landlords… it’s their property and they should have the right to do what they please with it. (Except for racial or religious discrimination of course.) If the renter doesn’t like it they are free to leave. If the landlord is unreasonable, nasty and charges high rents, they will have vacant properties and make nothing. That’s how the market works.

  38. Gates VP says:

    @Health Insurance Quotes Guru:

    I’m confused here.

    Obviously, rent controls are generally socialist measures in an otherwise capitalist economy. Housing is a generally elastic market that responds to standard supply and demand.

    So it’s clear that the “need” for rent controls is likely manufactured. The only appropriate “capitalist” lever here would be low-income housing provisions.

    What I don’t understand is your brief mention of healthcare.

    Healthcare is a generally inelastic market that responds poorly to things like “market demands”. Kids don’t magically start breaking less legs just because the price of fixing a leg has gone up.

    Generally, when a service needs to be provided in some fundamental, shared way, we a society “socialize” that need. Common things like garbage pick-up and sewers and schools have all been “socialized” in an attempt to serve the needs of the greater good. It’s really not cost efficient to have two private companies maintain completely separate sewer systems and run competitive businesses around the management of waste water.

    The “socialization” of medicine is based on a similar thought process as making a public school system. We want to provide everyone with a system they can use, we want to provide a baseline for service and care. The “single-payer” system used in places like Canada and Europe delivers a similar life expectancy and quality of life as the US system, but at significantly reduced overall costs.

    If a “socialized” system delivers the same quality of care and costs less, doesn’t that satisfy the “capitalist” desire to do “more with less”?

    How does converting healthcare into a more public service equate with “socialism”?

  39. While I’m generally opposed to rent control, Mapgirl has a great a point about the taxes in California. Proposition 13 which limits how property taxes can increase is what has put California in bind, and created an completely inefficient housing market.

    Also, please people need to get a grip with all the socialism fear mongering. This is not federal or state ordinance. It’s a local ordinance. Rent control provisions have been long around. They ebb and flow under both republican and democratic presidential leadership.

  40. @dong:

    This isn’t about fear. This is about freedom. Here is what Thomas Jefferson had to say about things like rent control and other government meddling:

    “A wise and frugal government, which shall leave men free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned – this is the sum of good government.”

    “I predict future happiness for Americans if they can prevent the government from wasting the labors of the people under the pretense of taking care of them.”

    “It behooves every man who values liberty of conscience for himself, to resist invasions of it in the case of others: or their case may, by change of circumstances, become his own.”

    We have to remember that loss of rights and the emergence of tyranny never happens overnight. It always happens little by little. We have to fight for our freedoms, or surely we’ll loose them, little by little.

    That is what history has shown us to be true.

    Clair

  41. This is a great idea and is already one step away from my ideas.
    This is a paper I am doing right now to try to address the ills of society. This would work because the rich will pay more.
    Another idea is the percentage forumala. There should be set formulas based on a person’s income. Why should WE have to qualify to their standards it should be the other way around. I realize this leaves the rich paying more but since they have more money it starts to even things out.
    Basically all housing would be 10 – 30% of a person’s income. I will provide some examples of how this will work:
    Income Level:
    Under $1,000 per month 10% of income goes towards housing
    $1,000 -$2000 per month 20%
    $2,000+ per month 30%
    It would max out at 30%. This would mean that all housing would be available to all income levels; none of the separation of poor and rich. A person could have as many bedrooms as they want paying only $25 more per bedroom not to exceed 30%. Of course different things would be based upon different percentages for example utilities would be only 10% of a person’s income, a car payment 5% and health insurance 2%. I know we can’t have everything based on income because that would definitely cause a hold up at the stores.
    Researchers and the government would look at the incomes across America and determine a reasonable low wage to base prices off of. For example; food could be based upon what a person might get in food stamps at $600 per month. A person might get $200 per month on food stamps. All store brand prices must be in line with those prices. While name brand products could be a little more but cannot be more than say 20% of the store brand prices.
    This is it in a nut shell. This will work; because captilism does not; in fact please give me the name of any economic system that really works?
    You probably can’t because there is no perfect system or utopia.
    We have to find what is best for the weakest.
    Have you ever the saying that a chain is only as strong as it’s weakest link. Well by pulling the weakest up we are strengthening our society. We are creating a world where we can be substainable; truly. What would happen if EVERYONE had more money? Don’t you think they would spend it more and put back into society?
    This is not tryanny this is fairness. Why should one group of people suffer.
    Have you heard the labor of slaves for the profit of kings? Well this is what captilism is. I welcome a new era of thinking.

  42. had a quick question. does rent control apply to existing tenants but not new tenants ? i.e if a new tenant comes in, the rent can be increased by say 5% ?

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