Yes on 98, No on 99

May 17, 2008

The following is critical information for landlords and TIC owners. I came to me courtesy of Cece Blase of Paragon, who received it from Sharon Malone. It interprets (to some degree) the difference between Props 98 and 99, coming on the June ballot and I found it very helpful.

The below is a re-print of what Sharon and Cece had to say on the subject:

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On the June ballot there will be two competing State Propositions dealing with property rights–Proposition 98, and Proposition 99.

One of the key differences is the issue of RENT CONTROL.  Proposition 98 gives Californians the opportunity to END RENT CONTROL, while the competing Proposition 99 does not.

Poison pill:  In the event both propositions get a majority vote, Proposition 99 is written with a “poison pill” – if it receives more votes than its rival Proposition 98, )roposition 99 would be come law, and Proposition 98 would not.

Therefore I urge you to VOTE YES on Proposition 98 and NO on Proposition 99.

Please note an important feature of prop 98 – tenants currently protected under rent control, would continue to be protected.  It is ONLY when the tenant voluntarily leaves, or is evicted for just cause, that the unit is relieved of rent control. 

RENT CONTROL hurts tenants, owners and the city of San Francisco.  For an in-depth case against rent control read “The Case for Ending Rent Control” by Peter Byrne in the SFWeekly. Here is a synopsis for Byrne’s argument:

Some of the reasons rent control hurts the people it was intended to help (”the law of unintended consequences”):

1.  Poor financial planning for the tenant.     Example- Ms. Tenant rented an apartment out of college for $700/month.  Although her income increased over the years, and she could have purchased a condo for herself, she didn’t because her rent was so low she lacked incentive to own.  Now, 15 years later- the condo she could have purchased for $175,000 is worth $750,000. She may have saved on rent, but if she had purchased she’d now have $575,000
of equity, instead she has none.

 2.  High, unaffordable rents: Rent control discourages tenants from moving, effectively removing these units from the market and the number of available rental properties.  With low inventory and high demand, rents stay high.

3.  Owners reluctant to negotiate on rental price: If an owner knows they will be severely limited to rent increases (the average allowable rent increase over the last 15 years has been 1.68%) they will hold out for a high rent even if it means several months of vacancy.

4.  Incentive to reduce the inventory of rental property:  Owners choosing to sell rental units as TIC’s because rents are not adequate to pay property expenses.  Developers fearing rent control, reluctant to build rental properties, keeping inventory low while demand continues to grow. 

5.  Owners reluctant and/or unable to afford to keep rent control properties in good repair: The tenants live with thread bare carpets, chipped and pealing paint, broken cabinets.  The exteriors of the properties are often dirty, dingy and in general poor repair.

6.  Low income, elderly tenants severely disadvantaged: An owner with a vacant unit is going to favor high income young tenants who are likely to move in a couple years than lower income and/or older tenant, because it is
only when the tenant voluntarily vacates that he can re-set the rent.  With long term tenancy building expenses increase faster than the rental income increases, annually reducing the owner’s income.

Economists predict, and other decontrolled cities have proven,  that if San Francisco decontrolled rental units, the price of formerly controlled units would rise, but to a level nowhere near as high as current rents.  In effect, it would result in an overall rent reduction.

The two propositions are complex and somewhat confusing.   If you would like a three page comparison of Prop 98 – “California Property Owners and Farmland Protection Act” and Prop 99 “Homeowners and Private Property
Protection Act.”  please let me know and I will email you a copy.

Remember, if Prop 98 passes, no tenant will be displaced or have their rent raised in excess of the current rent control maindates.  Decontrol takes effect ONLY after the tenant voluntarily leaves, or is evicted for just cause. 

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To be honest, I kind of forget sometimes that we have things to vote on in June. My mental bandwidth has pretty much been taken up by the current primaries and upcoming November general election. take up pretty up all of my mental bandwidth. Props 98/99 are important to consider, especially if you are a San Francisco landlord or TIC owner–

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