This document summarizes a paper examining the economic impacts of San Francisco's rent control ordinance. It discusses the rationale for rent control being to promote equity and prevent low-income residents from being priced out of the city. However, it also notes potential negative impacts, such as reduced housing supply as landlords have less incentive to maintain properties or allow turnover. While rent control aims to promote diversity, it may paradoxically decrease diversity by restricting supply and encouraging illegal sublets. The effects of rent control are complex with arguments on both sides.

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Rent Control
Rent Control: Examining the Economic Impacts of the San Francisco Rent
Ordinance.
Suzanne F. Watroba
California State University, San Francisco

2. Rent Control 2
Introduction:
In 1979 The San Francisco Rent Ordinance was enacted as a response to the
City’s housing crisis (City and County of San Francisco Rent Board, n.d.). The
Ordinance created the Residential Rent Stabilization and Arbitration Board. The
objective of the Ordinance was to insure that tenants were not faced with excessive
rent increases while also assuring landlords fair and adequate rents. The Ordinance
attempted to do this by placing limits on the amount of rent increases a landlord can
charge and by limiting reasons for evicting a tenant.
The Ordinance applies to most rental units built before the 1979,
approximately 170,000 (City and County of San Francisco Rent Board. n.d.). Those
built after 1979 are exempt. The Ordinance does not cover commercial and non-
residential use units. The Rent Board is funded by rental unit fees and receives no
money from the general fund. The mission of the Rent Board is to: promulgate
Rules and Regulations to effectuate the purposes of the Rent Ordinance; hire staff,
including administrative law judges; and conduct rental arbitration hearings,
mediations.
Throughout this paper I will discuss Gruber’s four essential questions
regarding government intervention in the case of rent control. Through an
economic lens I will analyze the impacts the policy has had on the City. Using
economic tools I will evaluate the purpose of the Ordinance and discuss the effects it
has had on the rental housing market.

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Why Should the Government Intervene?
In San Francisco rent control, or rent stabilization, was intended to keep key
workers, families and vulnerable people in the City. The Ordinance was designed to
keep people from being priced out of their own neighborhoods by large spikes in
rent. It was also to protect renters from being evicted by their landlords without
reason. The rationale behind rent control is to create distributive justice; based on
“the principle that the same amount of economic activity will take place but with
different distributional outcome. That is the same number of apartments provided
to the same people in the same quantity” (Tucker, 1997). In other words, the
Ordinance was created to increase equity so people like elderly on fixed incomes, or
struggling families, or minorities were not forced to leave the City because of
excessive increases in their rent. The policy was designed to increase equity by
regulating the amount a landlord could increase rent each year.
The Ordinance seemed less to do with market failure and more to do with
equity issues. In theory without the intervention people who could not afford the
market equilibrium price for rent would be forced out of the City where rents are
lower. This could lead to other market demands that could cost the city; like an
increase in transportation options into the city as people were forced to commute to
work from outside communities.
Without rent control the socioeconomic make up of the city could change
drastically. The people who could not afford to pay market equilibrium prices for
rental units would be low wage earners. So, while market forces and incentives may
be able to provide enough people to pay high San Francisco rents to rent most of the

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rental units, the problem would not be solved because the city may only be able to
attract wealthy professionals; while failing to keep other demographics they wish to
remain in the city.
The free market may not increase socio-economic diversity in the City, but it
may allocate scarce housing resources in a less wasteful way. Miller, Benjamin &
North argue that rent control impedes the process of rationing scarce housing
because tenant mobility is sharply restricted (2010, p. 60). They state that many
people live in houses that are either too big or too small for them because if they
move they face large increases in rent. If equity is the primary issue of rent control
it may not be equitable to have people who live in very large apartments, that they
only remain in because there rent is well below market value; while a family crams
into a tiny one bedroom, hundreds of dollars more in the same building because
they have not lived in the City long enough to benefit from the low rental rates
others are experiencing. There is no incentive for the one person in large apartment
to move because they will face higher rents for a smaller apartment.
How Might the Government Intervene?
The specific mechanism San Francisco uses in attempt to keep rent
affordable is by setting limits on the amount a landlord can raise rent each year.
The increase is based on the Consumer Price Index for all Urban Consumers in the
Bay Area, and is usually a very small percentage increase (City and County of San
Francisco Rent Board, n.d.). In economics it would be considered a price ceiling,
because through regulation the government decides how much a rental unit price
can be increased. However, since San Francisco does not regulate how much a

5. Rent Control 5
landlord can charge once a rental unit has been vacated; the price ceiling vanishes
with new tenants, but follows the same regulations for annual rent increases.
Additionally, the Ordinance regulates how a landlord can evict a tenant. It
sets specific guidelines for what are acceptable causes for eviction, as well as a
timeline for how long a tenant has to ameliorate the problems they may be evicted
for. I will discuss the effects of both setting the price for annual rent increases and
the strict eviction polices later in this paper.
The City of San Francisco created the Rent Board to oversee the rules and
regulations of the policy and provide information to landlords and tenants. The City
chose rent control as a mechanism to keep people in the City and avoid landlords
from making excessive profits that could decrease people’s ability to stay living in
the City. While it chose only allowing modest rent increases, the City could have
taken a different approach. Instead of regulation in rental prices, the City could have
chosen to use subsidies to the people who were unable to afford renting a unit at the
market price. Perhaps subsidies would be a more appropriate and accurate way to
achieve the distributive justice rent control aims at achieving because it could target
those who need assistance the most.
What are the Effects of Government Intervention?
Rent control may be achieving some of its goals. Some families, low-income
earners and people on fixed-incomes may be able to stay living in the City because
there rents have been kept at an affordable level. The downside is that rent control
may lead to a decrease in supply, as landlords let houses deteriorate because rent is
below the cost it takes to maintain the property, yet demand may still increase

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because prices are lower. According to Jenkins the model of rent control as a strict
price ceiling predicts maintenance levels in a controlled unit will depreciate
(January 2009). However, despite the general belief among economists that rent
control leads to poor maintenance because of a disincentive for landlords to
maintain rental units, a study found that in San Francisco their was no discernable
difference between rent controlled and market rate controlled units in terms of
quality ratings by tenants (San Francisco Housing Datebook, 2002). This could be
because San Francisco has a vacancy-decontrol, so rental prices could read just to
market value giving landlord’s incentive to fix up the property once low paying
tenants leave, but often times turnover does not happen so prices remain well below
market value and landlords have no incentive to maintain the property.
The low turn over of rental properties is not always because people are
remaining in the city, illegal sublets are often the problem. In my very own building,
where I pay the market price since I am a new tenant (or above if rent control is in
fact raising the price of renal units because demand is higher than supply), my
downstairs neighbor sublets her inexpensive rent controlled studio, while she lives
next door in a two-bedroom apartment. She can benefit from moving back to the
apartment later if she wants to at the same price she has been paying for years.
Other renters charge more for their sublets than they pay for rent, thus making a
profit off the sublet without incurring any of the costs owners pay like taxes and
maintenance.
This low turnover also makes it difficult for people willing to pay market
equilibrium prices to find rentals because there are fewer rentals, with plenty of

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people willing to pay from them leading to other abuses. Rent control is designed to
create social economic diversity and keep housing affordable but it may lead to a
decrease in social economic diversity as landlords become more picky in whom they
rent to since they have a high demand for their property. I know when I moved to
San Francisco I had an extremely difficult time renting an apartment. I would show
up with my application, good credit score and rental history, but there were always
at least ten people there who were older, more established and probably much more
financially well off than a woman just moving to the city for school. As a result I was
unable to live in the neighborhoods I wanted to and had to move to the outskirts of
the city where demand was lower, and thus my landlord did not have as many
applicants to choose from. I still paid the same amount the other apartments were
listed at, but got less utility from my apartment because of its distant location to my
work and school. Additionally, after talking to many friends whom had landed great
apartments for the same price, they admitted that their parents had offered to pay
the entire years rent in cash to the landlord, an option that eliminates many people
from the competition. This large up front cash payment is referred to as “key
money” and makes it very expensive for people to move from one apartment to
another (Miller, Benjamin & North, 2010).
San Francisco’s rent control Ordinance also regulates what a landlord can
evict a tenant for. The policy is designed to keep landlords from harassing tenants,
since they would have an incentive to evict the tenant to receive a higher rental
price (Miller, Benjamin, North, 2010). The downside of this policy is that even when

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tenants are doing illegal things, like subletting, it is too expensive for landlords to
peruse evicting them because the policy is designed to protect renters.
Why Did the Government Intervene in the Way it Did?
The general census among economists seems to be that rent control leads to
many unintended and undesirable effects that outweigh the equity issues it is
designed to control for. So, why does rent control still exist in San Francisco? It
could be that in 2000 there were 79,545 specified owner occupied units, compared
to 214,198 renter occupied units in the City (U.S. Census Bureau). Renters are the
majority, and as mentioned through out this paper once they occupy a rental unit
they benefit from landlords only being able to raise rent a small amount each year,
and protection from easy eviction. Renters who have been living in the City for a
long time, may be profiting greatly from their below market level rents and may not
want to see rent control abolished, even if it has other unintended consequences.
This means that renters may have a huge impact on government official’s decisions
in whether or not to support the policy. Government officials understand that the
majority of voters are probably benefiting from rent control and would not want to
risk re-election by trying to terminate the program. Likewise, officials are citizens
too and may be benefiting personally from rent control.
San Francisco also has a long history of unions. If special interest groups,
such as labor unions, believe that rent control helps keep workers in the City they
would be unlikely to support a change in the policy. Other unions, like the tenants
union, would also bring strong opposition to any changes in the current policy.

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References:
City and County of San Francisco Rent Board (n.d.). Mission Statement. Retrieved
August 5, 2010 from http://www.sfrb.org/index.aspx?page=1
Jenkins, B. (January, 2009). Rent control: Do economists agree. Econ Journal Watch,
volume 6, #1, pp 73-112.
Roger, M., Benjamin, D. & North, D. (2010). Bankrupt Landlords for Sea to Shining
Sea. In D. Battista (E.D.) In the economics of public issues (pp58-67). New
York: Addison-Wesley.
San Francisco Housing Datebook. (2002). Retrieved August 7, 2009 from
http://www.sfrb.org/index.aspx?page=137
Tucker, W. (1997). How Rent Control Drives Out Affordable Housing. Retrieved
August 6, 2010 from http://www.cato.org/pubs/pas/pa-274.html
U.S. Census Bureau (2000). American Fact Finder. Retrieved August 6, 2010 from
http://factfinder.census.gov/servlet/QTTable?_bm=y&-
qr_name=DEC_2000_SF3_U_DP4&-ds_name=DEC_2000_SF3_U&-_lang=en&-
_sse=on&-geo_id=16000US0667000