It’s a problem familiar to many San Francisco rental property owners who are saddled with long-term tenants paying far-below market rent. The owner of Midtown Park Apartments has had this problem for decades. Tenants complain all the time about the property’s deteriorating condition, and that the owner seems to do the barest minimum to alleviate the poor conditions. The owner insists that he’s doing the best he can, but that the meager rents paid by the tenants make it impossible to even maintain the property, let alone make improvements.
The owner proposes the following remedies to solve the problem: upgrade all units, evict certain tenants, means-test current tenants and future applicants, and raise rents dramatically. If you are thinking “No way can the owner do that inSan Francisco—such actions are blatantly illegal under the Rent Control Ordinance,” you’d be correct. But this is no ordinary landlord: in this case the landlord is the City andCountyofSan Francisco.MidtownParkApartments, located at Geary and Divisadero, is a 139-unit apartment complex. The City bought it out of foreclosure in 1968 and in an unusual arrangement had it managed for many years thereafter by a non-profit group of the property’s tenants. The management group failed to maintain the property to acceptable standards, and finally, in January of this year, the City fired the non-profit and announced plans for sweeping changes. Olson Lee, director of the Mayor’s Office of Housing, sent an email to the Board of Supervisors stating that Midtown Park Apartments “is struggling from years of deferred maintenance as a result of insufficient rental revenue.”
Sound familiar? Private property owners finding themselves with a non-performing property such as Midtown have few options to improve their financial situation. Basically, they can sell the building as is (despite its reduced value due to low rental income), invoke the Ellis Act to empty the building and sell the individual units as TICs, or sell the Ellised building to a developer who will remodel the units and sell them as TICs.
When it passed the Rent Control Ordinance in 1979, the Board of Supervisors exempted government-owned or regulated properties. In other words, it exempted itself, enabling
the City to make changes designed to put Midtown Park Apartments on sound financial ground in ways that private rental property owners are prohibited from doing. The changes the City plans for Midtown include:
- Means-testing of all tenants. Tenants will have their income certified to ensure that they are paying the “industry standard” of at least 30% of their household income for rent, a standard that should be applied to all tenants, whether they live in City or privately-owned housing. SPOSFI has long argued in favor of means-testing for rent control eligibility.
- Moving tenants to “size-appropriate” units. While small property owners face new legislation allowing a tenant to bring in not just family members but any others as additional occupants with no increase in rent – despite the additional wear and tear – the City has the power to control how many people live in each unit.
- Phasing in rent increases over five years.
San Francisco BayView (February 4, 2014) quoted Director Lee as stating that his actions are “necessary in order to force residents into new lease agreements that increase rents and force out those who cannot pay so as to fund the maintenance upgrades that the City has negligently failed to make as the landlord and owner of Midtown Park Apartments.”
Reasonable Changes, Hypocritical City Behavior
While residents and activists are in an uproar, we support the changes the City plans to make because they are reasonable and absolutely necessary to turn Midtown Park Apartments around. The City is demonstrating an understanding of basic economics, that unrealistically low rents and endless subsidies result in a property’s deterioration.
While we understand and support the City’s actions at Midtown, we are outraged (though frankly, not particularly surprised) by its blatant hypocrisy and double standard. By
implementing these necessary changes to put Midtown Park Apartments on an even keel, the City demonstrates a clear appreciation for the economic realities of owning and
maintaining a rental property, yet at the same time denies property owners the same right. We are severely restricted in how we can evict tenants, how much we can raise rents, how we control the number of occupants in our rental properties, among many other things.
Isn’t it time the City realized that its double standard is not only hypocritical, it’s also killing the very housing it pretends to promote? We think so!
This article was written by Deborah Lopez, SPOSFI Member. Reprinted with permission of the Small Property Owners of San Francisco Institute (SPOSFI) News. For more information on becoming a member of SPOSFI or to send a tax-deductible donation, please visit their website at www.smallprop.org or call (415) 647-2419.