10 | SFPUBLICPRESS.ORG | SAN FRANCISCO PUBLIC PRESS, WINTER 2019
Even Today, Academia Knows Little About Rent Control
“A significant negative economic risk not included in our direct analysis is that larger businesses may relocate or expand in other cities as a result of the tax.” — San Francisco controller’s office
Data-driven research to support policy arguments is lacking
ally have data to back up their claims,” she said. Partly, that’s because good data can be hard to come by. A well-known study in Cambridge, Mass., for example, drew no direct conclusions about whether a landmark 1994 repeal of rent control actually affected rents — because the researchers By Nathan Collins // Public Press could not find data on rents, said co-author and Massachusetts Institute of Technology s Californians battled this fall over a economist Parag Parthak. A 2007 study ballot measure to allow cities much that did focus on rents themselves relied on wider leeway to impose all sorts of surveying a sample of renters rather than rent control, both sides of the debate complete, official records. And then there’s threw around citations to academic papers, the San Francisco study, which cobbled toeconomic studies and seemingly compelling gether the needed data from three different statistics. The studies, they said, proved sources. that restricting what landlords may charge In many cases, especially in older studies, tenants either helps preserve affordable the data did not allow direct comparisons housing or exacerbates the crisis by driving between different kinds of rent conowners out of the rental business trol, or between rent-controlled and and killing off construction. market-rate homes. As a result, Both sides were wrong. There Diamond said, those studies may just isn’t enough careful, data-drivsay more about the circumstances en economic research to definitively — social, economic and political — answer questions about rent control in one particular place and time as it applies to the here and now. than they do about rent control. There are two things we know Several studies of rent control in for sure — and that researchers Europe during and shortly after agree on — about rent control: It World War II showed rent control keeps rents below market rates for Landlords could reduce rental housing stock those who have it and it helps keep vs. (and the quality of what remained). people in their homes longer. There Renters But, Garcia said, those studies is also evidence that rent control concerned “hard” rent controls that can shrink the supply of housing, at severely restricted and in some cases halted least in some cases. rent increases, and that bear little resemThat leaves open two of the most imporblance to any policy in place in California tant questions in a debate that stretches — meaning their conclusions probably do back decades: How do different rent control not apply. policies affect the supply of housing, and To a lesser extent, similar concerns may how does rent control in one place affect apply to the recent San Francisco study. regional housing markets? Although well regarded among researchers, As a review of research on rent control it is still just one study of one policy at one and interviews with policy experts and point in time. “I think it’s useful, but it’s economists suggest, there is much that one point,” Garcia said. remains unclear. In the centuries — yes, centuries — since rent control began, the ASSESSING REGIONAL IMPACT number of policies that have been proposed or implemented has dwarfed the number Another pressing problem is that it isn’t of reliable studies of modern rent control, clear what rent control policies do on the which researchers said number fewer than scale of individual blocks and neighborhalf a dozen, although even on that number hoods, what they do to other kinds of housthere was some disagreement. ing or how one city’s policy might affect a Economists and policy experts say there regional housing market. If there are few is just not much data on rents and tenant good studies of rent control generally, there and landlord decisions on which to base are even fewer of those kinds of spillover quality research. On top of that, said David effects. Sims, an economist at Brigham Young UniThere are some hints, perhaps, from versity, academics have moved on to other, research like Parthak and colleagues’ study more novel questions in recent decades. in Cambridge. They found that ending that Economists produced dozens of studies city’s rent control, which had applied to all of rent controls put in place after World rentals, raised property values on other War II, but having reached some concluhomes in the city. But, again, the Camsions about those policies’ effects, the field bridge policy is very different from anything moved on. Whatever the underlying reason, on the books in California. For one thing, researchers do not know enough — or at Cambridge’s law limited rent increases beleast everything they would like to know — tween tenancies, a policy known as vacancy about what any one policy proposal is likely control. California’s Costa-Hawkins Rental to do to housing costs in a city, a region or Housing Act outlawed vacancy control, but a state. Proposition 10 would have done away with that restriction had it passed, allowing San EFFECT ON HOUSING SUPPLY Francisco and other cities to start experimenting with the idea, if at all. Another consequence, as a recent UniverSimilarly, although it is possible that sity of Southern California report suggests, changing policy in one city affects housis that many of the most strident claims ing supply and prices in nearby cities, it about rent control may be based less on remains less than clear what and how solid research and more on the ideology large those effects would be. What would and self-interest of advocates who cite the a rent control change in San Francisco do research. to homes in the East Bay? “I would love to “It’s an incredibly complex issue,” said know more about spillovers, but that’s a David Garcia, policy director at the Terner very difficult problem empirically,” Sims Center for Housing Innovation at the said. “Measuring it is very hard.” University of California, Berkeley. “We don’t have really good research that tells us SEARCH FOR ALTERNATIVES what actually happens when we do different kinds of rent control.” Another matter that is not well unThe question of how rent control affects derstood is sorting out who ends up in the housing supply is a case study in the rent-controlled housing. Studies are few challenges rent control debates face: limited and might not apply to California, again data and studies that, even if they were because of policy differences. reliable when published, no longer apply. But a deeper question — one that gets The best evidence to date on one aspect even less attention in some debates — is of housing supply — whether landlords rewhether there are alternatives beyond move rental units from the market — comes variations on rent control itself, such as from a study that Stanford Graduate School “rolling” rent control, in which rent restricof Business economists Rebecca Diamond, tions on newly developed homes kick in Timothy McQuade and Franklin Qian pubafter a waiting period of some years. The lished in 2018. That study concluded that Public Press reported in August that many rent-controlled buildings in San Francisco rent control advocates and detractors have were about 8 percent more likely to be not even thought enough about rolling rent converted to for-sale tenancy-in-common control to have an opinion about how it buildings or condominiums compared with might work. those that were not rent controlled. A May 2018 Terner Center brief suggested two possibilities. In one, governSTUDY USED DETAILED DATA ments could use tax incentives to encourage property owners to create affordable Their approach is notable for two reahousing and preserve what is already out sons. First, they relied on a “natural there, similar to policies put in place in experiment,” that is, a change in the law Seattle and Tacoma, Wash. Authorities that created a test group as well as a very could also create a statewide “anti-gouging” similar control group to compare it with. cap setting a maximum increase above In 1994, San Francisco updated its rent orthe Consumer Price Index and apply to all dinance to bring owner-occupied buildings rental properties, regardless of when they with four or fewer units under rent control, were built. That idea would be possible but only those built before 1979, when city only if Costa-Hawkins is repealed by voters regulations were enacted. through Proposition 10 or by the LegislaSecond, the team had detailed data, ture, if that fails. including individuals’ address history from And there may be a deeper problem still, Infutor, property histories from DataQuick one that has received very little attention: (now part of CoreLogic), and building perThe housing crisis California finds itself in mit and parcel histories from the San Franis much more complex than the problems cisco Office of Assessor-Recorder and the of any one city and more complex than dePlanning Department. From those data, bates about rent control itself. “Rent control the researchers knew how long individuals is designed to solve a symptom — prices lived at any one address and what hapare high,” said Sims, the Brigham Young pened to a building after someone moved economist. out. The problem, then, may be that not By putting those together, they could enough is being done, by governments or compare two groups of homes that were developers, to create new housing, and nearly the same, except that one was rent that efforts to do so are too local and too controlled and one was not — in other patchwork to solve what is fundamentally words, one of the cleanest possible ways to a regional problem. That the problem is estimate the effects of housing supply. divided into small pieces when it requires a Unfortunately, in that regard, Diamond wide-ranging solution, Sims said, “is what said, her study was almost alone. “I think drives this.” there are only a handful of papers that re-
A
HOUSING
SOLUTIONS
Photo by Judith Calson // Public Press
If implemented, Proposition C would direct money to homelessness outreach and prevention, as the city continues to clear encampments.
Homelessness Fund Might Render More Services if Measure Stands PROP C from Page 1
homelessness programs. In a scenario where the annual revenue reached $250 million, the low-end projection, it would provide assistance an estimated 103,000 times in a 10-year period. This would be total services rendered, not unique individuals served. It counts people for as many times as they receive any type of housing or social service. ••That estimate, however, is 40,000 more instances than the official 63,000 figure published by the controller’s office in September. The city’s chief economist did not include the number of people who could receive mental and behavioral health services, a figure that Friedenbach said she got from the city’s former health director. The controller’s report did not explain the omission. ••Friedenbach, executive director of the nonprofit Coalition on Homelessness, estimated that the public health department could provide mental and behavioral health services in about 4,000 instances per year over 10 years, and more if the tax revenue were higher. These services would absorb at least one-quarter of the Proposition C revenue.
BOARD CAN ADJUST SPENDING Any predictions of the levels of service Proposition C would make possible should be treated as ballpark estimates, despite granular breakdowns contained in the math of the controller and the proponents. The Board of Supervisors would be able to adjust how the additional tax revenue was spent, within limits, affecting the number of people who received certain types of housing or social services. Under California law, all local tax increases require voter approval. Because Proposition C has no sunset provision, its mandates would remain in effect unless repealed. Proposition C, which was put on the ballot by signature petitions, has riven San Francisco’s political leadership and the city’s business and technology moguls. The measure’s supporters included Salesforce CEO Marc Benioff, U.S. Senator Dianne Feinstein, congresswomen Nancy Pelosi and Jackie Speier, and state Assemblyman Phil Ting. It also had backing from the San Francisco Board of Supervisors’ progressive members, as well as new supervisors Rafael Mandelman and Vallie Brown. They argued that the scale and persistence of the homelessness crisis merited tapping the city’s deepest pockets for this additional funding.
THE OPPOSITION The opposition was led by San Francisco Mayor London Breed, state lawmakers Scott Wiener and David Chiu, the Chamber of Commerce, venture capitalist Ron Conway and Twitter co-founder Jack Dorsey, who is also the CEO of Square. They claimed it would be a giant jobkiller and drive companies out, attract more homeless people, have no spending accountability and complicate future funding because of the lawsuit challenging all signature-driven tax measures. The measure would raise the gross receipts tax on local businesses with annual revenues greater than $50 million. The tax would vary according to the type of business — 0.175 percent to 0.690 percent — and would generate between $250 million and $300 million in additional
PROP. C BENEFICIARIES ECLIPSE JOBS LOST Over the next 10 years, Proposition C would fund housing and services in 103,000 instances. Net jobs lost would be fewer than 400. SERVICES RENDERED
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0 Jobs lost
Shelter beds Housing
EMPLOYMENT
*Mental health care Homelessness prevention services
HOMELESSNESS PROGRAMS
TYPE OF IMPACT Graphic by Noah Arroyo, Reid Brown // Public Press
tax revenue each year, according to the controller’s report, which was assembled by the city’s chief economist, Ted Egan. The tax would affect between 300 and 400 local businesses. They make up 3 percent of companies paying the gross receipts tax, and have paid 57 percent of all business tax revenue citywide. With Proposition C, their share would grow to 67 percent. This would make San Francisco’s business tax structure more progressive, hitting larger companies harder than smaller ones, the controller’s report concluded. But the additional gross receipts tax could cause an estimated net loss of between 725 and 875 jobs citywide over the next 20 years, the report said, adding that it was “difficult to quantify” whether companies might relocate all or some of their operations. “A significant negative economic risk not included in our direct analysis is that larger businesses may relocate or expand in other cities as a result of the tax, which will raise the cost of doing business in San Francisco,” the report cautioned. “To the extent that this relocation occurs, economic impacts could be more negative than we project.” Also, companies leaving the city “would have negative multiplier effects on other industries,” the report added. But it also noted that last year’s cutting of the top corporate tax rate from 35 percent to 21 percent “would outweigh the proposed 0.5% gross receipts tax increase for the majority” of affected companies. And not all of the controller’s economic forecasts of the new tax on the local economy were negative. “Additional positive factors, not quantified in this analysis, include an expected improvement in health outcomes, a reduction in acute service costs, and an attractiveness of the City, because of the likely
Sources: San Francisco controller’s office; *mental health estimates from former director, S.F. Public Health Department
PROP C continued on Page 11
NEW TAX WOULD BRUISE MANY INDUSTRIES, HELP SOME In the next 20 years, the gross receipts tax from Proposition C would hurt retail trade most, while causing growth in health care and social assistance. Only major industries are shown. JOB LOSSES -183
JOB GAINS
Retail trade -146
Accommodation and food services
-133
Finance and insurance
-131
Professional, scientific, and technical services
-117
Management of companies and enterprises -95
Construction
-86
Information
-84
Other services (except public administration) Admin, support, waste management and remediation
-70 -49
Real estate and rental and leasing
-39
Arts, entertainment, and recreation
-33
Manufacturing
-32
Wholesale trade
-32
Educational services; private
-29
Transportation and warehousing
State and local government
126
Health care and social assistance
309
Source: San Francisco controller’s office
Graphic by Reid Brown // Public Press