Empty Apartments, Stupid Laws

New York's rent control laws are often blamed for its low vacancy rate.  Operating in concert with the difficulty of assembling sufficiently large parcels of land, and the extremely tough building rules (which I'm told can drag the time-to-completion of development projects into decades), they have both raised the cost of building rental housing, and lowered the potential return.  This is especially true for housing aimed at lower-to-middle income tenants, because New York City has twice previously reneged on commitments not to control new housing, and has flirted with doing so again fairly recently.  Ultimately, all of this means that a large number of potential tenants are competing for a very small number of potential apartments--and the sub-3% vacancy rate is born.


Yet in San Francisco, one writer argues that rent control is having the opposite effect:  it's keeping the city's vacancy rates artificially high.  Why?  Because a growing number of landlords don't want to rent their places at all; it's too much hassle for too little reward.

Koniuk, who himself lives in suburban Belmont, gave a half-interest in the building to his older son in 2007 so he could evict a tenant and move in himself. But under San Francisco's extraordinarily pro-tenant housing laws, landlords can do this only once per building.

So while Koniuk desperately wants to move his younger son into the building's other four-bedroom apartment, he cannot. He is exploring legal options. Robert Murphy, who has lived there for 30 years without a lease, remains, paying $525.82 a month.

Last spring, Koniuk offered Murphy $45,000 to move out. Murphy's lawyer demanded $70,000, a sum Koniuk says he does not have. Meanwhile, the city's Rent Board notified Koniuk that he was allowed to increase Murphy's monthly rent this year by $2.63.

Murphy did not respond to several phone messages left over a two-week period. Harold Jaffe, the lawyer who wrote the demand letter, said he no longer represented Murphy.

Murphy is afforded extra protections as a renter because he is more than 60 years old. Koniuk might still be able to evict Murphy and allow his younger son, Adam, to move in by invoking the Ellis Act, which would entitle Murphy to about $10,000 in compensation and give him a year to vacate. But doing so would impose permanent restrictions on the Divisadero building's future use, seriously depressing its value. And should 24-year-old Adam decide to move elsewhere, the Koniuks would be legally required for a decade to offer Murphy his old apartment, at his old rent. Invoking the Ellis Act would also mean that any new tenant to the unit, should Murphy decline the chance to return, would also be entitled to Murphy's old rent amount for many years to come. So the Koniuks would likely opt to just leave it vacant.

Increasingly, small-time landlords like Koniuk are just giving up. One of his Divisadero Street neighbors has left two large apartments on the second and third floors of her building vacant for more than a decade, after a series of tenant difficulties. It's just not worth the bother, or the risk, of being legally tied to a tenant for decades.

Of course, this leaves us with a little conundrum: why would rent control have different results in two different places.  On the other hand, I'm hard-pressed to explain such a high vacancy rate in a pretty desirable location.


Update: Commenters point out that the SF laws are different (you can change the rent to whatever you want when the tenants leave, but the apartments never "decontrol" the way high-rent apartments in NYC.  Also, the writer above appears to be using a non-standard vacancy statistic; comparing apples-to-apples (only apartments which are on the market), SF vacancy rates are also low.
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Megan McArdle is a columnist at Bloomberg View and a former senior editor at The Atlantic. Her new book is The Up Side of Down.

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