In the political pantheon of left-leaning San Francisco, Joan Holden is an icon

of radical respectability. Since 1968, Holden has written 30 anti-capitalist pla

ys for the Tony Award-winning San Francisco Mime Troupe. Last year's offering, C
ity for Sale, satirized greedy developers and gentrification of the city's Missi
on District. As an artist-slash-housing activist, Holden has long been an advoca
te for rent control laws, which limit the amount of rent a landlord can charge t
enants.
Holden says San Francisco's rent control ordinance should be broadened to cover
all residential buildings, including live-work lofts, which currently are exempt
from such controls. She has but a single demur to the enactment of stronger ren
t controls: She says landlords should be allowed to pass on the costs of capital
improvements to tenants. A ballot initiative coming before local voters this fa
ll would ban such capital improvement "pass-throughs"; Holden says the ban would
be unfair to landlords, even "draconian."
Holden the rent control advocate is also, it turns out, Holden the landlord. She
owns and operates a four-unit apartment building in the Mission District. She a
lso recently applied to city government for permission to pass through $110,000
in capital improvements of her building to her rent-controlled tenants.
In some ways, Janan New is Holden's political mirror image. New is executive dir
ector of the San Francisco Apartment Association, a lobby for small- and mediumsized landlords. She opposes rent control, calling it a failed social policy. Sh
e blames the current "obscene" rents in San Francisco on governmental tampering.
She says rent controls screw up the supply-and-demand mechanism that regulates
prices in a capitalist economy. And, she opines, anti-landlord measures on the f
all election ballot will blast rents into outer space and drive the middle class
out of San Francisco.
New, however, will be staying in town. She owns a house, which, for a conservati
ve who believes homeownership is a key part of the American Dream, is hardly unu
sual. But New was able to save money to buy her home by living in rent-controlle
d apartments for 17 years. "I am a firm believer in the free market," she explai
ns, "but I needed a place to live."
In San Francisco, the debate over rent control is often more about emotion and i
deology than study or impartial analysis. Most San Franciscans have a personal s
take in rent control, one way or the other, and self-interest has its way of bre
eding ardor, spin, and outright hypocrisy.
The good and bad effects of rent control have, however, been studied nearly to d
eath by a broad spectrum of public policy economists. The nearly universal verdi
ct on rent control is that its mild forms can be beneficial to some renters, but
that more stringent forms -- such as the form that exists in San Francisco -- c
reate shortages of housing and high rents that harm tenants, especially the poor
ones whom rent control was designed to protect.
In a political backlash against the economic downside of rent control, most juri
sdictions that have experimented with it have in turn outlawed it. In San Franci
sco, however, a significant majority of voters live in rent-controlled dwellings
and have -- in their minds -- transformed what was originally intended to serve
as a temporary price control into a sacred right.
Politically powerful tenant activists claim that the economic law of supply and
demand does not apply to the housing market, at least not in San Francisco, beca
use, they say, with precious little proof, "infinite" numbers of people are read
y to move here, if housing is built. An alliance of tenant organizations and nei
ghborhood groups is working to pass laws that would further limit the developmen
t of commercial and residential space, on the unusual theory that a lack of supp

ly will somehow reduce demand.

Scientific studies, government reports, and dozens of interviews with experts an
d players on both sides of the housing question, however, show that San Francisc
o's housing shortage and the high residential rents it has created are the resul
t of two major factors: political impediments to housing construction and rent c
ontrol itself.
In the thick of the debate about living space, the Board of Supervisors is commi
ssioning San Francisco's first-ever study of rent control. It will take a year t
o complete, and, because rent control is the third rail of S.F. politics (much i
n the way that Social Security is the dangerously electrified issue on the natio
nal scene), there is no assurance that the study will lead to significant change
s in San Francisco housing policy.
But there is clear need for change. Thousands of existing apartments have been w
ithdrawn from the market, construction of new rental housing is severely restric
ted, and rents continue to reach for the stars.
Not in spite of rent control, but -- as history has proven -- because of it.
It was 1979. Elvis was dead. Disco was king. A weird mixture of inflation and re
cession -- called stagflation -- was so wracking the U.S. economy that Ronald Re
agan was able to base his presidential campaign on a promise to address the cris
is through an untested set of policy initiatives known collectively as supply-si
de economics.
In the spring of that year, San Francisco landlord Angelo Sangiacomo abruptly ra
ised the rent on 5,000 middle-class tenants. Renters across the city revolted, o
rganizing themselves to put a strict rent control ordinance on the fall ballot.
Then-Mayor Dianne Feinstein and the San Francisco Board of Supervisors pre-empte
d the tenants' initiative by quickly enacting rent controls that were more moder
ate than the ones headed for the ballot.
Feinstein's rent control law was intended to be temporary, lasting only as long
as the hyperinflation that was then afflicting the economy. This initial version
of rent control was intended to serve a definite group: "senior citizens, perso
ns on fixed incomes and low and moderate income households." People, that is, wh
o were having a hard time paying rent.
The new law limited a landlord's ability to raise rents while guaranteeing landl
ords a "fair return" on their investments. It also exempted two- to four-unit bu
ildings from rent controls, if the owner lived in one of the units. The law inst
ituted just-cause evictions, which meant that tenants could no longer be evicted
at the whim of the landlord, but only for nonpayment of rent or for nuisance be
havior. Related ordinances greatly limited the conversion of apartments into con
dominiums, a practice that had been shrinking the rental supply.
Since then, the Residential Rent Stabilization and Arbitration Ordinance has bee
n amended 54 times, sometimes by vote of the Board of Supervisors, sometimes by
ballot initiative.
Before the late 1970s, rent controls had been enacted in the United States only
during times of war and economic crisis. Policy-makers considered the controls t
o be of temporary use in damping inflation. With the exception of New York City,
controls were lifted when the national emergencies receded.
Here, though, the temporary fix has become permanent.
San Francisco's initial form of rent control was temperate, especially when comp

ared to what came later. Initially, rents could rise by up to 7 percent each yea
r, meaning that landlords could adjust rents to keep up with even moderately hig
h levels of inflation. Landlords were allowed to pass through costs of capital i
mprovements that benefited an individual tenant, a provision meant to address co
ncerns that landlords would cut back on maintenance of their properties once ren
t controls began limiting landlord income. When a tenant moved, a landlord was a
llowed to let the unit for whatever the market would bear. (But the unit, with t
he new rent, would then go back under rent control for as long as the new tenant
inhabited it.) Importantly, all housing built after 1979 was exempt from contro
ls; this exemption for new construction was meant to keep rent control from disc
ouraging the construction of new rental housing, because new units could still b
e leased at market rates.
Over the years, however, the ordinance was amended to become more and more favor
able to tenants, and unfavorable to landlords. In 1985, the formulas used to cal
culate allowable yearly cost-of-living increases in rent were lowered to 4 perce
nt.
Fearful that the popular rent controls would be broadened to include new constru
ction, developers became reluctant to build multifamily housing that might not p
ay for itself. They were also held back from residential development by related
zoning and land use restrictions. In 1986, for instance, Proposition M capped th
e amount of new office space that could be constructed each year, potentially li
miting the number of new jobs created in the city, and the potential demand for
new rental housing.
In 1992, tenants started voting as a bloc to strengthen tenant privileges. Allow
able rent increases were lowered to about 2 percent. Significantly, in 1994, vot
ers lifted the exemption to rent control that had affected 45,000 units in small
apartment buildings.
Then, in the mid-1990s, San Francisco's economy exploded.
The pressure for rental housing cooked as tens of thousands of people moved to t
he city, drawn by the Internet and telecommunications boom. Thousands of traditi
onal blue-collar workers left San Francisco, as the city's bread-and-butter manu
facturing and wholesale industry jobs evaporated, to be replaced almost overnigh
t by financial, technical, and professional service positions. San Francisco exp
erienced a net growth of 8,000 jobs as the urban center shed its industrial root
s.
The median family income shot from $33,000 in 1990 to $50,000 a decade later. Th
e population grew from 723,000 -- in 1990 -- to nearly 800,000 today. Accounting
for births, there were about 60,000 adult newcomers to the city.
In the same period, fewer than 10,000 new housing units were built (even includi
ng live-work lofts, which are not technically classified as residential building
s under city law).
The math is simple. At California's statewide average of 2.8 people per housing
unit, to accommodate the 60,000 people who moved to San Francisco during the las
t 10 years, about 21,000 more housing units were needed. Ten thousand units were
built. There is, therefore, a current housing shortage of, at least, 11,000 dwe
llings.
The Association of Bay Area Governments predicts that 20,000 more people will mi
grate to San Francisco during the next decade, raising the need to about 18,000
dwellings.
But, according to government reports, fewer than 1,000 new units are being built

each year, which is a 20 percent decline from the construction rate in the 1980
s.
In classical -- and even socialist -- economic theory, in an unregulated market,
a drastic increase in demand, combined with only a small increase in housing su
pply, inevitably produces an upward spike in rental prices that benefits landlor
ds, and disadvantages renters, especially those of limited means.
San Francisco's rent control ordinances, of course, were meant to address just s
uch a situation, keeping landlords from increasing rents during times of high in
flation or high demand and protecting low- and fixed-income renters from the pre
dations of market economics.
But a wide array of housing studies show that San Francisco's version of rent co
ntrol has not only failed to limit or soften the effects of the current housing
crisis, but has actually worsened San Francisco's housing problem, and hurt the
poor people it was designed to protect.
In utterly predictable ways.
In the late 1970s and early 1980s, rent control took hold in 200 communities. It
remains strong only in San Francisco, Berkeley, and New York City; weaker versi
ons exist in Los Angeles, San Jose, Washington, D.C., and many cities in New Jer
sey.
Most state legislatures have, by now, outlawed rent control. There is a reason f
or this: Rent control is a price control, and history has shown, and shown again
, that price controls do not keep prices down, except for short periods. In fact
, price controls usually have the opposite effect of what was intended, raising
prices in the long term above reasonable market levels by creating shortages in
supply.
The effect of price controls on supply and demand has been understood for centur
ies, and, except perhaps in San Francisco's tenant activism circles, is not real
ly a matter of dispute.
The theory on price controls goes something like this: When the supply of a prod
uct exceeds the demand to purchase it, the market price of the product falls. Be
cause of the price reduction, suppliers have less motivation to make the product
, so the supply eventually falls, too.
When the demand exceeds the supply, the market price rises, and there is more mo
tivation to make the product, so the supply increases, until there is too much s
upply, and then the price falls again.
The market is a seesaw in constant search of balance. The optimal market price i
s reached when demand calls forth the highest price possible before the supply i
nevitably increases and prices fall.
But if extra weight is added to either end of the supply-demand seesaw, permanen
t imbalance can occur. Price controls are analogous to that extra weight.
Price controls can be useful in times of economic emergency -- during war, for e
xample -- when demand far exceeds the supply that can possibly be produced. Gove
rnments can limit the price, and dole out the supply as equitably as possible -for a while.
The fatal problem with price controls, however, is that when an artificially red
uced price is imposed, the market will naturally move to adjust the actual amoun
t of supply to reflect the reduced price. In other words, over the long run, set

ting an artificially low price on a product (in this case, apartments) guarantee
s that the supply of that product will diminish. (Among other things, when peopl
e are unable to move -- due to excessively high rents -- they tend to stay in on
e place, that is, to hoard their apartments, effectively removing these units fr
om the market. The apartments that hoarding takes off the market tend to be unit
s traditionally rented by those of low or moderate income. Rent control, in othe
r words, discourages turnover of low-cost housing; when low-income renters must
find new housing, they face a market that offers them almost nothing to rent. Al
though it is impossible to say exactly how many rent-controlled dwellings are be
ing hoarded, statistics generated by private rental agencies and analysis by ten
ant activists and landlord lobbies paint a picture of tens of thousands of hoard
ed units in San Francisco.) And a reduced supply of any salable product, when co
mbined with steady or increasing demand, inevitably brings higher prices, and, o
ften, the creation of what is alternately called a shadow or black market, where
the product is quite available, but only at extraordinarily high prices.
That rent control has the counterproductive qualities of other price controls ha
s been established by experience. Recent studies of Berkeley, Santa Monica, New
York City, Boston, Washington, D.C., Toronto, and other cities in which rent con
trols set artificially low prices on the supply of housing show that stringent r
ent controls -- of the type that now exist in San Francisco -- do, indeed, cause
rents to rise over the long term for tenants who are not lucky enough to be liv
ing in rent-controlled units. Rents zoom up for the lucky ones, too, the moment
they stop being lucky and have to move.
According to studies anthologized by the left-liberal-thinking Center for Urban
Policy Research at Rutgers University, the worst-case harm to urban tenants as a
group occurs when stringent rent controls are linked to low-density zoning and
size restrictions on residential building. That is, urban tenants as a group suf
fer most from high rents and housing shortages in precisely the circumstances th
at now exist in San Francisco.
Most economists agree that moderate rent controls, which allow landlords to reco
ver costs and to make a reasonable profit, can help protect the elderly and peop
le living on fixed, or very low, incomes, from excessive rents and unjust evicti
on. Even conservative experts, such as Anthony Downs of the Brookings Institutio
n in Washington, D.C., acknowledge that moderate rent controls are not particula
rly damaging to the profits of landlords.
In Los Angeles, for example, rent control appears not to have caused rents in th
e uncontrolled market to rise disproportionately. Builders are building new apar
tment complexes. The open market is providing low- and moderately priced apartme
nts for families.
One of the reasons rent control has had a moderate impact in Los Angeles is that
that city's rent control ordinance resembles San Francisco's original law.
Under the criteria developed by scholars of rent control, however, San Francisco
's current rent control system stacks up as one of the most stringent in North A
merica. Now, landlords are allowed only tiny annual rent increases and even smal
l apartment buildings fall under the controls. This is not to mention the many i
mpediments, above and beyond rent control, to the construction of new housing th
at might assuage demand, and bring prices down.
The theoretical effects of stringent rent control -- reduced housing supplies an
d high prices for housing -- are well known to anyone who has taken a college ec
onomics course. In fact, microeconomics courses frequently use rent control as a
case study of the negative effects of price control.
San Francisco is learning the cost of stringent rent control in the real world.

Government reports show that San Francisco's housing stock shrank after rent con
trol was established in 1979. A before-and-after study done by Daniel O'Connor i
n 1987 showed that new construction of multifamily housing stock fell by 32 perc
ent seven years after rent control. Last week, the United States Census Bureau r
eleased a report showing that the number of rental units in San Francisco has dr
opped by 7,500 during the last 10 years.
And a recent study shows that the average price of a one-bedroom apartment in Sa
n Francisco now approaches $2,000 per month, up 10 percent in just the last thre
e months, and the residential vacancy rate is reportedly below 1 percent, and fa
lling.
These dramatic price increases and supply shortages are precisely what economist
s would predict, given San Francisco's combination of strict rent control and st
rict limits on the construction of new housing.
According to studies conducted by liberal and conservative institutions alike, n
on-rent-controlled cities around the country are not experiencing the extreme co
ncentration of high rents -- and dearth of moderate and low rents -- that afflic
ts San Francisco.
Rent control proponents argue that San Francisco's inherent desirability creates
an "infinite" demand to live here that renders the economic law of supply and d
emand moot. Infinite demand, these proponents contend, means that attempts to re
duce or stabilize housing prices by building more housing are futile; no matter
how many housing units are built, there will always be more people looking to mo
ve into them.
Short of conducting a worldwide scientific poll, of course, the infinite demand
theory cannot be tested.
But other cities have experienced boom and bust cycles. Other cities are general
ly conceived of as extremely desirable places to live. Other cities are dense an
d have geographical limits to expansion.
San Francisco does not need to meet an infinite demand to stabilize housing pric
es -- it needs to meet the demand that already exists.
No U.S. city with a history of rent control closely parallels San Francisco in t
erms of land area (small), demand (high), zoning (restrictive), and controls (st
ringent). But it is clear from the experience of many jurisdictions that a publi
c policy that moves away from strong rent controls has advantages over a policy
that proposes to keep them intact, or to strengthen them. Even New York City's r
ent controls are being systematically weakened, in hopes of rationalizing the on
ly housing market that rivals San Francisco's for high rental prices and low vac
ancy rates.
Two years ago, the city of Cambridge, Mass., reported on the effect of abolishin
g rent control -- almost overnight -- in 1995. Loosened rents on previously rent
-controlled units initially rose by an average of 54 percent.
Currently, average rent-controlled rents in San Francisco are less than half of
what is paid on the open market (or on a shadow market that consists of thousand
s of live-work lofts and illegal in-law apartments). Economic theory predicts th
at if San Francisco decontrolled residential rents, the price of formerly contro
lled units would rise, but to a level nowhere near as high as rents currently be
ing charged.
In other words, if rent control were suddenly lifted, some 180,000 rent-controll

ed units
t rents.
ir rents
with low

would be thrown into the open market, inevitably lowering overall marke
To be sure, many tenants with rent-controlled apartments would find the
greatly increased, and such increases would fall most heavily on those
or fixed incomes.

But even if San Francisco's rent control laws were simply loosened, so that half
of currently rent-controlled units were safeguarded with protective subsidies f
or elderly, fixed-income, and very low-income people, 90,000 units would flood t
he rental market immediately, and 90,000 more would follow over time.
This does not mean that 90,000 or 180,000 units would become empty. It does mean
rents would probably go up and, then, gradually fall to a market equilibrium. I
t does mean that some people could no longer afford to live in their apartments,
depending upon their relationships with their landlords. But, for tenants as a
group, rents would eventually stabilize -- as supply met demand -- at significan
tly lower market rates than those that prevail today.
Housing experts generally agree that abolishing rent control without encouraging
housing starts by other methods would be an act of futility, and that abolishin
g rent control suddenly would produce unwarranted suffering. Decontrol of rent w
ill work to lower overall rents, they say, but the decontrol should probably be
phased in as a significant undersupply of available housing is addressed.
Because of its small land mass, San Francisco is indeed the second most dense ci
ty in the country, after New York City. But the notion that there is nowhere to
build housing that would meet existing demand again appears to be more a matter
of local folklore than empirical fact.
In 1950, the population of San Francisco was 775,000, almost what it is today. A
nd government studies indicate that there is room for expansion of housing stock
to fit current demand.
With the defeat of rent control in Cambridge, San Francisco, New York City, Sant
a Monica, and Berkeley became the last strongholds of stringent rent control in
America. In city after city, unbridled rent control has been moderated, toned do
wn, and even eliminated, not because it was accomplishing its purportedly centra
l goal of keeping housing affordable to low-income populations, but because the
price controls were ruining housing markets and raising rents for tenants as a w
hole, most especially for the poor. To be sure, landlords pushed for decontrol.
Just as surely, stringent rent control has been the bane of, rather than a boon
to, the poor.
This fall, however, San Francisco voters will be considering two electoral initi
atives that would make rent control even stricter than it already is. The city's
political establishment, meanwhile, is busily not commenting, apparently afraid
of electrocution by San Francisco's third political rail, otherwise known as re
nt control.
The Mayor's Office of Housing recognizes a need for, at least, 20,000 to 30,000
new rental units in San Francisco. Housing officials have a tentative multiyear
plan to subsidize nonprofit developers to build 3,500 units of moderately priced
housing, mostly in Mission Bay.
Beyond that, however, the city government has no apparent plan for solving the h
ousing crunch. When contacted over the last several weeks, city housing official
s were universally reluctant to take a position for or against continuing rent c
ontrol and land use restrictions that limit housing construction. Mayor Willie B
rown's press spokesperson, for example, commented only that, "The mayor supports
the idea of rent control."

In San Francisco, there is obviously tremendous political resistance to asking t

he question of whether rent control serves its intended purpose.
Calvin Welch, age 56, is the leading political strategist for San Francisco's no
nprofit housing developers, who specialize in the construction of housing for th
ose of low and moderate income. As another icon of radical respectability, Welch
's claim to fame is his championship of Proposition M in 1986, which put an annu
al cap on the amount of office space that can be built in San Francisco.
Asserting that the price of rental housing is not affected by supply, Welch unab
ashedly supports permanent rent controls. He also favors two tenant-inspired bal
lot initiatives that will go before the voters this fall.
One proposition would strengthen a law limiting the conversion of rented apartme
nts into condominiums, i.e., apartments that are separately owned. The proposed
law would make it very difficult for groups of tenants to buy buildings jointly,
through an arrangement known as tenancy-in-common. This measure was put on the
ballot by the San Francisco Tenants Union, which is concerned that this form of
group ownership permanently removes apartments from rent controls.
The other proposition, steered by the Housing Rights Committee, would ban most c
apital improvement pass-throughs to tenants. This means that landlords would hav
e no financial incentive to fix major problems, like leaky roofs, or shaky found
ations, because they could not recoup their costs either by pass-through or a re
nt increase.
Welch, tenant leaders, and two dozen neighborhood organizations united in an umb
rella group called the Coalition for San Francisco Neighborhoods are also workin
g hard to persuade the electorate to kill live-work loft development and further
limit office development through a ballot initiative modeled on the original Pr
oposition M.
This alliance of rent control advocates and anti-growth neighborhood preservatio
nists has power that local politicians can only find daunting. Leaders of homeow
ner organizations, such as Joan Giradot, three-term president of the Coalition f
or San Francisco Neighborhoods, have not traditionally favored rent control. But
they now find themselves agreeing with tenant leaders who represent, in some fo
rm, the two-thirds of San Francisco that rents, and who believe that the city's
current housing problems are quite simply a result of too many people moving to
San Francisco.
Giradot says she supports office development restrictions and limits on resident
ial construction as a way of "preserving the quality of life" in San Francisco.
"People should go somewhere else," she says.
The belief that limits in housing supply, and simply telling people not to come
to San Francisco, will somehow create reductions in housing demand may not be pa
rticularly logical, or supportable by fact. The notion that making rent control
stricter will improve the housing situation in San Francisco is belied by almost
all the available evidence.
But logic and evidence do not necessarily win elections, and tenant initiatives
have been extremely popular at the ballot box in San Francisco.
Ted Dienstfrey, age 62, is a card-carrying member of the ruling class. The schol
arly realtor was chief of the Mayor's Office of Housing under Mayor Frank Jordan
in the early '90s. Today, he eases his career toward retirement as he oversees
the charitable donations of Gerson Bakar, a local mover-shaker who made great we
alth building garden apartments.

Dienstfrey, who was awarded a master's degree in urban planning by the Universit
y of California at Berkeley in 1960, has long been an outspoken critic of rent c
ontrol. Over lunch at Pier 23, eyes twinkling, he tweaks San Francisco's tenant
activists by reading aloud from The Housing Question by Frederick Engels, the co
-author, with Karl Marx, of The Communist Manifesto.
Engels debunked the respectable radicals of his day (and many a San Francisco te
nant advocate), who were claiming that housing is a right, not a commodity, and
therefore not subject to the law of supply and demand.
"It is a complete misrepresentation of the relation between tenant and landlord,
" wrote Engels, "to attempt to make it equivalent to the relation between worker
and capitalist. On the contrary, [rent is] a quite ordinary commodity transacti
on between two citizens, and this transaction proceeds according to the economic
laws which govern the sale of commodities in general ... the relation between s
upply and demand existing at the moment decides [the matter] in the end."
Although he opposes strict forms of rent control, Dienstfrey praises its feature
s that partially prevent landlords from gouging tenants and from undertaking unj
ust evictions. Then he oh-so-delicately suggests phasing it out, while keeping p
rotections, of course, for the elderly, the disabled, and the very poor.
This could be done, he suggests, by allowing rents to increase by 4 to 7 percent
a year, which would provide landlords with an incentive to maintain their prope
rties and to keep apartments on the rental market, as opposed to selling them as
condominiums. Elderly, fixed-income, and impoverished tenants could be protecte
d from unaffordable increases with subsidies from a pool funded by city fees on
new construction and a gross receipts tax on landlords, he says. When a sitting
tenant vacates an apartment, it would be permanently removed from rent control.
Protections against unjust evictions would remain in place.
At the same time, he adds, zoning and planning codes could be made more amenable
to the building of new residential housing.
Dienstfrey's proposals would be anathema to San Francisco's respectable, radical
advocates for tenant rights.
Yet W. Dennis Keating, Michael B. Teitz, and Andrejs Skaburskis are scholars who
can certainly be described as having a liberal bent, and their take on rent con
trol is not far removed from Dienstfrey's. In the concluding chapter of an antho
logy published by the Center for Urban Policy Research, Rent Control: Regulation
and the Housing Market (1998), they collectively observe:
"Ultimately, housing in the United States will continue to be delivered through
the private market. Finding ways to build alliances that could support moderate
regulation while relaxing constraints on development might make more sense than
fighting the same wars over and over again. Now may be a good time to rethink th
e possibilities of regulation, to see how it could be made more socially useful,
instead of simply seeking to make controls more stringent or to abolish them.
"These are not conclusions that advocates on either side of the rent control deb
ate want to hear."
+