Five Things You Need to Know: Has Rent Control Worked in San Francisco?

City data show that rent restrictions benefit a few at the expense of many

The idea of rent control is that by limiting landlords’ ability to charge high rents, cities can preserve affordable housing and slow the gentrification of working class neighborhoods.

But does it work?

Let's use a new trove of data from San Francisco to try and answer that question.

1) OK, Start from the beginning

Rent Control is a regulatory strategy employed by cities around the world in an effort to keep housing costs reasonable for lower income residents, pushing back against "greedy developers" who rent control advocates paint as wanting to kick people out of their homes, knock them down (the houses not the people), and build glimmering, high priced luxury apartment towers.

These policies are implemented in ways ranging from the simple (limiting annual rent increases to the inflation rate) to the arcane (capping the rent on newly vacant units to their previous rent plus some fraction of upgrade costs, using a Byzantine matrix of ratios and discounts).

And its all a nice populist notion of pitting the labor class against the capital class, but economists from both sides of the political isle agree with rare consensus that while rent control policies do benefit a small percentage of renters who happen to already be in their apartments, rent control and similar efforts limit housing supply, increase rental rates broadly, and contribute to the housing shortages that now plague most American cities.

Housing markets are dynamic systems and data to support either side of the debate can be hard to come by, which leads to correlation easily being confused with causation.

So consider this my addition to the contentious debate.

2) Fine, what about San Francisco? It's really expensive to live there, so clearly rent control was a flop, right?

Let's take a look, using a data set available from the city of San Francisco, thanks to a new rent registry that requires apartment owners to annually submit to the city a list of their apartments and a handful of (potentially) useful data points.

The idea behind the 2021 legislation was to "more vigorously enforce rent control and eviction protections by requiring landlords to report information about their rental units annually to the Rent Board.”

Despite it not being clear how basic information like apartment size, bedroom count and rent amount would be used to help enforce existing rent control rules, the city now spends around $4 million per year maintaining the database, according to Bornstein Law.

The short history of rent control in San Francisco is that in response to sharp rent increases in the 1970s, the city enacted rent control regulations in 1979.

For any building constructed prior to 1979, annual rent increases are limited to the regional CPI (plus or minus), and owners are severely restricted in how and when they can remove tenants from a unit.

Owners cannot, for example, simply opt not to renew a lease and issue a notice to vacate.

There's a lot more, but that's another story for another time.

3) Get on with it already, what do the data say? Does the thing work?

An interesting way to use the rent registry data is by comparing the rent paid by tenants who moved in years ago with the rent paid by tenants signing leases now.

For the past 30 years, the allowable annual rent increase in San Francisco has averaged around 2%, but market rents have risen much faster

And as can seen below, tenants who moved into their units decades ago have benefitted from this spread.

Using two starkly different San Francisco neighborhoods, Pacific Heights and The Mission, we can further examine the impact of rent control.

For example, tenants who moved into Pacific Heights in 1995 enjoy a rents that are 52% below current rents, thanks to rent control protections. In the Mission, those same tenants do a bit better, with a discount of more than 60%.

So in that sense, rent control has certainly allowed tenants who have lived in these (and other) neighborhoods maintain a low housing cost.

And in particular, we can see that the benefits kind of taper off around 1980, which indicates that rent control really did change the landscape of the San Francisco housing market (or coincided with it, depending on your perspective).

An important question is whether these rent discounts are warranted, especially if tenants happen to be financially well off. This is a common criticism and suggested improvement for rent control, that benefits be means tested by income.

To stereotype these two neighborhoods for a moment, its reasonable to think that a tenant who moved into Pacific Heights in 1995 can probably afford a lot more rent than they're paying, while someone who has lived in the Mission since 1995 might be priced out of market rate housing.

4) That was pretty obvious, anything else?

Suggesting that rent control keeps housing costs low for long-term tenants is not a novel concept, its just math: Escalate someone’s rent at 2% while the market rips at 5% and they’re bound to be better off decades later.

So what about looking at whether long-term tenants actually stay in their homes.

One of my personal gripes with rent control is that advocates seem to presuppose that residents want to stay in the same apartment for a long time - that this is a desirable outcome.

What about upward mobility? What about buying a home? Why do we paint these outcomes as bad?

Let's look at leases signed by year to estimate what portion of tenants have lived in a neighborhood for a long time (a desired outcome of rent control) compared to which ones arrived more recently (potentially evidence of gentrification).

The last few years jump off the page: Its hard to understate the impact the pandemic had on the San Francisco housing market.

In Pacific Heights, almost 70% of all apartment leases were signed since 2020, mirroring the trend city-wide where about 65% of all apartment leases in the rent registry data set are from 2020-2023. The ratio is a bit lower for the Mission, where leases during and post-Covid make up 55% of all leases.

And as rents have rebounded off the 2021 lows, tenants in Pacific Heights on average enjoy a 15% discount to market, with tenants in the Mission paying about half that discount, since rents there have not recovered as strongly off the lows.

Again, this supports the rather obvious notion that the longer tenants manage to stay in a high rent growth area, the cheaper their apartment gets on a relative basis.

But as a knock on the neighborhood-saving characteristics of rent control, tenants who signed leases prior to the year 2000 make up only 10% of residents in Pacific Heights. In the Mission that number climbs to 15%, but one can hardly say that 15% “retains the neighborhood character” in a meaningful way.

Going back further paints an even less optimistic picture for rent control advocates, with a mere 4% of tenants in both neighborhoods having signed pre-1990 leases.

5) So, what's the verdict?

The data here is of course one part of the story, and a muddled part at that.

Not only is the data self-reported and not externally verified, but more importantly there are a tremendous number of factors impacting someone's decision to stay in their apartment for decades (family, life, work, death, etc).

And if a working class person moved into a 1-bedroom apartment the Mission in 1994, saved up and bought a home in 2004, how can we suggest that is anything but a great outcome for that person?

Rent control advocates would broadly disagree, seeming to value neighborhoods being stuck in stasis while the world evolves around them, discounting individual advancements and achievements.

So in the final analysis, the data confirm that rent control absolutely benefits a handful of tenants who stay in an apartment for a long, long time.

But that fraction is so tiny, one has to wonder if the negative impact these policies have on the housing market at large are worth it.