What do rent regulations in San Francisco mean for property investors?
What should property owners know about San Francisco rent regulations?
As a major city, San Francisco has many investment opportunities for property owners.
“It’s one of the best cities in the U.S. with a strong, vibrant economy. It's fueled by industries, like high tech and bio sciences, plus top schools and universities, a highly skilled workforce, great weather, and coastal real estate,” says Albert Pandolfi, Executive Director, Credit Risk at JPMorgan Chase, who works out of San Francisco.
However, there are many local rules and regulations. While California has statewide rent control laws, San Francisco has its own set of rules for rent control, which are determined by the city’s rent board. Basically, there is a ceiling on the maximum rent that can be charged, which ensures that property owners can only raise rents a set amount annually for certain units.
For a sense of comparison, California’s rent control law, known as Assembly Bill 1482, prohibits residential property owners from raising rent more than 5%, plus the percentage change in the cost of living, in a 12-month period. In San Francisco, that rate, which is updated annually, is 0.7%, effective March 1, 2021, through Feb. 28, 2022, according to the San Francisco Rent Board.
The basics of San Francisco’s rent regulations
Many units in San Francisco, including multifamily housing, are regulated by the San Francisco Rent Ordinance. According to the San Francisco Tenants Union, an organization that promotes the rights of the city’s renters, a property is covered under this ordinance unless it meets (but is not limited to) the following criteria:
- A rental unit with a certificate of occupancy after June 13, 1979, with a few exceptions
- Subsidized housing, such as Department of Housing and Urban Development housing projects
- A residential hotel and the tenant has fewer than 32 days of continuous tenancy
- A dormitory, hospital, monastery, or nunnery
- A single-family home: While these units usually do not have limits on rent increases, they do have “just cause” eviction protection.
The best way to determine whether your property is subject to the guidelines of the rent regulation ordinance is to consult the San Francisco Rent Board. Pandolfi says The board’s website can be a critical resource for tracking rent increases and if you have questions about rent regulations or evictions.
Rent increases under the ordinance
If your property is covered under the ordinance, what exactly does this mean? Affected San Francisco landlords can only increase their rents by a set amount each year. The San Francisco Rent Board determines the amount leveraging the Consumer Price Index.
Tenants can petition to have their rent decreased if the landlord fails to provide agreed upon or legally required services, such as if the unit has unaddressed housing code violations. The ordinance also covers eviction, and, as the rent board states, landlords must have at least one of 16 "just cause" reasons to pursue an eviction.
How much you chose to increase the rent within the allowable bracket is up to you, but you have to give your tenants proper notice, and any challenges or exemptions must be submitted to the rent board for approval.
There are certain situations in which a request to increase rent can be granted under the ordinance. According to the San Francisco Rent Board, these include:
- Capital improvement expenses that landlords can petition to be passed on to tenants
- Operating and maintenance expense increases
- Special circumstances increase based on rents for comparable units
- Rent increases based on the past rent history of a Proposition I Affected Unit. Landlords can petition to apply rent increases that were previously exempted but have been repealed by new legislation.
- Increased utility costs that landlords can petition to pass on to tenants
Banking rent increases
If you decide not to impose an annual rent increase, you can bank your rent increase for 24 months after the anniversary date. The San Francisco Rent Board says that “banked increases do not have to be approved by the Rent Board, but must be calculated correctly and cannot be compounded or prorated.”
Why would property owners choose to bank their rent increases? Charley Goss, a government affairs manager with the San Francisco Apartment Association says, “Everybody's on a case-by-case basis. But one thing that we've seen, especially over the past year, with the market here in San Francisco getting hit really hard due to COVID, is that people were trying to keep and retain their residents. So, you might not increase the rent if you wanted to keep the tenant. Mathematically, if you bank rent increases, the tenant saves money. So, it's in the owner’s best interest to raise the rent annually on a schedule.”
To find the dollar amount of your allowed increase, you first add the total percentage of banked rent increases to the annual allowable rent increase, and then multiply that percentage by the tenant’s current base rent.
How to keep up with regulations
Rent regulations are complex and evolving, and they can be confusing. Along with city’s rent board and the SFAA, another potentially helpful resource is the Small Property Owners of San Francisco.
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