Proposition F - Rent Increase Suspensions

What it does

Proposition F is an amendment to the San Francisco Residential Rent Stabilization Ordinance, which covers limitations upon rent increases. It expands the application of financial hardship as grounds for suspending rent increases.

Currently, tenants can appeal certain rent increases, generally those based upon capital improvements or the passing on of the owner's utility costs to tenants, based upon claims of financial hardship. Proposition F will add to the existing process by allowing a tenant to petition, and an administrative law judge of the San Francisco Rent Board to grant, a suspension of annual and banked rent increases (those rent increases that the landlord is entitled to charge on an annual basis but has elected not to use in prior years). This appeal could be granted if the judge determines a financial hardship exists because the tenant is paying more than 33 percent of her income toward rent, as well as one of the following criteria:

• The tenant is unemployed
• The tenant has had a 20 percent reduction in wages as compared to the prior 12 months
• The tenant's sole source of income consists of government benefits, and the tenant has not received a cost-of-living increase of such benefits in the past 12 months

As with hardship applications under existing rules, the tenant's assets will be considered in making a determination of financial hardship. Once the administrative law judge makes a determination of financial hardship, he will suspend the proposed rent increases and schedule a review at the end of that suspension period. At this review, the judge may continue the suspension if a hardship still exists, or allow the property owner to implement the suspended increases from the point when the tenant's income or assets increased enough to eliminate the hardship.

Why it is on the ballot

This ballot measure was introduced by five members of the Board of Supervisors in response to the mayor's veto of a package of 2009 ordinances amending San Francisco's rent control provisions. The proposed ordinances would have defined financial hardship as rent exceeding 33 percent of a tenant's gross income and capped "banked" rent increases at 8 percent. These ordinances were introduced in response to concerns over the current financial downturn's impact on tenants' incomes and their ability to pay rent.

Pros

Arguments in favor of this measure:

• By expanding tenant financial hardship protections to include annual rent increases and banked rent increases, this measure will protect some distressed tenants from being displaced from their homes during the current financial downturn. Without this measure, some people in rent-controlled apartments may be forced out by increases they may be unable to pay because of a reduction in income, a loss of income or an absence of a cost-of-living increase in public benefit programs.
• Rent control regulation is one of the few tools the City possesses to protect low-income tenants during an economic crisis. The City does not have enough money to help tenants by providing funds to bridge the gap between a rent increase and what a tenant can afford to pay.
• The current rent ordinance does not define "financial hardship." This measure would provide clear criteria and a concrete definition.
• Assuming that annual rent increases generally mirror the economic condition of renters, the dollar value of rent increases related to financial hardships will be small. That is, financial hardship applications generally will be granted during hard economic times when allowable annual rent increases already would be low. As a result, the economic impact of this measure on landlords will be minimal.

Cons

Arguments against this measure:

• By applying relative measures for financial hardship (that is, 33 percent of gross income and a 20 percent reduction in wages), the measure does not distinguish between the income levels of tenants. Under Prop. F, a person earning $100,000 per year and paying $2,750 in rent would be eligible to claim financial hardship if his or her wages drop to $80,000.
• This measure does not distinguish between tenants who pay more than 33 percent of their income because of a decline in their income or an increase in their rents, and those tenants who initially entered into rental agreements already paying more than 33 percent of their gross income. Generally, this could discourage landlords from renting to poorer tenants who would have to pay more than 33 percent of their income to rent from the start.
• The measure permits a single roommate of a multi-resident household to apply and qualify for financial hardship, but the suspension of rent increases would apply to the whole rental agreement.
• The rationale for a decline in income or unemployment is not contemplated in the measure. While the measure protects tenants who are laid off or are victims of unwanted wage reductions, it also protects tenants who become unemployed by choice or who voluntarily scale back their work.
• This measure does nothing to ensure that the process of determining and evaluating a tenant's assets is thorough, fair and accurate.
• The measure is driven by the current financial downturn, but does not include a sunset provision eliminating these new rules once the economy improves.
• By defining financial hardship, this measure may restrict the Rent Board's flexibility in considering a number of factors to determine financial hardship. This measure may not account for circumstances in which a tenant suffers from financial hardship but does not meet at least one of the enumerated criteria. That is, this measure could strip the discretion of administrative law judges to make judgments that look at factors other than those included in the measure. This could result in instances when truly deserving hardship applications are denied.
• Following a suspension period, if an administrative law judge determines that a tenant's conditions have changed enough to warrant a reinitiation of the rent increase, the increase would be retroactive to the date the tenant's circumstances changed. If the tenant does not have the financial resources to pay this "back" rent, the tenant could be evicted for failure to pay rent.

SPUR's Analysis

The intent of this ordinance is laudable. However, in seeking to solve the problem it intends to address"”namely, creating protections for those tenants at risk of losing their housing due to changes in their income"”the measure has the potential to create several unintended consequences, including creating unnecessary protections for higher-income tenants, the roommates of tenants who have experienced changes in income, and tenants who may voluntarily reduce their income or employment.

SPUR recommends a "No" vote on Prop. F.