Doom Loop and Our Residential Rental Market

A current tenant asked me for a rent decrease after seeing an ad for a vacant unit in the building at a lower price.  What should I do?

The Doom Loop’s effects will not spare the residential rental market.  With office occupancy in desperate straits and retailers fleeing the City, apartment pricing is bound to suffer a downward adjustment. The media posts endless debates as to the cause of our decline and what is needed to fix the Herculean problems plaguing the once glorious San Francisco, but the reality is that no one knows how deep we descend and for how long.

And unlike other slowdowns or corrections, the current situation is unparalleled in modern history.  While housing providers witnessed such events as the Dot Com Bust or the Great Recession, this time the environment appears to be much more perilous.  Indeed, past setbacks did not include a massive business exodus, a seemingly never-ending drug and homeless crisis, or an onslaught of overly negative press coverage by national and international media outlets.  Today is truly different, and we should rejoice if there is meaningful relief three or five years from now. 

In the meantime, rents set within the recent past, save for the one or two years when there was massive pandemic flight and the rental market plummeted, might very well be higher than market.  And even without advertising, building residents are now able to ascertain what their neighbors are paying through the Rent Board’s housing inventory database that will soon be accessible to everyone on-line.  So unlike in past recessions, housing providers now must register their apartments and rents with the Rent Board, and, as has been advertised since the law’s passage in 2020, all pertinent rental data will be annually registered with the Rent Board.  This massive library will permit anyone to search for an address to ascertain the basic terms of tenancy, including current monthly rent.  In particular, the law states that:

“The Rent Board shall use the information it receives under [the Housing Inventory Law] to create a housing inventory that may be used for purposes of inspecting and investigating the level of housing services being provided to tenants, investigating and analyzing rents and vacancies, monitoring compliance with [the Rent Ordinance], generating reports and surveys, and providing assistance to landlords and tenants and other City departments as needed.”

Thus, there are no more secrets, even if you are not advertising a vacant and available apartment.  Moreover, if you think you can just ride out the Doom Loop by keeping housing off-line, think again.  As you likely already know, the voters passed a vacancy tax measure set to take effect in 2024 that will impose taxes on vacant rental housing should there be no rental activity for more than half of the year.  As summarized by the Department of Elections:

“Under Proposition M, in 2024, the tax would range from $2,500 to $5,000 per vacant unit, depending on the unit’s size. In later years, the tax would increase to a maximum of $20,000 if the same owner kept that unit vacant for consecutive years. The tax would also be adjusted for inflation.”

What should you do?  You may certainly decline the request and risk a move out.  Conversely, you may readjust the rent commensurate with today’s market conditions, but keep in mind that the reduction is permanent even if the local economy rebounds while the residents are still in occupancy.  The Rent Board’s longstanding rule is that rent adjustments due to market conditions are permanent, period.  Therefore, choose wisely, and consider the financial implications of a prolonged vacancy in the event you decide to push yesterday’s pricing into today’s reality.

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