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Do Rents Really Rise Without Human Intervention?

It takes a lot of money to get people to vote against their own interests, and the real estate industry has plenty of money. Ideological obfuscation plays its part, too, and both contributed to a recent pair of defeats in San Francisco’s uphill fight against gentrification.

I happened to be in San Francisco in the days leading up to Election Day, and there seemed to be quite a lot of excitement over Proposition G, a modest proposal that would have instituted a tax on speculators buying and quickly selling tenant-occupied housing. “Yes on G” signs abounded and most, although not all, advocates I met believed it would pass. Why not? What renter could be against a law that might slow down, a little, skyrocketing rents? Nonetheless, the real estate industry poured $2 million into opposing Proposition G, outspending proponents 12-to-1, and it was defeated.

Only two weeks earlier, a federal judge overturned a law passed by the city government that would have forced landlords who kick tenants out of rent-controlled apartments to pay them the difference between the rent they had been paying and the fair market rate for a similar unit for a period of two years. An attempt to combat a steady upsurge in evictions, the judge nonetheless declared that skyrocketing rents aren’t the fault of landlords.

The rents go up all by themselves? Landlords by some lucky coincidence just happen to be the beneficiaries of some mysterious process outside of human control?

Ah, yes, the magic of the market at work again. The federal judge who handed down the ruling, Charles Breyer, has a reputation as a liberal. Yet he had no hesitation in grounding his ruling in orthodox economic ideology, largely echoing the arguments of the hard right, libertarian Pacific Legal Foundation, which represented the landlords. Judge Breyer went so far as to call the requirement a confiscation and “an impermissible monetary exaction.” But the law would not have stopped landlords from throwing tenants into the street so they could bring in new tenants who would pay more, merely ameliorate the cost to the evicted tenant.

Lawyers for the city of San Francisco argued that the two-year rent-differential payment would be “roughly proportional to the harm they impose on their tenants by evicting them from a rent-regulated unit and forcing them to seek new housing at market rates.” That is a real consequence, as the average San Francisco rent of a one-bedroom apartment is $3,100. It would require the combined salaries of 4.6 full-time jobs at San Francisco’s minimum wage to afford the average two-bedroom apartment there, according to the National Low Income Housing Coalition.

More than 10,000 San Franciscans have been evicted under a state law, the Ellis Act, that enables landlords to “exit” the landlord business (although in many cases, they “re-enter” the business after the previous tenants are evicted). The Tenants Together study that reported that total notes that it actually accounts for a small percentage of Ellis Act-related evictions as many others are forced out by the threat of an Ellis Act eviction and do not count toward the official statistic.

Court says landlords who evict are bystanders

Judge Breyer, nonetheless, blamed “market forces” and that favorite right-wing bogey, rent control, for runaway rents. Landlords, therefore, are innocent victims. In his decision, the judge wrote:

“[The law] seeks to force the property owner to pay for a broad public problem not of the owner’s making. A property owner did not cause the high market rent to which a tenant who chooses to stay in San Francisco might be exposed, nor cause the lower rent-controlled rate the tenant previously enjoyed.”

There you have it: If you are in the way of a speculator or a developer wanting to maximize their profits, get lost. That is simply a more polite way to say what former New York City Mayor Ed Koch said as gentrification got underway there in the 1980s: “If you can’t afford New York, move!”

Lost in these legal and ideological thickets are that landlords are cashing in on the sweat of others, including those they force out. Gentrification is a deliberate process. Organic cultures originating in the imagination, sweat and intellectual ferment of a people living in a particular time and place who are symbolically or actually distinct from a dominant moneyed mono-culture are steadily removed and replaced by corporate money and power, which impose a colorless chain-store conformity.

Those organic cultures then became selling points to promote the targeted neighborhood, cashed in not by those who created it but by real estate interests. Local governments facilitate this process on behalf of developers, tempered by the ability of movements from below to slow the process.

The fallback position of the Pacific Legal Foundation, also adopted by the judge, was that the two-year rent-differential payment would be unfair anyway, because there was no requirement that the payment be used toward rent. The San Francisco city attorney pointed out that the recipient of such a payment would have no choice but to spend it on new housing. But the Pacific Legal Foundation attorney admitted that were such a requirement in place, it would have opposed the law just the same.

The city of San Francisco has announced it will appeal Judge Breyer’s ruling to the U.S. Court of Appeals for the Ninth Circuit. “There should be no doubt that when a landlord evicts a rent-controlled tenant, the immense rent increase the tenant faces is the direct result of the landlord’s decision to evict,” the city attorney, Dennis Herrera, said. A decision acknowledging that would be one grounded in the real world, rather than the phantasmagoria of orthodox economics and its insistence that “markets” are based in the clouds, beyond human touch. In the real world, the landlords, developers and bankers who profit arethe real estate market.

A flood of real estate money

Two weeks later, Proposition G failed, with 54 percent against and 46 percent voting in favor. Prop G proposed a “speculation tax” whereby a buyer of a multi-unit property would have to pay a tax surcharge if the building were sold in less than five years; the charge would range from 24 percent in the first year to 14 percent between four and five years. After five years, there would be no such tax surcharge. Because it was designed to be applied only to speculators, the proposed tax had several exemptions, including all single-family buildings and any building sold at a loss.

A heavy barrage of landlord mailings, including false claims that all properties would be covered, was too much for housing activists to overcome. Nonetheless, in a survey of activist responses after the vote published on the 48 Hills blog, there seemed to be a consensus that the effort to talk to people in the streets changed many minds, came close to overcoming the real estate industry’s 12-to-1 spending advantage and set the stage for further efforts that could succeed. The author of this article, Gen Fujioka, policy director for the Chinatown Community Development Center, quoted Causa Justa/Just Cause organizer Maria Zamudio:

“In this election we made major gains in organizing working class immigrants, seniors, low-wage workers, parents, and tenants, firing people up around the demand that they, too, deserve to live in San Francisco. … While it did not win this year, Prop G was part of a larger [local] progressive narrative that did win [including a minimum-wage measure that passed]. That narrative, along with the tools developed and relationships built in this campaign, will be the foundation on which we can continue to grow.”

Another activist, Randy Shaw of the Tenderloin Housing Clinic, believes that a greater emphasis on community organizing would make a difference. Proposition G had been placed on the ballot by four members of the city Board of Supervisors (San Francisco’s city council), rather than by activists collecting signatures, a strategy he believes should be reconsidered. He writes:

“Had the anti-speculation tax gone the signature route, activists would have recognized when the Title and Summary for the initiative petitions was prepared that the very popular idea of ‘stopping the flip’ did not translate well into a ballot measure. At that point a decision could have been made to alter it in some way as to either guarantee that the words ‘eviction’ or ‘speculator’ were included in the ballot question, or to seek to broaden the support base before going forward. … [T]he months spent talking to voters during the petition gathering process would have educated thousands about the issue. It would have insulated these voters from the big money attacks that created, and sought to provoke, confusion about what Prop G meant.”

The influx of technology-company employees may have also tipped the balance. It is difficult to speculate as I have no seen no surveys or breakdowns of the Proposition G vote, but it is possible that techies, many of whom absorb their corporate leaders’ libertarian political tendencies, voted in large numbers against. The group Techies Who Vote called on the technology industry to “exercise its electoral muscle” and vote against Prop G and progressive candidates who supported the measure.

Don’t mourn, organize

Organization is the only recourse against further gentrification, in San Francisco and elsewhere. But reversing the powerful moneyed interests that profit from it is no small task. A local organizer, Mike Miller, writing in CounterPunch, laments the fading of coalitions such as the Mission Coalition Organization that won many battles on behalf of tenants but was unable to coalesce into a force strong enough to reach neighborhood-wide agreements with landlord representatives. He writes:

“Regulation replaced organizing as the strategy to protect tenant interests—a voter-passed initiative created a rent control law, and a Rent Control Board to administer it. Electoral politics rather than mass, disruptive, nonviolent action became the means to enforce the strategy. Each, alone, is insufficient. ‘The market’ overwhelms them: too much demand for too little supply.

Unfortunately, there is no capacity now to negotiate with landlords, developers, lenders and others who profit from this run-amuck market. There is no longer a mass organization that might hurt profits and politicians’ careers by its capacity for boycotts, disruption, lobbying and electoral action.”

The inability to stop gentrification then has ramifications for surrounding areas. Across the bay, Oakland rents have risen 15 percent this year after rising 12 percent in 2013. Housing developments, with little affordable set-asides, are mushrooming in Oakland and evictions are increasing.

That, of course, is not merely a local phenomenon. The average net income from building ownership in New York City has increased 31.5 percent since 1990 — rents collected have risen faster than expenses. Nationally, real estate prices have been increasing faster than inflationsince the 1960s. Thus it is no surprise the share prices of real estate investment trusts have more than quadrupled since early 2009.

This is the result of allowing “market forces” to control housing. The way out is for housing to be recognized as a human right, instead of a capitalist commodity to be bought and sold by the highest bidder. That, however, will require a different, better world.

Pete Dolack writes the Systemic Disorder blog. He has been an activist with several groups.

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Pete Dolack writes the Systemic Disorder blog and has been an activist with several groups. His first book, It’s Not Over: Learning From the Socialist Experiment, is available from Zero Books and he has completed the text for his second book, What Do We Need Bosses For?

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