A December survey completed by the U.S. Census Bureau raised the eyebrows of those who’ve been ignoring The City’s biggest real estate open secret: despite our city’s well-documented chronic housing shortage, San Francisco has 11,760 homes that are vacant. That’s not units that need to be built; that’s nearly 12,000 existing properties whose owners choose, for a variety of reasons, to leave them empty rather than offer them to renters, and that, tenants rights’ advocates and homeless advocates say, is an outrage.
Before you pull out your protest placards, you should know that number might be a bit misleading, as it includes “vacant units for rent,” “vacant units for sale” and homes/units within buildings that are being used as short-term rentals.
On second thought, maybe you should go out and demonstrate.
The second thing you should know is that this is not a new phenomenon by any measure. San Francisco has a tradition of vacant properties. As insane as it may sound to not capitalize on the most overheated rental market in the United States, there are a number of reasons why owners leave houses empty.
Not all of them are rooted in greed, as some proposed solutions to the problem assume.
Here’s a hot take: not all San Francisco landlords are wealthy. A certain percentage are, just as some owners of empty properties have either bought them solely as investments (and don’t want them mucked up with the hassles of renting), as weekend pied-a-terres or as a nice perk for family and friends visiting The City. It’s also true, however, that a significant number of San Francisco’s landlords are families who’ve either leveraged themselves or who’ve owned property in The City for decades, long before the local real estate market went nuclear. Call them visionaries, call them winners of the birthdate lottery, they’re as much the face of this empty property problem as the villainous tech titan we like to imagine when we think “landlord.”
These landowners, it turns out, are leaving properties empty for reasons far more prosaic than naked greed. Here are a few reasons:
They bought the building with their in-laws; the in-laws eventually passed, leaving a unit that needs about $300,000 of remodeling before it can be rented. They don’t have $300,000.
They have three kids and one of them is living downstairs but not paying rent. Technically, this unit is classified as empty.
Their mortgage has been paid off for decades, their property taxes are $700 a year, they’re in their 80s and they don’t have the energy to manage tenants.
This last reason is more common than you might think. “I know some people whose mother is 80 and owns a four-unit,” a property manager friend recently told me, “and they can’t wait to get rid of it.” The mother isn’t up to being a landlord and the grown children have their own lives. They’d like to sell the building, but capital gains would all but wipe out any profit they might make. Also, the resale value of a San Francisco building with tenants (especially rent-controlled tenants) doesn’t come close to the value of one delivered empty, because stories of landlord-tenant wars have replaced stories of the Gold Rush and the 1906 earthquake in San Francisco legend.
My friend told me another story, about buying a home to remodel and rent, and then eventually rebuild and sell. By the time he finished talking about, among other issues, permit delays, and renting at below-market rates to friends and needy members of his community who overstayed their promise of “just for a few month,’” he shuddered. “I guess I’m the owner of a vacant property.”
All of this is a way of saying that we shouldn’t make assumptions when we hear that 12,000 homes are empty in San Francisco. California Assemblymember David Chiu’s plan to tax owners of vacant properties, outlined in Assembly Bill 1905, is an attempt to punish a bogeyman who may only partially exist.
The City’s vacant house problem is complex, involving greed and speculation, sure. But it also includes legacies, middle-class city natives, the unintended consequences of stringent tenants’ rights laws — and sometimes owners like my friend, who do everything right and still end up “part of the problem.”
The Market Musings real estate column appears every other Wednesday. Larry Rosen is a San Francisco-based writer, editor, podcaster and recovering former Realtor. He is a guest columnist and his viewpoint is not necessarily that of the Examiner.