That combined with rent control laws that have been shown to increase rent costs result in much less natural liquidity in the market and therefore higher prices.
But it goes well beyond that. A landlord can own a $4 million dollar shithole but only be collecting $3000 a month from tenants because they've been there for 12 years and the landlord can't increase rent. If they try to sell the building with long term tenants it becomes an intractable problem because there are few ways to force anyone to leave an apartment and tenants know this - it is not uncommon to offer tenants more than $50k to leave an apartment, and it actually doesn't make economic sense for tenants to take less because if they have been there >5 years they are probably saving at least a thousand dollars a month in rent.
So the end result is that a lot of landlords simply have no incentive to fix up a place. Roof is leaking? Too bad. Your landlord might not fix it and sure, you can take it to the courts and win BUT that means you have to leave your apartment until they fix it the issue and any other thing the inspector finds. Which tends to stretch out for years while renters have to find a new place. So renters generally deal will all types of illegal and unsafe housing issues so they don't lose their "good deal" on rent. So both renters and landlords are incentivized to accept shittier and shittier housing while the letter of law for housing inspections gets more precise and costly for owners when things finally get bad enough.
The lifecycle of a house in San Francisco is 20-40 years of disrepair followed by a complete teardown (except the facade so they can still call a "remodel", yes this is a well-known SF red tape workaround) then a new bigger house is put in it's place and sold for top dollar ($3-5 million is the going rate for a nice new rebuild). This is why shacks are still commanding $1-2 million because the land itself (and the facade) is worth it.
One crazy thing is that you can get reassessed for improving a place.
As far as I know, the property tax based on reassessment is only increased for the marginal improvement. For example, say I have a house that's currently assessed for $200K, but it's true market value is $500K. I then add a room to the house and the market value jumps to $600K as a result. The new assessed value would be $300K — the original $200K plus the $100K I added by improving the house.
So still undervalued tax-wise, but my property tax increased by 50%.
Presumably when the landlord rented the place out they did so at a price that would cover their mortgage and other expenses including maintainance. That landlord's problem isn't covering expenses, it's that they're envious of the increasing profits of other landlords.
Comments
That combined with rent control laws that have been shown to increase rent costs result in much less natural liquidity in the market and therefore higher prices.
But it goes well beyond that. A landlord can own a $4 million dollar shithole but only be collecting $3000 a month from tenants because they've been there for 12 years and the landlord can't increase rent. If they try to sell the building with long term tenants it becomes an intractable problem because there are few ways to force anyone to leave an apartment and tenants know this - it is not uncommon to offer tenants more than $50k to leave an apartment, and it actually doesn't make economic sense for tenants to take less because if they have been there >5 years they are probably saving at least a thousand dollars a month in rent.
So the end result is that a lot of landlords simply have no incentive to fix up a place. Roof is leaking? Too bad. Your landlord might not fix it and sure, you can take it to the courts and win BUT that means you have to leave your apartment until they fix it the issue and any other thing the inspector finds. Which tends to stretch out for years while renters have to find a new place. So renters generally deal will all types of illegal and unsafe housing issues so they don't lose their "good deal" on rent. So both renters and landlords are incentivized to accept shittier and shittier housing while the letter of law for housing inspections gets more precise and costly for owners when things finally get bad enough.
The lifecycle of a house in San Francisco is 20-40 years of disrepair followed by a complete teardown (except the facade so they can still call a "remodel", yes this is a well-known SF red tape workaround) then a new bigger house is put in it's place and sold for top dollar ($3-5 million is the going rate for a nice new rebuild). This is why shacks are still commanding $1-2 million because the land itself (and the facade) is worth it.
Prop 13 is rent control for land owners, and the same issues apply. One crazy thing is that you can get reassessed for improving a place.
As far as I know, the property tax based on reassessment is only increased for the marginal improvement. For example, say I have a house that's currently assessed for $200K, but it's true market value is $500K. I then add a room to the house and the market value jumps to $600K as a result. The new assessed value would be $300K — the original $200K plus the $100K I added by improving the house.
So still undervalued tax-wise, but my property tax increased by 50%.
Presumably when the landlord rented the place out they did so at a price that would cover their mortgage and other expenses including maintainance. That landlord's problem isn't covering expenses, it's that they're envious of the increasing profits of other landlords.
How rent control regulations deal with the increasing (varying) cost of maintenance?
Opportunity costs. Of course rent control policies try to offset the external cost of pricing out people from their homes.