Property Rights Triumph in People's Republic of San Francisco

Property Rights Triumph in People's Republic of San Francisco

In a decision that is sure to inflame San Francisco politics, U.S. District Judge for the Northern District Charles Breyer ruled Tuesday a San Francisco law requiring landlords to pay displaced tenants the difference between current rent and the amount needed to rent a comparable unit in a similar neighborhood in the city for two years was an unconstitutional violation of property rights.

After the California Supreme Court ruled that “landlords do not have the right to evict tenants to go out of the business of being a landlord,” the California Legislature adopted the Ellis Act” in 1985.  The law, as a provision in California Government Code (7060-7060.7), provided landlords the right to shut down use of the property as rentals. It quickly became a way out of municipal rent control provisions by converting to condos. 

Municipalities still retained the ability to regulate the Ellis Act eviction process and many began restricting property use as a rental for a period of time after “going out of business.”  When the properties did “reenter” rental status, they were required to revert back to all the former rent control provisions.

In 2006, then Mayor Gavin Newsom signed a San Francisco ordinance that prohibited any conversion of a building to condominiums which had, since May 1, 2005, either multiple evictions and/or any single eviction of a senior or disabled tenant.   

The San Francisco Tenants Union and its allies thought they scored “a big win” this spring when a new local ordinance was passed by the San Francisco Board of Supervisors by a veto-proof 9-2 vote. The new law guaranteed tenants could no longer be evicted under the Ellis Act without receiving paid compensation of at least $5,153 and up (per tenant) to more than $18,000 per unit depending upon various factors like age, disability, and whether a unit has school-aged children occupying the targeted unit.    

The Pacific Legal Foundation (PLF) responded by filling suit against the city on behalf of the San Francisco Apartment Association and the pro-property-rights Coalition for Better Housing. The PLF claimed the new Ellis Act ordinance “requires rental property owners to pay their tenants oppressive and unconstitutional sums of money before the owners can regain personal use of their property,” the Business Times reported.

The federal Judge found abusive the fact that tenants who received the compensation, which sometimes exceeded $100,000, were not even required to spend the money on replacement housing in San Francisco or anywhere else.

The timing of the Judge’s order came as an amendment to the Ellis Act for San Francisco County is pending in the California State Legislature (SB1439) that would require any new property owners to wait five years before evicting the current tenants.

The decision is expected to shift attention to San Francisco Proposition G, which would levy a tax of up to 25% on of the sale price for purchases and sales of residential buildings with two to 30 units within any four year period. Before the Court ruling, the initiative had been so egregious even the usually uber-liberal San Francisco Chronicle editorial board recommended a no vote

But as the Chronicle wrote after the Judge’s ruling inflamed local tensions, “San Francisco landlords carried the day in court Tuesday. Now look for the political backlash on November 4.”

Chriss Street suggests that if you are interested in the economics of California, please click on “Not so Fast: Stock Market Fall Will End ‘California Comeback’–Laffer


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