Rising tide of plutocracy

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EDITORIAL The pace of life under late capitalism seems to be speeding up these days, and so too have the bad news developments and warnings of impending doom come at a more rapid clip, at least according to the headlines over the last couple weeks.

First it was a report from the US Commerce Department showing that corporate profits are at the highest level in 85 years while employee compensation is at its lower level in 65 years. After-tax corporate profits are now 10 percent of gross domestic product (a record high) as a result of the effective corporate tax rate (figuring in loopholes) of 20.5 percent, the lowest tax rates since 1929, not coincidentally when the Great Depression began.

Then came the latest report from the Intergovernmental Panel on Climate Change, striking a more urgent tone than the four preceding reports as it documents the threats already unfolding and the major social upheaval to come. And then we were hit with the US Supreme Court's 5-4 McCutcheon vs FEC decision, which "eviscerates our nation's campaign finance laws," as Justice Stephen Breyer wrote in his dissent, striking down aggregate contribution caps and giving even more political power to those with the most economic power.

So wealthy individuals and corporations are hoarding more of the nation's resources than ever before, and now they'll be able to spend even more of it to influence and corrupt our already broken political system, weakening its ability to take on big challenges such as addressing global warming because the solutions — including slowing down economic activity (we'll have more on that in next week's issue) and helping poor countries deal with rising seas and social instability — require resources from the greedy rich. Call it self-perpetuating plutocracy, with life as we know it on planet Earth at stake.

Meanwhile, on the local front, a Tenants Together study of the economic displacement now underway in San Francisco found it is mostly real estate speculators who are evicting renters using the Ellis Act, a state law ostensibly designed for letting property owners eventually get out of the rental business. Instead, the report's analysis of eviction data since the Ellis Act was adopted in 1985 showed that 51 percent of Ellis evictions occurred within a year of the property changing hands, 68 percent within five years of new ownership, and 30 percent of Ellis evictions came from serial evictors — all told, displacing 10,000 San Francisco tenants, mostly from rent-controlled housing.

Prohibiting Ellis evictions for the first five years — which is part of Sen. Mark Leno's SB 1439, which had its first hearing this week — is a good idea that will help. But it also feels a bit like sticking a finger in the hole of a crumbling dike, when what we really need is a strong, new, progressive seawall to protect us against the rising tide of plutocracy, or rule by the rich, and its myriad ravages.

Comments

Capitalism has been going for centuries. Maybe millenia depending on how you define it. and it is stronger than ever. We've seen communist nations embrace it, socialist nations overhaul it, and :American doesn't even have a left of center party opposed to capitalism.

Meanwhile inequality never made anyone poorer. It just means that a few people who create real wealth and prosperity get rewarded for it. Sounds good to me.

Posted by Guest on Apr. 08, 2014 @ 3:25 pm

The Revolution is always just around the corner.

Posted by Guest on Apr. 08, 2014 @ 3:43 pm

The revolution will not be televised because it will never happen.

Posted by Guest on Apr. 08, 2014 @ 3:49 pm

new owners have a high cost basis and so a building that was viable under a long-time owner no longer is when it resells.

And because some owners are too nice to Ellis, so sell instead, but the only people who can buy those buildings are compelled to Ellis because the numbers are terrible.

Posted by Guest on Apr. 08, 2014 @ 3:27 pm

But wouldn't those numbers get better if the Ellis Act was repealed and the option of converting rent-controlled housing to other uses was removed? Presumably, the selling price for rent-controlled buildings wouldn't be artificially increased by real estate speculators, thus limiting buyers to those who actually want to be landlords.

Posted by steven on Apr. 09, 2014 @ 10:52 am

It's true that the value of a rent-controlled building would decline if Ellis were repealed, because such a repeal reduces the options available for that building.

So you would be punishing those owner who have no Ellised and yyou would be rewarding those who have already Ellised and sold on. I'm not sure why you'd want that.

Put another way, by devaluing rental buildings you'd be giving a windfall loss to anyone who hasn't found a way of getting rid of his tenants already.

OTOH, it might attract new landlords because now the rental yields would be higher and the buildings more affordable.

If you talk to real landlords, you will learn that the real problem isn't the rents, but the total lack of control you get over your building, potentially forever.

Buy ten miles north, south or east of here, and you have no such problem. So why would anyone run a SF building and tolerate that? It is only because of the greater price appreciation.

So devalue SF buildings and you take away a major reason why folks buy and run them in the first place. In the long term, that means less rentals and higher rents.

How about incentives for landlords who do not Ellis? Say a property tax break?

Posted by Guest on Apr. 09, 2014 @ 11:10 am

It's called Prop 13. It's part of the reason the Ellis Act was brought around in the first place, because property taxes are frozen on purchased property which encourages landlords to sit on properties forever instead of return them to market.

Get rid of Prop 13 and the market can start helping landlords who want to get out of the landlord business.

Posted by bassguitarhero on Apr. 09, 2014 @ 11:20 am

1) Prop 13 applies to all owners. You do not have to rent out a home to get Prop 13

2) In both cases, property taxes are deductible so, again, no special break for landlords.

Also, property taxes are not "frozen" at all. They increase by 2% a year, plus parcel taxes, plus a rebase whenever a home is sold. Prop taxes revenues increase 7% a year on average.

What i am talking about is an extra tax break for not Ellis'ing a building.

Posted by Guest on Apr. 09, 2014 @ 11:31 am

I'll believe that we need to create incentives for people to buy apartment buildings when they're some indication that we need to attract new landlords, but that doesn't seem to be happening. In the meantime, repealing Ellis Act should help bring down the price of apartment buildings, maybe enough to hold down rents, which is a goal that everyone in town but the landlords seem to share. Plus, property owners have all kinds of tax option to deal with writing off depreciation of assets, I don't think they should be our top concern in a city where two-thirds of the citizens rent their homes.

Posted by steven on Apr. 09, 2014 @ 5:23 pm

The problem is getting them to run them as rentals. Rent control makes it more attractive to sell as TICs and TICs cannot be controlled locally, as Bierman discovered 15 years ago when she tried.

So even if Ellis was totally repealed the trend would continue of LL's leaving the business for as long as rents are controlled.

The problem is that the city has forced down rents but cannot force down home values. So the transition from renting to owner occupied will continue.

In 20 years there will not be many rent controlled units actually rented. The only rentals will be exempt units rented at market. The rest will be owner-occupied TICs and condos.

You should sit down with the LL folks and work out a better way.

Posted by Guest on Apr. 09, 2014 @ 5:46 pm

What you're describing isn't landlords, it's real estate speculators, and I don't think we should negotiate with terrorists and extortionists, we just need to oppose them with everything we have and save rent-controlled housing for the people who need it

Posted by Steven T. Jones on Apr. 10, 2014 @ 8:43 am

If I buy a rental building, run it as a rental for a year or two, decide it cannot compete with other investments, and then convert to TICs, that doesn't make me a speculator.

Sure there are folks who will facilitate Ellis, TICs etc but that is only because there is a demand for that. They are not ultimately the problem at all.

The problem is that a typical SF rental building is worth twice as much as TICs as it is as a rental if you have lifer tenants. How do you fix that? The city cannot legislate the price of a building, it cannot control TIC formations and it cannot force an owner to be a landlord if he doesn't want to be one.

So what then? As long as rent control causes a disconnect between the valuation as a rental and as TICs, then there is arbitrage opportunity. Someone will exploit that inevitably.

You are missing the real structural problem here, and tinkering around at the edges

Posted by Guest on Apr. 10, 2014 @ 9:08 am

Again, what you're describing is real estate speculation. If someone buys a property based on its value as a rental building, then decides he can make more money by changing the use of that property and trying to find someone to buy it for a higher price than it would command as a rental, that is real estate speculation. And it is an attack on the city's finite and dwindling rent-controlled housing supply. If the landlord who decided after a couple years that he didn't want to be a landlord anymore was behaving in an ethical fashion -- rather than acting out of greed and self-interest -- then he would sell the building to someone who wanted to be a landlord, perhaps even taking a small profit in the exchange.

Posted by steven on Apr. 15, 2014 @ 2:35 pm

only people who would buy it are people who would Ellis it.

What you are missing is my very point - that it is the numbers and cashflows that determine if a rental building is viable and sustainable. If it is not, then it WILL be Ellised because it MUST be Ellised. There is no alternative if the building provides an inadequate ROI.

You want landlords to be charities giving out welfare and handouts and subsidies. That was always unreasonable, which is why we have the Ellis Act.

Why not instead support policies that make being a landlord more attractive? Because until you do, landlords will continue to leave the business, and that only leaves speculators.

Posted by Guest on Apr. 15, 2014 @ 2:58 pm

I quite like reading through a post that will make men and
women think. Also, many thanks for allowing for
me to comment!

Posted by Each and every kid would like to have a tricycle on Jul. 31, 2014 @ 6:14 am

No, they do not. Prop 13 freezes property taxes. You may be talking about city level which varies by city. Disney is still paying the same property taxes now on land they purchased in the 80s. The entire system is screwed up as a result.

Property renters do not get Prop 13 breaks because they do not pay property taxes.

Landlords do not need special breaks for not Ellis'ing a building they own because their frozen property tax rates guarantee them tons of money for sitting on property as long as possible

Posted by bassguitarhero on Apr. 09, 2014 @ 11:48 am

They get raised every year, just like in places with no Prop 13. The only difference is that the annual rise is capped, just like with rent control. you have a problem with rent control

And yes, tenants benefit from Prop13 because higher property tax raises would increase rents

Posted by Guest on Apr. 09, 2014 @ 12:02 pm

Rental rates are based on the market, not the owner's cost. Business 101.

Posted by bassguitarhero on Apr. 09, 2014 @ 12:15 pm

will eventually no longer exist, meaning the tenants will lose their home.

Oh, and BTW, the rent ordinance specifically allows pass-thrus of property parcel tax increases.

So you managed to be wrong twice. Way to go.

Posted by Guest on Apr. 09, 2014 @ 12:27 pm

please define "real estate speculators" and state how you, using a biased "study" know that most ellis act evictions are so called "please define "real estate speculators".

Posted by sftparty on Apr. 30, 2014 @ 8:55 am

Some LL's want to Ellis but don't have the stomach to do it, so they sell to someone who will do it.

It looks like the buyer and Ellis'er there is a "speculator", but really it's just the inevitable consequence of a building no longer being viable.

If the numbers don't crunch, the building will not endure. Doesn't much matter who closes it down.

Posted by Guest on Apr. 30, 2014 @ 9:51 am

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