After thirteen years in business, Therapy has become the latest business on Valencia Street forced out of its long term home by an exorbitant rent increase. Therapy, which over the years has grown to include several stores around the Bay Area, began as a furniture shop on Valencia and later expanded its offerings to include clothing.

It is the original furniture store at 541 Valencia that is closing at the end of August; the adjacent clothing store will remain open.

When reached by phone, Therapy’s owner Wayne Whelan explained that he simply couldn’t afford the 84% rent increase his landlord demanded. Whelan said he wanted to stay open until the end of the year, and that he was willing to pay the increased monthly rent to do so, but that he couldn’t commit to the new five year lease the landlord was demanding. The landlord, the Daljeet family, wouldn’t have it. “There was no negotiation. It was like, ‘take it or leave it,’” says Whelan.

Faced with a rent that increased from $5,700 to $10,500 as of August 1st, Whelan paid the higher rent for August, but decided that he would be unable to sign a new long term lease at the increased rate.

The closure of Therapy comes after a series of established businesses have been priced out of 16th and Valencia.  Earlier this summer, Idol Vintage was forced to move to 26th and Mission after their landlord attempted to raise their rent by $2,500.00. And recently, Clothes Contact announced they would be closing at the end of the year.

In conversation, Whelan mentioned that he was never late on rent, and that there is simply “more demand for [Valencia Street] than there is Valencia.” Whelan believes that with the average “consumer on Valencia Street [being] a hyper-affluent tech person,” a Valencia Street store “becomes a billboard to promote [a company’s] brand.” The outrageous rent paid simply becomes another line item in a company’s marketing budget.

This is the very situation that many local business advocates have feared, and was in many ways the driving force behind the fight to keep Jack Spade out of the Mission.

Though a mix of frustration and sadness can be heard in his voice, Whelan explained that he has “no hard feelings” toward whoever the eventual new tenant is. “Every store that closes is someone’s heartache, and every store that opens is someone’s dream.”

Those of you who will miss what Therapy had to offer, take heart: Whelan had already been in the works to open a new location on Park Street in Alameda, and it now appears that he will shift furniture sales to this location. In addition, Therapy is running a 20% sale on its furniture until the store’s closing on the 29th of August.

It is hard to not see Therapy’s closing as a symptom of a much larger problem that the city as a whole is now facing. When a well established and successful purveyor of hip furniture can’t afford Valencia Street (second to only the Design District for it’s love of expensive hip things), we’ve truly bypassed real estate “bubble” status and are firmly in that of “affordability crisis.”

[Photo: Capp Street Crap]

Board of Supervisors President David Chiu introduced legislation yesterday that would clarify regulations around short-term apartment rentals through sites like Airbnb, VRBO and Craigslist.  “My legislation creates limited flexibility for permanent residents to earn the additional income they need to help pay their rent and every day bills, but not at the expense of converting our limited supply of housing into hotels or vacation homes,” Chiu declared in a press release.

By requiring residency by hosts and registration of listings with the city and providing enforcement provisions for violators, the bill could signficantly affect the supply of units in San Francisco, where Airbnb and Craigslist are both based, restricting or even rolling back inventory growth right in their own backyards. It essentially holds Airbnb to the message of the company’s “sharing economy” marketing and lobbying message—that the service helps individuals and families make ends meet—by permitting some tenants and most individual homeowners to use the service while restricing units taken off the long-term rental market for use on the short-term rental market, which may be the bigger business and definitely presents the bigger threat of displacement.

In a statement, Airbnb called the proposal “an important first step,” but “not perfect,” specifically citing the registration requirement as problematic. So how, exactly, would this affect a typical San Francisco tenant who might already be making a few bucks on the side even at the risk of losing their home?Currently the practice is often illegal for both tenants and landlords, no taxes are collected and city enforcement is basically nonexistent. In New York’s far larger market, estimates peg the share of illegal listings at more than two-thirds, and even Airbnb admits that city is missing out on $21 million or more in tax revenue.  Tenants in SF have received eviction notices related to short-term rentals listed on Airbnb for violating their leases, and the San Francisco Tenants Union has begun going after landlords who have evicted tenants only to rent the units out illegally online—including two who combined the Ellis Act and Airbnb to empty their buildings and convert them into defacto hotels.

The proposed bill only applies to short term stays (less than 30 days), and mostly applies to multi-unit buildings, because single-family homes are generally treated separately in city codes, and one of Chiu’s primary goals is to protect rental stock from being “hotelized.”  So the bill calls for tenants and owners to apply to a registry maintained by the Department of Building Inspection every two years and establish that they are a permanent resident, which means living in the housing unit nine months out of the year.

So no, you can’t move to Costa Rica and turn your old rent-controlled apartment into a VRBO timeshare when you’re not using it as a pied-à-terre, at least not if you’re booking stays less than a month.  And if you’re a landlord, you can’t leave units empty year round and hire a service like Guesthop and Urban Bellhop to manage the unit, or become a speculative master tenant by leasing multiple units across the city. You can, however, list an apartment you own or rent and live in for short stays totaling no more than 3 months in a year, and if rent-controlled, you can not charge more than your own rent in any one month to prevent scenarios like a tenant who’s pocketed profits.

When asked at the press conference announcing the legislation if that meant that someone could conceivably rent the couch in their living room for enough nights to make their monthly rent at the press conference announcing the legislation, Chiu and San Francisco Tenants Union President Ted Gullicksen concurred that scenario was acceptable.

But that’s all based on the assumption that you have a landlord’s permission to sublet in the first place, which is not at all a safe assumption.  Standard leases generally include an absolute prohibition against subletting or assignment, so you could still ultimately be evicted on those grounds. But if you have a handshake deal with your landlord or a provision allowing you to sublet with permission, you have notified your landlord of your intent to host paying guests and they don’t turn it down within 14 days, and you’ve secured $150,000 in renter’s liability insurance coverage, you’d be good to go.

Even if you still decide to take the risk, the bill does address the incurable illegal use violation eviction notice that has become a strategy among landlords and their attorneys by changing the Rent Ordinance’s Just Cause eviction protections to make the first offense (and only the first offense) curable.  While signing up for the registry would not be a lease violation, the registry will still be a public record with only names redacted.  But the landlord will theoretically still have to prove repeated violations occurred in order to formally secure an eviction.  And it also opens you up for potential nuisance violations if, say, somebody decides to host a brunch munch in your unit.

Uptown Almanac chatted with someone known to have rented their unit out on Airbnb, who for obvious reasons wished to remain anonymous.  “It’s about time city law got on board with something the city power brokers are wholeheartedly supporting.  Allowing renters to take advantage of the demand for San Francisco — just as property owners are — is not only fair, it’s crucial for middle-class earners to be able to survive, let alone save, in this completely unreasonable market.”

They said that while they are allowed to sublet under the terms of their lease, they took a photo of their building off of listings because “I dont want an enterprising lawyer to contact my landlord.”  Hence they don’t like the registry requirement, especially since it doesn’t seem to provide any benefit to the host, and also wanted to know what the city planned to do with the new tax revenue collected through the vacation rental sites.  “I’m not convinced it protects me, as someone who lives in my home full time and rents out a room from time to time to pay bills and save money. And I’m not sure why it’s necessary… It conflates me with people who use their properties in a vastly different way. I don’t see why I would benefit from being on a list and paying tax.”

As for Airbnb, Craigslist and other such sites, they’ll be required to educate hosts on the local law and help enforce violations by blacklisting units that are found not to comply.  They will also be responsible for collecting the 14 percent Transient Occupancy Tax from customers. An estimate from the San Francisco Bay Guardian says that the city has been losing out on about $2 million a year on revenue based Airbnb’s own publicly released data. However, there are not yet proposed standards for informing customers of the proposed regulations, something Airbnb doesn’t currently make very obvious, as Valleywag’s screenshot illustrates above.

In the end, the legislation would have to cross the desk of Mayor Ed Lee, who might not want to piss off wealthy political supporter, sf.citi impresario and Airbnb investor Ron Conway by signing the restrictions as proposed into law, especially as the company—valued at $10 billion—is predicted to go public this year.  So far the Mayor’s office has accommodated the status quo.  “We were focused on helping an industry begin, but I believe with some smart regulation — particuarly now that Airbnb and perhaps others have indicated they want to pay the taxes associated with those rentals — I think we have a way forward. But we’ll get into all the details,” Lee told the SFBG.  

Presumably, the next stop for the legislation will be before the Land Use and Economic Development Committee for a hearing and public comment.  If recommended, Chiu will need six votes to pass the bill with Mayor Ed Lee’s support, eight without it.  Pass or fail, Chiu may have already won some political points in any case for confronting the issue as he campaigns against fellow Supervisor David Campos for a seat in California’s State Assembly this year.

Last time Betabrand made headlines it was for selling sweatpants cut like dress slacks (with or without pinstripes), because if you haven’t figured it out already, we’re witnessing the decline of Western civilization. But rather than cater to lazy men this time, the San Francisco-based clothier selected Ph.D.s and doctoral candidates to model its new spring line of women’s fashions.  Hopefully this can become a new line of work for postgraduates, who are facing declining job prospects even as they face mounting school loan debt, and some of those jobs - like adjunct professorships - are pretty terrible!  So go buy some clothes for the hungry, hard-working academic in your life.

Other local entrepreneurs that are making the news include beloved local chain Philz Coffee, which will be opening its first outpost outside of the Bay Area in sunny Santa Monica. The Atlantic sat down with artist Wendy McNaughton to talk about the changing city as she promotes her new book, “Meanwhile in San Francisco: The City in its Own Words.” And because an incredibly long line means it must be worth it, pop up Eastside Bagels will be back at Dear Mom with exactly 180 bagels from New York’s Russ & Daughters. Hopefully it won’t rain.

[h/t Leah Reich]

There are three arguments floating around as to why the rent is too damn high in San Francisco, all of which just happen to serve the interests of local real estate developers:

• San Franciscans make it hard to build!
• Rent control actually causes rents to go up!
• This has been happening since the Gold Rush!

All of these arguments hinge on the assumption that what’s happening right now in the Bay Area generally is somehow unique to San Francisco specifically. This morning, an article about the “yuppification” of San Francisco from the L.A. Times, published in 1985, was making the rounds on Twitter, and plenty of people making these arguments have cited it as proof of one, or all, of the above. It certainly does sound familiar!

Whatever its name, its result is spiraling housing costs, clogged traffic, an exodus of middle-class and poor families and declining black and Latino populations. And the trend seems certain to continue despite a new effort by the city to limit growth, restrain housing costs and preserve neighborhoods.

But it doesn’t just sound familiar to San Franciscans, because it’s happening all over the country.

It’s true that by 1985, the impact of the de-industrialization of American cities and increasing income inequality was first starting to reshape the streets and skyline, helped in no small part locally by then-Mayor Dianne Feinstein (who’s husband, incidentally, is investment banker Richard Blum, chairman of the board of commercial real estate developer CB Richard Ellis). Not to mention the economic policies of the Reagan administration, neo-liberalism’s legendary benefactor and hero. Economic policies which have thrived through the following Republican and Democrat administrations, including the current one.

What is new is that it’s accelerating. And as the divide between the haves and have-nots grows larger, the haves are concentrating their wealth and the have-nots are either clinging to ever-more-precarious perches on the one hand and following the money in a desperate search for economic opportunity on the other.

Earlier this week, Jeremiah’s Vanishing New York, a blog which documents the passing of that city’s urban institutions, populations and traditions, published a lengthy article on, frankly, Manhattanization, partly in response to Spike Lee’s recent remarks on what’s happened to the Fort Greene, Brooklyn neighborhood of his youth. It’s as colorful an illustration on the impacts of real wage decline since the 1970s as the above graphs.

Many New Yorkers today, across racial and class lines, do wish for old-fashioned gentrification, that slow, sporadic process with both positive and negative effects—making depressed and dangerous neighborhoods safer and more liveable, while displacing a portion of the working-class and poor residents. At its best, gentrification blended neighborhoods, creating a cultural mix. It put fresh fruits and vegetables in the corner grocer’s crates. It gave people jobs and exposed them to different cultures. At its worst, gentrification destroyed networks of communities, tore families apart, and uprooted lives. Still, that was nothing compared to what we have today.

I want to make one thing clear: Gentrification is over. It’s gone. And it’s been gone since the dawn of the twenty-first century. Gentrification itself has been gentrified, pushed out of the city and vanished. I don’t even like to call it gentrification, a word that obscures the truth of our current reality. I call it hyper-gentrification.

If you want a window into what that earlier era of gentrification looked like, Mission Local also reached back to their archives for an interview with author Michelle Tea about her experience moving to San Francisco in the early 90s (shortly after the Loma Prieta earthquake momentarily relieved pressure on the San Andreas fault, population in-migration, and real estate prices).

Mission Local: Why did you move to the Mission?

Michelle Tea: It’s not that it was a particularly cool neighborhood, although I later found out that it was. This is just where the cheap rents were. I moved here in 1993, and when the bus let me off on Valencia, I remember the street felt deserted — like almost all of the storefronts were closed.

But somewhat tragically, wherever artists and activists go, real estate developers tend to follow, often because they lead the artists and activists there in the first place. Before moving to the Bay Area, my apartment in Brooklyn was at Underhill and Washington Avenue in a community largely composed of immigrants from the Carribean—“because that’s where the cheap rents were.” The year was 1998, and my girlfriend had found the place through a broker, who told her straight out, “We’re trying to move white people here.” Less than ten years later, a Richard Meier-designed condominium had sprouted up on the site of an old synagogue at Grand Army Plaza. A few more years after that, “New York’s first steampunk bar” opened a few blocks from my old place.

The units in the Meier building were sold from a realty office in SoHo, which had itself been transforming from a former light-industrial neighborhood with a heroin problem into a chic retreat for couture boutiques by the time that L.A. Times article was published in 1985. The denizens of the downtown art scene who survived and succeeded kept their pied-à-terres well after moving their families to the North Fork. One couple had me score some cocaine to save them the trip to Washington Heights, which now is actually being called WaHi by apartment brokers presumably looking to move white people in.

By then, the only “art” actually still happening in SoHo was sometimes even funded by venture capital like Josh Harris’s legendarily profligate failure Pseudo.com on Broadway. Which is to say, the process of reshaping neighborhood demographics and urban industry was no longer an ad-hoc effort led by a handful of privileged but tolerant middle class white people fleeing the cultural homogeneity of the suburbs. Now it’s funded by institutional investment in startup businesses and real estate development and enabled by local governments interested in attracting the middle class refugees from the rust belt who can afford to relocate and learn professional skills (which all sounded harmless enough when it was called “brain drain” in the old dead tree media).

We moved to Oakland’s Temescal in 2000 largely because it was pretty clear that we weren’t going to make much progress toward any kind of financial security on artist incomes in New York. Here, there was well-paid, if very temporary, web development work for me and a job at a non-profit with low wages but good health insurance for her. We did our part for displacement, certainly, but like the many techies in Silicon Valley’s lower contractor caste who sometimes get to ride the private shuttles, we might have had more stylish lifejackets than most, but we were just trying to keep our heads above water by swimming along with the currents of global capital like everyone but a few.

•••

Let’s go back to that article from 1985, and the plight of the Brandolino family’s experience having to move from their rent-controlled apartment North Beach after “a group of lawyers bought the 17-unit Victorian building in which they had been living to convert it into offices.” They couldn’t afford units in their old neighborhood at the going rate of “$900 or $1,000 a month” on their combined income of $30,000 a year, so they moved to Brisbane—which has no rent control, and could hardly be characterized as “anti-development”—where they found a place for $500 a month.

In today’s numbers, according to the inflation calculator from the Bureau of Labor Statistics, their income would now be near San Francisco’s median around $65,200, presuming it rose in step with inflation (which they haven’t). That would also put the apartments in North Beach out of their reach around $1,950 to $2,150 and the place they found in Brisbane at more like $1,100. But what are rents in North Beach and Brisbane right now? Based on an average of listings, one bedroom units are $2,995 and $1,839, respectively. And that’s assuming the Brandolinos were living in and looking for a one bedroom.

Granted, the average of units in Brisbane is from a very small sample, but again, if the reason real estate developers won’t build is because “the system is intentionally designed to make it as difficult as possible to build new housing,” according to Supervisor Scott Weiner, then why haven’t they been capitalizing on the massive demand by building units in Brisbane? Back in 2006, the suburb was the last stop on Google’s shuttle bus route, and a wave of Googlers were moving in.

But these were people who’d presumably already paid off their school loans and saved a down payment, if not cashed in on the 2004 IPO. The latest generation haven’t had time to make that progress for themselves, and the only they have of doing it is by working themselves to exhaustion at some fly-by-night mobile app startup, so necessarily they’re flocking to the region looking for places to rent. So why weren’t thousands built in Brisbane built during the last boom?

We can look back to that old L.A. Times article for some ideas. The second section leads off with, “a few years ago, there were no vacant offices here. Now, there is a 10% vacancy rate.” What happened was, as the vacancy rate increased, the value of the commercial real estate that companies like CB Richard Ellis were building began to drop. But it was still more expensive per square foot than building in San Mateo County, and because municipalities in California have more to gain for their tax base from commercial development because of Prop 13 restrictions on property taxes, among other reasons, the next twenty years did see a building boom. It’s just that it was corporate campuses and office space sprawling along the peninsula, not apartments.

What housing was built pushed further and further into the exurbs as people chased the home ownership dream, even as transportation costs rose and infrastructure spending dropped. And we all know how well that worked out.

Meanwhile, in San Francisco, real estate developers actually turned coat and allied with planned growth advocates because, by limiting new construction, they could bolster the value of what they’d already built, as detailed in Richard Deleon’s San Francisco political history “Left Coast City.” So the optimism in the following paragraph from our archived article, it turned out, was misplaced — much of these buildings never happened:

The first glass and concrete downtown high-rise sprouted in 1960, [California historian Kevin Starr] said. Now, there are 120 buildings of more than 10 stories in the 470-acre downtown area, with 60 to 70 more expected by the year 2000, the Planning Department says.

Keep that in mind when you read articles from the likes of New York Times technology reporter Nick Bilton, who wandered off the reservation to chime in on local real estate development and parroted pro-development advocates like Wiener’s quote above. Bilton reported that Redfin’s numbers showed homes selling for, on average, 60 to 80 percent above asking. Hard to believe? That’s because it isn’t true, as Priceonomics pointed out. The New York Times had to issue a correction, because in fact over the last two months it’s true that 60 to 80 percent of homes are selling for above asking, but the average premium is only six percent.

Which isn’t necessarily reassuring if your housing is insecure, but it’s useful for illustrating sensationalist bias. Incidentally, Bilton’s characterization of a Tech Workers Against Displacement Happy Hour at Virgil’s Sea Room last week as “an expletive-fueled yelling match between tech workers and people running nonprofits” has been challenged by multiple local reporters who were also there. So when the casual reader at home reads a Gizmodo piece blogsplaining to San Franciscans that we have to build our way out of this mess, keep in mind that you’re basically reading real estate propaganda filtered through two levels of reporters with no expertise on the issue and a pro-development ideological agenda.

The fact is, even if you remove the permitting costs from the process, it’s not profitable to build anything but luxury housing. So no capitalist in their right mind would start building any if they weren’t lured by subsidies, probably in the form of cheap city land or favorable lending rates. The reason no one was building housing during 2009 is because, as you might remember, the entire real estate market collapsed. In fact, the second residential tower on Rincon Hill which is now being finished was already approved years ago but the developer didn’t feel like bothering until market conditions improved (for the developer, not for tenants).

So to review, when it’s profitable to build, San Francisco’s city government has been more than happy help, and right now developers are doing everything in their power to relax building restrictions they themselves supported when the were trying to protect the value of their earlier investments.  We can not build our way out of this problem. Besides, even if we tried, the same people will be back to crying for height limits if over-supply or another economic downturn starts to negatively affect prices per square foot.

When it isn’t, rent control can help people stay in their homes, but thanks to vacancy decontrol and the fact that the Rent Ordinance only covers buildings from before 1979, there’s no reason landlords can’t keep up with the market by cashing in on empty units or be discouraged from new residential construction. And almost more importantly than controlling increases, what the Rent Ordinance does and eviction restrictions do is preserve rental stock—something even the market-oriented urbanists at SPUR say is critical right now.

As for the last point, yes, San Francisco has been a witness and participant in the perpetual boom-and-bust cycle of industrial capitalism since 1849. As economies worldwide are forcibly liberalized to a 19th century laissez faire model, wealth has once again concentrated in cities as it did during the robber baron era. In fact, it’s even worse now!  And it’s not just happening here.

To review:

• Real wages for the middle class have been declining for forty years.
• The class that has captured that wealth is concentrating in cities.
• The process is accelerating faster than anyone can build.

So yes, this has all been going on forever, and it’s more terrible than ever before. Both!

[Photo: klwang]