San Francisco’s Earthquake Story
I had a recent conversation with a friend about earthquakes and San Francisco and it went something like this.
Friend: San Francisco has many homes that have no safety around earthquakes, and the owners of these homes are not interested in retrofitting them because of the cost involved.
Me: Oh, have they been shown the cost of not retrofitting in terms of the loss in property and life?
Friend: They really don’t care.
Me: How can that be? Won’t they lose money, at least on the property?
Friend: Well, there is a rent-control law in San Francisco which prevents the property owners from raising their rents. Therefore, they would be very happy if their building fell down. Another law allows them to rebuild the place just as it was earlier, provided they have no idea of design flaws. And, the new building is not subject to rent control.
Me: I see. And what are people trying to do about it?
Friend: Oh, efforts are on to ensure that they are forced to do an audit of the safety of their homes.
Me: Why is that?
Friend: There is another law that if they know of any design flaw that compromises safety standards, they have to fix it.
Me: Oh, I see. So, if the new law gets passed, what’s to stop contractors from having a field day extorting home owners?
Friend: That’s true – that will be an issue. But we’d be saving lives.
Me: Why don’t you just inform the tenants that they are living in unsafe homes and they should get the audit done themselves?
Friend: There’s another law which prevents anyone from informing tenants about the quality of the building or the quality of any property they are connected with. If anyone does so, it is considered defamation of the property and they will be sued.
Me: Defamation of the property??
Me: So what makes people think that forcing homewoners to do audits is going to pass without difficulty?
Friend: It may be difficult, but once it’s there, this problem will be solved.
Me: What makes people think that this won’t be repealed or another law won’t be enacted to make this one weaker?
Friend: Well, there are more tenants than there are homewoners.
Me: I see. So you’re not accounting for the homeowners’ money power in funding campaigns of politicians who will serve their interests.
Friend: Mmm.. I am not sure that will happen.
Me: Who do you think got the law passed to prevent anyone from informing tenants?
Friend: Mmm… There is a point there.
Me: Why are people jumping through so many hoops to deal with silly laws, when the law itself is the problem? Why not repeal all of these laws, and allow the market to drive value. If rents were allowed to come to the level that is commensurate with the area, tenants would refuse to pay high rents unless the property was safe enough – no point paying a ton and getting into a shabby place. That would incentivize homeowners to do what was necessary to upgrade their homes. Homeowners would do it to earn higher rents, and if they didn’t, the market would respond with much smaller demand for the holdouts and therefore lower rent. Wouldn’t this solve the entire incentive problem around home safety?
Friend: Yes, but it would be politically infeasible. You can’t talk about removing rent control.
Me: Hmm.. I thought the rent control law didn’t always exist. What didn’t always exist can also cease to exist.
Friend: Yes, but no politician will take it up.
Me: Perhaps that is why politicians don’t help solve problems – they only help multiply them.
Friend: Point taken.