Condo built in 2001, birch flooring throughout, in unit laundry, mstr bdrm, fireplace in living room, parking, shared roof deck.

A drier than average rainy season leads to new thoughts on getting tenants to share the burden of water conservation.

It is likely to be a drought year for the Northern Californian water supply. I know this because the snow/ski season is way past its usual apex point and I have yet to use my Squaw season pass. Sunny and warm days in January are nothing to complain about, yet the effects of these warm days will be felt throughout the year.

La Nina, the reciprocal of last year’s bountiful El Nino, is sure to incite discussion of water conservation in the near future. By late spring, after the final snowpack data is examined, hydrologist forecasters will give us the likely grim news that the surplus built up last year has been negated by the shortfall in this year’s snowpack.

This issue of water conservation seems to go into temporary hibernation in good years and then inevitably resurfaces in lean years. It begs the question: “whose problem is this anyway?” There certainly appears to be enough water to meet everyone’s needs without the need for rationing; however, there exists an irony with most people’s perception of the water supply and more importantly the cost of water.

The disconnect is from the fact that 67% of San Francisco residents are renters, most of whom do not have to pay a water bill or any portion thereof. Most residential apartment buildings were built with one master meter and that expense has been typically borne by the building owner thus creating a gap of ambivalence towards water usage in the City.

We have come to define part of our City’s identity by our environmental awareness towards many of our other natural resources ranging from alternative power to recycling. Yet, much consideration is not paid to what is arguably the most precious resource next to sunlight: water.

A Threat to Hetch Hetchy

San Francisco’s water supply comes directly from the Hetch Hetchy Reservoir, located at high elevation in the Yosemite foothills which is fed clean, pristine runoff water from the Tuolumne River. The water is then piped directly, unfiltered from the source reservoir to the Bay Area without any exposure to the external environment, agricultural waste or other factors that may affect its purity.

The delivery system is so efficient that it runs off gravity, requiring no pumps to move the water. In fact the system produces a net positive of 1.6 billion kilowatt hours of hydroelectric power that supplements the City’s electric power needs. The piping system has been reinforced in recent years to hedge against potential seismic activity; accordingly, its asset value to the County of San Francisco is enormous.

Recently, an environmental group launched a campaign to restore the reservoir back to its pre 1930 condition. The campaign calls for restoration of the reservoir back to the Yosemite Valley “making it whole again.” The group is now gathering signatures to support a ballot measure , which, if passed by San Francisco voters, would require the City to craft a plan to both conserve more water and stop using Hetch Hetchy Valley for water storage by 2035. The plan would need final approval from San Francisco voters in 2016.

Draining the reservoir, restoring the valley ecosystems and expanding other reservoirs would require a massive public works project that the California Department of Water Resources, estimated in 2006, would cost at least $3 billion. Current estimates by the San Francisco Public Utilities Commission (“SFPUC”), which operates the reservoir, state the costs could exceed $10 billion, clearly necessitating another bond measure to fund the massive public work.

By way of comparison, a $4.6 billion overhaul of the pipes and water treatment facilities that carry water from Hetch Hetchy Reservoir to the Bay Area is nearing completion after more than a decade of work. The original estimate of that project forecasted a tripling of the average SF user’s water bill which again is calculated on per capita usage not the actually number of people who are sharing in the costs.

If the reservoir is drained, San Francisco would also face a shortage of hydroelectric power, forcing it to purchase additional electricity on the open market or invest heavily in alternative green energy resources. The Mayor has voiced his strong disapproval of this movement and has made inferences that the Hetch Hetchy water source and rights would be vehemently defended by the San Francisco.

RUBS the Right Way

The SFPUC imposes water rate increases every July and the rate increases toward mitigating the rising cost of treated of waste water which typically is approximately 90-95% of total water usage in an urban setting. Approximately, all apartment buildings have a 95% flow factor.

The water service portion of an owner’s SFPUC bill is grouped into two pricing tiers: (1) Tier One which is the first 6 units of water per unit ( 1 Unit=748 gallons) and is currently priced at $3.50/unit, and effective July 1, that will increase to $3.90/unit reflecting an 11% increase; and (2) Tier 2 pricing which reflects 6 or more units of water per unit in a given billing period (2 months). Tier 2 is going up from $4.60 per unit of water to $5.20/unit reflecting a 13% increase.

Water usage accounts for approximately one third of the total bill. The sewer bill is an entirely different beast. The second component of a water bill is comprised of water treatment, i.e., the sewer service. Since most apartment complexes in the City do not have large landscaping expenses on their annual expense projections, they are calculated at 95% flow factor. As with water usage, the sewer expense is also tiered into two groups as water usage: (1) Tier 1 is billed at $7.16 per unit increasing to $7.52, a 5% increase; and (2) Tier 2 which is billed at $9.55 and increasing to $10.03, also a 5% rate increase.

This means the annual services increases far outpace the regional Consumer Price Index and Cost of Living Index. This annual increase essentially insures that even with modest conservation, the water charges will continue to escalate because the rate increases outpace rate of conservation.

Is there any available relief for property owners? There are some remedies for property owners but there exists some question as to these remedies’ effectiveness and fairness to residents.

Rationed Utilities Billing Service (“RUBS”) is a method of recovering the cost of utility services, water, and/or garbage by division of the expense by the number of doors, square footage and/or number of people to determine a shared per unit cost. Tenants in the system are then billed in arrears for their pro rata usage. This system provides incentives to residents to be mindful of their water usage by creating a shared responsibility.

However, implementation of this shared system can only be done at the inception of new tenancies because implementation at any other point would be construed as either a reduction in services or more likely, an illegal rent increase. RUBS can also create a division between newer, market rate paying tenants, conscious of their own usage and usage around them and existing, longer term tenants, unaware of their usages. The rationale is that RUBS tenants can influence the other tenants to conserve through education and outreach. I frankly think those successes would be marginal at best, although I may be altogether incorrect.

The second method of recovering water costs is through water revenue bond pass through petitions available through the Rent Board. This pass through allows for building owners to pass through 50% of the portion of their bill attributable to the 2002 Water System Improvement Bond. They do not require Rent Board certification but must be well documented. They are fairly easy to calculate and it is best to complete them by calendar year. More information on the process is available at the San Francisco Rent Board’s website: www.sfrb.org.

The moral of the story is that water conservation needs to be a shared responsibility for all people. The current system enjoyed by the majority of San Francisco residents is broken and needs to be fixed at fundamental level. Water is a precious resource and we need to have all residents of this City embrace this as a civic duty.

Link to SFAA article.

Top floor 2bdrm apartment with cathedral ceilings, completely remodeled to the studs with all new lux finishes. Double sink in the bathroom, all energy saving appliances. In unit washer and dryer are included. Private balcony/deck with views of the city skyline are beautiful at night. Good storage space. This is a rare caliber of apartment and should be viewed to be appreciated.

2bed/1bath, completely remodeled apartment with all new stylish IKEA kitchen, new hardwood floors, carpet in bdrms, new 2x windows.

S&L Realty rental available. Great middle floor plan studio in well managed Lower Nob Hill building. Hardwood floors and remodeled kitchen.

1601 hyde street, 1bed/1bath, remodeled kitchen and bathroom, with mix of hardwood and carpet in the bedroom, built in hutch vaulted wood ceiling.

Recession is officially over.

Its hard to find any bad news about local the economy these days:

• Starting w jobs: Chamber of commerce event, Mayor Lee SF stated that unemployment rate in SF went from 9.2% to 7.8% in the last year.
• Tech companies are hiring bodies, leasing office space, and those hires are resulting the strongest rental demand we have seen in years.
• The sales market is responding too, especially in areas close to tech companies shuttle bus lines where demand for homes has increased significantly in the last 4 months.
• Currently MSI (months supply of inventory) is SF is 1.5 that means = amount of time given the current pace of sales activity to sell all of the current inventory. Anything over 6 months is considered a buyers markets, indicating that we are in a deep sellers market with little “good” inventory to show for it.
• IPO effect fueling the market activity: Facebook, Yelp, Zynga, linkedin, etc. Perception of reduction of inventory when employees of these companies realize the cash out of their option plans etc. The buyers frustration is most evident in the Mission and mission Dolores districts which are in the highest demand.
• All this translates to support system for the rental market which has traditionally shared an inverse relationship w/the purchase market. I believe this to be so because lending restrictions have not loosens to a point where someone or couple with less than $120K in combined income can qualify for much of a loan in SF. This is a far cry from the days of “stated income” loans that enabled otherwise non qualified people to purchase real estate, which in part led to the bubble at the end of the last cycle.

One interesting personal experience was a rental I did before the weekend for a small Lower Nob Hill studio on Post St. that rented for $1250 briskly to gentleman earning $20K/month working the legal dept for a private equity fund downtown!

What happens when people of higher means come to live in areas and/or buildings that have been traditionally inhabited by people of lesser means?

It can translate that certain people who earn marginally enough money to qualify for and apartment, will find themselves feeling the competitive nature of the rental market typically experienced at the higher end of the rental spectrum.

Clearly that is what fuels the fire of the pro rent control voices in the city and you can be sure that there will be some push back from their leadership in the coming months. I recently read an article about a proposal from the left to create a tax for rent increases in excess of a certain 10% of the old base rent to dis-incentive landlords from doing buy outs. I’m not sure how much traction this has or will get but this is the sort of thing that causes a lot of excitement but doesn’t really have the legs to go anywhere.

In closing, continue to do what you are doing, make improvements upon vacancies and you will see that your units will rent at or above neighborhood averages. Rental properties located along transit corridors esp within 5-10 walk to tech company shuttles are preferred locations and will continue to command premium pricing. If you are torn on where to spend your remodel dollars btwn Mission or Outer sunset, I would spend it in the Mission.

1st floor studio back of the building clean, hardwood floors, resident manager, newer kitchen