5% or CPI, there is no scientifically-derived answer for this question. Whatever the end results is, it’s going to be a “gut feel”. So it simply comes down to who has more political power.
SF rent control sets the annual increase at 60% of CPI. I haven’t seen a single source that explains why the 60% number. It’s likely not scientifically derived either. I often wonder why it’s not 10% or maybe even negative since it’s doesn’t need to be data-driven. Technically we have constitution that guarantees property owners a reasonable return upon the taking of the property by renters, so a negative number doesn’t sound that reasonable and can be challenged in court so that’s why it hasn’t happened.
On the other hand, at least in Oakland (should be in SF as well), a landlord can petition for extra rent increase if landlord can demonstrate that he or she is not receiving a reasonable return on the property if the landlord can provide documentation for the numbers. First of all, I would think it should be reasonable to use CPI as a reasonable level of return target (just like rent control annual increase is usually tied to CPI, 60% or full), but nowhere have I seen that CPI is indeed a reasonable target. Laws are fuzzy and ambiguous for a reason to allow for maximum power for the body that interprets them. Secondly, when calculating the numbers for reasonable level of return, the amount of property appreciation needs to be included rather than just the operational revenue and expenses. This is very significant in my opinion. It leads me to think a negative annual increase is entirely possible for future rent control policies as property appreciation can be considered for tenant purpose calculations. In essence, if landlord has made enough money from property appreciation that even with a negative operational cashflow, it can still be deemed as reasonable return for the landlord so a mandatory rent reduction can be justified. In that case tenants basically get a share of the property appreciation just by living there, without any of the investment and market risk. It might seem unthinkable now, but as the policy turns more progressive bit by bit, at some point this might show up on activists’ radar as goal for the next fight.