Record Number of Ellis Act Evictions in May

by Alison Stevens Rodrigues on August 10, 2005

A warning to short-term real estate speculators and tenancy in-common (TIC) buyers: Your housing bubble is due to burst. So predicts Ted Gullickson of the San Francisco Tenants Union. According to Gullickson, the current boom of low interest rates coupled with the inflated real estate market is not going to last much longer. In fact, it soon will crash in the way that the stock market did in 1929. His caution comes after the San Francisco Rent Board reported for May of this year 80 Ellis Act evictions – the highest number on record.

“They’ve always bounced around a bit,” said Gullickson of the Ellis Act evictions, which are used primarily by speculators who intend to turn buildings into condominiums. “In February there were 27, in March there were 5, and in April there were 7,” he reported.

Yet this most recent jump to 80 evictions is abnormal, said Gullickson. He explained that in the past, such outliers were the result of one or two large buildings having been bought out i.e., large buildings meant multiple units to evict. In this case, however, tenants were evicted from 21 buildings, the largest of which had only 12 units.

Such statistics are a far cry from those reported in 1998 when, for the entire fiscal year, there were only 12 Ellis Act evictions. Of course, that was when the Ellis Act was used for its original intent – to let landlords evict tenants for the purpose of retiring or going out of business. Then, in November of 1998, voters adopted Proposition G, which restricted owner move in (OMI) evictions, whose numbers had been climbing in lieu of the dot-com boom.

In a previous article written for Beyond Chron, Gullickson wrote, “OMI evictions were soaring as they were being used to evict tenants and convert apartments into Tenancies In Common, a form of condominium which was exploding because the these TIC conversions were exempt form the city’s condo conversion laws.”

Gullickson further explained that because investors could no longer utilize OMI evictions for TIC condominiums, they instead began using the Ellis Act for their eviction purposes, and have been doing so ever since. While he admitted that May’s record number of evictions is unusual, Gullickson assured Beyond Chron that it is not unexpected.

“It’s a continuation of a trend that’s been going on for the past year,” he said. “Speculators are trying to get as many TICS on the market as they can before the bubble bursts.”

In other words, continued Gullickson, there is talk in the real estate world that San Francisco’s inflated housing market soon will peak, and as a result, housing prices will rapidly depreciate.
The Tenants Union member added that because the TIC market is so much more frenzied, those most impacted when housing prices drop will be the TIC buyers.

“Real estate prospectors don’t get hurt because they’re the least accountable; they end up owning the building for such a short time. The TIC buyers, however, are going to find that their million dollar apartments are worth only $500,000 after the bubble bursts.”

If anyone doubts Gullickson’s bursting-bubble prediction, all they need do is look at history. A similar phenomenon happened in this city during the dot-com boom, he recalled. Landlords who extended there portfolios during the boom found they could not afford the housing costs afterward.

“And the market is much more overheated this time around because appreciation is so much higher,” noted Gullickson.
He further cautioned that even a slight change in interest rates can cause mortgage rates to increase to the point where homeowners can not afford to own their house.

“Real estate appreciation is not going to increase forever, nor are interest rates going to remain this low,” said Gullickson as he urged investors to recall the dot-com era and the stock market crash. “The end is coming soon.”

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