Will City Sell Out Tenants to Balance the Budget?

by Paul Hogarth on February 2, 2009

Whenever there’s a crisis, opportunists try using it to get what they want. As the City faces a deficit for the next fiscal year that is half the General Fund, a group of real estate speculators want to raise the cap on condominium conversions – and allow all those waiting in the “condo lottery” to pay a one-time fee to convert their property. The stated premise, they say, is that the City badly needs more revenue. San Francisco only allows 200 condo conversions per year to stem the erosion of rental housing, which for decades has protected tenants from mass speculative evictions. Mayor Frank Jordan proposed upping this limit in 1993, but was shot down after housing activists protested. Supervisor Michela Alioto-Pier tried it in 2005, but likewise got rebuffed. Now, Mayor Gavin Newsom is expected to support lifting the annual cap to 1,500 (and raise the conversion fee) as a means of balancing the budget – which his press office confirmed this weekend. At a time when renters are struggling in this recession to stay in San Francisco, paving the way for mass evictions is a bad idea. And as the City faces a glut of newly built condominiums (which are struggling to sell in this depressed market), why would we want more condo conversions? Our fiscal crisis requires finding sound solutions to the problem – not creating a path to runaway gentrification.

On February 4th, the anti-progressive group Plan C will hold a rally at City Hall (like they do every year) to protest San Francisco’s annual condo lottery – where 200 lucky homeowners earn the right to convert their tenancy-in-common (T.I.C.) into condominiums. Armed with Peet’s coffee (at least according to the group’s e-mail blast), members will bemoan that an increasing number of T.I.C. owners have applied for the condo lottery each year – steadily reducing the odds of conversion.

“The best reason to support condo [conversion] reform,” said Plan C Chairman Mike Sullivan, “is that it helps struggling first-time homeowners – without hurting anyone.” That is patently false. T.I.C.’s are former rental units that were converted by evicting tenants, often through the Ellis Act. So while they are a relatively affordable means of homeownership for first-time buyers, it’s done at the expense of displacing someone else who can’t afford San Francisco real estate. Affordable homeownership for the middle class is essential, but not by encouraging real estate speculators to decimate our rental housing.

In 2006, the City amended its Subdivision Code to prohibit condo conversions where two or more tenants were evicted through no fault of their own (or one if the renter was a senior or disabled.) But the law did not affect evictions prior to May 2005, which means it did not include any displacements during the dot-com boom. And T.I.C. owners must occupy their homes for at least three years before applying for the condo lottery, so the practical effect of this law has only been felt in the past year.

Moreover, since the law passed real estate speculators have resorted to buy outs – to avoid having a formal eviction on the property’s record. “Where there has not been an eviction,” said Ted Gullicksen of the San Francisco Tenants Union, “there has been a combination of a buy-out or harassment. The fact is, in all of these buildings, there had been tenants living there before.” Because a condo unit sells for about 20% more than a T.I.C., speculators have an incentive to facilitate the path to eventual condo conversion.

Beyond the plight of tenants, however, it’s baffling to propose adding more condos when the condominium market is in free-fall. Rincon Hill has announced that it will have to hold off on building its second tower (due to the economic crisis.) Symphony Towers, which has been aggressively marketing low-end condos for the past 16 months, has yet to sell 25% of its units. At a time when few people want to buy a condo, why allow even more condominiums to glut the market – especially when it depletes our rental stock?

Politically, the pro-tenant Board of Supervisors is not expected to approve legislation that would up the condo conversion limit – even if coupled with raising fees, and couching it as a means of “raising revenue.” Therefore, it’s likely to go on the ballot in a possible June special election. Gullicksen even argues that if revenue from a condo fee increase goes into the general fund, it is technically a tax – which under state law must be approved by a two-thirds majority of voters. “We will sue unless it is put on the ballot as a tax,” he said.

If the condo conversion does make the ballot, expect proponents to try confusing liberal San Franciscans into believing it’s a “progressive” way to raise revenue. After all, only property owners will have to pay it. Expect them to parade middle-class homeowners who just want the “security” of condo ownership – and that it’s a “win-win” solution because they already live in the property. And of course, the campaign will have dire warnings that if it does not pass, budget cuts for social services will be necessary.

We already got a hint of what’s to come from Plan C’s e-mail blast. “Condo conversions bring revenue to the City in many ways,” said Chairman Mike Sullivan. “Not just fees paid by applicants, but also transfer taxes from transactions that follow conversions.” The real estate transfer tax is one of the City’s most progressive ways to raise revenue, but Sullivan’s statement is not entirely true. According to the Assessor’s Office, a condo conversion of a T.I.C. does not trigger the transfer tax. While a condo owner has to pay the transfer tax when they eventually sell, so do T.I.C. owners – who are charged for their fractional interest.

In the 1930’s, peddlers and con men would entice people into buying “land in Florida” that turned out to be a worthless swamp. Now, as San Francisco faces its worth budget crisis since the Great Depression, speculators want to push the City to raise its condo conversion limit – a “harmless” reform that would bring desperately needed cash into our coffers. But we can’t let this happen … not if we want San Francisco to remain a City for everyone.

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