Condo conversion bypass will help housing needs San Francisco 

Discussions of housing in San Francisco often pit the needs of moderate- and middle-income people against those of low-income people who require affordable rental units. No other topic epitomizes this battle more than condo conversion.

San Francisco boasts more than 2,500 units of tenancy-in-common housing. These are properties in which all the owners share a percentage of the building through fractional loans. Tenancy-in-common was devised as a novel way for people who might no be married to share in the benefits of home ownership. But changes in the banking climate after the economic downturn have given TIC owners reasons to convert their units to condominiums.

After the housing bubble burst, lenders were less apt to approve financing or refinancing for TICs, and the interest rates are high on such loans. The rate for condos is much lower.

Property owners who wish to turn their TICs into condos are now subjected to a lottery by The City’s Department of Public Works that allows for the conversion of up to 200 units each year in buildings with three to six units. But the demand is so high that some owners have been waiting for more than 10 years.

Supervisors Mark Farrell and Scott Wiener have proposed a condo-conversion fee as a solution to this lottery backlog. Their proposal would allow TIC owners to pay up to $20,000 to bypass the lottery and convert their units to condos.

If the pitch sounds familiar, it’s because it has been discussed at City Hall for years. But it has never come to fruition, mainly because of concerns about its impact on renters. Such condo-conversion fees were envisioned as a revenue source in several of Mayor Gavin Newsom’s budget proposals. But this time around, the proposal is not intended to raise money for The City’s general fund, but to help build affordable housing in San Francisco.

The key to Farrell and Wiener’s proposal is a provision that would protect renters in converted units. Tenants in such properties would be guaranteed lifetime leases, with conditions, in the resulting condos. Owners of the converted buildings would receive refunds on the bypass fee tied to the number of units with a lifetime lease. The lease safeguard blunts the argument that there would be mass evictions following a lottery bypass.

The one shortcoming of this proposal is the discounts it would grant TIC owners based on the number of years they have participated in the existing lottery. These discounts would start at a 20 percent reduction for owners who have participated in the lottery for two years, increasing to 40 percent for three years of participation, 60 percent for four years of participation and 80 percent for five or more years in the lottery.

But the opportunity to skip the condo-conversion lottery is significant, and there should be a flat $20,000 cost for owners wishing to do so — especially so that the maximum amount can be raised for affordable housing.

This proposal offers the opportunity to create condos for middle-income residents while also funding the creation of affordable housing — a win-win for a city that needs housing for all of our residents. The timing is right for it to move forward.

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