San Francisco should allow rent control for converted condos, report says 

Thousands of units are part of a proposal to ease the process of converting tenancy-in-common units to condos. - S.F. EXAMINER FILE PHOTO
  • S.F. Examiner File Photo
  • Thousands of units are part of a proposal to ease the process of converting tenancy-in-common units to condos.

Rent control could be part of a deal to allow the owners of thousands of housing units to convert them into condominiums by paying a fee.

A new report by the City Controller’s Office has suggested imposing such a mandate on the 2,269 units in 700 buildings that are involved in the proposal.  

“The bulk of the benefit to property owners is associated with reduced financing costs, and the condominium conversion fee would still be attractive to [tenancy-in-common] owners even if any future rent increase in converted condominiums were limited in exactly the same way, and to the same extent, as rent controlled apartments are,” said the report by chief economist Ted Egan.

Tenancy-in-common units are a shared-ownership situation within a building, and most of these units are covered by San Francisco’s rent-control law.

The law applies to units built before 1980 and limits annual rent increases to 60 percent of the rate of inflation in the Bay Area.

But once converted to condos, rent control no longer applies under the 1995 state Costa-Hawkins Act. As it stands, a limited number of conversions, 200, are allowed annually through a lottery system.

Egan pointed out that the state law allows for an exception if the condo owner signs an agreement with The City.  

The report comes as tenant advocates are battling over the proposal, fighting to protect San Francisco’s supply of rent-controlled units.

The legislation, introduced by Supervisor Mark Farrell, would allow tenancy-in-common owners who participated in the condo lottery this year or last year to pay a conversion fee of up to $20,000 per unit.

Owners of these units have long complained of high interest rates and the slow pace of the conversion lottery system. According to the report, financing costs are “significantly lower for condominiums than for TIC units,” with rates currently at 4.75 percent for tenancy-in-common loans compared to 2.25 percent for comparable condo mortgages.

The report said the owners of 1,730 units would pay the lottery-bypass fee, which would generate $25 million for The City. These owners would save a combined $6.2 million to $11.4 million in finance payments annually.

Over time, The City would receive up to an additional $1.7 million in property taxes as the converted condos are sold and reassessed at higher property values. Tenants of these converted units would spend up to a combined $1.1 million more in rent annually.

The legislation has been postponed several times as negotiations are ongoing between tenant advocates, members of the Board of Supervisors and Plan C, a homeowner advocacy group.

The board’s Land Use and Economic Development Committee is scheduled to hear the proposal again April 15.

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