Proposition N - Regulating Condo-type Ownership Structures (TICs)November 1, 2000
What it does
This measure would restrict the conversions of rental housing to owner-occupied property. First, it would continue the limits on condo conversions that are already in place but due to expire. Second, it would narrow San Francisco’s condominium conversion law, which has allowed property owners to convert from rental use to homeownership using the state Ellis Act to vacate the property and then selling it to owner-occupants using a tenants-in-common ownership structure. The effective date of the ordinance is retroactive to July 10, 2000.
The fundamental question reflected in this initiative is how to balance the goal of preserving muchneeded rental housing—especially units currently kept relatively affordable through rent control—with the goal of increasing opportunities for renters to become homeowners.
Why it is on the ballot
In 1991, San Francisco enacted legislation restricting the number of conversions from apartments to condominiums to 200 per year and setting in place a system governing such conversions. Since 1994, a number of additional measures have been enacted which further restrict housing conversions from rental to owner-occupied. These recent measures include changes in our rent control laws, “owner move-in” restrictions, and such. The effect has been to make it harder to convert two to four unit buildings from rental to ownership units.
As the prices of home ownership and rents have soared, we have seen the gap between the value of tenant-occupied rent-controlled properties and owner-occupied properties widen. In other words, because of rent control, the value of renter-occupied property on the real estate market is much lower than comparable owner occupied property. At the same time, periodic changes to San Francisco’s rent control “system” have made it harder for people to turn multi-unit buildings into condos—in particular Proposition G of 1998, which limited owner move-in evictions to one unit per building. All of these factors have led to a large increase in the use of the state Ellis Act, which allows an owner to evict tenants in order to permanently remove the property from the rental market. In the year ending with June 2000, 208 buildings were “Ellised” in San Francisco (879 units), up from 116 buildings (291 units) the year before. Once the property is vacant, its value is enhanced and it can be sold to future owneroccupants if the buyers buy as tenants-in-common.
For many San Franciscans, this is the only way they can afford to buy a home in San Francisco. However, with every Ellis Act eviction, one or more tenants is displaced into the super-heated rental market. No one knows how many are able to remain in the city and how many move elsewhere. For this reason, Prop. N was placed on the ballot by petition, sponsored by the San Francisco Tenants Union, in order to try to eliminate this option for transferring rental property into homeownership.
Those who support this measure state:
- The city has a limited stock of rent-controlled housing, especially since new apartments being built are not governed by rent control. This makes it necessary restrict the removal of these units from the rental stock. The use of the Ellis Act to vacate these units combined with the tenants-in-common structure of ownership has recently created a significant loss of these units from our stock of affordable rental housing.
- Given that most renters in San Francisco cannot afford to buy—the National Association of Homebuilders calculates that only 10% of households can afford the city’s median sale price—in most cases it is not an option for current renters to become owners. Therefore, the only way to prevent the displacement of those at the bottom and middle of the income range is to protect rent-controlled units from conversion to home ownership.
- The condominium conversion law has been effective in maintaining a balance in San Francisco’s housing stock. Although no one knows the exact count, despite losses due to earthquakes, conversions and a mix of new construction, the ratio of rental to ownership housing has remained pretty much level for many years. We need to renew and strengthen the condominium conversion law which is due to expire.
Those who oppose this measure state:
- Acquiring homes through tenancy-in-common ownership is the only possible way that many people can afford to buy a home in San Francisco. Home ownership is an important goal, which should be supported by public policy. Requiring these units to go through the subdivision process like condominiums will drive up the cost of these units and reduce the number of units available, thus reducing the number of San Franciscans who can own a home. This measure functions to keep tenants as tenants or leave the city if they hope to build the financial stability that home ownership provides in American society.
- To be a healthy city, San Francisco needs to provide homeownership for middle-income families. Most new units being built and condominiums created through conversion are too expensive for these families or are designed for smaller households. This measure will further reduce the number of home ownership options available for our middle income families.
- Many households already own as tenants-in-common. Prop. N would greatly reduce the marketability of their homes. This seems an unfair burden to allocate to these members of our community.
- At least two parts of the measure are illegal: first, the idea that if the measure is thrown out in court the existing condo conversion law is thrown out; and second, the fact of denying owners of Property the ability to live in their own units, which will be interpreted as a taking.
- Retroactivity seems grossly unfair. People who purchased homes as TICs after July 10 of this year will be punished for violating something which wasn’t a law, but was merely a political campaign at the time of their purchase.
Prop. N renews San Francisco’s condominium conversion ordinance and amends it. Most of the amendments are designed to discourage “tenancies-in-common” (TICs). Tenancies-in-common are an ownership structure in which two or more people own percentages of a multi-unit building. This is in contrast to condominiums, in which a person owns 100% of a specific unit. Tenancies-in-common are usually divided up through side agreements. TICs are usually temporary, a means of occupying property while waiting to convert the building to a condominium.
Prop. N would enact the following changes:
- Make the condominium cap permanent.
- Include tenancies-in-common within the existing condominium conversion process, which allows no more than 200 units per year to be turned into condos. The Condominium Conversion Law outlines a process known as the “lottery” that building owners must go through to convert buildings into condominiums of three or more. The law includes tenant protections such as prohibitions on senior evictions, relocation benefits to displaced tenants, and preferential buying to existing tenants.
- Limit condo conversions to buildings of 2-6 units. It would require that to be eligible for conversion, at least one of the units must be owner-occupied for at least three years and that at least 40% of the tenants in the building have consented to the conversion via signing an intent to purchase their own unit.
- Require the division of a multi-unit building into separate condominiums to be recorded on the deed of the building. This automatically makes these multi-unit buildings subject to condominium regulations, without allowing people to occupy the units as condominiums.
- Amends the tenant-buying preference of current rent control laws in a way that seems to set up a catch-22. Currently, when a group of people applies to convert their building into a condominium, at least 40% must be tenants in the building and must submit a written statement of their intent to purchase rental units. An owner who lives in the building may be counted as one of the tenants for this purpose. However, under Prop. N, an owner who lives in the building could no longer be counted as a tenant for the purpose of condo-izing a building. (This appears contradictory, making it impossible to apply through the Condominium Conversion Law.)
- Authorizes civil penalties for violations and gives residents the right to bring private civil actions to enforce the measure.
- Finally, there is a provision—which appears to be illegal—that says that if any parts of Prop. N are invalidated by a court, then no more condominium conversions will be allowed in San Francisco, ever.
We acknowledge the urgency behind San Francisco’s skyrocketing housing costs and the rampant displacement of poor people from the city. We sympathize with the motivations of the organizers of this measure. Unfortunately, Prop. N is not the right way to make housing in San Francisco more affordable. It fails the test of achieving a balance between the competing goals of protecting affordable housing and providing opportunities for home ownership, proposing changes in only one direction—making it harder for people to become home owners in San Francisco.
The clear need is to create more housing units in the city at every price point and for every ownership and rental mode. While there are no easy or sure answers to San Francisco’s housing crisis, continuing to pit owner against renter is a zero sum game. Increasing the supply of units for everyone is the only real way to ease the housing crisis.
SPUR recommends a "No" vote on Proposition N.