Proposition R - Condominium Conversion with Certain Conditions

Voter Guide
November 1, 2002
This measure appeared on the November 2002 San Francisco ballot.

 

What it does

Prop R would permit existing tenants to buy their apartments, under certain specific conditions. It would permit conversions of rental housing units to condominiums under a new condominium conversion process. The new process would allow for a number of conversions equal to 1% of the total housing stock each year (a maximum of 3,400 units per year), for 25 years. The initiative would apply to apartment buildings of any size and would be in addition to the currently permitted 200 market rate units per year.

Why it is on the ballot

Currently, San Francisco has one of the lowest home-ownership rates in the country at around 32%. Many cities have home ownership rates twice as high. Because home ownership is a principal way that middle class families build financial stability for themselves, many people believe that the city is driving families from the city with its current policies that restrict ownership opportunities. HOPE is presented as a way to increase ownership rates in the city.

Pros

Those who support this measure state:

  • It is essential that the city find new ways to increase rates of home ownership . The housing regulatory system, as currently structured, is driving families out of the city, and is skewed to the needs of singles instead of families. , the most important way that middle class families in America build wealth.
  • This measure is structured to protect existing tenants from evictions. It is a careful, gradual way to increase ownership rates.

Cons

Those who oppose the measure state:

  • Moving units out of the rent-controlled stock into the ownership stock would reduce overall housing affordability. This measure would narrow the economic diversity of the city, increasing middle class households at the expense of lower-income households.
  • This measure is too radical, in that it allows too many units to convert to condos. A more gradual approach should be tried first, given all the legal uncertainties around the proposal.

SPUR's analysis

HOPE would allow owners of multi-unit buildings to turn their units into condominiums and sell them separately, provided certain conditions are met. In a building converted under HOPE, the average price for a condominium unit would likely be more than the average sale price per unit of a rental apartment, but less than the price of a market-rate condominium. The intent is that a portion of the units in the building be sold to existing tenants and that tenants who do not choose to buy will not be evicted.

The requirements for conversion would be:

  • A landlord applying to go through this process would be required to have "intent to purchase" forms signed by eligible purchasers from 40% of the units in buildings of 2 to 6 units; 33% in buildings of 7 to 12 units; and 25% in buildings of 13 or more units. Eligible purchasers would be tenants who have continuously occupied a unit at the property for at least two years prior to the date of application.
  • A tenant may qualify to purchase only once in 7 years.
  • Escrow may not close on a sale of a unit to the general public until escrow has closed on sales of at least 25% of the units to eligible tenants.
  • All tenants must be served with a notice of their right to a lifetime lease. Rents on these leases could only be increased by 60% of the consumer price index annually.
  • Buildings where a notice of intent to withdraw units from rent under the Ellis Act or under the owner move-in provisions of the City's Rent Ordinance would not be eligible for conversion for up to 10 years.
  • Applicants for conversion who re-sell within two years would have to pay an "anti-speculation" fee (20% of the "profit" the first year, 10% in the second year, no penalty after the second year).

Prop R would apply to buildings of all sizes; current condo conversions are limited to buildings of 6 units or less.

In general SPUR tries to stay out of the fight between landlord organizations and tenant organizations " which this measure is clearly part of. SPUR believes that the real answer to the city's housing problems, which will benefit both landlords and tenants, is to increase the overall supply of housing at all income levels . However, given that this measure is on the ballot, we find it to be a reasonable way to enable home ownership opportunities while protecting existing tenancies.

SPUR recommends a "Yes" vote on Proposition R.