Real Estate

Everybody can win the lottery

The way forward is up photo: john zipperer

One of the laziest and most clichéd phrases in business is when something is called a “win-win solution.” With that caveat, we have a problem in this town that can be solved by investment in lots of new multifamily housing units and produce (ugh) a win-win for everyone.

Anyone who has ever been stuck in a tenants-in-common (TIC) housing arrangement, forced to wait a decade before converting to a condominium, knows the havoc that can be played with their finances as they suffer with adjustable-rate mortgages (mandated for TICs) and wait for an uncertain opportunity to win the City lottery for permission to convert the ownership format of their privately owned property.

Not surprisingly, Board of Supervisors President David Chiu wants to make it difficult for the city to have more condo conversions; supervisors Mark Farrell and Scott Wiener are trying to make it easier. Farrell and Wiener are responding to the timely pressure some TIC owners are feeling because of the economic troubles that they could escape if they convert to condo status and thus reap an immediate increase in property value and can get a fixed-rate mortgage. Chiu wants to make sure that lower-income renters are not forced out of more units in a repeat of the 1990s.

But this is yet another case where heavy-handed regulation in San Francisco, intended to help presumably lower-income renters, ends up being behind the times in terms of the needs of the population and the economy (and the environment, for that matter, as we shall see).

Renter advocates believe that more condos mean less rentals available. But that’s based on an erroneous assumption that those condos will be owner-occupied. Many condominium units are rented out. Apparently at issue is that TIC units that are rented out are covered under rent control (if they were built before 1979), but condo units are not.

The crowd that believes that rent control is an absolute must-have for the City is fighting tooth-and-nail to prevent any weakening of the system, which has become a complex and burdensome layer of bureaucracy in the City.

Another part of the solution is to have more housing units overall. More condominiums and more rental apartments. As we noted last issue, this can happen if we go for more density by building up instead of continuing to treat San Francisco as an overgrown suburb or village.

In the National Association of Realtors’ March 2013 summary of housing prices in 146 markets nationwide, San Francisco came in with the highest median list price of $799,000, a change of more than 23 percent since last year at that time; the national average is $190,000. San Francisco had 2,231 listings in the March survey, down nearly 38 percent from the same time last year. By contrast, the much smaller Madison, Wisconsin, with a city population of only 233,000, had 3,093 listings, and Mobile, Ala., with 195,000 in the city and 413,000 in the metropolitan area, had 6,618 listings.

There’s nothing new in the statement that demand is high and supply is constrained. The sun will also set tonight and come up tomorrow; you knew that. But it plays an important part in this artificially created renter-vs-owner struggle in San Francisco.

The way to square the circle, to address all problems, would be to allow greatly expanded construction of apartments and condos, particularly in high-rise towers that lessen impact on greenfields and that can be more easily served by mass transit. Our population — regionally, statewide, nationally, and globally — is still growing, and those people are either going to spread out on former farmland and woodland and wetlands or they are going to go up in the sky in beautiful new skyscrapers. Or they are going to Mars with Elon Musk’s SpaceX company. But there aren’t any other choices.

More units means a moderation in prices; it means a huge influx of investment dollars; it means an increase in construction and design and furnishing jobs; it means more units for rent at all price levels; and it means more people living in this very desirable city (increasing tax revenues and not only helping existing businesses but spawning and supporting many new ones).

So it’s really a win-win-win-win-win situation.

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John Zipperer is the former senior editor for Apartment Finance Today and Affordable Housing Finance magazines and the former new media editor of the CCIM Institute of the National Association of Realtors. E-mail: [email protected]