May 25, 2012

Condo Lottery Bypass Legislation Coming, Mayoral Support Unclear

While conspicuously absent from the Mayor’s Housing Trust Fund proposal, according to a plugged-in reader, condo conversion lottery bypass legislation will be introduced before San Francisco’s Board of Supervisors in the next few weeks. It remains unclear, however, whether the Mayor will be openly supportive or not.

Keep in mind that despite the then Mayor's support, it was San Francisco's Budget and Finance Committee that killed a proposed lottery bypass in 2010.

The Mayor's Housing Trust Fund And Missing Lottery Bypass Fee [SocketSite]
TIC Conversion Lottery Bypass And Mayoral Take Two [SocketSite]
Condominium Conversion 2012 Lottery Deadline And Odds (Against) [SocketSite]
Condo Lottery Bypass For A Fee Resurfaces In Mayor's New Budget [SocketSite]
Budget and Finance Committee Kills Condo Lottery Bypass For A Fee [SocketSite]

First Published: May 25, 2012 9:45 AM

Comments from "Plugged In" Readers

It seems odd that owners of property should have to pay ransom to the City in order to own their property in a way that is legally and financially reasonable. It just shows how little the City really cares about affordable home ownership.

That being said, I hope the legislation passes; I am sure most TIC owners will find it an improvement over the current situation.

Posted by: NoeNeighbor at May 25, 2012 12:58 PM

Of course Ed Lee supports it, he (or his handlers) are just not sure how strong Occupy will be when he's up for re-election, i.e. how bad it will look that he's pandering to the same people he always does.

Posted by: EH at May 25, 2012 4:25 PM

"It seems odd that owners of property should have to pay ransom to the City in order to own their property in a way that is legally and financially reasonable."

Owners of TICs knew exactly what they were buying and the rules haven't changed. Owners don't have to pay "ransom" unless they want to skirt the existing rules of the game.

I fully support the bypass for a fee but I won't feel sorry for anyone who is lucky enought to pay and hope they price it high.

Posted by: Michael at May 25, 2012 4:45 PM

Not. Holding. My. Breath.

Posted by: 48yo hipster at May 25, 2012 11:20 PM

@Michael: Yeah buyers knew that in order to get something they could afford in this City, they had to comply with burdensome and illogical rules. Anyway, if this law passes, then the owners won't be "skirting" rules, they will be complying with them. Basically the situation is that the City creates an absurd and illogical rule and then charges people who want to do what they could do without cost in almost any other city in the nation.

It is unclear to me why you feel it would be wrong for people to pay this fee ("skirting the rules") or why you fell that people should have to pay an "high" fee to become homeowners. Probably you are just worried that your rent-controlled apartment (that you feel oh so entitled to) might be converted.

Posted by: NoeNeighbor at May 26, 2012 2:57 PM

TICs are an affordable way to get into the housing market because of their complex and risky structure. Providing an easy expressway to condo-hood for TICs will simply eliminate that affordable avenue because they will be that much less complex and risky, not much different than buying a condo.

Posted by: hmmm at May 29, 2012 10:47 AM

@NoeNeighbor: I don't feel entitled to any housing other than the home I own.

The economic value of conversion is high, our city is poor.

I support the bypass, I also support extracting the full economic value for conversion which will benefit everyone including those who do not take the bypass.

Posted by: Michael at May 29, 2012 3:45 PM

@Michael,

You are deluded if you think our city is poor. With a budget bigger than nearly half the states, San Francisco is rich. Unfortunately, we are forced to supported a bloated city government with at least 50% too many employee's. A pension system that is unfunded to the tune of billions, and illogically generous health benefits.

I can assure you that at some point in the future this will change. Probably thru bankrupcy.

I can assure you that at some point in the future property owners in San Francisco will be able to convert their TIC's to condo's without paying the "ransom".

Your feelings on the subject are wholly without merit.

Go back to your miserable rent controlled hovel and bark at the moon.

Posted by: erdoc at May 30, 2012 12:21 PM

How does a 3 or 4 unit TIC that has individual owners (no protected tenants) provide affordable rental units? In this instance, owners should not have to be victims of highway robbery in order to go "condo". Another example of city gov't out of control.

Posted by: Iona Derman at May 30, 2012 1:12 PM

@Iona: Because to get to the 3-4 unit TIC with individual owners the previous owner removed the rental units and sold them off to the current owners.

But I don't have a problem with that.

Posted by: R at May 30, 2012 2:51 PM

Right so once the landlord makes the decision to sell off the units and he/she does it legally it essentially removes those units as rentals so why must the new owners be subject to the lottery? I can understand this logic if rental units remain, but it otherwise makes absolutely no sense to me. Once all the units are owner occupied they should automatically be able to go condo. Am I missing something here????

Posted by: Iona Derman at May 30, 2012 3:11 PM

@Iona: The theory is easy conversion provides incentive for the original owner to sell it off as TICs and hence remove the rental units.

Posted by: R at May 30, 2012 3:17 PM

Rent Control is the incentive for the original owners to sell off rental units as TICS. Rent control makes it bad business to own rent price controlled rental property as a long term investment. Rent control forces owners of property subject to annual price controls under the ordinace to accept less and less profit the longer they stay in business. Not a great business model.

The current 30+ year old policy encourages owners to keep vacant rentals units off the market.

Sellng them off as TICs creates homes.

Iona has a point, the owners of TICS ar not the ones who took the rental housing stock off the market, yet they are they are the ones who bear the economic burden.

Add an extra fee on the transfer tax for rental housing sold off as TICs. The current system hinders home ownership by the very people SF should want to encourage to buy and invest in invest in our city.

This secondary market skews housing prices, as does rent price control on older rental buildings.

Isn't the city better off with a higher portion of home owners that renters?

Posted by: Kathleen at June 5, 2012 11:33 AM

That's why I keep saying people who can't afford to live in the city should MOVE elsewhere, where they CAN afford to live, so they don't bleed the city's resources dry from their dependence on "the system." It's utterly disgusting that the city/government could place profit restrictions on legal/rightful owners of real properties. People already pay property taxes, so the government should keep their hands out of people's pockets! Enough already!

So I walked into a bar . . . no, this is not the beginning of a corny bar joke; it's real. Met a guy that bragged about how long he's been living in a Marina rent-controlled unit and that he's NEVER going to leave.

Note to guys: If you want to pick up on a woman, don't brag about your handouts. Societal parasites/leeches are SO NOT sexy.

Posted by: Pfffft at June 5, 2012 12:01 PM

That's why I keep saying people who can't afford to live in the city should MOVE elsewhere, where they CAN afford to live…

…and the people making public policy in The city, as well as most residents, keep ignoring you. Ever take the time to wonder why that is?

Posted by: Brahma (incensed renter) at June 5, 2012 1:15 PM

What is disturbing with rent control is that people are treated differently whether they have been renting for 30, 20, 10 or one year. This is a deeply unjust and flawed system.

Wanna know another city with a misguided social experiment blowing in the faces of the do-gooders: PARIS.

Like SF, getting your apartment back is extremely difficult. Like SF, rents raises for the same renter are "stabilized" using an industry index.

Like SF, 10s of 1000s of units are now into a parallel system, a mix of corporate rental and tourist stay. In both options, rents are adjusted freely and fluctuate up or down according to demand.

Like SF, there are less and less units on the regular market, rents are skyrocketing, and as a consequence middle class families cannot afford to move there anymore.

Good job. Really good job...

Yours truly is doing pretty OK there with his units, thank you very much! And when my SF unit will hit the rental market, it will be on the corporate route. No way I will risk getting stuck with an entitled "incensed renter" for 40 years.

People will always find a way.

Posted by: lol at June 5, 2012 2:39 PM

While I agree that the City's love for TICs is yet another misplaced distortion of the market, I think it is worth noting that to suddenly change the law to make condo conversion easier would be a windfall for TIC owners, since TIC owners necessarily PAID LESS for their properties than they would have if the properties were condos to begin with.

For that reason, there is a decent argument that this windfall -- the difference in value between the TIC and the condo -- should be captured as revenue for the City to the extent feasible.

Posted by: NJ at June 5, 2012 2:50 PM

"and the people making public policy in The city, as well as most residents, keep ignoring you. Ever take the time to wonder why that is?

No, actually, I've never wondered why that is; I know why. Because many of the residents in SF obviously don't own their (rent-controlled) places; they're parasites . . . like you, probably, as you seem to proudly claim to be an "incensed RENTER," for life probably . . . in your rent-controlled unit, most likely. As for the SF policy makers? Well, since the city is full of leeches like you, they need your votes.

Posted by: Pfffft at June 5, 2012 3:04 PM

there is a decent argument that this windfall -- the difference in value between the TIC and the condo -- should be captured as revenue for the City to the extent feasible.

Q: Is the TIC owner benefiting from any extra city service?
A: No

Q: Did the TIC owner do anything to be punished by an extra tax?
A: No

Q: Was the TIC owner aware there would be such a condo conversion possibility when he purchased his unit?
A: Most probably not.

Q: Is it known whether the TIC owner wants to sell his unit at any point in the future and monetize the theoretical increase in value?
A: No

In short, this is a tax on a paper gain disguised as a fee!

We already have taxes to capture gains in value at resale. This new tax would mean you'd be paying a tax on a tax at resale!

I do not hate taxes per se. We have to finance good government. But paying a double-tax for the arrogant privilege of exercising your most basic property right (I know Brahma, property is theft blahblahblah) is beyond laughable.

Posted by: lol at June 5, 2012 3:12 PM

People just like to engage in the personal attacks; isn't being in the privileged position of being a landlord enough?

I've said here in the past that I don't argue everything from my own personal point of view. I'm renting a market-rate unit and always have been.

Posted by: Brahma (incensed renter) at June 5, 2012 3:24 PM

"isn't being in the privileged position of being a landlord enough?"

Being a landlord is not a "privilege" or a natural God-given right; it is earned through one's own hard work, something that is clearly foreign to those who so freely accept and demand handouts.

Posted by: Pfffft at June 5, 2012 3:39 PM

Q: Is the TIC owner benefiting from any extra city service?
A: No

I cannot see how this is relevant. The issue is that his or her property value has significantly increased due to a change in the law.

Q: Did the TIC owner do anything to be punished by an extra tax?
A: No

Incorrect. The hypothetical TIC owner applied for, and received, a condo conversion.

Q: Was the TIC owner aware there would be such a condo conversion possibility when he purchased his unit?
A: Most probably not.

This is exactly why it is a windfall. Neither buyer nor seller took this into account, and thus the possibility was not priced into the property. Thank you for proving my point.

Q: Is it known whether the TIC owner wants to sell his unit at any point in the future and monetize the theoretical increase in value?
A: No

This is a flawed argument. First, the increase in value is not merely "theoretical"; the premise of the fee would be that the increase is real. Second, the owner presumably would be benefiting from owning a condo as opposed to a TIC even during ownership; otherwise, why bother going through the conversion unless the owner is about to sell? Condos have substantial benefits over TICs; indeed, this is precisely why condos are worth more.

In short, this is a tax on a paper gain disguised as a fee!

As noted, a conversion brings more than a "paper gain," as "paper gain" implies that there is absolutely no benefit other than inherent value. Also, the owner is under NO OBLIGATION to convert. If the owner does not want to pay a fee, he or she can simply keep the TIC. Once he or she wants to sell, then convert at that time.

We already have taxes to capture gains in value at resale. This new tax would mean you'd be paying a tax on a tax at resale!

I do not hate taxes per se. We have to finance good government. But paying a double-tax for the arrogant privilege of exercising your most basic property right (I know Brahma, property is theft blahblahblah) is beyond laughable.

I agree that income or capital gains tax should not be paid to the extent the windfall is paid back to the City. I think whatever amount is paid ought to go toward the tax basis of the home.

In any event, don't get me wrong. I do not like taxes, either. I also do not like this City's policies in this regard. I think rent control should be abolished, and condo conversion should be easy.

I was just making a point that the entire windfall from the change in the law perhaps should not go directly into the TIC owners' pockets, since it was the City -- not the owners -- who caused this financial benefit to be had.

Posted by: NJ at June 5, 2012 3:41 PM

…and the people making public policy in The city, as well as most residents, keep ignoring you. Ever take the time to wonder why that is?

People just like to engage in the personal attacks; isn't being in the privileged position of being a landlord enough?

One sentence you're in power, the next one you're not... Sorry you're the most vocal (and articulate) renter here and therefore the most visible for flak. We've had our disagreements before and we know where we stand. I am just venting against rules (and people who defend them) that make it 10 times harder to make a honest living. Rules that often and end up going against the people they are supposed to protect.

Posted by: lol at June 5, 2012 3:46 PM

Even if I am the most vocal renter here, it doesn't mean you should attack straw men, like saying "I know Brahma, property is theft blahblahblah), which I never said on this or any other thread here.

Why don't you or Pfffft actually engage in the actual things being discussed? I think NJ said it best, above, regarding the windfall effect of suddenly creating a bypass for the condo lottery.

I'm not going to say a lot more on this thread 'cause I honestly don't know the ins and outs of TICs and don't want to since I'm not going to buy one (I'm in the market for a condo). Go ahead and rant away, bellyaching landlords!

Posted by: Brahma (incensed renter) at June 5, 2012 5:04 PM

"…and the people making public policy in The city, as well as most residents, keep ignoring you. Ever take the time to wonder why that is? "

Brahma, you cast the first stone, dude. Ever heard of the sayings about people in glass houses and kettles and black teapots, etc., etc., etc.?

Posted by: Pfffft at June 6, 2012 1:58 PM

There is no reason that the City should feel entitled to capture the "windfall" from allowing TICs to convert to condos. Why should the City benefit from having created absurd rules? That just creates an incentive for the City to create bad laws and then charge people a "windfall" tax for being exempted from them.

Really, any time laws change, there are likely to be winners and losers. Let's focus on getting the rules right, not quibbling over "windfalls". People who purchased TICs already have had enough to deal with, without being forced to pay a "windfall" tax.

Posted by: NoeNeighbor at June 8, 2012 11:44 AM

NJ,

A lot of good points there.

I am not against taxes. On the contrary I think that lower taxes are a big part of the current fiscal woes. And higher taxes have to come. The questions is why would TIC owners have to pay any fee to move to a less flawed property system. They created the poison but are asking for a fee to get us rid of the poison, lol.

Brahma,

Good for you. I hope you find what you're looking for. Be aware that a few years from now you might also become a landlord ;) This is how I got started anyway...

Posted by: lol at June 8, 2012 1:11 PM

"The questions is why would TIC owners have to pay any fee to move to a less flawed property system."

The answer is the bypass would be optional. TIC owners will have the option of cutting the conversion line, if they don't want to cut they don't have to pay. Seems like a win-win to me.

Posted by: Michael at June 8, 2012 2:58 PM

There's an obvious reason why TIC owners should support paying a hefty fee to bypass the lottery: It's the only way to sell the idea to the City as a whole. Tenants will see this an an incentive for future conversion of rentals to TICs and then condos, as the odds in future lotteries will be improved, since there will be fewer TICs left in the lottery. The only way for this to be palatable is if there is a big financial benefit to the city.

Posted by: Dan at June 8, 2012 6:05 PM

Posted by: SocketSite at June 13, 2012 7:56 AM

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