June 25, 2012

The Devilish Details For Bypassing SF's Condo Conversion Lottery

Once again, as plugged-in people knew to expect, Supervisors Farrell and Wiener have introduced Condo Conversion Lottery Bypass legislation which would allow eligible TIC owners to condo convert for a one-time fee of $20,000 per unit.

While the proposed fee amount is $20,000 per unit, said fee would be reduced for each year a unit has participated in the condominium conversion lottery, a reduction of 20 percent per year starting in year two, up to an 80 percent reduction for units that have participated for 5 years or more.

The full text and details of the proposed Condominium Conversion Impact Fee legislation:

$20K To Condo Convert From TIC As Proposed [SocketSite]
TIC Lottery Bypass Legislation Will Be Introduced Next Week [SocketSite]
Condo Lottery Bypass Legislation Coming, Mayoral Support Unclear [SocketSite]
Condominium Conversion 2012 Lottery Deadline And Odds (Against) [SocketSite]

First Published: June 25, 2012 10:00 AM

Comments from "Plugged In" Readers

D.O.A.

Posted by: anon at June 25, 2012 10:50 AM

Makes sense, given the fact that if you have participated that many years your chances of winning the lottery go up quite a bit. Googled for a chart but couldn't find it. Nevertheless, this will push more folks that are in year 3,4, and 5 of the lottery into paying the fee.

Posted by: rabbits at June 25, 2012 11:09 AM

Imagine, Supervisors who can think, and believe in property owned by individual citizens, not by the "people's" politburo.

In Paris, run by a socialist mayor, in France, whose new leader is a socialist too, virtually every apartment building is the French version of a condominium.

Posted by: conifer at June 25, 2012 11:16 AM

If this goes before the voters, it will never pass.

Posted by: 94114 at June 25, 2012 11:18 AM

conifer,

True, and in Paris you can split or merge apartments almost freely as long as other HOA members are OK with your plans.

Imagine that.

Posted by: lol at June 25, 2012 11:36 AM

I'm sorry, but is there a good rationale for having discounts at all?

Posted by: EH at June 25, 2012 12:04 PM

EH - Yes, because owners that had been in the lottery before will calculate their odds of winning versus paying $60k+. The longer they've been in the lottery the more their odds increase. For instance, all of the year 8 applicants this year won automatically (see link). This is why long-time applicants will need a financial inducement into paying the fee.

Posted by: rabbits at June 25, 2012 12:10 PM

What a scam. This just ensures that the city gets most of the funds.

Makes me yearn for the days of stuffed envelopes across diner tables.

Posted by: BillyBalls at June 25, 2012 12:19 PM

This is totally unfair. As a person who owns a condo and paid more to own the same square footage than a comparable TIC, why should a flat $20k fee allow people to convert without ANY REGARD TO APPRAISED VALUE?

I can tell you that the TICs in my neighborhood/price range sell for significantly less than the same condos by $100k at least. So a measly $20k conversion fee is absolute BS.

Posted by: Gigi at June 25, 2012 12:24 PM

lol,

Yes you can merge and split apartments in Paris as you will, and people do it every day. Sometimes they merge them to live in, and then split them again just before selling if it brings more money.

Letting people do what they want with their real property is typical of most cities, including not just Paris, but also NY, London, Brussels, Barcelona, Amsterdam and Geneva.

But here in SF, we have the last bastion of collective ownership outside of North Korea, Cuba, Vietnam and China. You would be freer to do what you want with your apartment in Warsaw or Berlin than you are in SF.

We had lunch with an old fashioned leftist, who thinks that Peskin would make a fine mayor, and is opposed to most development (including 8 Washington) and cars and garages and roof decks, and dwelling unit mergers, and private decisions on real estate.
She is very rich, lives in a rent-controlled apartment for $500 per month, owns a huge ranch, and has two Mercedes in San Francisco.

Posted by: conifer at June 25, 2012 12:50 PM

And I'm sure there are thousands of people in SF just like your friend. It's common knowledge that everyone in SF that has a rent controlled apartment makes six or seven figures and that they are more the rule than the exception. Thanks for reminding me that everything really is black and white with nothing in between.

Posted by: 94114 at June 25, 2012 1:04 PM

^ very entertaining lunch I presume. I am certain the irony of being a hardcore leftist and owning that much property still escapes her.

It's very similar to Apple cult followers who think they are part of the solution with their Dickensian-sweatshop-built iPhones. Someone will break out the news to them one day I hope.

Posted by: lol at June 25, 2012 1:08 PM

@ gigi i have always assumed that TIC's are less expensive because they cost more to finance. (fractional TIC loans are usually one point higher.) you may have paid more for your condo but you presumably got a better rate than a TIC buyer.

Posted by: readySteadyGO at June 25, 2012 1:13 PM

There really ought to be some kind of running tally on socketsite, to see how in how many comments on a thread can be posted, regardless of the ostensible thread topic, before some member of the landed gentry starts howling about the rank injustice of rent control in San Francisco and how it is a sin against the one and only true god, the free market™.

Posted by: Brahma (incensed renter) at June 25, 2012 1:15 PM

Brahma, very true. The same could apply to the posts that are asking for this tally (I think you did ask for this feature more than once already ;) )

Rent control and renter's protection are at the core of the issue. This city is playing whack-a-mole because the natural tendency of people to want to make a living out of property always comes back stronger after each and every blow from the city.

The City should eminent domain all rental property and put it on Section 8 for all citizen. Say all 1 BRs will be $500 for everyone. Oh, and they should ban private property too.

At least things would be clear and there would be less of a cottage industry around this Kafka wet dream that is the city's housing policy.

Posted by: lol at June 25, 2012 2:01 PM

I have no problem with rent control for people who need it. I do have a problem with rent control being subsidized by property owners and new renters.

If as a city population we deem subsidized housing good for some of our citizens (which I would argue yes), then let's all pay for it.

Posted by: hello at June 25, 2012 3:20 PM

I have no problem with property tax stabilization for people who need it. I do have a problem with incumbent property owners being subsidized by new buyers and renters.

It is the same story. One side wants to stabilize their property tax bill, so that they are not subject to paying more due to changing house prices. The other side wants to stabilize their rent bill so that they are not subject to paying more due to changing rental prices.

Both sides want stability in what they pay, and both sides end up extracting resources from each other and from incumbents.

Given the scope of the amounts involved, I'm pretty sure that property owners are extracting more from non-property owners than the other way around.

Posted by: Robert at June 25, 2012 3:25 PM

Just popping in to shorten the number of posts between whining about rent control and whining about Prop 13.

I know how much my landlord pays in property taxes and I assure you that my rent controlled apartment is not a serious burden to him. Too bad my savings won't be enough to save my kids from defunded public school hell.

Posted by: heynonnynonny at June 25, 2012 3:54 PM

^^^ Sure, we're talking about the good old prop 13 / rent control awkward bedfellows there.

prop 13 owners have their tax costs controlled to make up for the controlled rent.

This has been going on for 33 years now and it stopped working a long time ago... Much has happened since 1979. Too much imbalance has been created and the end result is the entitled fighting for the survival of their free ride, and the non-entitled asking for fairness.

Renters are 60%+ of the population, and more than 1/2 of all the housing stock is rent controlled units. Everyone who sticks around long enough ends up in the entitled camp, which perpetuates this mistake for ever.

Posted by: lol at June 25, 2012 5:11 PM

@Gigi: Why is this totally unfair? Who is it totally unfair to? Are you really whining that you paid more for a condo and, therefore, others should not be allowed to turn their TICs into condos? Talk about a single issue voter -- how narrow can your perspective be?

Really, this is a very sensible proposal that eliminates a barrier to home ownership that never should have been created. Yeah, some families, couples and people who want to be long term residents of the City will get an unanticipated benefit from it. I can't see how that is bad.

Posted by: NoeNeighbor at June 25, 2012 5:14 PM

To add my 2 cents...

Rent control and Prop 13 have done much harm to SF and contribute to the degradation of the city's existing housing stock. When I walk through my neighborhood, it's easy to see the buildings or houses that either are subject to absurdly low property tax rates or are below market rentals (often both). Realistic property tax rates and market rents would do much to lower property values and lower average asking rents, but would be opposed by existing property owners and those in rent controlled units. However, chnages to both rent control and property taxes would be better for younger residents and new arrivals and would contribute to the evolution of the city.

Posted by: Guest666 at June 25, 2012 5:14 PM

prop 13 owners have their tax costs controlled to make up for the controlled rent.

Huh? Rent control is a fraction of SF, Prop 13 is the whole state.

Posted by: heynonnynonny at June 25, 2012 5:16 PM

@NoeNeighbor, the $20k conversion fee is wrong because it it so far below the market value of a condo conversion. The size of the proposed handout to existing TIC owners is around $150 million - that's $200 per resident. If you include all the houses that would subsequently be remodeled as condos it could be much more.

Posted by: heynonnynonny at June 25, 2012 5:47 PM

first prop 13 AND rent control need to go, it's not one or the other. Both are bad. And don't try to cherry pick certain parts of each as being good and wanting to keep parts.

Lastly, run the actual numbers. There is a direct relation to the costs And revenue. The loss of revenue because of rent control for large apartments does not come close to the saving they would get from cheap property tax.

And who suffers? My car does that has to go through pot holes. My nextdoor neighbor who sold his house, had to pay a ton of tax and commissions for selling his housing asset in SF and moving to a community with an actual school district. (vs a city with a school system that makes kids zig zag across the city, which is not very "green" btw)

That direct relation is LEVERAGE in SF by about 20 times. That is the key word boys and girls... So prop 13 helps apartment owners a little bit but rent control hurts them (and new renters) A LOT MORE. Every large apartment owner (not 2-4 pled mom and pop shops nessasarily) would gladly give up their prop 13 yearly savings to do away with rent control. Then guess what? Schools get more money, roads get fixed, ect. Now the other 79 counties in CA would hate this, I am just saying SF landlords are not calling it a draw between rent control and property tax control.

You are all on a real estate blog... Know the terms, logic and principals... Hell, take an academic class (for all those who like rent control take a college freshman level Econ class and learn how every conservative AND liberal hippie Econ teacher will tell you rent control is bad for the long term and causes rents to go up )

So DONT BE LAZY. Run the numbers before you make claims like "this isn't fair" - I'm looking at you GIgi-who bought a condo and are mad about this because you can't think ahead or intelligently enough to think about larger downpayments and higher carrying costs. And you yelling in capital letters about appraised value makes no sense. Its all relative (carrying costs because of the higher interest rate was higher for more expensive TIC's then cheaper ones)

Oh, and to get back on topic. The TIC lottery is a horrible idea and process. This bypass is a horrible idea only because it is needed. But it is a great compromise and the board would be stupid and short sided if they don't approve it. So, obviously it won't happen. Good try anyways guys

Posted by: Don't be lazy at June 25, 2012 6:00 PM

@ Don't be lazy: Well said. /agree

Posted by: hello at June 25, 2012 7:17 PM

you are all babbling for nothing... as the first commenter said, doa, dead on arrival with the board of supervisors, period. Weiner and a few others like it, but this represents more a bout of political posturing not genuine belief that this can in fact be realized.

Posted by: puhlease at June 25, 2012 10:26 PM

^^^ Well at least someone is trying. I like Scott Weiner more and more with all the recent stances he has taken.

We'll see what happens. This City might be changing more than we think. It has to, eventually. The question is whether it will happen in our lifetimes ;)

Posted by: lol at June 26, 2012 7:09 AM

the fee should be $0, but the conversion should trigger an automatic reassessment of the property value to the current market value. Of course, that's probably banned by prop 13.

The perverted tricks this city has to go through in order to raise the tax revenue it wants to operate is just sick at this point.

Dismantle the MTA, eliminate the TIC lottery, reverse prop 13 (have it continue to apply to current buildings, but sunset upon sale or transfer in probate), get rid of rent control (continue for rent controlled tenants, eliminated when new renter signs lease), abolish the school lottery system, then raise property taxes and perhaps allow the city to levy road taxes or income taxes. Maybe there are so many buildings under-assessed that we can actually LOWER property taxes as the burden doesn't fall on a small number of people who bought in the last 10 years.

But this is SF, where the solution to unintended consequences is more rules with more unintended consequences. I'm selling a house and have already had to deal with 3 city-mandated pieces of paper and inspections totaling more than $1000. Another back alley tax. The city mandated energy inspection isn't taken seriously by anyone-inspectors, buyers or sellers. We all just wink at each other and move on. The only people who care are those that get the money.

Prices for rents have gone up substantially in the recent past. I predict we'll add more rules and more rent restrictions to broaden the protected classes. Rental supply will constrict and landlords will have even fewer incentives to lower rents on vacant apartments. This will repeat for several more cycles until there will only be 1 or 2 rental units on the market at a time, going for insane prices. No one will be able to move and we'll be a city frozen at a moment in time in more ways than one. But at least we'll all have rent control.

Posted by: rr at June 26, 2012 11:36 AM

rr,

hear hear

I think this could have been resolved somehow IF the market had really cratered both in rental and sale prices. But SF is an extremely attractive city and in the middle of the current tech revolution.

We did not get the sanitary "deep cleansing" that strong recessions usually bring. Maybe in the next cycle?

Posted by: lol at June 26, 2012 12:11 PM

Can SF ignore/overturn Prop 13?

Posted by: wc1 at June 26, 2012 12:30 PM

Of course it can, provided it first secedes from the State of California, but that would probably require seceding from the Union, and that was tried once in the 1860s with disastrous results.

Perhaps wc1 lives in the London postal code WC1, or perhaps he believes that SF really is a People's Republic unto itself.

Posted by: conifer at June 26, 2012 1:10 PM

I think it's actually more possible than conifer allows, with no civil war involved. Hiram Johnson was a lot smarter than people give him credit for.

Conifer is correct that Prop. 13 applies statewide, so what an interested party would have to do is put together a ballot measure, for statewide consideration, that would exempt just The City and County of San Francisco from the provisions that limit property tax increases and the follow-on provisions. Get it placed on the ballot by either the State Legislature or by signature.

Usually, that would be the end right there, because there is no way that you'd get a 2/3rds vote to amend Prop. 13 in any way; however the Republicans in Sacramento would probably take the view that since San Francisco is largely populated by freaks and crazy wacko lefties, it should be allowed to hurt itself if it wanted to. The signature collection approach just depends on how much money you have available.

Then you'd need to get a statewide supermajority vote to pass it, again, you'd be betting that most voters would allow S.F. to do what it wants to as long as its own citizens are the victims. Of course, some longtime homeowners might take the view that this would be the first crack in the dam, and then decide to vote against it. The affirmative argument would have to convince voters that there's something special about San Francisco that requires a suspension of the Prop. 13 rules for it.

In any case, it would be a heck of an interesting political exercise. You'd have to have a lot of money to even contemplate it, and that's why it hasn't been attempted: the people who constitute the monied elite, more often than not, want taxes to stay low. The Koch brothers aren't going to donate any money to your cause.

Posted by: Brahma (incensed renter) at June 26, 2012 1:36 PM

I think Conifer is too quick to try to seem clever, that he fails to recognize a legitimate question from someone who was unclear on the law.

Posted by: wc1 at June 26, 2012 1:47 PM

brahma,

interesting take. Where I do not agree is your characterization of "hurting themselves". prop 13 and rent control are doing more harm than good overall.

Sure grandma is still in her home, but her 4 grand kids had to move to CC County, while deep-pocketed individuals move here. I have actually seen it, in prime NV. Sad.

Posted by: lol at June 26, 2012 2:01 PM

lol, although for possibly different reasons, I completely agree that Prop. 13 is doing more harm than good overall. However, the overwhelming majority of Californians do not agree with either of us.

If you ask most people who either owned before Prop. 13 became law or have parents who did (i.e., most baby boomers), what you're most likely to hear from them is that "if it weren't for Prop. 13, I (or "my parents") would have been taxed out of their own home!"

California voters in general aren't informed enough to know that this is nonsense. Which is why Prop. 13 is the third rail of California politics. I was imagining the characterization "hurting themselves" as being the most likely to be held by someone like Assemblymembers Brian Nestande; it's not the view I personally hold.

Btw, the scenario I outlined above at 1:36 PM assumes that once California voters outside of S.F. decide to let S.F. experiment with uncapping property tax assessment rates only in S.F., that voters inside The City would approve it. Upon further reflection, that is far from something one could just assume, especially since all those voters who own property (especially property in the rental market) in San Francisco but live elsewhere would be incentivized to "vote their pocketbook".

Posted by: Brahma (incensed renter) at June 26, 2012 2:59 PM

Just to follow-up on one of my assertions above,this is from Sep. of 2011; Prop. 13 still highly popular, poll finds:

Occasional rumblings around the Capitol about changing Proposition 13 aren’t likely to amount to much anytime soon: The landmark tax-limiting measure is about as widely popular today as when it passed in 1978, according to a new Field Poll.

By a greater than 2-to-1 ratio, with 63 percent support, California voters would endorse the measure if it were up for a vote again today, according to the poll.

“It’s still the third rail of California politics,” poll director Mark DiCamillo said. “It’s really an untouchable. Tinkering with Proposition 13 would probably be done at a politician’s own peril.”

Approved by a 65 percent to 35 percent margin 33 years ago, Proposition 13 drastically reduced property taxes and made it more difficult for lawmakers to raise taxes in general.
I read that when it came out on newsprint in some form and I'm pretty sure that's where I got the catch phrase "the third rail of California politics". Don't really have a handle on how the support numbers would change with just S.F. voters.

Posted by: Brahma (incensed renter) at June 26, 2012 3:09 PM

Well, we had a choice between under-taxing the elderly or under-serving the children. SFers picked their preference.

How do they manage in other states? Some have 2%+ tax rates on fair property assessment. 85% of the country must be pushing granny under the bus!

Nope. When people retire, they adjust to a lower income and scale down to live within their means. What you see in SF is 95-y-olds in 2500sf leaving feet first. It's their right to do so, but no one should be subsidizing it.

Posted by: lol at June 26, 2012 3:10 PM

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