The Third Rail
According to estimates, San Francisco has about 250,000 rental units occupied by around 500,000 tenants, which leaves about 250,000 actual homeowners. This two-thirds majority of tenants has created a special-interest group that has tyrannized the property-owning minority. Tenant advocates have succeeded in forming a winning coalition of voters, obfuscating the facts with their self-interested public relations machine. Politicians have been completely intimidated, so much so that rent control has been called the third rail of San Francisco politics.
A Losing Battle
Over the last 20 years, landlords have been fighting a losing battle against rent control. There have been many attempts to reduce landlord rights and income, most of which have succeeded. It is clear that the old (and current) approach, a reactionary response to each new threat from tenant groups, has been a failure. Efforts to fight these battles through lawsuits has proven simply too expensive and ineffectiveoften resulting in only a slightly modified version of the origin regulation. Landlords do not have the time, money or energy over the long term to successfully fight city hall, tenant advocates, and the voting electorate. Unless there are many more property-rights voters, this process will inexorably continue, and we will be weakened until we suffer the death of a thousand cuts.
According to Federal National Mortgage Administration (FNMA) polls, home ownership is the top goal for 68% of tenants. In San Francisco, with good reason, tenants feel that they will never be able to afford to become homeowners. This paranoia is fueled by constant media reports on the increasing cost of housing and the decreasing percentage of residents who can afford to pay these high prices. The loss of hope of ever joining the homeowner class, in turn, causes tenants a great deal of frustration and resentment, which tenant advocates have succeeded in channeling against landlords. Almost every tenant in San Francisco dreams of becoming a homeowner in the city. This is the group they aspire to joinunderstanding this psychodynamic is a key to our strategy.
A Fresh Approach
If you cant beat them, have them join you. Lets try a different approach, one that offers a long-term possibility of success, converting a sufficient numbers of existing tenants into homeowners, and thereby shifting their self-interest towards property rights. This would create a more stable political equilibrium.
As of now, self-interested tenant advocates oppose any attempt to help tenants become homeowners. But over time, this posture can be exposed as an attempt to keep tenants down by denying them homeownership possibilities. It is up to the landlord community to provide homeownership opportunities and expose the hypocrisy of the tenant advocates. As usual, it is a public relations battle, and must be fought in the media. Finally, landlords will have an overwhelmingly attractive initiative that demonstrably helps tenants, and which can win in the court of public opinion. It is likely to be opposed by their supposed advocates. This will place the advocates in an untenable situation and landlords must publicize this serious conflict of interest. The concept below was tested on several groups of tenants by the Affordable Home Ownership Alliance (AHA), a non-partisan advocacy group, and the tenants were uniformly enthusiastic.
A Practical Win-Win Solution
The AHAs Condos4Tenants proposal empowers tenants by allowing them to buy their own unit and subdivide apartment buildings (when at least 25% of tenants vote for it), without any numerical cap. Landlord and tenant must negotiate a price acceptable to both. Nobody will have to be evicted to make space for the new homeowner.
Existing tenants who choose not to buy will remain tenants, with all existing rent control protections and a lease preventing an owner-move-in. When they finally leave, the unit can be re-rented, or sold. If they buy, they will be able to encash the value of their low rentsbecause their landlord will be prepared to sell to them for a lower priceand they could even take the capital gain and buy a house in a more affordable location.
Encouraging the subdivision of apartments into ownership condos will increase the supply of available housing because low-rent tenants in San Francisco usually never leave their unit until they die, and so the unit is basically lost from the rental housing stock. This reduces the City's available rental housing, and thereby increases rental prices. The truth is that low rents themselves are to blame for reducing the supply of available rental housing in circulation
Owners are motivated to sell for a profit, and thereby increase supply to meet increased demand. Turnover in owned-housing is greater than turnover in rental-housing in San Francisco, where the occupants have been in possession for more than a few years.
Subdivision into condos rather than going co-op (as they do in New York) is necessary, because it permits individual loans for the units, thus making them available to the majority of tenants who cannot put down 50% or more for a co-op loan.
There are many low-down payment and no-down payment loans readily available e.g. FHA Access, Community Reinvestment Act (CRA) loans, FNMA, etc. which could be used. These will typically fund loans for $250,000, enough for most studio and one-bedroom units in San Francisco, and perhaps some larger units too. Roommates, friends and family will help as multiple co-borrowers and co-signers for larger non-conforming loans and larger, more expensive units.
There is a proposal to increase the FHA-FNMA loan limits in California to $379,000 like in Alaska, Guam and Hawaii, by a Federal declaration or finding that the region is expensive. This will vastly increase the availability of low downpayment, easy-qualify Federal programs that make homeownership easier for tenants. Some City funds (Downpayment Assistance Loan Programfrom the Mayor's Department of Housing) are also available for those needing extra assistance.
Federal and state mortgage interest and property tax deductions subsidize the payments (25-35% of the interest and property tax amounts!) to encourage homeownership and permit higher values. The after-tax cost of homeownership could even be less than the cost of the rent itself! A property or condo-management company reporting to the home owners associations board would make repairs, pay bills, collect dues, etc.
Large amounts of money (hundreds of millions annually) will be collected by the City in increased transfer taxes and increased property taxes. This money will be earmarked to subsidize elderly-disabled tenants via a city-administered program, thus enshrining the concept of collective responsibility for the needy, rather than laying this burden on the individual landlord. Everyone gains nobody loses.
Justus is a pseudonym for a San Francisco apartment owner. You can find out more about this program from the Affordable Home Ownership Alliance. Registering your support is free, at:http://www.egroups.com/. AHA wants to show that landlords are also supportive of the proposal. If you agree, please register and help make the program a reality with your support.