May 01, 2002


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opinion
by tom wetzel

Beyond HOPE

TWO PROPOSALS ARE currently being floated in San Francisco to enable renters to become owners of their apartments. But they differ radically in who they would benefit.

The landlord-backed legislation is Sup. Tony Hall's Home Ownership Program for Equity (HOPE). To convert a building to condos under HOPE, the landlord must first negotiate a sale price with some of the current tenants.

HOPEsters claim the price would be less than the current astronomical price of condos because the landlord would have to sell to the existing tenants, and thus would have only one buyer for an apartment (instead of multiple bidders who can drive up the price). But HOPE is crafted to enable landlords to sell off apartments piecemeal to the more affluent tenants. The likely prices for apartments would be out of reach for most renters.

A tenant who stays on as a renter in a condo-ized building would get a "lifetime lease." But once that person moves out, the landlord could sell the unit as a market-rate condo. This is where landlords will make the big bucks.

Moreover, HOPE would set off an inflationary spiral in the price of rental buildings in the city, as speculators anticipate the profits to be made from condo conversions. This will further restrict the number of tenants who could buy their apartments.

HOPE is basically a scheme to enable a small coterie of landlords and high-income tenants to rake in huge speculative profits.

But there is a progressive alternative to HOPE. The San Francisco Community Land Trust Collaborative has crafted a program that would use community land trusts – democratic land cooperatives – as the nonprofit agents for conversion to tenant ownership.

The collaborative proposes the following rules for conversions:

A majority of the current tenants must agree to the conversion.

The apartments must be sold to the tenants at a price based on their ability to pay.

Affordability must be maintained in perpetuity through restrictions on resale price.

Here's how it would work: A CLT selected by the tenants would buy the building from the landlord, do any needed rehab, and sell the apartments to the tenants at a price based on household income. The federal Housing and Urban Development standard of homeownership affordability says that a person's housing cost should not be more than 35 percent of his or her income. Using that rule to determine the sale price, the CLT would enable renters of all income levels to have an equal shot at becoming owners of their apartments.

Rent control and limits on condo conversions restrain the market value of rental buildings to much less than they would be worth as market-rate condos. Because CLTs would buy the buildings "wholesale," at the landlord's price, the buildings could be converted to tenant ownership without a lot of subsidy.

The CLT would retain ownership of the land under the building, and buyers would automatically become members of the CLT. The homeowners would participate in CLT decisions along with others in the community who belong to that CLT.

If an owner wants to sell his or her apartment, a clause in the purchase agreement enables the CLT to buy back the dwelling at a restricted price. This limited-equity rule protects the community interest in maintaining the affordability of housing.

A renter who doesn't want to buy his or her apartment would get a lifetime lease, as under HOPE. But when that person moves out, the apartment would remain an affordable-housing unit, instead of becoming a market-rate condo.

Many apartments in the city are affordable only because they are sheltered by rent control. When a tenant moves, the rent goes up to market rate. So the affordability of the city's housing is seeping away, month by month. But if the tenants can buy their building through a CLT, affordability will be locked down in mortgages under permanent resale restrictions. Affordability will be preserved for future generations.

Tom Wetzel is a member of the San Francisco Community Land Trust Collaborative.