On November 14, 2006, the Community Economic Development Agency (CEDA) Committee will hear a proposal from Councilmembers Brooks, De La Fuente and Chang to radically change Oakland’s condominium conversion laws. Currently, city law limits condo conversion in certain areas of the city (impact areas) including Adams Point. The current law requires that for any conversion, replacement rental units must be created.
The motivation for the proposed change is purported to be an effort to change the imbalance in owners vs. renters in Oakland. Currently about 40 percent of our residents are owners and 60 percent are renters, which is the reverse of the national average. The question is whether the proposed changes would have the desired affect in helping our current renters to become owners or would it push out our current renters and accommodate new Oakland residents who would buy the converted units.
The proposal has a requirement of a per-room fee to be placed into an Affordable Housing Trust Fund as an alternative to the requirement of replacement rental units. However, the fee does not cover the cost of creating a replacement unit. Tenants 62 and older could remain renters in their occupied unit. Existing tenants would have first right of refusal and a small discount on their unit. Buildings in the currently described impact area would be subject to conversion without creating new units, but the per-room fee in impact areas would be higher than other areas. The annual cap on conversions in the proposal is 1500 units. The proposal doesn’t require many improvements to the property prior to conversion except for sound. This leaves many potential buyers with the additional potential cost of fire and seismic safety expenses. In fact some of the most seismically dangerous units are multi-unit “soft-story” structures where the first floor is typically open-bay parking with little structural integrity (side and back wall only) and the housing units are directly above the parking.
Oakland has a diverse population but many of our residents are very low income. The average household income in District 3 (owners and renters) is about $40,000 a year. Compare this to the average in District 4 which is $80,000/year. The 2000 census showed that Oakland had 88,301 renter households with an average median income of $29,278 per year. An affordable unit for these households would be approximately $175–185,000 per year. The average sales price of a condo (from conversion) on the current market is between $350,000 and $400,000. The CEDA staff report states that “the affordability gap would be partially filled with the city’s first-time homebuyer program or state assistance, but a significant gap would remain.”
The policy-change proponents have not asked for an economic impact study to be sure we know all the ramifications of such a drastic change. This is an interesting contrast to their insistence that the council yet again study inclusionary zoning before we implement it, despite that policy being studied for 8 years by councilmember Brunner and myself.
This item was heard in the Planning Commission, where several tenants told commissioners that they would not be able to afford to buy their units. Two years ago when Councilmember Brooks brought some real estate investors to meet with me proposing to change condo-conversion laws in my district, they claimed that tenants would not feel a difference and that their monthly mortgage payments would be the same as their monthly rent. When I asked for the actual numbers and compared them to my constituents’ rent, there was a huge difference and that didn’t even cover the down payment requirements. There are currently many “products” available to layer on debt for the new homeowner, helping them get into ownership with less of an upfront down payment. Such debt heaped upon a low-income person does not stabilize them or the neighborhood at all. In fact, it can lead them into a far worse situation with no money for first and last months’ rent if they lose their newly purchased condo. Another tangential but significant impact of this change is that if a converted unit is purchased for rental rather than owner occupation, none of the Just Cause Eviction laws that covered the building prior to conversion would remain in affect.
The votes are not clear on this proposal, but the fact that it is being pushed for review prior to the mayoral change in January suggests that the current mayor might be willing to break a tie to pass this hurriedly. A similar attempt to change condo laws in Berkeley, Measure I, was placed on the ballot for voters to weigh in. It was defeated by a wide margin. If passage seems imminent in Oakland, some potential modifications of the proposal could include:
- cutting the maximum annual conversions from 1500 per year to 50 to see what kind of impacts occur;
- require the converter to track removed tenants who cannot afford to buy their units, to see if and where they find replacement housing;
- charging a larger per-room fee for conversion that will really cover the cost of a replacement unit;
- providing a bigger discount to existing renters who want to buy; and
- requiring a relocation package that will really cover the costs of a renter who has to find another rental unit.
I encourage people with concerns about this drastic policy change to contact Councilmembers Brooks, De La Fuente, and Chang and/or come and speak at the CEDA committee meeting at 4 p.m., November 14. The full council hearing on the item could be as soon as December 5. Please check with my office 238-7003 or the city clerk for any schedule changes.
Brooks: dbrooks@oaklandnet.com; 238-7006
Chang: cityochang@oaklandnet.com; 238-7008
De La Fuente: idelafuente@oaklandnet.com; 238-7005
For more information:
- Agenda Report by City Staff for this item
- Supplemental Report introducing amendments by the sponsors
- Agenda for Nov. 14 CEDA Committee meeting (see item #9)
Comments
JB -
You assert that these condos will be "cheap," but how are you measuring that? What guarantee do you have that they will be? None. The average price estimated in the proposal is $250,000, $75,000 more than what would be considered an affordable unit for the renters in question.
Even assuming that the owners of the converted units will pay no more in mortgage payments than they currently do in rent (which is pretty dubious), I'm interested to see how you think that the "federally-subsidized benefits of homeownership " outweigh the increased costs of thousands of dollars of annual property taxes.
I am in agreement with Councilmember Nadel's suggestions as a way of studying the economic impact of the full implementation of this policy.
I think if this were to pass we would be guilty of a) encouraging people to buy who do not have the financial strength to risk it and b) causing a wave of foreclosures as well as the evictions which would precede them. This is a heartless attack on Oakland's population.
J -
You are constantly asserting that renters pay property taxes anyway, blah, blah, blah. I'm talking about actual checks one has to write. A one-bedroom apartment in the impact area of this proposal, around the lake, can easily be found for $1000/month. Now, were that apartment to turn into a condo, the owner could probably expect to pay at least a similar amount in mortgage payments, and also would be paying about $6000/year in property taxes. You still fail to demonstrate how the morgage tax deduction outweighs this new burden. Why? Oh yeah, because it doesn't.
Nancy -
It is dissapointing that you did not acknowledge or respond to J's suggestions about incentivizing apartment construction to encourage a healthier supply of rental housing stock. That would address some of my major problems with the proposal. I think you should consider it as part of a compromise effort.
Lynda -
I hardly think it is productive or appropriate to wish death on Oakland's City Council in a public forum. Nor is your comment contributing anything useful to the conversation. This sort of uninformed and unbridled anger is pointless. Whether you believe the proposal is a good idea or not (and I don't), it is not "sponsored by the greedy realtors and landlords who will do anything to profit on the misery of others!" At the planning commission hearings about the issue, many, many of the speakers present were TIC residents who have been unable to convert their own homes to condos due to the unweildy restrictions that this proposal would eliminate.
Personally, I think that the restrictions on TIC conversions are a problem that the city should be addressing, and while that would be part of this proposal, it is not targeted to them and has too many other negative aspects to earn my support. I would like to see the City Council reach some sort of compromise that would address the issues discussed here through a combination of incentivizing rental housing construction, instituting Councilmember Nadel's modifications suggested here (though perhaps with a limit somewhat higher than 50), and lifting all restrictions on TIC conversions.
Jim -
You don't seem to have actually read the post or the comments. This has nothing to do with building condos. Oakland is constructing lots of condos (of course, certain Councilmembers would like to see that stop, but that is a different discussion). This is about taking existing rental housing and turning it into for-sale housing. The converting owner is not even required to make improvements to the property before the conversion. This has nothing to do with jobs, and no jobs would be created from this.
Opponents of the proposal are concerned that, among other things, this would shrink the already insufficient supply of rental housing in Oakland. As for Prop 13, that is really neither here nor there. Of course it is the bane of municipalities all over the state, but Oakland's City Council can do nothing about it. It is an issue that must be addressed on a state level
Jim -
You still don't seem to understand what's going on here. The entire point of this proposal is that the existing units would be sold cheaply to people who couldn't normally afford a condo. That's why no improvements are required for conversion, and few to no jobs will be created. The concept is that people simply buy the apartment they are already living in without modifications.
Naomi -
You're referring to the 2005 American Housing Survey? Because in Table 1B-1 "All Housing Units-Central Cities," it notes a homeownership rate of about 55%. So yes, it seems that urban areas do have a lower homeownership rate than the 60% average for the country and state as a whole, but the average urban ownership rate is still far higher than Oakland's current 40% or even Oakland's long-term goal of 50%.
I also don't understand why you are characterizing the proposal as a "greedy attack on renters." I also think that it should be modified with more targeting, but I also know that the Councilmembers who introduced the legislation were well intentioned. And there will be many people who benefit from easing restrictions as well. Weren't you at the Planning Commission hearing about this? Didn't you listen to the parade of TIC-ers begging to be allowed to convert their own homes? The proposal needs to be modified, certainly, but it is hardly a "greedy attack." It is something that many people who desperately want to own their own homes that they're already living in have been pleading for.