BPOA Article Library
Housing Policy • June 6, 2006
THE CONDO CONVERSION INITIATIVE: Fact Sheet
THE CONDO CONVERSION INITIATIVE: Fact Sheet
WHAT DOES THE MEASURE DO?
- Empowers tenants to buy their own homes at a substantial discount.
-Protects tenants from uncontrolled TIC conversions and Ellis Act evictions
-Provides new revenues to the City for maintaining and expanding its affordable housing programs.
-Restores balance to our City: homeowners are now less than 40% of the population, and will soon be only the very wealthy.
HOW DOES IT WORK?
-Increases the cap on condo conversions to 500 from the present 100 (this would affect only two percent of current stock, much of which is now vacant). The 100 cap would be restored if vacancies fall below 3%.
-Sets a reasonable up-front affordable housing fee for all conversions ($8/ft2).
-Gives existing tenants a right of first refusal and a five per cent discount off the sales price of any converted unit, and substantial payments if they choose to move out.
-Reaffirms tenant protections under existing law.
WHAT ABOUT THE CITY'S STOCK OF AFFORDABLE HOUSING?
Conversion opponents argue that there is a crisis in Berkeley rental housing. They imply that rents are skyrocketing, that Berkeley tenants are below the poverty line, and that allowing even a few hundred condo conversions will result in “massive” evictions. None of this is true.[1]
Sales Price: $400,000
Less: cash payment from owner (5%): ( $20,000)
Less: rest of down payment: ($20,000)
Net Amount (financed at 6.5%): $360,000
Monthly interest payments: $1950/mo
Plus: property taxes @1.5%: $500/mo
Pre-Tax Cost To Own: $2450
Less: Tax Savings @40%: $1470/mo. net cost to own. Compare net cost to rent: $1500/mo.
7. Helping people to help themselves: The above figures do not show the other tangible and intangible benefits of home ownership. The most obvious is equity appreciation. If Berkeley had allowed condo conversions in 1990, hundreds or thousands of tenants would have stayed in town and would have seem their personal net worth increase by hundreds of thousands. The City would have seen its tax revenues increase, and the schools would have had relief from their declining enrollment. Finally the delicate balance among our population groups would have been preserved. As it is is, the City is evolving toward a place where only the wealthy, a distinct minority, will be able to own, while the rest of the population will be renters, many short term and without a long term stake in Berkeley.
[1] Statistics come from the Report of May 16, 2006 by Steve Barton, Housing Director, to the City Council; the Rent Board's database; the 2000 U.S. Census; and the Bureau of Labor Statistics.
[2] Of 25,745 rental units as of 2000, 17,692 were rent-controlled. The remainder were exempted, assumedly because they were built after 1979. Of rent- controlled units, 4,423 (or only 17.2 of the total stock) had not gone to market rates as of May, 2006.
[3] The City's rule of thumb for measuring “affordability” is whether housing costs exceed 30% of household income. Median household income in the Bay Area is about $89,000/year. Thirty per cent of that is 26,700, or $2225/month. By this standard Berkeley rents are “affordable” for those in the median. City staff argues that Berkeley incomes are in fact well below the median, but admit that this results from the inclusion of students as “households”. Most students, of course, have outside sources of income that would not be included in income data. If the student population is excluded, there is no reason to think that Berkeley incomes are different from those in neighboring cities.
