To Halt Evictions, City May Become Landlord

Photo by Mimi Chakarova.

Photo by Mimi Chakarova.

When a landlord sells their rent-controlled building it can strike fear into the hearts of longtime tenants with low rents—eviction notices, buyouts, or worse may not be far off depending on whoever the buyer is. But landlords looking to sell should take note, there’s a new buyer in town: the Mayor’s Office of Housing.

Announced late last week, the Mayor Office of Housing is dedicating an initial $3 million (though that number is expected to grow) to buy small residential buildings from property owners. Called the Small Sites Program, the Mayor’s office can use the money to acquire buildings with five to 25 rental units and keep rents at an affordable rate.

If you’re the owner of an eligible building (currently that means only buildings that are entirely residential, mixed-use ones aren’t yet part of the plan) the city will pay you $250,000 per unit to acquire the building. After the acquisition, the building gets managed by a developer contracted by the Mayor’s office and the average rent is required to remain affordable to households up to 80 percent AMI (Area Median Income).

For the Mission, with its old housing stock, small-scale building and low-income communities, this could be a significant tool to help prevent evictions in buildings that are particularly vulnerable to them.

“We’re not seeing big affordable housing projects built in Mission,” says Gabriel Medina, policy director at Mission Economic Development Agency (MEDA) that worked with the Mayor’s Office of Housing to hammer out the plan. He notes that of the 949 units of housing built in the Mission since 1990, only 135 were below-market units.

Even plans to build more affordable housing have been stalled for various reasons.

“This is the quickest, best way to preserve existing population and isn’t something that would require large construction,” said Medina, who adds that the Mission leads the city in number of Ellis Act evictions.

For a building to get into the Small Site Program, a developer (either a nonprofit or for-profit) applies through the Mayor’s Office of Housing. Buildings facing imminent Ellis Act eviction, that house elderly or ill tenants, and include tenants at the lowest income level, have priority.

With a heated housing market that has the average sale price of residential buildings at over $300,000 per unit, what’s in it for a property owner?

“It’s a way for those property owners who in many instances have had 10, 20, even 30 year relationships with tenants to sell the building without kicking them out into the streets, or another city,” Medina said.

But beside the good karma, this program is designed especially for buildings at the lower end of the housing market—those with longtime tenants living in rent-controlled units well below the current market rate. Furthermore, the city plans to acquire buildings that need some rehabilitation, which may not be as attractive to buyers.

The Small Site Program also offers building owners a relatively swift way to get out of the rental market. It promises a 90-day transition period. Medina describes the process for property owners as “a quicker, more seamless transaction… plus, you avoid being vilified.”

Though only an initial sum of $3 million has been released, money for the Small Sites Program is expected to grow because it’s funded by three different sources of the Mayor’s Office of Housing budget: “in-lieu” fees collected from commercial developers, money from the voter approved Housing Trust Fund and impact fees from developers converting buildings into condominiums.

According to a report by the Mayor’s office, the funds from these three sources, plus the initial available sum, should be enough to cover the cost of buying 34 units in the first year of the program.

It’s an admittedly small-scale approach to feed the large need for affordable housing, but at the very least tenants in eligible buildings get to stay in their homes and it creates affordable housing without significant construction or a long process.

You can find more information about the Small Site Program here

31 Comments

  1. ThayGuy

    $3M / $250k = 12 units.

    This program doesn’t scale. This is silly.

  2. ThatGuy

    $3M of our tax money to help 12 units and probably 12 people. This is silly and doesn’t scale.

    Nice PR move tho.

    • My Take

      It’s an important start because it acknowledges and begins action to addresses a local crisis.

      I’ve suggested to community activists that they prevail upon a liberal billionaire such as Steyer or Buffett to invest a billion or so in buying rent-control properties because they are a good investment that would rescue tenants from eviction and stop San Francisco’s transformation into a wealthy-only citizenry.

      • ThatGuy

        Or people can look outside of the Mission and rent somewhere more affordable. Its not the end of the world.

        • where?

          So, your solution is to just let long term residents be evicted and move out of the mission where it is affordable? Where would that be exactly, Kansas?

          • Sam

            Oakland, Richmond, Vallejo, Antioch, Stockton and dozens of other towns in the East Bay where house prices and rents are one third or one half of what they are in SF.

            The Bay Area is a huge conurbation and not everyone can reasonably expect to live in the affluent heart of it.

            And if it is any consolation to you, I cannot afford to live in Monteceito, Ross, La Jolla, Beverly Hills, Aspen or Taos. But you don’t see me whining that I have some right to live in those places anyway.

        • Michael Andrade

          Said “That Guy”, also known as Marie Antoinette.

      • somabound

        Good intentions until the new building owner (The City) cannot provide the basic amenities and repairs and the tenants complain… Need examples of other city run housing that is not up to par?

        • Missy District

          If the City can’t maintain these small, old, rent-controlled properties on the amount of rent they produce, what does that tell us about the predicament of the private owners of those buildings? That they often can’t afford it either and that the rent control system we have in SF is not working. That’s why people are selling to developers and converters. That’s why units are kept empty. Rent Control as it currently exists in San Francisco is counterproductive.

          • Sam

            It will in fact be worse for the city because their cost basis will be higher.

            Maybe they can give themselves a pass on property taxes? Not sure about that.

            Also note that government-owned residences are technically exempt from rent control, e.g. projects. So perhaps the city can exempt their new tenants from rent control and then gradually up the rent to pay for all the deferred maintenance.

          • SFrentiery

            Sam- yeah, the irony was not lost on me! Nice how when the city Imposed RC in 79 they exempted themselves.

          • SFrentier

            Sam- yeah, the irony was not lost on me! Nice how when the city Imposed RC in 79 they exempted themselves.

  3. gribble

    Considering the $3 million is enough to pay $93.7K per unit if they buy 32 units I doubt this will go as far as they anticipate.

    Twelve units is what they are possibly getting. That is without management fees, immediately needed upgrades to the buildings once they enter into city management, etc.

    I see lots of folks that are being ‘helped’ by the city suing the city in the near future.

  4. 24-24

    they will pay 250,000 per unit?? The buildings are worth way more than that… what a joke, no landlord would sell for that..

    • My Take

      Not every landlord is a greedy bastard.

      I know one who hasn’t raised his rents even the allowable legal amount permitted by the rent control law in many years and is clearly a landlord because he loves the business.

      He’s one of half a dozen people that I gave a $100 bill to last year as a Christmas gift, which he accepted with reluctance.

  5. SFrentier

    Although I’m no fan of city programs that seek to further control private property, this could make sense in a few instances: how about a total POS bldg with 4 small units, all with low rents? That bldg may not fetch $1 million in the open market, so,I could see that bldg owner going with this program.

    The main problem hence is why predetermine $250k per unit? That is dumb. Just have the city go and buy the bldgs in the open market. If the city can generate enough revenues and buy bldgs in the open market, hey, I’m all for it! This will be a boon to property owners, as now there will be another motivated buyer in the buyers pool. Kewl!

    • Sam

      I agree that 250K a unit is arbitrary and inadequate. But this is a purely voluntary program and so the only sellers who will bite are those whose buildings are in such bad shape that the cost of the deferred maintenance will exceed the difference between the theoretical market value and that 250K.

      If the city were doing a compulsory purchase via eminent domain, which can happen only in very few strictly-defined cases, then it would have to pay a full market price. On a voluntary basis, they can offer anything they wish, but i am not sure they will get any sellers or, if they do, they will be the most dire buildings, probably with the most dire tenants.

      I see this as harmless but also ineffective. 99% of owners would rather Ellis and sell, or sell to someone else who will Ellis.

      While the city will be stuck with the very worst buildings and tenants, which might be a form of karmic justice since it is their housing policies that have created this crisis in the first place.

  6. medalist

    The land alone is worth more than $250k per unit in the Mission. When is the last time a duplex or triplex sold for under $500 or $750k even with very low income? Maybe in 2009. Considering the city’s history in maintaining housing stock this is also worrying. Maintaining these little buildings with very low rents does not produce much income for a contracted management company and requires a lot effort. I guess if a non-profit gets the contract they won’t be worried about running the operation in the black. You’d be hard up to even find a single 12 unit building for $3m these days, with all the deep equity looking to soak up some fresh depreciation, most buyers aren’t too worried about extremely low CAP rates and GRM’s in the 20s…

  7. StreetCred

    The mayor complains he doesn’t have enough money to pay for workers to keep the Park Department Recreation Centers Open, but likes these type of business because its easy to skim money. Edwin Lee lied that he wouldn’t run for mayor, and has been a crook from day one.

  8. MissionBernal

    $3M will go no where in this housing market. Regardless of how optimistic people are that owners aren’t all “greedy bastards,” the reality is if the City is offering $3M for a building and someone else is offering $5M, they’re going to take the $5M. That money would be much better spent investing in new low to moderate income housing, or updating the existing housing units the City currently maintains. As it is, they’re just throwing good money after bad. How about a scalable solution.

  9. marcos

    FINALLY! This is a Good First Step, we need to ramp the funding up so that it scales and ensure that these units are not managed by the MOH but by a Community Land Trust.

    • Sam

      If we assume that there are 200,000 rent-controlled units in SF then buying each of them at $250K each would require fifty billion dollars.

      But of course that assumes that every owner would sell at that price when, in practice, almost none would. If we take a more realistic estimate of $500K each, then the city would need $100 billion.

      I could be wrong here but I have a feeling that the city voters are not willing to take on another 100 billion in taxes to enact the socialization of housing when even most communist nations have moved away from that model for the very simple reason that it has been shown not to work.

      Oh wait, what’s that you say? We can just float revenue bonds to fund the whole thing, hypothecated against the rents? Oh yeah, those rents that don’t even cover the costs. Good luck funding a Wall Street IN to underwrite that.

    • ThatGuy

      Yes, the government getting into the real estate business. Great idea!

      Wait til you see the tax bill this piece of crap will create for all of us. I wonder if you’ll be able to live here after that!

      YAY!

  10. ThatGuy

    In other words: PUBLIC HOUSING.

    That’s worked out wonderfully.

  11. Read the whole article please, before you start showing off your math skills and sense of market values and parsing to scale. There are a few upsides to this program, the first is to a landlord with only a few units in a good bones building with a protected tenant or two. Many of the soft story units in smaller buildings, would they qualify? A few of the larger victorians on south van ness? This is not so investment portfolios can dump their bad investments or something, right? Currently owned rent controlled units will become available eventually at 80% of median income to qualify (some sixty thousand dollars a year) compared to what they may be able to pay now on social security for example (some thirteen thousand a year). Does that mean that the tenants bought with the building by the program will become subject to the housing authority? New lease, right of return? What are we talking about here? As it is, some ten thousand in move out costs per lease holder, and some villainy is the cost.

  12. Steven

    $250,000 is too low for just about any property owner, with good intentions or not, to sell their property. How about sweetening the pot by allowing any landlord who sells so far below market price to deduct their taxes in the same amount as the difference between market price and what the City pays.

    • It’s two-fifty per unit w/in multi unit structures. this is the low end of the market for sure, but considering it would probably buy units that need rehab and maybe soft story support with long term protected tenant(s), not such a huge bite for the landlord to take.

      • Sam

        Any vacant unit in SF can get a 500K sale price. and any unit in SF can be delivered vacant via the Ellis Act.

        So why would I take 250K from you when I can get 500K from a TIC buyer?

        That is why i predicted earlier that the only willing sellers will be owners who know about real serious underlying problems.

        Sellers always know far more about a building than a buyer does. The city will be saddled with crap as a result of this hopelessly well-meaning initiative. And a few lucky landlords will be able to offload disaster buildings to a greater fool.

  13. eee

    Why doesn’t the city just use this money to compensate landlords that are stuck with long-term protected tenants paying a tiny fraction of market rate? Or give them a break on property tax? Maybe that would take away some of the incentive to Ellis and sell.

  14. The city can’t even run the corrupt pulic housing it already owns, this will just be a windfall for more govenment fraud and corruption.

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