The Morning Report
Get the news and information you need to take on the day.
Tuesday, June 13, 2006 | Apartment units in San Diego have been converted into for-sale condominiums at a rapid clip with the recent housing boom, although the attraction of such conversions has dwindled as of late. Regulations proposed by Mayor Jerry Sanders could bring the phenomenon to a screeching halt.
Prompted by the boom in condo conversions in recent years, city officials are considering further restricting conversions in an effort to alleviate the headaches for displaced renters and their home-buying replacements.
In a city where nearly 19,000 condo conversions have been completed or proposed since 2004, both opponents and supporters of the stricter regulations predict that the conversion trend will all but disappear with Sanders’ recommendations because of the expense associated with the new regulations.
If approved, the regulations would force apartment building owners converting their rental units to provide more off-street parking spaces and affordably priced units. The proposed changes would also force building owners to dole out relocation assistance to every displaced tenant – not just those of modest means, as is current policy – and to notify those renters about the conversion earlier. The City Council is slated to hear the suggested changes Tuesday.
However, experts say the recent upswing in condo conversions is quite dead, with or without the new restrictions.
“This ordinance is meaningless in today’s market because in reality the condo conversion boom is over,” said real estate consultant Gary London. “Buyers of apartment buildings paid too much for them, the market forces have already worked against the delivery of condos because the deals are not feasible.”
The city has witnessed a sharp dip in condo conversion applications since April, according to Cynthia Queen, spokeswoman for the Development Services Department.
With a conversion slowdown ahead, the proposed changes demonstrate another political test for a City Council and mayor that have wrestled with several building issues in the past year.
The mayor’s implicit support for the new restrictions – his spokesman said he will endorse his staff’s proposals but will not help shape the suggestions the way he has past development ordinances – could pit him against the local builders that heavily backed his mayoral candidacy last fall. They are castigating the suggested changes.
The building industry and Sanders himself have touted condo conversions as a possible solution to the region’s housing crunch. Only 7 percent of the single-family homes are affordable for an average household in the region. By creating smaller for-sale units out of former apartments, more individuals and families will have a chance to become homeowners, they say, because the housing supply is increased with less expensive units.
But developers say Sanders’ proposed changes are counterproductive, no matter the good intentions behind it.
“You’ll never solve the affordable housing problem by placing additional burdens on those who actually create the housing,” said Matthew Adams, lobbyist for the Building Industry Association of San Diego County’, or BIA.
Supporters of the mayor’s proposal hope that the proposed changes will bring to a close the conversion trend. They’ve urged the council to approve a moratorium on the changes for several years.
“We will be delighted if these pass,” Affordable Housing Coalition co-chairman Richard Lawrence said. “It just doesn’t make sense to us to convert housing for one part of the population and turn it into housing for another part of the population that just happens to have more money.”
There are four major changes being proposed Tuesday. If approved, the new condo buildings will be required to include affordable housing onsite. The new policy would not allow the building owner to pay an in-lieu fee to avoid including affordable housing, a departure from the affordable housing law that governs new housing developments in the city.
Affordable housing activists said the requirement will help individuals who are booted from an apartment because of a conversion but cannot otherwise afford to purchase a condo.
“If it makes sense to do inclusionary housing anywhere, it’s on condo conversions,” Lawrence.
Projects with nine or less units would be exempt from the proposed affordable housing requirement.
Adams said the rest of the condos in that building will absorb the cost of producing the affordable unit, which will be priced so that a household that earns the region’s median income can afford to buy it.
The converted condo buildings will also include new parking restrictions. The rate of off-street parking stalls per unit ranges from 1 to 1.5, depending on the number of bedrooms within the new condo.
Opponents of the regulation say conversions are cost-neutral and should not include the requirement, especially since there is limited room within a property to provide those parking spots. But city staff reported that the number of cars per home have increased substantially since many of the older apartment complexes were built.
Lawrence argued that a condo-owning household is more likely to earn more, and therefore will probably own more vehicles.
Adams said the parking proposal would be the death knell for condo conversions, regardless of the current market’s state.
“They’re trying to use parking regulations to stop condo conversions. It’s very transparent,” he said.
Owners of converted buildings will also be required to notify renters 60 days before a tenant is expected to vacate. Because a state law that also required a 60-day window expired this year, the standing policy has been 30 days.
“The 30 day-period is not a sufficient timeline for many households to relocate, especially those with special needs,” the city staff wrote in its recommendation.
Adams said he did not have a problem with the extended deadline.
Lastly, displaced renters currently receive a check equal to three months’ rent if they earn less than the average household. The screening of these individuals is tedious, the staff report says, so Sanders is proposing that all displaced tenants should receive the financial aid.
“This is the redistribution of wealth more than anything else,” said Adams.
Lawrence said, “moving is an expensive proposition, I don’t care who you are.”
Some less controversial changes to the condo conversion ordinance were approved earlier this year, such as provisions that required that conversions be accompanied by improvements to the units’ electrical systems, windows, fire alarms and roofs.
The City Council’s vote on Tuesday will follow two other controversial development-related decisions that have been contemplated this year. In February, the council approved the downtown community plan update, which mapped out how the urban core will be built out over the next 25 years. When the funding for parks was found to be deficient, Sanders stepped in and hammered out a compromise that raised $90 million by charging developers for the right to build taller, denser buildings. The plan was still very contentious even with the concession.
In April, the council also voted to change the way its affordable housing law was applied in order to settle a lawsuit with the BIA. Critics said the proposed settlement would have significantly lowered the construction of affordable units, and the compromise was killed after the BIA sought more concessions from the council, forcing the case to trial. The city eventually lost the case and the affordable housing law was ruled illegal, although the city has appealed the decision.