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San Francisco still has a “housing crisis” after 20+ years of zero-sum, win-lose solutions – it has had its fair chance, and has not worked –so now let’s try win-win solutions!
San Francisco’s housing crisis has continued for too long. AHA’s HomeOwnership for Tenants (HOT) proposal is a win-win approach to help break the logjam. In a nutshell:
1) For 70% of San Francisco tenants, owning their own home is their principal goal
2) This AHA proposal will enable thousands of SF tenants to buy the units they live in
3) Readily available easy-qualifier, zero or low (3-5%) downpayment loans will be used,
4) In many cases, the after-tax monthly payment will be less than the rent paid
5) Not a single tenant will be evicted. Eviction protections for tenants will be enhanced
6) HOT is a voluntary program. Owners will not be coerced to sell
7) Prices for each unit are by negotiation and agreement between owner and tenant
Non-Partisan Popular Support: The Affordable HomeOwnership Alliance (AHA), a non-partisan grassroots organization of San Franciscans -- tenants, landlords and homeowners -- presented this proposal in neighborhood meetings to many groups of tenants in the Tenderloin and Nob Hill areas. Tenants were uniformly enthusiastic (90%) about becoming homeowners. Several landlords and many SF Supervisors have also expressed their interest and support. The proposal is technically and financially feasible. With your help and participation, it can become a reality.
Where you come in: People need to know about HOT, that they can choose it for themselves, and help bring it into existence. Politicians need to see strong popular support for it, so they enact it into legislation. That is where we need your help – to: a) tell everyone you know about HOT, and b) express support for HOT to our Supervisors by phone, fax and email. Your help will make a crucial difference. This is a call to action.
HomeOwnership for Tenants (HOT) Proposal
The Proposal: The HomeOwnership for Tenants (HOT) proposal empowers tenants by allowing them to buy the units they live in. When at least 25% of tenants in a building vote for it, and the owner agrees, the City would subdivide the entire building into condominiums so that existing tenants can buy them individually. The current owner and the tenant would together negotiate a price acceptable to both. There is currently a citywide limit of 200 condos per year; this proposal will be exempted from the limit.
Zero Evictions: Nobody will be evicted to make space for the new homeowner, since he/she is already in possession of the premises. Eviction protections are increased for those who choose not to take advantage of the HOT homeownership opportunity.
Nuts & Bolts: The new owners acting together, or a property management company reporting to the Home Owners Association, will manage the building, make repairs, pay bills, collect monthly dues etc.
More Tenant Protections: Existing tenants who choose not to buy will remain tenants, with all existing rent control protections plus additional protections, using a lease addendum prohibiting an Ellis or owner-move-in eviction, or an eviction based on the condominium conversion. When tenants leave, the unit can be re-rented, or sold. A tenant in a low-rent apartment can often buy that unit for a lower price because the economic value of that unit to the Owner is related to the amount of the rent. Once a tenant buys the unit, he can potentially resell it for a healthy profit in the future, and even help fund a house in a more affordable location with the profit from a sale, if he/she decides to move. Many low-rent tenants would like to move, (to a larger/smaller unit, different location etc) but cannot afford the existing high prices in San Francisco caused by a rigid housing supply colliding with high and increasing demand
Demand for Housing: Since demand for any commodity decreases when the price is increased, HomeOwnership for Tenants proposes to reduce demand and increase supply by freeing up and making available under-used apartments by
Elimination of rent control protections for pied-a-terre apartments (non-principal residence)
Elimination of rent control protections for apartments rented by corporations
Elimination of rent control protections for property owners who themselves live in a rental
Means-limits for rent control protections to twice the SF median household income
Together, these steps will reduce demand for limited housing. This will reduce prices for everyone else, as the steep demand curve meets increased supply in a new equilibrium. AHA does not advocate the elimination of general rent control. But rent control protections should not be extended to those who clearly are not needy, and are abusing the intent of rent control.
Condos v/s Co-ops: Co-op mortgages require large downpayments. So subdivision into condos rather than going co-op (as they do in New York) is necessary, to place unirts within reach of the majority of tenants who do not have the 50% downpayment required for a co-op mortgage loan.
Readily Available Loan programs: There are many low-downpayment and zero- downpayment condo loans readily available, such as the Federal Housing Administration (FHA) Access program, Federal National Mortgage Administration (FNMA), Community ReInvestment Act (CRA) loans, etc, which can be used by tenants. These programs will fund loans up to $ 275,000 -- enough for most studios and 1BR units in San Francisco, and some larger units too. Some private programs (like the Nehemiah fund) and City funds (e.g. DALP - Downpayment Assistance Loan Program - from the Mayor's Office of Housing) are also available for those who need extra assistance. New HUD programs also allow the use of housing vouchers (Section 8) towards mortgage payments, placing home ownership with reach of our poorest families. Would you deny them ownership security?
FHA-FNMA limits: There is already an effort to have California’s US Senators and Congress members make FHA-FNMA increase their loan limits in California by 50%, as they already have in Alaska, Guam and Hawaii, by a declaration or “finding” that housing in the region is "expensive". This will vastly increase the availability of low downpayment, easy-qualifier lower-interest Federal loan programs in California, and for HOT buyers.
Co-Signers: Tenants can qualify for their loans, if needed, by having multiple family, friends, roommates etc. sign as co-borrowers and co-signers through the loan programs already identified by AHA. This will also be especially useful to those on fixed incomes, plus those who have derogatory or negative credit references, thus making home ownership possible for the credit-challenged.
Tax Benefits: The US government subsidizes mortgage payments (25-35% of the interest and property tax amounts) to encourage homeownership. The after-tax cost of homeownership can often be the same as or less than the cost of the rent paid, because homeowners can deduct their mortgage interest and property tax on their Federal and State tax returns. This significantly reduces their tax liability, increases take-home pay, and lets Uncle Sam help pay for their mortgage.
Typical HOT Monthly HomeOwnership Cost: As an example, a typical studio or 1bedroom apartment that sells for $ 200,000 would have a total monthly mortgage payment (including taxes, insurance, and homeowner dues) of about $ 1600 per month. The after-tax out-of-pocket cost for that unit would be about $ 1050-1200 per month. A larger unit that sells for $ 300,000 would have a total mortgage payment of about $ 2400 per month, which translates to an after-tax cost of $ 1500-1650 per month. These amounts are affordable and within reach of median income families, and lower income families.
Rental Subsidies for the Needy Elderly and Disabled: Large amounts of money (Order of Magnitude Estimate: Year 1: $52M, Year 2: $76M; Year 3: $103M; Year 4: $132M; Year 5: $163M etc) will be collected annually by the City in incremental transfer taxes and incremental property taxes on the HOT- subdivided and sold condominiums (assumes tenants buy 10,000 units per year). This money will be earmarked for supplemental rental subsidies for needy/elderly/disabled tenants via a city-administered program, thus acknowledging the concept of collective responsibility for the city’s needy. There will be no contribution required from the City’s general fund.
At an average of $ 400/month subsidy, the estimated number of needy, elderly and disabled who would get supplemental rental/mortgage subsidies is: Year 1: 11K; Year 2: 16K; Year 3: 21K; Year 4: 27K; Year 5: 34K. Over time, the incremental tax revenues can be incorporated into the general fund, as they will keep increasing at a faster rate than required for supplemental rental subsidies.
Rental vs Ownership Housing Stock: Some people have chosen to draw an artificial and misleading distinction between rental housing and ownership housing. This is a trap and a fallacy. Housing is housing. Single family houses and condominiums are routinely rented to tenants. And owners frequently live in multi-unit (“rental”) buildings. As we can see, units are effectively interchangeable between rental occupancy and owner-occupancy. An increase in supply of housing (either ownership or rental) would drop prices for both, because of the interchangeable, substitutable nature of rental and ownership housing. The important distinction is that of beneficial ownership of the property; and HOT spreads and democratizes property ownership in San Francisco, which is a public policy benefit.
We invite you to participate with us and other tenant/community groups to enact HOT, either through legislation or the ballot.
Tenants benefit from the HomeOwnership for Tenants proposal because:
a) it is the path to economic self-determination and economic security
b) they can attain the American Dream of homeownership,
c) they can gain significant tax benefits,
d) they can have lifetime security from eviction,
e) they can put a cap on their housing expense,
f) they can finally get a piece of the homeowner pie with equity buildup appreciation,
g) non-buying tenants get additional protections from eviction, and
h) the needy elderly and disabled can get new supplemental rental subsidies.
Owners benefit from the HomeOwnership for Tenants proposal because:
a) they can sell buildings piecemeal over several years and thereby avoid huge capital gains taxes,
b) they can get a higher price for the units by selling them one by one as individual units, rather than as a single building,
c) they can spread cash flow from the sales of units over several years, as they need it, rather than being forced to get the sales price in one lump sum by selling the whole building, and
d) they can increase their income via the supplemental rental subsidy program
The City benefits from the HomeOwnership for Tenants proposal because:
a) there will be many more homeowners in San Francisco,
b) the tax base will expand,
c) much more transfer tax and property tax will be collected,
d) more people will be stakeholders in the city, and
e) a program to subsidize the housing costs for the city's needy elderly and disabled will be fully funded and paid for.
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