This article was posted on Thursday, May 01, 2014

Our “progressive” supervisors and state legislators, with the enthusiastic support of the Mayor, are tripping over themselves to come up with new ways to make life tougher for San Francisco’s housing providers.

Hardly had we completed filing our lawsuit against the first Avalos Amendment than we learned of Supervisor Campos’s new bill that greatly increases relocation payment to long term renters displaced by the Ellis Act. Shortly thereafter, Mr. Avalos came up with two more bills. Building on the Gonzalez law of 2004 that mandated free housing for family members of sitting tenants, he now seeks to compel us to accept, rent free, any additional persons (up to the health & safety code limit).

Not to be outdone, Supervisor Eric Mar has dusted off a decades-old idea to deter speculation: a draconian “anti-speculation tax.” In the meantime, Mayor Lee called together “all stakeholders” for a meeting on how to provide enough homes for everyone who wants to live in the city—regardless of ability to pay. We were not invited to the last meeting, perhaps an oversight, so we insisted on attending. The Mayor did most of the talking, supported by a group of Planning Department staffers, who, judging by their rhetoric, appeared to have gained all their knowledge from urban studies classes.

They should have paid more heed to their economics classes, where they would have learned about the unintended consequences of rent control.

As one of our Board members, a licensed contractor, discovered, the Mayor is not shy about using his power to placate tenant activists. Without hearings or legislation, he issued a directive mandating a Discretionary Review of any application to remove an illegal unit – a roadblock that can add months and thousands of dollars (the review alone costs $4,000, regardless of outcome) to the construction process, assuming it’s allowed at all. Sadly, the Mayor’s actions are in keeping with his boast in a recent New York Times Magazine interview that as a young tenant attorney he could delay any legal eviction for a year. While this flurry of activity is happening at the local level, state legislators Leno and Ammiano have been hard at work on their own bills to stifle property rights. For a more detailed discussion of these measures, please refer to the article which follows.

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As Leno’s announcement took place on tiny Wetmore Street in Chinatown, we gathered together about 40, mostly Chinese-American, SPOSFI members to let the politicians know how we feel about their owner-hostile legislation. We kept up a raucous chorus during all the speeches and caught the attention of many politicians and members of the press. Fellow property owners: we are under siege, but not defeated, not by a long shot. We are stronger than ever because we are working as a team with all the other property owner groups in the city and with many statewide groups as well. Lobbying, protests, lawsuits – all are on the table. I hope you are feeling this energy as much as we on the Board of Directors are, because we will need your help and support in the months to come. We’ll need letters, telephone calls, testimony at hearings, and . . . those three dots are an invitation to you, our members, to let us know what else you think we can do to continue our campaign to regain more control over our properties. 

Steamroller of Anti-landlord Legislation Forges Ahead

By Deborah Lopez, SPOSFI member

After several neighborhood meetings, tenant activists held a citywide convention to address the “eviction, displacement, and affordability crisis”. Here are some of the proposals we can expect to see. While they may appear absurd, four of them are already in the works legislatively, thanks to our Mayor, Board of Supervisors, and state legislators, all vying for the title of “most outrageous champion of the tenant lobby.”

Interest on tenant sec. deposit:

1. Anti-speculation tax penalty. Supervisor Eric Mar, trying to follow in the footsteps of Harvey Milk who first proposed this idea in the late 1970s, has put forward a draconian measure that would force anyone who bought a building in San Francisco to hold it for at least six years or pay a hefty penalty: 50% of a seller’s profits if the building is sold within the first year, decreasing each year till the sixth year. There is no indication that a change in life circumstances, transfers due to death of an owner, or a job change within six years would be cause for an exemption.

The key question here is: “How do you define speculation?” Buying and holding a building for a year for long-term gain, then trading up to a larger building to expand an investment portfolio is not speculation. Bringing a run-down property up to current code and turning it into livable homeownership opportunities for first-time buyers is also not speculation, and should not be subject to such a tax. So what should be?

We’re not sure there is any way this legislation could be drafted that would not discourage much- needed investment in upgrading our housing stock and in investing in rental property in San Francisco, in general. 

2. Increased relocation payments. Supervisor David Campos, hero of the tenant movement as evidenced by the wild cheering he received at the citywide convention, has proposed legislation to increase the payments to tenants evicted under the Ellis Act. The amount due would equal the difference between the unit’s rental rate at the time the owner files the notice of intent to invoke the Ellis Act and the market rate for a comparable unit in San Francisco multiplied by 24 (months) and then divided equally by the number of tenants in the unit. So, if two long-term tenants are paying $1,800 a month for an apartment that should be renting for $4,000 a month (and mind you, they’ve had the benefit of that bargain for many years), they would get $2,200 x 24 = $52,800, divided by 2 = $26,400 each – about five times the current Prop. H relocation benefit amount. According to a Campos legislative aide, the bill is still being drafted, and may include a cap on the total amount to be paid per unit. We strongly recommend that Mr. Campos include some level of means testing as well so that high-earning tenants are only entitled to the original Prop. H benefits. As common sense as that may sound, it’s very unlikely that the tenant lobby will allow such a “dilution” of rent control.

3. Eviction moratoria. Assemblyman Tom Ammiano has introduced AB 2405, which would give cities experiencing a housing “crisis” the ability to call a one-year moratorium on Ellis Act evictions and would make other changes to the way such evictions are treated that could tie up contested Ellis Act evictions in the courts for years.

At the local level, San Francisco supervisors are considering a one-year moratorium on certain no-fault evictions, including owner (OMI) and relative (RMI) move-in evictions, for long-term tenants who have lived in the same apartment for more than 10 years. The moratorium would also apply to demolition and capital improvement evictions, except for code compliance or safety upgrades, but not to Ellis Act evictions. The result of either or both of these changes would be that homeowners trying to buy tenant-occupied properties would have to wait a year to live in the homes they own, and any owners trying to improve their properties would not be able to do so if it meant evicting tenants. Obviously, this would have a significant impact on the value of tenant-occupied properties, and hurt owners badly if they have to sell during the moratorium period due to a family move, death, or other major life change.

4. No rent increase for additional occupants. The Gonzalez Amendment was intended to enable a tenant to have a husband, wife, or child live with them without a rent increase. Supervisor Avalos now wants to expand this right to any additional tenants. So the owner can watch his tenants bring in additional roommates, see his water, garbage, and sometimes utility bills increase, expect more wear and tear on the property and not be able to recover any of that added expense or liability with a rent increase. The only option owners may then have is to strictly enforce the square footage floor area requirements of the Housing Code: a sleeping room must have at least 70 square feet of superficial floor area for two. Any additional occupant requires an increase of floor area of 50 square feet. Know the rules about room dimensions when establishing occupancy limits. If this bill passes, and it probably will, those will be the only codes that apply. 

5. Legalize illegal units. This may be a double-edged sword for homeowners. Once an illegal unit becomes legal, a single-family home becomes a two-unit dwelling subject to rent control. So while under Costa-Hawkins your single family home with its illegal rental unit is not subject to rent control, watch out if it becomes legal.

It would make it harder to evict tenants on the basis of the unit being illegal. You could evict on the basis of seeking to merge the units, but the recent Avalos amendments regarding unit mergers would make that more difficult. 

6. Tenant right of first refusal. Supervisor David Chiu has floated an idea that we’ve heard before and advocated for repeatedly: give tenants in a building the opportunity and means to buy their units. Supervisor Tony Hall’s 2002 HOPE ballot initiative (Proposition R), soundly defeated by the tenant lobby, was an enlightened idea to help bring some balance to the city’s grossly skewed renter/owner ratio. But the tenant lobby trounced it for fear of losing its base. Mr. Chiu now says that under his proposal, “a property owner who wants to go out of business can sell the building to his tenants at market-rate prices rather than to a short-term investor who will only evict them and flip the building.” Are TICs finally going to be seen as a solution and not the problem? Supervisor Chiu wants to begin writing this legislation by collaborating with tenant advocates, but has said nothing about including small property owners in the discussion. Without our involvement to yield a balanced proposal, one would be excused for being suspicious. How will low-income tenants finance these purchases? Will it fall on owners to find a financing solution? Will owners be forced to get tenant “permission” in order to sell? Will city affordable housing funds be made available to prospective tenant buyers? It would certainly be an appropriate use of those funds, and an expanded Mayor’s Office of Housing programs could handle that. We are ready to sit down with Supervisor Chiu and housing advocates to work together towards solutions that help tenants without hurting property owners. 

7. Ellis Act restrictions. State Senator Mark Leno, with the backing of Mayor Ed Lee, has introduced SB 1439, proposing a change to state law that would apply only to San Francisco. SB 1439 would prohibit owners from invoking the Ellis Act to evict tenants unless they had owned their building for at least five years. Claiming that “unchecked real estate speculation” is not adding needed housing—just quick profits – and that additional tools are needed to protect valuable housing, the Mayor and Mr. Leno make it sound like using the Ellis Act is destroying housing. Not so. Housing is being transformed in San Francisco from rental housing to homeownership opportunities – something the tenant lobby cannot tolerate. But how can the city really identify a “speculator?” What if the owner has a death in the family, is transferred out of the city, or is going through a divorce that necessitates selling the building before owning it five years, and wants to Ellis it to get the highest and best value?

What if a builder buys a run-down building, invests hundreds of thousands of dollars to bring it up to code, and remodels it to a new standard for homeowners to buy? Is that speculation, or is it developing better housing?  Just because the city lacks sufficient affordable housing for its low-income residents does not justify trampling on the property rights of small building owners. Were this good legislation, it would apply statewide. The property rights of San Franciscans are just as precious as those anywhere else in the state. 

The Bottom Line

The noose is tightening around all San Francisco property owners. The effects of this avalanche of legislation will make it significantly harder for single-family home owners to recapture living space in their own homes, and will reduce the value of all investment property in San Francisco. Investors, the lifeblood of our economy, will be far less interested in owning buildings here.

Current owners who are already subsidizing their tenants will not have the funds to pay the increased costs of doing an Ellis Act eviction and will be forced to sell their buildings when they need to at greatly reduced prices – impacting their retirement plans significantly. There is absolutely no question that small building owners are under attack, and that we cannot let these laws and proposed laws go forward without a fight. 

Deborah Lopez has been a top-producing Realtor in San   Francisco for more than 35 years. Her expertise encompasses all aspects of selling and buying investment properties, luxury properties, homes, condos, and TICs. Deborah can be reached for free consultations on any real estate issue at (415) 738-7084 or [email protected].


Reprinted with permission of the Small Property Owners of San Francisco Institute (SPOSFI) News.  For more information on becoming a member of SPOSFI or to send a tax-deductible donation, please visit their website at or call (415) 647-2419.

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