November 29, 2005 > Editorial
Condominium Conversion - Goodbye to renters
The American Dream circa 1955 consisted of heterosexual marriage, at least 2 children, preferably at least one boy and one girl, an automobile and ownership of a detached single family home with a white picket fence.
Times have changed.
Now, in the Greater Bay Area (and many others), the dream has no relevance. Lifestyle changes have rendered almost all underlying assumptions invalid. Among those are the factors supporting individual home ownership. These days, this class of citizen (homeowner) is either a remnant of more affordable days, the result of inheritance, serendipity, family pooling or the pursuit of nefarious activities. For young families entering the market, home ownership is far, far away - figuratively or in miles from their source of income.
Cities are exploring creative ways to offer ownership to more people in environments that cater only to those with insanely high or double incomes. Even rental rates have skyrocketed to the point that working class families with moderate incomes can barely afford to keep a roof over their head, heat the apartment and buy food. At the November 15, 2005 work session of the Fremont City Council, the role of condominium conversion was discussed. An existing ordinance prohibits conversions if the city-wide vacancy rate is less than 3%. It appears that staff is unsure of how many condominiums are located in the city and although the stated apartment vacancy rate of 3.4% does exceed the threshold for conversions, there are additional factors to be considered including building codes, the effect on existing renters and management of conversion units.
From the landowner's point of view, apartment conversion offers a profitable enterprise. The economics work under the same principal as selling many small units at a high rate rather than viewing the property as a whole. Each apartment becomes an ownership unit and sells at market rate, garnering a lot more money than collecting rent and paying overhead and upkeep on a monthly basis while hoping that land values continue to soar. Since prices are currently inflated to unreasonable proportions that may or may not continue their precipitous climb, these small, immensely profitable units - if sold - are at a premium now. The only obstacle is city regulations which control these conversions.
A chart presented by staff shows local apartment rental costs of $1,250 - $1,450 per month. If you haven't done the math, this is in the neighborhood of $15,000 - $17,000 annually just for a roof over your head with no gain of equity. Apartment owners and managers have maintained artificially high rents by leaving the rate high while offering "move-in specials" of one or two free months. In this way, the rent remains high for existing tenants instead of reflecting true market rates. A household earning $30,000 can forget living under these conditions and at $50,000 annual income, the formula for a quality life is tenuous. Stating the case for condominium conversion, the chart declares that the median household income in Fremont is $82,200! It would be interesting to see the median income of those living in apartments as a comparison. Even using that astounding number, staff estimates that a family at that level could afford payments of $2,283 per month for housing. Condominium purchase rates are shown at $3,463 per month and single-family homes at $4,924 per month. In light of these numbers, who will purchase these condominium conversions? Certainly not the renters since, in many cases, they are currently pushing financial limits for a local address. Since many older apartments will not qualify as new "for sale" units due to updated building codes, will the city allow a variance for these properties?
A survey of neighboring cities shows some leeway to existing tenants, but in most cases, these are of assistance to the elderly and disabled. How about the others trying to keep afloat in this ocean of opulence? A bit of time and/or money to assist relocation will not magically produce more apartments; a conversion process reduces apartment availability. Vacancy rates and economic projections need to take into account the dynamics of a real estate market that has run amok. For those who earn a moderate income - remember we are talking about those with an income of $82,200 who will be unable to afford these condominiums - apartments offer a refuge. The city council needs to be careful when considering apartment reductions and so-called affordable housing options. This question will resurface at the city council meeting of December 6, 2005.