The McConnell Report • January 1, 2008
These Things Just Don’t Work
Recently, I read with great interest an article about the difficulty the city of
In an effort to increase homeownership for low and moderate income people, the city requires developers to set aside a percentage of homes to sell at below market prices in all new developments. The first purchasers of these units must meet certain income limits. To ensure that the housing unit remains forever low income, the city requires that if the unit is ever sold, it must be sold to another low income buyer. The city also requires that the owners of these units occupy them as their principal place of residence. This is to prevent them from buying and then renting the units out. To prevent low income buyers from flipping these units and getting a windfall, the city does not allow buyers of below market rate units to accumulate equity like buyers of regular units do.
So what happens when the market turns downward? Below market owners get screwed!
And that is precisely when all of this “good work” unravels. When prospective buyers find out that the sales price of the below market rate unit is so close to that of a market rate unit and they examine all of the restrictions on the below market rate unit that do not apply to market rate units, guess which one they buy?
This has created a major problem for below market rate owners who have to relocate or who come upon a financial emergency that prevents them from being able to remain in their homes. Simply put, they cannot compete because the law that was intended to benefit them has so many strangulation regulations. They cannot occupy the home, cannot rent the home, and, in this market, cannot sell the home because buyers are more interested in market rate non restricted housing units. They are just plain stuck with no good solutions.
This, to me, is another example of how unintended consequences often flow from what may be well intended policies. The goal of the Inclusionary Zoning program is to get low income people into ownership positions. But the reality is that the restrictions on sale, the inability to build equity, and the requirement of occupancy so they cannot rent it out really mean that these people are not owners. Their mortgage payment is little more than rent to a bank. So when they need to exercise the basic right that most owners have - to sell the unit - they cannot.
I only know of two things that make sense. Let the market control the price of housing and if we are to really help house low income people, mandate that all citizens pitch in through a general tax. History continues to show us that anything else will be riddled with unintended consequences.
2008 Looks Great!
If you did not attend the BPOA Holiday Dinner you missed a good one. As usual, there were speeches aplenty. Robert Cabrera, Claude Zamanian, and former
But what was most exciting to me was that the membership was in a very good mood. Gone was the “woe is me” that has characterized so many meetings. People told jokes, laughed with one another, and many wrote checks to support the rent control campaign. I haven’t seen that level of energy in a long time.
If BPOA can carry that optimism into 2008 it is just possible that some really good things will happen. Here is wishing everyone a truly great 2008!
Greg McConnell is the principal consultant at The McConnell Group, a consulting and advocacy firm that specializes in housing issues and advises apartment and housing associations, property management companies, and individual owners throughout California. For more information about The McConnell Group please visit www.themcconnellgroup.com.
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