Red Bridge Group Gazette

San Francisco Real Estate News and Tips

Summer 2017 SF Real Estate Market Update

As we close out Summer 2017, here is a quick snapshot of what the Bay Area real estate market is like for buyers and sellers.

Single Family Homes in SF

The month’s supply of inventory for single-family homes in San Francisco was 1.0 in July, the lowest so far this year. Buyers took an average of 28 days to close sales, five days quicker than one year earlier.

July’s median sales price was $1,425,000, and buyers continued to pay premiums — an average of 109.8 percent of original prices.

Condominiums in SF

The median sales price for a San Francisco condominium was $1,200,000 in July, up about 10 percent on both a monthly and yearly basis. Buyers paid an average of 104.2 percent of asking prices, nearly identical to numbers recorded in June.

The months’ supply of inventory was 1.6, and units left the market in an average of 37 days.

Marin County

With a July median sales price of $1,210,000, homes in Marin County cost about the same as they did one year earlier. The months’ supply of inventory was 1.3, unchanged from June and down on an annual basis.

Homes sold in an average of 44 days, and sellers received 99.5 percent of asking prices.

Defining Marin County: Our real estate markets in Marin County include the cities of Belvedere, Corte Madera, Fairfax, Greenbrae, Kentfield, Larkspur, Mill Valley, Novato, Ross, San Anselmo, San Rafael, Sausalito, and Tiburon. Sales data in the charts below includes single-family homes in these communities.

East Bay

For the sixth consecutive month, the median home price in the East Bay was in the seven-digit range in July — $1,100,000. With a 1.1-month supply of homes for sale, inventory was improved from June but remains exceptionally tight.

Homes left the market in a brisk 19 days, making the East Bay one of our fastest-paced regions. East Bay buyers continued to pay substantial premiums, an average of 113.7 percent in July.

Defining the East Bay: Our real estate markets in the East Bay region include Oakland ZIP codes 94602, 94609, 94610, 94611, 94618, 94619, and 94705; Alameda; Albany; Berkeley; El Cerrito; Kensington; and Piedmont. Sales data in the charts below includes single-family homes in these communities.

Silicon Valley

The median sales price in our Silicon Valley region dipped from the previous month in July, but at $2,910,000 it remains the most expensive region in which we operate. For the first time in six months, buyers received slight discounts, paying an average of 99.7 percent of original prices.

With a 1.5-month supply of homes for sale, inventory was slightly improved from June but down from July of last year. Homes stayed on the market an average of 29 days, the longest amount of time since February.

Defining Silicon Valley: Our real estate markets in the Silicon Valley region include the cities and towns of Atherton, Los Altos (excluding county area), Los Altos Hills, Menlo Park (excluding east of U.S. 101), Palo Alto, Portola Valley, and Woodside.

 

San Francisco Supply and Mortgage Rates Impact

San Francisco Condo Market in Healthy Equilibrium: While the Bay Area as a whole is generally a supply-constrained environment, the city of San Francisco currently has a healthy level of inventory in its pipeline.

There is roughly a year’s supply in the city, with 1,090 condominium units currently selling, as well as 950 units under construction (and three times as many rental units!). Condominiums that are approved for construction total over 3,000 units with an additional +/- 30,000 units yet to be determined as for-sale or rental. San Francisco condominium inventory is just above the historical norm, though not considered oversupplied and will need additional construction going forward to satisfy demand.

Increasing Interest Rates Will Undoubtedly Shrink the Buyer Pool: Interest rates are on the rise, and it’s going to directly impact the proportion of those who can qualify for homes.

On a 30-year fixed mortgage at 4.0 percent, roughly one-quarter of Bay Area households can qualify for a $1 million mortgage. When the mortgage rate increases to 5.0 percent, as John Burns projects for the year 2020, the proportion of households that can qualify drops to 20 percent.

A 6.0 percent rate would lead to 16 percent qualified households.

A 5 percent rate translates into a 20 percent decrease in the buyer pool of qualified buyers for a $1 million mortgage over the next four to five years.

Growth Still Remains at Decelerating Rates: The Bay Area has generally experienced rapid pricing appreciation from 2011 through 2015. This surge in pricing following the Great Recession was not sustainable for the long term, though there is still growth ahead at more modest increases.

The Burns Home Value Index projects pricing appreciation at the MSA level. Prices in 2017 and 2018 are up 1 percent to 5 percent annually across all five Bay Area markets, with the initial signs of a declining market occurring in San Francisco and the East Bay by 2019.

Rental Market Slowing: For the first time in years, San Francisco rents have stopped appreciating and in some cases are beginning to see reductions in some communities.

Whereas the rental market has typically been the “affordable” substitute to ownership, rents have grown at extraordinary rates in the San Francisco MSA. This pushes demand for the rental market to less core locales such as Dublin, San Ramon, or even farther.

Supply Remains Solid in San Francisco City, Though Extremely Limited Elsewhere: The current supply in San Francisco is adequate to support current levels of demand. Surrounding areas such as San Mateo and Marin counties, however, are woefully under supplied.

These areas are largely built-out locales (specifically through the Peninsula) with expensive land values and are often very difficult to gain approval for new construction.

The E/P Ratio Not What It Seems: The employment-to-permit ratio is typically thought to be in balance at 1.25 jobs for each additional housing unit. During the recent surge in San Francisco employment, this ratio jumped to levels of more than 10 jobs per housing unit, showing a seemingly massive relative lack of supply.

Though supply was in fact scarce, this ratio is misleading in the sense that not all of these jobs provide income levels necessary to purchase or even rent within the San Francisco MSA. This leads to a massive “export in demand,” creating a need for housing outside of the job-originating markets such as the San Francisco MSA and into more outlying markets such as the East Bay (such as the state Route 4 corridor).

Brexit & SF Housing Market

A lot of clients have been asking will Brexit cause a slowdown in the local housing market…

So here is Pacific Union’s response, courtesy of Selma Hepp our Chief Economist.

• The United Kingdom’s unexpected vote to leave the European Union, otherwise known as “Brexit,” was not accounted for in global financial markets prior to the vote. Thus, stock market volatility is sorting out the anticipated effects going forward.
• While the financial market volatility will persist, the direct impact on the U.S. is minimal.
• U.S. economic fundamentals remain strong, as they are based on domestic activity.
• Indirect impacts may actually bode well for U.S. housing markets, as investors seek
safe, stable investments.
• However, more volatility may be in store in the weeks to come.

To say that global financial markets were not pricing in Brexit prior to the vote is an understatement. Financial markets went haywire overnight, with many recalling the sell-off following the Lehman Brothers collapse in 2008. While volatility will stay with us for some time, the current situation is nothing like the 2008 financial crisis. And though no market was spared again, Europe’s fragile markets suffered from a severe lashing and will likely to continue on the roller coaster ride.

Nevertheless, the Brexit vote still does not mean that U.K. will leave soon; the referendum is not legally binding, and only Parliament can pass the legislation to leave the EU. Even if this happens, it would take at least two years for the EU and the U.K. to renegotiate their bilateral agreements. However, since no one yet really understands the full implications of Brexit, a period of volatility and much uncertainty is likely to persist.

WHO WINS AND WHO LOSES?
Unfortunately, it is easier to surmise Brexit’s direct effects than its indirect effects. In principle, the exit decision should have little direct impact on the U.S. or global economies.

The U.K. economy accounts for only 4 percent of global gross domestic product. Also, U.S. exports to the U.K. comprise only 0.4 percent of our GDP, while the U.S. receives just 3 percent of its imports from the U.K. Additionally, our country’s bank exposure to U.K assets represents only 3 percent — thus a potential U.K. recession would have a limited impact on U.S. financial systems.

Among all parties impacted, the outlook for the U.K. is the haziest, followed by the uncertainty that will shadow over the EU. And while the direct impact on the remaining 27 EU countries is somewhat limited, the indirect effects cannot be fully foreseen at this
point. The volatility and debate over what the next steps should be will not bode well for confidence or economic growth, and it may lead to further loosening of monetary policy.

INDIRECT EFFECTS ON THE U.S. COULD HELP OUR HOUSING MARKETS
Brexit’s indirect effects on the U.S., however, may not be so gloomy. First, the Federal Reserve’s decision to raise interest rates will most likely be further delayed due to this development. Also, with global financial uncertainty seemingly everlasting, U.S. Treasuries are continuing to look very attractive and will probably woo many investors. Both factors are going to keep interest rates low — particularly mortgage interest rates.

Will a Tech Boom Create A Real Estate Bubble?

Are we about to see a replay of the first dotcom bubble?  Buyers and sellers ask us this question a lot.

So here’s our take on what is going on today:

Yes, the constant hype around mobile apps reminds San Franciscans of the market’s enthusiasm during the late 1990s.  As NASDAQ reaches levels above the dotcom bubble’s peak, buyers and sellers should wonder how long the residential real estate market can sustain a tech boom?

If you are going to live in San Francisco for the long term, you should not worry.  The startups that do make it to market come with large user bases and revenues.  WhatsApp was acquired for $19Billion for its mobile messaging services.  But that came with 450 Million users and a billion messages a day.  The SF startup scene seems to be filled with entrepreneurs with sound business models and we don’t believe the likes of Facebook, Google, Apple, SalesForce and Genetech leaving the Bay Area anytime soon.  They have spent too much time and money arguing with the City about their employee shuttle buses!

Past vs Present.  The dotcom bubble was marked by an incredibly steep—and unsustainable—growth trajectory: Between January ’96 and January ’99, the NASDAQ doubled in value. Over the next 13 months, the index doubled again before the bubble burst and sent prices falling just as quickly.  Aside from the value of the NASDAQ, today’s tech industry doesn’t have much in common with that of the ’90s.

While the late 90’s bubble was based on growth in employment trends for internet publishing, broadcasting, web portal services—workforce were over expanded by 70% in 2000.  Today, analysts believe Tech is on more solid ground.  Over the past five years since the recession, NASDAQ has doubled but at a slower pace compared to the splurge in the late 1990s.  This time employment is for internet services and mobile development, expanding at about 20% annually since 2010.  This is much different that the rapid expansion of the dotcom bubble.

So our advice is to find a property you like, tie it up with a solid offer, get really low mortgage financing and live in the property for a long amount of time.  You will never be able to time the marker and there are a lot more fun things you can do with your life.  Like a kitchen remodel, or adding additional square footage to your property’s footprint.

Let’s start your property search by going to jasonfayollat.com today!

Where will SF millennials move when they need to raise a family?

Household creation is still being depressed despite strong job creation and rising real estate values. The big question is, will millennials be the cause for continued increase in single family home prices? Will they need more space and outgrow the new condo developments throughout San Francisco?

The 2008 recession brought new housing construction to a standstill in San Francisco. High unemployment and falling levels of household wealth hampered real estate’s recovery—even if people were willing to buy new housing, everyday buyers were in no position to take on a mortgage. New construction stalled as the market struggled to absorb the excesses of the previous decade.

Now that San Francisco real estate prices have soared, the presence of new construction is puzzling. The economy is nearing full employment, and the population has continued to grow steadily since the peak of the housing boom. There are more workers than ever with steady paychecks looking for housing, and historically low interest rates should make mortgage payments unusually affordable. But will millennials keep buying properties they might not be able to raise a family in?

Nationwide, demand for existing homes has recovered, and sales of existing homes recently returned to levels seen during the mid-2000s. But new housing construction remains lower today than in the early 1990s, when the US had 60 million fewer citizens. So what’s holding housing back?

Millennials are on Hold

The millennial generation faces many challenges. The 2008 recession had a disproportionate impact on younger workers: When unemployment was at its peak, millions of young people delayed starting their careers, choosing instead to pursue further education. Millions of others grew discouraged in their job search and simply dropped out of the workforce entirely. As a result, the workforce participation rate for workers who are 16- to 24-years old has only partially recovered from the recession—this generation is still about 6 percent less likely to participate in the workforce today than in 2007.

The housing market is still being affected by millennials’ setbacks. Many young people who delayed starting their careers also delayed forming new households, limiting the demand for new construction. Population growth itself does not drive demand for new housing; rather, new homes are only needed when people move out on their own. Young people still living with their parents, sharing apartments with roommates or staying in college dormitories are not contributing to demand for new housing. Despite steady population growth, the annual rate of new household creation is still approximately 300,000 units lower than it was in the mid-2000s.

This gap in household creation can almost entirely be attributed to the youngest generation of workers. Since people generally only move out on their own once, the majority of new household creation occurs in early adulthood. Among those aged 25 to 29, fewer people currently head their own households than any point since the early 1960s.

Pent-Up Demand

Unlike much of the recession’s damage, the missing household creation will likely be recouped in the coming years. For most people, household creation is an inevitable part of life. The improving labor market is bringing millions of discouraged workforce dropouts back to the job market, and the labor participation rate should soon recover for young workers. As the millennial generation finds its financial footing, moving into a new home will be the first priority for many, and demand for new housing construction will finally pick up.

Single Family Homes versus Condos in San Francisco?

I grew up in Monterey Heights in a home that had a front and backyard. I was fortunate to live in a single family home with a dining room, living room, bedrooms for my parents and siblings. I could not imagine growing up in a condo. Question is: will the millennials be raising families in one and two bedroom condos in San Francisco. Or will they eventually move into homes in the Sunset and Richmond or in the East Bay?

Is there a shift in the SF condo market?

Right now, the South Beach neighborhoods are experiencing something new. Price reductions! In the past 30 days, there have been 11 active listings that have experienced a price reduction. Compared to 13 over the last 12 months. This is going to be an interesting trend to watch through summer 2016. More to come.

Which Bay Area City Comes In #1 for Having Nations Highest Home Value Appreciation?

Like most investments, purchasing a home is no different, timing can be everything. Zillow analyzed cities with populations over 50,000 and found the luckiest home owners in America – those who bought in the right place at the right time.

These extraordinarily lucky home buyers have now seen the highest appreciation growth on their homes – most with home values that have nearly doubled in as little as four years!

The analysis tracked home purchases beginning in January 2006.

Below you’ll find the list of where the luckiest home buyers in America live, how much their home was purchased for and how much their home is worth today. You will see that this is a big win for Bay Area home buyers as they post some astounding numbers.

10. HAYWARD, CALIFORNIA

Month purchased: October 2011
Purchase value: $262,300
Current value: $466,900
Value growth: 78.0 percent

9. MOUNTAIN VIEW, CALIFORNIA

Month purchased: June 2009
Purchase value: $719,300
Current value: $1,289,600
Value growth: 79.3 percent

8. NORTH LAS VEGAS, NEVADA

Month purchased: January 2012
Purchase value: $92,900
Current value: $169,300
Value growth: 82.2 percent

7. ANTIOCH, CALIFORNIA

Month purchased: November 2011
Purchase value: $179,600
Current value: $328,100
Value growth: 82.7 percent

6. VALLEJO, CALIFORNIA

Month purchased: February 2012
Purchase value: $149,100
Current value: $276,900
Value growth: 85.7 percent

5. SAN PABLO, CALIFORNIA

Month purchased: December 2011
Purchase value: $170,400
Current value: $317,400
Value growth: 86.3 percent

4. LEHIGH ACRES, FLORIDA

Month purchased: January 2011
Purchase value: $58,600
Current value: $110,200
Value growth: 88.1 percent

3. PITTSBURG, CALIFORNIA

Month purchased: October 2011
Purchase value: $160,400
Current value: $315,200
Value growth: 96.5 percent

2. RICHMOND, CALIFORNIA

Month purchased: October 2011
Purchase value: $159,300
Current value: $324,500
Value growth: 103.7 percent

1. PALO ALTO, CALIFORNIA

Month purchased: September 2006
Purchase value: $1,170,300
Current value: $2,407,100
Value growth: 105.7 percent

It’s no surprise that with a thriving hi-tech economy, the Bay Area leads the nation representing 8 out of the 10 cities listed as having the healthiest real estate markets in America with Palo Alto bringing home the #1 spot. If you have been fortunate enough to have purchased at the right time in any of these Bay Area cities, congratulations on being one of the luckiest home owners in the nation!

If you are living in the San Francisco/Bay Area and would like to know how much your home is worth, the Red Bridge Group at Pacific Union in Noe Valley can you provide you with an in-depth home value analysis at no cost or obligation to you. Click here to contact us today.

The Future of Residential Rent and Eviction Control in San Francisco and How to Survive and Prosper in the Meantime

By Steven Adair MacDonald

With the permission of Mr. MacDonald, we are posting his recent summary of the history of rent control that he provided to the San Francisco Real Estate Roundtable. His twelve opinion points below should not be misconstrued as legal advice. Mr. MacDonald is a Professional Attorney at Steven Adair MacDonald Partners, P.C. and is a referred professional to clients of the Red Bridge Group in Noe Valley.

Introduction: I will very briefly describe for you what our local system of residential rent and eviction control is really like 36 years after its creation. I represent both sides. I am not an ideologue. I have met the nicest landlords and the most vulnerable tenants in my time. I have also encountered some extremely unsavory building owners and completely criminal tenants, as well. As a lawyer I am duty bound to take my clients as I find them and to be the most effective advocate I can. At the conclusion I will argue that our present system ultimately helps no one. The forces of supply and demand will always control the cost of living in our fair city.

History: Rent control got its start in the early 20th century in New York City. It was also adopted in many places during World War II as part of necessary price controls. The more modern history is a product of liberal politics in the early 1970s in the Boston area, jumping to the West Coast by the end of that decade. In Berkeley, Santa Monica and San Francisco a more strict form of control was passed into law. Actually, rent and eviction control go hand in hand. One without the other is ineffective. This is particularly so since our state legislature in the mid-1990s decided that after a tenant vacates a landlord may raise the rent to market rate. It then becomes controlled again.

“Just Cause”: Rent control only allows tiny rent increases each year. But the other component, eviction control, allows the tenant to remain indefinitely, unless the owner has “just cause” to terminate the tenancy. There are sixteen. The first seven are “fault” based, i.e., nonpayment of rent, nuisance, etc. The latter nine are “no fault”, e.g., owner-move-in or Ellis Act. These all come with a host of technical requirements and the latter group requires relocation payments. They also mandate “good faith, lack of ulterior motive”, subjective issues which an expensive jury trial might have to decide.

Legal Challenges: Time and again landlords have challenged these local ordinances, all the way to the California and U.S. Supreme Courts. No full frontal assault has ever succeeded.

Vacancy De-Control: I alluded to vacancy de-control. That means that when a tenant finally vacates, voluntarily or involuntarily, the rent can be raised to market. If the tenant enjoyed protection for a couple of decades or more, the rent could triple or quadruple. If it goes up $2,000.00 per month the value of the building can go up $200,000.00 as the rent roll typically determines the value of an investment property. As you can imagine, in the involuntary displacements there are many battles and considerable legal fees.

Current Results: 36 Years After Passage The result of all this, no doubt never considered in 1979 when our Board of Supervisors and Mayor Dianne Feinstein signed this into law, is tremendous tension. The tenant is desperate to maintain possession, the landlord highly motivated to recover it. Frankly, I submit, and even the executive director of the Rent Board has agreed with me, that it is beginning to look like any tenant now living in a smaller building WILL be evicted, sooner or later, one way or the other. There is a target on their back. Even elderly, low-income, disabled tenants.

What Is The Ellis Act?: The Ellis Act is state law and so it trumps local ordinances. It allows a landlord to clear out a building: everyone and anyone. Some relocation money is required. But then the owner cannot re-rent for five years. What are his options? 1. Live in it, or hold it empty, if he can afford to, and re-rent it five years later for top dollar, or 2. Sell off the apartments as tenancies-in-common, TICs. Not the same as a condo, but almost. Individual financing now available. Very tempting, either way. Owners have profited handsomely. Either the rents increased ten-fold; or the value per unit went from $200,000 to $1,000,000 when sold individually.

Who Benefits?: I am not an economist. But I think that I understand the basics. We have a limited supply of housing on the tip of this peninsula. We have a very steady and strong demand. Rent control results in two distinct tiers of housing prices. I remember when my son, as a young lawyer, moved into the Golden Gateway Center, a massive apartment complex by the Embarcadero. He told me, as I helped move him in, that I would notice two distinct types of occupants. Older folks, paying $700.00 per month for their unit, and younger professional types paying several thousand for identical apartments! I believe that without rent control artificially deflating one section of the market, a free market would result in the higher rents coming down to the equilibrium. Even now, in the long run, with the death or departure of the tenant, the landlord ultimately gets back to the high market rent, much higher than the equilibrium rent. So, nobody ultimately benefits. It averages out. In fact, the tenants who have enjoyed reduced rent for many years suffer the most when they get evicted through owner-move-in, the Ellis Act, or even a buyout. They are completely unprepared for the inflated market rent. They benefited for a while, a long while, and then face a severe shock. Frankly, the Ellis Act (despised by some) opens up many opportunities for middle class folks to buy their home. A T.I.C. apartment is less costly than a condo. When the “evil” landlord Ellises a ten-unit building, making a very tidy profit, he also allows ten people, or couples, or families to own their home in San Francisco. If it got done, or if condo conversion was allowed, on a larger scale prices would come down, given the larger supply.

How Landlords May Prosper: 1.Know the law, at least the basics. 2.Belong to SFAA or SPOSF, the landlord guilds, sources of education. 3. Think before you speak or consult a knowledgeable attorney whenever even a minor dispute erupts. 4.Have great insurance. Landlords and their insurance companies probably pay out $50 million in wrongful eviction claims and related matters here in San Francisco every year. 5. Know when you are legitimately entitled to a market rent increase, i.e., when the last original roommate has departed. Understand when you have “just cause” for eviction, either fault-based or no-fault. 6. And yes, if you have a building where rents are a fraction of market consider cashing in by selling an empty building as T.I.C. homes for first-time homeowners. If you don’t the next owner of the building will probably figure out that is how to maximize the value.

How Tenants May Survive: Tenants can best survive in the current system by renting in a building constructed before 1979, and thus rent controlled. They should live in a complex as large as possible so that it is unlikely that they will ever face an owner-move-in eviction. Similarly, up to this point, owners are reluctant to Ellis Act, i.e., empty out, a very large building due to their limited options afterwards. However, that may change, and it already is. Witness the Park Lane building, some thirty-three rent-controlled Nob Hill luxury apartments that were all emptied out last year and sold as high-end T.I.C.s. And, of course, tenants must behave themselves, not giving an opportunistic landlord any ideas about a fault-based eviction.

The Future- Peaceful Disassembly: When the total dysfunction of this present regulatory regime becomes painfully apparent to a growing proportion of the electorate I suspect that some of our very capable local elected officials, Scott Weiner and David Chiu come to mind, will take the necessary leadership on the issue in future years or decades. Probably, at that point, they could support amending the ordinance to deregulate units, permanently, when they become vacant. Protections will remain for those tenants already in place. Our society can always, as it has, call for a public funding of housing for those in need, elderly, disabled, low income. The result will be a gradual return to a free market, and an equilibrium resulting in deflating rents for some units, and higher rents for the newly decontrolled units. It may also save the public fifty million dollars per year in legal fees, and the insurance companies and those paying policy premiums another fifty million dollars annually. (I base these figures on amounts I witness cycling through my firm and what I perceive my market share to be.) There won’t be any more buildings being kept vacant for five years, either.

Political Will & Leadership: Currently, more so than ever, elected officials particularly when seeking re-election or higher office, are falling over each other to be seen as more pro-tenant than their competitor. Recall the last election when the “two Davids”, Campos and Chiu, both members of the Board of Supervisors, both Harvard Law school grads and liberal Democrats, sharing a 98% identical voting record, had to tar each other claiming one was more concerned with tenant rights than the other. David Chiu made the mistake of allowing me to host a fundraiser for him only to be met by loud protesters outside John’s Grill since I represent landlords (even though I represent tenants, too.)

Conclusion: I am not comparing rent control to the Soviet Union. Not at all. In fact, my personal politics may be the most liberal in this room. I am just saying that it took a man like Gorbachev, a man of the century, really, to have the intellectual integrity and leadership needed to admit when something is not working. Even something sacred. We will need that, too, some day. -S.A. MacDonald

Latest Interest Rates from our friends at Umpqua Bank

Is it true? Yes, rates are still crazy low. Hard to believe but it’s great news for anyone that wants to buy or refinance now.

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umpqua interest rates
* Rates, points, and fees may change depending on LTV and credit scores.

For purchase loans up to $3,000,000, a credit score of 760.

For more information contact Tina Jennings at Umqua Bank.
tina jennings
senior loan officer
umpqua bank
office: 415-268-8031
mobile: 415-505-4891
tinajennings@umpquabank.com

* Please note that these rates are quoted for the purchase of a primary residence and are subject to change daily. Rates are current as of April 15, 2015.

Senate’s Housing Committee rejected Ellis Act Bill (SB 364) in a 6-5 first vote

Today the Senate Committee on Transportation and Housing heard and rejected the Senate Bill 364 by Senator Mark Leno. Positioned as a bill to “strengthen” the Ellis Act, this legislation would require a five-year “hold period,” during which it would prevent the owner of any rental unit to utilize the Ellis Act.

While the bill might sound like a positive solution in theory, in actual practice it will only create more Ellis Act evictions and worsen the housing affordability crisis. As new property owners are temporarily paused from performing evictions, SB 364 will create market forces that will push long-term property owners to evict their tenants when choosing to put their property on the market.

Sellers in the market can still evict their tenants because they’ve owned the property for more than five years. They will be compelled to perform Ellis Act evictions before selling the property because of the significantly higher market price for a vacant residential unit.

Today, local housing advocacy groups like BetterHousingPolicies.org and Small Property Owners of San Francisco are brought hundreds of people to Sacramento to express their opposition to SB 364. Among those who traveled to Sacramento to oppose SB 364 are first-generation immigrants, Chinese-Americans, and low-income and middle-income families. Over 1500 petitions and letters have been written to State Senators and Mayor Ed Lee asking them to oppose SB 364 and work on a local solution for San Francisco’s housing affordability crisis.

“The San Francisco Association of Realtors stands with BetterHousingPolicies.org and Small Property Owners of San Francisco in opposing SB 364,” said Walt Baczkowski, CEO of the San Francisco Association of Realtors. “It’s bad for all San Franciscans and will only make housing affordability and evictions worse. We call on Mayor Lee to focus on rational, local solutions to address San Francisco’s housing affordability crisis.”

SF Housing Groups Challenge Buyout Ordinance in California Supreme Court

A number of housing industry non-profits and organizations filed suit today against the City and County of San Francisco in California Superior Court, challenging the Buyout Agreement ordinance, recently passed by San Francisco’s Board of Supervisors, as unconstitutional.

To learn more about the specifics of the buyout ordinance, please see yesterdays blog post: “San Francisco has adopted a new ordinance regulating Buyout Agreements”

The legislation, sponsored by Supervisors Campos, Avalos, Kim and Mar, was passed by the full Board of Supervisors in late October and becomes effective Saturday, March 7, 2015. The law is being challenged by plaintiffs the San Francisco Apartment Association, the Small Property Owners of San Francisco Institute, the San Francisco Association of Realtors, the Coalition for Better Housing and Norm Larson, a small property owner in San Francisco.

“It is important to note that in the 2004 San Francisco Superior Court case Baba v. Board of Supervisors in San Francisco, the courts found that certain aspects of the Rent Ordinance that regulated communication between landlords and tenants were unconstitutional, and that restrictions on the regulation of speech between property owners and tenants was unlawful. We believe the Court will also overturn the unlawful aspects of this ordinance” said Janan New, Executive Director of the San Francisco Apartment Association.

“In attempting to regulate an agreement between two private parties, the legislation likely violates the First Amendment right to free speech. It provides restrictions, and seeks to punish property owners for exercising a right that every individual has: to enter into a mutually acceptable contract with another person. Additionally, the ordinance conveys a set of rights to one group of people, San Francisco tenants, and denies those same rights to another group, San Francisco property owners,” stated Walt Baczkowski, CEO of the San Francisco Association of Realtors.

“In addition to opening up the City to liability, this legislation presents a procedural quagmire that is nearly impossible for the growing population of monolingual property owners, property owners who speak English as a second language, and property owners who do not have the benefit of an attorney to navigate. The buyout ordinance is so onerous and riddled with procedural requirements that it sets up underrepresented, monolingual and immigrant property owners for procedural noncompliance, and will undoubtedly increase litigation between property owners and tenants. We are at a time and place in our city where we need to encourage cooperation rather than litigation,” said Small Property Owners of SF Institute President Noni Richen.

“Aside from being illegal, the buyout ordinance will only bring harm to both property owners and tenants. In attaching the same restrictions on condominium conversions that apply to buildings that have been Ellis Acted, this legislation propagates unhealthy and wildly inaccurate myths about buyouts, and removes all benefit of a buyout, which helps many tenants put a down payment on a new home. In doing so, the ordinance incentivizes use of the Ellis Act in a way that is contradictory to the City’s housing goals. The unconstitutional restrictions and the unintended consequences of the law are far too great,” warned Brook Turner, Executive Director of the Coalition for Better Housing.

The leading plaintiff organizations hope to continue a recent string of legal victories against the City and County of San Francisco, where a number of housing laws and regulations have been passed by the Board of Supervisors in the past year and a half but have not sustained legal muster. The organizations have recently succeeded in overturning property restrictions prohibiting units from being made bigger or merged to accommodate growing families, and in striking down exorbitant relocation fee payments where Ellis evictions have taken place. The organizations are seeking declaratory and injunctive relief against the Buyout ordinance.

For more details on this new ordinance on SF buyout agreements, click here.

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