Public Comment

Commentary: Condo Conversions Fee Bad for Landlords

By John Blankenship
Tuesday May 16, 2006

There is 12.5 percent tax proposed on the sale price of duplexes and triplexes for those owners who convert their owner-occupied buildings to condominiums. (The city has rationalized this as a “fee” through something called a “nexus study”—the newest tax strategy, so that the city does not have to take the issue to the voters.) This tax is in addition to the 1.5 percent transfer tax and the 6 percent real estate commissions, and the costs charged by the planning department for the conversions.  

While the conversion of a number of duplexes and triplexes in Berkeley could be a real source of affordable home ownership possibilities and a minor diminution of the rental housing supply, this will probably not be possible with this new ordinance. If people do sell as home owner opportunities, they will almost assuredly sell them as tenants in common which are not subject to control by the city.  

At the City Council meeting today (Tuesday), the council will likely formalize an ordinance on condominium conversions that will tax so highly the owners of duplexes and triplexes that they among others, will probably choose not to sell as condominiums. Many, like myself, have bought these buildings as the only way we middle- and lower-middle income residents could afford to live in Berkeley—by having some income from our buildings. Unfortunately, the improvements on my building have become so expensive that I will have to sell one unit in order to keep my own unit and then it is questionable whether the taxes will force me to sell the other. 

It was while visiting the Planning Department last September with regard to the details of my building improvements, that I first heard about the new ordinance (staff I am told has since been asked not to discuss this ordinance at the counter because it is being revised). It seems a $50,000 to $70,000 tax was not seen as significant enough to notify potentially affected tax paying property owners. There is much concern, however, about notifying renters of potential conversions—this too is important, but where is the balance?  

Since then I have been bird-dogging this ordinance, speaking to all but one councilmember, some two and three times, and going to most of the Housing Advisory Committee meetings. I have been trying to learn about the process by which this came about, to make sure there was a public notification of this ordinance and a public workshop on the complex issues involved. What instead has happened is three or four postponements of the Workshop until at last the housing director, the author of the ordinance, ended up with a date with “no available workshop slot” in which extended public opinion could be heard, and an agenda that is so packed with important issues, that a thoughtful hearing is highly unlikely.  

The Housing Advisory Commission (HAC) was the reputed source of this ordinance. The commission in large part shares the same ideology as Dr. Barton with two or three major exceptions, so his suggestions are often just rubber stamped by HAC. They look to and frequently ask him for direction, rather than asking their constituents. I was on several occasions the only citizen present. Dr. Barton while setting Berkeley housing policy, has chosen to live in El Cerrito, Contra Costa County, where he is isolated from the tax consequences of his decisions. His latest 22-page treatise, called “Background Information on the Condominium Conversion Ordinance”—part of the May 16 agenda attachments, is a must read for anyone interested in the ideological basis of the Commission and the Berkeley Housing Department. More disturbing have been the attempts to manipulate the minutes and the agenda of these meetings to try to avoid a Condo Conversion Commissioner’s Workshop at HAC. Since the minutes are published by the housing staff, it is only with an extremely vigilant Michael St. John and Marie Bowman that most funny business has been avoided and the truth has come out. (This is not to denigrate the insight brought to bear by Jesse Arreguin and some other commissioners who share Steve Barton’s stance.) Most notably absent at these meetings—is public input, and the lack thereof seems more of a relief than and an interest. 

The lack of public input into the formation of this ordinance and its subsequent modifications has been most strongly stated by Darryl Moore. He was the only one with whom I spoke that thought this ordinance should not go forward without a more careful hearing, but Laurie Capitelli, Gordon Wozniak, and Betty Olds seem to support a more inclusive process as well. For most the driving rationale for the passage of this ordinance has been the need to get money into the Affordable Housing Trust Fund which has been decimated by overspending. Why there is overspending is unclear, but one problem appears to be the lack of clearly defined numerical goals for affordable rental housing that the city subsidizes. The demand for affordable rental housing with our large student population is obviously a bottomless pit. (The only mandate that the Housing Department currently has is for affordable rental housing. “Ownership” is seen as de facto, unaffordable, even though other cities in California have programs to bring as many people into ownership positions as possible.) Berkeley is creating a divided city of homeowners who pay the property taxes and renters who have the numerical power to pass ordinances. If we are really concerned about diversity in this city, we should be concerned also about programs for different economic levels of home ownership as well as affordable rentals—with numerical goals and limits of spending on both.  

With home ownership in Berkeley at about 40 percent, there is a need for affordable ownership opportunities which this ordinance could help ameliorate. The ordinance as it is currently written will only exacerbate disparity, making condominiums all that much more expensive. By allowing conversion to condominiums in smaller buildings without the fees, the city would still be bringing in transfer tax revenues and increases in assessed property values, but simultaneously it could help current Berkeley renters move into ownership positions: market rate and potentially subsidized through the Affordable Housing Trust Fund. If these smaller buildings are not granted conversion exception, those who want will simply sell them as tenants-in-common. The city has much to gained in the clearer title of condominiums as well as money from HUD through their incentive programs.  

The inclusionary housing element of the current ordinances has generated more affordable rentals subsidized by the developers, the university has built more units, and private developers have built more market rate rental units, but there has not a comparable increase in affordable ownership possibilities.  

In short, the City Council should not pass this ordinance in its current form. This ordinance needs much more work before it sees the light of day. Let’s make Berkeley a city in which its inhabitants have a financial stake in the city, as well as a say in the city—it will lead to more economically sound policy, a benefit to all.  


John Blankenship is a Berkeley homeowner.