The housing tragedy that our community faces continues to be a grave reality. I have been an advocate of buying existing rental units, and while the bureaucratic process has caused affordable housing units to cost approximately $800,000 per unit, it doesn’t need to be that way.
If you look at the proformas for affordable housing, you will see bonding costs ratcheted up to cover overhead and a myriad of other soft costs and legal fees that boggle the mind.
The logical idea is to buy existing homes on the open market. Homes have gone from $225,000 to $500,000 per unit. Instead of competing on the open market, San Jose is considering the Community Opportunity to Purchase Program (COPA). Per city summary:
- The proposed COPA would give Qualified Nonprofit Organizations (QNPs) an opportunity to make the first offer to buy rental residential properties before properties are put on the open market, and the right to make a final offer to match terms and conditions of a third-party offer.
- The purpose of COPA is to increase the supply of restricted affordable properties that are owned by mission-oriented nonprofit organizations that would keep them permanently affordable.
According to the city’s COPA webpage, here is the process:
- A building owner would issue a notice that the building is up for sale.
- Notification would go to an existing pool of QNPs that meet the city’s experience criteria for affordable housing development and operations.
- Most buildings up for sale would not receive a letter of intent, and they would market and sell the property as usual.
- One team of a QNP and community-based partner nonprofit could indicate its intent to make an offer by issuing a letter to the seller.
- The QNP would be given a defined number of days to do due diligence and make an offer to the owner.
- If the owner receives an offer from the QNP, the owner would have complete control to accept the offer or reject it.
- If the owner accepts the QNP’s offer, there would be a defined closing timeframe.
- If the owner rejects the QNP’s offer, markets the property on the open market and gets an offer from a private buyer that the owner finds acceptable, the QNP team would have one final chance over a few more days to match the offer.
- If the QNP team does not match the offer, the owner would sell to the private buyer as usual.
Here is a graphic showing the process above:
City staff are looking for any justification for this intrusive and bureaucratic process. In their staff presentation on Oct. 21, they used a story from Multi-Housing News to state that “at least half the deals are never brought to the market.”
Staff used this article to justify their need to do this. They did, however, forget to include the beginning of that sentence from that story, “While there’s no data that tracks whether deals sell off-market.” I thought San Jose was about data, where is the commitment to being at the forefront of data-driven governance and innovation? Or could it be more accurately stated that data will be used when and if it suits the city when convenient? If you need to see proof of this hypocrisy, I recommend you check out the San Jose auditor interactive dashboard.
We don’t need to increase the San Jose Housing Department’s staffing and cause more overhead for the taxpayers while interfering with the multi-family rental market. Nothing precludes the department to contact every multi-family owner to let them know they are interested in their units. The city could even hire brokers that would search out deals, who would do this because they get paid upon a transaction. The brokers would not add to the bottom line of the city.
The focus needs to be on building more units and buying units when available. Let’s move on from this, but the reality is that the city will spin its wheels on this and not focus their energy on real solutions. The Opportunity Housing item showed that common sense and pragmatism is a rare commodity at City Hall.
San José Spotlight columnist Bob Staedler is a principal at Silicon Valley Synergy, a San Jose-based land use and development consulting firm. His columns appear every first Monday of the month. Contact Bob at [email protected] or follow @BobStaedler on Twitter.