September 12, 2006 > Chimera
Ancient myths often offer life lessons, many using creatures composed of unlikely pairings in an attempt to explain natural surroundings and human behavior. For instance, the combination of a human head and lion body creates a sphinx; use a bird's torso with a human head and a siren results while join with a fish and voila, a mermaid. Another strange and dangerous creature, the chimera, is composed of three unlikely companions - a lion, a goat and a snake. Its ungainly appearance belies the ferocious nature of this beast which terrorized all within its reach until slain by hero Bellerophon riding his winged horse Pegasus.
This week, the Fremont city council will face a chimera of a different type. They again will consider a revision of the residential condominium conversion ordinance. While the argument in favor of allowing more of these real estate hybrids is tempting, the potential for displacement is significant. Just as the almost comical appearance of a chimera may be misleading, condominium conversions can breathe a fire that will burn those struggling to put a roof over their head in a land gone mad with insane housing prices. While each part of this creature may have positive qualities, the combination must be handled carefully or it will wreck havoc on the land. Since Bellerophon is long gone, we must rely on our city council for protection - uh oh!
Those facing a possible "conversion" of property at Besaro Mobile Home Park know first-hand what the term means while others struggling to maintain a "piece of the pie" in this beautiful area may face a shattered foundation of their apartment home life. Residents can face forced eviction when an apartment owner decides it is time to cash in rather than stick around for repairs hovering on the horizon. Developers view these bite-size units with envy since they can attract moderate income folks with paltry $100,000 incomes to buy rather than rent. Of course there are those who will want to buy rather than rent and equity is a powerful argument. The question is one of balance. Here is where the city needs to make sure all constituencies are protected. Earlier this year (June 14, 2006, The housing game), I wrote about the pitfalls of conversion mania. It is reprinted below:
Renting is the answer both for those who choose to avoid the responsibilities and labors of ownership and families without the means to purchase exorbitantly priced homes. Many in the housing industry tout condominiums as a solution to the cost dilemma faced by potential homebuyers. Owning only the inside walls and spaces of a home (i.e. apartment) is considered a low cost approach for buyers without substantial financial resources. Joining this chorus are apartment owners with older units in need of capital investment. Conversion from rental income to a much larger one-time income from sale can be an extremely profitable way out of property in decline.
Any good corporate raider knows that great financial rewards await those who can successfully separate a whole into pieces, selling each at a premium. Someone who holds property in need of repairs and upgrades can make much more money and relieve themselves of further property maintenance through "condominium conversion." Each apartment unit becomes a sale and new "owners" collectively assume responsibility for common maintenance and liability.
For buyers, balancing equity considerations with the cost and pitfalls of sharing ownership and maintenance responsibilities can be difficult to assess. Furthermore, trading a "low" rent of $1,000 per month for a two-bedroom apartment for a substantial down payment and well over $2,000 per month mortgage and insurance for a studio condominium is not feasible for many. Problems are often minimized in a rush to perceived profit. In some cases, if conversion is done well and buyers are properly informed, a condominium purchase will make sense, but a remaining issue is the welfare of those who depend on existing rental space for shelter.
While rental property owners may debate the wisdom and financial gain of condominium conversion for their property, cities have a different problem to resolve. In some cases, building codes have changed and older apartment complexes may not qualify for conversion without a "variance," allowing substandard units on the market. Government entities have also worked toward maintaining a balance between rental and for-sale housing for a variety of family incomes. What happens when rental units are removed from the market in favor of for sale units still priced beyond the means of many?
If a simple mathematical calculation (i.e. percentage of rental units or vacancies) is used to determine the feasibility of allowing such conversions, new and more expensive rental properties in the mix may signal an unacceptable increase of average rental rates. Displaced renters may have little or no choice when searching for replacement housing; they are priced out of the market.
In Roughing It, Mark Twain said that "all that glitters is not gold." He went on to say:
"So I learned then, once for all, that gold in its native state is but dull, unornamental stuff, and that only lowborn metals excite the admiration of the ignorant with an ostentatious glitter. However, like the rest of the world, I still go on underrating men of gold and glorifying men of mica. Commonplace human nature cannot rise above that."
In the coming months, when planning commissions and city councils are confronted with housing pressures and condominium conversion actions, will they be men and women of gold or mica?