A new law is being discussed to assist renters displaced by conversions. The present law requires developers to give renters 90 days’ notice and in some cases, $500 relocation assistance. The new law could require developers to pay tenants up to three months rent, provide longer notice, and ban construction work during the notice period.
Also being discussed is the government capping the number of allowed conversions. Overall, it seems like this discussion is solving a problem that has already runs its course. Nevertheless, giving people long notice, helping them relocate, and making sure they don’t disrupt renters while they’re there sounds reasonable. Capping the number of conversions seems a bit over the top in my opinion.
Read more on the Seattle Times.
The new law will likely reduce the number of small building conversions. In the end the costs to developers will get passed on to the buyers.
By capping the number of conversions, it will only drive up the cost of owned housing as it will reduce supply.
The allocation of allowed conversions then becomes a political tool for our elected politicians to reward their favored developers/supporters.
In the end, most renters aspire to own in the long-term. The pool of the lower priced units will be the first to suffer from the constraint. So in the end, capping conversions will hurt the renters as it reduces supply.
Let the market manage the number of conversions.
Although I have never seen this suggested, I wonder if the concept of “lease-purchase” (as I was familiar with on the east coast) might be incorporated in the scenario of conversions. This way, the developers could sell to existing renters and the renters who would like to purchase would have an agreed upon timeframe to accumulate the necessary funds/mortgage approval while staying in their homes.
For those not familiar with a lease-purchase, it is basically the same as a purchase & sale agreement with an extended closing that incorporates a lease. Between the mutual acceptance and the closing (which can be 1-2 years in some cases), the buyer/renter and seller/developer make an agreement that uses a non-refundable deposit (similar to earnest money) to hold the property until a certain date where the buyer/renter has to either go forward with the purchse or not. If they choose to purchase, the deposit is applied to the purchase price. If they do not purchase, the seller/developer keeps the non-refundable deposit (usually about 5%).
In some cases, an agreement is reached where there is a portion of the rent (over what is considered a fair market rent) that is retained by the seller/developer and used in the same way as the previously mentioned earnest money. Of course, it is very important for the renter/buyer to contact their potential lender at the beginning of this process to ascertain their requirements for this type of loan approval.
This type of agreement can be beneficial to the seller/developer – especially if the timeframe for selling out the project is longer than the timeframe for purchase in the agreement with the renter/buyer.