BILL ANALYSIS
SENATE TRANSPORTATION & HOUSING COMMITTEE BILL NO: SB 454
SENATOR ALAN LOWENTHAL, CHAIRMAN AUTHOR: Lowenthal
VERSION: 12/17/09
Analysis by: Mark Stivers FISCAL: yes
Hearing date: January 12, 2010
SUBJECT:
Preservation of existing affordable housing
DESCRIPTION:
This bill deletes the sunset date on three sections of law
requiring the owners of affordable housing to provide notice to
tenants and governmental entities before converting a property
to market rate and giving a limited priority to preservation
purchasers in the event the owner wishes to sell.
ANALYSIS:
Since the 1960s, developers have constructed at least 425,000
units of affordable rental housing in California with the
assistance of federal, state, and local subsidies that require
owners to maintain rents at affordable levels for specified
periods of time. Examples of such subsidy programs include
project-based Section 8, Federal Housing Administration (FHA)
mortgages, low-income housing tax credits, the state's
Multifamily Housing and Farmworker Housing Grant Programs, and
city and county redevelopment funds. The affordability
restrictions on assisted units typically last 30 to 55 years,
depending on the program. Once affordability obligations
expire, owners may preserve the affordability of the units by
renewing assistance or by refinancing with new public subsidies,
or they may convert the development to market rate. Under some
federal programs, owners can also terminate affordability
restrictions early by prepaying the underlying mortgage or
opting out of the rental assistance contract. According to the
state-chartered California Housing Partnership Corporation,
California has already lost more than 20,000 units of housing
affordable to low-income households to such market rate
conversions, and 82,000 more units are considered "at risk" of
conversion in the next five years.
Notice requirements
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Existing law requires that a property owner cannot convert an
affordable property to market rate without first providing
notice to tenants, local and state governments, and potential
preservation purchasers (i.e., those who may wish to purchase
the development in order to preserve the affordability
restrictions). The owner must provide a first notice at least
12 months prior to conversion informing recipients of the
possibility that the development will convert, that
affordability restrictions may be lost, whether other
governmental assistance will be available to tenants at the time
of conversion, and that the owner will provide more detailed
information at least six months prior to conversion. An owner
may satisfy this 12-month notice requirement by providing
recipients with a federally-required notice.
At least six months prior to conversion, the owner must then
provide these same recipients with a second, more detailed
notice that includes:
The anticipated date of conversion.
The current rent and the anticipated rental rate for the first
year after conversion.
A statement of the owner's intention to participate in any
replacement subsidy program.
Contact information for the local government, the state
Department of Housing and Community Development (HCD), and
legal services organizations for tenants to obtain more
information about their rights.
In addition, the owner must provide HCD and the local government
with information on the number of affected units, bedrooms, and
tenants and on the ages and incomes of these tenants.
Priority for preservation purchasers
During this one-year notice period, current law also provides
preservation purchasers with limited priority to purchase the
property if the owner is inclined to sell. Prior to or
concurrent with the delivery of the 12-month notice described
above, the owner must notify prospective preservation purchasers
who have contacted the owner directly or who are on a list
maintained by HCD of the opportunity to submit a purchase offer.
The owner is not required to accept any offer but may only
accept offers from preservation purchasers for 180 days after
the purchase offer notice. If the owner rejects a purchase
SB 454 (LOWENTHAL) Page 3
offer during this time, the owner must give the preservation
purchaser who made the offer an opportunity to match and preempt
any offer from a non-preservation purchaser accepted during the
second 180 days after the purchase offer notice. These
requirements and priorities also apply if an owner seeks to sell
or otherwise dispose of a property that is eligible for
conversion in the next five years.
In general, an owner is exempt from both the notice requirements
and priority purchase provisions if he or she or a successor
owner agrees to retain existing tenants and extend the
affordability of the units for at least 30 years.
Both the notice requirements and priority purchase provisions
sunset on January 1, 2011.
This bill deletes the sunset date on, and thereby makes
permanent, these notice requirements and the priority purchase
provisions.
COMMENTS:
1.Purpose of the bill . According to the author, California has
a dire shortage of affordable rental housing and faces the
prospect of losing much of its existing stock as current
affordability terms expire. Replacing lost affordable housing
is much more expensive than preserving the affordability of
existing units. By giving local governments and affordable
housing developers both time and the opportunity to develop
and execute a preservation strategy when a particular property
is eligible for conversion, the current notice requirements
and priority purchase provisions are the centerpiece of the
state's preservation strategy. Equally important, the notice
requirement ensures that tenants are informed of how they will
be affected if the property does in fact convert to market
rate. These provisions have proven beneficial in preserving
existing affordable housing and have not raised concerns among
affordable housing owners. Eliminating the sunset will ensure
that the state, local governments, and affordable housing
developers will have both the information and the opportunity
to preserve current and future projects when they become
eligible to convert to market-rate housing.
2.A delicate balance . The current notice and priority purchase
provisions are the result of negotiations between tenant
advocates and both for-profit and non-profit affordable
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housing owners and developers. They represent a balance
between the rights of property owners, the rights of tenants,
and the public interest. In order to develop their
properties, owners of affordable housing received some form of
public subsidy and committed to maintain affordability on that
housing for some period of time. In recognition of this
public subsidy that made the development possible, current law
asks owners to give notice and priority for preservation when
exiting subsidy programs. At the same time, the law does not
obligate the owner to sell and maintains the owner's right to
convert the units to market rate rentals when the
affordability covenants expire.
3.Eliminating the sunset . The Legislature first enacted the
priority purchase provisions in 1990 and the notice
requirements in 1998, subject to sunset clauses. In 2000, the
Legislature extended the sunset on each section for an
additional ten years. Because developers have constructed
affordable housing developments on a rolling basis over many
decades and continue to do so today, the preservation issue
will exist into the long-term foreseeable future. Given the
on-going need, the proven benefits, and the lack of
controversy, it makes sense to eliminate the sunset clauses
and extend these statutes permanently.
POSITIONS: (Communicated to the Committee before noon on
Wednesday,
January 6, 2010)
SUPPORT: California Coalition for Rural Housing (sponsor)
California Rural Legal Assistance Foundation
(sponsor)
California Housing Partnership Corporation
Western Center on Law and Poverty
OPPOSED: None received.