Condo conversions deplete affordable housing supply

First of a two-part story

Although Minneapolis is experiencing an incredible boom in condo sales, affordable housing advocates and City officials are concerned that rapid and in some cases unregulated condo conversions are displacing tenants, squeezing out affordable housing that is not being replaced, and creating a climate of financial risk for buyers.

“We are losing some of the city’s very valuable affordable housing that is not being replaced,” said Housing Preservation Project (HPP) attorney Christine Geopfert. According to a recent study by Minneapolis-based HousingLink, a total of 54 rental properties were converted to condominiums in 2004, which created 1,064 units within the converted properties.

In 2005, 38 rental properties have been converted to condominiums so far, for a total of 763 units within the converted properties. Three-fourths of the conversions took place in Wards 6, 7, 10 and 13.

“The City has recognized as a goal that more affordable housing units should be created than lost, and the condo conversion issue is undermining that goal,” Geopfert continued. “In 2004, the City created 214 affordable housing units, while we lost 402 affordable units through conversions, with a net loss of 188 affordable housing units in the city.”

Geopfert said that if this trend is left to continue unchecked, it could have undesirable consequences for buyers, tenants, and city development overall. “The cost to replace these affordable housing units is around $197,000 per unit. It is always financially best to preserve existing affordable housing than to spend the necessary resources to replace it,” she said.

“Also, we continue to displace tenants from buildings because conversions do not necessarily lead to affordable housing opportunities in their building. [Existing tenants have a right to purchase their unit, but they cannot always afford to do so and end up having to move.] We have not been able to do some sort of study to find out where everyone is moving, but it is likely that tenants are getting displaced at least from their current neighborhoods, perhaps even from the city, which over time leads to an overall change in the diversity of some of these neighborhoods.”

Buyers are also left vulnerable by the speed and unregulated nature of the conversions, Geopfert added. “You have to remember, these are conversions, not new units. In some cases these buildings are 100 years old. Buyers of these units may not necessarily be aware of the infrastructure needs of the building as whole, because the Truth in Housing Inspections are usually only done for their unit, not for the entire building.

“So, buyers may move in, find out a few months down the road that the building needs a new roof and that they must contribute a share of the costs, and they find themselves in a situation for which they are ill-prepared,” said Geopfert.

“All of the condo owners must pay an association fee, but for a new association, it is unlikely that the fees will have generated enough money in a short time to pay for a major repair. This leads possibly to some buyers facing foreclosure. This is what happened back in the ‘80s during the last condo boom.

“The City is obviously concerned about this happening again. That is why we are proposing to change the way inspections are done for these condo buildings. [Tenth Ward] Council Member Dan Niziolek is currently working on language that will address the Truth in Housing Inspection issue, to be taken up at the next Public Safety and Regulatory Services meeting with a public hearing on December 14.”

Other council members are also taking action to address the problem. At the last council meeting on November 4, Ninth Ward Council Member Gary Schiff introduced a motion to talk about dislocation services for people forced out of buildings designated for condo conversion. Although the motion was defeated 7-6, Schiff said he is confident that it will be passed swiftly and decisively by the new council.

“I know there’s more interest in addressing it in the upcoming council,” Schiff said. “[Incoming Tenth Ward Council Member] Ralph Remington and [Thirteenth Ward Council Member] Betsy Hodges are strongly impacted by condo conversions, so I expect both of them to bring this up in the coming year.”

In addition to disaffecting tenants and buyers, Schiff added that condo conversions could also have a negative impact on real estate and the City‘s plans for revitalizing downtown. “We have 7,000 housing units for sale right now in the Warehouse District and downtown Minneapolis. We are slowing down the development of downtown revitalization when we have unchecked development of condo conversions in South Minneapolis.

“Some of these buildings should just be torn down, and now they’re going to be around for another 60 years. With normal trends in City growth, you would see these buildings demolished and much higher quality buildings being built,” Schiff said.

According to the HousingLink report, the majority of condo conversions are occurring in Linden Hills, Lyndale and CARAG, with southwest neighborhoods including East Harriet, East Calhoun and Whittier also experiencing a high volume. The report noted that “Condo conversions have occurred in the southeast region of the city to a much lesser degree, with the majority of neighborhoods containing 0 to 7 projects [in 2005]. The Powderhorn neighborhood remains an exceptional case, with a level of conversion activity in the 8-12 range.”

Although he said he does not support a full moratorium on condo conversions, as some housing advocates have called for, Mayor R.T. Rybak says that he is calling for a citywide market analysis of numbers and trends to be completed by January so that the new city council can act on the issue soon after they take office.

“One of the challenges with actions here is that it’s difficult to take any action that targets any specific neighborhood, because the needs are very different from neighborhood to neighborhood,” said Rybak.

“For instance, we need more, not less, ownership options in North Minneapolis. We want to be sure that we’re addressing the issue where it’s a problem without stunting growth where we need to be encouraging it,” he continued.

Rybak said that the City is addressing the problem on three fronts. “We’re revising the Truth and Sales Ordinance. Currently, that is required on a condo unit but not for the building. We’re working on changing that. For instance, your roof can be okay, but your mechanical system could be failing.

“We are increasing outreach with both the City Attorney’s Office and the Health Department for tenants and landlords about their rights and responsibilities. There have been cases where it appears that tenants have been put it in situations which they could have avoided had they known their rights.

“Lastly, we are going to collect the data that we’re going to need to do this right. We need to understand what the market is doing. For any of the ordinances we could take, we are required by state law to demonstrate that there is a shortage of affordable housing. We are doing that market study that will be available in early January; we’ll make it public then,” he said.

Rybak takes a more “the glass is half full” approach to the issue, however. “I do think that one of the big solutions is the good news that people want to build condos in the city of Minneapolis. The core issue is that people want to live here. Property values are going up everywhere. But we have to do that in a way that doesn’t penalize or leave out the people who are the least able to accommodate those changes. It’s a complex problem, and one that doesn’t have any easy answers.”