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Are Condo Conversions Putting the Squeeze on Renters?

Some city council members say yes, and want Santa Barbara to step in. Others disagree. As a result, an 'inclusionary housing' ordinance is on the table.

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While Santa Barbara’s rental vacancy rate has been low, historically, the median-price for a two-bedroom unit rose last year to its highest level since at least 2002. (Rob Kuznia photo / Noozhawk)

Santa Barbara has long been a nearly impossible place for middle-class families to enter the housing market, but some evidence suggests it’s becoming increasingly difficult for renters as well.

For one thing, the median rate for a two-bedroom rental unit rose disproportionately last year: an 8 percent increase, to $1,950 — the highest jump since at least 2002, according to a city study.

Also, some Santa Barbara City Council members are sounding the alarm on the number of landlords who are converting their rental units into condominiums. In two years, the city has approved roughly 100 conversions. There are 71 more conversions pending.

“This is an alarming number,” said Councilman Das Williams. “One of the most important things we need to do as a city is protect our rental housing and middle-class housing. To do that we need to have less condo conversions.”

Meanwhile, the vacancy rate in Santa Barbara has long been low — just below 3 percent — and few, if any, market-rate rental units are being built, because there is no financial incentive for property owners to do so.

But although most members of the City Council agree that any added strain to the rental market is a shame in a city where home ownership is out of reach for most, they don’t agree on what — if anything — should be done about it.

Council members like Williams, Helene Schneider and Mayor Marty Blum have expressed interest in tightening existing restrictions on condo conversions.

At Tuesday’s meeting, for instance, some council members will argue for what they say is a disincentive to condo-ize rental units: extending the so-called inclusionary housing ordinance to developments under 10 units in size.

To be sure, the ordinance deals with rules for adding middle-class units to the ownership market, not the rental market. But the council members in favor of it say it could benefit renters by dissuading landowners from converting.

The current inclusionary ordinance requires developers of condo complexes of at least 10 units to set aside 15 percent of the units for people with middle-class incomes. The proposal is to extend it to projects with as few as two units. Under the proposal, the developers of such projects would be required to contribute $17,700 per unit to the city’s affordable housing fund.

In any case, other council members don’t think the answer is to impose more restrictions on property owners. Councilwoman Iya Falcone prefers the idea of providing incentives for landowners to keep rental housing. Councilman Dale Francisco outright opposes any measures that would try to limit condo conversions, submitting that such developments are not necessarily a bad thing.

“People are always talking about how hard it is to find affordable housing in Santa Barbara,” said Francisco, who staunchly opposes any inclusionary housing ordinance, and who, like Councilman Grant House, is a renter. “The most affordable housing are condos, and the most affordable condos are apartment conversions.”

It’s difficult to say whether the condo conversions of late have made a dent in Santa Barbara’s robust rental population. For decades, the proportion of city residents who are renters has held pretty steady at around 58 percent. But city officials say that figure comes from the U.S. Census, which was last done in 2000. The percentage may have changed since then.

Some city officials caution against making a nexus between condo conversions and the one-year increase in the median cost of rental units found by the city study.

Paul Casey, the city’s community development director, said one plausible explanation for the bump in market-rate rental prices is increased demand, rather than decreased supply. For instance, he said, perhaps the housing slump created a glut of renters who are reluctant to buy a home somewhere.

“Maybe someone moves to town and is not looking to buy right away,” he said. “Maybe they want to stick around and rent for awhile.”

Still, the phenomenon of condo conversions has already been viewed as enough of a threat for the council to impose some restrictions. For instance, in the months following an uproar two years ago in which a developer converted into condos 10 apartment rentals filled with working-class families at 85 N. La Cumbre Ave., the council passed an ordinance designed to protect renters from such conversions. The “tenant displacement” ordinance requires landlords making such conversions to give the evicted tenants at least four months’ rent.

Now, some council members would like to go further.

In addition to supporting Tuesday’s proposal to extend the housing ordinance, Williams said he would like to lower the cap on the allowable number of condo conversions every year.

As it is, the city allows no more than 50 units of condo conversions that require no construction. (Conversions that do involve construction for some reason are not subject to any cap.)

Blum, meanwhile, said she’d consider revisiting a modified version of an ordinance that once existed in Santa Barbara until it was overturned about 15 years ago: Putting a moratorium on conversions when the vacancy rate dips to a certain level. (The threshold used to be 5 percent, but Blum said that rate would be too “drastic” for developers by today’s standards, since the city is close to build-out and the vacancy rate has long been around 3 percent.)

“Less than 5 percent of the people who live in Santa Barbara can afford to buy here,” she said. “That’s a very, very low number. I know that I probably couldn’t afford to buy here if I were starting over.”

Meanwhile, Falcone is not only wary of the proposals to tighten restrictions, but is beginning to second-guess the wisdom of the inclusionary housing ordinance, which she said has had some unintended consequences.

For instance, she said, the ordinance bears responsibility for the emergence of unpopular buildings such as Paseo Chapala, a large condo development on Chapala Street, which, to pay for its high number of affordable units, created spacious luxury condos.

“I was one of the founding proponents of the inclusionary housing ordinance,” she said. “I’m not sure it’s working. ... What it does is it bloats the building beyond what the zoning allows for.”

Still, Falcone said she is interested in finding ways to preserve the city’s population of renters.

“I think giving people incentives to stay in the rental business is something that deserves a good, hard look,” she said.

Falcone added that she doesn’t yet have any specific proposals in mind. “I just know that punitive measures only go so far.”

Noozhawk staff writer Rob Kuznia can be reached at [email protected]

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