CITY OF INNOVATION: SAN FRANCISCO
A thriving city relies on the presence of affordable, entry-level homes to draw in upwardly mobile residents. Without such housing options, a city risks losing its economic vibrancy and descending into decline. While new construction traditionally caters to first-time homeowners, it's insufficient to meet the overwhelming demand for market-rate housing in the Bay Area and beyond. Condo conversion emerges as a vital solution to alleviate the severe housing shortage. Much like currency, housing must circulate and change hands to remain effective.
Exorbitantly-priced housing is making it increasingly difficult for anyone other than a narrow elite to live and work in our cities. The problem is only likely to get worse: Two million more people are projected to move into the Bay Area over the next 20 years, according to the San Francisco Planning and Urban Renewal Association.
The median sales price of a home in San Francisco is $1.27 million and the median rent is $3,290— both the highest in the nation according to Zillow. San Francisco is a city dominated by renters and historically two-thirds of households are renters. How did we get here and where are we heading?
Below is an overview of the historical, past, present, and future landscape of home and business property co-ownership in the Bay Area and beyond.
PAST
Property co-ownership is rooted in historical legal traditions, with Old English common law permitting multiple owners on a title, and communal ownership dating back to medieval times. Fractional ownership of dwellings originated in France during the 13th century and is now widespread across Europe.
In the United States, homeownership has historically been regarded as a fundamental aspect of the American Dream. Over the past century, concerted efforts from the federal government, financial institutions, and the real estate industry have been aimed at promoting homeownership. These efforts included initiatives such as subsidized mortgages, loan guarantees, and various incentives. By 1950, the majority of Americans—more than half—were homeowners, and this percentage continued to rise steadily each year.
However, as the demand for housing surged, so did prices, making homeownership increasingly unattainable for many. In response to this challenge, condominiums emerged in the early 1960s as a more affordable alternative to traditional homeownership, offering a pathway to realize the American Dream. The popularity of condominiums received a significant boost with the passage of the Housing Act of 1961. This legislation marked a milestone as it permitted the Federal Housing Administration to provide mortgage backing for condominiums, thereby expanding access to financing for this housing option.
The momentum behind condo construction was further propelled by the implementation of state "horizontal property" acts, commonly known as condominium enabling laws. These regulations acknowledged that ownership of space between vertical walls at horizontal levels above the ground constitutes real estate ownership for various legal purposes, including property taxes, recording deeds and liens, and other aspects of property ownership. Additionally, these laws served to prohibit discrimination against condominium ownership within zoning regulations. For instance, if a zoning ordinance allows for four-unit homes in a specific district, it cannot preclude a four-unit building solely on the basis of being a condominium rather than held under a single title.
The emergence of condominiums in the 1960s, alongside the subsequent rise in condo conversions, broadened the scope of homeownership opportunities in San Francisco and other urban centers across the United States. Prior to this, residents primarily had two feasible housing choices: purchasing a standalone house or leasing an apartment. However, the absence of alternative options spurred demand for a third alternative — ownership of an "apartment" within a multi-unit condominium structure.
In 1979, San Francisco took a significant step to enhance homeownership by permitting the conversion of existing rental units into condominiums. This move was further amplified in the 1980s with the advent of Tenants-in-Common (TICs), offering residents unable to afford single-family homes or traditional condos the chance to partake in shared ownership of multi-unit buildings. To regulate this process, the city introduced a lottery system, enabling a controlled number of units to undergo conversion into condos annually.
In 2013, grappling with a mounting backlog of conversion applications, San Francisco made a pivotal decision to suspend the lottery system temporarily. Instead, it implemented the Expedited Conversion Program (ECP) aimed at streamlining the application process for condo conversions. However, the ECP came to an end on January 20, 2020, leaving most conversion projects in limbo until the potential reinstatement of the lottery system after 2024.
However, many other cities have adopted less stringent regulations and are open to accepting applications for conversion.
PRESENT
Despite the introduction of condominiums and TICs, the high cost of housing in the Bay Area has prevented many residents from realizing the dream of homeownership. Rents in San Francisco have increased more than 75 percent over the past decade, forcing many working-class families to abandon the city. Although rents have fallen sharply since the onset of the COVID-19 pandemic in March 2020, housing affordability is still a major issue in the region, especially for those seeking to realize the American Dream of homeownership. That’s because, while rents have declined significantly, the costs of buying a single-family home or a condominium have continued to rise.
The escalating cost of housing has heightened the urgency for innovative solutions to address the housing crisis. Condo conversion stands out as a cost-effective strategy to bolster the supply of market-rate housing. Despite being legally permissible in nearly every community in the Bay Area and beyond, this avenue to homeownership is frequently overlooked. Many individuals are either unaware of it or deterred by the perceived complexities associated with the conversion process.
In 2013, WHITE TIGER introduced a major innovation in the condo conversion process in San Francisco — Fast Track Condo Conversion™ (FTCC) — a proprietary program and system that ties the entire conversion process together into one streamlined, comprehensive service. FTCC is designed to create a win/win/win situation for property owners, buyers, and renters (who get first priority and the opportunity to purchase their unit) while reducing both the time and cost of converting. FTCC is helping more people realize the dream of homeownership while at the same time strengthening communities.
It's noteworthy that the number of renters has surged to unprecedented levels in recent decades, marking a significant shift in housing dynamics. San Francisco, in particular, stands out as a city where renters constitute a dominant demographic, with roughly two-thirds of households being renters. This trend reflects a broader transition across California and the entire United States towards a majority "renter" population, indicative of a growing trend towards a "renters" nation.
Condo conversions serve as a counterbalance to this trend and champion the timeless American dream of homeownership. With housing affordability reaching critical levels in the Bay Area and nationwide, condo conversions are gaining traction as a viable solution, appealing to both smaller communities and major urban centers. In light of this demand, WHITE TIGER is extending its pioneering FTCC real estate program to additional communities across the Bay Area and beyond, addressing the pressing need for accessible homeownership options.
FUTURE
The United Nations forecasts that by 2050, the global population will soar to 9.8 billion individuals, with approximately 70% expected to reside in urban centers. This trend highlights the ongoing urbanization phenomenon, underscoring the increasing concentration of people in cities worldwide.
Today, there are 74% more renters than there were in 1960. Over two generations, the real estate market has shifted seismically, from changing tastes to economic collapses and global pandemics. Despite the economic toll on our cities caused by the COVID-19 pandemic — with office buildings emptied, shops and restaurants shuttered, and residents relocating to communities offering more space and a lower cost of living — most experts believe that urban centers will bounce back quickly once the pandemic is snuffed out and that the long-term prospects of our cities centers are as bright as ever. Young creatives will continue to be drawn to cities by cultural amenities like restaurants and museums and by opportunities to meet and socialize — and businesses will continue to maintain offices in urban centers to promote collaboration and creativity.
A recent report by the World Economic Forum discusses the four important pillars of real estate and rethinking our approach to buildings and urban life, “transforming buildings and cities to be more liveable, sustainable, resilient, and affordable. Buildings and cities are vital to societies and economies." Condo conversions will play an important role in this transformation by reshaping the real estate landscape in the Bay Area and around the country.
San Francisco holds the 27th position on the Global Power City Index (GPCI), a ranking system that evaluates major cities based on their overall attractiveness in terms of drawing people, capital, and enterprises from around the world. Despite its considerable appeal, San Francisco's ranking might have been even higher were it not for its housing affordability crisis. This challenge underscores the pressing need for innovative housing solutions in the city.
As the corporate headquarters of Uber, Lyft, Airbnb, Apple, Facebook, Google, Salesforce, Pixar, Lucas Films, and other prominent Fortune 500 companies, the Bay Area stands as a leader in the "sharing economy," often dubbed the Fourth Industrial Revolution. In this paradigm, ownership yields access, sellers and buyers are supplanted by providers and users, social capital gains parity with market capital, and sustainability reshapes consumerism. Embracing the principles of the sharing economy, alongside the concept of "sharing cities," fosters citizen engagement and collaboration at the grassroots level, thereby fortifying trust between municipalities and their residents.
The rapid evolution in how we work, live, play, and shop is revolutionizing traditional business paradigms and holds promise for enhancing the quality of life for everyone. This new landscape, coupled with the sharing economy, is compelling outdated industries to reimagine themselves and revitalize our communities.
The WHITE TIGER Fast Track Condo Conversion Program™ is strategically positioned to leverage this innovative economic conversion model, making housing and property co-ownership more affordable, manageable, and accessible to a broader demographic. Jen Chan carefully crafted FTCC to be a versatile and scalable model, adaptable to nearly every community in the Bay Area and beyond, offering opportunities for implementation in cities across the nation and globally.
WHITE TIGER is dedicated to establishing FTCC as the benchmark for condo conversion nationwide.