The Washington Metropolitan area is about to experience an explosion of displaced person -- not from Southeast Asia, but home-grown. They are the tens of thousands of tenants who are being displaced by condominium conversion.
In the recent past, tenants who couldn't or wouldn't buy their apartments could find another place to live -- usually at higher rents and perhaps in less desirable locations. But now conversion has escalated to the point where displaced tenants are finding fewer and fewer options in almost any rental range. The Washington area may face a full-scale housing crisis.
Every apartment unit that is converted to a condominium unit lowers the rent vacancy rate. The Department of Housing and Urban Development guidelines proclaim that if the rent vacancy level falls below 5 percent, a housing crisis exists. The Metropolitan Washington Council of Governments estimates that in Arlington, the rent vacancy level is already 1.2 percent, in Montgomery County 3.1 percent, in Prince George's County 4.6 percent, in Alexandria 3.2 percent, in Falls Church 2.9 percent in the District close to 1 percent, and in Fairfax County 2.8 percent. The overall rental vacancy level is around 3 percent. With increased condo conversion, these figures will get worse. In Arlington alone, 5,800 apartments have been converted to condos -- approximately 13 percent of the county's 44,000 apartment units.
The question is not whether the community should be either "for" or "against" condominiums, but whether they serve the needs of most citizens.
It is reasonably clear that reliance on the federal government to solve the problem is unworkable and naive. It can be argued convincingly that the real culprit in the decreases of rental property is a combination of actions by Congress that removed tax incentives for owning and building rental property and reduced HUD's financial ability to help. But each community can do the job at the local level with some assistance from legislatures in Maryland and Virginia and from D.C. Council. HUD can operate best as the provider of seed money and as a guarantor of low-interest mortgages.
The traditional government response has been enactment of a moratorium on condo conversions, while the local and state laws are tidied up to enable the community to cope. But a moratorium is merely a first step in what should be a more comprehensive strategy, including these steps:
Each jurisdiction should enact laws, or extend the scope and time frame of existing laws, giving tenants faced with condo conversion the right to purchase entire buildings or complexes through established or newly formed tenant-citizen associations.
The District of Columbia and Montgomery County have such laws (and Prince George's County has the power to enact them), but the laws only allow 90 to 150 days for a tenant group to arrange a purchase and all the financing -- an almost impossible limitation. The time limits must be extended to a minimum of six months. Northern Virginia jurisdictions cannot act at all unless the General Assembly allows it. Del. James Almond (D-Arlington) has been working on legislation giving tenants that option. Getting this bill passed is a critical test of whether Northern Virginia legislators are constructively seeking to solve the condo crisis.
Also, new approaches for tenants should be encouraged. In a low-equity, or restricted-equity, cooperative, for instance, the tenants each own a share in a non-profit cooperative housing corporation, which owns their building. In turn, they each rent their apartment from their own corporation. They usually invest a small amount of money to purchase their share, either a month's rent or $100 to $500, and when they sell their share and move out of the building, they receive only what they invested plus the capital improvement of their apartment and a legally fixed percentage per year, much life interest. o
Low-equity cooperatives are like a bridge between rental apartments and condominiums, with some elements of ownership, but without the large down payments and high mortgage costs of condos. Such coops in the Washington area have been successful.
Local jurisdiction should float millions of dollars of tax-free bonds and, with the proceeds, create a revolving, long-term fund to lend money to residents for homes, condominiums or cooperatives at much lower than commercial mortgage interest rates.
Many jurisdictions in other parts of the country have decided to issue such bonds and then lend the proceeds to their own citizens with careful restrictions on the incomes of borrowers and the amounts of the mortgages. Unfortunately, Congress is now attempting to enact legislation to restrict the ability of communities to take advantage of the tax-free nature of such bonds.
Whatever may be said about the quick profits made by condo-converters, the biggest "big boy" in the entire transaction is the county or city government itself. The government reaps an enormous windfall from increased real estate taxes when apartments are converted to condos. While assessments on unprofitable rental units remain static, the assessed value of condo units continues to rise, and the windfall for the governments grows too.
Why not create a "Preserve Arlington Fund" (or a "Preserve Montgomery County Fund") with these windfall funds? That money should be reinvested or reapplied by the local governing body to assist tenants displaced by conversions. The funds could also be used to provide additional rent assistance to tenants so they could meet higher rents.
Montgomery County Executive Charles Gilchrist has led the way in proposing local government initiatives to encourage builders to rehabilitate older rental units or to construct new units. These measures can run from tax abatement at the local level to a restoration by Congress of the tax-shelter incentive that used to be an important part of owning rental real estate.
The local governing bodies should discourage condo conversions that remove structurally sound apartments from the supply of rental housing, and at the same time encourage the construction of new condominium units through positive zoning and land-use policies. As Gilchrist proposes, a local governing body could impose a 4 percent tax on conversions and use the proceeds to assist displaced tenants.
All of these proposals depend on the vision of local elected officials and their determination to act constructively. The danger is that they get so accustomed to the deteriorating condition that few, if any, remember they could have done something to prevent bad from turning to worse.