John M. Lee: City Needs More Homeowners

I read with great interest recently about a study that ranks California next to last in the nation in homeownership rates. The state's 57 percent homeownership rate was only higher than the state of New York's rate.

While the national average is just below 70 percent, it is even worse in San Francisco, where only 34.4 percent were homeowners in 2005. That number has decreased from 35 percent in 2000.

With our San Francisco affordability index currently at 9 percent, as reported by the California Association of Realtors, our rate of homeownership might continue to decrease. The affordability index measures the percentage of households that can afford to purchase a median-priced home in the area at the current effective mortgage interest rate (assuming a 20 percent downpayment.)

The homeownership advantages to individuals are well documented. They get tax advantages with the deduction of the mortgage interest and property taxes up to certain limits. Owners get favorable treatment with capital gains taxes being nullified for up to $500,000 if married, and $250,000 for singles. They can realize high appreciation while living in their home. They can also use it as a bank by drawing an equity line or credit against it.

In fact, in San Francisco, if you hold onto a property long-term, you would have done extremely well in appreciation as compared to any other type of investment instruments. More millionaires are made by owning real estate than by any other means.

To society in general, the benefits of homeownership are less tangible. But studies have shown that with more homeowners, neighborhoods become more stable. People move around less and thus become more concerned about the welfare of people living in the area. Economists argue from the standpoint that a bigger financial stake in their homes means owners take better care of their properties and communities, including overseeing environmental concerns.

With our homeownership percentage so low in San Francisco, we are turning more into a transient society, which leads to a number of problems. Our school enrollment is down because many families with children are choosing to leave. We are losing a whole class of population, such as teachers, firemen, policemen and others who cannot afford homes in the City.

With that trend comes economic costs to society as a whole as employers have to hire from outside the City. They pay more for labor and employees have to commute to their jobs. These people take their wages from the City and go spend it elsewhere.

So, what's the solution?

We have tried rent control in an attempt to retain renters in San Francisco since 1979. But the results have been mixed and currently have divided the City into different classes of renters -ones with low rent apartments and others with very high rents.

I think the solution lies in developing more housing to alleviate the supply problem. But with vacant land in San Francisco almost non-existent, our government needs to look for ways to increase moderate-priced housing.

Currently, new developments need to set aside a certain amount of units for low-income housing, but that's far below what is required and makes little impact in the City.

I believe that a fair and sensible answer is to work with renters who want to be owners and with owners who want to sell their properties. This may mean relaxing condo conversion laws, giving renters incentives to purchase their units and owners' incentives to sell them to renters. This might mean tinkering with the TIC rules or legalizing in-law units. This can mean re-zoning certain districts in the City to have higher density.

It is my hope that our City will examine these statistics carefully and work toward increasing our homeownership rate in the coming years.

John M. Lee serves on the SFAR's Board of Directors and specializes in the Richmond and Sunset districts. If you have any real estate questions, call him at (415) 447-6231 or e-mail him at johnlee@isellsf.com.