Did you know that San Francisco limits the number of rental units that can be converted to condominiums each year? These measures were put in place as a direct response to the housing crisis that, even in the 1990s, was seriously limiting the opportunities for new growth to counteract urban sprawl. The process has been convoluted, intricate, and somewhat contentious. It’s not something that’s well understood by the general public, and it’s our job as top San Francisco real estate agents to discuss important issues like the San Francisco condo lottery.
Please note, while we’re considering this an overview, the San Francisco condo conversion lottery touches on several different areas of law and policy, so if you’re in need of practical advice (if you’re looking to buy, or convert a condo yourself) we seriously suggest you reach out to one of our San Francisco real estate experts for a proper consultation.
In short, condo conversion is regulated in an attempt to balance two major competing priorities. Lots of people want to live in San Francisco and there just isn’t a lot of floor space. In order to keep rental prices from being even higher than they already are, there’s a good deal of top-down regulation put on the rental market, and it’s in the best interests of the city in general to have a variety of rental properties available.
Condos, however, are not subject to those pricing limitations, so an enterprising building owner could make a lot of profit very quickly from converting a rental property to condos and charging much more for them than their rental revenue might have allowed.
The system is designed to regulate the number and frequency and type of new condos being converted, as a way of making up for the fact that there are no real restrictions on the sales market itself.
The condo conversions are handled by an annual lottery. The San Francisco condo lottery is held some time in the first quarter of the year, with tickets costing $250 apiece. Tickets are sold for a two-month period, which generally ends about a fortnight before the draw itself. 200 units are eligible for conversion each year.
Note that this refers to 200 units, not buildings. In practice, given the average number of units per building, the number of multi-dwelling buildings getting converted is around 60.
The San Francisco condo lottery determines eligibility to convert. Once an applicant has been deemed eligible, the actual conversion process is regulated by a number of other municipal departments, which review the legal status of the units, the zoning, and so on. The actual conversion process takes about six months to a year, broadly speaking, though recent changes to the process have shortened that average somewhat.
The condo lottery isn’t totally random. Applicants are drawn from two pools, such that half the units are drawn randomly, but the other half are drawn from a pool of only those applicants who have not been drawn from the lottery in at least three previous years. This gives considerable weight to those applicants who have been applying for longer, such that the lottery factors in an approximation of the more conventional wait-time for a government application.
This way, there can be no special treatment given to certain applicants over others, but it does help ensure that no potential developer will have to wait too long. It’s a good system, but it does stand to benefit from some improvements.
As of 2013, the San Francisco condo lottery is in abeyance. It will resume around 2025, at least according to the current plan. This has pros and cons. On one hand, the vast majority of the buildings that had previously been in the lottery will have been converted under the Expedited Conversion Program.
On the other hand, by that time, we can expect to see a formidable pool of new potential conversions ready to take their chances in the lottery, so the odds of any single building making the cut will be lower. That’s one of the problems that the city is working to solve, during the suspension.
The San Francisco condo lottery is one attempt, among many, for trying to keep the San Francisco real estate market fair, open, and competitive. It has served its function very well, but there are good reasons behind its interim suspension. Over the next few years, the precise form and nature the lottery will take will be shaped, in large part, by the changing dynamic of the real estate market itself.
Are you in the market for a new condo, or would a single family home be a better investment? Reach out and give Danielle Lazier + Associates a call, to find out how you can take your next step in the San Francisco real estate market, maximizing your investment, and preparing for your financial future.
