☆ Expert opinion on SJ's COPA proposal: "Not sound policy"

Are nonprofits better than private developers at meeting the needs of San Jose residents? Market Urbanism Report's Scott Beyer does a deep dive into COPA's history and specifics; he concludes it's a misguided, cost-increasing approach to addressing legitimate affordability and displacement concerns, in this Opp Now exclusive.

Do you want affordable housing in San Jose? It may be easier to build a time machine.

But that’s impossible, so local activists are crafting a new way to preserve affordable housing: the Community Opportunity to Purchase Act (COPA). It’s been tried in San Francisco and is being proposed for San Jose. We'll weigh the pluses and minuses. 

COPA aims to make housing more affordable by giving “a qualified nonprofit buyer the right to make a first offer on a residential property.” This would prevent displacement of low-income renters, as nonprofits keep buildings “affordable in perpetuity.” 

When owners decide to sell, they must alert nonprofits first. Then they deal with a series of offers and counter-offers from the nonprofit, which they can either accept or reject.

Programs like COPA already exist in Washington, DC and San Francisco. In 1980, DC enacted the Tenant Opportunity to Purchase Act, or TOPA. It gave tenants the first chance to purchase properties. A report found that between 2002 and 2013, TOPA helped preserve nearly 1,400 units of affordable housing. San Francisco’s COPA began in 2019 and helped one nonprofit, San Francisco Community Land Trust, purchase a 40-unit building for $9.4 million and keep rental prices low for tenants.

These TOPA/COPA examples have activists nationwide excited about bringing it to their cities, including New York, Detroit, and San Jose.

And COPA was indeed an issue in SJ's most recent election. Newly-elected mayor Matt Mahan opposes COPA because it’s too bureaucratic and doesn’t have proper funding. Some councilmembers signed a memorandum recommending the city explore it; but one of them, Dev Davis, has since told Opportunity Now she opposes it. “COPA will do nothing to encourage housing supply. Making property transfers take longer increases the cost of each transaction and discourages additional housing supply.”

These leaders are right in hesitating to support COPA, and the reason is echoed by landlords themselves. Seigi Tadokoro, a small property owner in San Jose, called the right of first refusal in COPA “political bullying.” It prevents owners from getting the best listing or all-cash offers. Nonprofits have “no incentive to move transaction quickly since the delay cost is all on the seller and not on the buyer,” he notes.

To elaborate on Tadokoro’s point: COPA would increase the “carrying costs” and “opportunity costs” associated with San Jose real estate. Both costs are already heavily baked into real estate transactions to begin with.

Carrying costs in real estate refer to the costs of property ownership, whether it’s taxes, insurance, interest, etc. Even when owners list properties for sale, they pay carrying costs whether or not the property’s still being rented. According to Zillow, the average sale and closing period for a home is 55–70 days. Sellers must pay what is usually 3–4 figures in carrying costs over that span; if COPA were to delay that sales period, the carrying costs would be even higher for property sellers in San Jose.

Opportunity costs in real estate are a fancy way of saying “missed chances.” They’re the costs incurred from following one course of action rather than another, more lucrative one. COPA would almost certainly plague property owners with opportunity costs, especially given that San Jose is a hot, hyper-liquid market. The prospect of having to entertain bids and counter-bids from nonprofits means sellers will miss out on lucrative all-cash deals or offers from institutional syndicated capital. It doesn’t help that the nonprofits don’t even have to have the financing; this will cause deals to fall apart and the landlord to get nothing. Since the housing market’s so volatile, the property could end up losing value during this waiting period. 

Another objection beyond these technical ones is philosophical. Lan Bui, who owns a small rental property in San Jose, complains that COPA turns property owners into criminals just for advertising their property for sale. “The communist government in my home country Viet Nam stole our property from us,” says Bui. “Now I see the same violation of rights happening in San Jose.”

Comparing COPA to communism might be extreme — but not by much. In 2008, DC took TOPA one step further and created DOTA, District Opportunity to Purchase Act. The law allows the District the first opportunity to purchase affordable housing. The goal, it seems, is to shift rental housing provision from the private to public sector — void of any proof that the public sector will better manage it. Even with the more moderate law being proposed in San Jose, the implied message is that property owners can't really use their property as they wish.

Beyond these technical or philosophical points is the debate of whether COPA would effectively produce affordable housing. It might help preserve it in select places and allow experimentation in cooperative and other nonprofit housing provision models (although the moderate results elsewhere don’t imply it’ll be any watershed).

But the larger impact will be to discourage overall home production. Developers and landlords already deal with a regulatory soup when building and managing rental housing in California. This added regulation in San Jose, which comes with all the costs described above, could discourage them from entering the market altogether, thus cooling citywide production. It's worth noting that the two other cities with COPA-style regulations — DC and San Francisco — have huge affordable home crises. COPA isn't solely to blame, but nor has it moved the needle positively, either.

San Jose needs more housing. It will get that through laws that encourage housing producers to enter the city, not ones that hit them with more costs. COPA would do the latter, and therefore is not sound policy.

This article featured additional reporting from Market Urbanism Report content staffer Rebecca Lau.

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Image by Shankar S