Small Property Owner Rips SJ Housing Dept’s Misconceived COPA Program

Negotiations continue about a bizarre, proposed city regulation that would privilege nonprofit buyers in the local housing market (COPA). But local small housing provider Dean Hotop provides a bracing analysis which suggests that the curious proposal would likely defeat its stated purpose, and in fact make local housing even more expensive and unaffordable.

Five Reasons to Oppose COPA (Or Maybe Not??)

by Dean Hotop

#1: It's Absolutely, Positively Unnecessary
There are absolutely zero existing barriers preventing a non-profit organization from making an open market offer on a for-sale multifamily property today – none! There is also nothing stopping them from making an unsolicited offer to the owner of an unlisted property either – absolutely, positively nothing!
They are free to operate in the free market, just like any other purchaser of property.

We can even go one step further, if COPA’s purpose is to create a greater good, or benefit, for all of SJ (if not, why pass it?), then there is another way to accomplish the same thing. The City has the power of eminent domain to force the sale of properties, at full market value, to non-profits. (Note: See SCOTUS ruling in Kelo v City of New London) Start with the properties which generate the highest workload for Code Enforcement and kill two birds with one stone!

There is nothing in the SJ Housing Department’s proposal which counters this or supports an alternate thesis. COPA is simply unnecessary to further the goals of creating affordable housing, under the guise of converting existing housing to deed-restricted, low-income housing

#2: COPA is NOT Creating New Affordable Housing
COPA does neither of the following: a) create new housing, b) create net affordable housing. No new housing will be built and while it will make existing housing more affordable for some, it will simultaneously make other existing housing LESS affordable for others.

COPA converts existing market rate housing, available to anyone/anytime and converts it into low-income housing, forever. There are approximately 39,000 class C apartment (rent-controlled) units in SJ, available at rates 20-30% below Class A units. Young, middle-class renters who want a nice place to live, but don’t need the expensive class A amenities, often wisely choose class C properties as they toil away and save for homeownership. Converting these units to deed-restricted, low-income units will disqualify those renters, reducing the number of units available and forcing them into expensive class A units, eroding their ability to save for eventual home ownership.

COPA is good for some renters and terrible for others. This is creating a greater class divide and that should not be the objective of those who spend taxpayer funds.

#3: This is NOT What Taxpayers Wanted
Speaking of taxpayer funds…. Local taxpayers voted for Measure E in SJ and Measure A in Santa Clara County to create affordable housing, solve the homeless crisis and create a cleaner, safer, better housing environment for all. They did not vote to have their hard-earned money taken to simply transfer ownership of existing housing units from one entity to another. COPA does not give taxpayers a return on their investment, it just helps out well-connected NPO Directors by giving them more assets under management, larger staffs, larger budgets and a larger Director salary – all on the taxpayer’s dime. No wonder it’s a natural career path for former housing department employees! COPA is a grift and that is NOT what taxpayers voted for. They voted for results! COPA does not deliver.

#4: COPA Creates a Long-Term Tax Revenue Problem
When a NPO takes ownership of a property, that property becomes exempt from paying property taxes (and a host of other city fees, to boot!). Twenty years from now, maybe even 10 years, we will see the compounding effect of these lost revenues as hundreds or thousands of housing units no longer generate property tax revenues for the county, schools & the City of San Jose. We will lose that compounding annual 2% increase in base value ALONG with the dramatic step up in base values in foregone future sales of those properties.
20 years from now, if COPA is wildly “successful” at its mission of converting private property to ‘quasi-public’ property, 100’s of millions of dollars of property tax revenue will have evaporated – gone forever.

Then what? Will services be cut? Will teachers, nurses, firefighters, police be fired? Or will our feckless leaders fall back on the good ole standby – more tax increases!

The bills WILL come due, and the piper must be paid. There is no plan to address this issue.

#5: More Tax Problems!!
With housing units no longer under private ownership, and now acting as non-profits, there will be no income taxes generated from their cash flow for CA.
Private investors create a velocity of capital. They invest capital to grow it. They consume products and services from the local economy in that quest. Non-profits are the opposite, they consume & destroy capital. Non-Profits will not have to invest in their properties to attract new tenants at the highest rents, like a private investor would (See here). Non-profits have a captive, long-term renter base, a la the Eagle’s ‘Hotel California’.

Improving the property or offering new amenities is not necessary for them, as it is for a private investor to survive. Local product and revenue services will decline, as will jobs and sales and income taxes from those businesses.

In Summary:

If COPA is enacted into law, the biggest losers will be middle-class renters. Local businesses which provide goods/services to private property owners will lose revenue and need fewer employees. Local entities which rely on property taxes will be losers under COPA.

The biggest winners will the well-connected non-profit Directors and public employee unions which will see new hires added in the Housing Department. See here and here.

The poor saps who will become entrapped in these aging, deteriorating, mal-maintained properties will feel like winners initially but that will quickly fade away in a few short years as realty sets in and their low-cost homes begin to crumble around them. See here, here, here, and here.

Somewhere in the middle will be the existing multifamily property owners. Our sensibilities will be hurt & frustrated by yet another bureaucratic, over-reaching, meddlesome regulation. But on the flipside, there will be fewer market rate units available for our target market of middle-class renters.

Rents will naturally have to increase as a result of more renters competing for fewer units (yay for us!). This is ALWAYS the longer-term unintended consequences of these ‘feel good’ regulatory regimes, as the last 40 years have proven. A few renters benefit in the short-term with each new regulation. However, in the longer-term, all renters have become worse off – this is indisputable. If renters are not up in arms over this, why should property owners get in the way?

COPA is effectively taking a wrecking ball to housing units in SJ. It is a destruction of market rate housing units- they will no longer exist for the majority of renters. Drive supply down, while driving demand up, all on the taxpayer dime? Hell Yeah! Bring on COPA.

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The author of this article is a small property owner in San Jose, who hates COPA and the non-stop onslaught of regulations coming out of our socialist Housing Department and will fight them tooth and nail. But, and a very big one, (taking away the COVID madness), all they have ever done is drive rents ever higher. COPA will be the same. I will curse it, hate it, malign it and blame it for my many woes but still smile all the way to the bank with COPA! --Dean Hotop

Follow Opportunity Now on Twitter @svopportunity.

Photo by Joe Schlabotnik.