There was an interesting article in the Washington Post last month about Below Market Rate Condos. In an effort to help first home buyers with actually purchasing something in the city, the Mayor's Office requires that new buildings include a certain percentage of Below Market Rate Condos or BMRs.
"There's no question that the demand far outstrips the supply of these programs. I'd be reluctant to even put a number on by how much," said Matt Franklin, director of the Mayor's Office of Housing, which administers the city's various first-time homebuyer programs.We have a very severe affordability challenge in this town," he said. "Currently, about 12 percent of households in San Francisco can afford an average-priced home."That 12 percent figure assumes buyers put 30 percent of income toward annual housing costs, he noted. In some markets these days, homeowners are paying up to 50 percent of income toward housing.
So, the city has created a lottery system for these BMRs. First time home owners can not only qualify for downpayment assistance, but also get a condo in a nice building for less than what everyone else pays--sometimes hundreds of thousands less. The income restrictions are not that outrageously low either: up to $66,500 - $76,000 for one owner or $79,800 - $91,000 for a couple. So, as you can imagine, the competition is fierce. The article explains BMRs much better than our city's web site on the subject, so here is an example of how BMRs work.
Winning the lottery will get you into a home, but it doesn't come without its own limitations. San Francisco's below-market-rate homeowners must live in the home rather than rent it out, and when they decide to sell, the price is dictated by a city formula, aimed at keeping the home affordable for moderate-income people.
The sales price formula is based on what a moderate-income buyer can afford, so prices move upward with changes in the median income for the metro area, released by the U.S. Housing and Urban Development Department each year.
Thus, any sellers of below-market-rate units in recent years would have missed the astronomical price gains enjoyed by other San Francisco homeowners. By the second quarter this year, the median price in the Bay area was up more than 40 percent from the median in 2002, while incomes rose incrementally in that time.
But that doesn't mean you don't make gains, particularly if you stay in the home for a number of years, noted Lori Bamberger, deputy director of San Francisco's Mayor's Office of Housing.
She offered a theoretical example: A family of three could have earned up to about $58,000 in annual income in 1997 -- that was the median income then for this metro area as determined by HUD -- so the city would have sold a two-bedroom, below-market-rate unit for $186,771, because that's what the city determined that household could afford.
Today, that same two-bedroom below-market-rate condo is priced at $325,488, based on what the city determines a family of three earning the area median income now -- $85,500 -- can afford.
Thus, if a family bought that condo in 1997 and sold this year, they would have enjoyed a rise in value of 74 percent over those nine years, or about $139,000. Perhaps not as much as someone in a market-based house, but still something. And the gains ensue no matter which direction home values head in the broader market.
Still, that doesn't mean gains are guaranteed: While median income levels usually go up each year, they didn't between 2004 and 2005 for the San Francisco metro area, Bamberger said.
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