Legislation would limit removal of illegal housing units

Legislation making it harder for San Francisco property owners to remove any housing units, even if they are illegal, could help lower housing prices at the bottom end of the market but might also push them higher at the top end, according to an economic analysis released Monday.

The legislation, introduced by Supervisor John Avalos and heard in the Land Use and Transportation Committee today, would require property owners to seek Planning Commission approval before removing or merging any housing unit, even if it is an illegal unit such as an unpermitted in-law or a residential unit in a commercial building.

A report from the Office of Economic Analysis released today found that the new restrictions on the removal of illegal units, which tend to be more affordable than other housing, could reduce the number of removals occurring each year and thus effectively increase the housing supply at the lower end of the market, reducing prices by around 1 percent a year.

However, because illegal units are most often removed to expand existing, larger housing units on the same parcel, the change could also somewhat restrict the supply of larger housing units, raising prices by .02 to .04 percent, according to Chief Economist Ted Egan.

Egan told the committee Tuesday:

“We saw this legislation as a trade-off. … It has both advantages and disadvantages.”

Egan said the exact impact is hard to estimate because it depends on the reactions of property owners, but he noted that the city has processed permits for the removal of around 23 illegal units annually over the past 10 years.

While the city introduced a path for homeowners to legalize units a few years ago, Avalos said the new restrictions were needed to respond to “horror stories” of tenants being pushed out by landlords using the illegal unit as justification.

Those include tenants in commercially-zoned buildings such as 1049 Market St., where residents have been fighting eviction by a landlord seeking to return the building to office use, and those being pushed out of in-law units by landlords hoping to expand a single-family home and remove it from rent control.

“This ordinance will put the burden back on the property owner to justify the loss of housing,” Avalos said.

Groups representing property owners and landlords, however, said many smaller property owners cannot afford the cost of legalizing units and warned that landlords would choose to leave units vacant rather than spend money to legalize them.

Janan New, executive director of the San Francisco Apartment Association, urged the board to deal with the issue of larger buildings such as 1049 Market St. separately from that of single-family homes with in-law units:

“If that homeowner is unable to legalize that unit, you will be penalizing them. … When you’re looking at single-family homes with an additional unit, you’re punishing people who are mainly middle class, which I don’t think is the intent of this body.”

Avalos and city officials said a fund of around $4 million exists to provide assistance to property owners with code enforcement issues, and he has been trying to secure some Affordable Housing Trust Fund money for bringing illegal units up to code.

The legislation was continued a week following Monday’s hearing to allow more time to address the issues around costs to property owners.