Mr. Rork could have bought something 50 years ago. Mountain View was crazily affordable then. I knew because I have a relative who bought their little house near Monta Loma park around that time. From the pictures it looks like he is quite healthy and able. I'm sorry but I cannot have much sympathy for such bad judgement.

From what I just heard, the City is putting a moratorium on any new housing projects.

They cannot clear the existing backlog of projects. Especially the BIG one, the Google plan.

And given that AB 5 will greatly reduce the employment in the valley given that for tech companies they rely on greater than 50% of their workers being contractors.

This developer couldn't choos a worse time to consider undertaking this project.

Another example of one of the negative consequences of rent control. The units are at least 50 years old and out of date. Without RC, the landlord might have the incentive to remodel or rebuild new apartments , but they would still be under RC and the owner could never recoup his expenditures. The city cannot stop him from taking the units off market or demolishing the building. So the owner will choose to build for sale products.

@ m2grs,

That is one is the most unnecessary and hurtful comments you could make. Why judge this man? Seems to have done everything right in his life, just because he didn’t buy a home 50 years ago he’s evil?

We are so fortunate to own homes; we shouldn’t go throwing rocks in glass houses.

Good luck, Mr. Rork. And thank you for your service.

@J, while he could've probably stated it better, I believe m2grs is saying that the choices we make are unique to our values. We take both the good and the bad outcomes, even if the decision was made 50 years ago. Mr. Rork could've made a potentially more rewarding (and stabilizing) choice over that time by purchasing a house.

Really the lessons from all these stories is that people should be planning for their retirement at an early stage of life outside of 401k plans. You need equity in retirement. Renting has no real value to anyone but the landlord.

@J, I'm in no way trying to hur Mr. Rork. However I think we all have to take responsibilities for our own choices. I made some big bad choices myself.

But my point is, this is not the reason to blame the society, or in this case, the landlord, for choices one has made. It is unfair to paint the landlord as some "greedy capitalists who don't care about the poor" just because one has been renting there for 50 years.

Sometimes I think whoever sponsored the state-wide rent control bill is a mole actually working for the home owners. He must have known that this law will reduce rental stock, especially the low end rentals. The law simply accelerates the tear-down of older and cheaper apartments.

@TBM

If Mountain View passes a moratorium, it will be moot. SB 330 just passed the state legislature overwhelmingly, which would eliminate local moratoriums and similar laws designed to slow down new housing.

Newsom is expected to sign it since he's made a commitment to getting hundreds of thousands of new housing units in California built to address the housing crisis.

It's actually a good time to be a developer. You've got a federal government and state government doing everything they can to encourage more housing development.

The main thing holding back developers is that building is so expensive right now because there is so much business.

The renters don't own the property. The property owners have a right to develop and modernize it. The tenants really should grow up if they think times don't change. Dwelling on Mr. Rork's veteran status is really a cheap journalistic tactic. Veterans don't have more rights than others. We do have additional government benefits and the satisfaction of serving our country. Why are we always being presented as sad sacks?

MV didn't have rent control for 50 years. And in those 50 years the apartment was never remodeled or improved, save for a new carpet 15 years ago. Your argument simply doesn't hold water.

Oh, for God's sake, people! The majority of these comments (thus far, at least) have gone waaaaaay off the rails!

The story is this: Residents -- some long-term -- are getting displaced. These are the same people whose monthly rent payments have generated steady revenue for the property's succession of owners. The gentleman the article cites -- the veteran w/ a Purple Heart -- is one of dozens, if not hundreds, of stories of residents getting pushed out with little or no consideration for where they'll live next. Yes, change is inevitable, but that doesn't mean property owners can callously trample on those who aren't at the forefront of that change.

Re: buying vs. renting, hey, not everybody -- even 50 years ago -- was in a position to purchase a home. Just because it was possible for some doesn't make it so for all. So, let's drop this whole coulda-woulda-shoulda hindsight c**p, okay?

As a resident of this neighborhood where this apt complex is located is, I have loads of concerns about replacing the current complex with one that has 20 units more. This is the only apt complex in the whole neighborhood, it's mostly a very sleepy little neighborhood of single family homes. The last thing we need to to deal with the traffic and parking from an additional 20 units because the landlord is greedy and wants to pack as much in there as possible. I'm actually totally fine with updating the whole thing, it needs it. But it doesn't need to get even busier on that corner than it already is. I'll be following this for sure.

The city passed rent control. How do you escape it? Tear down rentals and sell as condos.

@Bonanzaroot

Population is increasing. Neighborhoods will get more dense. Increasing traffic is an inevitability we will all have to deal with. That in itself isn't sufficient reason to stop building houses.

It would certainly make sense for new development plans to be associated with traffic studies but I would guess the City already does that.

I think what m2grs is saying is that if you are going to rent the same place for 50 years, buying at some point would have been cheaper. Some condos in the past sold just for rental value. If purchased, he could have now owned a million plus condo. As a veteran he could have purchased a condo w nothing down.

I doubt that the carpet was the only update in the apartment. After 50 years a lot of stuff would have worn out and needed to be replaced. 50 years is a long time for a temporary structure.

To m2grs.. I don't think Mr. Rork is looking for your sympathy. He is just telling his story. Maybe 50 years ago he couldn't afford a mortgage on a house and could not buy anything. I know I have been in California for 40 years and I could not afford to buy on my salary at that time. Luckily I am ok (for now) with my apartment, but I could be in his shoes some day soon. So many people are in the situations he is. Rents are out of control now. I just think that was a shitting thing to say about someone that is going to lose his home of 50 years. I'm just saying.

Displacement from redevelopment of older, more affordable housing is damaging our community. We're losing diversity. Schools are having a hard time finding teachers. Restaurants can't find staff. It's a complex issue that's not easily solved with property rights on one side and community relations on the other. I hope, at the very least, we can all agree to show a little compassion for people being displaced .

I've been in my apartment near Castro for 15 years and my landlord has been a stone-cold SAINT and hasn't upped the rent in that whole time (I know...superhuman luck). This has allowed me and 3 other families with kids to stay in the neighborhood, including 2 who are decidedly working class but whose kids, having been brought up with the kids of Silicon Valley tech folks, are now socialized to be able to go to a great college and get middle or upper-middle class jobs. The power of a zip code...

At any rate, the city has determined the property needs significant seismic upgrades and the landlord is understandably unmotivated to spend big $$$ on the property. Because of rent control he can't bump our rent by 50% (which would still leave us all at HALF the current market rate) so he's decided to sell the property, which will almost certainly be torn down. So, 4 more affordable apartments and the house in front (which houses 3 cool young people) will be disappearing.

I will certainly NOT be staying in the area since I have no desire to pay $3K for a 2-bedroom apartment. I am fortunate to be in a position where I can move elsewhere but I don't know what the other folks on my property will do. I do know that MV is slowly losing a lot of the charm and pulse that made it a nice town and turning into a place where only the affluent, mostly tech workers can afford to live.

Castro Street has lost it's fantastic used book store, the delightful neighborhood aquarium store, now TAP Plastics... As a society, we have decided to allow dollars to be the sole determinant of how our own downtown is organized and presented. It shouldn't be a surprise when towns get gutted from within by the dictates of rapacious capitalism, which privileges profit over values like healthy individuals, communities and environments.

I have lots of sympathy for the gentleman in the story. He’s in a tough spot and the lesson for other, younger people is you need to own your own home if you can even if you have to move away, as you’re on borrowed time in a rental.

The landlord did not maintain this property if all they did was the replace the rug ... however - and this is a huge thing - they kept the rent lower than market in return and that is a huge gift to him as he’s paying way below market in this town... certainly a much bigger concession than painting the inside and bumping the monthly rent say $50 or $100 more ...

In the end this is what everyone said would happen. You can’t have your cake and eat it too ... if you force the rent down then people will sell it ... this is why the rent laws need to be updated, as it’s better to allow the new rent to be the fair market rate then to turn it all into expensive condos.

No winners here.

@ Bonanzaroot: and that is PRECISELY what would happen, if it were not for rent control. Updating this place now is a waste of money cause you can never raise rents to recoup. Redeveloping DOES allow recouping costs.

Everyone deserves decent housing! The local governments welcomed big tech companies but didn’t consider the impact on its residents. This is happening everywhere. There needs to be more affordable housing and local governments need to take immediate action. Our Federal government should also be taking care of the veterans and providing housing. Most veterans don’t make enough to get their basic needs met. My father was a veteran and wrongfully denied a pension and since he didn’t receive a pension, was denied funeral benefits. The VA admits this but won’t do anything but offer us a flag. I’m sure we’re not alone and that many veterans are wrongfully denied their benefits. Please don’t judge this veteran for not buying a home. Maybe he couldn’t afford it even 50 years ago. CA has always been expensive and those of us with homes are blessed. Be grateful. We could barely afford to buy 20 years ago with two professional incomes. Our kids can’t afford to stay here even with college degrees and good jobs. We recently went to an open house to see if we could help our kids stay in the area. It was a 2 bedroom 3 bathroom townhome in Mountain View $1,299,000. It was nice but we just can’t afford it. The agent was super helpful and looked up other properties for us. She was the first agent that we felt comfortable with. She was compassionate and does a lot of volunteer work for the community. When we are ready to sell to move closer to our kids, we will be calling her. If you are looking for a new home and can afford $1.3mil, go check it out. 421 Sierra Vista Ave, MV Sorry, can’t remember the unit #. It will probably be open this weekend.

All these comments like "Maybe he couldn’t afford it even 50 years ago" are missing some of the other reasons why so many folks wonder about 50 years of renting.

It isn't even just lack of security. (And 50 years is a good run, by the way, compared to what I've experienced of rental sold out from under me.)

You have zero to show for all that money paid. Which in this case (if the rent rose roughly steadily between first and last figures quoted) totaled something like $600,000. Even if buying is hard, a long-term question is whether you afford NOT to. Buyers build equity, even if the market value stays flat.

And 50 years is a long term. The question isn't just if someone "was in a position to purchase a home 50 years ago" but whether he was never in such a position over that whole time -- given how much it cost him.

The offhand claim "CA has always been expensive. . ." is wrong, in this case: not *this* expensive, by far (even if people who arrived during recent job booms don't know that). 50 years ago, modest houses in most pleasant Bay-Area towns like this one sold for around $30k, roughly 2X annual income of many schoolteachers, tradespeople, supermarket clerks. (That ratio of price to incomes has since gone way, way up). Ordinary people could afford home ownership on a single income.

So yes, this article reveals resident displacement. But it chooses to highlight a case that also raises some natural, unexamined questions. Asking those questions isn't "waaaaaay off the rails," even if some of you don't like seeing them.

I am currently visiting North and South Carolina looking for a nice place to retire. They are both beautiful states. Rent and mortgages @1000-1400 per month.

No traffic, nice people, very low cost of living and the food has improved.
I love mnt view but it's not the place I moved to 30 yrs ago. Weather isn't everything.
Check it out!

This redevelopment of affordable housing crisis in MV is the result of a hot real estate market because there are more jobs in the area than places to rent. The winners in a market like this are clearly landlords/property owners who want to cash out before the bubble bursts which it always does under republican administrations who cut taxes for the wealthy. Rent control is not the problem but greed certainly is. What tenants in MV need to do is form a Tenants Union and start enacting rent strikes when landlords decide they want to sell their property. If tenants are getting evicted anyway, they should make it as painful as possible financially for landlords during the process. The only way to fight back against people who only care about profit is through acts of civil disobedience and direct action that affects their revenue.

Rent control has only been in effect for what? 3 years?
And please, I don’t feel sorry for the managers, who can only increase the rent 7% a year ...
Is your house value going up 7% a year?
At that rate a rent would double every 7!years !
Do you still feel sorry for the landlord ?
How ignorant people are...

@ Ulysses,
You said,

"And please, I don’t feel sorry for the managers, who can only increase the rent 7% a year ..."
"How ignorant people are..."

Yes, some people are very ignorant, as you say.
The 7% rent increase, as you say, is more than twice the legal rent increase amount allowed in Mtn. View.

Do you have any idea what the annual increase has been for water-sewer-trash over these past 3 years? It has been double digits, have any idea what the insurance increase has been?, how about materials like cabinets, carpets, or carpet cleaners-painters-plumbers?

Of course you do not know because you do not need them. Try running a business and tell the contractors that you will only pay them 3% more from their last years bill for the same work. Watch and see, you will never have these people come and do any work for you again.

In response to SB330 you said:

“If Mountain View passes a moratorium, it will be moot. SB 330 just passed the state legislature overwhelmingly, which would eliminate local moratoriums and similar laws designed to slow down new housing.”

BUT, the existing laws regarding “No Net Loss” Section 65863 found here (Web Link of units would supersede that provision. The City cannot remove affordable housing units without replacing them within 6 months of the approval to remove them. At the same time the Inclusionary housing requirements under Section 65623 of the Workforce Housing Opportunity Zones law found here (Web Link will place 50% of those units under price controls whether they are rentals or owned for 45 to 55 years. The same goes for Section 65913.4 of the Planning and zoning: affordable housing: streamlined approval process act found here (Web Link which states that as long as the City does not meet the RHNA units requirements, they also will have 50% of units under price controls whether they are rented or owned for 45 to 55 years.

The fact is that the picture is not good regarding the City. The fact that the city is planning to reduce its affordable housing by as much as 200 without replacement will allow the STATE laws to freeze any development in the City until they are replaced. You said:

“Newsom is expected to sign it since he's made a commitment to getting hundreds of thousands of new housing units in California built to address the housing crisis.”

YES, but he did not make it unconditional. There are plenty of strings attached already under the laws. The City cannot comply with only the laws it agrees with, but ALL of them. You said:

“It's actually a good time to be a developer. You've got a federal government and state government doing everything they can to encourage more housing development.”

BUT at the same time, price controls have been established for as much as 50% of the new units. Thus the developers are going to have to take that into account regarding the anticipated ROI. You said:

“The main thing holding back developers is that building is so expensive right now because there is so much business.”

That’s NOT what developers complain about regarding expensive building. This article 5 reasons Housing Costs are So High found here (Web Link states the following reasons:

“1. We Haven't Built Enough Housing”. YES even though Costa Hawkins made it clear that if you build it you can make unfettered prifits by not having to comply with rent control, they STILL didn’t build enough housing.

“2. Demand to Live and Work and Own in Urban California Has Reached a Breaking Point, and Part of That Demand Is Global” YES even though the market had no rent control, the fact is there is no new land to build upon, and the Cities need to do serious City land use overhauls. The fact is that the land is not efficiently used and so the only way to overcome this is to updevelop Single Family Units.

“3. Proposition 13 Dilutes a City's Incentive to Build New Housing” YES the fact is that current owners of the homes in the state have no reason to move as long as their property taxes are capped. Thus there is a further shortage of land for developers to work with.

“4. In Most Parts of California, the Process to Get New Housing Approved Is Difficult, Time-Consuming and Expensive”. YES but that process is being improved upon since this article was written. But the laws described above are also in play. Developers will not easily submit to these price controls. And finally:

“5. Land, Labor and Raw Material Costs Are Higher in California Than the Rest of the Country. And Those Costs Are Rising” YES, you can put the cost of RAW MATERIALS on the current TRADE war and the actions of Donald Trump. YES you can put the cost of LABOR on the fact that minimum wages are increasing and the construction workers are DEMANDING higher pay. YES you can put the cost of LAND on the current inefficient use of land in the state of California. BUT you cannot in effect claim that prices are increasing due to increased development.

Just read this story in the LA Times (Web Link the rate of development is slowing down.

I have moved here with my child in 2012
For me it’s been absurd to be paying 2k for an apartment belonging to a low rated public school.
And no the school is not diverse.
If tearing down cheap apartments means better schools, then so be it. And, I am saying this as we live in a cheap apartment as well :)

@TBM

Mountain View can't hold up approval for housing redevelopment to a higher income housing category as the law you cite says "Nothing in this section shall authorize a city, county, or city and county to disapprove a housing development project on the basis that approval of the housing project would require compliance with this paragraph."

Basically, it's Mountain View's problem to solve, not the developer's.

Mountain View still can't institute a moratorium, which was my first point. If Mayfield Apartments are subject to the no net loss provision, the owner should already be taking that into account in the planning.

However, I don't believe Mayfield is defined legally as affordable housing. If it was, then MV Voice should have mentioned it. Existing tenants would be able to move back in due to the affordability requirement you've stated. There will be 61 condos. At least 30 units would then have to be affordable for the dwellers of the 40 apartments. In fact, the MV council should encourage the owner to build 80 units so that all the existing tenants can move back in.

With respect to my point about why developers are not building more. What I meant to say is that developers are not building more housing, as opposed to building in general. Everyone is building: corporations, government, universities...even non-profits are building. They are all competing for a limited number of workers and contractors. The projects with the most margin get contractor and worker attention. Unfortunately for housing, that is generally only in the luxury category. This is why we see a ton of luxury housing getting built and not much other housing.

In response to SB330 you said:

“Mountain View can't hold up approval for housing redevelopment to a higher income housing category as the law you cite says "Nothing in this section shall authorize a city, county, or city and county to disapprove a housing development project on the basis that approval of the housing project would require compliance with this paragraph."

That is technically correct, but the City currently from the ABAG RHNA report the City of Mountain View has an affordable housing deficit of 814 VERY low Income housing units, 492 Low Income Housing units and 527 Moderate Income Housing Units. So the City will be constrained to force affordable units in EVERY project. You also said:

“Basically, it's Mountain View's problem to solve, not the developer's.”

BUT the State laws will require inclusionary housing until the balance of the RHNA is achieved. The new method though is reported to significantly increase the numbers I just reported. You said:

“Mountain View still can't institute a moratorium, which was my first point. If Mayfield Apartments are subject to the no net loss provision, the owner should already be taking that into account in the planning.”

So far that has not yet been documented. In fact, that information so far hasn’t been even been discussed in the City Council yet. You said:

“However, I don't believe Mayfield is defined legally as affordable housing. If it was, then MV Voice should have mentioned it. Existing tenants would be able to move back in due to the affordability requirement you've stated. There will be 61 condos. At least 30 units would then have to be affordable for the dwellers of the 40 apartments. In fact, the MV council should encourage the owner to build 80 units so that all the existing tenants can move back in.”

Actually the 30 units will have to be affordable to all people, not just the apartment units. 3 units will have to be affordable to either $1200 a month depending on whether they are a Workforce Housing Opportunity Zone and if not they will have to be $2400 a month. 9 units will have to be affordable to either $2400 a month independent of the Workforce Housing Opportunity Zone. And 18 units will have to be affordable to either $3600 a month depending on whether they are a Workforce Housing Opportunity Zone and if not they will have to be $2400 a month. The rest will be free market. These prices will be required to remain constant for condos for at least 45 years. I really do not know whether the developer ever did this calculation.

The MV Council can suggest a different plan. But as most people in this situation will point out, they cannot make a developer build any specific plan or housing. Unfortunately even though the CSFRA does give renters first choice in new apartment units, it does not extend to housing ownership. This is a loophole that should be made in a new Ballot Measure for the City to vote on. You said:

“The projects with the most margin get contractor and worker attention. Unfortunately for housing, that is generally only in the luxury category. This is why we see a ton of luxury housing getting built and not much other housing.”

I don’t know if that is necessarily true. There needs to be a scientific study regarding this idea. It could be that construction for affordable units, given they should be much “Simpler” should be more efficient. Thus you could actually get a larger ROI on a less expensive project. And if these projects can be built quicker, the construction workers could get more revenue in the big picture. And the biggest issue is that building affordable housing rate projects have much LOWER risk, but could in fact result in equal ROI than higher priced ones. If the ROI rate is identical, and you have more VOLUME in building, you can get a higher profit with less risk.

The real issue is that current investors and owners cannot afford a significant increase in housing inventory given that you can see a 2% decrease in property values for every 1% increase in inventory. THAT is the controlling factor in California right now.

There is a big elephant in the room that is going to hit the housing market hard in California. AB 5 is going to make a significant change in the area. I know firsthand that PayPal uses 70% contractors in San Jose. Symantec just announced they are in the process of a significant worker reduction or relocation after filing a WARN notice with the state. The general rule is that all the “TECH” companies have at least 50% of their worker as contractors. And the new law DOES NOT carve out IT workers as exempt. That is because even if they are called “engineers” they have to be “state licensed” to be exempt of AB 5.

Unless all of these companies simply roll over their contractors into employees, there is going to be a significant reduction in employment in the area. And all of these companies can afford to build new locations where the land is unused in the middle of the country, which will make their work easier because they are in better geographic locations to provide their services.

I wonder if the developer has taken this into account as well.

We love Mountain View, and have for 25 years, and are saddened by the increasing lack of professional diversity in our neighborhoods. Long gone are the days of having a veteran, a teacher, a policeman, a plumber, a florist, an electrician, a baker, or retail worker as neighbors, and it is to all of our detriment.

Not certain of the answer, but do know...

*Rent control does not, and has never worked; people are suffering from its unintended, yet historically well documented negative effects.
*The lack of financial literacy has doomed individuals to a life of debt, shackling life choices.
*Prop 13 is keeping seniors in their homes creating a log jam for entry level housing. Not passing the recent proposition that allowed Seniors to take their property tax valuation with them was a big mistake.
*Regressive taxes, such as those having the richest among us getting a tax credit to drive a $120,000 electric vehicle is preposterous - maybe that lost revenue could go to housing.

Some unsolicited advice -

*Don’t rely on governmental agencies to help with you with your long term needs

*Do whatever it takes to purchase some sort of housing. The long term effects of not owning subjects you to tremendous future uncertainty. It’s hard, but not impossible - and realistically, and unfortunately, it may not be in Mountain View to start -

@TBM

If you know Mayfield is part of an housing affordability program, please share it with the current residents. I haven't seen anything that Mayfield is. My impression from reading the article is that current residents are financially unable to come back because none of the new units will be affordable.

As for Mountain View being able to stop this development, the whole onus behind SB 330 is to prevent municipalities from adding roadblocks to new and denser housing. If a city could get out of complying with SB 330 by using the RHNA requirements, which hardly any city is meeting, then there would be no point in passing SB 330 in the first place.

SB 330 clearly says no moratoriums are allowed until 2025. Here's the legislative text:
Web Link

In the end, it will all play out with Mountain View complying or getting sued to comply. Senator Skinner and the legislature are aware of the tricks the cities are using to slow or stop housing developments.

You are right that the economics of constructing affordable units are better if, and it's a big if, the developer is allowed to build many more affordable units than market rate units. If a parcel's zoning says it only allows 20 market rate units, but would allow more density, height, and fewer parking spaces for 40 or more affordable units, then the economics would shift back to make affordable units more lucrative. Unfortunately, California law does not provide a big enough density bonus for affordable housing to overcome the profit of maxing out the number of luxury units allowed.

Another thing the legislature could do is completely eliminate CEQA for affordable housing projects.

In response to SB 330 you said:

“If you know Mayfield is part of an housing affordability program, please share it with the current residents. I haven't seen anything that Mayfield is. My impression from reading the article is that current residents are financially unable to come back because none of the new units will be affordable.”

And:

“You are right that the economics of constructing affordable units are better if, and it's a big if, the developer is allowed to build many more affordable units than market rate units. If a parcel's zoning says it only allows 20 market rate units, but would allow more density, height, and fewer parking spaces for 40 or more affordable units, then the economics would shift back to make affordable units more lucrative. Unfortunately, California law does not provide a big enough density bonus for affordable housing to overcome the profit of maxing out the number of luxury units allowed.”

From what I can see if these prices I discussed ring true than this will be the broken down values for this project. I am using the calculator found her (Web Link

Actually the 30 units will have to be affordable to all people, not just the apartment units. 3 units will have to be affordable to either $1200 a month depending on whether they are a Workforce Housing Opportunity Zone and if not they will have to be $2400 a month. 9 units will have to be affordable to either $2400 a month independent of the Workforce Housing Opportunity Zone. And 18 units will have to be affordable to either $3600 a month depending on whether they are a Workforce Housing

The 3 units at $1200 a month if they are condos will have a price of $220,000. The alternative will be $440,000. The other 9 units will have to be priced at $440,000. If this is a WHOZ then the 18 units will be priced at $660,000, otherwise it will be again $440,000 price. So the 50% of price controlled units in a Workforce Housing Opportunity Zone will provide a price of either (3 times $220,000) + (9 times $440,000) + (18 times $660,000) equals $16,500,000.00 for a Prime Rate Mortgage. The same if not a WHOZ will be 30 time $440,000 which equals $13,200,000.00.

Fixr (Web Link ) estimates that it costs on average $240,000 to build a Luxury condo. But it will cost an additional 33% for the regional adjustment so it will cost $319,000 per unit, and this is probably a VERY low figure. So the cost of production will be $9,576,000. The cost for demolition is estimated at $8.00 per square foot and there is 65340 square feet so it will come to $522,000. And there are many other costs that can occur, like if there are issues with the local soil being polluted. It will cost conservatively $10,000,000, or $333,333 per unit.

Thus if it is a WHOZ the profit for building these units will be $6,500,000 or a ROI of only 65%. If it is not a WHOZ there will be a profit of $3,200,000 or a ROI of 32%.

WOW even with price controls there is that much profit to be made.

To me it almost looks like the current market must be seriously overpriced in Mountain View. But that is changing significantly. How much is a condo in Mountain View right now? Currently Trulia (Web Link lists the a price at 1 Bedroom was $760,000 but has dropped to $720,000 and not bought, and a 2 Bedroom was $859,000 but dropped in price to $809,000 and so far not bought.

This shows that there must be a lot of people willing to overpay for a good condo. I just wonder how long this will last given the information I just provided indicates that a VERY generous profit is made when a condo is bought at only $660,000.

It looks like if the developer is going to go through the approval process, I cannot argue if these price controls are in fact complied under the law. BUT I will not be surprised that if the project is required to provide these prices, the developer will claim that it unfairly constrains their profits and pull out.

All I can do is watch what happens.

@TBM

I think you concluded there really is no major story here if the apartment owner just agrees to sell the below market units to the current tenants. The owner has to sell them to someone. It may as well be the current apartment dwellers, at least give them the right of first refusal. That would take the steam out of the bad press that is occurring over displacement.

32% profit sound like a big number, but it requires a time context. A 32% profit after five years or so investment is a 6.4% yearly profit non-compounding. Compare that with investing in the stock market, which averages 10% per year return and compounds. If the project takes more than 3 years, then the developer would be better off putting his money in the stock market than building these condos.

With all of California's extensive regulations and tight construction market, this project is going to take more than 3 years to finish. It will probably take more than 3 years just to get approval to begin construction.

In response to SB 330 you said:

“32% profit sound like a big number, but it requires a time context. A 32% profit after five years or so investment is a 6.4% yearly profit non-compounding. Compare that with investing in the stock market, which averages 10% per year return and compounds. If the project takes more than 3 years, then the developer would be better off putting his money in the stock market than building these condos.

With all of California's extensive regulations and tight construction market, this project is going to take more than 3 years to finish. It will probably take more than 3 years just to get approval to begin construction.”

That is very misleading. How? Because the yearly expenses are not evenly spread in any way. 3 years of planning may cost as much as $500,000 at the largest. That will be a yearly loss of $166,666. BUT that is occurring while the property is still in operation. So that loss can be VERY mitigated. Thus you can at the very least reduce your divisor by 3. Once the planning is completed it should take only 2 years to complete the build the properties. So the real picture is that you could divide the profit margin by 2 which results in a 16% yearly profit. BUT THAT STILL RESULTS IN A $3,200,000 profit no matter what you try to do to minimize it. And that is on the 50% price controlled units. What profits can be made on the unregulated units?

Now it is typically expected to get between 12-20% ROI on an entire project on a high end development. (Web Link So this project is able to expect 12% better on just the price controlled units, and NOT the market rate which is 50% of the remaining units.

Simply put, the developers are not being burdened in any way even with these controls. This has been the BIG lie regarding that developer cannot achieve a good ROI with the new inclusionary housing.

You are trying to split the entire project. But in the real business you can’t ignore the non-regulated unit’s profits. Those are likely to be MUCH higher. Why are these people arguing that they cannot make it work?

@m2grs you're missing the point. Retirees on fixed-income should be able to live in our community. The fact that they can't is a huge problem.

We have our tech overlords to blame. In their lust for profits they import H1Bs by the thousands. Our tech masters also are just fine with the millions of third worlders flooding into our country, because they cut their lawns and take care of their children. These people drive up our housing costs which forces out real Americans like Mr. Rork. Not to mention that the illegals make our community more violent and dangerous.

Solutions: clamp down on tech, close the border, and deport the illegals.

Thank you for your service Mr. Rork.

Here is a bit of information to consider for developers found here (Web Link

September 2019 Report

Single Family Homes in Santa Clara County, All Cities, All Neighborhoods Change >

Median Price is $1,190,000 with a loss of -7.8% this report

Average Price is $1,454,670 with a loss of -6.7% this report

No. Sold is 873 a loss of -4.6%

Pending Properties is 868 a loss of -4.4%

Active listings 1,293 a loss of -9.5%

Sale/List Price Ratio is 100.4% which lost -0.3%

Days on Market is 31 a increased length on the market of +17.4%

Days of Inventory is 44 a loss of -5.1%

Condos Statisitics(https://urban.realtor/market-trends-report/) :

Median :Price $838,575 with a loss on the year of 10.6%

Average Price $862,252 with a los of the year of 10.6%

Total sales are 327 with an increase of 15.1%. Thus people are selling units a below asked price.

Pending Sales are 357 a yearlny increase of 7.9%. Thus more people are selling at this time than buying.

Active listings 609 a yearly increase of 45.3%. This indicates that there are a lot of people trying to leave.

Days on Market 32 days a yearly increase of 81%. Practically double the time the properties are listed before bought.

Days if Inventory 56 a yearly increase of 26.2%.

To me this is a clear indication that prices are on the way down. WHY?

AB 5 will result in relocation of workers out of California. AND proof is that Symantec has issued a relocation notice with the state. This is only the beginning.

But just another bit of information to consider. Google contractors get paid VERY little for their skills as reported here (Web Link In this report (Web Link also it turns out most of these “White Collar” workers were being paid as little as $40,000 a year specifically:

“Most of the employees organizing hold college degrees, get paid as little as $40,000 a year, and don’t receive sick days or many of the other perks that direct Google employees get. These workers are members of a second-tier “shadow workforce” of tens of thousands of temps, vendors, and contractors (called TVCs) at Google, who make up over half of the company’s total staff and have reported receiving fewer benefits and less pay than permanent employees. Their organizing comes at a time when non-contract employees have also been publicly critical of the company’s stance on both internal and external policies, such as how it regulates speech in the workplace and its contribution to carbon emissions.”

So when LANDLORDS claim that they are being forced to subsidize wealthy workers, they better have proof. NEVER assume what a worker earns even if they work for Google.

@TBM

The apartments are not going to be earning revenue anymore as the tenants will be displaced very soon. My guess is that the developer will want to demolish the units as quickly as possible to remove any hope the community has that they can be returned into use. If so, no revenue will be coming in. My guess is that will be the strategy. Otherwise, why tell the residents redevelopment is happening. The developer could have waited until the plans were closer to completion before informing residents.

If the EIR process is just starting, that's 2 years or more of waiting just for the EIR process to complete. Then, I bet we'll go through another couple years or more of contention over MV approving the final plans unless you believe the community is just going to roll over for the developer.

Construction can finally begin then, but it's going to cost is rapidly rising in this area. The cost will be much higher in a few years.

And in all that time, the developer will have borrowed money to pay for the planning process and be paying interest. If not borrow, there is still opportunity cost to the funds.

If the units were all market rate, the developer would definitely profit. However, as you point out, only one-third of the units will be market rate, which makes the pay back significantly less.

In response to SB 330 you said:

“The apartments are not going to be earning revenue anymore as the tenants will be displaced very soon. My guess is that the developer will want to demolish the units as quickly as possible to remove any hope the community has that they can be returned into use. If so, no revenue will be coming in. My guess is that will be the strategy. Otherwise, why tell the residents redevelopment is happening. The developer could have waited until the plans were closer to completion before informing residents.”

Demolition will not be allowed until the precise plan is in fact approved under STATE laws. So the idea that a property owner can demolish without approval from the city is simply misguided. You said:

“If the EIR process is just starting, that's 2 years or more of waiting just for the EIR process to complete. Then, I bet we'll go through another couple years or more of contention over MV approving the final plans unless you believe the community is just going to roll over for the developer.”

Thus the property will be required to remain until the development is approved. IF the owner chooses to stop operating entirely, he is foolish because there will be no income at all on the property. At the very least the owner will still have to pay for property taxes on the land. It would be not wise to cease getting ANY income from the property until the development is approved. You said:

“Construction can finally begin then, but it's going to cost is rapidly rising in this area. The cost will be much higher in a few years.”

I don’t know about that if the impact of AB 5 does dramatically reduce property values in the state. Construction will unfortunately have to reduce prices in order to continue building. You said:

“And in all that time, the developer will have borrowed money to pay for the planning process and be paying interest. If not borrow, there is still opportunity cost to the funds.”

The BIGGEST risk in these issues is LEVERAGING. You are in effect encouraging one to increase their debts in the HOPES of getting it back after the project is completed. THIS is the largest RISK decision any property owner faces when considering this action. BUT that is the property owners CHOICE. If they make that decision and the project fails to provide the income necessary to break even, that is their responsibility. You said:

“If the units were all market rate, the developer would definitely profit. However, as you point out, only one-third of the units will be market rate, which makes the pay back significantly less.”

I said 50% will be market rate. You didn’t read my writing correctly.

The facts are that will the recent trend of falling property values and the implementation of AB 5, it might not pan out to do this development. At the very least the risk will increase and the anticipated profits are going to decrease. ON top of this, the DEBT incurred will increase the opportunity cost greatly. This is a very serious decision to be considered, and I admit I do not have any good advice regarding it. It is the owner’s choice in the matter.

BUT if this situation is typical regarding all properties in the state, then there is not a good picture developing from this jigsaw puzzle. Statewide loss of workers will occur because of AB 5. I also wanted to discuss a factor that bears understanding.

I have read that there is a trend regarding real estate licenses in California. The renewals are not strong that in fact many organizations who make their living in training real estate agents are not reporting the current trends. Seen in the Redland Real Estate School website (Web Link they do not disclose the current statistics from 2018-2019. This is because they do not want the potential students to be aware that real estate industry already knows the market growth is not strong enough to provide the expected earnings that the students are considering before buying into a real estate course and getting a license.

Given that prices are dropping and these people earn an average of 6% commission on the price of the property. If they sell at a loss due to price reduction, they in effect get no income. For example with statewide rent controls (AB 1482) impacting all housing if more an owner owns more than 10 units as of properties older than 2004. This will make a significant slowdown in the market as well.

This owner really needs to look for independent appraisers and financial planners before moving forward. The owner NEEDS to get information from those who have ABSOLUTELY no interest in the housing market of California before making this decision.

Just another bit of information to consider regarding the current market.

UBS just issued a new report assessing the current state of evidence that the housing in this area is at risk of being a bubble. It is called UBS Global Real Estate Bubble Index

The report can be found here (Web Link

As far as ranking goes the San Francisco area is number 10 in the list of 24 with an index of 1.15 which was determined as OVERVALUED. A fair value was in the range of -.5 to +.5. If you use the difference of the top of the fair to the index that is a difference of .65. Which is in fact 130% of the fair index. Which means that it could be said that the current market is paying at least 30% too much for the fair value of the properties in this area.

Thus when the housing correction hits, these properties will likely lose 30% of their value.

Maybe any development made now you should discount your expected prices by 30% before you commit. If you look at my previous posts, this will in effect result in a significant possible loss if this development moves forward.

Maybe keeping the property as is will result in better current and future earnings.

Just another piece of information for consideration:

The Curbed NY just reported that in New York Condo sales are dropping significantly seen Here (Web Link

The reports are clear, you cannot get the price you expect regarding your choice to convert to Condos. Specifically the report said:

“According to the StreetEasy report, there have been some 16,242 new condos constructed in the city in the past six years. Of those, more than 25 percent are still sitting on the market—including around 40 percent of the condos for sale on Billionaires’ Row, according to an analysis of data conducted for the New York Times by data guru Jonathan Miller.”

And:

“And the condos that have sold are not necessarily being used by their buyers. Around 30 percent of luxury condos that have closed have since re-appeared on that site as rentals, according to StreetEasy.”

Finally:

“The cause of this seems simple enough: There aren’t enough people who can afford to buy these high-priced condos. The median home price is currently $1.1 million citywide, and $2.3 million in Manhattan alone; the median household income, meanwhile, is just shy of $58,000 per year, according to the U.S. Census Bureau. And despite the fact that billionaires keep buying and selling their eight- or nine-digit apartments, there are only so many super high-rollers in the world.”

As far as our area goes, there is currently 1,100 condos on the market as of August, 2019, but sales are only at 400 found here (Web Link The lowest additional listing statistic since the great recession 800 in June of 2015, but sales was 425. That means that the market inventory is growing and thus becoming a significant reduction in home values. Simply put, the market supply is increasing but real sales are stagnant. Just think if this trend continues there is already a 700 unit surplus on the market in the Month of August and there is no evidence it will not be going down soon. The real estate market cannot sell inventory fast enough to keep up with the inventory growth.

In order to do so, there will be a need of a significant price cut. Of course “sellers” are refusing to lower prices, thus sales are stagnant. This report indicated that sales peaked in 2014 at 500 but is slowly going down. It almost looks like there is going to be a glut of housing if this trend continues.

The simple truth is that for years people thought that by changing apartments to condos or homes was a feasible method to “avoid” the “losses” of rent control. But if AB 5 does hit the region like I think it will, this approach will only dig a deeper grave for those who thought this was a good business decision. Unfortunately this may be the real reality. That simply put, housing profits cannot grow at a level above 6% without experiencing a “bubble” that will result in a “correction”.

When will the market finally understand what is coming?