CONDOMINIUM CONVERSION

Joe is a Cambridge tenant. He is in his late twenties and has lived in a rent controlled apartment for the past five years. His salary is $17,500. Last Saturday he received a note in the mail stating that his apartment had been converted into a condominium. What should he do? Should he buy? Fight? Move?

October 1, 1979 brought bad news for Mr. and Mrs. Tom Smith. The rent was increased by 25 per cent as a result of a general adjustment in rentals granted by Cambridge Rent Control Board. It has become very difficult for the Smith's to make ends meet. They are retired and live on a fixed income and have lived in this neighborhood for over twenty years. They have recently learned that the adjacent building has been converted into conominiums and that many of their neighbors are buying units. They called their son to seek his advice. They have never owned a home and are fearful that it is a risky investment at their age; yet with inflation, they fear that the rents will continue to rise and that they will be forced to move from their neighborhood.

.........................................

Each of these scenarios has been played many times during the last ten years in Cambridge. For many people in these situations, the logical choice is to purchase a condominium. Let's go back to Joe. If Joe continues to live in his apartment, he faces the realistic possibility of continual increases in rental payments, and yet these additional expenses do not give him any benefit, equity or security. Also, he will never see any of the advantages of home ownership. The average price of a one-bedroom condominium in Cambridge is $28,000-$35,000. Joe will only need $6,000-$7,000 as a deposit. He may also be able to obtain a low interest purchase money mortgage from his landlord, or since Joe is a tenant in the building there is a good chance that he will receive a significant discount in the purchase price of his unit. The average monthly costs for owning a condominium similar to Joe's would amount to approximately $475 per month. Joe will also benefit on tax deductions due to the fact that the interest, real estate and water payments are tax deductible. This will effectively reduce his monthly costs, which would be subject to only minimal increases, to an average of $380.

When Mr. and Mrs. Smith's son advises his parents, he will have to analyze the benefits of fixed expenses related to ownership versus potential rent increases. He will only have to consider the benefits of guaranteeing his parents that they can remain in the same neighborhood for the duration of their lives. The Smith's son may well consider purchasing the unit in his name because of the rapid appreciation of condominiums and rent the unit to his parents. This method will also yield additional tax benefits to the Smith's son.

But, in addition to considering the benefits of conversion to potential condominium owners, we must analyze the reason for the willingness to convert on the part of present property owners. Inflation, legislation, rent control, among other factors, have combined to create more and more incentives for owners of residential real estate to convert to condominiums. The development, ownership, construction, and management of residential real estate is an honorable profession and an extremely vital industry. However, in light of current legislation and political developments, even the most responsible landlords feel that the industry is over-regulated and that there is no future in it.

Condominium ownership is a progressive form of ownership. How often in the past have we heard cries from tenant groups and politicians about absentee landlords? Condominium conversion eliminates this problem. Through condominium conversion the tenants and others of low and middle income are allowed to purchase property in quality locations which otherwise would be impossible due to prohibitive costs. Condominium ownership offers many Americans their only hope of home ownership. And, because many thousands of dollars are spent on renovations in converting property, condominiums have a positive influence on the city.

The city also benefits by a substantial increase in the real estate taxes on the property. Condominiums encourage the middle class to come back into the city, thus creating a better mix of all income levels. During the 1960s, many urban planners said that the poor and elderly had been isolated in the city. Condominiums have definitely helped to resolve this problem. Condominiums also heighten citizens' awareness of the neighborhood in which they live and the problems within the neighborhood. It also tends to stabilize communities by producing long-term residents.

I have stated some of the many positive aspects of condominium ownership. However, I am aware that the conversion process is not without its faults. Where I differ with Cambridge politicians is that I believe that individual problems can be solved by isolating them as opposed to destroying the total concept of condominium ownership. In the case of the elderly, there is no question that it is very difficult to ask the person in their late 60's or 70's who has lived in a neighborhood for a number of years to move, but one must analyze whether the obligation to relieve the situation should be borne by both the private and the public sector as opposed to the private sector alone.

When I first began to do condominium conversion in the early 70s and before any attempt by the City Council to regulate conversions, I helped develop a plan to allow elderly tenants to purchase units for a total monthly cost similar to the rent at the time the person purchased the unit. Elderly people would be granted purchase money mortgages at extremely low and flexible interest rates. If the tenant wished to remain but did not want to purchase the unit, the unit could be sold to a third party, but only with the condition that the elderly person could remain an occupant as long as he or she so desired. This plan meets the needs of a segment of the population without destroying a whole industry. It is interesting that the city has not once attempted to create any plan to allow its senior citizens to acquire condominium units by way of subsidy with all the excessive windfall tax payments that it has received through condominium conversion. If the city created a plan of this nature, it would also create a new form of elderly housing in neighborhoods all over the city instead of isolating the elderly in limited areas. This housing could be passed on from generation to generation of elderly and would be less expensive for the city than to acquire and build new housing today.

In addition, the city and the condominium developer could form a joint program helpful to condominium developers and which would create a low interest mortgage rate to the elderly. If the city set low real estate tax on the unit, it would allow the minimum cost for housing and at the same time avoid the necessity of government subsidization.

Lastly, rental of real estate does not give a tenant ownership rights. Therefore, an owner must be allowed to owner-occupy his or her property if that is desired. If the government attempted to create a law depriving owners of this constitutional right (as I feel Cambridge has attempted to do by adopting Ordinance 926), then there is a redistribution of property rights equal to the taking of property by the government without due compensation. I suggest therefore that our City Council try to adopt regulations within constitutional limitations or create positive programs to resolve problems that may exist. Otherwise, court battles will go on and on and the real losers will be the many citizens of this city who desire the privilege and right of being able to purchase decent housing at reasonable prices.

WILLIAM H. WALSH is a native resident of Cambridge where he has been practicing law for the last ten years. He is a graduate of Suffolk University Law School.