OPA is Horrible for Renters in East Palo Alto

East Palo Alto City Council will vote tonight (Tuesday December 5th, 2023) on OPA, the “Opportunity to Purchase Act.” Much of the focus in the opposition to OPA has been on the real damage OPA does to homeowners in EPA, but I wanted to point out that OPA is equally damaging to renters. OPA is a profound danger to tenants, and if passed will lead to higher rents, displacement, and not solve any of the problems it claims to address.

If OPA is passed, many current investors will sell their properties in East Palo Alto. This will lead to two outcomes: 1) Displacement 2) Higher rents due to less rental properties on the market and increased mortgage costs.

Let’s look at this in detail. Many investors have single-family home properties which have appreciated in value in addition to moderate rental income. OPA targets these properties, and the logical response from homeowners of these rental properties is to sell.

Who will buy these properties? At $1 million dollars a home, the logical purchaser will be a tech worker at Google, Facebook, Apple, Amazon, or any of the many other local employers. If this becomes an owner-occupied property, the tenants will be displaced. Not only will tenants be displaced in this scenario, but one more rental property will be removed from the market and the supply of housing will go down. This will lead to higher rental prices in EPA.

Another scenario is that the rental property is bought by another investor or a non-profit organization for the express purpose of renting. This property – which may have been originally purchased for $150k in 1996 – qualified as being “naturally affordable.” It could be rented out at a small profit at $2,000 per month. After a sale in 2023 the rental price will spike dramatically. The current mortgage on a property in East Palo Alto will be more than $6000 per month. It would be hard to rent out this property for less than that without taking a significant loss. There is not a magic mortgage fairy which will magically finance home purchases at low interest rates like we saw from 2010-2022. That ship has sailed and we are in a new era of higher finance charges.

Tenants should also be warned that OPA will not lead to true homeownership. Under OPA, tenants will not own the land underneath the property they are living in. There is no “generational wealth” created under this scheme, just the added expense of home ownership with none of the long-term financial upside. Under OPA, tenants will be saddled with insurance, taxes, maintenance, utilities, and every other cost of homeownership but will not realize any profit down the road if they want to sell.

OPA will also lead to less new housing in East Palo Alto. Why would you build in East Palo Alto when the same project in Redwood City will not impose long sales delays, loss of the valuable “right of first refusal”, and stiff financial penalties for non-compliance of arcane rules? It is clear to me after talking to multiple developers that many projects – and the affordable housing projects that go with them – will simply not be built if OPA is passed.  This will have at least two major effects. First the quality of rental housing in EPA will continue to degrade. Current apartments are old, seismically unsafe, run-down, and in desperate need of replacement. Second, a lack of supply will continue to raise rental prices and lead to more displacement due to high costs.

There are far better programs to help tenants purchase homes in East Palo Alto than OPA. The City can explore first time purchaser programs, down payment assistance, FHA loans, and other programs that provide true home ownership without affecting either the rental market or current homeowners home equity. EPA can do far better than OPA, and I hope that we see Council vote “NO” tonight on the current proposal and move on to addressing more important issues in the City.

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