I find over and over as I knock on doors and talk to voters that people yearn for ways to fight the wave of gentrification in Somerville. They are scared of being displaced, or have already been displaced before and fear not being able to find a place if forced to move again. Finally, there’s a lot of fatalism around gentrification: “What can we do?”
I’ve heard that same fatalism from city officials, and quite frankly that’s disappointing. The fact is that there are many things we can try to keep residents from being displaced.
I’ve written at length here before about the benefits of commercial development and the carry-through effects of reducing residential real estate taxes, and thankfully that message seems to be heard at the city level. I still don’t think we’re doing enough to encourage commercial development instead of luxury residential, but at least it’s being heard.
What I’m not hearing are innovative ideas for how to keep residents here in Somerville. Fortunately, I’ve got more than a few of those that I’d like to implement. The first one I’ll write about in this blog is implementing a Right-of-First-Refusal law here in Somerville.
What is “Right-of-First-Refusal”?
Put simply, ROFR is a law that says that tenants in a building have a fair chance to purchase that building if the owner is seeking to sell it.
All too often in Somerville, when a property goes up for sale the timeline looks like this:
- Property lists on Thursday.
- Open House on Saturday.
- Cash offer buys the house on Monday at noon.
- Tenants are immediately displaced, construction crews arrive to start renovating the property to luxury standards.
This process doesn’t leave much room for regular working families to buy a house even if they’re in the market already with a pre-approved mortgage in hand. For tenants in a building that is getting sold who are caught by surprise, there’s no room at all.
That’s where a ROFR law comes in to help: if a building is offered for sale, the tenants get a window of time in which they can match that asking price (market price) and come up with financing to buy it.
Maybe the tenants can get a mortgage on their own. Maybe they can get family to help. Maybe in a multi-unit building the tenants can form a co-op and finance it together to purchase their homes. Maybe they can get assistance from the neighborhood’s Community Land Trust. (More on this particular concept is coming in part 2 of this series.)
Regardless, the result is that tenants have a fair chance to buy the building they currently rent and live in, preventing displacement from the neighborhood and increasing home ownership in Somerville.
Did you know? Only 20% of residents in the Union Square area own their homes. This is targeted to reduce to 12% after the completion of the Union Square Revitalization Plan.
Implementing a Right-of-First-Refusal law
This is not a new and untested concept. Washington DC has had a law of this kind since 1980, and it has been effective in reducing displacement and increasing opportunities for homeownership. There are some problems with how that particular law (TOPA) is written, and I’ll be proposing specific language for this ordinance that prevents assigning ROFR rights to non-tenants and which clearly defines tenants as people who have signed leases in place, but the long track record of ROFR laws in Washington and other cities will allow us to craft a thoughtful and effective ordinance that does what we intend it to do.
The Board of Aldermen has the authority to pass a ROFR law here in Somerville, and if elected I intend to make it a priority to get one through the Committee on Legislative Affairs and brought to a vote. I look forward to working with the skilled lawyers already on the Board to help craft a fair and resilient law that benefits all Somerville residents.
Questions about Right-of-First-Refusal
As I talk to neighborhood residents here in Ward 2, both homeowners and tenants rightfully have questions about how this kind of law would impact them. Here’s a few of those that I’ve heard:
Q: Would this limit how much I could sell my property for, as a property owner?
A: No. If anything, it will make pricing properties a more realistic proposition. Under a ROFR law, a property owner is free to place whatever asking price they want on their property. The tenants simply have the first shot at matching that asking price. If the tenants decline, the property goes onto the open market and the usual bidding war can commence.
Q: How much time would I have as a tenant to buy the house?
A: This varies based on the actual text of the ROFR law, but I’d be inclined to suggest a 30 day period to sign a Letter of Intent for tenants to match the seller’s asking price. That should be enough time for tenants to explore their options and decide to begin the purchase process. After that, there would be statutory limits on time to negotiate the terms of the sale and secure financing for the transaction. If the process falls through, the property would just go on the open market.
Q: Would this program cost the city of Somerville any money?
A: Absolutely not. This is not a subsidy, nor is it a process the city is required to monitor or enforce. It would be a law governing certain specifics of real estate transactions, and like other such laws would just become part of the process that realtors and real estate lawyers help both sellers and buyers navigate all the time.
Q: Would this program slow down the process of selling my house, as a homeowner?
A: If you have tenants in your property, yes – and it is intended to do that. If you are selling a condo or single family home you live in, the law won’t impact you at all.
Q: What happens in the event of an off-market offer (also known as a private sale)?
A: The process would trigger when the official private offer was made to sell the property. That price offered by a private buyer would become the market price which the tenants would have an opportunity to match.
Q: Would this keep me from handing my house down to my children and grandchildren?
A: No. The law as I envision it would allow you to pass ownership of your home to your descendants.
Q: Would this process actually prevent displacement and slow gentrification?
A: ROFR laws have been shown to be quite effective and protecting tenants and stabilizing neighborhoods.
Do you have more questions about Right-of-First-Refusal laws, how they work, and how they would impact Somerville?
If so, please shoot me a note at [email protected] or post to the comments below. I’ll be glad to hear your ideas and talk more about how this simple tool can help ensure that Somerville has a home for all of us!
Hi JT,
I think this is a good proposal, and should absolutely be adopted in Somerville. I am concerned however that there aren’t many renters who could afford the fair market value of their property if they were offered the ROFR before it went to market. With the median home price at $685k, a renter would have to be making $150,000 a year to be able to afford to purchase the property (assuming they spend 35% of their income on mortgage and property taxes, and assuming they have over $100k lying around for a down payment). So the way I see it, any renters not already solidly upper-middle class would not benefit from this type of program; the market is simply already too hot. I think it couldn’t hurt to have this procedure on the books, but seems like the emphasis should be on other programs.
There are other strategies to promote affordability that Somerville hasn’t yet adopted – I’m wondering if you would support and champion a real estate transfer tax, where the city receives a small percentage of the sale of a property which would go into a fund available for developing new affordable housing. This could be a higher percentage for properties sold within a year or two years, which would reduce incentives for flipping.
Thanks-
Jon, Ward 2 resident