Attachment 5ATTACHMENT 5
Potential BMP program changes or considerations
1) Make all future BMPs rentals.
2) Make all future BMPs apartments when possible.
3) Future BMP given higher priority to current Los Gatos residents and
employees.
4) Change the resale procedures and deed restrictions to reflect what other
jurisdictions are doing.
5) Disallow single family homes as BMPs.
These potential changes will make the program fair and accessible for more Los
Gatos residents. In addition, these changes may save the town money and staff
time.
Explanation:
The first two points above (rentals and apartments) allow residents to avoid
qualifying for loans as ALL FUTURE BMPs will be rentals. Also, BMPs will be
viewed more as “starter” places to live and they will potentially be turned over
more quickly, thus being available to more people with real need.
BMPs as rentals only will dissuade abuses such as default payments which in the
past have led to the town footing the bill for repairs, taxes, HOA dues and past
due mortgage payments. Lastly, BMP rentals should discourage residents from
obtaining a unit and subsequently renting it out for profit when they acquire
another primary residence “market rate” home.
Regarding single family homes as BMPs. More people can be served by
disallowing SFRs worth $2 million to be handed over to very few residents for
$300K. This is a fairness issue.
What occurs is buyers in a new subdivision are charged more for their homes to
subsidize BMPs. This raises home prices and effectively shuts more buyers out of
the market.
In addition, the BMP qualifying system can be gamed as self-employed individuals
can under report their earnings to qualify for BMPs, or people can add family
members to their households to add more qualification points to get a single
family home. Or, a cash buyer with low reported income can buy a BMP outright
and get a $2 million home for $300K, even though they were pretty well off and
could have gone elsewhere and bought a home at market rate with their down
payment of 300K.
Next, since the Town has not revised its BMP program in a long time it would be a
good idea to look at what other jurisdiction are doing in regard to resale
procedures and deed restrictions. Reasons for this are as follows: BMPs are less
likely to be maintained and improved by their owners, as their equity positions
are very limited under our current BMP program. Owners may not see value in
replacing a roof or other basic maintenance if they will not recoup costs and at
least some percentage of equity. Ultimately, these costs may become the town’s
burden or passed onto the next BMP owner.
In addition, BMP owners are ironically cheated out of wealth. When home prices
in Silicon Valley rise over 20 years, BMP home prices don’t. BMP owner’s
retirement nest eggs or college funds are “robbed” from them under the current
plan. For example, if a party buys a market rate home for $800K and 20 years
later the value is $2.5 million, then that party has $1.7 million in wealth. If a party
buys a BMP home for $400K, (that was supposed to be worth $800K as a market
rate home) and 20 years later the home is only allowed to be sold for $450K back
to the program, then that party is cheated out of wealth ($1.65K million in this
scenario). In Silicon Valley, families rely on their homes for their retirement and
this trend is not changing. Therefore, we should look at what other jurisdiction
are doing in regard to resale procedures and deed restrictions and how they are
dealing with BMP owners that get stuck with a “no equity” position as we are
unintentionally keeping them poor.
Regarding point 3 above. Los Gatos residents and people who work in Los Gatos
should get many extra points to encourage residents to stay. I’m not sure if our
current program emphasizes residency and local employment points enough.