CVIndependent

Mon10152018

Last updateTue, 18 Sep 2018 1pm

Astronomical prices are forcing a rising share of California families to postpone buying a house. As a result, the state’s record-low homeownership rate has been a boon to one growing segment of California’s housing market: single-family home rentals.

Between 2005 and 2015, the number of owner-occupied homes in California shrunk by nearly 64,000 units, according to the Public Policy Institute of California. Meanwhile, the number of renter-occupied homes increased dramatically: California now has 450,000 more homes used as rentals than it did a decade ago. Compare that to the 1990s, when the number of rented homes grew by less than 120,000, while the state added 700,000 homes owned by the people who live in them.

The rising tide of single-family rentals has renewed attention on where the rent payments that nearly 2 million Californians make each month are going. Lawmakers and first-time homeowner advocates have been scrutinizing a relatively new form of landlord: private investment firms that snapped up thousands of homes during the foreclosure crisis and now rent them out. With nearly one in four California homes now purchased in all-cash, these well-financed institutional investors have also been blamed as unfair competition against families bidding on starter homes.

So how much are institutional investors impacting California’s housing prices? The data says not so much now.

Institutional investors accounted for less than 2 percent of California single-family home sales last year.

Typically, the term “institutional investor” refers to private investment firms that buy dozens of residential properties with the explicit aim of generating a steady income stream through rentals. They often invest the money of wealthy individuals and public pension funds, like those established for California state workers and teachers.

The best example is Blackstone, a publicly traded Wall Street firm that barreled into the country’s single-family home market in the depths of the Great Recession in the late 2000s. Through its residential investment-focused subsidiary, Invitation Homes, Blackstone is now the largest owner of single-family homes nationwide. In California, the company owns about 13,000 homes.

But firms such as Blackstone have stopped buying wide swaths of California homes. According to the real estate data firm ATTOM Data Solutions, which defines institutional investors as entities that buy 10 or more homes in a given year, institutional investors accounted for less than 2 percent of the state’s single-family home and condo sales in 2017.

That’s a pretty steep drop from as recently as 2012, when institutional investors accounted for about 7 percent of sales.

Why the decline? California no longer has a glut of cheap houses that can be easily gobbled up in foreclosure auctions. A sustained economic recovery and a lack of new-housing construction has sent housing prices skyrocketing. It’s now too expensive for institutional investors to buy lots of California homes. Blackstone’s Invitation Homes bought only 82 California houses last year.

“The low inventory and homeownership rates are good (for investors) if they own the property—it means more renters,” says Daren Blomquist, senior vice president at the real estate data firm ATTOM. “But it’s bad if they’re trying to acquire more properties.”

Those all-cash offers beating out would-be homebuyers aren’t coming from large investment firms anymore. Wealthy “mom-and-pop” landlords—families that can afford to buy another house and rent it out as an investment—now dominate the single-family rental market. Among all single-family rentals nationally, about 80 percent are owned by individuals that rent out just one or two homes, according to ATTOM.

But aren’t institutional investors keeping houses off the market—and doesn’t that drive up prices?

Institutional investors aren’t keeping enough homes off the market statewide to blame them entirely for California’s astronomical housing prices. But in certain markets—especially in areas hit hard by the foreclosure crisis, such as the Central Valley and in the Inland Empire—it’s impossible to pretend they have no influence.

Among cities with at least 100,000 residents, Sacramento has seen the most properties sold to institutional investors since 2007, according to ATTOM’s data—about 6 percent of all homes sold in the city during that time span. Just down Interstate 10, San Bernardino and neighboring Rialto have seen the largest share of their housing stock bought by institutional investors, at roughly 10 percent.

Firms have largely stayed away from Bay Area cities, where the foreclosure crisis was less acute, and where housing prices are among the most expensive in the country.

“We do not believe our activity impacts prices at any level,” a spokeswoman for Blackstone subsidiary Invitation Homes wrote in response to questions.

Institutional investors have targeted the typical starter home in these cities—three-bedroom, two-bath houses at a price point that a few years ago could have been afforded by younger families. So in some cases, would-be first-time homebuyers are now renting in places they may have bought just a few years ago.

Still, the stock owned by investment firms in these areas is much lower than in places such as Atlanta or Phoenix, where private firms have been responsible for nearly one in four home purchases. And young families are more likely to be renting single-family homes from smaller landlords.

Proposed laws to help first-time homebuyers have stalled

Reports of institutional investors making all-cash offers on California homes caught the attention of state Sen. Ian Calderon, a Democrat from Whittier, when he was attempting to move out of his apartment and purchase his first house last year. While the 32-year-old lawmaker acknowledges that institutional investors don’t own a large chunk of California’s housing stock, he says he’s concerned their influence is yet another hurdle for young homebuyers to overcome.

“I just want to be able to have more information about these firms, and ultimately I want to advantage first-time homebuyers,” said Calderon. “I want to make sure that people aren’t getting screwed.”

Multiple attempts by Calderon to impose more transparency on institutional-investor activity while blunting their ability to make all-cash offers have not gone far in the Legislature. Two years ago, a bill that would have forced homeowners to wait 90 days before selling to large institutional investors failed to clear both chambers with that provision intact.

Last year, a bill that would have required investors who own more than 100 properties in California to register with the state and provide detailed information on their activities again failed to reach the governor’s desk. Caldeorn says there’s a good chance that bill will be resuscitated this year.

The California Apartment Association, which represents landlords across the state for both multifamily and single-family units, has opposed much of Calderon’s legislation, arguing that much of the information it seeks is available in public stock exchange filings. That’s mostly true, but that only applies to publicly traded firms, and the data is not in the most accessible format.

Landlords also say Calderon’s bill doesn’t address the root cause of the problem.

“The bottom line here is about supply,” said Debra Carlton, lobbyist for the California Apartment Association. “There’s just not enough housing to go around, so you end up in these unfortunate situations where people can’t buy and can’t afford a place to rent.”

A previous story investigated another player with a greater effect on California’s housing market—foreign buyers. CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.

Published in Local Issues

As Gov. Jerry Brown neared the end of his last State of the State speech on Thursday, Jan. 25, he invoked a name that has become a frequent theme: August Schuckman, his own great-grandfather, who left Germany in 1849 and “sailed to America on a ship named Perseverance.”

The 79-year-old Democrat cast his ancestor’s journey—and the ship’s poetic name—as a metaphor for California in an era of natural disasters and deep rifts with the federal government. “We, too, will persist,” he said, “against the storms and turmoil, obstacles great and small.”

Brown, delivering his 16th such speech during an unprecedented four-term tenure as California governor, contrasted California with the direction the United States is heading under Republican President Donald Trump—touting the state’s efforts to combat climate change and its embrace of Obamacare. He reiterated his commitment to two major infrastructure projects he’s long championed: a high-speed train that would eventually connect Los Angeles and San Francisco, and a massive tunnel to move water from the north end of the state to the south. And he gave an impassioned plea for legislators to look at the big picture of California’s criminal-justice system instead of passing new laws in response to crimes ripped from the headline.

Democrats praised Brown for an optimistic speech that demonstrated the hallmarks of his leadership. Even some Republicans offered mild praise: Assembly Republican Leader Brian Dahle called Brown “one of the most conservative Democrats in this place” for his relative prudence. But he criticized the governor for signing laws, like the gas tax, that raised the cost of living in California.

What Brown didn’t mention: the fact that California has the highest poverty rate in the nation; that housing prices that have skyrocketed beyond affordability for many residents; and that the state’s tax structure exposes it to perpetual cycles of boom and bust.

Also absent were the obscure intellectual references that have studded his past speeches—although he did contrast the state’s bloated penal code with the Ten Commandments.

His also struck some themes that are vintage Jerry Brown. He cited California’s recent wildfires and mudslides, as well as the Doomsday Clock, echoing past speeches in which he predicted environmental disaster. He advocated remedies to slow global warming—like clean cars and renewable energy—that resembled ideas he espoused when he was first elected governor more than four decades ago.

“We should never forget our dependency on the natural environment and the fundamental challenges it presents to the way we live,” Brown said to his 2018 audience. “We can’t fight nature. We have to learn to get along with her.”

Yet as he looked forward for California, he also looked back at his own family history. When Brown was first sworn in, in 1975, he rarely talked about his ancestry. As the years mounted, however, he has increasingly turned to his family-origin stories to illustrate his belief in California’s potential.

Now the Brown family’s California Dream is a common trope in his rhetoric. He talks about the great-grandfather on the Perseverance, the grandmother who was the youngest of eight children, and the father, Pat Brown, who preceded him in the governor’s office.

Some of that reflection may be the natural consequence of age. But it also reveals a governor more assured of his own accomplishments and less fearful that he’s riding on his father’s coattails, said political scientist Sherry Bebitch Jeffe. A professor at University of Southern California, she’s been following Brown’s career since he ran for the Los Angeles Community College board in 1969.

The younger Brown first moved into the governor’s office less than a decade after his father had moved out. During those first two terms in office, Jeffe said, Brown went to great lengths to distinguish himself from his father.

“He did not want to live in his shadow,” she said. “Jerry wanted to build his own legacy, his own philosophy of governance.”

His early speeches reflect the schism. Brown—a 37-year-old bachelor at the time, who famously slept on a mattress on the floor of an apartment—opened his inaugural address in 1975 with a quick quip about his dad. “My father thought I wasn't going to make it,” to become governor, he said. “But here I am.” He went on to talk about problems with environmental and land-use rules, and the need to provide a better system for funding schools and farmworker rights.

For the next six years, Brown used his State of the State speeches to float ideas: developing more clean energy, building more prisons, making housing more affordable, putting a satellite into space, and overhauling the bail system. Then, as now, he acknowledged the uncertainty of the future and urged lawmakers not to spend too much.

But near the end of his first two terms, Brown’s 1982 State of the State speech reminisced about his father, his grandmother and his great-grandfather Schuckman, who traveled the plains from St. Louis to Sacramento during the Gold Rush.

“Let me read to you from the diary that was kept during that trek westward,” Brown said then, recounting in detail their journey across deserts, through rivers and over mountains. He spoke of oxen dying of thirst and wagons going up in flames.

“These were men and women who matched our mountains, and in not too many years, built these walls,” Brown said. “We are bearers of that powerful tradition. It still drives our people and the hundreds from foreign who arrive in our state each day.”

Most people assumed, of course, that 1982 speech would be Brown’s final State of the State. But after serving as Democratic Party chair, Oakland mayor and attorney general, he reclaimed the governorship in the November 2010 election. In his inaugural address in January 2011, Brown again read from Schuckman’s diary.

“We can only imagine what it took for August Schuckman to leave his family and home and travel across the ocean to America and then across the country—often through dangerous and hostile territory—in a wagon train. But come he did, overcoming every obstacle,” Brown said.

In 2015, Brown reflected on his father’s leadership in ways he never did in those speeches during his early years as governor.

“The issues that my father raised at his inauguration bear eerie resemblance to those we still grapple with today: discrimination; the quality of education and the challenge of recruiting and training teachers; the menace of air pollution, and its danger to our health; a realistic water program; economic development; consumer protection; and overcrowded prisons,” Brown said. “So you see, these problems, they never completely go away. They remain to challenge and elicit the best from us.”

Whatever challenges lie ahead for 2018 and beyond, Brown said on Thursday: “All of us—whatever our party or philosophy—have a role in play in defending and advancing our democracy. Our forebears set the example.”

Now he’s planning retirement on the rural land in Colusa County where Schuckman settled in the 1800s. Though Brown’s upbringing is very different from most Californians, his family stories can make the austere governor more relatable, said Roger Salazar, a Democratic political consultant who works for the Legislature’s Latino Caucus.

“It’s a story that I think a lot of legislators can relate to,” Salazar. “When you look back at your familial history and the context in which they came to California, I think that’s something that we all can connect with.”

CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.

Published in Politics

One way or another, two words are likely to dominate the complicated politics of California’s housing crisis in 2018: rent control.

On Thursday, Jan. 11, state lawmakers are slated to hear a proposal from Assemblyman Richard Bloom, a Democrat from Santa Monica, that would allow cities to dramatically restrict what landlords can charge tenants year over year.

The bill couldn’t even get a hearing last year amid intense opposition from landlords. But looming over legislators’ heads this time around is a potential ballot initiative supported by tenants’ rights groups that would do much of the same. If the bill stalls, there’s a good chance you’ll see the rent-control question on your November ballot.

What should an average Californian know about a rent control debate poised to gobble up so much political oxygen? Here are five key points:

1. Under current state law, a wide swath of California’s housing stock can’t be placed under rent control.

Rent-control or rent-stabilization policies come in different shapes and sizes, depending on the city in which you may find them. Some place a hard cap on how much a landlord can raise rents year over year, while others may be indexed to inflation. Currently, 15 California cities have some form of rent control on the books, including major population centers like San Francisco, Los Angeles and Oakland—and one Coachella Valley city, Palm Springs.

But current state law prohibits any locality in California from imposing rent control on properties built after 1995. That’s the year the state passed the Costa-Hawkins Act, which also prohibited cities that already had rent control laws on their books from updating them for new properties. Thus in Los Angeles. rent control only applies to buildings constructed before 1978, and in San Francisco, rent control only applies to buildings built before 1980. Palm Springs’ ordinance only covers properties built before April 1979, among other exclusions.

A bit of background: After some cities responded to tenants’ concerns about rising rents in the 1970s and 80s by adopting rent-control ordinances, real estate interests first tried to stop them in the courts. Unsuccessful there, they focused on the Legislature. Bills to pre-empt local rent control would routinely pass the Assembly and then die in the Senate, held up by then-Senate President Pro Tem David Roberti, a West Hollywood Democrat. The year after he was termed out of office, Costa-Hawkins passed by a one-vote margin.

Both Bloom’s bill (as it is currently written) and the initiative would fully repeal Costa-Hawkins, massively expanding the number of properties on which cities could impose rent control. That includes single-family homes, which Costa-Hawkins also excluded from rent control protections. (Palm Springs’ ordinance currently excludes “buildings consisting of four units or less containing one unit occupied by the owner as his/her primary residence.”)

2. Most economists—left- or right-leaning—think rent control is bad.

Economists have a hard time agreeing on most things, but regardless of partisan leaning, most economists say rent control is not great policy. Even prominent progressives like Paul Krugman have expressed opposition.

Rent control is quite literally the textbook example of a “price ceiling,” and undergrad economics textbooks will often feature problem sets with questions about what’s wrong with rent control. The classic microeconomic downsides include killing the incentive to build more housing, causing landlords to neglect maintenance and repair, and inflated prices for non-rent-controlled units. A poll of ideologically diverse economists found that only 2 percent agreed with the statement that rent control had a positive impact on housing affordability in cities like New York and San Francisco.

3. Scholars in other fields are generally bigger fans. And if you took away rent control, the results could be disastrous for affordability.

Many urban planners and other scholars studying gentrification and displacement cite rent control as an effective policy to keep long-time residents in the communities in which they live and work. And because rent control has become so deeply embedded in the housing markets of some cities, taking it away—no matter how economically inefficient it may be—could spell disaster for current residents.

The Bay Area Council Economic Institute—a business-aligned policy think tank—ran a simulation of 20 policy changes that could improve or worsen housing affordability in San Francisco. The policy that would make things worst? Getting rid of rent control, which they found would plunge 16,000 households into an unaffordable housing situation.

4. One of the best studies of rent control shows that it primarily benefits older households—at the expense of households without rent control.

There actually aren’t a ton of empirical studies looking at how rent control plays out in practice. But a groundbreaking Stanford University study released last year on San Francisco’s rent-control experience has shed new light on who wins and loses from the policy.

Looking at a roughly 20-year span of proprietary rental and migration data, the study authors found that rent-controlled tenants age 40 or older saw average savings of nearly $120,000 from rent control; by contrast, younger rent-controlled tenants only saved an average of $40,000.

That’s because younger households were more likely to move out of rent-controlled apartments because of various life milestones—a new job, a new family, buying a house in the suburbs, etc.

5. The study also found that rent control paradoxically fueled gentrification, as landlords converted units to condos.

The Stanford study found that rent controlled buildings were 10 percent more likely to be converted to a condominium or some other type of non-rental property, as landlords searched for ways to evade the law. Those units being drawn off the market partly drove up rental prices for tenants searching for apartments in San Francisco. In this sense, the study authors argue, rent control paradoxically contributed to the well-publicized gentrification the city has experienced over the past few decades.

While the study also found that rent-controlled tenants were more likely to stay in the city than tenants without rent control, the gap may not be as wide as you think. After 10 years, about 11 percent of tenants without rent control were living at the same San Francisco address. Tenants with rent control? Just 13 percent stayed put.

The rent control bill will be heard by the Assembly Housing and Community Development Committee on Thursday, Jan. 11 at 9 a.m., and will include a public comment period. You can watch the hearing—which should be pretty lively as far as legislative hearings go—here.

CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics. For more of Matt Levin’s housing coverage, check out the CALmatters podcast “Gimme Shelter.” Jimmy Boegle contributed to this version of this article.

Published in Local Issues

People in half of California’s households struggle to afford the roof over their heads. Home ownership—once a staple of the California dream—is at its lowest rate since World War II. Nearly 70 percent of poor Californians see the majority of their paychecks go immediately toward escalating rents.

As of this writing, state lawmakers are debating a long-delayed housing package.Here’s what you need to know about one of California’s most vexing issues.

Just how hard is it to buy a home in California?

Hard. Really hard—both compared to how hard it is in other states, and how hard it was for previous generations of Californians to buy homes.

While it’s always been more expensive to be a homeowner in California, the gap between us and the rest of the country has grown into a chasm. The median California home is now priced 2 1/2 times higher than the median national home. As of 2015, the typical California home costs $437,000, easily beating the likes of Massachusetts or New York. Only Hawaii had more expensive houses.

Despite relatively low mortgage rates, exploding housing prices have caused California’s homeownership rate to dip significantly. Just more than half of California households own their homes—the third-lowest rate in the country, and the lowest rate in the state since World War II.

It’s not just housing prices that are affecting homeownership rates. Studies have found that student debt, rising income inequality and changing housing preferences among younger Californians are also at play.

Rents didn’t dip during the recession—and now are soaring

Rental costs across the state are some of the highest in the country. While listed housing prices dipped dramatically in the wake of the Great Recession, rents in California remained relatively stable before soaring in recent years in hot markets.

Across the state, the median rental price for a two-bedroom apartment is about $2,400, the third-highest in the country. But statewide figures water down how absurd the situation is getting in urban coastal markets, where the vast majority of Californians live. The median rent for a two-bedroom apartment in San Francisco reached more than $4,000 this year.

“It may cost more to live here, but they pay you more”

That’s somewhat true—median earnings for Californians are higher than the national average, and are significantly higher in regions, like the Bay Area, with tremendously pricey costs of living.

But on average, income over the past two decades has not kept pace with escalating rents.

The problem here is not just housing. Income inequality and wage stagnation in California also hinder low- and moderate-income households’ ability to pay for a home.

But in certain markets, even extremely high incomes aren’t enough to blunt the cost of housing. In San Jose, where the current median income is nearly $100,000, renters can still expect to pay 40 percent of their monthly income on rent, according to an analysis by real estate data firm Zillow.

Cities are being gentrified—as is the entire state

It’s difficult to measure things like “gentrification” and “displacement”—when the arrival of higher-income, higher-educated residents in a community results in the expulsion of longtime lower-income residents. But there’s little question change is happening rapidly across many California cities.

Researchers at UC Berkeley found that more than half of low-income households in the Bay Area are at risk of, or already experiencing, gentrification. It’s not just lower-income communities bleeding households; higher-income neighborhoods are losing their lower-income members as well. And in places like the Boyle Heights neighborhood of Los Angeles, gentrification protests have exposed escalating tensions between longtime Latino residents and new, predominantly white arrivals.

Where are these low-income people going? Increasingly, out of state.

From 2000 to 2015, the state lost nearly 800,000 residents with incomes near or below the poverty line. Nearly three-quarters of those who left California since 2007 made less than $50,000 annually.

The leading destination for California’s poor? Texas.

Rising rents are causing more homelessness

Housing costs are just one factor in the complex tangle of reasons people become homeless. California actually has fewer people experiencing homelessness now than it did a decade ago. But there’s little question rising rents are linked to more Californians living in cars and shelters, and on the streets—especially in the greater L.A. area.

While the vast majority of states saw a dip in their homeless population between 2015 and 2016, California saw an increase of about 2,400 people, according to statistics compiled by the U.S. Department of Housing and Urban Development. California accounts for about 12 percent of the nation’s population—but more than 20 percent of the nation’s homeless live here.

Recent numbers from Los Angeles County, where the number of people experiencing homelessness grew 30 percent over the past two years, have prompted cries for more eviction protections and rent control. Zillow recently estimated that a 5 percent increase in rent would result in an additional 2,000 homeless Los Angelinos. In 2016, rents grew an average of 4 percent there.

Millennials, Mom and Dad, and avocado toast

Nearly a decade removed from the depths of the Great Recession, 38 percent of California’s 18- to 34-year-olds still live with their parents, according to U.S. Census data. That’s roughly 3.6 million people—more than the entire population of Chicago.

Again, housing costs are not the only thing keeping junior from moving out. Student debt, disappearing labor markets and delaying marriage are also contributing to the trend

It’s a statewide problem

The extremes of the state’s housing crisis are concentrated in the Bay Area and greater Los Angeles, but the challenge is truly statewide. A widely cited report by the consulting firm McKinsey Global Institute found that in every metropolitan area in the state—from Fresno to Palmdale to Salinas—at least 30 percent of residents could not afford local rents.

The intense pressures of housing costs in coastal urban centers are spilling into inland cities—like those in the Coachella Valley. While San Diego, San Francisco and L.A. top the list of toughest rental markets in the country, cities like Sacramento and Riverside recently have experienced the largest year-over-year increases.

The housing crisis has major repercussions for the economy

Big business is also feeling the pinch of California’s housing crisis.

The McKinsey Global Institute found that housing shortages cost the economy between $143 billion and $233 billion annually—not taking into account second-order costs to health, education and the environment. Much of that is due to households spending too much of their incomes on the rent or mortgage and not enough on consumer goods.

Even the attractive salaries and lavish perks of Silicon Valley don’t make up for the local housing market, as young tech talent flees to the relatively inexpensive climes of Austin or Portland. Nearly 60 percent of Los Angeles companies in a recent University of Southern California survey said the region’s high cost of living was affecting employee retention.

It won’t be getting better anytime soon

The state estimates that it needs to build 180,000 homes annually just to keep up with projected population growth, and keep prices from escalating further out of control.

Unfortunately, for the past 10 years, the state has averaged less than half of that. In no year during that span did California crack the 100,000 barrier.

There’s fierce debate over how long it takes low-income residents to benefit from the construction of new market-rate housing; a renter on the wait list for housing vouchers won’t take much comfort in the luxury condos being built in downtown Oakland or Los Angeles. While California faces an affordable housing gap at nearly all but the highest income levels, the low-income housing shortage is most severe.

According to the nonpartisan Legislative Analyst’s Office, helping just the 1.7 million poorest Californians afford homes would cost $15 to $30 billion a year. The Los Angeles Times estimated that the three marquee bills being considered by lawmakers would provide less than 25 percent of that total.

This is an excerpt of the project “Californians: Here’s Why Your Housing Costs Are So high.” For the full report, go to calmatters.org. CALmatters is a nonprofit, nonpartisan media venture explaining California policies and politics.

Published in Local Issues