Elected Officials to Blame for California’s Homegrown Housing Problem

August 26, 2018 By Roxanne Beckford Hoge 6 Comments

house-constructionWe see the headlines daily — California has an affordability problem when it comes to housing. People have to live further and further away from their jobs, and even a median-priced condo is out of reach for many. Since this affects so many of us, and since California now has about a fourth of the nation’s homeless population, compassionate people want to do something. But that something could make a bad situation even worse. As former U.S. Sen. Tom Coburn, R-Oklahoma, says, “the best way to make something expensive is for government to make it affordable.”

After emigrating from Jamaica as a child and settling in Florida, I came to California as soon as I could. Our amazing state — with its lack of humidity and flying bugs — has always been attractive to aspiring actors, creators and entrepreneurs, so a higher cost of living was expected as a down payment on living the California Dream. What’s happening now, however, is causing sleepless nights for many.

First, we need to understand how we ended up with this problem. California has lots of people willing to build, so how did we not keep up with the clear demand for so long? For years, the state has consistently added about half the housing needed to keep pace with the population. Our elected officials shoulder much of the blame, by constraining supply due to mandates and regulations. Now, of course, they’d like to be part of the solution. Central planning, however, has never worked, even though it’s been tried in myriad ways and in many different variations.

The first hurdle that politicians enacted was the California Environmental Quality Act. Instead of being used to address real environmental concerns and protect our unique topography, it’s often used as a cudgel to enact wage and other concessions from developers. Over a third of the lawsuits filed under CEQA have to do with housing. This, of course, adds costs and delays to development, and gives pause to anyone considering building in the state. …

Click here to read the full article from the Orange County Register

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Are builders catching up to Southern California’s housing shortage?

July 22, 2018 By Jonathan Lansner Leave a Comment

house-constructionSouthern California builders are putting a dent in the regional housing shortage, selling new homes at a pace not seen in nine years.

CoreLogic data shows 18,117 new residences sold in the 12 months ended in May across the four counties covered by the Southern California News Group. That’s the best performance since January 2009, and it’s up 7.7 percent in a year.

This means new housing’s share of sales also grows. Builders were responsible for 8.1 percent of all Southern California home purchases in the past year. That’s the highest share of sales since March 2009.

Still, the upswing looks sluggish compared with housing development before the Great Recession.

From 2000 through 2006, Southern California builders were selling homes more than twice as fast as today at a 43,000 units-a-year pace. (Don’t forget one reason for recently modest homebuilding — that last development frenzy ended badly when real estate’s bubble burst.) …

Click here to read the full article from the Orange County Register

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Making the Housing Shortage Worse

May 10, 2018 By Charles Crumpley 1 Comment

Rent ControlWe have a severe housing shortage, and last week our mayor said that he’d help make matters worse.

If Eric Garcetti gets his way, rent control could be imposed on far more apartments in Los Angeles and throughout the state. That’d be great for the few folks lucky enough to get a rent-controlled unit. It’d be bad for everybody else.

That’s not a surprising statement. Studies have shown that. Let’s look at one of the latest.

A working paper published in January by the National Bureau of Economic Research examined the effect of a 1994 ballot initiative in San Francisco that slapped rent control on smaller buildings constructed before 1980. Three economists followed what happened to those buildings and compared their fate to similar buildings constructed after 1980.

So what happened? First, there was a reduction in the number of rent-controlled units as landlords decided to convert their buildings to condos or otherwise redevelop their properties. In fact, rent-controlled buildings were 10 percent more likely than the non-rent-controlled buildings to convert, “representing a substantial reduction in the supply of rental housing,” the report said.

Second, there was a 25 percent reduction in the number of renters living in rent-controlled units compared to 1994, largely because of “landlords demolishing their old housing and building new rental housing,” the study said. “New construction is exempt from rent control.”

So there was a drop in the number of rental units as well as a decrease in the number of tenants who enjoyed rent control. No surprise there.

In short, rent control makes matters worse, which pretty much every informed person knows with the apparent exception of Garcetti. What was a teeny bit more surprising was the working paper’s assertion that rent control increased gentrification as well as worsened income inequality in the city.

How so? One of the authors of the working paper, Rebecca Diamond, an assistant professor of economics at Stanford University, was quoted as saying that rent control “pushed landlords to supply owner-occupied housing and new housing – both of which are really the types of housing consumed by rich people,” she said.

“So we’re creating a policy that tells landlords, ‘It’s much more profitable to cater to high-income housing taste than low-income housing tastes.’”

In other words, rent control makes matters much worse.

What’s particularly alarming about last week’s news is that the current move to impose more rent control would make matters even worse than you might expect. That’s because the proposed statewide ballot initiative that would roll back the Costa-Hawkins Rental Control Act (the initiative which Garcetti last week called a news conference to endorse), would not only give cities the green light to allow rent control to be slapped on apartments built after 1978, but it would take the extra step of limiting the ability of landlords to raise rents after one tenant leaves. The way it works now is that when one tenant leaves a rent-controlled unit, the rent can immediately catch up to market rates for the incoming tenant. Rent increases are limited thereafter, until that tenant leaves.

That provision alone is a killer. It would mean landlords would be doomed to falling further and further behind market rates. That means more apartment buildings would not pencil out, and landlords would rush to empty out their buildings, scrape the ground and construct something new – something that’s not an apartment building. We’d see declines much greater than 25 percent in tenants enjoying rent control.

Look, the yearning to do something is understandable. After all, rents have popped up alarmingly and even folks with good incomes are being priced out of homes. But imposing more rent control would only choke supply and make matters much worse.

The real issue is supply. If we had more construction, the shortage would eventually disappear. But for that to happen, developers need to feel confident that they can build with the certainty that they can earn enough income to pay their mortgage and other bills and get a reasonable return. Right now, they can’t. And mayoral endorsements of rent control make matters worse.

 is editor and publisher of the San Fernando Valley Business Journal.

This article was originally published by Fox and Hounds Daily

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