Confusion on CA housing market brings flurry of legislation

Debate over California’s housing situation ratcheted up amid conflicting data and a flurry of new legislation designed to mitigate high prices and low supply. 

Analysts have separated into two camps around Golden State real estate, one more bullish than the other. “Two recent reports — from Fitch Rating, a Wall Street credit reviewer, and Arch MI, a seller of mortgage insurance — attempt to gauge the stability of regional housing markets by tracking changes in real estate metrics vs. other economic measurements,” the Orange County Register reported. “Using a California prism, the studies draw wildly different conclusions. Fitch concludes California housing is among the most overvalued housing markets in the nation. Yet California is not on Arch MI’s list of riskiest places to own.”

“California was one of 10 states with overvalued housing by Fitch’s standards. Four states had the same pricing mismatch as California: Florida, Hawaii, Oregon and Utah. Next states on the dicier scale — 10 percent to 14 percent overvalued — were Arizona, North Dakota, Nevada and Texas […]. Idaho was in the worst shape at 15 percent to 19 percent overvalued. But Arch MI saw California with riskiness below the norm. California’s risk of falling home prices is ‘minimal’ or a 2 percent change of depreciation in the next two years. National risk by this math is 4 percent.”

Searching for answers

Along with an analytical split surrounding a possible housing bubble, residential options in California have been opening a gulf of their own. “California is one of the most unequal states in the country, and its housing market is similarly bifurcated, offering both multimillion dollar houses and rent-controlled apartments, but less and less of a foothold for people in the middle,” the American Interest observed. “This is a key reason so many working class families have left the Golden State in the past 25 years.” In a recent report issued by Bankrate.com analyst Claes Bell, “California ranked as the toughest state in the nation for first-time home buyers, who typically would be in the millennial age bracket of 18 to 34,” according to the Los Angeles Times. 

Policymakers grappling with the state’s compounded housing challenges have no shortage of plans to pore over — over 130 bills touching upon the issue, the Times noted. “Reams of statistics support the depth of the problem: California’s homeownership rate is at its lowest since World War II, a third of renters spend more than half of their income on housing costs and the state has nearly a quarter of the nation’s homeless residents — despite having 12% of the overall U.S. population,” the paper noted in a breakdown of some leading legislative contenders — which range from proposals to expand low-income rent-controlled units to increasing tax credits to pushing easier and less traditional permitting. 

Back to rent control?

The push toward increased rent control has been spearheaded by Assemblyman Richard Bloom, D-Santa Monica. “Bloom wants to repeal the state law known as the Costa-Hawkins Rental Housing Act, named after a moderate-leaning Democratic former state senator from the Central Valley and a short-time Republican assemblyman from Orange County,” the Sacramento Bee recalled. “During 1995, Jim Costa, now in Congress, and Phil Hawkins, who served just two years in the state Assembly, became the face of a disputed political campaign lodged largely by landlords and real estate interests to weaken – statewide – the ability of cities to pass strong rent-control laws. It came nearly two decades after the rent-control movement, born in cities like Santa Monica, Los Angeles, San Francisco and Berkeley, was spreading across the state.”

In core metro areas across California, rents have risen dramatically — in part reflecting an influx of wealthier residents to downtown urban neighborhoods, but also fueling a domino effect of hikes further down the affordability chain. “Statewide, average rents have increased 60 percent over the past 20 years. In 2016, median rents in the Bay Area and Los Angeles area ranged from $2,427 to $4,508, according to a housing report from the California Department of Housing and Community Development,” the paper added. “Nearly half of California’s households rent, and 84 percent of them are considered ‘burdened,’ spending 30 percent to 50 percent or more of annual income on rent.”

12 comments

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  1. Richard Rider
    Richard Rider 13 April, 2017, 11:04

    Government, at the behest of homeowners, makes real estate a good investment by restricting supply. It’s like taxi medallions before the cartel was broken by Uber.

    Great profits for existing homeowners at the expense of new buyers or people who simply CAN’T buy — who then end up paying artificially high prices thanks to this housing cartel imposed by government.

    Reply this comment
  2. Richard Rider
    Richard Rider 13 April, 2017, 11:10

    In CA, our sky-high housing costs are MAN MADE. We intentionally severely restrict building sites, and building heights — especially anywhere near the coast.

    When it comes to housing prices, it’s really quite simple: When government restricts housing supply (via zoning and expensive regulation) plus tacks on big costs to any housing built, an inadequate amount of housing is constructed. Consider:

    The vaunted post-recession “housing building boom” in California is fizzling out. Here’s a sobering graphic.

    http://www.aei.org/publication/monday-afternoon-linkage-4/

    More permits for single-family homes have been issued in Houston than in the entire state of California both:
    a) 2016 through March (9,184 in Houston vs. 9,081 in California)
    and
    b) from 2011 through March 2015 (133,462 vs. 132,915).

    The median Texas home is LITERALLY one third the price of the median California home — because in Texas they let builders build to meet the demand.

    Here’s the kicker — 19 states have cheaper home prices than Texas!

    Related: The one-way rental rate for a 26-foot U-Haul truck from Los Angeles, CA to Houston, TX in mid-May 2016 is $2,371, which is about 3 times the $806 rental rate going in the opposite direction from Houston to LA.

    Reply this comment
  3. Sean
    Sean 13 April, 2017, 12:45

    California is all about boom bust cycles in real estate. It’s been that way for the last 40 years I’ve been watching it. In fact Proposition 13 was sold as a vehicle to prevent retirees from being force from the home they own by property taxes that rose with real estate prices. While proposition 13 allows retirees to stay in their homes much longer it also keeps a lot of housing stock off the market and the limited supply feeding a growing population accentuates the rise of prices (and subsequent falls). Couple that with zoning and covenants that increase the cost of new construction, no one builds “starter” homes so first time buyers chase a dwindling pool. With Prop 13 being a 3rd rail issue and most legislation for low cost housing starting with increases fees for development, the only option for middle income people is to play the cycle and hope they get lucky or leave the state. (Demographics trends indicates the middle class in California is leaving.) If you think rent control will solve the problem, you can read the experience of New York City in the New York Times, http://www.nytimes.com/2013/07/28/magazine/the-perverse-effects-of-rent-regulation.html

    Reply this comment
  4. Mr. Pickle
    Mr. Pickle 13 April, 2017, 14:47

    Hmmm. Folks need the increases in home values now that SB-1 has passed. They will have to take a home equity loan to pay the DMV for the increase if Fees…………
    and the Gas Tax, Diesel TAX, Diesel Sales Tax, Wood Tax, Mattress Tax, TV Tax, Fire Fee, Cigarette Tax, Tire Fee and just wait until State Park entrance fees go up! God save the Queen! Airport Tax, Hotel Tax, Rental Car Tax, Soda Tax……………..

    Reply this comment
  5. Ulysses Uhaul
    Ulysses Uhaul 13 April, 2017, 22:28

    Key is dispersion of employment to interior affordable communities and tax crap useless, service businesses to the moon to pay for the welfare, medical, education costs of exploited low wage workers.

    Reply this comment
  6. Sam
    Sam 14 April, 2017, 00:52

    This is what happens when we have too many people. There will never be enough hous No in safe affordable areas with somewhat decent schools. The labor participation rate is only 47%, which is a good indicator of the problem of inequality. We have a relatively young population, yet less than 50% of Californians work or are officially counted as working and paying taxes. These dual problems of overpopulation and not enough people working to be able to afford decent housing need to be addressed if one is going to discuss inequality. Sacramento also needs to realize that nit everyone ne is entitled to live where they want just because that’s what they want. I know plenty of people making $125k/year who can’t bu. Shine an dhave to commute an hour+ into San Francisco. Let’s focus on them and not the welfare class who whine about how hard it is to get by in the most expensive city in America while they don’t work.

    Reply this comment
  7. NTHEOC
    NTHEOC 14 April, 2017, 09:34

    As long as we have the Chinese we will sell plenty of houses!

    Reply this comment
  8. eck
    eck 14 April, 2017, 20:00

    In a sane world, those “millennials” that can’t afford it here would move somewhere more affordable. We’re not stuck in the 19th century here. There are lots of jobs in OR and WA. Oh? You don’t want to live there? Suck it up or shut up!

    Reply this comment
  9. Gonzo
    Gonzo 15 April, 2017, 10:49

    If there weren’t literally millions of illegals and their extended families the rental market would be much more affordable. LA and SoCal are ground zero. Everything is rented. Even tough neighborhoods. Two or more families renting houses. The dems have put out the welcome mat and too many people came. If we had a tough immigration policy the last 20yrs this wouldn’t have happened. Native birthrates are much lower but Cali has invited those with high birthrates. There is NO relief in sight.

    Reply this comment
  10. Mike
    Mike 16 April, 2017, 16:10

    A plague would be a natural corrective mechanism. The stigma against cannibalism needs to go away.

    Reply this comment

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housingRichard BloomMillennialsrent control

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