Is California in a housing crisis? This is a rhetorical question because the answer is an astounding YES!
- In California, an estimated 150,000 citizens have become homeless or live in shelters, while over 7 million Californians have been impacted by gentrification and are living in poverty.
- The median home price in California has eclipsed $800,000.
- Meanwhile, California remains one of the most difficult places in America to build affordable housing.
At the CALNARPM Conference in Napa Valley, April 21, 2022, Bob hosted and facilitated a panel in front of a live audience that addressed this topic. For this episode of Property Management Brainstorm, we've turned a recording of that panel into a podcast! Bob posed some dicey questions to the expert panel which resulted in a lively discussion.
Bob is joined on the panel by Oscar Wei, Deputy Chief Economist, California Association of Realtors; Aaron Eckhouse, Regional Policy Director, California YIMBY ; and Keith Becker, General Manager, DeDe’s Rentals, Santa Rosa, CA.
Topics Covered
[3:15] Bob, Oscar, Aaron, and Keith introduce themselves to the audience at CALNARPM.
[5:50] A recent 60 Minutes segment, featuring Seattle, focused on the housing and homeless crisis in that city. Is there a comparison between what is going on in Seattle and our housing crisis throughout California.
[11:30] California's housing crisis is a complicated topic. What are the reasons we find ourselves in this situation?
[18:45] California builds far below the approximately 180,000 homes needed each year, just to keep up with growth. So what is broken, why aren't we building?
[25:55] The supply of starter homes is shrinking by about 17% per year, a new generation of Californians don’t want to be tied down to a mortgage, and institutional investors are paying cash for single family homes, all of which have an impact on our local housing stock.
[37:10] With rents escalating at a rapid rate, are further protections needed for renters in California beyond AB 1482 and AB 3088?
[47:45] Are corporations, property management companies, and private citizens doing enough to have an impact on our housing crisis?
Connect with Oscar Wei, California Association of Realtors
https://www.car.org/marketdata/podcast
Connect with Aaron Eckhouse, California YIMBY
https://cayimby.org/
Connect with Keith Becker, DeDe's Rentals
https://www.dedesrentals.com/
Connect with Bob Preston
https://www.ncpropertygroup.com/
This episode is always available for listening, sharing, or download at Property Management Brainstorm. Subscribe to Property Management Brainstorm on Apple Podcasts, Google Podcasts, Stitcher, Spotify, TunedIn, iHeart Radio and YouTube.
Bob Preston: 01:10 Hello, brainstormers. This is Bob Preston, your host broadcasting from my studio at North County Property Group in Del Mar, California. If you're new here, please subscribe so you get ongoing access to all our great episodes. And if you like what you hear, please pay it forward with a positive review. Today's going to be kind of cool because I'm going to try something completely different. But before I go there, I've had a lot of contact from y'all wondering where the heck I have you been? How come you haven't posted or published a new podcast in quite some time? Well, the short answer to that is that I've been super committed preparing for last week's CAL NARPM conference in Napa Valley, California. And that's part of what's so cool about today's episode is I had the opportunity in Napa Valley at the CALNARPM conference to host a panel titled is California in a housing crisis? I had some great guests, and we had a wonderful panel. And so, this is going to be a little bit different and that I'm going to turn the recording from that panel into a podcast. So, let's give this a try. The question of if California is in a housing crisis is of course a rhetorical question because the obvious answer is in astounding. Yes. In many cities throughout the state of California, including in the bay area and where I'm broadcasting in San Diego, a housing crisis emerge with an estimated 150,000 citizens homeless or in live shelters while over 7 million California’s have been impacted by gentrification and our living and poverty. The median home price in California has eclipsed $800,000. Meanwhile, California remains one of the most difficult places in America to build affordable housing. So, during my panel, I wanted to explore more about California's housing market. Is it crisis a disaster, a disgrace for which we all bear some responsibility to correct? Or is it a once in a lifetime profit center for savvy investors and landlords seeking return on their real estate investments? One thing for sure, we, as property managers in California are directly involved in an astonishing time for California's housing market. And the question remains what should state, and local officials do about it? And what as property managers, should we be advocating in response? So here we go with the panel from CALNARPM. I hope you enjoy this.
Okay. Everybody I'm Bob Preston. I am the broker and the founder of North County Property Group in San Diego, California. You may have seen me up on stage today. I'm also the past president for CALNARPM and I really wanted to host this panel because this is obviously a controversial topic. I mean, I think no one would argue that California is not in some form of a housing crisis. The question is just, okay, what now who's responsible. What can we do about it? What should expect our state to do about it? What should we expect our local ordinances to do about it as well? Our local jurisdiction. So got a great panel with me today. I'm going to let them introduce themselves one by one. Aaron, want to kick us off?
Aaron Eckhouse: 4:00 Yeah. Hi everyone. Uh, my name is Aaron Eckhouse. I'm the regional policy manager for California YIMBY. In my backyard, we are, are a statewide pro housings advocacy group working to help make California a great place for everyone to live, work, raise a family and see the housing crisis as a central barrier to that. Being a reality, I've worked at California can be for four years now doing, organizing in the bay area, and supporting local regional and state policy at advocacy efforts. And I live in Oakland.
Keith Becker: 04:22 I'm Keith Becker. I am a property manager. This is my 25th year as a member of NARPM. Over that time, I've worn a couple of extra hats. Um, I was president of CALNARPM once or twice. I am the I'm on the board directors, California department association. And currently I am the director for compliance and education for pure property management.
Oscar Wei: 04:48 Hi everyone. Um, first of all, sorry that I'm not there in person, but uh, let me introduce myself. My name is Oscar Wei. Uh, I'm the Deputy Chief Economist at the California Association of Realtors. That's a state trade organization for we're, uh, California, uh, real estate agents, uh, realtors and brokers. And, um, I've been with CR for about nearly almost 20 years now. And I have always been in the research and economics department and, uh, I've been analyzing housing market and, you know, looking at, uh, information about, you know, the supply shortage. And this is definitely a session that I want to participate and hopefully I get some good insights. Uh, I will, I'm able to provide some good insights to you guys and maybe at the same time, you get some feedback from everyone in the room as well.
Bob Preston: 05:35 Fantastic. And we're hoping to be able to take questions from you all too. I mean, I'm sure all of you have different perspectives and different opinions about this. And I tried to pick a panel today that was also representative of different perspectives on this, right? So that's kind of where we're at. So, panel, uh, let me start off by saying that a big aha moment for me was, uh, two or three years ago, I was watching a 60-minute segment and it was on the housing market in Seattle, you know, Seattle and, uh, the state of Washington, particularly in their metropolitan areas has their own housing crisis. And it featured, you know, hardworking blue-collar citizens who were living out of their cars in 10 camps, right. And trying to raise a family out of tent and things like that. And it was shocking to say the least, and it kind of made me realize that many, those issues we're facing right here in our California city. So, I guess the first question of the panel is, is there a comparison to what's going on in Seattle and other Metro areas and what we, what we see here in California? Uh, I think the challenges in the bay area and in Seattle and in Seattle and California are definitely very similar in terms of you have, have had this tremendous economic growth, uh, tremendous amount of wealth being created in, uh, in tech centers, in the bay and in Seattle. Although I think, you know, LA's economic growth has also been substantial over this period and you haven't seen housing growth, uh, to match that. And so, the result is you have more P people moving for economic for economic opportunity. You have more people with more money. You don't have more housing to match that. And the prices go, boom. The biggest comparison I would say is that we're in significantly worse shape in California than they are in Seattle. Seattle builds significantly more housing relative to their population than the major cities in CA. And you see as a consequence of that, that certainly they're not without their problems, but homelessness is significantly worse in California. The rate of overcrowded housing is significantly worse in California, especially in Los Angeles. The rate of rent burden is worse. The ratio of local incomes to housing costs is worse. I think the good news is I do think it's fixable, which we'll get into, but it's a big problem. Cool. Keith, any comments on this one?
Keith Becker: 07:45 We're well, beyond the point of comparisons, we are actually operating and working from the same set of rules that they are in Seattle, the ninth district court of appeal in 2018, um, pass and, and upheld what is known as the Boise, uh, the, the Boise measure and what happened was in 2009, the city of Boise closed their homeless shelters. And then subsequent to that, the homeless who were in Boise, who were sleeping like in public park, they by euphemism called it camping. And they had an Antica ordinance in the city of Boise. So, they were rousing. The homeless six homeless individuals in Boise actually took them to court. And one, and it was upheld by the ninth district court of appeals. That basically said, you cannot route someone from public partial locations where they might be tenting, unless you have a bed, unless you have a shelter, unless you have a place where they might otherwise go.
Aaron Eckhouse: 08:51 If you don't have a place for them to sleep, they stay where they are. The solution, the only solution to be able to address the actual rampant homelessness, which is only the most visible issue associated with our housing crisis. The only solution is building more, more beds, more housing, more shelter for our renting population and for our unhoused population, the ninth district, the nice circuit, excuse me, addresses nine states in the Western part of the United States, including both Washington and California. What they're seeing we are seeing Oregon is seeing and Boise and Montana and Nevada. It's something that we are all of us, we can't fix without more housing.
Bob Preston: 09:35 Oscar. How about you? Any thoughts on this topic?
Oscar Wei: 09:37 I agree with, uh, Keith and, and Aaron and, um, I think they really put it, uh, in, uh, into perspective. Um, and I, I especially agree with, uh, what Aaron said earlier about, you know, the problem in California is even worse, significantly worse. I looked at some statistics and, um, you know, the top up 10 states among the top stands 10 states with the most homeless, California is ranked number one. And you know, when you compare that to Washington, I think is number five, but when you look at the numbers, of course, it depends on the source. But I think, uh, in California, we have roughly about 160,000 fencing, uh, homelessness right now. And in Washington, the number is 21, 20 2000. Um, and when you take a look at, you know, the top 15 cities with the most homeless and us, California made up 10 of them, Tito is number 13. So, the, the, the seriousness is very, uh, it's in California. It's very serious. Um, and it's continued to increase. Uh, I think we are improve increasing by maybe about six or 7% every year in terms of number of people who experience homelessness. Um, so it's definitely a significant issue. And what Keith said is right, you know, we, we, we have to, you know, start addressing the issues. And one of the solutions, the, one of the main solution is of course, to build more homes. This is a problem. This has been an ongoing problem for California. It, I mean, 10 years ago, we probably have been not exactly talking about homelessness, but we have been talking about housing supply and we have been talking about housing supply for what, maybe two, three decades already. We have made some, you know, progress, uh, which I'm sure we would talk about later. This will continue to be an issue, uh, unfortunately for the next, you know, in a short term, like the next year or two,
Bob Preston: 11:18 Thank you for that, by the way, guys, you don't have to go in order. You know, you can just jump in here. If you want to jump in on some of these answers, we're up polite we'll top and let, let the other person speak. Okay. So, the reality is, I think Oscar just mentioned that this has been going on for years, right. For decades, in fact. And so, I know it's a complicated topic and we can't do it justice in only an hour, but what are the reason we find ourselves in this situation?
Keith Becker: 11:40 Every city in Northern California seems to want to avoid being San Jose and San Jose becomes this, um, you know, poster child for urban sprawl, just sending outwards in all way, in all directions and in the north bay where we live in particular, we have actually instituted green belts upon, you know, beyond which you cannot, you cannot grow your city center beyond those levels without actually making a change in your general plan. At the same time, again, Northern California and the north bay, we seem to be reluctant to acknowledge the fact that we are actually becoming larger cities, Santa Rosa of 170,000, uh, people, uh, citizens seem to think it's still a small city. We should be building up and we refuse to do so. We refuse to take on high density housing as a possible solution. We've been dealing with this for years, but the fact is that some of it is decisions that have been made by our elected officials pen 15 or more years ago, that we are now, you know, suffering the consequences of decisions that have been long in play.
Speaker 4: 12:48 To elaborate on what Keith just said. I mean, of course the bottom line, if, uh, building more houses, but at the same in time, I think I'm going to talk a little bit about, you know, um, the housing, you know, why we're not having enough housing, not from the perspective of builders. We, we can address that a little bit more later on, but what I wanted to point out also is we are having these issues also because we haven't had, uh, enough the turnovers in terms of housing stocks now, and lot last couple years, last few years, you guys have been paying attention to the housing market. You know that the housing market has gone up significantly in terms of home prices. I think Abby mentioned about earlier that the home prices have gone up to, uh, about 800,000. In fact, you know, we just released our March sales and price report and yesterday, or the day before the immediate home price actually went up to 860,000 or 850,000.
Speaker 4: 13:37 So, that's a new record high, and the reason why we're not having, you know, we are having a record high, medium prices because we don't have enough supply in the, uh, in the housing market now, housing, uh, housing supply. Of course, we can get that from new housing supply, which is very, very important. We need more and more of that, but we also don't have enough, you know, housing being turned over in the last few years. Part of the reason is because of, you know, the demographics, you know, we have a lot of people, a lot of homeowners who are, uh, in the age of fifties and sixties, usually people who are, uh, a little bit older, they tend to hold onto their home a little longer because of younger generation. They move because they move to, let's say they expand their family, they move to a different, uh, uh, a bigger house.
Speaker 4: 14:23 Um, so they trade up, you know, so you see more turnovers in the past, but in the last few years, uh, we have fewer homes being, uh, uh, turnover because of the, uh, demographic change. But the other part of it is also in the last two, three years does been a love demand because of interest rates because of low interest rates. But at the same time, a lot of people refinance their home and lock in their rate at around three to 4% ish or so. So low interest rate does keep people in their home because psychologically, if you move on, if you want to trade up, or if you want to move on to a next property right now today, if you were to buy a property and you need to move, you essentially locking in at a 5%, someone probably in the audience, probably know what the interest rate is.
Speaker 4: 15:07 Uh, today I think the Freddy Mack released a number, uh, earlier today and it's 5.1, two, 5.1 or 5.2% or something like that. So, you know, those are a couple reasons that I actually, you know, lock, you know, some of those housing supply. And of course, we can't really change demographics that much. There are laws, there, there are policies that we can change though, uh, that could help, you know, the facilitate, you know, the turnover a little bit. Um, and I'm sure we can, uh, address some of those issues later. I believe. Um, you know, we, we can, we'll talk more about policies later on.
Bob Preston: 15:38 Yeah. So, I'll one, I'll just reiterate that as, as both of my fellow panelists have said that the core issue is not enough housing and see that's estimates for the housing shortfall in California of two to 3 million homes that we should have built over the past decades to keep up with economic and population growth and that are missing. Uh, and so that puts pressure on the cost of the existing supply. Cause then, you know, you can take that question further. Okay. Why have were those homes not built given that California is a very wealthy state with a lot of demand for new housing. And there we see restrictive, especially at the local level, uh, where there's zoning restrictions. So, we don't have a comprehensive statewide number, but in the major Metro areas, the bay area in Los Angeles, 70 to 80% of the residential zoned land is owned exclusively for detached single houses.
Speaker 1: 16:26 So this is land where up until policy changes in the last few years, it was effectively illegal to build an additional home beyond what's already there. Uh, even in the multifamily zones, there are restrictions on height, lot coverage, setbacks, uh, various rules in place that limit our ability to build the number of homes there that people need. We have permitting processes for the creation of new homes that are slow and uncertain, uh, add years and money to the cost of creating these new homes. Uh, we have a lack of funding for dedicated affordable housing, and we have a funding system for local government that often places an additional financial burden on the development of new housing. And then we can get to the question of why are these restrictive policies in place to begin with? Why do we have, have a whole set of laws in California that act to prevent us from meeting our housing needs rather than helping us to get there.
Speaker 1: 17:23 And there are a lot of reasons for that. I will point to one, many communities, put these restrictive policies in place with a specific intention to exclude and thus make themselves and exclusionary because they wanted to control who was able to live in that community. And they did that by controlling what could be built in that community and recognizing that if they didn't allow certain types of housing, that meant that a certain type of person would not be living able to live there. And then the other thing I, I mean, I thought of this because Oscar from the realtors speaking, we also have a system in the United States, right? Where individual homeowners have a strong incentive to want to see their property values go up. You own your own home. And its value goes up 52% in two years for a renter looking to buy that's a crisis for the homeowner that's oh, great.
Speaker 1: 18:14 My nest thing. And I think that is a real challenge in terms of how people relate to housing opportunities in their communities, uh, because it puts, it creates a conflict between sort of their self-interest as somebody who is counting on that home value to finance their retirement and their human interest in terms of, you know, wanting to not have a neighborhood that is exclusively for the ultra-wealthy and where the workers that we all depend on in our daily lives are not able to live. Okay. So, I think it's pretty unanimous on the panel. We're not building enough. So, what's broken here because Governor Newsom has recently signed some new legislation in law, like a lot of new, uh, state bills, 8, 9, 10, all are meant to generally loosen zoning restrictions the way I understand them. Anyway, Andy might be the one who can talk best of this, but so what's broken.
Speaker 1: 19:06 I mean, why, why can't this happen? Why aren't we building? I think the biggest challenge is that in order to solve a crisis of this scale, it requires change at significant scale. I think that's very challenging for people. People often, they like their neighborhoods, the way that they are, they're hesitant to envision significant change. But one, I think that change is happening. You know, prices go up when home ownership gets priced out of reach for people in the middle class when people are displaced by rising rents, like that is change even if the physical form of the neighborhood remains the same. Uh, but I think it's still there, there is a resistance to that, and we tend to have political systems in the United States that are themselves resistant to major change. It's taken time for the legislature to really see this as something that requires significant attention on their part.
Speaker 1: 19:59 You know, the title of this, is there a housing crisis? When I started working for California in before years ago, that was the little debate that we were having with people. People would say, well, you know, San Francisco has a housing crisis, but does the rest of the bay area, well, the has a housing crisis, but does the rest of California. And I don't think that's really a dispute anymore. I think generally everybody operating in housing policy in California is doing so on the assumption. Yeah, it's a crisis. Yeah, it's really bad, but that's a pretty recent consensus. And so, I think it's still taking time for the consensus around the necessary changes to take hold Keith Oscar thoughts on that
Speaker 3: 20:34 We were doing okay, not well enough, but we were doing okay in the first half of the decade from 2000, 2005, there was actually construction and there was active construction being built in terms of residences. And then when that last collapsed, the great recession occurred and we found that basically it cost more to build a house at that point than you could actually sell the house for, because there were so many foreclosures, there were so many properties available. And for practical purposes at that point, housing construction effectively ceased for a period of time. We've been playing catch ever since then to get back on some level of track. And now of course, we're dealing with COVID and we're dealing with labor shortages and we're dealing with supply chain issues. And you're talking about building new complexes and new neighborhoods. It takes you eight months to get garage doors. Um, we are, we are playing catch and have been playing catch for more than 15 years. We have, we have such a dire need and we, we lost our way that period of time ago. And we're still trying to figure out how to get forward.
Oscar Wei: 21:45 I agree with both of our panel and by the way, I, I have the advantage of looking at my computer and looking at my, uh, second, uh, monitor. So, I'm cheating a little bit with, uh, the numbers in front of me. So, I, I act like I'm more prepared, but maybe not so much, but here I agree with EV you know what Aaron and Keith said, and, and thanks for setting me up. There are a few things that I want to comment Keith said about, you know, get, and we stopped building enough to meet the demand, uh, starting in 2005, 2006. That's exactly right. In 2006 or so, we were still building somewhere around 200,000 ish, you know, housing units based on, you know, the, uh, the permits numbers that we have seen. And, uh, based on numbers from H CD, we know that the S estimate is the demand housing demand is usually roughly around 180,000 every year now, since 2006 or so, we actually have been building less and less at one point in 2000.
Speaker 4: 22:38 And I think 13 or so, or 2010 or so, we actually built only less than 50,000. So, we actually have all these shortages built up, you know, last what, 15 years or so now we are currently building it around, uh, a hundred, uh, 1,000, 20,000, still about 60,000 short off to 180,000. So, Bob asked, why doesn't it seem like we're making progress? Well, we might be making a little bit, but, you know, we have to catch up on kind of try to catch up on what we have left, what we have, have shortage on for the last 15 years. And that's a lot, you know, we did an estimate a while back, maybe about three, four years ago. And you, you might have heard some estimates, you know, from UCLA or from some other PLA uh, some other places that California is short, maybe about three, three and a half million, uh, units, uh, of housing units.
Speaker 4: 23:27 And that's going to take a lot, a lot of time to catch up, you know, with, uh, S P eight, nine and 10, you know, we are moving in the SA in the right directions, but it's going to take some time for people to get used to building, you know, uh, building or, or, uh, constructing the ADU units. It's, let's say if we are increasing by, let's say 10 or 20,000, or even 50,000, uh, a year, that's going to still going to take a lot of time, you know, for us to get, uh, get back to what is considered the normal inventory. And of course, right now we're still short. So, you know, those additional, those policies are going to help, but it's going to take some time for us get to, you know, the level that's that get to people started building. Um, in the meantime, we are having also, you know, a, um, an a normal couple years or so things have changed in the last couple years, or one thing that, you know, I think, uh, either Aaron or Keith pointed out was the cost of building is a little bit higher now, you know, we have, you know, to build, we have for developers, they're actually, uh, short of, uh, labor and also short of raw material.
Speaker 4: 24:33 I think Bob, I think you've mentioned about what waiting eight months to get the garage store for raw material. We did not us, but, you know, some, some, some economists did a survey and, uh, they, they looked at, you know, the residential construction cost, uh, that have gone up in the last two years or so has gone up by about 22% or so. That's because of, you know, all the supply shortage that we have been seeing because of COVID because of, you know, what's going on in the last couple years. So that actually added on to those, um, those, uh, issues that not mentioned. And now that almost over, uh, with COVID, we're still not exactly completely out of the wood, but we're almost over things will start getting a little bit more normal, but then we have to adapt to the new environment of, uh, flexibility of working from home, which actually increase demand a little bit. So, I think in the next two, three years, hopefully we can see a little bit more change, a little bit more, uh, increase in supply, but it's going to take a little bit while, little bit longer than, uh, we thought it's not something that we can resolve in the next couple years.
Speaker 1: 25:35 I have actually one other thing I want to add on this. I think part of the political challenge on housing in California has been a collective action. Problem. Housing and land use policy in California are FRA is fragmented across hundreds and hundreds of individual cities. You know, as small as a few thousand people and in the individual city, looking at this problem, this problem is far larger than that one city. And so many of them say, well, why should we undertake a major change within our community? When our neighbor aren't going to do the same thing. And so, we'll have all the change, but we're actually not big enough to solve the housing crisis at our scale. So, somebody else should do it. Uh, someone, someone once told me that there's a total consensus on where all the new housing should go in California. Everyone thinks it should go somewhere else.
Speaker 1: 26:29 The problem is at the state level, there is no somewhere else. We lose people to Nevada and Arizona and Texas and Oregon. And that ends up being really bad for California as a whole. So that's why at California, we are really focused on working at the state level and through the state legislature to address this because the state legislature is actually big enough to solve the problem in a way that individual cities are not. So how does all this trickle down into the rental markets, right? That's what we do here. We manage rental properties and, you know, the housing shortage is apparent to us. You know, there's some social aspects to all this to harder homes are shrinking by 17%. So, there aren't homes for people to move out of their rental and buy. So, this is putting pressure on the rental market. Uh, millennials speaking, generically here tend to want to have more freedom, a lot of remote workers.
Speaker 1: 27:16 Now they can kind of work from anywhere. So, this might be a reason not to purchase a home but rent. This is putting pressure on our rental stock. And then you have some outside influences as well. I live in a small community, kind of like you described. We have 4,000 residents, uh, city of Del Mar and near San Diego. And I happen to live next door to our mayor. He's been on the city council for years now. He is the mayor. And he said that, you know, they know, uh, institutional buyers are coming into Del Mar, taking properties away, who they don't even live in the state. And they're taking, uh, properties away from people who really might want to live in the community. This is a housing stock problem from his perspective, as mayor other people are coming in, buying up Airbnb properties, right? Renting them, making bank for, you know, renting beach homes. None of this is illegal or controversial, but it is an issue, you know? So, I don't know. What does the panel think about some of these topics that are going on and, and the impact on, on the rental mark?
Speaker 3: 28:08 I think as far as millennials, there are more millennials than there are baby bombers. And when I was in college, my one of my professors basically said, figure out what the baby boomers need and invest in that, and you will never be poor. Um, and, and the fact is that we take the same approach. Now, the unfortunate fact is that basically that the millennials don't have any money to buy anything. And when you talk about housing again, with the great recession and wall street, discovering how profitable rentals actually were, this was something that was a, a discovery by invitation of homes and homes for America and so forth after the great recession. And they are coming in and paying cash on the dollar for properties that will never be owner occupied and are not going to be able for somebody who's just starting out to even compete with.
Speaker 3: 29:01 Because, you know, when we started out, basically I borrowed money from her in laws. They gifted us, we had mortgage insurance, all of those things that all of us, when we were younger, it was still possible to buy at a reasonable price compared to what we made for income and millennials no longer have that opportunity because of the value of houses to start with. And then because of who they're competing with. And last say some of these kids, and I do say kids now, but basically, they grew up and their parents and their friends, parents suffered as a result of the great recession. And they saw the foreclosures and the losses of houses. And the fact is that they are in some ways, gun shy and the idea of buying a home as a protection and investment for the long term no longer is necessarily as guaranteed as we used to take it for granted,
Speaker 1: 29:55 I will say as a millennial, that my friends who are able to buy homes are buying homes, actually talking to some friends a couple weeks ago, who are, who are in the process of closing. He works for a tech company, and she works for a biotech company. So that's the kind of income that you need to be able to buy a home in the bay area right now, most people do not have that level of income. And on top of that, right, if you're thinking about an average home value of 800, $50,000, and it's higher than that in the bay area, that's a down payment of a couple hundred thousand dollars. Uh, and if you are someone who has student loans to pay that, that's a challenge. Now, if you're fortunate enough to be able to get assistance or an inheritance from your parents, that really changes the dynamic.
Speaker 1: 30:40 That's how my sister was able to buy a, she got help from our, from our parents. Uh, but that, uh, goes back to the fact that not everyone in the us is at equal access to home ownership over the years. And so, groups that have been excluded historically from the opportunity to buy homes 40 50 years ago, don't have necessarily that same money to give their kids to get them started on home ownership. We, we see a perpetuation of racial disparities and wealth as a direct consequence of, of the way our housing market has been structured in this country on the question of institutional buyers. I'll just say, I think it's unclear the scale of this in the housing market, right? We're sponsoring a build that will increase transparency around corporate ownership of, uh, homes in California. Cause we think it's valuable to have that information to understand where is this a problem, to what degree is it a problem? But also, if you look at the shareholder reports for those companies, uh, you know, your, your BlackRock, your invitation homes, they consistently identify as thing that they look for and where to buy is places with high economic growth and constrained housing supply. That's why this is such a big problem in California. That's why they see it as such a great investment. If we were building homes like gangbusters to keep up with our need, it would be a much less appealing investment or somebody who's just going to buy it and sit on it.
Speaker 4: 32:02 Let me touch on idea of, you know, institutional buyers first. And then I'm talk, I would talk a little bit about millennial, uh, and whether they want to buy, uh, or rent based on the survey. Some of the surveys that we have done in the past, we know that investors, we, we typically track, you know, how many investors we have in a year. Uh, how many people actually purchase a property as an been property. And in the last couple years, because of that, we were in a pandemic because of eviction, moratorium, uh, investors share actually has gone down in terms of how many people actually buy, uh, but purchase invested property. It went from down from about 16, 17% in, uh, pre pandemic, like 2019 or so to somewhere around 9%, you know, last year in 2021. So, in terms of how many people were actually, uh, how many of those who purchased a property last year or the year before were investors even in institutional buyers?
Speaker 4: 33:00 I think the, the share actually has gone down. Now, the reason why it might have gone down is because of what I mentioned earlier, you know, because of concern about whether they can be able to gather rent, you know, from because of the eviction moratorium. But also, the other reason is California has gone up, uh, significantly in terms of home prices in the last, you know, few years and investors they're looking for, uh, properties, which they can profit from. So, from many other studies that have seen many of the institutional buyers or investors they're actually investing or buying in other counties or other, uh, states such as Arizona or in taxes, we do have people in California, but many of those are buying in areas such as, you know, a little bit more affordable, like Riverside and Sacramento County. So, you, you do see that now from time to time, you do see institutional buyers show up and I'm not ignoring that issue, but many of those are actually people who are behind the IBU.
Speaker 4: 33:59 So, uh, platform Zillow, we used to be either used to buy, uh, uh, uh, I be buying buyers, uh, open door. They actually have been, you know, kind of buying homes for institutional buyers and institutional buyers. You, if they're following their model, if they have been following model, then they're, they have been flipping homes. That percentage still seem to be a little bit small compared to, you know, what we saw, uh, before the pandemic. Uh, so in at least in the last couple years, they may not necessarily be the main reason why we are, you know, short on supply. So now going forward, is that going to be an issue? I think it is probably going institutional buyers or investor buyers probably going to continue to buy home. And that number probably will continue to go, uh, to grow up. But I will have to say many of the investors buyers probably are still mom-and-pop in California.
Speaker 4: 34:54 And so we have to continue to observe to see how that effect, you know, the overall market. I have not been spending, uh, too much time on, you know, air Airbnb researching on Airbnb. I think that could be an issue that we need to pay attention to in order to, uh, you know, to, to, uh, look at the housing supply issue. Now, going back onto the, um, issue about, you know, millennial, I agree with that Aaron millennials, they do want to buy homes. They do want to become a homeowners. It is tougher to be, to, to buy a home though, because forget about, you know, home prices, and forget about, you know, how much you have to pay for mortgage payment. First of all, there are additional costs that they have to pay, pay back. So, let's say for student loans, you know, other types of costs that actually you need to go, you need to incur in order to get a degree at a university and all those costs of living all those increase in costs.
Speaker 4: 35:49 Uh, they actually have to pay for those and that actually, uh, that might actually delay their, their, their life cycle a little bit. They get married a little later, um, and such, they don't necessarily have to buy a home until a little later, but they actually go through the exact same cycle as we do just at a Del a more delayed fashion. Uh, and as such, you see, you see some, uh, people who, uh, formed their household, millennial formed their household, maybe in their thirties, you know, uh, buying homes later on in, in late thirties or so. And that's partly because of, you know, home prices. That's partly because also because of they have to pay off all those debt before they actually can, can, can get married. I think that's part of the reason now. So they do want to, and as, as we look at, you know, the number of, uh, people who may be forming households and Nick's, uh, 10 years or so, there are a lot of people from between the age of 26 to 39, who will be forming households and maybe, you know, trying to buy a home in the next 10 years or so, so that, you know, flood of demand is going to actually increase, uh, uh, to, that actually will lead to a, possibly a more imbalance between supply and demand in the next couple over years.
Speaker 4: 36:58 So that makes the supply issue, uh, even more significant, even more severe in a, in the next few years, if we don't resolve those issues in a very short time frame,
Speaker 1: 37:08 We're a group of property managers. This is going to get a little juicy here, right? Because we're going to start talking about tenant protection. I know we all have opinions on this kind of thing, but I'm speaking about rent caps and protection, right? We have the tenant protection act of 2019, otherwise known as a AB 1482. We have a COVID tenant relief act, CT, a, uh, AB 3038 in many of our local areas. We have, uh, no fault eviction being implemented. We now have that in San Diego it's uh, in front of the city council. So, I get us, the question is, uh, should we be introducing more protections and are further protections needed in California beyond what we see today? Or is this something that has outlived its purpose? And we should just let the market be the market.
Speaker 3: 37:52 We need to build more housing, let's start and stop there. The fact is that if we had enough house as a, none of the rest of this would be necessary, um, do we need more regulation? Let me, okay. Thank you. It's sort of like the, the, the question we could let you all out half hour ago know, do we have a housing crisis? Yes. Class dismissed. Um, okay. The bureau of labor statistics year over year, food increase 8.8 gas, 48% shelter or rent five electricity, 11% clothing, 7% cars and trucks, 35% new cars, 12% airfare, 23% lodging in hotels, 25%, which one of those seven are they trying to regulate the lowest one.
Speaker 3: 38:45 The lowest one. It's because we as a constituency, if you want to call it, we are not a very group. We are the evil landlords and we're all making money, hand over fist. I'm tired of it. Okay. The fact is that, uh, what was it? 30 88 be a eight 30 be got, uh, SB 91 be got, uh, 8 30, 2 begat, 21, 79. It's all very biblical. Um, and they just keep going on. And the fact is that each one of us in our local, in our local cities, Alameda County has an eviction moratorium. Uh, Los Angeles County has an eviction moratorium. Uh, San Francisco pins are allowed to unionize in their own individual in their own individual buildings. And the fact is that it is going to continue to go on. It is going, going to continue to get worse. One of the things, and this is one of the associations in terms of being part of California, apartment association, all of these gas, 30, 88 and 8 32 and so forth.
Speaker 3: 39:56 And so on. One of the things that was sort of, uh, in the fine print in each one of 'em was no local organization, city or county may pass anything more onerous than whatever that was. That was in place at the time. If you had something that was in effect already and was designed to intended to expire, it is going to expire at its original date. You can't, you can't renew it. You can't pass anything new while SB 2179 is still in effect. The problem is that that's going to expire at the end of June. And at that point I worry that our local cities and counties are going to pass more stringent rent control and eviction moratoriums, because they will no longer be constrained by what has been a statewide legislative mandate from February. This is the national multifamily housing council. A new survey shows that almost 60% of multifamily firms indicate are reducing or avoiding investment in rent-controlled markets. An additional 15% said they would consider cutting back in those markets. And only one quarter would be willing to keep their current level or add new investments creates the problem. The problem is only going to get worse.
Speaker 1: 41:15 So, I'm going to disagree with some of that. Cause I don't want to dismiss the importance of housing production, right? That's our core focus at California be we cannot solve the housing crisis without building a lot more homes a lot more quickly. But the framework that we often talk about housing policy in it's called a three-piece framework, production protection and preservation, uh, so production, you know, production, production of new housing, critically important preservation of existing affordable housing. You have people currently living in rent-controlled housing that is affordable to that low-income renter. And it's important to preserve that supply of affordable housing and keep it from turning over and seeing the rents jacked up and protection people deserve to be able to be secure in their homes. And I think that extends to renters every bit, as much as it extends to homeowners. So we supported the California MB AB 1482 to establish rent stabilization and uh, just cause eviction requirement for most tenants in California, because we thought that was an important part of renters in California, having security in their homes and knowing that if they were doing, you know, they were paying their rent, if they were abiding by the terms of their lease, that they were going to have their home pulled out from under them, get hit with a 50, a hundred percent rent increases, which we do see hap did see happen before 1482.
Speaker 1: 42:42 Like that's not something that people should have to face. It wouldn't matter less, you know, an individual rent increase if we had a lot of other housing options for people to go to, but it would still be a problem for people to have that kind of instability in their housing situation, where at the whim of somebody else, you can be forced out of your home where you have lived for decades, uh, where you are raising your children, where you have created a whole life based on, you know, where your kids go to school, who your neighbors are, where you work, that's built around being in that particular home. And so, I think that stability is important. The structure of those rules is also important. You know, I think an important thing in 1482, it doesn't apply to new construction. Uh, new construction is a high-risk activity, and it tends to come in at higher rents where I think that kind of stabilization is less essential. But yeah, I think people who have been living, uh, in their home for many years or renters deserve to have stability there and they deserve to have protections there from the state to ensure that, uh, they're not pushed out Oscar, any thoughts on this one?
Speaker 4: 43:54 Um, sure. So, you know, I'm wearing my, uh, economist head now, you know, as, as a, uh, as an economist, we do not like government intervention on, uh, on, you know, the market. It allows, you know, we allow, you know, the, the, the market to work itself out, you supplying demand. Um, and so rent control is not my thing. I don't believe rank control actually, um, helps the issue. I actually believe that, you know, it actually a, you know, leads to, you know, a different issue. Now, as far as government intervention, I do believe that certain things needs to be done, you know, during COVID, but let's look at it from, you know, today's point of view. We have the unemployment rate at below 4% right now. I think that situation, the economy is doing better now. And we have, you know, improved. We have, we're not complete, like I said, you know, we're not complete out of COVID, but I think we have improved quite significantly now.
Speaker 4: 44:52 So certain things I think certain regulations could be phase out, you could be, uh, you know, to help, you know, the economy to, to, to help the market continue to grow both in the, uh, rental market, as well as the purchasing market. I don't disagree with completely with Aaron, but I certain, I know certain things probably needs to be done. Certain things need to be done during, you know, the COVID period because they do, we renters do need help, but at the same time, I kind of disagree with the way that, you know, the government handle things. It may not necessarily be, have to, uh, come at a cost of landlords. It could be government subsidizing and, um, you know, helping out both landlord and renters at the same time. But, uh, like I said, you know, I think we are getting into the phase of economic recovery and some of those post provisions can be phase out and, uh, can be moved on whether we need more of those later on. Um, I think it depends on, uh, what needs to be done at a silly level. Uh, but as Keith mentioned it, if we produce more, if we actually have more production, if we actually have more housing, I think we can do away with some of those, uh, uh, uh, regulations.
Speaker 1: 46:01 Yeah. I mean, I'll, I do think it's worth remembering, right? That the federal government spent many billions of dollars on rental assistance during the pandemic and that money did float a landfill and it flowed through tenants and it helped tenants. I think it was a great program, uh, that deserves a lot of credit. Uh, but it's not like the, the federal government left landlords out to dry in the pandemic. The money went through rents. And that was intent because the, the money was intended to ensure security instability for renters through this massive societal disruption. I also, I think if we're being realistic, right? Like we're talking about the decline of middle-class home ownership in this panel, right? That means those middle-class people are renting and they've often grown-up middle class. They have an expectation about both the kind of security that they're going to have in their lives and their government representing their interests.
Speaker 1: 47:00 And so they're going to continue to have the years of government officials and pushing them for protections and stability. Uh, as long as we are seeing this increasing share of middle-income renters and an increasing share of cost burden, middle income renters, I was reading a report about this from the Turner center recently in 2009% of middle-income renters were cost burden in 30 in the most recent data, it was 39%, as long as that is the case. Yeah. I mean, people are going to be pushing for regulation and stability in their lives. Cause this is a fundamental thing for people. Uh, if they, they are not secure in their homes, then they're not secure in the rest of their lives. So again, we're property managers, most of us have, uh, you know, a corporation of some kind we're also private citizens. And I guess we could look at other types of corporations as well. Do we, other than the, the state and local government officials, do we as private citizens, corporations, property managers, if you will, do we have a responsibility and what should we be doing to participate in some sort of private, an impact, I guess, to relieve the housing crisis?
Speaker 4: 48:11 First of all, you know, I think we have to adjust, you know, our mentality let's face it, you know, a lot of homeowners, a lot of people who own their home want to, you know, keep their, you know, the, the density from, you know, keep their areas from being too dense. You know, that's a lot of homeowners, you know, that's what a lot of homeowners want to, to, to do. And, uh, at the same time, you got to remember though, you know, if we continue doing this, if we don't change our zoning, you know, uh, uh, regulations, we actually continue to focus on just the single-family zoning. That means, you know, we're not going to build enough. So, I think we do have to accept the fact that, you know, in order to build, we really need to, uh, adjust our, um, zoning, uh, issues. We have to, you know, remember that, you know, we have to loosen up some of the things regarding sequel, and we have to remember that there, we, we need to continue to build otherwise, you know, our, you know, our kids are not going to be able to, you know, uh, buy a home and, you know, instead of what, 800,000 right now, they may have to pay, pay what 2 million, 3 million in order to get a home.
Speaker 4: 49:17 So we kind of have, we have to adjust our, our mindset. We, we do our analysis and we do our studies on a regular basis and real realize, yeah, people usually talk about, you know, uh, put, put, um, two ideas, uh, to same ideas at the same, uh, they will complain about, okay, well, there's, there's going to be a, there's a lot of traffic in my area because there are a lot of multifamily homes being built. But at the same time, they'll be concerned about whether their kids will be able to buy a home. So you kind of have remember, yes, we need to build more and, you know, increasing density, maybe, uh, you know, accepting the fact, we need to build more housing, you know, in a smaller plot of land, maybe something that, uh, has to be done in order to increase, you know, housing supply, and, uh, keep the housing affordably from going overflow. There
Speaker 3: 50:03 Are a couple of things. The majority of households in America are the rental houses and the households in America reside in single family residences. The majority do not reside in multi-unit, uh, complexes, those single-family residences. The majority of those are owned by mom-and-pop individual owners, not large corporations, even though you do have the invitation homes of the world coming into this, most of them are single family, mom, and pop operators. The problem is that some decisions, there are two aspects to this one with the recent run up in sales, we are losing a lot of those rental properties. I don't know about you, but I've lost dozens of properties in the last two years to owners who have sold. And those properties at selling at 750 $800,000 will never come back on the rental market. And all of those households have been displaced, and these are mom pop and the kids, okay, this is not your single family, one bedroom apartment.
Speaker 3: 51:03 You've got households that are just displaced. And now they're moving to Tennessee. The housing shortages that we are seeing now are simply moving east. The permit process has to simplify it in Sonoma County, before 2017, it was a disaster. It was slow. The customer service sucked, and they were expensive, and they just did nothing to help the process. And then we burned 5,200 houses an overnight, and they figured we'd better make a change. And since that time, the process has improved less expensive, faster, easier to navigate, but that has to happen across the state for us to be able to build more houses fast. Now, coming back to those single-family residences and most of the properties being under mom and pop manage many of the decisions that are being made by Sacramento, many of the decisions that are being made by our cities and our counties are based on anecdotal evidence anecdotal. Well, we think this is what the facts are. There has not been any way of being able to collate the information from all of these hundreds and thousands of mom-and-pop operators. How much does the rent, how much was the increase last year? What's your vacancy factor? Why do tenants actually move? We need better ways of being able to aggregate data so that people can actually make informed decisions rather than based upon, oh, we need to make this law because landlords cannot be trusted. We need better information.
Speaker 1: 52:33 I think the housing crisis is the central challenge of life in California. And so, yeah, I think all of us who live here who enjoy the mini benefits of living in California should be thinking about how to solve that should be in, in trying to solve that. And it's fundamentally a political problem that requires political solutions. You know, California is not a poor state. California is not a state that is seen its resources destroyed by national disaster or its capacity to do things laid low. We have a policy framework that prevents us from solving this problem. And it's very frustrating to me because it means that all the suffering of the housing crisis is completely self-inflicted, but it's also very hopeful and empowering for me because it means, well, we could choose to stop having this problem. You could choose a solution. Instead. I will say, you know, politicians from the local to the state level, they hear from NIMBYs.
Speaker 1: 53:35 They hear from people who say, no, no change, never not in my b
Author
