Blog Post < Previous | Next >
COB.org
Solving Housing Issues Sensibly
Elected officials in California have been making statements, passing legislation, and issuing edicts about housing, mostly based on incorrect assumptions and false narratives, many of which are advanced by lobbyists and/or trade organizations whose constituents stand to benefit from the resulting policies. The truth is that these politicians are simply wrong in their analysis of the housing challenges in California, and in their implemented and proposed solutions.
For the sake of simplicity, let’s think of the housing market as divided into owned housing and the rental market. On the owned-housing side, my statements are backed by, among other objective analyses, a recent newsletter from the Embarcadero Institute entitled “Finding and Fixing the Real Housing Crisis in California”. Please see link to that article and other reports linked below, all of which support my argument.
As a housing provider myself, I found the following quote in the Embarcadero Institute article incisive, but incomplete: “The affordability crisis is a result of the state’s deliberate abrogation of its responsibility to provide housing for lower-income families”, to which I would add “particularly on the rental side; although this is a problem of society at large, officials have dumped it squarely on the backs of private housing providers.”
OWNED HOUSING
The first problem with all the state laws and policies demanding millions of new homes is that the demand numbers on which State lawmakers are basing policy are just plain wrong. The Embarcadero reports, linked below, demonstrates that in spades. Secondly, unless we address the fundamental problem--an insufficient supply of truly affordable housing--all other actions will have little or no impact on the problem and may actually make things worse.
Recently, we see communities like Berkeley attempting to solve the supply/demand imbalance by upzoning all single-family lots to allow for up to 4 units. This same policy is mirrored in Sacramento, with the recent passage there of planning rules upzoning single-family lots to 2 units per lot. Policies like these, if enacted, would obviously impact those neighborhoods’ quality of life, and not only by dramatically exacerbating traffic and parking issues; they would also put increased pressure on infrastructure and public services, which cities are already unable to provide adequately because of budgetary constraints. If Sacramento politicians had really thought this through, they would see these and other unintended consequences of this policy. [1]
For example, what’s to stop developers from buying up lots in established lower income neighborhoods, knocking down existing housing, and building market-rate 4-plexes? If this occurred at a sizable scale, and I’m betting it would over time, because millions of single-family homes are already owned by huge companies and held as rentals, this policy would increase rents and housing prices, thus driving out established residents.
Additionally, unless state mandates, such as RHNA quotas, also provide financial assistance to create housing that is truly affordable for low and moderate income families, they will only succeed in creating more unsustainable growth without any impact on the real problem. Combine the resultant increased development with the state’s once in a hundred year drought, dwindling water supplies, and the wildfire infernos we have all witnessed in the past few years, and one has to ask – where will all the water come from?
City and county governments around the state are all starved for funding just to provide their current level of services, and in many cases have been cutting back on services for years (decreasing operating hours, cutting park maintenance, putting off road repairs, etc.). Today, they are drawing plans to cut services even more. It’s unclear whether building more housing would benefit these communities’ bottom line or cause them to go deeper in the hole, as they will be forced to provide more schools, policing, etc. in order to service the population growth.
The sheer number of new housing units being demanded by Sacramento politicians is staggering, especially in wooded communities at the wildland urban interface, such as my hometown, Mill Valley. It’s interesting to note that the San Francisco Board of Supervisors, home to YIMBY-in-chief State Senator Scott Wiener, wants nothing to do with his build-at-all-costs policies, nor do the cities of Los Angeles and San Diego.
RENTAL HOUSING
I hear politicians decrying a “housing crisis” in much the same way as the Embarcadero Institute does, as a set of circumstances manufactured by failed policies, with my added perspective as a member of the group shouldering some of the state’s responsibilities with regard to rental properties. No one has much sympathy for landlords (even though according to the National Association of Realtors, 77% of all landlords are “mom and pop” operators), but we should at least be asking why state leaders and society at large aren’t addressing these problems, rather than promoting failed policies which shift the burdens to under-funded cities, individual taxpayers, and private property owners.
News reports from many sources describe how the Bay Area is losing jobs and population to more affordable housing markets. As the owner of a management company which oversees apartment buildings throughout California and Colorado, I can confirm that in San Francisco, in particular, some neighborhoods are experiencing vacancy rates of 30-40%, with virtually no renter demand despite dramatic decreases in market rents over the past year. The general consensus among my fellow operators is that rents in the City dropped by about 25% across the board in 2020, and none of them have experienced any uptick yet this year. Vacancy in the rest of the Bay Area and metro Los Angeles is not quite as bad, but is still at historic highs, with attendant drops in rent as well. It’s impossible to justify that there’s a “housing shortage” in any state metro area.
In addition to these strong headwinds, private housing providers in some municipalities are facing the negative impacts of the failed solution called “rent control”. In study after study, rent control has been shown to exacerbate the problem it purports to solve by reducing rental housing stock and ultimately driving up rents. Yet that doesn’t stop politicians from imposing it, to negative effect, or from continuing to strengthen controls once the previously imposed rules fail to solve the problem.
Further, California has failed to provide meaningful financial relief to private housing providers in response to politicians’ edicts preventing owners from collecting rents during the Covid pandemic. I’m not talking about the need for all of us to be compassionate and do our fair share to help those who have lost their jobs, been sick, or had other legitimate hardships, and who need some help to stay in their home. However, there are a large group of individuals who are “gaming the system” and have just stopped paying rent, knowing that their landlords can’t do a thing about it, and are unfairly taking advantage of various Covid relief policies.
In addition to being unconstitutional, the draconian eviction moratoria imposed around the state and by the CDC have no “means test” to ensure that the tenant is truly in need. Further, these edicts do not permit landlords to evict any tenants, including those who have not been significantly impacted by COVID but who have simply decided to stop paying rent and are taking advantage of the system by continuing to live in their apartments.
I have heard the argument that landlords should suffer along with the rest of the population, and indeed they are, but there is no other class of provider which the state forces to provide full services without any compensation. Try asking Safeway to do that. California legislators are so driven by ideology rather than common sense that I doubt this paradox has ever crossed their minds.
On the other hand, Colorado legislators enacted eviction moratoria similar to California’s but recognized that it’s unfair, not to mention unconstitutional, to put the entire burden on private property owners. As a result, Colorado state officials have agreed to reimburse owners for lost rent, and are permitting them to file for it directly with the state. In California, the state-wide moratorium requires that the tenant assist the landlord in making an application for such assistance, by approving, signing, and filling out a section of the application. Not only is that absurd on its face but owners can be, and often are, accused of harassment just by asking tenants to do that.
The 5h Amendment of the US Constitution states, “Nor shall private property be taken for public use, without just compensation.” Last week a federal judge in Texas ruled that all these uncompensated moratoria are unconstitutional on exactly that basis (https://thehill.com/regulation/court-battles/540617-judge-rules-cdc-eviction-moratorium-unconstitutional). It will be interesting to see how that plays out in the coming weeks.
If you step back and simply take a big picture view of the rental housing situation in California, it’s clear that the state has turned housing providers into something resembling a highly-regulated utility, but then tells the end-user that they don’t have to pay for the service. If you think I’m exaggerating the negative effects of these edicts, click on the CNN story linked below to see how these policies are affecting landlords who themselves are losing their homes.
IN SUMMARY
California needs leaders who understand housing issues, seek comprehensive, practical, and fair solutions, and are willing to throw out the failed policies of the past, with their attendant unintended consequences. We have to stop electing ideologically driven people who lack the perception and foresight to address these issues in a commonsense way. Frankly, I don’t think we will see that kind of leadership here, at least in the near term.
LINKS
https://us3.campaign-archive.com/?u=2be5338b8936422eafd975fed&id=0e518667ff
[1] I would like to give a shout-out to Pat Eklund, Damon Connolly, Kevin Haroff, Urban Carmel, and John McCauley, some of the locally elected officials in Marin County, California, who have taken the time to understand these issues and push back on poorly thought-out state initiatives.
John Palmer is a long-time resident of and community leader in Mill Valley, and is the founder and president of Montgomery Capital Management, a real estate investment and property management firm based in Marin County. Mr. Palmer’s company manages property throughout California, Colorado, and Nevada.