TV commercials and online ads are quickly becoming ubiquitous: “We’ll buy your house as is,” they trumpet. “No need to spend money to fix it.”
That’s usually the message from real estate speculators, often institutional investors, including real estate investment trusts less interested in preserving or maintaining housing than cashing in as land values rise. It is the land, not the houses, that interests them most.
According to a Northern California citizens’ group called United Neighbors, “non-wage capital, particularly institutional and private equity, is entering the single-family home market in unprecedented quantities.”
This is a key reason why, according to the group, “housing costs in California have inflated at such a rate that housing costs have completely decoupled from their historic wage-based income base.”
This, they say, is the root cause of the affordability crisis. It’s bolstered by the fact that institutional investors, including pension funds like CalSTERS (California’s state teachers’ retirement system) and CalPERS (California’s public employee retirement system) are keeping a lot of buys going. vacancies pending an increase in land values. This frees them from dealing with tenants and evictions when they decide to sell or tear down existing homes and turn them into multi-unit buildings.
United Neighbors says institutional buyers, including Wall Street investment banks, spent a record $77 billion on California single-family homes in the last six months of 2021.
This makes them the ultimate flippers, people or companies who buy homes to hold for a while before reselling them at a big profit.
This is creating high vacancy rates in some places at a time when California is expected to experience a housing shortage. The real shortage is in affordable housing, as 73% of homes licensed in 2020, for a single recent year, were only affordable to households with incomes well over $100,000.
All of this has also led to an increase in the vacancy rate for homes built since 1970, more than 50 years ago. Statewide, the vacancy rate for these “newer” units was 12.4% as of late spring. In Los Angeles County, it was 16.3%, while San Francisco had an overall vacancy rate of 8.7% and more than 40,000 vacant units.
All of this suggests that none of the controversial housing bills eagerly passed by the Legislature in recent years can be effective, including last year’s Senate Bills 9 and 10, which essentially removed R-1 single-family zoning statewide and allowed subdivision of nearly all lots within these zones.
The problem, it seems, is less a lack of housing — especially when California’s population is relatively stable and not growing quickly, if at all — than the fact that wages and house prices have risen. out of sync, partly because of institutional investments. .
This year, Chris Ward, a member of the Democratic State Assembly of San Diego, which recently “won” the ranking of the least affordable city in America, proposed a bill to tax the profits of the house flipping, especially by corporations and pension funds. He died in committee, but deserves to be resurrected.
His bill, known as AB 1771, sought to impose a 25% tax on after-tax profits on capital gains from the resale of a home within three years of its purchase. After that, the rate would have fallen to 20%, then steadily declined before disappearing after seven years.
Taxes collected would have gone to cities, counties and affordable housing funds, Ward said, whose purpose he told a news conference was to discourage equity investors, thereby opening more opportunities for people who plan to live in the homes they buy.
This would particularly help the availability of mid-priced homes, as institutional buyers are more likely to buy this type of housing than high-end homes, whose appreciation rates are much less stable and predictable, often selling for million less than their asking prices.
The bill has faced opposition from building trades unions, whose workers don’t care much about whether or when the places they build are occupied, as long as paychecks come in time limit.
These unions and the developers they work with have been the main drivers of the recent wave of reckless and unnecessary new housing laws.
Bottom line: Yes, there is a housing crisis, but it’s at least as much about hoarding and the expectation of profit as it is about supply.