Do You Own a California Vacant Home? It Might Be a Housing Crisis Issue.

Should empty homes be taxed?

The City of Los Angeles, and many other cities, have been looking into this issue for years. The Alliance of Californians for Community Empowerment (ACCE) issued a report stating the City has more than 46,000 units in "non-market vacancy".  In 2020 another report said there were between 80,000 to 100,000 empty units throughout the city.  Housing advocates are often interested in the issue in order to house the homeless or "unhoused", but regardless of the target market, having so many units off the open market and unavailable to potentially qualified lessees/residents is a housing problem. And now many cities are thinking of taxing those properties. And, the California Association of Realtors estimated that around 1.2 million units, apartments and single-family homes may sit vacant around California. 

This is a kind of proposition that is usually easier said than done, but San Francisco, Santa Cruz, Berkeley have all worked towards a ballot proposition, while West Hollywood may discuss it next year. 

Also, Kate Harrison, Berkeley Vice Mayor, "cited a report in San Francisco finding vacancies are disproportionately in multi-family apartment complexes and in areas with older housing stock and higher rates of new construction. She said this suggests property owners are holding older units vacant to capitalize on new construction, and she wants a tax to send a message to these owners and “out of towners” who let property sit empty in a city they may not live in."

And, "The extraordinary gap between the housing needs of residents and the availability of housing can only be bridged through the use of numerous policy interventions, including a vacancy tax intended to incentivize owners of housing property to bring units back on the market and discourage speculation," Berkeley city staff wrote.

Vacant properties attract nuisance as well. It's better for cities and neighborhoods to have occupied homes, but is forcing property owners via a tax going to achieve the desired result?  In San Francisco, it could bring 4500 units back on the market with their proposed tax scheduled to launch in 2024. If it's successful, it would continue to pave the way for other cities.
 

Julia Huntsman, REALTOR, Broker | http://www.juliahuntsman.com | 562-896-2609 | California Lic. #01188996

What is SB 9, Signed into law by Gov. Gavin Newsom on Sept. 17, 2021

A while back California passed a law allowing accessory dwelling units (ADUs) throughout the state as part of the work to alleviate a housing shortage.  There is now Senate Bill 9, the California Housing Opportunity and More Efficiency (HOME) Act, a law that will allow--disregarding neighborhood zoning--owners of single family homes to split their lots and build a duplex, effective January, 2022.

"The HOME Act facilitates the process for homeowners to build a duplex or split their current residential lot, expanding housing options for people of all incomes that will create more opportunities for homeowners to add units on their existing properties. It includes provisions to prevent the displacement of existing renters and protect historic districts, fire-prone areas and environmental quality."

Many have been concerned about the forced change to single family zoning, and potential negative results to neighborhoods.  According to The Terner Center in their July report on SB 9, "This ability to create duplexes and/or split the lot and convey new units with a distinct title would allow property owners to  pursue a wider range of financing options than are available for ADU construction to build these new homes." ....  "While Senate Bill 9 does not apply to single-family parcels in historic districts, fire hazard zones, and rural areas, local market prices and development costs play a large role in determining where there is financial viability for the addition of new homes. Moreover, physical constraints, such as small lot sizes and other local regulations, can limit the number of new homes built as a result of this bill."  Parcels most likely to benefit from this new law are those that are already "financially feasible" under existing law, and that relatively few single family parcels are expected to be financially feasible for added units as a result of this bill.  Mortgage products may be accelerated somewhat for parcels that are newly subdivided, for households able to take advantage of new homes of newly divided parcels.

As reported by The Terner Center, restrictions, which may put feasible properties statewide to about 410,000, of which about 110,000 would become newly feasible, include: 

1 Cannot be in a historic district or a historically designated property.

2 Lot split cannot be smaller than 40 percent of the original parcel.

3 A locality cannot impose any standards that would preclude the construction of up to two units or physically precluding either of the two units from being at least 800 square feet in floor area.

4 Side and rear setbacks of up to 4 feet is allowed.

5 The lot split cannot require the demolition or alteration of a housing unit currently serving moderate-, low- or very-low income household(s) or a rent-controlled unit.

6 The lot split cannot result in the demolition or alteration of housing that has been occupied by a tenant in the last three years or where an owner has used the Ellis Act to remove a rental unit from the market within the last 15 years. 

7 A jurisdiction may impose an owner-occupancy restriction for lot splits, where the applicant must intend to occupy one of the housing units as their principal residence for a minimum of one year from the date of the approval of the urban lot split.

8 No lot splits on adjacent lots. 

9 Cannot be created from a previous lot split. 

In Long Beach, the impact may be lessened because lot sizes are relatively small, which would preclude much of this from happening.  Officials say in order to make financial sense, lot sizes would have to be about 8,000 square feet.  Of the 59,803 single family lots in Long Beach, 4,609 are over 8,000 square feet.

 

For the complete report from The Terner Center, see their July 2021 report here.   

State law:  https://www.gov.ca.gov/2021/09/16/governor-newsom-signs-historic-legislation-to-boost-californias-housing-supply-and-fight-the-housing-crisis/

Julia Huntsman, REALTOR, Broker | www.juliahuntsman.com | 562-896-2609 | California Lic. #01188996

Takeaways From the PWR 2020 Economic Summit

About 1,000,000 people have left California since 2010

• Pacific West Association of REALTORS held its meeting in  Garden Grove today on current real estate topics state wide and locally:  
• There are two Proposition 13s coming up:  One is a new proposition on the March 3rd ballot dealing with a bond for school construction debt; the other is the well-known Proposition 13 issue from 1978 appearing on the November ballot and dealing with the Split Roll Tax Initiative where commercial properties, not residential properties, would be restructured for their property taxes if voted in, with the objective of commercial properties paying higher tax than currently (did you know that over time residential properties have been increasing thereby carrying a tax burden not enjoyed by commercial properties).  Don't confuse the two.
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• Proposition 5 will hopefully obtain enough signatures to be back on the  November ballot, and partially rewritten from its last ballot appearance when it was defeated.
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• The State is in the longest post recovery period from a recession ever, over 10 years!
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• The U.S. unemployment rate is down to 3.5%, the lowest rate ever; while the overall California unemployment rate is at 3.9%, but this varies by county.
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• The corona virus effect is global, and is affecting the supply chain around the world, for instance, Toyota in China is just one of many places currently unable to produce for the world market. The next 6 months may see continuing impact, globally and locally, even affecting prospective foreign buyers here.
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• The California population was 20 million in 1970, it's now double that at 40 million people.
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• The housing market typically slows before major elections, there is no correlation to political parties.
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• Housing prices are most often referred to when dealing with "up" or "down" trends, yet the  annual number of residential transactions hasn't changed for the last 10 years!
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• From 2003 to the present, home prices have increased by 53%!
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• Where are sales headed?  Perhaps with higher prices, but not with more inventory.  Inventory has been constrained at the same level since 2012.  May now be the new normal at 2-3 months of inventory.
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• Statewide, the average time on market is 28 days; in the ultrahigh luxury market, the average time on market is 39 days.

•  Many college age young adults want to be able to buy their own home.
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• Buyers want a "Pinterest" home, their expectations are high.
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• The Los Angeles County median home price is $641,000; the Orange County median home price is $840,000, with the lowest inventory in 15 years.
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• Where is the fastest rising price increase?  City of Norwalk.
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• It's predicted that by 2025, California will be a majority renter state.
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• California property owners need to change their image of what increased density might look like in their neighborhood--developers too.  New multifamily housing does not have to have the "cell block" look, there are more elegant designs which could blend well into single family home areas.

REALTORS are represented in 90% of sales, a figure that hasn't changed in 30 years.

Thanks to Leslie Appleton -Young, California Association of REALTORS Chief Economist.

Julia Huntsman, REALTOR, Broker | www.juliahuntsman.com | 562-896-2609 | California Lic. #01188996

A California Real Estate Update for Some 2018 Housing Laws

Senate Bill 2 became a 2018 law. Building Homes & Jobs Act.
This enacts a recording tax of a flat $75 per every document which is already required to be recorded, on every real estate instrument not part of a sales transaction, and the funds of which are allocated out largely to address the need for affordable housing, and according to one source is expected to generate $200-$300 million annually.  The good news for homebuyers is that this law does not affect owner occupied home purchases or home refinances.  There are some exemptions, and the fee is capped at $225 per transaction.  The documents that will be charged include:

"deed, grant deed, trustee’s deed, deed of trust, reconveyance, quit claim deed, fictitious deed of trust, assignment of deed of trust, request for notice of default, abstract of judgment, subordination agreement, declaration of homestead, abandonment of homestead, notice of default, release or discharge, easement, notice of trustee sale, notice of completion, UCC financing statement, mechanic’s lien, maps, and covenants, conditions, and restrictions."

The exemptions to the fee are: 1. If document is already subject to the Documentary Transfer Tax; 2. If it is real property in an owner-occupied purchase; 3. If the document is not related to real property.
The title company involved in each transaction must now attach a cover sheet to each document involved that shows a declaration of exemption for that particular document, or will get charged the fee.

Senate Bill 35 amends the Planning and Zoning law to create a streamlined approval process so that cities can meet their mandated housing goals and a stronger requirement that cities report their annual housing production to the California Department of Housing and Community Development. California has been behind for many years on building the housing needed as its population increased by birth rate alone.  But how much affordable housing will increase is unknown, as the bill addresses only local governments that have fallen behind on their state goals for homebuilding. The bill had support by many entities.

Senate Bill 229 - Accessory Dwelling Units.  Already mentioned in a previous post, these units are allowed statewide and are also under "granny flats" labeling.  This law allows units in residential areas which were not previously zoned for more than single family residential growth, in order to increase affordable housing.  Long Beach, for example, was concerned about parking issues in some areas already impacted, and in October 2017, established additional clarifications concerning construction of these units, as have other cities.  However, none are supposed to supercede the law signed by Governor Brown in 2017.  The advantage of this law for many house owners is that an existing "guest quarters" can be upgraded to a legal ADU, or a garage (with all proper permits) may be legally converted to living quarters as an ADU, or an existing room of a home may be converted (with all proper permits and inspections) to a separate legal quarters. 

If you would like additional help on resources, or discuss how they might apply to your planned home purchase, please contact me.  I'm a licensed Realtor since 1994 (also a Broker).

Housing Market and Inventory Shortage in Los Angeles County

Buyers still experience a great deal of competition when submitting offers. I know of one recent instance where an offer for a $450,000 house was submitted at $10,000 over asking, but the buyers were still outbid. This is and has been a very frustrating fact of life for quite some time.

 As it happens, Los Angeles County has far more jobs than new housing permits issued compared to any other county in California. Santa Clara and Orange Counties are the next most underbuilt counties. This did not happen overnight, but happened over several years, and estimates are that it will take several more years to "catch up".

 Other reasons for low inventory is that the Baby Boomer generation and/or longtime homeowners are not moving as much as in the past. The recession featured very low interest rates, or they may have lower property taxes, or if they move there may be a capital gains hit due to rise in prices ($250,000 for single, $500,000 for couple), there is the question of where can they move to, or their circumstances may have changed and they cannot qualify for the same mortgage today--so they stay put.

In California in the 1970s, there was about a 9% turnover rate, in 2014 that rate had declined to less than 5%. In 2000, California sellers stayed put for about 6 years (national average was about 7 years); as of 2016, that average length of stay was 10 years. Californians 55+ years of age are now at their lowest rate of moving -- 71% of the 55+ crowd has not moved since 1999. Data from the construction industry reveals $3.9 billion was invested in remodels and additions compared to $1.5 billion in 1988. In San Francisco alone, there are currently between 400,000 and 700,000 rentals that used to be owner-occupied, in other words, those are properties taken out of the purchase market. Another interesting effect is formulation of households -- not as many people getting married and wanting to buy a new home for a new family! Additional effects on the housing market could be future policy changes concerning the mortgage interest deduction and outmigration to more affordable areas (which at least might put some properties on the market).
Political uncertainties and Twitter bursts are essentially wildcards for certain aspects of the housing market.
 For buyers, is it impossible?  No, but it's extremely important to be prepared with local market knowledge, and prior loan approval before shopping.

What About the Overall U.S. Housing Shortage?

It should not be news that housing inventory is in a crunch, both locally and nationally.  In Long Beach, for example, the average price of a house is up 16% compared to one year ago, but the number of new listings is down by 13%, and the inventory overall is down 20%.  It's a similar story elsewhere, although the figures may vary somewhat, but the profile is generally the same: less inventory.  And the reason for this is, there is an actual housing shortage, both of new units needed to be built and for existing properties that are not on the market because they were bought up by investors a few years ago and continue to be held as rentals.

"What is needed is for homebuilders to boost construction and/or for investors who bought for the purpose of renting to unload those rental properties onto the market soon. There is no indication of the second occurring because of nice rental income flows. The only way to bring additional supply, therefore, is for homebuilders to get really busy." --  Lawrence Yun, National Association of REALTORS

To make up for the shortfall, there needs to be 1.7 million new housing units constructed per year, and even at that rate, it's projected it will take about 4 years of catchup to meet the national need.
There are 300,000 to 400,000 uninhabitable homes demolished every year, and this fact along with the approximately 1.2 million households formed every year, new home construction should be about 1.5 million units per year.  But the housing crash in years subsequent to 2006 saw only about 870,000 new units constructed every year, and available unit numbers have yet to catch up.  See the full article on Forbes site.

One solution is SB 1069 in California which which makes accessory ("granny") units easier and less expensive to build throughout the state, and gives legal guidelines to what otherwise might be illegal dwellings.  Interested parties should check also with their local municipal and county laws for further guidance on such units.