News

March 28, 2018

Read the full article at Urbanize Los Angeles

Homeownership has long been considered a part of the American dream, and the government has spent decades developing laws to promote and incentivize it as a practice. As so many Californians are housing insecure during our current affordability crisis, ownership is a way to create stable, predictable household housing costs at all income levels.

Homeownership provides the predictability of fixed housing costs. The most common form of a home mortgage, the 30-year fixed mortgage, is 360 monthly payments of the same amount. If you secured a fixed-rate mortgage today, what you pay this month is the exact same amount that you would pay in 2048. To go further, government-sponsored entities like Fannie Mae, Freddie Mac, and the Federal Housing Administration provide robust, liquid markets that ensure the cost of originated mortgages are as low as possible.  This situation is completely different for renters.  In this rising market, renters are always at risk to rent hikes, even those living in rent-controlled units.

Californians also have fixed property taxes under Proposition 13.  If you bought your home in 1980 for $50,000 and today it is worth $750,000 (not uncommon in California), you pay property taxes based on the original $50,000 purchase price.

To make the deal even better, the interest portion of your mortgage payment and property tax payments are often tax-deductible. Say a person is in the 30% state and local tax bracket. If their rent is $2,500 per month, they pay $2,500 per month. But if the sum of their monthly property tax and mortgage payment is $2,500, generally speaking, their actual payment after tax benefits is often under $2,000 a month.

Historically, California residential real estate has been an excellent long-term wealth creator. In today’s world, home equity comprises a substantial part of the net worth of many California homeowners. As the Los Angeles County median home price hits record highs, most homeowners have materially increased their net worth by simply owning a home. This home equity provides certain levels of flexibility. If your income has risen in the years since you purchased your home, you can refinance to take cash out to pay for things like your children’s college tuition or business investments. If you died today, assuming you are worth less than approximately $11,200,000 (not a typo), you can typically give your house to your heirs estate-tax-free.  

Ownership doesn’t need to come from single-family homes. In infill settings, condominiums and townhomes provide the same benefits listed above. The units can be small too. As of this writing – March 24, 2018 – there are 2,325 units for sale in New York City under 750 square feet.

Homeownership provides upward mobility, home security, and long-term wealth creation opportunities to Californians.  But despite all of these benefits, housing developers in California infill locations overwhelmingly chose to build rental apartment buildings. In 2017, well over 90% of the completed multifamily units in the City of Los Angeles were rentals.

Why are we depriving so many Californians of this terrific deal? There are four main reasons, and unfortunately, they are not easy fixes.

It Often Takes Much Longer and Is Riskier To Get For Sale Housing Approved

The Subdivision Map Act is a California state law that determines how new for-sale housing is approved. Anytime you take a piece of property and plan to sell it to more than one individual you must go through this process.

In many jurisdictions, the process is often much simpler for rental developments. In the City of Los Angeles for example, if your apartment building is under 50 units, not located in a specific plan area, and conforms to existing zoning, there is no planning case. You can take your building plans straight to the Department of Building and Safety for building permit plan check.

Let’s walk through the process of what the approval process is for a simple two-unit, zone conforming duplex in Los Angeles for rent, then compare it to an otherwise identical project that will be marketed for sale.

As mentioned, if the duplex is for rent in Los Angeles there is no planning case. You take your plans straight to Building and Safety for a permit, then you start construction.

If the duplex was for sale, under state law you need a planning case for a parcel map. Neighbors within a 500-foot radius and the local neighborhood council are notified. There is a public hearing and the parcel map case can be appealed. You also need an environmental clearance under the California Environmental Quality Act – which can also be appealed. After it clears appeal at the local level, it can still be challenged in the California courts both at the Superior level and then the Appellate level. Once the parcel map is approved, it is only a tentative approval. You still must go through the next process of recording your final map. Many jurisdictions in California do not allow construction to begin while you are recording your final map. All of this because of a state law that guides how to make your duplex for sale.

Understandably, you can see why many builders are incentivized to go the for-rent route for approvals rather than for-sale. Especially in jurisdictions that have by-right processing for non-subdivision cases. The California Legislature has their hands full at the moment with housing. But eventually, some common-sense reform of the Subdivision Map Act is warranted.

It is Much More Difficult To Obtain a Mortgage For a New Condominium than a New Home

Most mortgages are affiliated with one of three major government-sponsored entities: Fannie Mae, Freddie Mac, or the Federal Housing Administration. Say you have a new development of 40 single-family homes. These three entities would have no problem providing a mortgage for a qualified buyer of that project.

The same is not the case for a brand new 40-unit condominium or townhome project. These organizations consider condominium projects riskier. The rules are always changing, but they generally require that a significant portion of the project be pre-sold (usually about half) before issuing the first mortgage. In the case of the 40-unit townhome project, you would need to pre-sell about 20 of the homes before closing on a single one.

Frankly, this process is a giant pain for the builder. It also adds a certain element of risk. It can take months to pre-sell half of a project. Some of the first buyers can, and often do, find other places to buy and drop out before the first half is sold. Condominium mortgages can also be more expensive than those for single-family homes.

This process was put in place to protect lenders from getting hurt on risky projects. I understand why lenders would want to be careful on luxury skyscraper condo developments, but wood-constructed townhomes and condominiums from three-to-five stories are much less risky. Washington is always adjusting Freddie and Fannie. The next time they do, it would be great if they lowered the pre-sale requirements on these less risky projects.

Our Tax System Favors the Construction of For-Rent Over For-Sale Housing

As I described above, a homeowner generally enjoys significant tax benefits over a renter. As far as the development of for-rent housing versus for-sale housing, the complete opposite is the case. There are often significant tax advantages to building a rental project over a for-sale project.

For-sale projects are taxed as ordinary income, which is our highest level of taxation.

Unlike a for-sale project, an apartment developer has the option to keep the apartment building. Assuming the project was done properly, lenders like Fannie Mae have mortgage products available to refinance out a significant portion of the developer’s invested capital upon building completion. Once tenants move in, the developer can often take depreciation losses against new rents. This is a much more favorable tax situation than paying ordinary income the day your project is complete. These favorable tax advantages are a major reason why developers take the for-rent route over the for-sale route.

I’m confident that neither Paul Ryan nor Nancy Pelosi are Urbanize LA readers. They should be though. If the country is as serious about promoting homeownership as they say they are, they need to look at reforming how they tax various forms of new residential construction.

Development Insurance is Much Higher for For-Sale Projects than for Rental Projects

Senate Bill 800, passed in 2002, guides the process of construction defect litigation in California. Existing laws provide that owners of new residential construction have ten years from building completion to file a lawsuit for defects. These lawsuits are very common for new condominium projects.

Because of this, insurance for new condominium projects is more expensive than that of other residential projects. As a result, many reputable California architects, engineers, and subcontractors simply refuse to work on condominium projects.

In 2005, the City of Los Angeles established the Small Lot Subdivision Ordinance. This ordinance allowed a new hybrid housing typology that looked and functioned like row townhomes but where each unit was built independently on individual “small lots”.  A major consideration in this ordinance was insurance. Small lots are technically single-family homes and have lower development insurance than condominiums. I wrote earlier this year that the California Legislature should consider a statewide small lot ordinance as a way to address some of these insurance issues and promote home ownership.

So why are most new developments rental apartments? Because the developer does not want to deal with the longer approval periods, the often less favorable tax treatment, and the increased risk.

Increasing homeownership opportunities for new housing is very important. California residential real estate will almost certainly appreciate in the future. I want as much of that appreciation to go to the California worker as possible over a landlord. Promoting for-sale housing is a way to bridge the large wealth inequality gap we have in the state.

I often write that land use supply decisions must be addressed at the state level because it so difficult to fix at the local level. The ownership dilemma is different. It is not a local issue and must be addressed at the state and federal level. For decades in California, homeownership was often an attainable choice for many that wanted it. Today, especially in our urban centers, that is no longer the case. As we look for ways to create stable housing costs for Californians, addressing the issues that incentivize the construction of for-sale housing needs to be part of the conversation.

https://urbanize.la/post/if-homeownership-american-dream-why-do-we-mostly-build-rental-apartments

Letter to California State Senator Hannah-Beth Jackson

To Senator Jackson,

Re: SB950 is the new redlining 

Homeownership is called the American Dream. Why do you author legislation that denies this dream to families of color? 

Do you hate us? We care for your children, we clean your homes, we mow your lawns, we wash your cars and care for your elderly parents. We do any and all of the jobs you don’t want to do yourself – all at low wages with few, if any, benefits.

We do all this and yet you author legislation that increases the California Environmental Quality Act (CEQA) that Not In My Back MY Yard (NIMBY) white activists use to deny us access to their neighborhoods. CEQA is already NIMBY’s favorite and most effective weapon that denies us access to homes in their communities. It doesn’t need to be reinforced by your bill. A Southern California Association of Governments (SCAG) assisted study revealed 14,000 housing units were opposed by CEQA lawsuits.

Families of color have never recovered from the disproportionate financial impact of the recent Great Recession. Not too long ago, white families enjoyed six times the wealth of families of color. Today, according to the Pew Institute, this disparity has grown to more than 20 times. The pandemic crisis we are all enduring is having a much greater disproportionate impact on communities of color. Minority unemployment has always been high, but it is now stratospheric.

The economy will eventually recover, but recovery for white families looks much different than for families of color. According to Richard Green, a USC Professor and Real Estate & Urban Economist, if all discrimination ended today it would take over 20 decades for families of color to equal the wealth of whites. SB 950, if it passes, will make it next to impossible for communities of color to catch up. Is this what you want? Is this what you intend by sponsoring SB 950?

Please reconsider and withdraw your bill. Covid-19 has shown us that we are almost all in this together. We should begin by acting like it.


Sincerely,

John Gamboa

Sign the petition now to encourage Hannah-Beth Jackson to withdraw SB 950!:

http://chng.it/5t7Hp5zWqv

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Assemblymember Robert Rivas represents the Salinas Valley. As someone who has grown up in farmworker housing, he understands the need to address the severe shortage of quality and affordable housing for farmworker families.

We’re excited to invite you to a discussion with Assemblymember Rivas on his work to support farmworkers and build essential housing in the age of COVID-19.

There will be plenty of time for Q&A — RSVP today to secure your spot, then read on to learn more about the specific bills Asm. Rivas has put forward in 2020:

  • Assembly Bill 2915, part one of a five-part California Farmworker COVID-19 Relief Package, would expand paid sick leave for farmworkers, provide supplemental hazard pay, extend a tax credit to farmers who offer overtime work to their workers, fund an outreach campaign to educate workers on personal protection practices, and help expedite temporary housing to mitigate overcrowding and allow for social distancing.
  • Assembly Bill 3153 would allow developers to replace a certain amount of required parking with bicycle & car-share spaces; it was submitted by constituent (and YIMBY) Zach Hilton of Gilroy through an “There Ought to Be a Law” contest.
  • Assembly Bill 3155 would allow small lot subdivisions of multifamily parcels through a streamlined process & allow developments with under 10 dwelling units to use SB 35 streamlined approval even in jurisdictions up to date on their RHNA targets.

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Please join California YIMBY, Habitat for Humanity, & The Two Hundred for a discussion and Q/A with Assemblymember Robert Rivas about his 2020 legislative proposals.

RSVP here

April 12th, 2020

Read the full article at The LA Times

By Liam Dillon and Andrew Khouri

Over the last month, millions of Californians have lost their jobs because of orders to stay at home and close nonessential businesses to help slow the spread of the novel coronavirus. 

Both tenants and landlords have faced sudden losses in income and new fears about what will happen to their homes and properties. According to a new estimate by UC Berkeley’s Terner Center for Housing Innovation, almost 1 million renter households in the Los Angeles metro area have likely experienced a job loss or had wages cut. Federal, state and local governments have passed measures to prevent evictions and provide mortgage assistance with the expectation that many tenants won’t be able to pay their rent. But the patchwork of rules has led to confusion, and in many cases has failed to relieve worries about missed rent and mortgage payments. Some landlords are pressuring their tenants for financial documentation or to agree to rent repayment plans that are more onerous than required by law. 

The Times spoke with eight landlords and tenants across Los Angeles County to understand how they’re coping with the fallout from the coronavirus. The interviews, presented in their own words, have been lightly edited for brevity and clarity.

LANDLORDS

Melanie Streitfeld, 66, Rancho Palos Verdes

When I got married, my husband was a real estate broker and also an attorney. We worked together in our law firm, but we started investing in real estate as kind of a side thing.

At one time we had 13 properties. My husband passed away, and then with the financial crisis in 2008 I had to sell off. I have seven properties now. Three houses in Riverside County, a house in Harbor City, an apartment building in Sherman Oaks, my own home and a condo in Long Beach.

I have two part-time jobs as a retired person. I lost both of those jobs. In February I broke my leg, and I was told not to come back until I was 100%. Then everything was closed down.

I am still doing OK. I am just really cutting back. I don’t drive, so I am saving a lot of money on gas, and my insurance company is cutting our premiums, I think, 15%. But I really have to watch it. I can’t spend any extra money on anything.

Fortunately, on April 1, all my tenants were able to pay their rent. But I am very concerned as to how long this goes.

Landlords are always being treated like the big, bad rich guy that is greedy, and that’s not the case.

I can’t stress myself. I am 66 years old and I’m at an age where stress will kill. I just don’t want to think about it because I don’t know what I am going to do if people don’t pay.

Darryl Marshak, 64, Los Angeles

I became a landlord because I will be 65 in May. After I got divorced, I bought a multifamily place in Mid-City. I knew my Social Security checks would only help me so much, so I was hoping the rent would.

I got in way over my head. Being a landlord is a hard job. I bought this broken-down multiunit place, and I put everything I had into it. I have two two-bedrooms and like about three other little studio things, and they are filled up. I live on site.

They are like my children, these people. So when this thing hit, I was like: “Oh my God, I know what they are going through.” None of them are wealthy people. One of them is a server in a restaurant. Another one is an events coordinator. I don’t know if they will get their jobs back again, because their employers don’t know what to do.

People were very late on the rent. But I didn’t bust them for it. I just said do what you can. We’ve all got to work together. I have collected about 85% for my April rent. I am really worried about May.

I can’t afford them not paying rent. I have two mortgage payments worth of money to my name. I might have to sell; I might have to take in a partner that has money to ride it out. I don’t know.

Diana Bustamante, 41, La Puente

I just started being a landlord, officially in August.

I was fortunate enough to buy a house and that area where my property is — City Terrace — has really taken off. So I decided to take the equity in that house to purchase another home. I live in La Puente now and decided to use that as a rental, the City Terrace one.

It’s horrible for everyone. I feel a lot for my renters. The last message I received was that they had to spend their rent money for food.

I don’t own that property outright. I still have a mortgage on it. So when they can’t pay rent, I have to cover that mortgage. I think I can go for four months if I just use my savings. The salary I make pays both mortgages. It just takes the entire salary. There would be like $200 left.

I have been trying to cut back on things that are not essential and try to figure out a way to pay all the bills that are coming in. The scary thing for me is not knowing when this is going to end.

I always knew I was taking a risk by becoming a landlord. There are so many things that could go wrong.

What I didn’t plan for and what is so unnerving is the fact that I have no alternatives.

I don’t want my renters to end up homeless. I most definitely don’t want to evict them during this national crisis.

The reality, however, is that I might be forced to sell the house and that they may end up without a place to live anyway. So how is that a safety net for the renters?

Jason Reid, 48, Los Angeles

I was a real estate appraiser for years before the market crashed in 2008. When the markets did crash, I thought being a landlord seemed like a pretty good income generator for the long haul.

I own three properties. One is a single-family home, one is a townhouse and one is a small one-bedroom condo. At present, two of them are current on rent. The one property here in Los Angeles is where the tenant has not been able to pay.

I think probably for the next month or two, even if the others were to follow suit and not be able to pay, I could probably come out of pocket and be OK. Beyond that it’s pretty scary.

I already have checked with the banks and credit unions which hold my mortgages and, fortunately, they are all offering some version of a deferral. From my understanding, they would just tack those missed payments onto the back of the loan, which I appreciate.

However, I have to pay those and it’s not as though I am ever going to recoup that from the current tenants.

If I got a single gal in the Los Angeles property who can’t afford her rent this month because she hasn’t been working, the idea that she is, in a couple of months, going to be back to work and be able to make up for several missed rent payments is ridiculous.

Ultimately, that means the landlords are going to be left holding the bag.

I certainly don’t mind taking a couple of licks myself. I think that is probably fair. As a property owner, it’s one of the risks I get to shoulder. I don’t mind losing out on any income I might generate, but I would at least like to have the mortgage payments forgiven.

My plan is to hunker down, pinch pennies where I can.

TENANTS

Arno Safarian, 37, Burbank

It’s me and my mom and my dad. Both my parents are cancer patients. They’re both recovering right now, but everything is still ongoing.

I’m an Uber driver. My dad, he’s a cab driver. My mom, whenever she can, she does hair. Because of the whole coronavirus situation and the economy shutting down, my dad’s cab company shut down.

At the end of February, I started getting symptoms. No one was really talking much about it. I called the hospital and they told me not to go in. They told me to quarantine myself. I asked them for how long. They said two weeks.

Since both of my parents are in the high-risk category for the coronavirus, I just locked myself in the bedroom and they would leave me food in front of the door. Then my dad got the symptoms. Whatever money I had made up to that point, we had to pay to get him into a hotel so he wouldn’t end up getting my mom sick. We paid about $2,200 for his two-week stay. That really took a financial toll on us.

By the time I came out of self-isolation, I was logging in to Uber and it was nothing. I’ve been trying to do Instacart lately. That’s kind of helping.

Up until March 31, I was trying to figure out if I could borrow money from family or friends to try to put something together for the rent. Everyone I was talking to was in the same position.

The landlord said that if I’m not going to be paying any of the rent, I have to provide him with three months of bank statements. I’d have to give him proof of having applied for unemployment benefits.

I don’t understand why he’s asking for bank statements. He knows we’re independent contractors. How am I supposed to get a letter from Uber?

I haven’t been able to pay anything. The landlord just sent me another email yesterday. I’m just trying to maintain myself in front of my parents because I don’t want them worrying. They ask me every day, “Is everything OK? What’s going to happen?” I always tell them, “Don’t worry about it. I have everything under control.” But the truth is, it’s full-blown anxiety right now for me.

Kinga Basinska, 34, Palms

I work in fashion. As the industry has been hit hard with everything, we did some layoffs and furloughs and a companywide 20% pay reduction, which affected me. It is a lot of money.

I was thinking that maybe I should just contact my landlord. I can afford it now, but if this situation gets worse, then eventually I would have to move out, find a roommate or maybe move to a studio.

So I emailed the property manager. I was so shocked. They said the landlord doesn’t offer any rent reduction at the moment and then sent me a link to the unemployment website. Then I was actually furloughed. Now I actually have a reason not to pay rent.

I understand there’s this whole chain and he obviously has his bills to pay and there might be a loan against his place. But I never came to him and said I’m not going to pay. I just said can you help me out because we all have to survive and live together. I’ve already paid for April. I don’t know what to do with the next month.

I was always thinking that I was going to be one of these people that was never going to be affected by all of this. I always thought that I’m college educated. I have a job and a lot of work experience. I’ve never struggled in my life. And now, oh my God.

I’ve worked really hard to be where I am. It kind of feels like it’s kind of all falling down.

Alexis Rosen, 31, La Crescenta

I grew up in the Inland Empire. I moved to L.A. for graduate school to get my master’s degree in clinical psychology. I opened up my own private practice about a year and a half ago. Thankfully, my practice was doing well enough where I could spend about $1,600 max on rent. I found this place in La Crescenta. It’s a back house, kind of up in the hills.

On March 16, I switched my business to telehealth, 100% online. Over the 48 hours after that is when everything crashed.

I had clients who said, “I just got laid off from my job.” Others, because they’re in a small house or apartment, said, “I can’t do telehealth over the phone because I don’t have any privacy.” Others who said, “I do have a job, but I’m really panicked so I need to save money.” And others who just kind of fell off.

I reached out to my landlord. Come the 24th of March, I sent another email. The 30th rolled around. I sent out my rent check in full. On March 31, I contacted my landlord again, saying I absolutely have to hear from you. That’s when they responded.

I was appalled. They wanted me to ask my family and friends for rent money. My friends are out of jobs. And they encouraged me to take out a loan. I have $100,000 in student loan debt. I’m trying so, so hard not to put myself in any more debt. Thank God, having a brother who is a lawyer, he drafted a letter that I’m going to send mid-month saying I’m going to pay you $1,000 and attaching the governor’s eviction ban to it.

Like everyone else, I’m panicked. I’m anxious. I think for me, and I know for all the people that I speak to, it feels like the virus is almost secondary.

Blanca Dueñas, 61, East Los Angeles

I work part time as a community organizer. I also volunteer to better the schools and for rent control.

I live with my son. He’s 35 years old. He pays for almost all the expenses. He works for a company that buys organic produce and sells it to restaurants and hotels. He goes to the ranches where they cultivate the vegetables, buys them and brings them back to Los Angeles.

His boss has given him some money, but it’s not his entire salary. He has a good boss.

I spoke with our property manager and I think she understands the situation that all of us are in. The landlords are in the same situation as we are because everyone is in this pandemic. She said, “It’s OK, Blanca. I know that you pay on time and that this isn’t common for you and your family. We’ll accept what you can pay for now. And when this is over, we’ll figure things out.”

We paid more than half the rent. But this is the first month. For the next one, I don’t know how we’re going to do it.

I have 11 grandchildren. Two of them, the children of my son, live with us, too. Another worry I have is that they announced there’s not going to be school until next year. We don’t have internet. We don’t have a tablet or computer.

We’ve run out of many necessities. We’ve run out of bath soap. We’ve run out of cooking oil. We’ve run out of tortillas.

In truth, for me, it’s really important to pay the telephone bill because it’s the only means of communication we have right now. It’s the way I talk to my daughters and see how they’re doing. I’m really worried that I’m not going to be able to pay for it.

So I’m much more than afraid. I’m panicked.

The LA Times

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