The TV commercials and online ads are quickly becoming ubiquitous: “We’ll buy your house as is,” they trumpet. “You don’t have to spend money to fix it.”
This is generally the message from housing speculators, often institutional investors, including real estate funds, who are less interested in acquiring or maintaining housing than in cashing in on rising land prices. It’s the land, not the houses, that interests her the most.
A Northern California civic group called United Neighbors says, “Neighborhood capital, particularly institutional and private equity, is entering the single-family home market in unprecedented amounts.”
That’s a big reason why, according to the group, “California housing costs have increased so much that housing costs have completely decoupled from their historical wage-based income base.”
That, they say, is the root cause of the affordability crisis. This is fueled by the fact that institutional investors, including pension funds such as CalSTERS (the California Teachers’ Pension Scheme) and CalPERS (the California Public Employees’ Pension Scheme), are leaving many purchases empty while awaiting property appreciation. This frees them from dealing with renters and evictions if they decide to sell or demolish existing homes and convert them into multi-family homes.
United Neighbors claims that 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 home fins, people or businesses buying houses to keep for a while before selling them on for a hefty profit.
It’s creating high vacancy rates in some places at a time when California is perceived to have a housing shortage. The real shortage is affordable housing, as 73% of homes approved in 2020 were only affordable for households with incomes well over $100,000 for just one year.
All of this has also resulted in increased vacancy rates for housing units built since 1970 – worth more than 50 years. Nationwide, the vacancy rate in these “newer” units was 12.4% in late spring. Los Angeles County had 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 laws that lawmakers have been rushing to pass in recent years can be effective, including last year’s Senate bills 9 and 10, which essentially repealed the R-1 zoning of single-family homes statewide and allowing for a subdivision of almost all lots in these areas.
The problem, it seems, is not so much the housing shortage — especially while California’s population is relatively stable and not growing rapidly, if at all — as the fact that wages and house prices have gotten out of sync, partly because of institutional investment.
This year, Democratic Rep. Chris Ward of San Diego, which recently “won” the rank as America’s least affordable city, proposed a bill taxing gains from home sales, particularly those of corporations and pension funds. It died in committee but deserves resurrection.
His bill, known as AB 1771, aimed to impose a 25% levy on gains, after capital gains tax, from the resale of a home within three years of purchase. After that, the rate would have dropped to 20% and then steadily declined before disappearing after seven years.
The taxes collected would have gone to cities, counties and affordable housing funds, Ward said, whose purpose is to deter stock investors and thus open up more options for people planning to live in homes they buy.
This would particularly benefit the availability of mid-priced homes, as institutional buyers are more likely to buy these types of homes than high-end homes, whose rates of appreciation are far less stable and predictable, and often sell for millions below their asking price.
The bill was opposed by building unions, whose workers don’t care if or when the spaces they build are occupied as long as paychecks arrive on time.
These unions and the developers they work with have been the main drivers behind the recent spate of unwise, unnecessary new housing laws through the legislature.
Conclusion: Yes, there is a real estate crisis, but it’s at least as much about hoarding and waiting for profit as it is about supply.
Email Thomas Elias at email@example.com.