Economic Update (Monday, October 4, 2021)
Economic Update
(Monday, October 4, 2021)
As you probably know, California is suffering through a severe housing crisis.?The result, inter alia, is escalating home prices, rising rents, lack of affordability, and clogged freeways (from long commutes).?And, of course, the corollary, severe homelessness.?So, in light of the recent passage of SB9 and SB10, I thought this week I’d explore with you the housing crisis and the downfall of single-family zoning from the perspective of real estate investors.?Are you ready? ?First, a little history.?I bet you didn’t know that single-family zoning originated in the city of Berkeley, a century ago, as a segregation practice to prevent black-owned dance halls from locating near white-only neighborhoods.?In other words, restrictive zoning has its roots in racist public policies. As a result, single-family zoning evolved over the decades as a way to segregate neighborhoods without explicitly banning any racial or religious group. Today, restrictive (or exclusionary) zoning perpetuates racial and economic segregation by prohibiting lower-cost apartments and townhouses in higher-opportunity single-family neighborhoods (i.e. better schools, parks and other amenities). Just as significantly, single-family housing is very much part of the mythos of Southern California.?Single-family neighborhoods have long been held as sacrosanct. But there is a growing recognition in California and beyond that we cannot build enough new housing to meet the needs of the population or in the places we need it most (such as near job centers, good schools or transit), as long as multi-family housing is excluded from two-thirds of the state’s residential land.?So with the housing crisis in mind, let’s mask-up, get vaccinated, social distance, and do a deep dive into single-family zoning (and this week’s other real estate news)...?
What is Single-Family Zoning? Let’s break the term down into two parts, starting with “zoning” and then “single-family.” Zoning regulates how land can be used and what can be built on it. ?For example, can you build a commercial building on certain land??Yes, if that land is zoned for commercial use. On the other hand, can you build a home on that commercial land??No, homes can only be built where there is residential zoning. To make it even more confusing, in a downtown area, you might have “mixed-use zoning” (i.e. ground-floor retail businesses and residential units in the high-rise above). Next, “single-family” zoning refers to a residential area where only one housing unit can be built on a given parcel of land. Think of the Southern California suburban staple of a home with no shared walls (in other words, not a duplex, triplex or multi-unit complex). If you live in a house with a driveway, garage, three bedrooms, two bathrooms, and front, back and side yards, it’s almost certainly a single-family home.?In the city of Los Angeles, for example, single-family zoning is known as “R1” (meaning one residential unit on a lot).?Other zoning designations include “R2” (two residential units on a lot, plus other uses) and “R3” (which can include boarding houses and childcare facilities).?In fact, two-thirds of all the residences in California?are single-family homes. Worse, as much as three-quarters of the developable land in the state is zoned only for single-family housing, according to UC Berkeley research.?And therein lies the problem. But now here comes SB9 and SB10 to the rescue, maybe.
Senate Bill 9:?As a possible solution for our housing crisis, Governor Newsom signed two bills?last week designed to make it easier to build more housing in California.?The first,?SB9 makes it possible to build more than one housing unit on land that was previously zoned for only one unit (“R1”).?SB9 will have an immediate and direct effect on local zoning. Simply put, SB9 gives homeowners in single-family zones the right to now divide their lots into two and build up to three additional homes on them, essentially turning a single-unit lot into a four-unit lot.?That’s a noticeable shift from current law (which allows only two units — a house and an accessory dwelling unit — per single-family lot).?SB 9 has numerous exceptions and limitations, though, that are designed to preserve rental and low-income housing, deter speculators, guard against displacement, retain local governments’ control over design standards, while also preventing local officials from adopting rules that undermine the new law. ?Although property owners would have these new rights under SB9, local governments still have to approve plans and building permits. As anyone who’s been through that process like me can attest, it can take months to pass through that gauntlet.?I’d rather have a root canal than deal with the permitting process.?Nevertheless, a recent analysis?by the Terner Center for Housing at UC Berkeley projects that only a small percentage of residential lots would see extra units as a consequence of SB9, simply because the extra construction wouldn’t make financial sense in most places. According to the Terner Center, projects would pencil out on just 5.4% of the state’s 7.5 million single-family lots.?However, even a small percentage of 7.5 million lots could still yield a lot of extra homes, extra houses we so desperately need! The Center’s analysis projected that the law would result in 714,000 new units being built statewide over the coming years, with a higher-than-average concentration in Los Angeles.
Senate Bill 10:?SB10, on the other hand, creates a voluntary program that makes it easier for cities to “up-zone” any urban or transit-adjacent parcel of land (including a single-family lot), to allow a building of 10 units or fewer.?In other words, SB10 allows for denser development near public transit corridors, such as bus, subway, and train lines.?But SB10 does not mandate any changes in local land use. Instead, it enables local governments to change their zoning rules much more quickly to allow housing developments with up to 10 units if they’re located in areas served by mass transit or in urban areas that are already largely zoned for multi-residential use.?Local governments already have the power to make this sort of change in their zoning, but because the process is covered by the California Environmental Quality Act (“CEQA”), it’s costly and takes years to complete. SB10 now allows such changes to be made without triggering a CEQA review, saving both time and money.?However, multi-unit projects proposed in the new zones would still be subject to the environmental law.?Again, local governments will decide for themselves whether to adopt the denser zones that SB10 allows for “transit rich” or urban “infill” areas. And even if they do adopt new zoning rules, each proposed development would still have to go through the endless approval process.
Senate Bill 35:?Perhaps a more important factor may be the pressure the Legislature previously placed on local governments to build more housing. Under 2017’s SB35, cities and counties whose land-use rules do not meet the demands of their Regional Housing Needs Assessment (a state-mandated projection of what it will take to house the growing local population) have less power to resist multi-unit housing projects that bring more affordable housing to urban areas.?Matthew Lewis, communications director for the housing advocacy group California YIMBY, says it can take five years for cities and counties to update their land-use plans to match their housing needs. Nevertheless, SB 10 could help them fend off the much larger developments?that SB35 makes possible.
Pros and Cons of Single-Family Zoning.?As you can imagine, the passions on both sides of this issue are boiling over.?Proponents: Those supporting the recent changes to state law contend that single-family-only zoning is a relic of a past that is no longer justifiable. They demand that single-family zoning be terminated all together, arguing that in a state with such a deep affordability crisis, opening up neighborhoods to more development will allow less expensive housing to be built there. Opponents: In the other camp, opponents to the new laws want single-family zoning to remain.?They’re concerned that increased density could change the character of quiet neighborhoods and affect their property values. Second, in a state that’s facing both a drought and stress on the electrical grid, opponents question where additional utility resources for more housing will come from. Worse, they fear the market will be dominated by developers looking to make cash grabs by building flashy new housing as cheaply as possible and renting it for top dollar, accelerating gentrification and not addressing the underlying issue of housing affordability at all.?What do you believe?
Bottom Line: If you’re still with me, here’s the bottom line.?The state needs to add between 1.8 million and 2.5 million homes by 2025 to ease the housing shortage that is driving up rents and home prices. ?In response, SB9 and SB10 will make it easier for Californians to build more housing.
Pending Home Sales Surge Higher.?The number of home buyers who signed a contract to purchase a home in August jumped beyond all expectations.?Pending home sales rose 8.1% in August compared with July, the National Association of Realtors reports. Still, compared with a year ago, pending sales are down 8.3%, reflecting just how much home-buying activity has fallen from the boom last summer and fall.?The NAR’s “Pending Home Sales Index” measures real-estate transactions where a contract was signed for a previously-owned home, but the sale has yet to close (benchmarked to contract-signing activity in 2001). The Index provides insight as to the direction existing-home sales will take in the months to come (which is based on closed transactions).?August’s surge in pending home sales underscores how there’s still reason to be upbeat on the outlook for the housing market. Looking to mortgage applications, the recent trend has shown signs of stabilization in the demand for loans used to purchase homes (despite weekly fluctuations in the data).?Normally, mortgage applications data can be an indicator for home sales more generally. But with the preponderance of cash buyers in today’s housing marketplace, this data may miss a large chunk of the demand for housing right now, according to Ian Shepherdson, chief economist for Pantheon Macro-economics.?But affordability remains challenging as home-price gains are roughly three times wage growth.?There’s now a more tempered search for “affordability.” ?Record-high prices are motivating buyers to be more selective, and with monetary tightening expected to push rates higher, buyers are likely to become even more cost-conscious.
Do you know the Biggest House in the United States??The Biltmore Estate?is an?historic house and tourist attraction in Asheville, North Carolina. The main residence is a?Chateauesque-style mansion built for George Washington Vanderbilt?in 1895 and is the largest privately owned house in the United States, at 178,926 sq ft, with 35 bedrooms and 39 bathrooms, on four floors.?Still owned by George Vanderbilt’s descendants, it remains the most prominent example of Gilded Age?mansions in the nation.?In the 1880s, Vanderbilt?make regular visits to the Ashville area. He loved the scenery and climate so much that he decided to build a?“humble summer home”?in the area, which he called his "little mountain escape." ?Vanderbilt named his estate Biltmore, combining?“De Bilt”?(his ancestors' place of origin in the Netherlands) with “more” (mor, Anglo-Saxon for “moor,” open rolling land).?(The “e” at the end of Biltmore was purely an American iteration).?Vanderbilt bought nearly 700 parcels of land, including over 50 farms and at least five cemeteries.?Construction of the house began in 1889 and took six years. ?In order to facilitate such a large project, a woodworking factory and brick kiln, which produced 32,000 bricks a day, were built onsite. A three-mile railroad spur was constructed just to bring materials to the building site. Construction on the main house required the labor of about 1,000 workers and 60 stonemasons. ?Vanderbilt made extensive trips overseas during construction to purchase decor. He returned to North Carolina with thousands of furnishings for his newly built home, including tapestries, hundreds of carpets, prints, linens, and decorative objects, dating from the 15th century to the late 19th century. The estate was designated a National Historic Landmark?in 1963,?and remains a major tourist attraction with 1.4 million visitors every year.?The facade is asymmetrically balanced with two projecting wings connecting to the entrance tower: an open loggia?is to the left side and a windowed?arcade?to the right, which holds the Winter Garden (fashionable during the?Victorian era). ?Carved decorations include trefoils, flowing?tracery, rosette, gargoyles, and at prominent lookouts, grotesques.?The estate today covers approximately 8,000 acres (13?sq.?mi; 32?km2) and is so expansive that it is split in half by the French Broad River.
Do you know the Skinniest House?.?Now that we’ve described the biggest house in the United States, wouldn’t be fun to look at the skinniest.?The infamous?“Skinny House”?at 44 Hull Street in the?North End of Boston, Massachusetts, is an extremely narrow four-story house reported?as having the "uncontested distinction of being the narrowest house in Boston” and possibly the skinniest in America.?The house spans only 10.4 feet at Hull Street, its widest point. Yes, only ten feet!?The house tapers to 9.25 feet at the back. Inside the house, the outer walls are as little as 8.4 feet apart and none are more than 9.2 feet apart. The home's narrowest interior point is 6.2 feet across, close enough to allow an adult to touch opposing walls.?There are only five doors in the house, despite it having four levels. The second floor holds the living room and the bathroom (thankfully one of the few rooms separated by a door). In 2005, former owners Jennifer Simonic and Spencer Welton?were described in the?Boston Globe?as living "a vertical life” in every way imaginable. ?Instead of doors, the house has floors between each space.?“When guests stay over, we put a mattress down on the closet floor. Except for sleeping in the closet, they seem to like it."??According to an archivist at the?Boston City Archives, the land was split into lots in 1884. According to local legend, the structure was built as a “spite house” shortly after the American Civil War.?Two brothers inherited the land from their deceased father. While the first brother was away serving in the military, the second brother built a large home, leaving the first brother only a shred of?property?that neighbors felt certain was too tiny to build on. But when the first soldier returned and found his inheritance depleted, he built the narrow house to “spite” his brother (by blocking the sunlight and ruining his view). The house was in the news last week because it just sold for $1.2 million!?Yes, $1.2 million for 1,166 square feet!???
Car Condos.?Just when you thought you’ve heard of everything, something new comes along.?For example, in large metros, including New York City and Boston, car condominums are rising in popularity as an investment property.?Why??Because residents are forgoing public transportation amid the pandemic and driving their cars.?As a result, they are increasingly seeking out ever scarce parking spots.?Jonathan Miller, CEO of real estate appraisal firm Miller Samuel Inc., says the average price per square foot of parking spots at residential buildings has increased 51 percent in the last year.?Yes, 51percent!?In other words, owning and renting out a parking space can be a better investment than renting out residential real estate. Gregg Reuben, CEO of Centerpark, a parking management firm, said the average price per square foot of a Manhattan apartment during the second quarter of 2021 was $1,921, compared to the average rent price per square foot of $66, yielding a 3.4 percent capitalization rate. In contrast, an individual condo parking space costs $272,000, and can earn an average rental income of $13,600, yielding a 5 percent capitalization rate.?Do the math and see what I mean!
Real Housewives Star Erika Jayne and Tom Girardi Slash Price On Pasadena Mansion. The drama is on- and off-screen for “Real Housewives of Beverly Hills” star Erika Jayne. Jayne and her estranged ex-husband, one-time power attorney Tom Girardi, listed their longtime Pasadena mansion earlier this year (amid mounting legal troubles) for $13 million.??Whether it’s been the bad press that has followed the separated couple or just a stubborn market, the listing hasn’t moved. After an initial re-pricing at $11.5 million in June, the home has once again been given a new asking price—now $8.9 million.?Built in 1928 by one of Pasadena’s most revered architects, Myron Hubbard Hunt, the mansion sits on nearly two acres. According to the listing, the 10,000 square-foot home features four bedrooms, five full bathrooms, four half bathrooms, a library, chapel and lush grounds.?Girardi is facing allegations he embezzled millions of dollars of settlement money meant for clients. Since the property’s initial listing, Girardi has been disbarred, and neither he nor Jayne are reportedly living in the home.?
Elvira, Mistress of the Dark. When I was a young entertainment attorney just starting out, I represented rock n’ roll bands.?One Friday night, I accompanied one of my groups performing on NBC-TV’s “Don Kirshner’s Rock Concert.” On the set, I found myself distracted by a female photographer taking photos of my band (and me). I was mesmerized by her beauty and her strawberry-blonde hair. Her name was Cassandra Peterson and she was an aspiring actress performing at the Groundings. We went out several times and enjoyed our time together. We stayed friends over the years until we inevitably lost touch.?But while I practiced law, Cassandra became “Elvira, Mistress of the Dark.” Yes, that Elvira!?Iconic star of TV, movies, personal appearances, and social media.?Considering today’s women’s liberation and the #MeToo movement, Elvira’s feminism was way ahead of her time! Elvira was sexy but strong.?She was always in control. She knew what she wanted and didn’t allow any man to push her around.?She was proud of her womanhood and wore it like a badge of courage.?She was glamorous and a bit naughty.?She had spell-binding charm and a wicked sense of humor.?I am always so proud of Cassandra and her success with Elvira.?I mention all of this because Cassandra has written a new book, perfectly timed for Halloween, “Yours Cruelly, Elvira: Memoirs of the Mistress of the Dark.”?A very “scary” read (with a surprise you probably didn’t see coming).?Go get it!
Vendors Expo Returns!?Our world-famous super-duper "Real Estate Vendors Expo"?returns after 19 months on Thursday night,?October 14, 2021. The Vendor Expo will be open from 6:30 to 7:30 pm (before the beginning of our general meeting), and 9:30 to 10:30 pm (after our general meeting). We'll have a collection of 40+ of the finest vendors featuring real estate products and services you will need to become a successful investor. Our Vendor Expo will be held in the Grand Ballroom (2nd floor) at the Ackerman Union, UCLA, 308 Westwood Plaza.?FREE Admission.?Please RSVP at www.LAREIC.com.
October General Meeting.?Our first “live in-person” meeting in 19 months will be held on Thursday night, October 14, 2021 (6:30 to 9:30 pm).?And we have a very special guest to celebrate.?There aren’t many celebrities in the real estate world, but there is one very special individual who stands out.?When CNN or Bloomberg need a real estate expert, there is only one person they interview.?When CBS or NBC News need analysis of a difficult real estate issue, there is only person they call.?When CNBC or ABC News need a real estate authority on a breaking story, there is only one person they turn to.??When NPR or the Wall Street Journal need a quote from a real estate expert, there is only one person they ask.?Other than Kim Kardashian, probably no one appeared on TV, radio, online, or in print more frequently than this guy!?And “this guy” is Rick Sharga, the number #1 authority on real estate economics.?And we have him exclusively at our October 14th meeting.?Our meeting will be held in the Grand Ballroom (2nd floor), Ackerman Union, UCLA, 308 Westwood Plaza.?FREE Admission.?Please RSVP at www.LAREIC.com.?
领英推荐
Annual Los Angeles Real Estate Grand Expo.?Our Grand Expo returns on Sunday, October 31, 2021 (Halloween day), 9:00 am to 6:00 pm, a the beautiful Skirball Cultural Center.?We’ve taken over the entire Skirball – it’s all ours for the entire day!?The theme of this year’s Grand Expo is “How to Invest in a Post-Pandemic World.”?The Grand Expo is presented by the Los Angeles Real Estate Investors Club, Sam’s Real Estate Club, Ventura County Real Estate Investors Association, and Realty 411.?There will be twelve national speakers in breakout sessions, and over 70+ vendors (in an area the size of a football field)!?Keynote speaker will be Amy Mahjoory, star of HGTV’s “House Hunter.”?Best of all, the Grand Expo will be FREE and parking is also FREE. You can RSVP and see a partial list of speakers and vendors at www.LAGrandExpo.com.
Weekly “Rubbing Elbows” Podcast.?LAREIC proudly hosts a weekly podcast, “Rubbing Elbows” staring our Director of Acquisitions, Chuck Dorfman, and his co-host, Lior Yehuda.?Every Thursday live at 8:00 pm (and streaming anytime thereafter), Chuck and Lior interview real estate professionals sharing their insights and advice.?Its real estate uncensored and unfiltered.?These guys may be unorthodox, but they know what they’re talking about.?You can enjoy “Rubbing Elbows” wherever you view podcasts (i.e. YouTube, Facebook, Google, Apple) and LAREIC.com/RubbingElbows.
This Week.?Looking ahead, investors will closely watch Covid case counts around the world. They also will look for hints from Fed officials about the timing for changes in monetary policy. Beyond that, the Institute for Supply Management’s “Services Purchasing Managers’ Index” for September will be released tomorrow (10/5).?The United States “Trade Deficit” will also come out tomorrow (10/5). ?The key “Employment Report” from the Bureau of Labor Statistics will be released on Friday (10/8), and these figures on the number of jobs, the unemployment rate, and wage inflation will be the most highly anticipated economic data of the month.
Weekly Changes:
10-year Treasuries:???????????? Rose 002 bps
Dow Jones Average:?????????? Fell???900 points
NASDAQ:????????????????????????????? Fell ??700 points
?Calendar:
Tuesday (10/5):???????????????????ISM Services
Tuesday (10/5):???????????????????Trade Deficit
Friday (10/8): ??????????????????????Employment?????????????????????????
???????????????????????????????????
For further information, comments, and questions:
Lloyd Segal
President
Los Angeles Real Estate Investors Club
310-409-8310