A study in stark con­trasts

Cal­i­for­nia home­own­ers are see­ing an­other gold rush. What do they owe to neigh­bor­ing renters who are strug­gling to catch up?

Los Angeles Times - - CALIFORNIA - STEVE LOPEZ

I lived in an apart­ment un­til I was 8, when my par­ents scraped to­gether a down pay­ment and bought a mod­est lit­tle house on a cul-de-sac, tak­ing hold of a deed that was our ticket to the king­dom of sub­ur­ban Cal­i­for­nia roy­alty.

Hous­ing de­vel­op­ments grew out of the dust all around us in east­ern Con­tra Costa County, as work­ing folks took out mort­gages on their own sense of pride and be­long­ing.

Peo­ple ex­tolled the ben­e­fits of own­ing, rather than giv­ing money to the land­lord. But in that time, you bought for the sake of in­sert­ing your­self into a dream dec­o­rated with shaded pa­tios and man­i­cured lawns, and not so much as an in­vest­ment.

To­day, home own­er­ship in Cal­i­for­nia is the best in­vest­ment any of us will ever make, thanks, in large part, to a scarcity of hous­ing. The pace of con­struc­tion has not kept up with pop­u­la­tion growth and

de­mand, so those of us with houses own a stag­ger­ing amount of eq­uity wealth that grows even as those with­out homes pay a higher price for sur­vival.

Cal­i­for­nia was al­ways a model of stark con­trasts in the realm of haves and have-nots. But as rents rise and wages stag­nate, a ma­jor­ity of L.A.-area renters are pay­ing more than onethird of their in­come on rent while thou­sands are pay­ing 50% or more, with no end to these trends in sight.

Mean­while, tens of thou­sands of home­own­ers in Los An­ge­les and Orange coun­ties have en­joyed su­per-low in­ter­est rates and seen their eq­uity rise to all-time highs. Roughly one decade af­ter thou­sands of peo­ple lost their homes in the hous­ing crash, 96.4% of Cal­i­for­ni­ans with mort­gages owe less than their homes are worth.

In Los An­ge­les and Orange coun­ties, 533,000 homes are owned free and clear, and the value of them is $402 bil­lion. That works out to about $700,000 in eq­uity for each owner.

Those who hold cur­rent mort­gages in the two coun­ties have $842 bil­lion in eq­uity wealth, lift­ing the two-county eq­uity to­tal to $1.2 tril­lion.

“A lot of moola,” said Frank Nothaft, who compiled the num­bers and is chief econ­o­mist at CoreLogic, which does global real es­tate mar­ket re­search. Cal­i­for­ni­ans with ac­tive mort­gages, Nothaft said, have more than one-quar­ter of the na­tion’s $8.2 tril­lion in eq­uity.

Well, good for us, right? By clever plan­ning or dumb luck — and it’s mostly the lat­ter in my case — we are modern-day prospec­tors in an­other great Cal­i­for­nia gold rush.

The gains are right­fully owned, and peo­ple who have worked and paid their bills and built up a nice cush­ion for their re­tire­ment have no rea­son to apol­o­gize.

But the state with the fifth-largest econ­omy in the world has the high­est poverty rate — about 20% — when hous­ing prices are fac­tored into the cost of liv­ing. So here’s a ques­tion: Un­less we’re liv­ing in a real es­tate bub­ble that’s about to burst, which is cer­tainly pos­si­ble, do those who have pros­pered owe any­thing to those who have fallen fur­ther be­hind, in­clud­ing teach­ers, nurses, la­bor­ers and oth­ers es­sen­tial to both our econ­omy and our best def­i­ni­tion of com­mu­nity? It’s easy to say no. Peo­ple make their own choices, right? And when home­own­ers pay prop­erty taxes, they’re con­tribut­ing to the greater good.

But that’s a con­ve­nient de­cep­tion.

Fed­eral and lo­cal laws have been rigged for decades to pro­mote home own­er­ship and ben­e­fit home­own­ers, ar­guably at the ex­pense of ev­ery­one else. A prime ex­am­ple is the mort­gage in­ter­est tax de­duc­tion that many in Wash­ing­ton and the real es­tate in­dus­try are fight­ing to keep.

An­other is Cal­i­for­nia’s Propo­si­tion 13, which gave a much-needed break to home­own­ers when prop­erty val­ues were spik­ing too quickly, but over­did the ben­e­fit, drained com­mu­ni­ties of vi­tal fund­ing and cre­ated a sys­tem in which home­own­ers pay vastly dif­fer­ent taxes on homes of the same value.

And then there are all the re­stric­tive zon­ing poli­cies and home­owner op­po­si­tion to new con­struc­tion.

“When we col­lec­tively de­cide not to build hous­ing even as our econ­omy grows, we de­liver a wind­fall to peo­ple lucky enough to own homes and a pun­ish­ment to those who rent,” said Michael Manville, a pro­fes­sor of ur­ban plan­ning at UCLA.

Manville ar­gues that calls for rent con­trol and fees on de­vel­op­ers, for the sake of sub­si­diz­ing a small amount of af­ford­able hous­ing, can have the op­po­site of the in­tended goal of more hous­ing and lower prices. (I agree in the­ory, but would ar­gue there has to be some way to pro­tect peo­ple get­ting whacked by rent hikes of 20% and more.)

“If you own a home,” Manville said, “and its value is sky­rock­et­ing through noth­ing you have done, you are in fact a part of the prob­lem, and it is not up to some­one else to solve it. You, too, are your neigh­bor’s keeper.”

A fair way to look af­ter your neigh­bor, he ar­gues, is by pay­ing a par­cel tax that would fi­nance more af­ford­able hous­ing. But that’s a po­lit­i­cal long shot, partly be­cause home­own­ers’ eq­uity is on paper and not in their pock­ets. So Manville sug­gests a mod­est tax on the eq­uity at the time of sale and us­ing it to make a sig­nif­i­cant dent in the statewide hous­ing cri­sis.

The Leg­is­la­ture passed a much less am­bi­tious ver­sion of that idea this year. But a tax of $75 to $225 for re­fi­nanc­ing and other kinds of res­i­den­tial and com­mer­cial real es­tate trans­ac­tions — along with sev­eral other mod­est hous­ing pro­duc­tion bills — will add an es­ti­mated 14,000 hous­ing units a year to a state than needs 185,000 an­nu­ally.

So, thanks, Sacra­mento, but when will you re­ally get to work?

There is no one rem­edy for the hous­ing short­age and ris­ing costs, said Carol Galante of UC Berke­ley’s Terner Cen­ter for In­no­va­tive Hous­ing, and I agree. She sug­gests a tax break for land­lords who rent to low­in­come peo­ple, lower con­struc­tion costs for de­vel­op­ers through in­fra­struc­ture in­vest­ment and other means, low-cost mod­u­lar apart­ment con­struc­tion and the in­cu­ba­tion of more po­lit­i­cal courage.

“It’s not go­ing to get any bet­ter un­less we touch some po­lit­i­cal third rails,” Galante said. She men­tioned tack­ling Propo­si­tion 13’s in­equities and pro­mot­ing a tiered trans­fer tax on eq­uity that ex­ists be­cause of hous­ing scarcity.

One way to sell the lat­ter idea po­lit­i­cally might be to link eq­uity taxes to so-called work­force hous­ing. In a just so­ci­ety, shouldn’t your kids’ teacher be able to af­ford a de­cent apart­ment or home that’s less than an hour from school?

Los An­ge­les res­i­dent Bobby Turner, of Turner Im­pact Cap­i­tal, ac­quires and man­ages work­force hous­ing in sev­eral other states, of­fer­ing rent breaks to teach­ers, nurses, cops, health­care work­ers and oth­ers who pro­vide an af­ter­hours ser­vice in their spe­cialty at the apart­ment com­plex.

But he doesn’t do such projects in Cal­i­for­nia, he said, be­cause land is too ex­pen­sive and it can take years and hun­dreds of thou­sands of dol­lars to go through the Byzan­tine re­view and per­mit process.

Lo­cal of­fi­cials need to clear the way, and state of­fi­cials need to muster the courage to treat the hous­ing cri­sis like the calamity it is. Too many work­ing peo­ple are play­ing So­phie’s choice with food and rent bills, neigh­bor­hoods are be­com­ing more seg­re­gated, and work­ing folks are wast­ing pre­cious hours on long com­mutes.

My read­ers of­ten ar­gue that peo­ple and com­pa­nies that can’t af­ford to live and do busi­ness in ex­pen­sive coastal ar­eas should move east or out of state, and that’s good ad­vice in some cases.

But boom­ing coastal economies could not func­tion with­out plumbers, jan­i­tors, po­lice of­fi­cers, land­scap­ers, nan­nies, su­per­mar­ket clerks, life­guards, wait­ers and med­i­cal as­sis­tants.

Cal­i­for­nia doesn’t have to be a place in which they hus­tle and sweat but never catch up, as those of us with mort­gages earn money while we sleep.

Mark Boster Los An­ge­les Times

IN L.A. and Orange coun­ties, 533,000 homes are owned free and clear, valu­ing about $402 bil­lion. Above, a tract in Irvine in 2014.

Christina House Los An­ge­les Times

BE­CAUSE THE PACE of con­struc­tion in Cal­i­for­nia has not kept up with de­mand, those with houses own a stag­ger­ing amount of eq­uity wealth. Above, a sign for a de­vel­op­ment in Irvine in 2013.

Lawrence K. Ho Los An­ge­les Times

“WHEN we col­lec­tively de­cide not to build hous­ing even as our econ­omy grows, we de­liver a wind­fall to peo­ple lucky enough to own homes and a pun­ish­ment to those who rent,” said Michael Manville, a UCLA pro­fes­sor of ur­ban plan­ning. Above, apart­ments in Kore­atown.

Mark Boster Los An­ge­les Times

HOME­OWN­ERS could help ease the is­sue by pay­ing a par­cel tax to fi­nance more af­ford­able hous­ing, Manville said. Above, new homes in Orange County in 2016.

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