California's NIMBY Problem

 

The Mortgage Corner

Calculated Risk

It’s no secret that California has a housing problem. Its bias for single-family, ‘not-in-my-backyard’ (NIMBY) zoning since the 1960s has finally caught up with reality—in the form of more than 150,000 residents homeless and some 700,000 new homes built last year in California, whereas 1,500,000 new jobs were created.

Where are these people expected to live? It’s no secret that the real problem is affordability. Commuters that work in Silicon Valley, for instance, must travel up to two hours per day to reach their jobs, because homes they can afford are on the farthest outreaches of metropolitan areas, with little mass transit yet planned to speed up the commute.

COVID-19 exacerbates the problem with existing-home inventories dropping to their lowest level in 2020, and annual prices then rising at double-digit rates when consumers came out of their stay-at-home shells looking for too few available to purchase.

The Calculated Risk graph dating from January 2002 shows that existing-home inventories in YoY change (blue line) and months of supply (red line) reached their low in January 2021 and have been rising fairly sharply since then.

Gov. Gavin Newsom, who came into office with bold pronouncements about a “Marshall Plan for Housing,” said he supported plans to increase density near transit, but never endorsed an individual bill that would implement that goal.

California legislators just took a huge step to address the state’s housing crisis by allowing homeowners to double up.  The state assembly passed a bill last week (Aug. 26) that allows for two-unit buildings to be built on lots previously zoned for single-family homes.

It’s a significant reversal of decades of policy built around restrictive single-family zoning. In California, as across the US, allowing for one housing unit to be built per parcel of land has been standard. It’s what gave rise the suburbs as we know them, but has also been used as a tool in racist housing policies that have excluded Black, brown, and Native Americans from homeownership. In recent years, restrictive zoning has been a primary driver of the state’s affordable housing shortage. The median home price in California has risen 27% in the past year alone, and currently sits at more than $800,000.

The bill would allow more building where it’s now illegal, with the intent of reducing California’s fast-rising home prices and increasing access to homeownership through a greater variety of options, according to state Senate leader Toni Atkins, D-San Diego, who introduced the bill and similar versions in the past.

To lessen concerns from more than 100 cities and neighborhood groups that oppose the bill, Atkins on Monday added a few amendments that give local jurisdictions some veto power over units that threaten public health and safety and curtail potential speculation. The bill — approved by the Senate in May and two Assembly policy committees in June — made it out of the Assembly Appropriations Committee Monday and was approved by the full Assembly Thursday on a 45-19 vote.

I reported last week that there is not enough housing to meet soaring demand. The national existing-home housing inventory at the end of July totaled 1.32 million units, up 7.3 percent from June's supply and down 12.0 percent from one year ago (1.50 million) according to the NAR. Unsold inventory sits at a 2.6-month supply at the present sales pace, up slightly from the 2.5-month figure recorded in June but down from 3.1 months in July 2020, a historic low.

The housing market is so hot that individual investors or second-home buyers, who account for many cash sales, purchased 15 percent of homes in July. All-cash sales accounted for 23 percent of transactions in July, and up from 16 percent in July 2020.

But first-time buyers purchased just 30 percent of existing sales, which means most young adults leaving school and/or their parents’ home may find rental housing to a more viable option for the foreseeable future.

Much more must be done, in other words. It will take years for this to happen with more multi-family housing amid denser zoning in the cards. And it will be closer to needed public transportation hubs, whether the NIMBYs like it or not.

Harlan Green © 2021

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

What Is a Livable City?

The Mortgage Corner

pccfarmlandtrust.org

 

There is a budding national movement to build more affordable housing with the growing housing shortage (and homeless) problem. It is just one more facet of the so-called Livable Cities movement begun in the 1980s that searched for ways to make cities safer for children as well as adults in a friendlier environment less dependent on the automobile.

The YIMBY movement is taking hold in cities all over America, from California to Massachusetts. YIMBY stands for ‘Yes in My Backyard’, a movement to build denser residential units near city centers and transportation hubs, as opposed to the NIMBY, ‘Not in My Back Yard’ syndrome affecting many upscale housing communities that have managed to keep such housing out of their backyards.

NIMBYism is really a local community incarnation of the outlawed redlining by banks that once would not loan or invest in ‘certain’ lower-income neighborhoods, but must do so today to keep their charters. NIMBYism prevails in predominately single-family based communities that have found ways to discourage the creation of high zoning densities near their housing tracts that would enable the building of more affordable housing for ‘those’ people.

“Look around, and YIMBYs are a growing presence,” said a 2017 Atlantic Monthly article as the movement took hold. “There’s a YIMBY group in Somerville, Massachusetts, and one in Los Angeles; there’s a San Francisco YIMBY party and a YIMBY group in Portland. YIMBYtown, a national conference, will take place in Oakland this month; Helsinki is hosting Yimbycon in August (2107).

The situation is most dire today in California. Its homeless population has risen to more than 150,000 in 2018, up 17 percent just from 2017, and the median home price is now $561,000, according to Zillow, with many workers priced out of living in the coastal communities that hold the best jobs.

Hence the one and two-hour commute times for those that work in Silicon Valley, but live in the Livermore.and Castro Valleys or further eastward, at least 40 miles and a two-hour drive during commuting hours.  This is in part because alternate transportation modes such as the Bay Area’s BART light rail have yet to connect to Santa Clara County where most of Silicon Valley is located.

SB50, California’s attempt to override local zoning laws to enable smarter urban planning concepts failed for a second time, which makes it even more urgent to find a solution to California’s perennial housing shortage. It was a valiant effort that sank when some minority and homeless advocates opposed it, of all people.

Their concern was that it would gentrify in some way the areas around transportation hubs by destroying older, existing neighborhoods. It’s really hard to understand that reasoning, as

“Developers, landlords, Facebook, construction unions, the state Chamber of Commerce, Realtors, environmental groups and even the AARP wanted to see the bill pass,” said Cal Matters, a legislative blog that announced its demise:

“Nonetheless Senate Bill 50, a measure that would have forced cities to allow more mid-rise apartment buildings around public transit and next to some single-family homes, failed to get enough votes in the California Legislature to survive in 2020 before time ran out,” it continued.

Younger social activists are behind much of the push for YIMBY housing and new zoning laws that create more affordable housing. Sonja Trauss, a former High School mathematics teacher, co-founded YIMBYlaw.org in 2018, a San Francisco lobbying effort whose mission is to make housing in California more accessible and affordable.

“Our method is to enforce state housing laws like the Housing Accountability Act. We send letters to cities considering zoning or general plan compliant housing developments informing them of their duties under state law, and sue them when they don’t comply,” said Ms. Trauss in her mission statement.

She said her efforts grew out of the frustration in getting approvals for entry-level, affordable housing, because rent control supporters could not unite with those that wanted more housing, resulting in fragmented efforts to build more affordable residences.

An earlier, rural version of YIMBYism sprang up in Washington State called pccfarmlandtrust.org is a nonprofit land trust working to protect and steward threatened farmland in Washington, and purveyors of organic produce from sustainable farming. “We work to keep land in production by making it accessible to future generations of farmers.” is part of its mission statement.

So the drive to provide more housing for a growing population is taking many forms, and signals the demise of suburban sprawl, as we know it. The missing piece in this effort seems to be transportation networks, which need to be improved to connect where we live to where we must work to support such housing.

Harlan Green © 2020

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Why Still A Housing Shortage?

The Mortgage Corner

  Graph: Econoday

A recent survey of California’s housing market reaffirmed the well-known fact that California has an affordability problem. The median home price is now $544,900, up 80 percent from 2011—though that’s a deceptive comparison because mostly due to bottoming of housing prices during the busted housing bubble when the median price sank below $400k.

And the California Association of Realtors (CAR) reports the California Housing Market Experiencing Shift as Home Sales Continue Descent in September, per Calculated Risk. “The California housing market posted its largest year-over-year sales decline since March 2014 and remained below the 400,000-level sales benchmark for the second consecutive month in September, indicating that the market is slowing as many potential buyers put their homeownership plans on hold,” said the CAR

California has always been a trend setter.  So what is causing the affordability problem? Most respondents (28 percent) in the USC survey thought the lack of affordability was due to the lack of strong rent control laws, while 24 percent said it was due to lack of low-income housing funds. Sixth on the list was insufficient home building.

There is a statewide rent control law that allows landlords to raise rents to market rates when tenants move out, but otherwise increases are capped at 2 percent annually. This obviously hasn’t been enough to slow rising rents in pricey California.

That’s in large part because the 1995 Costa-Hawkins Rental Housing Act said any local rent control passed after February 1995 would not apply to large amounts of housing stock, including new apartment buildings occupied after that date, single-family homes, duplexes and condominiums. Local politicians and activists wanting to pass new laws could only limit rent increases for tenants living in housing built before that year.

Then what does that tell us about the housing shortage and affordability? Californian homeowners, at least, don’t want to see more homes built too close to them, or higher density zoning laws enacted that over crowd neighborhoods, but would rather be NIMBYs that want affordable housing built in someone else’s neighborhood.

National housing starts in September came in on the low side of expectations, down 5.3 percent to a 1.201 million annualized rate with completions very weak, down 4.1 percent to a 1.162 million rate that's the lowest since November last year. Hurricane Florence certainly didn't help the South where starts fell 13.7 percent but the Midwest, which was not affected by the hurricane, saw starts fall 14.0 percent.

Existing home sales were also disappointing. Sales of existing homes fell 3.4 percent in September to a 5.150 million annualized rate. September's result is the weakest in nearly three years, since November 2015.

This weakness on the national level happened despite price discounting by sellers, said Econoday. The median sales price for an existing home fell a monthly 2.8 percent in September to $258,100. A comparison of year-on-year rates, at plus 4.2 percent for prices, with the sales rate, at minus 4.1 percent, suggests that prices may have further down to go.

So despite the housing shortage, many neighborhoods are reluctant to add to their housing shortage. And rising mortgage rates are also denting demand. What about rents? Apartment List reports that nationally, real spending on new multifamily construction showed a long-term upward trend prior to the collapse of the housing bubble, and it has rebounded strongly in the aftermath of the collapse, such that it is currently near its 2006 all-time high.

This is resulting in lower rent increases in many large cities. Of the 25 biggest cities in the U.S., Apartment List found seven — Baltimore, Chicago, Pittsburgh, Portland, Seattle, St. Louis and Washington, D.C. — where median rental rates actually decreased year over year—another reason new homebuyers are holding back.

Economists at Freddie Mac that analyzed the pace of new housing construction found that years of underbuilding has left the U.S. with a cumulative shortfall — that is, supply compared to historical averages — of 4.6 million housing units in the years since 2000, as I said recently. That number is especially stark considering that builders constructed a 1 million unit surplus of homes in the bubble years of the last decade.

There is still a housing shortage, in other words, with affordability the main problem holding back sales.  So no housing bubble, yet!

Harlan Green © 2018

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

Low interest Rates Boost Housing Construction

The Mortgage Corner

Housing starts returned to trend, reports the National Association of Home Builders, dropping 2.6 percent to a seasonally adjusted annual rate of 1.246 million units, according to newly released data from the U.S. Department of Housing and Urban Development and the U.S. Census Bureau. Multifamily production fell 10.2 percent to 423,000 units after an unusually high December 2016 reading, whereas single-family starts ticked up 1.9 percent to 823,000 units.

But year-on-year both components are very positive, up 6.2 percent for single-family homes and at a very strong 19.8 percent for multi-units. And with interest rates still at historical lows, 2017 should be a very good year for new-home starts and sales.

Graph: Calculated Risk

“Some pull back in housing production is unsurprising after an overly strong multifamily reading last month,” said NAHB Chief Economist Robert Dietz. “As we move forward in 2017, we can expect the multifamily sector to continue to stabilize and single-family production to move forward at a gradual but consistent pace.”

Regionally in January, combined single- and multifamily housing production rose 55.4 percent in the Northeast and 20 percent in the South. Starts fell by 17.9 percent in the Midwest and 41.3 percent in the West, where skyrocketing housing prices have slowed sales.

Speaking of the western region, the California Association of Realtors reports rising wages and seasonal price declines held California’s housing affordability steady in fourth-quarter 2016, even while interest rates rose moderately.

The percentage of home buyers who could afford to purchase a median-priced, existing single-family home in California in fourth-quarter 2016 remained at 31 percent, unchanged from the third quarter of 2016 but was up from 30 percent in fourth-quarter 2015, according to C.A.R.’s Traditional Housing Affordability Index (HAI).

This is the 15th consecutive quarter that the index has been below 40 percent and is near the mid-2008 low level of 29 percent. California’s housing affordability index hit a peak of 56 percent in the third quarter of 2012, when both housing prices and interest rates were lower.

I project that mortgage rates will remain low, in what is becoming an interesting anomaly. Mortgage rates have fallen of late, while Treasury bond yields have been rising in anticipation of rising inflationary pressures if Republicans do increase federal spending.

Per Market Watch, Sean Becketti, chief economist of Freddie Mac, said something unusual is going on — the 30-year mortgage isn’t moving in line with the yield on the benchmark 10-year Treasury, as it has for the past 46 years.  Since Dec. 29, the 30-year has dropped 17 basis points, but the yield on the 10-year bond has stayed the same, he says. “While we expect mortgage rates to fall into line with Treasury yields shortly, this just may be a year full of surprises,” he said.

Mortgage rates slipped for a second week even as they retain most of the rise since Donald Trump was elected president, but not much. The 30-year fixed conforming rate is still at 3.75 percent for 1 origination point, 4.0 percent with no origination points.

Why? Banks are flush with cash and investors are snapping up mortgage-backed securities in search of higher yields. And while Fannie Mae and Freddie Mac continue as US Treasury wards, they provide as much security as Treasury bonds, but with a much better yield.

Just do the numbers—30-year Treasury yields have hovered around 3 percent, vs. 3.75 to 4 percent yields on Fannie and Freddie mortgage-backed securities.But the future of Fannie and Freddie are not certain. New Treasury Secretary Steven Mnuchin has said he would like to see the GSEs privatized. Economists have predicted that if that happened it could raise mortgage rates from 0.4 to as much as 1 percent.

That’s how valuable even an implicit government guarantee of such securities means, since banks would demand higher yields to be part of such a market. And let us not even try to imagine what life would be like for homeowners if Fannie Mae and Freddie Mac disappeared. They are responsible for more than 60 percent of all home mortgage originations at present.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen