Cooling overheated California real estate market – Pasadena Star News
House prices are skyrocketing, making them beyond the reach of young working families. It’s not hard to see why. Private equity funds have poured into real estate. According to Redfin, in the second quarter of 2021, one of six nationwide home purchases was made by commercial investors, who poured $ 49 billion into trending markets. According to the Biden administration, “the purchases of single-family homes by large investors and their conversion to rental properties accelerate neighborhoods’ transition from ownership to rental and drive up the prices of lower-cost homes.” Wall Street businesses are betting that single-family homes will become rental cash cows.
Locally, house swimmers are also rushing to buy houses, making a quick profit with shallow improvements. It’s a booming business, and we are all paying the price. This lucrative practice makes Los Angeles County less inclusive and less affordable. In my neighborhood, a modest 725 square foot, two bedroom, one bathroom home is listed at $ 798,000. Just four months ago, it was selling for $ 625,000. That’s a whopping 28% markup for appliance replacement and quick tiling, landscaping and painting jobs. More and more homes on the market are betraying pinball trademarks: stainless steel in the kitchen, bland decor on the walls, and new patio furniture on the back deck to suggest a carefree lifestyle.
Whether it’s corporate giants or savvy entrepreneurs, what’s wrong with taking a real estate kill? Isn’t it American style? Yes, but buying low and selling high destroys the American dream of families who cannot compete with inflated prices. At best, it puts money in the pockets of speculators now, while families who put their savings in their first homes will pay higher mortgages and property taxes for the next 30 years. At worst, that rules out the security of owning your own home for families who will instead live in constant fear of rent increases or evictions.
By definition, hot markets are not sustainable. Stein’s Economic Law states, “Things that can’t last forever, don’t. It’s only a matter of time, and a question of who is injured. But what if there was now a way to both discourage artificial inflation and generate funds for housing low-income families?
The issue was raised during a discussion last month by the Pasadena Planning Commission on the city’s housing component project. Local housing components should be reviewed every eight years. Commissioner Jason Lyon noted that the proposed plan mentioned “reverse and speculative investing” – but did not propose new policies to deal with the impact on affordability. “We should consider a rollover surcharge,” Lyon suggested. “If you convert a house in 24 months, there should be a civic surcharge. It’s an easy and fair thing to do – and it could be an important source of funds for affordable housing.
It is one of the many innovative alternatives to face a growing crisis. Much has been said about stories of Californians fleeing the state, often attributed to increasing homelessness, crime and a tough business climate. It’s hard to document this exodus – after all, the new census showed California has added nearly 2.3 million people over the past decade. But it produced just 875,000 new housing units, the smallest increase since the Great Depression, when California’s population was less than one-fifth of its current size. No wonder people are moving to more affordable areas.
In a state where many complain that taxes are too high, a tax on speculative home reversals may not apply. But are there better ways to curb an overheated market and finance needed housing for working poor people?
Rick Cole is the former mayor of Pasadena and former city manager of Azusa, Ventura and Santa Monica. Write to him at [email protected]