Some Homeless Find Employment Guarding Vacant Houses

With the large homeless population and significant number of vacant properties, it’s no surprise that homeless people often squat there. One company has turned that fact into a business. Weekend Warriors, run by Diane Montano, is a security company in Los Angeles and surrounding areas that operates by hiring homeless people to guard vacant homes, rather than simply squatting there. This gives jobs and temporary housing to homeless people while also protecting the property from vandalism or allowing the owner to perform maintenance or remodels undisturbed by squatters.

While it may sound like Weekend Warriors is in favor of helping the homeless, their employees tend to see it as simply a way to survive, not a blessing. They may be grateful for the opportunity, but at its heart the position is designed to help homeowners and corporations avoid squatters. The company works closely with Wedgewood, a real estate company specializing in renovating and flipping homes, particularly in majority Black and Latino neighborhoods, accelerating gentrification by frequently selling the newly remodeled property to more well-off White buyers. Employees are asked not to leave the building or talk to people while working, despite the fact that shifts are between twelve and twenty-four hours, seven days a week at far less than minimum wage. Of course, the employees, some of them ex-convicts and many of whom sympathize with other squatters, don’t tend to abide by these rules.

Photo by Sierra Bell on Unsplash


The obstacles to solving the housing shortage

We’re all well aware that California has been facing a shortage of affordable housing. Affordable housing is also an important step in recovering from the current recession. So, why hasn’t it happened yet? There are a couple of reasons.

It’s true that not enough homes are being built, but it’s more complicated than that. Not enough affordable housing is being built — because it’s actually more expensive to build than high-tier homes. Whenever housing is developed, it’s subject to a development fee, the rules for which are set at the city level, so they’re hard to standardize. The development fee can range from 6-18%, reaching upwards of $150,000 in some cities. The big issue is that this fee is charged per unit, which means that affordable housing developments, which invariably consist of multiple, smaller units, are subject to multiple development fees. This makes it difficult for developers to turn a profit from affordable housing projects.

The other reason is also the same reason it’s so important to our recovery — the job loss from COVID-19 and the recession itself. These factors have reduced purchasing power, increased homelessness, and increased the demand for lower-tier housing. Construction companies can’t keep with the ever-increasing demand for their most expensive, lowest return-on-investment projects.

Photo by Jeriden Villegas on Unsplash


California gets serious on housing shortage

It’s no secret that California has exorbitantly high home and rental prices as well as increasing homelessness. What may be less obvious is that the issue lies in housing construction. There simply aren’t enough affordable units being built.

That’s why California’s Department of Housing and Community Development (DHCD) has established ambitious housing goals for the next decade. In order to be eligible for DHCD funding, a county such as Alameda County would need to plan to build 441,000 more housing units between 2022 and 2030. If that sounds unachievable already, take note that Alameda County is still behind by 188,000 units on its 2022 goal. As far as affordability, Alameda County has similar goals as other large metros for income distribution: about 45% to above-moderate income households, about 15% to moderate- and low-income respectively, and about 25% to very-low-income households. Local jurisdictions are also going to need to adjust their zoning laws to accommodate the new goals.

Photo by Denys Nevozhai on Unsplash


Medici Living’s Housing Shortage Solution

German property design, construction, & management company Medici Living is looking to be a leader in the growing field of co-living. In order to achieve that, they’ve partnered with another German company, Corestate, to raise $1.1B of capital for housing for up to 6000 people throughout Europe. Medici also has plans to expand their business to several larger cities in the US, where they currently have operations only in New York City and Chicago. They’ve compared their efforts to those of WeWork, a leader in the field of co-working — creating high-density office space — except that Medici’s attention is focused on residences, not office space.

Medici recognizes that younger buyers are at the forefront of the market, and accordingly is linking housing with technology. The goal is to enable young professionals to rent space with the click of a button. In large cities, and with a large target audience, Medici expects low-risk and high-yield investments with this approach. Knowing that other businesses will want to join in, they want to jump on the opportunity before those other businesses are able to gather the necessary capital.


Southern Californians Struggling to Afford Homes

According to the California Association of Realtors (CAR), in the third quarter of 2018 just 27% households in California would be able to afford a median priced home at $588,530, requiring an annual income of at least $125,540. While this is up 1% from second quarter, it’s down 1% from the same time last year. The percent able to afford a home is even lower in some counties, such as Los Angeles County and Orange County, where it is 22% and 20% respectively. For Orange County, this is unchanged, but Los Angeles County was tied with California’s average in the second quarter. Most Southern California counties were relatively static. A few counties are taking the hit better than Los Angeles and Orange counties, such as Riverside and San Bernardino counties where affordability are at 37% and 48% respectively.

Sales numbers, though, declined throughout the state and especially in coastal areas. This is a direct result of increasing prices and interest rates. Fortunately, prices seem to be at a peak and can only stay still or go down from here. Unfortunately, interest rates are still going up, which would negate some of the effect of dropping prices.


2019 Market Predictions

The California Association of Realtors (C.A.R.) is predicting a slowdown in the 2019 housing market. Interest rates will continue to go up, straining already weak affordability and reducing demand. The senior Vice President and Chief Economist of C.A.R., Leslie Appleton-Young, says that high prices despite our recovery from the housing shortage are fueling a period of uncertainty among homebuyers. Buyers will feel the need to stand back while he market figures out where it’s going — which is probably down.

Another issue that will be facing California in 2019 is outmigration. Many people no longer able to afford homes where they have been living are forced to move elsewhere. This is often another county with lower priced and less desirable homes, and sometimes even outside of California with its relatively high-priced home market.

C.A.R. has provided data for the prior five years beginning in 2013, this year’s projected numbers, as well as forecast numbers for 2019:

Year:                                                                           2013       2014       2015       2016       2017       2018       2019
Single Family Home resales, thousands: 414.9      382.7     409.4      417.7      424.1      410.5      396.8
% change:                                                               -5.9%    -7.8%      7.0%       2.0%      1.5%      -3.2%      -3.3%
Median price, thousands:                               $407.2   $446.9   $476.3    $502.3   $538.0   $575.8    $593.4
% change:                                                              27.5%      9.8%       6.6%       5.4%      7.2%       7.0%       3.1%
Housing Affordability Index*:                         36%         30%        31%        31%        29%        28%         25%
30-year fixed rate:                                              4.0%        4.2%       3.9%       3.6%      4.0%       4.7%       5.2%

*The Housing Affordability Index is the percent of households who can afford a median-priced home.


Rent Control & Proposition 10

This is for all those who have asked my professional opinion regarding Proposition 10, which makes rent control possible in California, basically by voiding the 1995 Costa-Hawkins Rental Housing Act.

In the process of evaluating this ballot item, I researched a number of relatively contemporary studies and reports. Doing so was an interesting study in how arguments are crafted without ever saying what the source of information is, or proving the validity of same. Below you’ll find a collection of web-based documents I used. Happy reading!

I am not including support for my position in this writing. The facts and arguments are contained in the documents below. If my statement is not convincing, you’re welcome to do your own research.

What I have been able to determine is that rent control most benefits those people who are living in a rental at the time rent control is applied, assuming they remain in that unit. Those people have two benefits. First is the social benefit of being able to continue living where they have been living and know the locale, the neighbors and are close to the places where they regularly travel. Second is the financial benefit that attends having a predictable rent which does not periodically take huge jumps in concert with the ebb and flow of US economic conditions.

As time goes on, laws are gradually changed, and landlords find work-arounds that avoid rent control. As it was stated in one paper, “Rent-controlled buildings were almost 10 percent more likely to convert to a condo or a Tenancy in Common (TIC) than buildings in the control group, representing a substantial reduction in the supply of rental housing.” At that point rent control becomes not only useless, but acts as a constraint on those who would find a more effective or fair way of dealing with the problem of income inequity.

There appear to be lots of different ways to address the problem of inadequate housing for lower and middle class households. The basic rent control mechanisms employed today have not been updated to contemporary standards of research, thinking, and analysis. If we were to apply some “big data” techniques to the problem, there could be some newer, more successful plans developed, much as is being done right now in the field of public housing projects. Ideas that have failed over time should be trashed and new emphasis placed on finding solutions. That has not been done. We are still tossing up the same tired ideas and unproven concepts, and arguing over ancient “facts.”

None of those improvements will take place as long as the current prohibition on rent control continues to exist. While the Costa-Hawkins act remains in place there is no motivation for government or landlords to look for a solution. As is stated in the Haas report, “California can protect cost-burdened renters from exorbitant rent increases and displacement while also increasing the needed supply of housing, provided that we take a comprehensive approach that includes rent control among multiple policy mechanisms and investments.”

We need that comprehensive approach, and we need a serious, unbiased look at how to make housing a “non-concern” for our citizens. In short, we need to vote “Yes” on Prop 10 and then put our elected representatives to work funding a serious study and solution. Note I said “funding,” not “finding.” This needs to be accomplished with government money, not with money from an industry noted for finding ways to make more money, more easily. Profit cannot legitimately be the goal.

New Constructions Selling Slower than Expected

After a long period of builders being reluctant to construct new homes, construction is now on the rise again. In the second quarter of 2018, the number of new constructions was 3336 among four Southern California counties, comprising Los Angeles, Orange, Riverside, and San Bernardino counties. This amounts to a 19% increase from the prior year. There’s just one problem, though: Those homes aren’t selling.

There are multiple factors possibly at play here. The most obvious is that overall sales are down as a large contingent of would-be buyers are unable to afford stepping into the high-priced market. Another is the type of homes being constructed. A significant portion of new constructions are high-end single-family residences, as opposed to affordable housing complexes. While the segment of the population that would be in the market for a high-end home is doing all right financially and could probably afford to buy something, they don’t actually have a reason to buy in a high-priced market. In essence, builders saw a demand for construction, but were too interested in return on investment value rather than actually getting a sale and missed on the demographic.

An expected response to overshooting on inventory would be that sellers may start to notice that they aren’t getting a sale, and decide to drop their listing price or accept a lower offer than they would ideally want. Now in the last quarter of the year, we’re already seeing this happening as the number of price cuts continues to rise, though not at the same pace as inventory.


Price Cuts Are What’s Behind the Flat Market

The market had been a seller’s market for quite some time, but now the scales are tipping more towards buyers, leading to what is now a flat market. As of June of 2018, home prices were still on the rise, albeit more slowly. But sellers noticed something — they weren’t selling without a price cut. 14% of all June listings took a price cut.

After the crash of 2008, construction has been slow and tilted towards high-end homes and single-family residences. Millennials who are now eagerly looking for their first homes are coming into an environment of lack of housing and especially affordable housing. Sellers are having to respond to prospective buyers’ high demand, but inability to survive in the current market. Currently, that means price cuts. Eventually sellers, and their agents, are really going to catch on and start listing lower. That’s going to bring the market closer to equilibrium.


Over Half of Inventory in Highest Price Tier

Across the nation, the share of high-tier homes has risen dramatically in the past two years. That doesn’t mean there are more homes, though — there are much fewer, and most of them aren’t the more affordable low- and mid-tier homes. There’s a lack of affordable housing, and a lack of housing in general.

In California, the contrast is not as stark, but it’s still there. As of the beginning of the year, there were about 1.6 times as many high-tier homes as low- or mid-tier homes, which were approximately equal. Homebuyers have become more and more aware of this as total inventory has decreased.

Many first-time homebuyers — who would generally be purchasing in the low tier — are Millennials who needed to recover from the 2008 recession before being able to buy. Those who have been saving up now have money for a down payment, but the market isn’t suitable. There isn’t enough new construction, and the builders that are building are searching for the most bang for their buck, which in a market with high prices overall means high-tier construction.