John Moorlach: Sacramento has no clue how to solve housing crisis

Sacramento just doesn’t get it. A housing crisis is not solved with new fees, bonds and local government process overrides.

Let’s talk about housing. KQED provides some of the gory details in a recent piece. But, allow me to elaborate. A quick tip, KQED provides the last act first.

For Senate Bill 3 (and 5), I provided the following abbreviated concerns on the Senate Floor:

  1. Let’s review the housing market over the last 11 years. In Orange County, the median price for a home in 1996 was $221,800. Ten years later, after the subprime mortgage boom (for fun, watch “The Big Short”), the median rose to $739,000. With the Great Recession, the median went down to $498,200 in 2011. And, as of June 2017, it is back to $734,200.
  2. Why the recent resurgence?
    • A slow, but steady rise in job growth.
    • Foreign investors. They came in at the market low as a safe haven.
    • Explaining an increase of all-cash transactions; more than 50% in 2013.
    • This has caused a decrease in home ownership and more renters.
    • Difficulty for developers to obtain entitlements and to build.
    • The other usual suspects, like NIMBYism, CEQA and open space demands.
    • For those lucky enough, try working with the California Coastal Commission.

It makes you wonder, what has Sacramento done to address foreign buyers and entitlement restrictions? And, I can see now why SB 714 (Newman) was removed from the calendar this last week, as it doubles down on taking entitled property for building new homes in the city of Brea and requiring total open space. Boy, this bill was so out of touch, the Democrats had to save the author from himself.  But, I digress.

  1. What is the current dilemma?
    • Americans find the home buying process too overwhelming.
    • They find it too difficult to come up with the down payment.
    • More than other generations, millennials value experiences over ownership.
    • Americans change jobs more often than in previous generations.

With SB 2, Sacramento will be adding to the burdens. Within minutes, the Democrats also voted for AB 166 (Salas), which provides exemptions from the new SB 2 fees. You can’t make this stuff up. And those who qualify are not those going through a foreclosure!

Then I warned them about issuing more debt by sharing the following disturbing data from Moody’s Investors Service. Among the 10 largest states in the nation, California joins Illinois and New York as the three worst in all of the following categories:

  1. Debt to personal income – 4.70%, when the median for all states is 2.50%.
  2. Debt per capita – $2,323, when the median is $1,025.
  3. Debt as a percentage of state GDP – 3.94%, when the median is 2.21%

And the state’s own bond credit rating is a measly AA-, just above Illinois, at BBB+. This means that California will be paying higher interest rates than issuing states with top credit ratings.

If this wasn’t enough of a reason to vote against the bond measures, I also gave a lecture on future budget and balance sheet concerns – a “what’s up?” listing:

  1. A $4 billion bond translates into $225 million per year in payments! Where will this come from?  The Senate approved two such bond bills on Friday.
  2. The annual contributions for CalPERS and CalSTRS are also rising.
  3. The Proposition 98 school funding threshold into the General Fund is also rising.
  4. The minimum wage is rising and will impact the budget by $4 billion per year.
  5. The recent voter approved $9 billion bond for school improvements will impact the General Fund by $500 million per year (no wonder the Governor hasn’t released any tranches).

What does all this mean? In a few short years, the General Fund is screwed. But I put it more politely on the Senate floor, stating that “it will be dramatically impacted. Good luck with that.”

Sacramento so much wants California to be like other blue states that are heading for the fiscal precipice, such as Connecticut, Illinois and New York. And quickly. But, this is the wrong race to be in.

You can bet the governor will sign these bills and the monopoly party will pat themselves on the back for once again dealing with a problem with inappropriate solutions. Tragic.