Single family homes are no longer a protected species in California.
Gov. Gavin Newsom has signed into law legislation that allows up to four housing units on “single family lots.” Cities also must allow single family lots to be split so they could be sold separately.
Advocates don’t expect the new laws to miraculously cure California’s chronic housing shortage overnight or even make more than a small dent as they promise this is “just the beginning.”
The beginning of what is a question they can’t seem to answer given if they have a shred of insight or honesty, they know what they are doing is essentially trying to fight a raging forest fire by tossing ice cubes on it.
Housing density, and by extension, single family neighborhoods per se are not the root of the problem. It is cost and the seemingly endless environmental/regulatory hoops you have to jump thorough before you can even turn a shovel of dirt. Just ask someone who has tried to build an auxiliary dwelling unit — also known as granny flats — on their property even after the California Legislature twice since the late 1990s supposedly made it as easy as pie to do so.
Even with land already owned with a “single family” home on it, a second free-standing unit can ring up fees in excess of $30,000 to $40,000 depending upon square footage as well as the laundry list of payable fees for everything cities in California assess against new construction ranging from transportation and parks to, and as ironic as it may sound, fees to help provide affordable housing.
That fee range also includes water or sewer connection fees that the state is not requiring cities to drop or reduce in terms of the context of the actual cost of impacts from adding households in already developed areas.
Safeguards against investors taking over neighborhoods lawmakers built in to the legislation they passed are laughable at best. Whoever is splitting a lot in two has to swear they will live in one of the units for at least three years. Given how well things go after politicians swear all the time to uphold the constitution, there’s not much weight these days when it comes to swearing to do anything that’s connected with government.
The fact the state has turned California’s abundant supply of existing single family lots into long -range lucrative money machines is the issue. It is clear that the strongest and safest return in terms of in investment, especially in terms of cash flow, is housing and not the stock market.
Investors that understand this will buy single family homes in neighborhoods, tear them down, and put in four townhouse units to create four sources of revenue.
This is not whacked. Right now, you can get $1,800 a month rent in the Valley with a modest older home and $1,600 a month rent from a newer unit in multiple-family housing. It doesn’t take a math whiz to tell you how that is going to add up.
The investment target won’t be neighborhoods that are super new as they’d be too expensive to tear down and pencil out. Nor would they be neighborhoods that are not starting down the hill but are near the proverbial bottom and have minimal appeal for renters.
Instead, they will be in the neighborhoods that are “just right” in terms of affordability and appeal for most buyers and even renters.
How this will likely pan out down the road is crazy obvious. Well-heeled corporate-style investors with cash offers will outbid those trying to buy homes they can live in themselves.
The investors will rent the homes they buy for three years. They will then tear down a home on a 6,500-square-foot lot with four attached “townhouse” homes that will consist of footprints of 900 square feet with 2,800 square feet overall spread across three stories. Think of the three-story townhouses ringing downtown Livermore.
To be honest, this sounds like the best-case scenario but it isn’t.
Investors, unless they are financial dunces, will hold onto the units in virtual perpetuity thanks to the cash flow and the long-range return. This ultimately will push the percentage of the population that owns their home down creating another affordable housing crisis.
That’s because people would not have a long range stable monthly housing cost that helps their overall financial outlook and ability to support their selves and their families if they stay put for an extended period of time.
Keep in mind for the past decade rents in many parts of the Northern San Joaquin Valley have been going up 3 to 10 percent annually.
In reality, that is a much better scenario than what lawmakers really expect to happen — investors or homeowners simply converting existing homes into multiple units to accommodate housing for up to four distinct households.
Why this is the natural course for the market to take has everything to do with the fact single family homes haven’t been pure breeds for years in many parts of housing stressed California. Depending upon the builder you talk to, upwards of 10 percent of all new homes bought have either:
*Multiple generation households moving in as well as often being on the same loan document;
*People unrelated and not in a “relationship” as in cohabitating that buy homes together and share common living spaces after splitting up the bedrooms; or
*A buyer who is living in the home immediately looking for renters to fill the bedrooms and provide a steady revenue of income to help with the mortgage payment.
And if you drive down practically any street you will find existing homes built across the decades where more than two families are under the same roof or there are rooms rented out.
The ability clearly exists in homes of 3,000 square feet or better to create up to four units with separate kitchens and bathrooms.
That would be a route a small-scale investor would take. That means they’d likely be subject to growth-related fees tied to the need for stepped up public services due to increased density not to mention a higher property assessment that leads to more taxes to cover the cost of municipal infrastructure upkeep.
The problem from a city’s perspective would be the law encouraging more robust house sharing without permitted conversions that could add makeshift kitchens and such.
Cities would grow without a mechanism to collect fees to help cover the cost of additional municipal burdens of having more residents. Worse yet, the sizing of everything from storm and water lines to arterial street widths to even school capacity could be compromised severely if enough conversions take place.
The end result of the new law may be simply to mask the real problem of housing construction costs driven by a wide variety of factors including environmental review processes and development barriers.
Perhaps the most frustrating part is the solution the laws designed to combat NIMBYism in neighborhoods near jobs allow won’t likely take root in the coastal areas of the state due to stepped up property values.
Instead, the turning of single-family homes and lots will proliferate in the exburbs like Manteca, Lathrop, Tracy, Ceres and Turlock that already are the de facto affordable home solution for San Jose, San Francisco, Oakland and the rest of the Bay Area.
The end result is affordable housing where it is needed the most and is triggering the need for more and more supercommuters won’t be addressed with any degree of success.
No worries, however. The California Legislature will come up with another shallow solution that ignores the root of the state’s housing ills that can be traced to edicts from Sacramento wrapped in the appealing guise of environmental concerns.