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affordable housing act

Repealing The Affordable Housing Act

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affordable housing act

Affordable Housing Act Repeal; California has a severe housing crisis that needs a solution.

It’s no secret that California has a severe housing crisis. It is no more evident than in the Bay Area and all of the surrounding neighborhoods devastated by the “unending” Wild Fires.

Finding a solution; solutions to this crisis calls for a myriad of co-ordinate efforts that involve not just owners, developers and builders but our cities, our towns, our counties, and all the municipalities that actually dictate and control the permits and regulatory restrictions that govern new housing and drive new construction.

Candidly; let’s acknowledge the complexity of the crisis, and (because of that) the fever to chase a simplistic solution such as rent control is understandable. However; Rent control and the repeal of Costa-Hawkins is “jumping from the frying pan into the fire”.  The underlying core issues of an inadequate housing supply are not only not addressed, but the new barriers that will require enforcement are a punitive drain on the very government agencies that should focus on new ideas and innovations that create more inventory.

Proposition 10 – Affordable Housing Act

The current initiative Proposition 10; the Affordable Housing Act does not create affordable housing. Instead it reaches out to restrict the options of private property owners by the repeal of Costa-Hawkins. It is a genuine misuse of our tax dollars and misuse the precious time and energy available from the sectors that can lead and orchestrate new development.

Restricting the rights of privately-owned property owners; while well meaning; will not create new housing and does nothing to garner all the necessary resources needed to join forces and create viable pathways to real solutions. Some of the effects of rent control include inhibition of new housing, deterioration of existing units, reduced property tax revenues, and bureaucratic distraction.

Municipal Efforts must be focused on building metrics between those who have the talent and the resources to actually build new units.

Things that could be considered immediately:

  1. Zoning Codes for Residential Development could be updated to allow for prudent density, and the City could immediately annex County areas where the City’s General Plan calls for Medium density housing in the County controlled properties. Currently, the City waits for the developer to apply for annexation. That is time consuming and can delay a project at least 6 to 12 months with no guarantee that the annexation will be approved. Many developers and home builders will not even consider a new project in these unincorporated areas slated for residential development.
  2. Encourage granny units and in-law conversions in single family neighborhoods with adequate land available
  3. Streamline the approval process to keep reasonable pace with the building process.
  4. Fees! Here a fee, there a fee, everywhere a fee fee! Fees must be in line with the eventual product that will be coming to the marketplace. For instance: the City has highlighted Southwest Santa Rosa as a target for new development, yet the fees there are higher than they are on the eastside where property values are higher. This may be a City strategy to offset the expense of the off-site work that will eventually be required, but the current fee structure has created a negative fiscal equation that is not sustainable to the actual marketplace.

The answer to the problem of scarce housing and rising rents is increased housing supply, and removal of inappropriate regulatory barriers to new construction.

“Doing the same thing over and over again and expecting a different result is the definition of Insanity”. That adage has never been truer then when evaluating the merits of repealing Costa-Hawkins; the Affordable Housing Act.

It’s not just Cap Rates

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Commercial Investment Valuations are typically presented as cap rate driven: the lower the cap rates, the higher the price. Investors have the challenge of balancing asset security and safety vs. an acceptable Cap Rate return.

Security and safety include a matrix of attributes: Extended Lease Term, Quality Tenant with good credit history (and track record of business acumen), LOCATION (both the immediate demographics and street/area positioning), a favorable NNN lease, long term appreciation aspects, and financing desirability.  However; how low can you go? Cap rates in desirable urban settings wafting in under 4% need a compelling story to convince me.

REMEMBER the OLD Adage: “It’s not what you make; it’s how much you keep.”

Evaluating your cash on cash return is as important, if not more important than a cap rate. If your investment is predicated on a 4% cap rate but the cost of the funds is above that, you are going backwards. It can make sense if you are going into a Value-Added Property, or compelling project that offers an opportunity to increase the income to the current market conditions. No one size fits all but sometimes “all that glitters isn’t gold.”