Landmark Links May 24th – Nuclear Option

grenade

Lead Story… Coastal California cities have long paid lip service to making housing more affordable but few if any have actually done anything substantive to ease the burden of restrictive zoning and a brutal discretionary approval process that makes it difficult to add units to their existing housing stock. Enter Gov. Jerry Brown who is apparently fed up and attempting to take matters into his own hands.  From the Sacramento Bee last week (h/t Steve Reilly):

Gov. Jerry Brown has proposed sweeping statewide legislation that would allow new market-rate projects with onsite affordable housing to be approved “as of right,” in potentially California’s most significant housing policy change in years.

The proposal has big ramifications in places where well-organized residents’ groups have long fought residential development.

The trailing legislation to the state’s 2016-2017 budget would require state assembly and senate approval. Under the proposal, new projects with 20 percent affordable housing for tenants making no more than 80 percent of the area median income or projects with 10 percent affordable housing near transit would be exempt from most local reviews.

That would be a sharp break from the current policy of cities, including San Francisco, where each new housing project is subject to discretionary review and usually takes years for approval.

If this goes through, it would be a major blow to the NIMBY lobby that has managed to keep hold development back while sending property values (and rents) soaring near the coast through local development restrictions that often require several layers of discretionary approval.  Brown has taken heat from affordable housing advocates after he eliminated the Redevelopment Agencies back in 2011 and vetoed bills that would provide more funding for affordable housing in the name of budget concerns.  This new proposal wouldn’t add any new funding but it could be a huge step to break the discretionary approval log jam.  The key is the “as of right” language in the bill which would essentially give projects that are consistent with local general plans and zoning the green light so long as they provide the aforementioned affordable units for a period of 30 years.  The measure would take away many of the discretionary approval tools that anti-growth cities often use to stall projects such as conditional use permits and planned unit development permits.  It’s somewhat surprising that this is coming from Governor Brown who took an “if we don’t built it, they won’t come approach” during his first stint in Sacramento decades ago, has often been closely aligned with environmentalists rather than developers and even earned the nickname Moonbeam due to some of his eccentricities.  This proposal is basically an admission that we can’t buy our way out of the housing affordability crisis and the only viable option is to reduce the regulatory (and resultant financial) burden that developers face:

“The general idea is if you want some assisted housing, you’re going to have to reduce some of the regulatory burdens that are faced by developers. That’s what the idea is.

To get a subsidized rental unit, so-called affordable housing, in San Francisco it costs a $500,000 investment, a subsidy. $500,000. That means 10 people, it’s $5 million. A hundred people? $5 billion. So you need more housing. There was a time in the 1970s, I think, the median home price in L.A. was like $65,000. So we need more production that will bring, hopefully, the supply is going to bring down the cost. Otherwise, through subsidies and through restrictions, we’re just spending more and more tax dollars and getting very, very little. And the whole program anyway is for very small numbers of people”

– Gov. Jerry Brown
“It’s really not just a social and economic justice issue. It’s really about the state of California’s economic competitiveness,” said Ben Metcalf, director of the state’s Department of Housing and Community Development. There isn’t enough state funding to subsidize enough affordable housing to meet needs, so the government has to do more to promote supply, said Metcalf.

This is a step in the right direction because at least Brown is 1) Acknowledging that a problem in fact exists; and 2) It can’t be fixed without adding more supply.  However, if you think that there is any chance that the anti-growthers (environmentalists, community coalitions, etc) who were previously Brown’s allies will accept a reduction of their power without a fight, you are dead wrong.  More from the Sacramento Bee:

If past housing policy battles are any indication, there will likely be a fight over the proposed policy changes. Potential opponents to the legislation include environmental groups, community coalitions that have previously opposed development and supporters of local power over land use.

San Francisco has already seen a strong backlash against a modified version of the state’s density bonus program, which grants additional height to projects with more affordable units.

The League of California Cities has opposed other housing bills that reduce local authority over land use and while it hasn’t taken an official stance on Brown’s proposal, the group is now examining it and has concerns.

“We support local decision-making,” said Dan Carrigg, legislative director of the League of California Cities. “When you have one of these one-size-fits all policies … sometimes what works in one spot doesn’t work well in another.”

That being said, the bill has several strong supporters as well including pro-development tenant rights group Bay Area Renters Federation which I wrote about a month ago. As an aside, from a philosophical standpoint, I actually agree with much of what Dan Carrigg from the League of California Cities stated above.  I’d prefer this to be a local issue.  However, there comes a point where things get so badly broken (and they are broken primarily because of abuse of California’s state environmental laws) and local municipalities have no desire to fix them that something needs to be done.  We’ll know how this turns out soon as a vote on the bill is expected to happen within a month.

Economy

Living in the Bubble: The majority of Americans don’t know about ride sharing and the gig economy. In fact, only 15% of adults have actually used a ride sharing service. Once get away from the big coastal cities it’s just not much of a thing.

Catch Me if You Can: Bizarre defaults, disappearing executives and a complete lack of corporate transparency are keeping international investors away from China’s increasingly chaotic corporate bond market.

Broken Clocks: Billionaire hedge fund titan and possible James Bond villain (depending on your political outlook) George Soros has bought put positions against the S&P 500 each of the past 4-years – likely as a hedge.  Each time he does it, the financial media covers it breathlessly as if the bottom is about to fall out of the market.  I suppose that they will finally be right someday…for all of the wrong reasons.

SPY_Soros_20160519

Commercial

Always Up to No Good: Inglewood is banking the new Rams stadium to generate a commercial revival.

Residential

Not Worth the Effort? Lower credit borrowers basically don’t even try to apply for mortgage loans anymore, figuring that they are too difficult to obtain.

Profiles

Contagion: Rooftop solar is spreading like wildfire in the US.  On reason: it’s literally contagious.

Twisted Logic: Tech startups have come up with some very creative definitions of the word “profitable” in a tough fundraising environment.

A Sucker Born Every Minute: There is now a profession called a “Millennial Expert” which consists of self-anointed “experts,” often in their 40s providing “wisdom” to large companies on how best to deal with Millennial employees….for as much as $20,000 AN HOUR.   First off, this just proves how stupid a giant corporate bureaucracy can be when it comes to throwing money down the drain to snake-oil-salesman consultants.  Second, I’m getting my resume ready as soon as I finish writing this post….

Chart of the Day

WTF

Made in China: China is denying claims that it has been selling human flesh, disguised as canned “corned beef” to Zambia.

Banana Split: China has officially banned something called “erotic banana-eating” on live streaming services.  Too bad.  It sounded like fun.

FAIL: If you’re going to vandalize your ex’s car and risk going to jail at least learn how to spell “cheater.”

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

Visit us at Landmarkcapitaladvisors.com

Landmark Links May 24th – Nuclear Option

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