Compass SoCal July 2019 Real Estate Market Update

Across the majority of Los Angeles communities, median home prices increased again in July with the overall increase averaging about 4 percent compared to last year. Some communities in Mid City, Los Angeles saw even stronger increases in median home prices as sales of higher-priced homes picked up again. In contrast, some of the more affordable Los Angeles communities saw relatively lower price growth as affordability constrains many would-be buyers.

The number of homes sold in Los Angeles communities continued to show some improvement from the winter lull, though some areas on the East Side and in the North San Fernando Valley saw relatively stronger slowdown in sales.  West Side communities generally recovered from the slow spring.

The strongest gain in sales was among homes priced between $1 million and $2 million, with generally most communities seeing the growth. Lower priced sales are again facing lack of available inventory after a period of more availability earlier this summer. Sales of homes priced above $2 million also bounced back from a hesitant start to the year and are generally trending in line with last year’s numbers.

The pace of sales continued to improve, and homes generally sold in 30 days, which is only five days slower than last year’s 25 day median. Nevertheless, East Side and communities northeast of Downtown Los Angeles saw a relatively larger increase in days on market compared to last year. East San Fernando Valley saw swifter sales than last year, as did Malibu which continues to recover from the post-fire slowdown.

Buyers are being encouraged by lower mortgage rates, though that’s not their main concern at the moment. It seems that buyers are relatively more constrained than last year, but their optimism has improved from earlier this year. Buyers signed a solid number of contracts in July, suggesting August will be another solid month for Los Angeles housing market activity.

Click here to see more Los Angeles region market statistics for July.

Posted on August 31, 2019 at 9:57 pm
Christine Navarro | Category: Housing Info

Compass SoCal May 2019 Real Estate Market Update

Overall median home prices remained virtually unchanged in 2019. About half of communities observed saw increases while the other half saw declines. The rate of increases was relatively lower than seen at the same time last year. Generally, most of the increases in home prices are driven by areas remain relatively more affordable while higher priced areas saw some declines from last year’s cyclical peaks.

In addition, the number of homes sold in Los Angeles communities showed some improvement in recent months bringing the number of sales on par with last year’s April-May period. Slower sales continue to characterize West Side communities, while communities north, west and east of Pasadena saw some annual pick up in sales.

There are generally more homes for sale available across the region and across price ranges, however the rate of increase in available inventory has slowed some. Availability of relatively more affordable homes has helped with increase in sales over the last few months. Malibu continues to be impacted by lack of homes for sale following last year’s fires.

Homes are also selling at a faster pace than earlier in the year, though still slower than at this time last year when strong buyer demand fueled faster sales. In May, homes generally sold in 31 days, up from 24 days last May, though still equaling historical averages. Relatively slower sales pace continues West of 405, but also within some markets that were relatively busy last year, such DTLA and NELA.

Again, while buyers remain relatively more hesitant than last year, April and May have showed renewed enthusiasm among buyers who would love to make a purchase but are worried about a correction. Sellers who are willing to negotiate with buyers are having better luck selling their homes. An increasing number of homes were under contract over the last two months as well, compared to the same period last year.

Contact me for more Los Angeles region market statistics.

Posted on June 29, 2019 at 11:26 pm
Christine Navarro | Category: Housing Info

Real Estate Roundup: Record Weekly Mortgage Rate Drop

Here’s a look at recent news of interest to homebuyers, home sellers, and the home-curious.

Photo courtesy of



Fixed-rate mortgages last week saw their biggest one-week drop in a decade, according to Freddie Mac’s weekly rate survey.

Thirty-year fixed-rate mortgages averaged 4.06 percent, down from 4.28 percent last week, and 15-year fixed-rate mortgages averaged 3.57 percent, down from 3.71 percent. Five-year adjustable-rate mortgages averaged 3.75 percent, down from 3.84 percent last week.

Last year at this time, 30-year mortgages averaged 4.40 percent, 15-year mortgages averaged 3.90 percent, and five-year ARMs averaged 3.66 percent.

“The Federal Reserve’s concern about the prospects for slowing economic growth caused investor jitters to drive down mortgage rates by the largest amount in over ten years,” Freddie Mac’s chief economist, Sam Khater, said in a statement accompanying the mortgage rate survey. “Despite negative outlooks by some, the economy continues to churn out jobs, which is great for housing demand. We have recently seen home sales start to recover, and with this week’s rate drop we expect a continued rise in purchase demand.”


Two out of three people say now is a good time to buy a home, and according to a survey by the National Association of Realtors conducted during the first quarter of 2019, and confidence in the U.S. economy remains strong.

The NAR’s quarterly Housing Opportunities and Market Experience survey found that 65 percent of respondent believe now is a good time to buy a home, with 37 percent saying they strongly believe now is a good time to buy — up from 34 percent in the last quarter of 2018 — and 28 percent expressing moderate confident.

The survey also found that 53 percent of those polled said that the economy is improving, down from 59 percent at the end of last year. Optimism in 2019 is the greatest among those who earn $100,000 or more and those who live in rural areas. Fifty percent of Generation X respondents said the economy is improving, while 42 percent of urban area residents reported the same.

Several factors are helping to improve the attitudes of potential homebuyers, said Lawrence Yun, the NAR’s chief economist. “First, inventory has been rising, so those buyers interested in making a purchase will not be limited in choices. Additionally, more stable home price trends are leading to more foot traffic at various open house gatherings.”

Mortgage affordability has also been more favorable for homebuyers than in recent quarters, Yun said.

“The Federal Reserve’s decision to refrain from any foreseeable rate hikes was beneficial to potential buyers,” he said. “That move directly contributed to mortgage rates declining in quarter one, which provided a second-chance opportunity to those looking to buy who were priced out last quarter.”


The Wall Street Journal reports that the Federal Housing Administration is tightening its rules, amid a growing concern that mortgage lenders are increasingly making loans to borrowers who can’t repay them, leading to a spike in defaults.

The FHA, which insures mortgages for first-time buyers, told lenders in March that it would begin examining certain loans more closely, likely identifying more of them as high risk. Mortgages to borrowers with low credit scores and high loan payments relative to their incomes will now go through a more rigorous underwriting process, the agency said.

The Journal report noted that the FHA’s decision to tighten underwriting standards could mean fewer first-time home buyers are able to get mortgages.


Posted on April 27, 2019 at 6:40 am
Christine Navarro | Category: Housing Info

Compass Southern California Quarterly Report: Q1 2019


It is my pleasure to introduce the Compass 2019 Q1 Real Estate Market Report.

Following many uncertainties in economic and housing outlooks across the regions, buyers in many  Los Angeles neighborhoods took a step back and entered the market with great trepidation, ready to step away at any signs of concern. As a result, home sales activity generally posted declines compared to the first quarter of 2018.

Buyers continued to look for value, however, and demand remained consistent in some sought after communities in Northeast L.A., Greater Pasadena and Mid L.A/Baldwin Hills communities. Buyers were not however in a rush and took longer to make  offers, extending the number of days on the market.

Buyers also benefited from more options of homes available for sale, though that was more likely to be the case in communities East of 405 than in  West Side communities. Nevertheless, buyer reluctance did lead to more price reductions and median prices rising generally slower than last year or showing some weakness compared to first quarter last year.

Overall, the quarter ended with more buyer enthusiasm than it started with, promising a solid spring home-buying season.

Metro Los Angeles

(Atwater, Downtown L.A., Hollywood, Los Feliz, Silver Lake – Echo Park)

While the number of single-family homes on the market declined compared to last year, condominium sales were strong in all Metro Los Angeles communities except in Downtown L.A. – which was constrained by low inventory. Average home prices weakened compared to last year, except in Downtown L.A. and  condominiums in Hollywood. Buyers generally took longer to purchase, except for condominiums in Los Feliz.


(Alhambra, Altadena, Pasadena, San Gabriel, San Marino, South Pasadena)

The number of homes sold in the Pasadena area mostly trended below last year, except in South Pasadena where single-family sales increased. The average prices, however, didn’t hold up in South Pasadena while condominium prices jumped. Average home prices varied notably across the region, and buyers took about a week longer to purchase a home, except for condos in South Pasadena and Alhambra.

La Cañada Flintridge

(Atwater, Glendale, La Canada Flintridge, La Crescenta/Glendale/Montrose/Sparr Heights, Sunland/Tujunga)

While home sales activity generally slowed in the La Canada Flintridge region, homes in Atwater remained in strong demand. Changes in average prices varied with relatively more expensive single-family homes in La Canada Flintridge lowering in average sales price compared to last year. Sellers of single-family homes in Atwater were quickest to receive an offer on their homes generally selling them in about 33 days, while sellers in the other areas waited relatively longer.

Northeast Los Angeles

(Eagle Rock, Glassell Park, Highland Park, Montecito Heights, Monterey Hills, Mount Washington)

Home sales activity in Northeast Los Angeles generally slowed in the first quarter, except in Glassell Park where more homes were sold compared to last year. Average home price changes varied a lot across the region, though Mount Washington saw the most notable increase in average prices, up 16 percent. Changes in average days on market varied as well, though sellers in Eagle Rock, Glassell Park and Monterey Hills saw their homes snatched up quicker than last year.

East San Gabriel Valley

(Arcadia, Azusa, Bradbury, Monrovia, Monterey Park, Sierra Madre)

Homes sales activity in East San Gabriel Valley were driven by affordability, with more affordable areas such as Azusa and condominiums in Monrovia gaining in sales activity while other areas experienced less activity compared to the first quarter last year. Average prices were a mixed picture with Arcadia and Sierra Madre posting declines among both single-family and condominiums while single-family homes in Azusa, Monrovia and Monterey Park posted solid gains.


Posted on April 27, 2019 at 6:21 am
Christine Navarro | Category: Housing Info

California Home Sellers Want 2017 Prices, but Buyers Are Patient in 2019

California housing markets are at a critical juncture at the beginning of 2019. After experiencing the tightest market conditions seen over the past three years in the first half of 2018, the number of homes sold in the Bay Area and Los Angeles has continuously declined since mid-2018. In January 2019, the year-over-year decrease in home sales continued at double-digit-percent rates, with the three-month average decline in the Bay Area at 16 percent and Los Angeles down by 18 percent. In other words, over the last three months, about 1,100 fewer units sold on average per month than last year in Los Angeles, while the Bay Area averaged about 700 fewer sales.

The decline in sales activity comes amidst sustained economic strength, improved inventory levels, and more recently, stable mortgage rates. Nevertheless, it is clear that financial-market volatility, trade-war concerns, last year’s mortgage-rate jump, and the government shutdown have weighed on consumer sentiment and housing decisions.

Sellers have noticed the cooling buyer demand, which has led them to change their pricing expectations. But even with more price reductions, added inventory, and lower mortgage rates, buyers are not as confident as they were last spring.

So how will California housing markets fare in the spring of 2019?

Los Angeles: Figure 1 illustrates the same set of market indicators as used in Figure 1 for the greater Los Angeles area. Clearly, market dynamics follow very similar trends as seen in the Bay Area. After reaching the tightest point in the spring of 2018 — when price appreciation accelerated to 14 percent and reductions bottomed out at 15 percent — the market took a turn, as both median price growth and sales dropped significantly. However, unlike in the Bay Area, Los Angeles didn’t start to post inventory increases until the fourth quarter of 2018, leading to an earlier annual decline in home sales than was observed in the Bay Area.

Sellers felt the buyer retreat in the second half of 2018, which led to the highest increase in price reductions seen in at least the last three years, peaking at 34 percent in December 2018 before falling to 30 percent in January.

Figure 1: Home price reductions, sales changes, and median price changes in greater Los Angeles, March 2016 through January 2019

Source: Terradatum, Inc. from data provided by local MLSes, Feb. 5, 2019


To bring buyers back to the market in both the Bay Area and Los Angeles, median home prices will likely need to return to levels seen at the beginning of the 2018 spring homebuying season. With price reductions leading to a January slowdown in appreciation of 2 percent to 3 percent, and mortgage rates also returning to early 2018 levels (see Figure 3), buyers now enjoy more favorable conditions than they did in the second half of 2018. However, with total 2018 median price growth of 12 percent compared with 2017 in the Bay Area and 8 percent in Los Angeles, many buyers have exited the market and are unwilling to purchase homes until they see larger price reductions and cooling home price growth.

For sellers, hanging on to 2017 pricing expectations will likely result in multiple reductions and increased time on the market, which itself may lead to sales prices that are below actual fair market value. In high-end markets, where homebuying decisions are more subjective than those based on affordability, buyers are focused on fully renovated homes that are priced at market value, as opposed to buying in anticipation of further price gains to rationalize their purchases.

In conclusion, while a dismal end to 2018 branded California housing markets with a big question mark in 2019, many conditions have shifted in favor of buyers: lower mortgage rates, slower price growth, more inventory, and less competition. If sellers rethink their expectations, the spring homebuying season could start strong.

Figure 2: U.S. 30-year fixed-rate mortgages, January 2018 through February 2019

Source: Terradatum, Inc. from data provided by local MLSes, Feb. 5, 2019


Article by: Selma Hepp is Compass’ Chief Economist and Vice President of Business Intelligence. Her previous positions include Chief Economist at Trulia, senior economist for the California Association of Realtors, and economist and manager of public policy and homeownership at the National Association of Realtors. She holds a Master of Arts in Economics from the State University of New York (SUNY), Buffalo, and a Ph.D. in Urban and Regional Planning and Design from the University of Maryland.


Posted on February 26, 2019 at 4:31 pm
Christine Navarro | Category: Housing Info

Los Angeles Homebuyers Should See a More Favorable Market in 2019





Executive Summary:

  • Total Los Angeles home sales in 2018 were 11 percent below 2017, with the decline driven by fewer sales below $1 million, down by 18 percent. Higher-priced sales fared similar to 2017.
  • Fewer sales were seen across the region except for in South L.A. and Malibu.
  • The year 2018 saw a strong increase in sales priced between $1 million and $2 million in Mid L.A./Baldwin Hills and Northeast L.A., both up by about 70 percent from 2017.
  • The region’s 20-month year-over-year decline in inventory finally reversed in the fourth quarter of 2018 and posted an 8 percent annual increase, though inventory still falls below fourth- quarter levels observed in 2016 and 2015.
  • While more inventory was seen in the San Gabriel Valley communities of Pasadena, Eastern Cities, South of 210, and the East Valley, West L.A., the West Side, and Silicon Beach also saw supply gains. In contrast, more affordable areas of South L.A. and the Eastside posted inventory declines.
  • Importantly, the inventory of homes priced below $1 million increased by 6 percent from the fourth quarter of 2017 — which translates to 251 homes — largely from the East Valley, the Southbay, and West LA.
  • While the year started strong, it ended with a notable decline in buyer competition, leading to fewer homes selling for more than asking price. In December, only 30 percent of homes sold for premiums, down from May’s four-year peak of 48 percent.
  • Sellers have adjusted their expectations, as price reductions reached a four-year high of 33 percent in December, compared with an average of 26 percent seen in last three Decembers.
  • Los Angeles’ 2018 median home price increased by 8 percent on an annual basis.
    • While price growth varied, Foothilll Communities posted the largest annual increase of 21 percent
    • The Eastside, South L.A., Mid L.A./Baldwin Hills, West L.A., the Westside, and Malibu all posted double-digit percent price increases, while Beverly Hills and the Hollywood Hills ended 2018 with median prices on par with their 2017 levels.
  • With more inventory, lower mortgage rates, and more price reductions, buyers are looking at a relatively more favorable 2019.

While occasionally showing confidence in 2018, Los Angeles homebuyers had a difficult year grappling with rapid home price growth, continually declining inventory, and higher mortgage rates. As a result, total home sales were down by 11 percent year over year in 2018. Fewer home sales were recorded across most Los Angeles communities except Malibu, which posted a 6 percent increase in sales over 2017, and South L.A., with a 1 percent increase.

The decline in activity was mostly driven by fewer sales of homes priced below $1 million, which dropped by 18 percent from the previous year. However, areas with relatively more inventory in that price range throughout the year fared better, such as South L.A. and the Eastside.

Among sales of homes priced between $1 million and $2 million, which remained on par with 2017, two areas showed particularly strong increases in sales: Mid L.A./Baldwin Hills and NELA, both up by about 70 percent from 2017. Both areas have seen high buyer demand over the last couple of years, driving the median price to above $1 million. NELA for example, saw 80 percent of homes sell for more than asking price at the end of 2017, which fueled price growth in 2018.

The growth of sales in the $2-million-to-$3-million range also posted a slight increase over 2017, up by 3 percent. And while sales growth dominated in Mid L.A./Baldwin Hills and NELA, the surge came on the heels of very low levels in 2017. The West Valley, the Southbay, West L.A., and the East Valley also saw relatively more sales of homes priced between $2 million and $3 million.

For homes priced above $3 million, a relative jump in sales appeared South of 210 and in Downtown L.A. and the East Valley, again an increase that followed very low previous levels. Figure 1 summarizes year-over-year changes in the number of home sales in 2018 compared with 2017 by price range and Los Angeles neighborhood. The last column indicates year-over-year changes in December. Los Angeles posted a 21 percent year-over-year decline in sales in December, which were widespread throughout the region, though some of the largest decreases were in areas closer to the beach and those affected by the Woolsey Fire — Malibu and Beach Communities in particular.

Figure 1: 2018 versus 2017 overall change in sales by price range and Los Angeles neighborhood; December year-over-year total change in sales

Source: Terradatum, Inc. from data provided by local MLSes, Jan. 7, 2019

However, slower 2018 sales activity was largely driven by a 20-month trend of falling year-over-year inventory, which started around the beginning of 2017. The declining inventory trend finally reversed in the fourth quarter of 2018, when most regions started to see an increase from the year before. And at the end of the year, there was on average 8 percent more inventory compared with the fourth quarter of 2017. Nevertheless, even with the last quarter’s increase, inventory still falls below fourth-quarter levels recorded in 2016 and 2015.

A relatively larger buildup in inventory was seen in the San Gabriel Valley communities of Pasadena, Eastern Cities, South of 210, and the East Valley, along with West L.A. the West Side, and Silicon Beach. However, some communities continued to post annual declines in inventory, namely Malibu areas, a trend that may have been driven by the aforementioned wildfire. Inventory declines were also dominant in South L.A. and the Eastside, both areas perceived as more affordable and where 2018 sales activity remained relatively consistent with 2017.

Figure 2 illustrates changes in fourth-quarter year-over-year inventory by Los Angeles community and price range. While all price ranges posted more inventory, the supply of homes priced between $1 million and $2 million saw a relatively larger increase compared with the end of 2017, up by 15 percent. Only Malibu and the Hollywood Hills lacked more inventory in this price range. And for homes priced above $2 million, while increases appear larger in areas like Mid L.A., the increase comes off of a low base. The overall supply increase in the Los Angeles region was driven by more homes on the market from Beverly Hills toward western part of Los Angeles.

Most importantly, though, is to finally see more inventory for homes priced below $1 million, as the region struggles with lack of affordability. In the fourth quarter, the inventory of lower-priced homes increased by 6 percent from the fourth quarter of 2017, which translates to 251 properties. And while the relatively largest increase was in Eastern Cities, up by 44 percent; West L.A., up by 26 percent; and Brentwood, up by 20 percent, the largest contribution to the increase came from the East Valley (up by 78 homes), the Southbay, (up by 60 homes), and West L.A., (up by 52 homes).

The increase in lower-priced inventory is again a welcome reversal of trends and should help encourage some prospective buyers who have been sitting on the sidelines.

Figure 2: Fourth-quarter year-over-year change in inventory by Los Angeles community

Source: Terradatum, Inc. from data provided by local MLSes, Jan. 7, 2019

Further, the stalling housing market conditions that characterized the end of 2018 were driven by number of uncertainties, including political jitters, financial volatility, and concerns over the future of economic growth, but also by consumer perception that housing market has peaked. Consequently, buyer hesitance at the end of the year helped reset seller expectations and rebalance the relationship between the two sides. In other words, the competitive buyer spirit that characterized the first half of 2018 — when almost half of homes in Los Angeles sold over the asking price — waned in the winter. Figure 3 illustrates the three-year trend of the percent of homes that sold for more than asking price. In December, only 30 percent of homes sold for premiums, and while seasonal declines over the last three Decembers generally led to a similar rate, 2018’s decline was relatively larger — 18 percentage points, down from a 48 percent peak in May.

Figure 4 highlights the changes in the share of homes selling for premiums between May and December 2018 by local community. Buyer caution was most notable in Foothill Communities, with a 38-percentage point decline in homes selling for premiums, from 64 percent in May to 26 percent in December.

Figure 3: Share of Los Angeles homes that sold for premiums over the past three years

Source: Terradatum, Inc. from data provided by local MLSes, Jan. 7, 2019

The resetting of seller expectations is also reflected in more price reductions that were seen at the end of 2018. Figure 5 illustrates the three-year trend of the percentage of homes that sold with a price reduction, which reached a multiyear high December at 33 percent. Again, the previous years’ Decembers generally posted seasonal highs that averaged around 27 percent. Figure 4 also illustrates the changes in the share of homes that sold with a price reduction between May and December by Los Angeles community. The buyer-seller rebalancing was again most notable in Foothill Communities, with a 35 percentage point increase in price reductions, from 13 percent in May to 48 percent in December.

Figure 4: Changes in the number of homes that sold for premiums and price reductions by Los Angeles community

Source: Terradatum, Inc. from data provided by local MLSes, Jan. 7, 2019

Figure 5: Share of Los Angeles homes that required price reductions over the last three years

Source: Terradatum, Inc. from data provided by local MLSes, Jan. 7, 2019

Lastly, with the market rebalancing and more inventory, pressure on home price growth slowed considerably during the winter, from the year’s high of $960,000 in June. Los Angeles’ median price, however, still increased by 8 percent overall in 2018.

Figure 6 illustrates the multiyear trend of greater Los Angeles median home prices, which ended the year at $880,000, up from $850,000 last December. Most notable is the seasonal increase in 2018, which drove up prices to $960,000. And while home prices do show a seasonal uptick during spring and summer months, 2018’s increase was relatively larger than the gains seen in the previous three years.

Figure 6: Los Angeles median home price changes over the past three years

Source: Terradatum, Inc. from data provided by local MLSes, Jan. 7, 2019

Median home price changes, as usual, varied considerably across the region. Figure 7 illustrates median home price changes in December by Los Angeles community and overall 2018 change compared with 2017. Again, while slowing after last summer, December’s median price posted a 4 percent increase over last December and an 8 percent overall gain in 2018. An area that stands out with more than a 20 percent increase in median prices are the Foothill Communities. Communities that also saw double-digit-percent appreciation in 2018 include the Eastside, South L.A., Mid L.A./Baldwin Hills, West L.A., the West Side, and Malibu. In contrast Beverly Hills and the Hollywood Hills ended 2018 with median prices on par with their 2017 levels.

Figure 7: Year-over-year median home price change by Los Angeles community, December 2018 and 2018 overall

Source: Terradatum, Inc. from data provided by local MLSes, Jan. 7, 2019

In conclusion, housing activity in Los Angeles ended 2018 with less enthusiasm than it began. There were overall fewer total sales in 2018. However, it’s important to keep in mind that inventory shortages persisted through most of the year, holding back many buyers who were looking for a home. Also, the significant price growth that dominated the early part of year was not sustainable for much longer and to a large degree turned off many prospective buyers.  Thus, the rebalancing of seller and buyer expectations was inevitable.

Nevertheless, normalizing trends are a welcome change, as is the increase in affordable inventory. Also, with the recent declines in mortgage rates and the anticipation by the Federal Reserve and its observers to see only one rate hike in 2019, Los Angeles buyers are looking at a relatively more favorable year and more certainty around mortgage rates.

Uncertainties remain though, as do questions around the government shutdown and its impact on housing and the overall economy. In California, the federal government employs 245,400 people, representing 1.4 percent of employed residents. And while that is a smaller share than in some other parts of the country, it is still an important part of the economy and represents a significant number of prospective Golden State homebuyers.


Article by: Selma Hepp is Compass’ Chief Economist and Vice President of Business Intelligence. Her previous positions include Chief Economist at Trulia, senior economist for the California Association of Realtors, and economist and manager of public policy and homeownership at the National Association of Realtors. She holds a Master of Arts in Economics from the State University of New York (SUNY), Buffalo, and a Ph.D. in Urban and Regional Planning and Design from the University of Maryland.


Posted on January 28, 2019 at 4:36 am
Christine Navarro | Category: Housing Info

Everything You Need to Know About Proposition 10

From our company Chief Economist, Selma Hepp

What is Proposition 10?

Proposition 10 is a statewide ballot initiative in the November 2018 election that aims to repeal the Costa-Hawkins Housing Act. While Proposition 10 has become a polarizing issue, it is critically important to understand what it does and does not do.

What is the Costa-Hawkins Rental Housing Act? The Costa-Hawkins Rental Housing Act was passed by the California legislature in 1995 and places limits on municipal rent-control ordinances.

The act limits municipal laws in the following ways:

  • In cities that already have rent-control policies, it freezes the eligibility of units that can come under rent control at the age threshold that was in place when the ordinances were adopted. For example, units in San Francisco that fall under rent control are those built prior to June 13, 1979.
  • It prohibits “strict” rent control (for instance, vacancy control), which requires rents to remain controlled even after a tenant moves out. Since Costa-Hawkins passed, owners may still increase the rent equivalent to the change in the cost of living as measured by the Consumer Price Index (averaging about 5 percent). Prior to the enactment of Costa–Hawkins, such strict vacancy controls existed in five California cities: Berkeley, Santa Monica, Cotati, East Palo Alto, and West Hollywood.
  • It exempts all single-family homes, condominiums, and units built after Feb. 1, 1995.

In California, 15 jurisdictions have passed some form of rent control, including “legacy” rent control, meaning cities with ordinances dating back to the late 1970s and early 1980s, such as San Francisco, Los Angeles, Berkeley, and Santa Monica. Bay Area cities such as Mountain View and Richmond have only recently enacted such ordinances. Cities listed as rent controlled by the state of California: Alameda, Berkeley, Beverly Hills, East Palo Alto, Hayward, Los Angeles, Los Gatos, Oakland, Palm Springs, San Francisco, San Jose, Santa Monica, West Hollywood, Mountain View, and Richmond.

The major purposes of the Costa-Hawkins act are to eliminate vacancy control and thereby allow property owners to adjust the rent to market price and to exempt certain categories of rental units from rent control — new construction, single-family homes, and condominiums.

The act leaves the power to determine most other elements of rent control to the cities. Cities remain in control of determining any changes to the rental amount of a tenancy and possess a substantive jurisdiction to regulate evictions and an owner’s ability to otherwise end a tenancy. Accordingly, cities could prohibit an owner from terminating a tenant without “just cause.” Each California city has its own independently enacted rent-control ordinances, which vary widely.

What Would the Repeal of Costa-Hawkins Mean?
Advocates of expanding rent-control policies gathered enough votes to put a bill on the November 2018 ballot. Assembly Bill 1506, also called the Affordable Housing Act, calls for the repeal of Costa-Hawkins. If approved, in addition to repealing Costa-Hawkins, any subsequent amendments to the Affordable Housing Act would require a two-thirds majority vote by the state legislature. However, even if Proposition 10 passes, each city would need to go through the process of passing new legislation before the repeal would have any effect. At that point, it would be up to cities to decide if they want to expand their rent-control regulations or leave the current laws intact.

It is an undeniable fact that the cost of housing in major California metropolitan areas has grown far out of reach for many residents. The housing-cost burden has become the Achilles’ heel of California’s economic future. Proponents of rent control generally believe that price protections are the most effective ways to help tenants avoid displacement, which disproportionately affects seniors, lower-income tenants, and renters of color. Nevertheless, California’s affordability crisis is a direct result of an undersupply of housing built over the last decade.

According to a recent Department of Housing and Community Development (HCD) report, “California’s Housing Future: Challenges and Opportunities,” housing production has averaged less than 80,000 new homes annually over the last 10 years, and ongoing production continues to fall far below the projected need of 180,000 additional homes annually. With now an almost 2 million housing-unit deficit, there is a need for an additional 1.8 million units to be built by 2025 to meet the state’s projected population and household growth.

If these units are not built, housing will become even less affordable. Nevertheless, as research on the impact of rent control across the state and the country has shown, expanding rent control will further exacerbate affordability by adding an additional disincentive to constructing new units and supply of rental units in the market. Specifically, research cited in a recent analysis from University of California, Berkeley shows that rent control reduces the supply of rental housing in the following ways:

  • Rent control incentivizes property owners to sell or convert them to nonresidential units.
  • Rent control reduces the efficient allocation of housing by disincentivizing current tenants to move even when they don’t need all the space or their financial means have improved beyond the need for rent-controlled housing.
  • And critically important now, rent control discourages new development of rental supply by removing developers’ certainty that they will be able to repay their loans and their investors, significantly impacting the feasibility of many construction projects.

For example, a recent study of San Francisco’s 1994 Proposition I, which extended the original rent-control ordinance to include smaller buildings of four units or less, found that these properties were 8 percent more likely to convert to owner-occupied housing. San Francisco consequently faced a notable loss in rental housing, as well as higher prices, due to reduced supply. The offsets amounted to $5 billion of welfare losses to all renters.

Similarly, in West Hollywood, rent control led to the loss of 764 units between 1986 to 2016, with only 10 percent returning to the market as new apartment units. In Santa Monica, out of 3,042 units withdrawn from the market between 1986 and 2017, only one-third were replaced with new rental units (and not necessarily rent-controlled ones). In fact, as a result of the Proposition 10 ballot initiative, some new multifamily projects across the state have already been placed on hold as developers face uncertainty over projects’ feasibility.

Furthermore, some Proposition 10 proponents have argued that the issue is about local government control and allowing jurisdictions that better understand their housing problems to deal with them. Nevertheless, while local jurisdictions are best informed about their own local imbalances — such as homelessness, displacement, and gentrification — a serious lack of local government willingness, and more importantly local residents, to allow low-to-moderate-income development projects has led to California’s 2017 Housing Package.

The package has several regulations that are specifically aimed at holding cities and counties accountable for addressing their housing needs. Over the years, communities have either adopted a noncompliant housing element or failed to submit their housing element to the HCD for timely review.

The package provides greater accountability by:

  • Increasing enforcement of state housing-planning (“housing element”) law and enabling the HCD to refer violations to the Attorney General
  • Strengthening housing-planning laws to ensure that appropriate land is available for new development and increasing transparency on local governments’ progress on meeting legally mandated housing targets
  • Creating a $10,000 per-unit penalty on cities and counties that deny (for unjustified reasons) approval of new homes that are affordable to low- or moderate-income Californians.

In addition, there are a number of chronic local government problems that are driving the current housing crisis, such as strong local community opposition; outdated zoning laws that limit residential density and land-use efficiency; caps on population, housing-growth, or building-height limits; onerous parking- or transportation-improvement requirements; and excessive design review, development fees, and the “fiscalization of land use,” which lead local jurisdictions to favor commercial growth as opposed to residential. Passing Proposition 10 in no way addresses any of these issues.

What are Proposed Alternatives for Tenant Protections?

The main objective going forward is to ensure meaningful protections to renters without constraining the supply of new housing. Without new housing supply, costs will become even more prohibitive, and rent controls will further incentivize property owners to remove their units from the market.

To that end, there have been numerous suggestions proposed by local and state leaders from real estate, finance, academic, public-policy, and government agencies.

Specifically, the Terner Center from University of California, Berkeley proposes that the state should adopt:
  • A broad “anti-gouging” rent cap applied to all rental units statewide that would make it illegal to raise rents above a specific amount, determined annually by a formula
  • An incentive to developers of new and rehabilitated rental buildings to include on-site, below-market rate units in exchange for property-tax relief
  • Creating a central registry of rent-controlled housing to ensure equity among tenants
In addition, there is broad agreement among leaders that greater efforts should be placed on:
  • Adoption of inclusionary zoning policies combined with density bonuses
  • Development of housing trust funds and other programs for local funding of affordable housing
  • Exemptions from parking and traffic limitations for low-income housing developments
  • Funding for the rehabilitation of older commercial and publicly used property to affordable units
  • Broadening legalization of accessory dwelling units (in-law suites) without additional parking requirements or excessive permitting costs
  • Broadening of zoning ordinances to more readily accommodate quality manufactured housing as an alternative to more expensive conventional housing
  • Mixed-use zoning: inclusion of housing in commercial areas by adding new and existing or redeveloping vacant or underused retail, office, and industrial areas

Lastly, in January 2018, state Senator Scott Wiener introduced Senate Bill 827 in an attempt to increase new high-density housing near transit. While the bill failed to clear its first policy committee in the Senate, the proposal would have considerably increased zoning densities near major transit stops. With some amendments, it could have been a large step in improving the current crisis.

If California cities such as Los Angeles and San Francisco want to compete on a global stage and remain economic and innovation powerhouses both in the U.S. and globally and ensure that children who are born here can remain to live here in the future, preserving Costa-Hawkins and refocusing attention on the above proposed alternatives will be more productive.

Posted on October 23, 2018 at 4:55 am
Christine Navarro | Category: Housing Info