12.9.3: Fixing The Housing Crisis

by Kayla Martin

Introduction

Today, many Californians are facing the reality of the housing crisis and the increasingly difficult responsibility of owning a home. Many families struggle to keep their homes, and when they lose them, they are tasked with finding a new home that is within their budget, which many can not find. The housing crisis is becoming a major issue for residents in California, with “68% [saying] housing affordability is a big problem in their part of the state” and “63% [saying] homelessness is a big problem” (PPIC). The World Population Review released that in 2023, California’s homeless population is at about 161,548 people, representing 27.89% of the homeless population in the United States. Some solutions for California’s housing crisis involve limiting the number of short-term rental units in the city, reducing the effects of house flipping, and building more affordable housing.

Limit Short Term Rentals

Short-term rental platforms such as Airbnb, HomeAway, and FlipKey have become popular alternatives for hotels; however, it is important to understand the negative effects that platforms such as these have on the housing market. Dayne Lee wrote in an article for the Harvard Law and Policy Review that short-term rentals “[reduce] the affordable housing supply by distorting the housing market [...],  [one example being that] any housing unit that was previously occupied by a city resident, but is now listed on Airbnb year-round, is a unit that has been removed from the rental market and has essentially been added to [the community’s] supply of hotel rooms” (Lee). With over seven million listings in over 220 countries, four million hosts on the platform, and 100,000 cities and towns with active Airbnb listings, it is becoming increasingly challenging for many Americans to find permanent housing, especially those living in popular tourist states like California (Ruby Home). Actions like this lead to increases in surrounding rents and reduce the available housing in an area. Many Californians looking for housing face the realization that many of the places they would have been able to afford in the past have now been turned into short-term rentals and, in turn, have increased the price of housing in the surrounding areas.

Similar to the research done by Dayne Lee, a research paper published by the University of Southern California; University of California, Los Angeles; and the National Bureau of Economic Research explains that “a 10% increase in Airbnb listings leads to a 0.42% increase in rents and a 0.76% increase in house prices” (SSRN). Recently, on January 9, 2022, New York took a stand against the increasing amounts of Airbnbs by adopting Local Law 18, the Short-Term Rental Registration Law. Local Law 18 “requires short-term rental hosts to register with the Mayor’s Office of Special Enforcement [...], and prohibits booking service platforms [...] from processing transactions from unregistered short-term rentals” (NYC OSE). The details of this law conclude that all short-term rental hosts must register with the city, and those who qualify would be those who live in the place they are renting and are present while someone is staying. Local Law 18 ensures that residents in New York City have affordable housing options and will not be priced out of their neighborhoods. Although there are strengths to this law, it also has its weaknesses, including the fact that some residents use Airbnb to make ends meet by renting out their homes while on vacations. However, despite these negative effects, Local Law 18 is a law that the state of California should also adopt to combat the increasing housing crisis issues.

Reduce Effects of House Flipping

Short-term rental platforms are not the only contributing factors to the housing crisis, but also the popularized business of house flipping. House flipping is defined as reselling a house within a year of purchase, and it can be viewed worldwide through television shows and workshops teaching real estate agents how to make a profit. Ari Shapiro and Becky Sullivan wrote an article about house flipping for National Public Radio, stating that “new research shows that flippers contributed to the housing crash of the mid-2000s more than economists initially realized” (Shapiro, Sullivan). Along with this, ATTOM released its year-end 2022 U.S. Home Flipping Report showing that “407,417 single-family homes and condos in the United States were flipped in 2022. That was up 14 percent from 357,666 in 2021, and up 58 percent from 2020, to the highest point since at least 2005” (ATTOM). House flippers are known for buying, renovating, and then selling housing for a steep price to make a profit. This contributes to the housing crisis because a house that was once affordable to a low-income family is now priced too high for most future homeowners to afford.

To combat this issue, Assemblymember Chris Ward proposed The California Housing Speculation Act, Assembly Bill 1771, which would impose an additional income tax of 25% on the gain of the sale of a house that occurred three years after the previous sale and would expire seven years after. CBS8 interviewed Ward about his proposed bill for an article about the negative effects of house flipping and how his bill would help alleviate these issues. Ward revealed that “California does have a housing supply deficit, but profits continue to grow by 26% each year, which isn’t sustainable” (CBS8). According to Assembly Bill 1771, investors are responsible for half of the home sales in Southern California, whereas that number is only 18% in the nation. Ward’s goal with this bill was to give homes back to local homebuyers and prevent house flippers from driving up the housing market. Many concerns arose from the proposition of this bill because real estate industry experts argued that increasing the housing supply would have a more beneficial impact on the housing market than Assembly Bill 1771. Although this bill was not passed in 2022, Chris Ward is revising the legislation to avoid penalizing homebuyers who end up needing to sell their home within the first seven years.

Build More Affordable Housing

Adding on to the issue of increased housing prices, California can also combat this issue by building more affordable housing. Affordable housing, for many Californians, does not include four bedrooms, two-car garages, or two stories. Many residents in California are looking for multi-family homes or genuinely affordable housing. Manuela Tobias shares her thoughts and research in an article for CalMatters, quoting Dan Dunmoyer, president of the California Building Industry Association. Tobias reveals that “California has some of the highest housing costs in the nation because of how little ‘marshaling’ there is [...]. Land costs are prohibitive, and zoning rules limit much of what can be built. Housing must get approved at the local level, which has ample opportunity for community input. Those communities can then block popular projects, such as multi-family or affordable housing” (Tobias). Section 8 housing is some of the most popular housing for low-income families; however, many residents who live nearby would prefer not to have such low-income housing so close to their own homes, one reason being that the value of their home is then lowered. With a large opportunity for community input, much of the proposed affordable housing in certain communities is rejected due to the high amounts of disapproval from city residents.

The Office of Governor Gavin Newsom recently published an article titled “Governor Newsom Signs Package to Streamline Housing and Expand Tenant Protections in California.” The article tells readers that Governor Gavin Newsom has signed “an extensive housing package consisting of 56 bills to help address California’s decades-in-the-making housing crisis by simplifying and expediting the construction of new housing, protecting tenants, and keeping housing affordable” (CA.gov). These 56 bills would help reduce barriers to housing and support further development of more affordable homes. One bill, SB 4, will allow religious institutions or independent institutions of higher education to build housing on their property. Another bill, SB 423, will require local governments that are not meeting their state housing goals to streamline affordable housing projects. Much fierce oppositions have come up from some of California’s most influential labor unions. Some of these concerns involve the fact that “[although] SB 423 mandates that housing developers offer union-level wages and some healthcare benefits, the trades council and dozens of local and state labor groups worried that the protections were inadequate and would fail to safeguard construction workers” (Los Angeles Times). To ease some opposition, Senator Scott Wiener made some amendments that strengthened labor regulations on certain projects. Although it is still too early to see the effects of these 56 bills, many Californians needing affordable housing are keeping their hopes high for a positive outcome.

Public Concern

Despite the many bills and proposals that have the goal of helping with the housing crisis, many residents of California still have their concerns. New York implemented Local Law 18, requiring Airbnb listings to first be approved by the city before taking in any renters. On top of this, the owners must be currently residing in the Airbnb property and stay there while it is being rented. Although this bill has not yet been brought to California, I believe that it would benefit residents who require housing by lowering the mass amounts of housing that are only being used as short-term rentals. One California bill that was proposed, but shot down, was Assembly Bill 1771. This bill aimed to minimize the effects of house flippers on the increasing prices within the housing market. The bill would have imposed a 25% income tax on the gain of the sale of a house that occurred three years after the previous sale and would expire seven years after. Many residents were worried about the negative effects the bill would have on families that would need to sell their homes before the seven years were up due to certain circumstances, like having to move out of state due to a family emergency. With some revisions to this bill to protect homeowners who are not planning on house flipping, I believe that this bill would also help benefit the housing market in California. The third housing market issue is the lack of affordable housing, often caused by the strong opposition of communities. Governor Gavin Newsom signed 56 bills in October, one being SB 423. This bill will require local governments to streamline affordable housing if they are not meeting their state housing goals. I strongly believe that as long as the affordable housing being built is truly affordable for most low-income families, this bill will help with the housing crisis that California has been struggling with for decades.

Summary

The dramatic increase in California housing is becoming a popular concern for many residents of California. “California had 161,548 homeless people, which accounted for 28% of the nation's homeless population.” Adding onto this, “California also had the highest rate of unsheltered people and 70.64% (113,660 were unsheltered)” (Senate Housing Committee). Many of those who are homeless are people like my boyfriend’s family, living in and out of hotels that are provided by the state. Many families are struggling exactly like his, however with no family willing to take them in. The housing crisis in California is not going to be an easy fix, but it also is not an issue that residents should be ignoring. Bills such as SB 423 and Local Law 18 in New York are the bills this state needs to bring more residents into homes and off the streets.

Works Cited

Barron, Kyle, et al. “The Effect of Home-Sharing on House Prices and Rents: Evidence from Airbnb.” SSRN, 25 July 2017, papers.ssrn.com/sol3/papers.cfm?abstract_id=3006832.

“California Lawmakers Vote to Increase Housing in Cities Falling Short of Construction Goals.” Los Angeles Times, Los Angeles Times, 12 Sept. 2023, www.latimes.com/california/story/2023-09-11/california-housing-construction-crisis-shortage-affordable-yimby-scott-wiener.

California, State of. “Governor Newsom Signs Package to Streamline Housing and Expand Tenant Protections in California.” California Governor, 12 Oct. 2023, www.gov.ca.gov/2023/10/11/governor-newsom-signs-package-to-streamline-housing-and-expand-tenant-protections-in-california/.

“Californians and the Housing Crisis.” Public Policy Institute of California, Public Policy Institute of California, 28 Aug. 2021, www.ppic.org/interactive/californians-and-the-housing-crisis/.

Fact Sheet: Homelessness in California1 - Senate Housing Committee, shou.senate.ca.gov/sites/shou.senate.ca.gov/files/Homelessness%20in%20CA%202020%20Numbers.pdf. Accessed 16 Oct. 2023.

How Airbnb Short-Term Rentals Exacerbate Los Angeles’s Affordable ..., journals.law.harvard.edu/lpr/wp-content/uploads/sites/89/2016/02/10.1_10_Lee.pdf. Accessed 15 Oct. 2023.

Mariotti, Tony. “Airbnb Statistics (2023).” RubyHome.Com, 20 Aug. 2023, www.rubyhome.com/blog/airbnb-stats/.

New ca Bill Would Impose 25% Gain Tax on House Flippers Who Sell Within ..., www.cbs8.com/article/news/local/new-ca-bill-would-impose-25-gain-tax-house-flippers-sell-within-3-years/509-557ac4de-8125-422e-beb3-8162972ef5e0. Accessed 16 Oct. 2023.

“Registration Law.” Registration Law - OSE, www.nyc.gov/site/specialenforcement/registration-law/registration.page. Accessed 15 Oct. 2023.

Shapiro, Ari, and Becky Sullivan. “A Decade after the Bubble Burst, House Flipping Is on the Rise.” NPR, NPR, 17 Apr. 2018, www.npr.org/2018/04/17/601925433/a-decade-after-the-bubble-burst-house-flipping-is-on-the-rise#:~:text=New%20research%20shows%20that%20flippers,again%20be%20nearing%20a%20bubble.

Team, ATTOM. “Home Flipping Remains up in 2022 across U.S.. but Gross Profits Fall to Another Low.” ATTOM, 23 Mar. 2023, www.attomdata.com/news/market-trends/flipping/attom-year-end-2022-u-s-home-flipping-report/.

Tobias, Manuela. “Newsom Campaigned on Building 3.5 Million Homes. He Hasn’t Gotten Even Close.” CalMatters, 31 Oct. 2022, calmatters.org/housing/2022/10/newsom-california-housing-crisis/#:~:text=California%20has%20some%20of%20the,ample%20opportunity%20for%20community%20input.