With each passing day, housing prices in California soar to astronomical heights, transforming the dream to own a home into an elusive fantasy for countless individuals and families.
“California’s liberal politicians are promising a free lunch with government subsidies and rent-control, but it’s all a fraud — their policies have caused the high cost of housing and their recent proposals will make it even worse,” said Carl DeMaio, chairman of Reform California.
“Builders are first and foremost investors - and if they think they can get a better return on investment in other states, that’s where they will take their investment capital to and build,” DeMaio says. “California Democrat politicians have made our state toxic to investment,” DeMaio warns.
“To build housing, you need capital investment to purchase the land finance the entitlement process and construction,” DeMaio notes. “It’s not the land prices that are the big problem, it is the long delays developers encounter when building anything in California which requires they pay financing costs the entire time they sit and wait for approvals,” DeMaio notes.
“On top of that, you have the higher cost of construction in California that makes our state more expensive to build in,” DeMaio adds.
A recent study from John Burns Real Estate Consulting also shows even excluding land costs that it costs $500,000 more to build the same home in California ($800,000) versus Texas ($300,000) — all due to government mandates, fees, and waiting periods.
DeMaio adds that state and local politicians’ attacks on landlords is another big reason why investment has been cut off in California.
“Even if a developer could convince themselves that they should try to build in California, if they are considering renting units out California has made that the riskiest investment in the nation” said DeMaio.
DeMaio points to recent legislation that has eroded landlord and private property rights to illustrate why landlords are fleeing California and hurting the supply and demand of rental units.
Assembly Bill (AB) 1482, passed in 2019, caps annual rent increases on residential rental properties to secure affordable housing in the state. However, by imposing rent control measures and limitations on rent increases, AB 1482 restricts the ability of property owners to fully exercise their private property rights.
Many property owners argue it is their right to set rental prices based on market conditions and the value of their properties. Otherwise, it can discourage potential investors from putting their resources into the housing sector, plummeting investments.
“With the Covid-19 pandemic and AB 1482 affecting the market, investment started falling off and rent control worsened as California’s liberal courts would not allow landlords to evict tenants without probable cause,” explained DeMaio.
And DeMaio warns that it could get worse, with new proposals on horizon at both the state and local levels that could impact private property rights and the long-term viability of housing investment.
Landlords have voiced their concerns about the unintended consequences from AB1482. Nightmare scenarios have been described where tenants take advantage of the rent increase cap and intentionally withhold rent, essentially becoming squatters in the property. Landlords find themselves in challenging situations, unable to address non-payment issues adequately and facing difficulties in regaining possession of their property.
Additionally, AB1482 requires landlords to provide relocation assistance or monetary compensation to tenants who are evicted under certain circumstances. In San Diego, landlords are obligated to provide two-three months’ rent to tenants facing eviction. And while the intention behind this proposal is to mitigate the potential hardships faced by displaced tenants, landlords argue that this requirement places an additional financial toll on them, further impacting their ability to maintain and invest in their properties.
With the potential challenges and concerns surrounding the impact of rent increase caps and eviction-related compensation requirements, the question arises as to why anyone would choose to invest in apartment or rental units, as their investment would be damaged and compromised.
That’s why Reform California is leading a campaign to address these concerns — by flipping key seats and supporting politicians for office who are committed to making California more attractive again for housing investment - and protecting the interests of both landlords and tenants.