Glen’s East Bay Real Estate Market Update for July 31, 2018

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July 31, 2018 – Real Estate Market Numbers

By Glen Bell   (510) 333-4460

 

Zillow_June_Numbers

Here are some highlights for the 38 East Bay Cities that I track:

  • We typically hit the summer “lull” mid June when many buyers take a break and begin their vacation seasons once children are out of school. However, this summer seems to be slower than normal. In fact, this has been the slowest June in the Bay Area in four years in terms of sales. We’ll be hearing more from the news media later this month once they get a hold of July numbers. Compared to last year, there is a 13% increase in inventory and a 13% drop in pendings. This is a supply and demand issue, more supply, less demand. We have a pending/active ratio of .92, the lowest I’ve seen since April of 2011. This pending/active ratio has been a benchmark that we’ve used as a measure of supply and demand to determine whether we’re in a buyer’s or a seller’s market. Numbers over 1 indicate a seller’s market, while numbers under one favor buyers. However, trends are usually determined on a basis of at least a three month period or more. So, the jury may still be out on this one. I suspect that this summer’s sluggish start may be more than just the typical summer “lull,” and could be coupled with a possible change in our market. We may be moving from what has been a very long strong seller’s market towards a more normal and balanced one. The article below may further support this as well; “Mortgage applications hit a near four-year low in July dropping for the third month in a row with a 1.8% decrease in applications during July.” Also, consider the article below on Housing Affordability in the Bay Area, having fallen again to a low of only 18%, a number we haven’t seen in years.
  • Many economists are predicting a recession in 2019 or 2020 and although the Real Estate Market will not be the trigger as it was in our last recession, it will be a factor. For many buyer’s there may be some opportunities to be realized, but keep in mind that for whatever modest corrections we may see, much of it may be offset with rising interest rates.
  • As anticipated, we repeated the dramatic drop off in inventory at year end, following our normal pattern for December, typically our low point.  We’ve increased our available housing inventory by 222% since the beginning of the year, now 13% higher than where we were last year at this time. We’re now sitting on a 39 day supply of homes. Last year, our months’ supply at this time was 36 days. As a reminder of what we mean by “months’ supply;” If no more homes come onto the market, and homes continue to sell at the same pace as they have been over the last 12 months, then the “months supply,” (in this case 39 days), tells us that’s how many days it would take to sell the remaining number of homes we currently have available for sale in any given market.
  • It’s hard to predict how much tax reform will play into this. That impact may not be felt until when taxes are due next year. We are seeing interest rates starting to go up. Prices continue to rise. More and more, affordability, the high cost of living and our traffic woes are coming into play for those, especially in the “middle class,” who may now be considering leaving the Bay Area.
  • Typically, we see a steady increase in inventory on a month by month basis to occur before finally peaking in September.
  • The number of pendings, (homes that are in contract), decreased again. The pending active ratio increased to .92, now at the lowest point we’ve seen since April of 2011. This compares to last year at the same time of 1.19. This supply and demand ratio signals whether we’re in a sellers’ or buyers’ market. Typically, a number well above 1, (more inventory with less pending) favors sellers. A number below 1 favors buyers.
  • The percentage of homes “sitting” has slightly increased to 35% of the homes listed now remaining active for 30 days or longer, while only 15% have stayed on the market for 60 days or longer. This is slightly lower than what we saw last year at this time with 37% of the homes listed remained active for 30 days or longer, while 17% stayed on the market for 60 days or longer.
  • The “distressed” market, (foreclosures and short sales) are no longer a factor representing less than .05% of the market.

Months_Supply

  • The month’s supply for the combined 39 city area is 39 days. Historically, a 2 to 3 months supply is considered normal in the San Francisco East Bay Area. As you can see from the graph above, this is normally a repetitive pattern over the past four years. We are slightly higher when compared to last year at this time, of 36 days.

Actives_&_Pendings

  • Our inventory for the East Bay (the 39 cities tracked) is now at 2,796 homes actively for sale. This is higher than last year at this time of 2,474 or (13% higher). We’re used to seeing between 3,000 and 6,000 homes in a “normal” market in the San Francisco East Bay Area. Pending sales decreased to 2,573, less than what we saw last year at this time of 2,944, or 12.6% lower.

Pending_Active_Ratio

  • Our Pending/Active Ratio is .92, now at the lowest level since April or 2011. Last year at this time it was 1.19.
  • Sales over the last 3 months, on average, are 5.6% over the asking price for this area, higher to what we saw last year at this time, 4.5%.

Glen's Numbers pg 1

Glen's Numbers pg 2

 

Recent News

 

Only 18% of Bay Area households could afford a median-priced home

By Kathleen Pender, SF Chronicle, August 9, 2018

Housing affordability in the Bay Area fell sharply in the second quarter, as record home prices and rising mortgage rates more than offset rising incomes.

In the Bay Area, only 18 percent of households could afford to buy a median-priced single-family home, down from 23 percent from the first quarter and 21 percent in the first quarter of last year, according to a California Association of Realtors quarterly affordability survey released Wednesday.

The survey calculates the annual household income needed to make the monthly payment (including mortgage, taxes and insurance) on a median-priced single-family home with a 20 percent down payment and a 30-year fixed-rate mortgage at prevailing rates. It then estimates what percent of households in an area earn that much. The result is the affordability index.

A Bay Area household would have needed at least $219,380 in annual income to make the $5,480 monthly payment on a $1.035 million home, with mortgage rates at 4.7 percent. The association figured that 18 percent of Bay Area households earned at least that much.

By comparison, in the first quarter the association estimated that 23 percent of Bay Area households earned at least $186,300, the minimum needed to make the $4,660 monthly payment on a $900,000 home, with mortgage rates at 4.44 percent.

San Francisco and San Mateo once again tied as the region’s least-affordable counties. Only 14 percent of households could afford a median-priced home, down from 15 percent in the first quarter.

In San Mateo County, a household would need at least $349,750 to make the $8,740 payment on a $1.65 million home. In San Francisco, the minimum income would be $344,440 to make the $8,610 payment on a $1.625 million home.

The only California counties with equal or worse affordability were Mono and Santa Cruz, where 14 and 12 percent, respectively, of households could afford a median-priced single-family home.

These figures understate affordability somewhat because they exclude condos, which cost less. Statewide, only 26 percent of households could afford a single-family home whereas 36 percent could afford a median-priced condo or townhome. The report does not break out condo affordability for regions or counties.

Also bear in mind that the median is the point at which half of the homes in an area cost more and half cost less. Many people who could not afford a median-price home could buy a lower-priced one.

As bad as it is now, affordability was worse at the peak of the last housing boom. In the second half of 2005, only 9 percent of households in San Francisco and 12 to 13 percent in San Mateo County could afford a median-price home. Back then, 30-year mortgage rates averaged 6 percent.

But as we approach those levels, it’s important to remember that home prices can go only so high before buyers drop out.

“I think we are going to see some price softening at some point in the future. I don’t think we will see a crash,” said Jordan Levine, chief economist with the Realtors association. “In an ideal world, we would see price growth slow down so incomes have a chance to catch up.”

Statewide, Levine said he’s seeing some signs that demand for lower-priced homes is starting to wane. In recent weeks, the biggest growth of active listings is in the million-dollar-or-less range. Despite that, the largest decline in home sales is below $1 million.

“I think it’s a sign that affordability has gotten to the point where a lot of people either can’t afford to own or don’t want to jump into the market.”

Redfin CEO warns of slowing national real estate market, as frustrated buyers are sitting out

BY , GeekWire, on 

Redfin CEO Glenn Kelman has been known for making some strong statements about the housing market, and last week he issued his latest proclamation, warning of a slowdown that is beginning to develop across the country, even more so in expensive markets like Seattle and San Francisco.

Kelman, on the company’s quarterly earnings call with investors, said he expects sales to decline in August and September over figures from a year ago. Not only is a consistently low supply of homes for sale to blame, but frustrated buyers tired of getting beaten out on offer after offer are deciding to sit out.

What’s striking about this change is that it seems to have been driven by dissident demand from homebuyers, not just a low supply of homes for sale. Nationwide, there were still 5 percent fewer homes for sale in July 2018 than in July 2017. But in Seattle, Portland and San Jose where prices have increased the most, the percentage of homes selling in the first two weeks on the market declined in June from 61 percent to 52 percent.

And the percentage of listings that dropped their prices increased from 31% to 33%. June sales were down in these markets by double-digits and inventory was up also by double-digits. The trend is continuing in July and reports are now coming in from Washington D.C., Boston, Virginia and parts of Chicago as well, that homes there are getting harder to sell.

As U.S. home prices have increased faster than wages for 70 straight months, buyers in markets like these have finally had enough, at least for now. There are still plenty of markets where homebuyer demand is strong. But for the first time in years, we are getting reports from managers of some markets that homebuyer demand is waning, especially in some of Redfin’s largest markets.

Kelman added that in July the percentage of homes nationwide that sold above list price declined on an annual basis for the first time since March 2015.

In addition to the slowing home market, Kelman took the wind out of investors sails, lowering the company’s targets for revenue and profits in the next quarter. Redfin’s stock then went into free fall, dropping 25 percent by end of day Friday to the lowest price since its 2017 IPO with slight up and down movements Monday morning.

The slowing real estate market comes as the company is doubling down on its direct home sales business, Redfin Now. Kelman said that the company is making Redfin Now a permanent part of its long-term strategy. As Redfin Now expands to more markets the company is being “very beady-eyed about which homes Redfin Now buys,” with the potential of a slowdown looming.

Redfin is in a unique position to see the trends on the horizon in the housing market, with a huge network of agents in a variety of markets and lots of sales data. Kelman noted that this trend has only taken hold recently, with sales in three out of the last four weeks slowing dramatically, though still rising over a year ago.

But what’s different is that if your real estate agents saying, I put a home on that normally would have sold in a week, and it’s still on the market a month later. I expected to get eight competing offers, I got one and it was below the asking price. And then when you look at the data to see if that supports the anecdote, it does, and this is a nuance point. But days on market isn’t changing that much that how long sold homes take to sell. But the percentage of listings to sell within two weeks is decreasing. What that means is that for the homes that sell, they’re still selling reasonably fast, but more and more there are homes that we thought would sell that don’t.

And I would say that’s concentrated in some of our larger markets. One of the things that we’re sensitive to is whether this is a decline in the overall sales volume in the United States or a shift. So for example, if Seattle or San Francisco has just gotten too expensive and now everybody’s buying in Phoenix and Denver, that doesn’t really affect U.S. sales volume. And we think some of that is happening, a place like Pittsburgh still has strong sales growth.

But we also think that there is probably going to be a slowdown in U.S. sales growth, if not a reversal in August or September. And there’s a case to be made that the whole market will get better there’s a case to be made that it won’t. I’m not presenting this as a fact, but if you want to know what we think is the most likely outcome that’s our view of it.

Local reports bear out Kelman’s observations. The Northwest Multiple Listing Service reported earlier this month that the “days of multiple offers are days of the past.” Inventory was up in July, while pending and closed sales are down on annual basis.

NWMLS doesn’t mention frustrated buyers sitting out, but the numbers show that might be the case in Seattle. Should these buyers see the news of a slowdown and decide to jump back into the market, this trend could be but a blip as inventory still remains 38 percent below historical averages across the U.S. Kelman said.

As the clock continues to tick forward, millennial buyers will make up an even greater share of the market. The struggles faced by the generation, in addition to the challenging housing situation suggests a need for major changes to the market.

“The postwar explosion in new construction and transit infrastructure to accommodate baby boomers hasn’t happened for millennials, who are coming of home-buying age with lower wage growth, higher credit, more congested roads and more student debt than previous generations,” Kelman said. “This younger generation of would-be homebuyers is bewildered, many are living in their parents basement. Until the market becomes more balanced, it will take longer and be harder for these folks to find a home.”

Bay Area home prices keep climbing, but sales slow

By LOUIS HANSEN, Mercury News, July 27, 2018

Bay Area home buying slowed in June, as the busy summer home shopping season was chilled by scarce inventory and yet another month of near record-setting prices.

Median prices last month for existing homes in the nine-county region rose double digits over the previous year to $920,000, just short of the record high set in May, according to a report released Wednesday by real estate data firm CoreLogic.

Home sales dropped 9.2 percent from the previous year, suggesting many house-hunters are finally fed up or priced out of the Bay Area. The median re-sale price of single family homes in the region increased 12.1 percent from last June.

“It’s obviously a combination of affordability and inventory constraints,” CoreLogic analyst Andrew LePage said. “We’re seeing it statewide and nationally.”

Home_Prices_Bay_Area

Bay Area home sales last month dipped to the lowest level for a June in four years. San Francisco was the only Bay Area county to see an uptick in sales — and only by an additional 17 homes.

The Bay Area housing shortage has driven up home values, creating personal wealth for homeowners, while leaving renters and newcomers grasping to get into the market.

The streak of year-over-year sale price increases began in April 2012, when the median Bay Area home price was $425,000. But the days of half-million dollar homes have long passed, with seven-figure cash offers becoming the norm.

About 80 percent of homes sold last month topped $500,000. More than 4 in 10 Bay Area homes sold for more than $1 million.

Home sales historically increase from May to June, as families decide on purchases after the end of the school year. But Bay Area sales dropped 2.2 percent over the last two months.

Sales also slowed in Southern California, with Los Angeles purchases falling 1.1 percent over the previous month. The greater Los Angeles region saw nearly a 12 percent drop in transactions from last year, according to CoreLogic data.

LePage called the decrease in June home sales significant, adding that coming months may give a better picture of whether the super-charged market is slowing.  “It’s hard to say what comes next in terms of volume,” he said.

In the Bay Area, high prices are knocking some families out of the market, local brokers said. Rising interest rates have also slowed purchases.

Southern California home sales crash, a warning sign to the nation

By Diana Olick, CNBC, July 24, 2018

  • Sales of both new and existing houses and condominiums dropped 11.8 percent year over year, as prices shot up to a record high, according to CoreLogic.
  • The median price paid for all Southern California homes sold in June was a record $536,250, according to CoreLogic, a 7.3 percent increase compared to June of 2017.
  • In the past, California, one of the largest housing markets in the nation, has been a predictor for the rest of the country.

Southern California home sales hit the brakes in June, falling to the lowest reading for the month in four years. Sales of both new and existing houses and condominiums dropped 11.8 percent year over year, as prices shot up to a record high, according to CoreLogic. The report covers Los Angeles, Riverside, San Diego, Ventura, San Bernardino and Orange counties.

Sales fell 1.1 percent compared with May, but the average change from May to June, going back to 1988, is a 6 percent gain.

The weakness was especially apparent in sales of newly built homes, which were 47 percent below the June average. Part of that is that builders are putting up fewer homes, so there is simply less to sell.

“A portion of last month’s year-over-year sales decline reflects one less business day for deals to be recorded compared with June 2017,” noted Andrew LePage, a CoreLogic analyst. “But affordability and inventory constraints are likely the main culprits in last month’s sales slowdown, which applied to all six of the region’s counties and across most of the major price categories.”

LePage points to the rise in mortgage rates over the past six months, increasing significantly a borrower’s monthly payment. Rates haven’t moved much in the past month, but are suddenly going higher again this week, pointing to even further weakness in affordability.

In the past, California, one of the largest housing markets in the nation, has been a predictor for the rest of the country. Home prices have been rising everywhere, amid a critical housing shortage. Prices usually lag sales by several months, and sales are beginning to crumble, even as more inventory comes on the market. The supply of homes for sale increased annually in June for the first time in three years, according to the National Association of Realtors, but sales fell for the third straight month.

Lay it on me: Bad news abounds for potential homebuyers

Mortgage applications nearing 10-year low

By Jeremiah Jensen, Housing Wire, August 1, 2018

Mortgage applications hit a near four-year low in July dropping for the third month in a row with a 1.8% decrease in applications during July.

So, what’s behind the dwindling demand for mortgages? Lots of things.

First and foremost, it’s just really, really expensive to buy a home right now.

Interest rates have been on the rise for a long time, and while the Federal Reserve did not raise rates in its July-August meeting, experts expect that it will raise rates twice more by the end of the year. At the same time, inventory is painfully tight, which is driving home prices way up and putting a chill on buyers’ opinion of the housing market.

A recent study from Trulia shows that the profitability of buying a home has fallen to a six-year low, meaning that for many Americans it is making less and less financial sense to buy a home.

All of this adds up to a home buying sentiment that is drooping close to a 10-year low, and many Millennials say they’ve lost hope in the idea homeownership.

Despite growth in employment numbers and employers going on hiring frenzies, people still can’t afford homes. Wage growth has remained stagnant while the costs of living have been steadily climbing.

Many of the jobs being created are entry-level with wages unable to absorb the cost of a home. Wages are growing, posting a 2.8% gain in the last year, which is the biggest pay and benefit increase Americans have seen in nearly 10 years. The problem is, it’s just not enough to counter the rapidly increasing cost of buying a home.

“Unfortunately, home price and rent growth above incomes – driven primarily by a severe shortage of housing supply – have been too high of a hurdle for many would-be buyers to clear,” Freddie Mac Chief Economist Sam Khater said.

The rate of rent growth is now tapering off, but rents are still climbing, and home prices have yet to find their ceiling. The average person with one hand on the first rung of the property ladder is clinging for dear life to his or her lease and struggling to save up for a home.

“At a time when rising home values continue to build housing wealth for most homeowners, these weaker affordability conditions have led to a missed opportunity for the interested young buyers who are unfortunately priced out of the market,” he added.

Long story short, homebuyers need some good news– a drop in interest rates, relief from climbing home prices or a significant wage increase, maybe all three– in order to turn the tide on these homebuying blues.

California gearing up for big battle over rent control

Kathleen Pender, SF Chronicle, July 21, 2018 

Battle lines are forming over what could be one of the most contentious fights about housing in California in decades.

I’m talking about Proposition 10, the November ballot initiative that would overturn California’s Costa-Hawkins Rent Control Act and let local governments impose any form of rent control on any type of rental housing within their jurisdictions.

“The future of California is at stake here,” said Ken Rosen, chairman of the Fisher Center for Real Estate and Economics at UC Berkeley and a fierce opponent of the measure.

What the measure boils down to is whether housing “is an essential, like a human right — something that everyone needs and deserves, or whether one views housing as just another commodity that should be bought and sold and rented without limits,” said Prop. 10 supporter Dean Preston, executive director of Tenants Together, a statewide nonprofit for renters rights.

The Legislature passed Costa-Hawkins in 1995, after some cities had enacted aggressive rent control rules in response to housing shortages and affordability issues. The law said cities (and counties for their unincorporated areas) could limit rent increases — what we think of as rent control. But it said rent control could not apply to single-family homes or condos of any age or to multifamily buildings first occupied after Feb. 1, 1995 (or earlier if a city already had rent control with a previous cutoff date).

It also said owners of rent-controlled properties could charge whatever they want after a tenant moves out, but once the new tenant moves in, rent increases would be subject to the annual limit. This is known as vacancy decontrol.

If Prop. 10 passes, local jurisdictions could impose rent control on all property types, including single-family properties and new construction. They also could prevent landlords from charging whatever they want when a unit turns over. This is known as vacancy control.

If voters approve the measure, most local governments — or their citizens through the initiative process — would still have to adopt rent control, or modify an existing program to tighten their rules. However, some cities that had strict rent control ordinances before 1995 still have them on the books and just stopped enforcing provisions that Costa-Hawkins struck down. If Prop. 10 passes, “they wouldn’t have to pass a statute, they could just flip a switch” and start enforcing the old provisions, said Debra Carlton, senior vice president with the California Apartment Association.

Richmond’s rent control ordinance, passed in 2016, would automatically apply to single-family and new construction homes if Costa-Hawkins is overturned, Carlton said.

Richmond’s rent program attorney, Charles Oshinuga, said he’s researching what impact Costa-Hawkins repeal would have on the ordinance and hasn’t reached a conclusion.

Tenant organizations and other groups got enough signatures to place Prop. 10 on the ballot after recent legislative attempts to strike down Costa-Hawkins got nowhere.

Last weekend, the California Democratic Party voted to support Prop 10. Its main sponsors are the AIDS Healthcare Foundation and its president, Michael Weinstein, and the Coalition for Affordable Housing. Other backers include the Service Employees International Union, the California Teachers Association, the California Nurses Association and the American Federation of State, County and Municipal Employees. Backers have raised $2.36 million.

The Republican Party is against it. Other opponents include the California Apartment Association and the California Rental Housing Association, which represent landlords, the California Chamber of Commerce, the State Building and Construction Trades Council of California (a labor union), the California Realtors Association and the NAACP. Opponents have raised $15.3 million, much of it from large apartment developers.

Costa-Hawkins does not prevent cities from imposing eviction controls on any type of rental housing — including single-family homes and apartment buildings of any age. Most cities with rent control, and a few without, have adopted some type of eviction controls on some or all types of rental units. They typically say landlords cannot evict tenants, even after their lease has run out, except for certain reasons. These can include the tenant failing to pay rent or dealing drugs on the premises; the owner or a relative moving in; or the owner taking the unit off the rental market. Prop. 10 will not impact eviction controls.

In California, 55 percent of households are occupied by owners and 45 percent by renters. Nationwide, that ratio is 64 percent owners and 36 percent renters, according to U.S. Census Bureau data.

Opponents say abolishing Costa-Hawkins will aggravate the state’s housing shortage by discouraging new construction and encouraging some landlords to take existing units off the market.

But Prop. 10 proponent Daniel Saver, senior attorney with Community Legal Services in East Palo Alto, said California cities generally have not applied rent control to new construction and are not likely to if Costa-Hawkins dies.

However, some cities with rent control are talking about applying it to units built since 1995 but before a certain date, or to newly built units after they reach a certain age. Berkeley’s Rent Stabilization Board has recommendedexempting new construction from rent control for the first 12 to 15 years if Costa-Hawkins is repealed.

This approach “is the equivalent of putting it on new construction. It’s a confidence issue. No one will ever trust a locality again,” Rosen said. “I’ve had 30 calls from people thinking about investing in (existing) units or new construction. They are putting their plans on hold” pending the outcome of Prop. 10.

Michael Schall, the CEO of Essex Property Trust — a big apartment developer and Prop. 10 opponent — discussed Costa-Hawkins in a May earnings call. He said the measure did not seem to impact transactions (the purchase or sale of apartment buildings) in the first quarter. “As we get closer to November, perhaps (it will) a little bit.”

About 37 percent of California’s rental stock is single-family homes, Rosen said, and most of those are owned by mom-and-pop landlords who own one or a few properties.

If Prop. 10 passes and San Francisco put single-family homes under rent control and implemented vacancy controls, it would “devastate” the city’s rental market, Richen added. “It would make it almost impossible to make needed upgrades and would encourage people to take units off the market. In my neighborhood, all kinds of units used to be rental, now they are tenancies in common or condos. Some are just sitting vacant awaiting their next life.”

Saver argues that most property owners are better off financially than most renters. “If you are having a really hard time and you have a multi-family building in San Francisco, you can sell it,” he said.

Prop. 10 opponents point out that virtually every economist in the country opposes rent control. And because there is no means testing, it benefits rich people as well as poor ones. If vacancy decontrol goes away, “We have suggested that means testing be part of anything going forward,” Carlton said. “The tenants organizations don’t like to talk about means testing.”

Preston, the tenant advocate, agrees that rent control “certainly protects everyone who rents. But really rich people in our society tend not to rent property. They tend to own it.”

Most tenants “cannot and will not ever be able to afford a home,” he said. “They deserve the security of being able to live in a community, pay reasonable increases and not be threatened with massive increases or displacement for no reason.”

As for the argument that rent control tramples on property rights, Preston said it’s just one way that governments limit what property owners can do. Homes are subject to zoning laws and landlords must follow many laws, such as when they can enter a home. The courts, he added, have established that investors are entitled to a “fair return” on rent-controlled units.

What that fair return is could become the subject of much litigation if Costa-Hawkins is overturned.

Opinion: Berkeley could be about to unleash a disaster regarding ADUs

By Dan McDunn, Berkeleyside, July 24, 208

I have been involved in the Accessory Dwelling Unit (ADU) Task Force since its very beginning. First, as an enthusiastic participant, then as a cynical observer, recently back as an enthusiastic participant, and now as a completely demoralized resident of the City of Berkeley upon realizing the disaster the City Council is prepared to unleash.

During the nearly two years that the task force has been in existence, I have been fortunate to observe some of the most passionate people in our community working selflessly and tirelessly to advance the cause of ADUs in our city.

As a builder, I can’t make the claim that my involvement was selfless, as it has led to new professional relationships from which I have benefited.

This task force was called to order by Councilmember Ben Bartlett, at the encouragement of many community members, including Kathleen Crandall, former city planning manager Deb Sanderson, Loni Gray, Greg San Martin and many others. Thankfully, their enthusiasm trumped my cynicism about the ability of the council to get out of its own way and put the necessary policies in place to encourage ADU development. These folks have spent thousands of hours coming up with suggestions for policy to increase ADU production, thereby doing some small part to ease the housing crisis in the Bay Area.

I had a feeling this was going to go sideways at that very first meeting when I realized political expediency rather than grounded economic arguments were more important to many members of the city council (shocker, right? I know!).

Councilmembers eliminated the Short Term Rental option for Accessory Dwelling Units, which insures that only wealthy people will be able to build them when their primary motivation is to house a family member. (STR is ideal to subsidize construction costs and increased taxes when grandma travels.)

They eliminated the most likely segment of the market to build ADUs for long-term rental use by not allowing the non-owner-occupied segment of the market to participate. Most owner-occupied homes do not want a stranger in their back yard, whereas owners of rented single family homes have proven their willingness to rent to the long-term market. So, 0 for 2 in the economic reality check.

I attended the next few meetings, but quickly became disillusioned by the writing on the wall that the council, in the process of sprinting to be a leader in ADU innovation, was going to shoot itself in both feet trying to get out of the gate.

The only remaining bastion of sense seemed to be that the council was going to keep the Rent Board out of the ADU market completely. This claim was made on Sept. 28 at councilmember Ben Bartlett’s town hall; on Nov. 16 at councilmember Lori Droste’s town hall; on Nov. 29 at councilmember Kate Harrison’s town hall; and on Jan. 25t  at Mayor Jesse Arreguín’s town hall.

These politicians made claims that the ADU market would be treated as golden duplexes, and owners of units with ADUs and future owner-developers of ADUs would enjoy the property rights that come with the golden duplex designation.

At the mayor’s town hall, and at Kate Harrison’s town hall, there were members of the Berkeley Rent Board who also stated that ADUs would be treated as golden duplexes. Now, just a few months after these proclamations, made in front of more than 200 community members, some of whom have made significant outlays in time and money to start planning their ADU development, City Council is set to vote tonight, July 24 to give purview over the tenant/landlord relationship for ADUs (both existing and new units) to the Rent Board.

This would stop most, if not all, ADU development that was getting constructed for the rental market in its tracks. I don’t care who you are or what your politics are, it is very unlikely that you will go through the effort and expense to construct a new ADU and allow the Rent Board to govern the relationship you have with your tenant (be it in the ADU or the main dwelling). Unless you really hate yourself, you just would not do it.

So, I have to ask the council, will they be 0 for 3 for setting policy that can spur housing supply? Or will they do the right thing and stand by the claims that they made to the community at large on four different occasions in the last 12 months?

Council will vote tonight to give purview over the tenant/landlord relationship for ADUs to the Rent Board. This would stop ADU development being built for rentals in its tracks.

 

Glen Bell – (510) 333-4460   jazzlines@sbcglobal.net