I walked with my dog past the three holiday apartments opposite my rented apartment. There’s a new one on the corner. I circled the block, passed the fifth and sixth, converted two years ago.
Mine is an old working-class neighborhood in Santa Barbara that saw a decline in the 80s and 90s, and it’s an area that is now on the upswing. As a new tenant in 2009, I partnered with women in the neighborhood to tidy them up, plant greenery, put up a mural, start a neighborhood watch, and create community connections. This increased my rent from $ 1,500 to $ 2,800. These women bought houses in other areas. Some of their homes are now in the vacation rental market.
In a crisis you are only as good as your neighbor. If your house burns before the fire department can arrive, rely on your neighbors to twist a hose on your roof or make the 9-1-1 call when you’re asleep.
What if your neighborhood consists entirely of vacation rentals?
Friends own vacation homes. They insist that these are mostly second homes so there is no net loss of housing that people would theoretically live in. Santa Barbara has divided vacation rentals into neighborhoods like mine that are home to lower-income families. Real estate was immediately taken off the market and converted into vacation rentals. If there is crime or fire in the area, the landlords do not care, as they usually live in remote areas.
I walk past a homeless man lying on the sidewalk and realize that these things are not out of context. He probably lived in a community like I used to be.
Take 100 houses in any parish. Some people’s houses were bequeathed to them. Some rent, some just bought. If 20 of these houses are rented out for short breaks or given to investors, what will happen to the families living there? They compete for the remaining 80 apartments, the price of which increases automatically. In the 2000s when my area was rough, houses averaged $ 300,000 to $ 600,000. Now it’s $ 800,000 to $ 1.5 million because it can be funded. Your mortgage payment will be far more achievable if you can rent the apartment for more than $ 300 a night, 30 days a month. Lenders love this math. It is getting harder and harder to qualify for a mortgage if you only live at home. Home financing is much more lucrative.
In this example, 20 families have been displaced. Don’t forget them.
Start multiplying that … in communities around the world.
Big cities like London, Amsterdam and Barcelona report the same problem. In Los Angeles, 67 percent of the homes are owned by investment companies. According to the United Nations, the financialization of property leads to higher prices and less affordability for residents. People keep going to find housing, which is driving up commuting costs, roadwork repairs, and pollution. They are professionally tied to cities, but increasingly cannot afford to live there. An Amsterdam displaced person asks who is left besides investors and tourists. Good question.
If we continue to displace workers, we will drive up taxpayers’ costs for bridges, trains and roads. This is a subsidy for companies that employ people but do not pay them enough to live close to where they work. However, don’t expect companies to divert their laser focus from their bottom line to help their employees. Google and Facebook are already cutting wages for workers who moved from Silicon Valley to cheaper areas during the pandemic.
There is also a more insidious player who is largely undetected in this area: the institutional investor such as Blackstone or Deutsche Bank. You buy an older apartment building, drive away the tenants, apply a new coat of paint, plant some landscaping and cancel the rent. This happened in the Ivy Apartments. Where are the former tenants going? Some move further away. Some sleep in their cars or in public parks and hope for a better situation. This is just one way we create homelessness.
Residents are not the only victims. Entire residential units are being bought by companies such as Blackstone or Deutsche Bank. In an overheated stock market, investors flushed with pandemic cash in search of better returns discovered real estate investment trusts (REITs) – now the hottest investment vehicle. The Wall Street Journal ran stories with titles like “This Suburban Homebuyer Could Be a Foreign Government” and “Real Estate Investors Sleep in a Single Family Home.” You see a problem here.
There is an old trope that the WSJ is read by the people who actually run the country. The Washington Post is read by people who think they run the country. The Los Angeles Times is read by people who would like to run the country but have to leave California. And so forth.
If the news source for the people who actually run the country is scrutinizing the dangers of home ownership, shouldn’t we all be careful? As commercial properties have been affected by the pandemic, single-family homes have the highest available return. Rents are rising by 15 percent across Europe, the USA is not far behind. Investors are piling up.
California is the fifth largest economy in the world, with 15 percent of the US population and 25 percent of the homeless. Of course we would be at the forefront of the real estate crisis. Still, our Legislature wants to pass bills that provide runways for investors and developers to build more luxury homes than affordable housing. Legislators trying to get an affordable bill by California’s construction unions are quickly faced with hit ads draped in progressive rhetoric to “end the racist apartheid of single-family zoning.” Proponents of color communities and affordable housing scream badly for good reason. To develop their home into multiple rental units, as suggested in Senate Act 9, families must have their mortgage paid off and hundreds of thousands of dollars to spend. Few Californians have such financial resources, but Deutsche Bank and BlackRock definitely do. You can pay for a $ 2 million home in cash today, convert it into eight rental units, or resell the newly developed units for $ 2 million each.
Who Exactly Are California Housing Bills For?
Now seems like a good time for the governor to hit the pause button and explain that he is convening a blue ribbon commission of smart people from the affordable housing ranks, tax experts, etc. to deal with the affordable housing crisis to solve.
Young, white male YIMBYs (Yes In My Backyard, though they don’t have yards) paid by tech companies are pushing for more housing to be built as if the supply economy were the only miracle cure. Who would have thought that Reaganomics’ “Trickle Down” would be so new with California progressives? They claim that more luxury apartments are all well as they will leak out at some point. They target local zoning as a problem, but California’s local elected officials increasingly grapple with state mandates for more housing while the state turns a blind eye to investors outbidding a city’s residents for the same housing.
Markets don’t always work perfectly. Profiting housing is great for investors and property developers, bad for people who need a place to live, for neighbors who take care of their communities, for cities grappling with the paradox of affordable housing, homelessness, and a deluge of luxury or market-priced buildings are faced.
Los Angeles has as many vacant homes as there are homeless people. This math for cities isn’t difficult.
Back to the homeless man lying on the side of the road, he’ll never be able to raise $ 3,000 in rent for a new market price apartment built in someone’s back yard under proposed state law. There are thousands more like him. These things are not independent. A spike in homelessness is a serious warning that something fundamental is no longer working in your housing market.
Australia is home to 116,000 who live unprotected. Britain has 260,000. 540,000 people in the USA live without a home. The recovery of living space is a global problem.
If governments around the world and locally really wanted to resolve the affordable housing crisis, they would be preventing foreign and domestic investors from outbidding families looking for a place to lay their heads. They would discourage AirBNB and VRBO from hollowing out cities for tourists who should be in hotels. They would force corporations to provide living wages instead of leaving workers to taxpayers nickel. They would keep a keen eye on vacant homes and consider penalizing owners for vacant homes when homeless people live on their streets. They would mandate that public land be converted into affordable housing. Case in point: Here in Santa Barbara, our Metropolitan Transit District owns a huge, vacant lot on El Sueno Road. The district’s housing authority worked hard to build affordable housing there. The Transit District board of directors decided to build “market price and luxury” homes instead in order to maximize their returns.
Everyone, it seems, is in profit houses. Even public institutions that should really think about the voters they serve. There should be a law against it.
People pushed out of their homes in Amsterdam asked, “Who will be here, except investors and tourists?”
Good question that urges us.
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