Speakers and panelists discussed new laws affecting real estate, the national and local economy, the C.A.R. Property Tax Fairness Initiative, and obstacles to homeownership in Orange County.
The Orange County REALTORS® Homeownership Matters Summit, held at the Irvine Improv on February 21, featured three individual speakers followed by a panel discussion. The speakers were California Association of REALTORS® (C.A.R.) Assistant General Counsel Gov Hutchinson, Director of the Hoag Center for Real Estate and Finance at Chapman University Fadel Lawandy, and C.A.R. Past President Ziggy Zicarelli. The panelists were Jonathan Lansner from the Orange County Register, Norberto Santa Jr. from the Voice of OC, Aliso Viejo Mayor Dave Harrington, Huntington Beach Mayor Mike Posey, and Irvine City Council Member Melissa Fox. Their remarks and responses are summarized below.
New Laws Affecting Real Estate
By Gov Hutchinson
ASSISTANT GENERAL COUNSEL, CALIFORNIA ASSOCIATION OF REALTORS®
Last year, Governor Jerry Brown signed 848 laws involving everything from advertising and animals to solar panels and swimming pools.
Marijuana. You need two licenses to be in the marijuana business—a local license and a state license. You can grow only six plants in your house—if you are over twenty-one. Landlords do not have to allow marijuana. It’s not clear yet whether homeowners’ associations (HOAs) must allow marijuana.
Rental Property. For new tenants, you need to disclose if the property is in a flood zone, and you need to give every new tenant the Bedbug Disclosure Form. If individual tenants pay their own water bill, you must also give them the Water Disclosure Form.
Comfort Animals. As a landlord, you must accept a comfort animal if it is reasonable, but there is no definition of “reasonable.” Decisions are made on a case by case basis.
Solar Panels. A homeowners’ association cannot stop you from installing solar panels, even where you do not own the building.
HOA Documents. The HOA Annual Report must disclose to tenants how much the Association is going to charge for a complete set of HOA documents. You now must pay only actual out-of-pocket costs (about $50) for these documents.
Tandem Parking. Tandem parking must be allowed if there is a second unit. Regulations regarding parking in driveways must be reasonable, and HOAs must justify any parking restrictions.
Swimming Pools. Since 1998, state law has required new or remodeled pools and spas to have at least one safety feature, such as a fence, a cover, or an alarm. Now, all swimming pools and spas must have at least two safety features, and home inspectors are required to inspect and to disclose the presence or absence of these features.
Nanny Cams. If there is hidden surveillance equipment of any kind on the property, the client must disclose this fact.
Advertising and Signs. The focus of the California Department of Real Estate (CalDRE) is on advertising and signs. A sign should have your company name, your name, and your real estate license number. If you put your name on an open house sign, your license number must be there, too.
Tax Reform—The Good Things. Tax rates have come down, and you have a new deduction of 20 percent as an independent contractor if you make less than $157,500 a year.
Tax Reform—The Bad Things. The tax code sends mixed signals. The mortgage interest cap has been reduced to $750,000, and you can deduct interest on a home equity loan— but only if the money is used to improve that same house.
The concern for those of us in the real estate industry is that the tax reasons to buy rather than rent are not as persuasive as they once were.
Panel Discussion: Obstacles to Homeownership
Does California have a housing crisis?
Jonathan Lansner: The big challenge is in the rental market. Rent control is going to come because landlords are tone deaf.
Norberto Santana Jr.: Renters are there for the long haul. This will change political campaigns. Renters will have much more of a permanent voice in local politics.
Is Orange County ‘built out’?
Mike Posey: Huntington Beach is not built out. There are opportunities for repurposing vacant sites downtown.
Melissa Fox: Green space is disappearing, but Irvine does have some opportunities for redevelopment. We lack middle-level affordable housing.
Dave Harrington: Aliso Viejo is largely built out. We have an average density level that is twice that of the rest of Orange County. Infill is the only housing opportunity we have left.
Is the problem one of local planning? Would a regional approach help?
Melissa: We need to be nimble. We have barred the door for too many people.
Mike: No, we have already given up enough local control to agencies like the Southern California Association of Governments (SCAG).
Norberto: The planning process is what allows you to grab a project and shape it. At the local city level, there’s lots of opportunity. No one wants a bad development in their backyard. Local planning has never been more important. Everyone wants predictability around their property.
Have we gone overboard to protect the environment at the expense of California families?
Mike: We should be doing it in the name of the economy, not in the name of the environment.
Jonathan: Developers have been very generous with the space they’ve given away and with the time they’ve put into planning. Landlords don’t want more apartments because they don’t want more competition. Planning is needed to ensure that we have a reasonable result at the end of the day.
Dave: Regulations add $100,000 to the cost of each unit. We need regulatory reform.
Norberto: To see what happens in a world without regulation, I invite you to go to Tijuana. The key is intelligent, nimble regulation that is respectful of local control.
The Economy, Interest Rates, and Tax Reform
By Fadel Lawandy
DIRECTOR, HOAG CENTER FOR REAL ESTATE AND FINANCE, CHAPMAN UNIVERSITY
U.S. Economy. As a country, we are moving in the right direction. This recovery that we are going through has been one of the longest in history. Excess labor capacity is shrinking. Wage growth is very healthy. We are back to levels that match 2008. The largest growth right now is in high-skilled jobs. Discretionary income has increased, and consumers are spending.
Orange County Economy. Overall, the Orange County economy is doing well. We have added 23,700 jobs. At 2.8 percent, unemployment is at an all-time low. We lost low-paying factory jobs in textiles, but we added better-paying jobs in manufacturing. The median income is $88,000.
Interest Rates. We are almost certain that we will see four interest rate hikes during 2018. Yields on ten-year treasuries are going up. As they climb, we’ll see interest rates on thirty-year mortgages climb to about 5.6 percent.
Tax Reform and Housing. The government is getting out of the business of using taxes to motivate people to buy homes. The tax benefit of owning a home has been reduced or eliminated. The people who get hurt the most are people with a mortgage of more than $750,000.
Owning versus Renting. It’s still more profitable to own a home than it is to rent and put your money in the stock market. Over time, you could receive as much as an 8 percent higher return on your investment if you buy rather than rent.
The C.A.R. Property Tax Fairness Initiative
By Ziggy Zicarelli
PAST PRESIDENT, CALIFORNIA ASSOCIATION OF REALTORS®
Proposition 60 (which was passed in 1986) allows homeowners fifty-five years of age or older to buy a house of equal or lesser value and transfer the base year value of their current primary residence to the newly acquired property. Proposition 90 (which was passed in 1988) allows homeowners fifty-five years of age or older to transfer the base year value of their principal residence in one county to a newly purchased or constructed replacement residence in another county. The problem is that the receiving county must agree to permit the transfer, and only twelve of California’s fifty-eight counties have done so. As a result, California has begun to follow the European model of homeownership. Whereas the average time in a house once was five years, it is now twenty years.
One way to address this problem is to increase tax base portability, and that is what the California Association of REALTORS® is attempting to do with its Property Tax Fairness Initiative. Based on the Florida model, it will allow homeowners to sell and move either up or down but pay property tax at a blended rate. The Legislative Analyst’s Office predicts that passage of this initiative will result in 43,000 to 50,000 more transactions a year. It will free up housing stock to allow millennials and other first-time buyers to purchase a home. This is something we should have done twenty years ago.