Guidant Realty

As an assigned "Key Contact" on behalf of the California Association of Realtors, I (John Hughes) get the opportunity to promote housing policy to one of our state legislator's offices (Senator Brian Dahle). Our "Realtor Party" mission is to improve housing in California regardless of political party. It was encouraging when Governor Newsom took office and declared housing a critical agenda item. Ranking 49th out of 50 states for housing per capita, it is estimated that 3.5 million new units are needed in California by 2025 to meet current and future housing requirements. The state's build rate under the current legal and political environment is about 80,000 per year.

Unfortunately, SB 50 failed earlier this year which would have reduced parking requirements and allowed higher density around transit-rich neighborhoods, thereby facilitating more housing in urban areas where cars were less necessary. That was the only real bill being considered in California that would have had a direct and immediate effect on build. It was a perfect example of talking-the-talk, but defeating the solution when legislators realized their district would have to be part of the solution.

Conversely, 2 bills are on the immediate horizon that while aimed with good intent at renters, will actually stifle supply and increase costs. Today, I will mention SB 329, which is already out of the Senate and could be voted in the Assembly any day. It redefines "source of income" protections to include Section 8. These families have difficulty finding landlords to accept the program. While forcing large-volume landlords like apartments to accept the program makes sense, the bill proponents have ignored exceptions loudly lobbied by the California Association of Realtors for small-volume owners who will otherwise be forced to unacceptable risk levels on a previous primary home or who invested in a limited few rentals for retirement. It will force everyone to accept the Section 8 program, enter a government contract, and be subject to program inspections, increased ADA compliance, and program extended timeframes. Even Governor Brown, when presented with a similar measure during his term vetoed the bill saying "Most small landlords have no desire to be in business with the government, let alone be subject to the costs of units sitting vacant while waiting for government inspections that will delay rental turn-over."

If this bill passes in its current form, the consequence will be off-loading of units by small owners and a reduction in the overall rental pool. That will only increase cost and make obtaining a rental even more of a lottery than it already is. The winners will be the trial attorneys that will be chasing every landlord that received an application and did not select that application regardless of how reasonable their decision was. Even if Section 8 applicants win more often, the overall reduction in rental supply makes it worse for tenants as a complete group as landlords move to "less risky" investments in other areas.

Compare the solution presented in SB 329 to that of SB 521 which uses the carrot instead of the stick. SB 521 would offer tax credits as a lure for landlords to voluntarily enter the Section 8 program. The better the program becomes, the less of a carrot will need to be offered. Consider the trial being conducted in the State of Washington where there is an additional insurance risk pool at no cost to the landlord that will repair a property for any abuse beyond normal wear and tear. These are solutions that will encourage landlords to accept and take a chance on tenants with no assets to chase if their property is destroyed. It will also force the program to monetize its actual risk and bureaucratic costs as the tax credits and insurance costs necessary to attract more landlord participants will be measurable rather than simply telling the market to deal with it. The reality is that the market will respond to unacceptable risk and that response will hurt the rental space.

The bottom line is that there are really great consequences to Section 8. Landlords receive part of the rent on a guaranteed monthly check and the participant families can improve their environment which creates the "upward spiral" necessary to spark real change, especially for the children. There are ways to meet the end goal of increasing landlord participation in the program. However, as long as our current legislature keeps promoting these simplistic and poorly-thought bills, this situation will get much worse. We can fix this together, but your legislators in the California Assembly and Senate need to hear directly from you. Never underestimate the power of a single call!

NO ON 329!

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