With the key economic indicators showing a steady improvement, it’s time to focus on building for the future of Californians. GDP growth projections are hovering around 4%, consumer confidence is high, and the market is up – which is good for all our retirement accounts. Banks are lending, businesses are hanging up their “Now Hiring” signs and new opportunities abound.
But the good news is tempered with real challenges we face in California; challenges that need to be addressed by our local, state and federal governments in the very near future.
For most Americans, homeownership is the primary path to growing personal wealth. The monthly mortgage payment provides a roof over a family’s heads, it builds equity and offers an investment in the future. Homeownership also creates safer neighborhoods, with neighbors having a vested interest in the health of their community. But homeownership is threatened in California today.
First, California faces a shortage in housing – more than one million units statewide by most credible estimates. During the recession years, new construction of single-family homes, condos and apartments came to a halt. For a variety of reasons, there hasn’t been enough construction in recent years to make up for that loss. That means that there simply aren’t enough homes for people who want to purchase them, and it’s resulted in single-family homes being used as impromptu dormitories. The solution is simple: we need more and a variety of housing units – moving inward, out and up to meet different demands.
Second, some cities in California have adopted archaic rent control policies that threaten housing in general. Higher rents are a result of supply and demand. Today in California, we don’t have enough rental units to meet the demand. Rent control policies further the problem – rental units won’t be built in an environment where rent control is threatened, and rental units will be taken out of stock if those property owners can’t make a profit.
Third, the Mortgage Interest Deduction is a critical component of housing affordability, and its elimination is being discussed in Washington. Losing this deduction as part of the equation will make homeownership out of reach of a significant number of Americans.
Finally, as Baby Boomers enter the retirement years, the traditional path to downsizing is blocked by the threat of dramatic increases in their property taxes. Current rules allow a one-time move after the age of 55 while protecting their existing tax basis – if they move within the same county, or to only a handful of counties in California that allow them to carry their tax basis with them. Many boomers are ready to make a move closer to family and to smaller, more manageable housing – freeing larger, single-family homes for growing families – but they can’t afford the tax hike that comes with it.
Here’s the thing; California’s unique combination of mild weather and innovation continue to make the state a desirable place to live, to raise a family and retire. An investment in real estate – and homeownership – remains a stable investment over the long-haul. It falls on all of us to speak up, to protect homeownership and private property rights by making our voices heard in the halls of government. Working together, the future of real estate in California is very bright indeed.