Once again, I am baffled by lawmakers who think they can slice the same pie
different ways and get a bigger pie. That is not how it works. They can make different
sized pieces, but not more pie. I am referring to a couple of recent pronouncements
about how our president and various lawmakers plan to “fix” the housing market.

Shuffling Pieces Around 

     At the federal level, some are touting 50-year mortgages, as well as portable and
assumable loans.

     I’ve written about these before, but as a refresher, the idea behind 50-year
mortgages (as opposed to our current 30-year mortgages) is that the loan’s longer term
would reduce monthly payments, putting home ownership within reach of more people.
This would reduce the cost of purchasing a home in the short term, allowing developers
to sell houses at a higher prices, while buyers are able to make lower monthly
payments. This dynamic will add stock to the housing market.

     An assumable mortgage allows a home buyer to acquire the home seller’s loan,
presumably one that has a below-market interest rate. The key point here is that the
assumable mortgage is tied to the property, not the borrower.

     A portable mortgage benefits the seller. Instead of the loan staying with the
home, it is transferred to the new property when the borrower (owner) moves. These
two options could create movement in the housing market, but it’s shuffling the same
pieces around on the board—not creating new pieces.

     Another federal initiative, this one from the executive branch, is that we prevent
institutional investors from owning so many single-family homes. President Trump wants
more homes to be owner-occupied. While that’s a fine goal, unless we have more
houses for people to live in, we still have a housing shortage.

     At the state level, legislators have put forth Assembly Bill 1157—yet another rent
control law. This law would keep rents more affordable for those who already have
housing, but rent control damages the housing market overall. Happily, this bill was
killed in committee.

     Whenever I see legislation in favor of rent control, I want to offer everyone with a
vote a free class in basic economics. Anyone who knows the first thing about
economics knows that rent control is bad for everyone in the long term. Here’s why: the
larger the supply, the lower the price. Conversely, the smaller the supply, the higher the
price. If we artificially reduce the price investors can earn on their rentals through rent
control, the number of rentals on the market will decrease. This does not reduce the
number of people who need housing, however.

Creating Housing Supply Through Deregulation

     The fundamental principle for a robust housing market is creating more supply,
and the best way to do so is by removing regulations rather than adding them. More
regulation means more time delays, more risk mitigation costs, more building codes,
and fewer places to build because of zoning restrictions.

     If you’d like an example of what the housing market can do when regulators don’t
have a stranglehold, take a look at ADUs (Accessory Dwelling Units). They’ve been the
only part of the housing market experiencing significant growth in the last several years.
Sadly, AB1157 would have applied to ADUs, potentially stopping this growth.

     To be clear, I’m not against safety restrictions that make sense or legitimate
restrictions that limit housing when there simply isn’t the infrastructure or natural
resources to support it. I’m against regulations that don’t make any sense. If we let the
market forces run, they will limit growth where it doesn’t make sense. No water? No one
will build there.

     Many regulations create false barriers that prevent sensible development. Some
of my favorite examples include the fact that single-family homes now require sprinklers,
adding $3-$5 per square foot to construction costs. And the worst of it?

These sprinklers may cause more damage than fires they’re supposed to suppress, and they do nothing to address damage from wildfires.

     Years ago, I was chatting with a retired building inspector who estimated the
difference between building legally with all codes versus building to actual needs could
easily cost an additional $75,000 for a 2,000-square-foot home. And don’t get me
started on school development fees—the school district gets funds to cover the cost of
new schools each time a new house goes in. This is questionable, at best, when at least
two school have closed in the last ten years due to declining enrollment.

     Until government officials offer ways to increase the housing supply, they are
simply moving affordability from one group of people to another. They are not actually
fixing anything.

     If you have questions about property management or real estate, please contact
me at [email protected] or call (707) 462-4000. If you have an idea for a future
column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s
Bakery.

     Dick Selzer is a real estate broker who has been in the business for more than
45 years. The opinions expressed here are his and do not necessarily represent his
affiliated organizations.