BILL ANALYSIS Ó
AB 2282
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Date of Hearing: April 13, 2016
ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT
David Chiu, Chair
AB 2282
(Calderon) - As Amended April 12, 2016
SUBJECT: Rental housing: large-scale buy-to-rent investors:
data collection
SUMMARY: Requires the Department of Business Oversight (DBO) to
collect data about large-scale buy-to-rent investors and
prohibits a homeowner from selling their home to a buy-to-rent
investors for 90 days when the home is not a short sale or a
foreclosure. Specifically, this bill:
1)Includes the following statement of intent:
"It is the intent of the Legislature in enacting this
provision to monitor the investment activities of
large-scale buy-to-rent investors in the State of
California that have, since October 2013, designed a
mortgage-based security supported by the revenue from
single-family rental properties.
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The emergence of this type of security is likely to grow
and scale institutionally owned single-family rental homes
to a level that is, at this time, unknown. However, with
home prices currently approaching record highs, yet with
homeownership at historic lows, it is important to
understand the size and scope of investor activity of
single-family homes and the impacts it has on the real
estate market in California.
It is in the best interest of the State of California to
limit the amount of single-family homes that large-scale
buy-to-tent investors can own in our neighborhoods and
communities. Furthermore, we must protect against the
potential displacement of persons residing in single-family
home rentals that is harmful not only to the persons
displaced by these practices but also to the entire
community in which those persons reside.
Large-scale buy-to-rent investors own more single-family
homes than any other population in the United States, a
market once dominated by local, private owners.
Limiting the activity of large-scale buy-to-rent investors
can have a positive impact on the housing market by
providing a greater supply of homes to individual buyers,
protect the real estate market from large fluctuations in
home prices, create a stronger sense of community in our
neighborhoods, and defend the American dream of becoming a
homeowner."
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2)Requires the DBO with any assistance that may be provided by
the county recorders to design and implement a registration
program for the purpose of registering and monitoring
large-scale buy-to-rent investors and analyzing the impacts
they are having on the state's real estate market.
3)Requires DBO to consider methods to require large-scale
buy-to-rent investors to renew registration of their rental
property on an annual basis including new and current
single-family home rentals that they own or in which they have
invested.
4)Requires DBO, on or before January 1, 2018, to submit to the
Governor and the Legislature a report that includes but is not
limited to the following:
a) Information regarding how many large-scale buy-to-rent
investors own property in the state for the purpose of
renting the property and which regions of the state their
investment activity is occurring;
b) The number of single-family homes each large-scale
buy-to-rent investor owns;
c) An analysis of the potential impacts their investments
are having on the local real estate market, including the
price of homes, the ability of individual home buyers,
specifically those who need financing, to compete against
the large-scale buy-to-rent investors;
d) The length of time large-scale buy-to-rent investors are
holding their property as a rental; and
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e) How many homes large-scale buy-to-rent investors are
selling each year.
1)Prohibits a large-scale buy-to-rent investor from placing a
bid on a normal sale of single-family home that is not a short
sale, foreclosure sale, or real estate owned property for a
period of no less than 90 days after the home has been placed
on the real estate market.
2)Defines a "large-scale buy-to-rent investor" to mean a
publically traded company devoted to holding and managing
single-family home rental properties, either on behalf of
clients or for itself, and which owns more than 10
single-family homes during a calendar year.
3)Repeals or makes the reporting requirement in this bill
inoperative four years after the bill is enacted or four years
after the due date of the report.
4)Requires the report created by DBO to be submitted to the
Secretary of the Senate, Chief Clerk of the Assembly, and
Legislative Counsel.
EXISTING LAW:
FISCAL EFFECT: Unknown
COMMENTS:
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During the foreclosure crisis companies like Blackstone
purchased homes in foreclosure or short sales. These companies
rent these homes and securitize the rental income. According to
their representative, Blackstone owns 10,000 to 12,000 rental
homes in California. Blackstone is buying homes in conventional
sales and their rate of home acquisition is about 300 per month
nationwide. It is not clear how many of that 300 are in
California.
This bill would require DBO to develop and implement a
registration program to register and monitor large-scale
buy-to-rent investors. Large-scale buy-to-rent investors are
defined as publicly traded companies devoted to holding and
managing single-family home rental properties and that own more
than 10 single family homes during the calendar year. A year
after registering these companies, DBO would be required to
submit a report to the Governor and Legislature that describes
how many large-scale buy-to-rent investors there are in the
state, how many properties they own and where they are located.
DBO would need to determine the impact of these companies on
homebuyers, specifically those who would need a mortgage and are
not paying cash for a home, to compete against the large scale
by to rent investors.
This bill would also prevent a large-scale buy-to-rent investor
from bidding on a home sale that is not a short sale or a
foreclosure for at least 90 days from the time the home is
placed on the market.
Purpose of this bill : According to the author, "over the last
few years, institutional investors, such as Blackstone, have
bought up billions of dollars-worth of single-family homes.
Instead of renovating and reselling them or just waiting
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or the real estate market to recover, they have converted these
properties into permanent rental homes. Of the five largest
metropolitan areas in the U S where concentration of this
type of investment is highest, three of them reside in
California: Los Angeles, Riverside, and Sacramento. At the
time, the vast majority of these purchases were foreclosures or
short sales; however, purchases of homes coming from natural
sales have recently increased. The CEO of Colony American
Homes, which is one of the largest single-family landlords in
the country, said it himself "the first phase was distressed
homes, the second phase is acquiring homes in a more regular
way."
In October 2013, an institutional investor created the first
triple-A-rated, mortgage? backed security supported by revenue
from single-family rental properties. The emergence of a new
form of mortgage-backed securities tied to single-family rentals
is certain to have an impact on the housing market, communities,
and tenants. A mortgage-backed security is created by pooling
assets together and then selling interests in that pool to
investors, who then receive regular payments from the asset
pool. This process provides access to a much larger pool of
investors than would otherwise be feasible, increasing liquidity
and generally providing a less expensive source of funding than
traditional borrowing from banks or private investors.
While institutional investors only represent a fraction of those
in the housing market - midsized companies and small mom-and-pop
investors who own less than 10 properties have historically been
far more prevalent in most markets -securitization is likely to
shift this balance. That being said, one institutional investor,
Blackstone, has already become the largest single-family home
owner in the country. In fact, some analysts predict the funding
of single-family rental acquisitions through securitization will
likely become a dominant model quickly, and thus, continuing to
shrink the already short supply of homes?..Families already have
a difficult time trying to save up enough money for a down
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payment, having to compete against an institutional investor who
has the financial backing of big banks and pension funds, just
isn't fair from both a monetary standpoint and technological."
Arguments in opposition: According to the California Apartment
Association, "during our recent foreclosure crises in which
millions of single family homes throughout the United States
were foreclosed upon, some large scale organizations did, in
fact, purchase distressed properties in California; they made
extensive repairs to them and offered them for rent. If not for
the investment of these companies, many of these homes would
still remain vacant, boarded up, and deteriorating, exposing
them to trespassers, squatters, and graffiti, endangering our
neighborhoods. By putting these homes back on the market for
rent, these companies have helped to alleviate our lack of
available housing in California and have supported the housing
recovery in the areas where they have purchased. Rental
companies bought these homes because there was a limited ability
for individuals and families to buy them given the tightening of
credit after the crises. In a study by members of the Federal
Reserve of Governors, they report that, "Despite the large
amount of attention that these purchases have attracted, we find
that buy-to-rent investors have been a very small share of the
aggregate market, comprising 1 to 2 percent of all single-family
purchases from 2012 to 2014. In contrast, purchases by other
investors accounted for 18 to 19 percent of single-family home
purchases during the same period." They further noted that ". .
. this activity also increased the supply of high-quality rental
housing, which may benefit a different segment of the population
by providing households a way to live in single-family housing
and neighborhoods, even if they cannot obtain a mortgage."
Policy considerations:
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Many factors are contributing to the affordable housing crisis
facing the state. Lack of new housing stock affordable to buyers
is driving up the cost of the existing stock. Many older
California's who are ready to downsize and move out of their
suburban homes, making them available to first time buyers and
families, are remaining in their homes because of a lack of
appropriate housing stock that meets their needs.
This bill would limit a homeowners' ability to sell their home
within the first 90 days by eliminating a potential purchaser -
a publicly traded company that owns more than 10 rental
properties. Does the current situation warrant or support the
legislature's action to prevent a homeowner from contracting to
sell their home to a qualified buyer?
The committee may wish to consider as a first step, prior to
limiting a homeowners ability to sell their home to a qualified
buyer, requiring DBO to complete the study required by the bill.
Double referred : If AB 2282 passes this committee, the bill
will be referred to the Committee on Banking and Finance.
REGISTERED SUPPORT / OPPOSITION:
Support
None on File
AB 2282
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Opposition
California Apartment Association
Analysis Prepared by:Lisa Engel / H. & C.D. / (961) 319-2085,
Lisa Engel / H. & C.D. / (916) 319-2085