BILL ANALYSIS Ó
AB 2282
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Date of Hearing: May 18, 2016
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Lorena Gonzalez, Chair
AB
2282 (Calderon) - As Amended April 25, 2016
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|Policy |Housing and Community |Vote:|4 - 2 |
|Committee: |Development | | |
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| |Banking and Finance | |7 - 4 |
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Urgency: No State Mandated Local Program: NoReimbursable: No
SUMMARY: This bill restricts the activities, and requires
registration of large-scale buy-to-rent investors, as defined.
Specifically, this bill:
1)Requires the Department of Business Oversight (DBO) in
conjunction with assistance that may be offered by county
recorders to design and implement a registration program for
the purpose of registering and monitoring large-scale
buy-to-rent investors.
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2)Prohibits a large-scale buy-to-rent investor from placing a
bid on a normal sale of a single-family home for a period of
not less than 15 days.
3)Requires DBO to consider methods to require 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)Mandates that DBO, on or before January 1, 2018 submit to the
Governor and the Legislature a report that includes 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 and 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, the length of time large-scale buy-to-rent
investors are holding their property as a rental; and, how
many homes large-scale buy-to-rent investors are selling
each year.
FISCAL EFFECT:
1)Total costs to DBO of $3.9 million (special fund/GF) in the
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first year to design and implement a registration program and
to prepare and submit the required report.
2)Ongoing costs to DBO of $798,000 (special fund/GF) to maintain
and monitor the registration program and other activities of
large-scale buy-to-rent investors in California.
COMMENTS:
1)Purpose. 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 for 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. By having this
new type of investor in the single-family home market,
families must now not only compete against their more
financially secure community members, but multiple, large
hedge fund companies who have millions of dollars of cash on
hand to outbid them."
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2)Background. In the aftermath of the financial crisis and Great
Recession, the supply of vacant homes far exceeded the demand
for owner-occupied homes. This severe imbalance created a
unique opportunity for a small number of well-funded investors
to purchase large numbers of single-family homes. 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.
Some analysts predict the funding of single-family rental
acquisitions through securitization will likely become a
dominant model quickly, and thus, continue to shrink the
already short supply of homes. One institutional investor,
Blackstone, has already become the largest single-family home
owner in the country. According to Department of Finance,
California has a little over nine million single family homes.
The estimated portfolio of homes turned to rentals owned by
Invitation Homes, a subsidiary of Blackstone is around
10,000-12,000 in in California.
When rent-backed securities premiered on the market in October
2013, the $479 million offering from the private equity giant
Blackstone Group generated more demand from investors than the
private equity firm could accommodate. Since then, Blackstone
and several other firms specializing in the rental of
single-family homes have sold more than $3 billion of these
bonds. This type of securitization has been hailed as an
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exciting new asset class, with financial analysts at Keefe,
Bruyette & Woods estimating that it could swell into a nearly
$1 trillion industry over the next six years.
3)Arguments in Opposition. The Blackstone Group, writes in
opposition, " We do not believe the proposed delay of a newly
defined class of homebuyers from entering into legal home
sales contracts in favor of other classes of buyers will be an
effective tool to increase the rates of owner-occupied homes.
In today's housing market, multiple types of cash buyers are
operating in the marketplace and temporarily sidelining one
class of buyer will not necessarily reduce cash home purchase
offers. It is also unclear the 15-day delay is consistent with
the protections contained in the United States Constitution."
Analysis Prepared by:Jennifer Swenson / APPR. / (916)
319-2081