BILL ANALYSIS Ó AB 2282 Page 1 Date of Hearing: May 18, 2016 ASSEMBLY COMMITTEE ON APPROPRIATIONS Lorena Gonzalez, Chair AB 2282 (Calderon) - As Amended April 25, 2016 ----------------------------------------------------------------- |Policy |Housing and Community |Vote:|4 - 2 | |Committee: |Development | | | | | | | | | | | | | |-------------+-------------------------------+-----+-------------| | |Banking and Finance | |7 - 4 | | | | | | | | | | | ----------------------------------------------------------------- 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. AB 2282 Page 2 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 AB 2282 Page 3 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." AB 2282 Page 4 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 AB 2282 Page 5 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