I've been harping on CA's condo preconstruction/presale deposit problem for a while now. CA doesn't build condos mostly because CA state civil code essentially limits forfeitable preconstruction/presale deposits to 3% of sales price as liquidated damages. 3% is wholly inadequate when a buyer cancels a purchase contract. To keep anything above 3% the developer has a duty to mitigate and must prove damages. Developers have no appetite for protracted, costly and uncertain litigation, especially in CA which is the most consumer friendly state in the country. More importantly debt and equity capital won't accept CA's preconstruction/presale deposit regime incl need to litigate to prove damages. And without capital condo projects can't be built. Contrast CA with places like FL, NYC and Chicago that allow deposits and terms set by the market. In these places deposits in the 25%-30% and more are the norm. And as a result debt and equity capital feel their downside is mitigated and therefore these places build a lot of condos. The demand for condos in LA, SF and SD is certainly equal to FL, NYC and Chi. But condos aren't being built in our CA cities. The problem is our preconstruction/presale deposit law. For a good size condo projects debt and equity capital require pre-construction presales with 25%-30% forfeitable deposits or they won't lend/invest and therefore no project gets built. CA doesn't allow this, ergo no condos. I've spoken about this at length with @BuffyWicks including as recently as a couple weeks ago. Buffy absolutely gets it and wants to address the issue along with construction defect reform. The challenge is that way too many of our legislators are morons and intellectually dishonest. Getting to a legislative majority on presale deposit reform will be difficult. Many/most legislators will choose sound-bite politics and rail about how they will be protecting CA consumers by keeping forfeitable preconstruction/presale deposits at the 3% or maybe 6% level (still wholly inadequate). In reality they'll be killing off future potential condo projects to the detriment of consumers.

SEIU on SEIU violence! And I'm so here for it. SEIU is not a monolith. There are 17 individual SEIU locals. Only one SEIU local proposed and backed the billionaires tax: SEIU-UHW (United Healthcare Workers West) Notably, the other 16 SEIU locals do not support it and worked behind the scene to get UHW to drop it. Dave Regan is Pres of UHW. He is: -Dumber than dirt -A thug -Dumber than dirt Happy reading: latimes.com/california/story…

I regularly post that LA governance is more broken than any large city in the US. There's no fixing this city. All we can do is enjoy the comedy and laugh.

Minneapolis Fed researchers propose HPOP, a person-based homeownership measure, finding the real U.S. rate is 53%, not 65%. It reveals young adults own homes far less than reported—22% under 35, not 37%—and shows high-cost states like HI and CA have the biggest gaps.

Great article and great affordable housing model. (We use the same financing model with private gap money.) In addition to the other benefits described in the the article, funding the gap privately allows project to be constructed using open shop trades vs PW/union trades when govt money is used (CA state law). This alone saves 25%-30% on construction costs.

And the Housing Committee will be re-named as the No-Housing Committee

Well who'd a thunk it. Weasel words like "Pipeline", "Unlocked" and "Accelerated" haven't resulted in much actual housing. LA new construction as a % of existing inventory is pathetic. Karen Bass has arguably been the worst Mayor for housing in LA's history.

Everyone talking about the thing without talking about the thing... Exclusionary zoning is a classist, racist and discriminatory fictitious construct and is the only thing that stands between what we have now and the possibility of having a more relatively affordable housing... No amount of rent control, deportation, tax reform, streamlined permitting, "lower construction costs", single stair reform or floor plan optimization can negate it...

fixed it for ya

In addition to market rate developers, affordable housing developers are also frozen out of AB179 if our projects do not take state money. (We're penalized for being better lol.) California should be promoting and incentivizing less costly affordable housing projects that get developed without the use of state money vs more costly affordable projects that do require (scarce and finite) state money. But AB179 gets it completely backwards. AB179 provides impact fee relief for the less desirable set of affordable projects that require state funding, but not for the more desirable and cost effective set of affordable projects that don't require state funding. Why? Because construction unions have had a vice grip on our Sacramento legislators and our Governor. Unions run the show in CA. How does it work? Projects that require/take state money must utilize prevailing wage i.e. union construction, and AB179 provides impact fee relief to help these projects get built. These fall into the category of the $1 million/unit projects that we all bemoan. They cost $1 million/unit mostly because the cost of construction is 30% higher than non union construction. AB179 perversely incentivizes these expensive affordable projects. Those of us who build affordable housing without needing/using state money build at a fraction of that cost because we build with non-union construction. Ours are the more financially efficient affordable housing projects that should receive AB179 relief to further incentivize development. But they don't. Because we don't build using union labor we are therefore shut out of AB179 relief. We need to move to housing production policies in CA that values and incentivizes projects that create (a) the most amount of housing units for (b) the lowest cost per unit (on an equal basis) that (c) allows the most housing to be built for a given dollar of public subsidy. Right now we do the opposite. We allocate the most amount of money and incentives to projects that cost the highest amount of money per unit. We have to decide to put the interests of Californians in need of affordable housing above the interests of union construction trades. Right now CA's housing production laws are too frequently union jobs programs rather than cost efficient housing programs.

This particular ULA cause and effect was well known prior to this past June when transfer tax reform went down in flames. Many of us sounded the alarm. The transfer tax money generated by ULA is mostly offset by the money lost by property tax revenue decline. The empirically proven decline in property sales in LA has and continues to have the effect of preventing property tax assessment resets that grow the property tax base, which erodes annual property tax revenues. Well run cities like SF have reduced transfer taxes. LA, being the dumbest city in California, left ULA unchanged.

The slow approval process for CA Forever wasn't the driver of Saronic's decision to choose the Port of Brownsville location in spite of claims to the contrary. The real pivot point in the negotiations was the union requirement (both constructing the shipyard and building the ships) attached to California Forever vs complete non-union in Texas The son of one my best friends is on Gov Abbott's staff and was part of the TX process. His words: -California Forever was never a serious choice for Saronic and was only used as leverage to negotiate the the best deal in TX. Saronic never really considered doing their shipyard in CA. TX knew CA Forever was a bluff card. -Port of Brownsville shipyard will be built with non-union construction labor at a much lower cost than a union shipyard at CA Forever -Actual ship building at the Port of Brownsville will be done with non-union labor at a far lower cost whereas California Forever would have required a union ship builder workforce At the end of the day there was a massive difference in construction and ship building costs between Port of Brownsville and CA Forever and it made TX the clear choice for Saronic Had CA gotten the approvals in place timely it would not have changed Saronic's ultimate decision. CA Forever is/was significantly non-competitive from a cost perspective and that drove the decision.

Worth reading.

Hope AB 1903 moves forward as well because it's good legislation, but labeling construction defect litigation as the primary gating issue for condos developers is something the non-builder community believes. Builders know it isn't so. Construction defect litigation has and can be easily addressed by: (a) condo OCIP, (b) using an SPE, and (c) reserving 2% of condo sales as "adequate minimum capitalization" for the SPE. I know this from personal experience. I built condo projects during the '00s, got sued, gave up my 2% reserves/maintained our SPE corporate veil, and tendered the legal case to my OCIP carrier. I sat for one deposition. That was it. All in all pretty painless. Again AB 1903 is good legislation and it will help at the margin, but it hasn't been the primary gating issue for condo development This why condo development won't increase after the bill is passed. The bigger issue by far is: -CA's unworkable pre-sale deposit law. CA law has limited forfeit-able pre-sale deposits to 3% of purchase price and even that small amount needs to be litigated which developers don't bother with given the minimal dollars. CA legislature looks like they will allow 6% deposits going forward, a step in the right direction, but far short of what's necessary. Cities like NYC, Miami, Chi, etc that build a lot of condos have no government limitation on pre-sale deposits. 25%-30% deposits are the norm in these markets. Developers and their lenders and investors generally need a building to be 40%-50% pre-sold in order for the project financing to go forward. Fannie/Freddy won't even buy loans so that individual buyers can finance their unit purchases without 50% pre-sales. A legal regime as currently exists in CA that allows buyers to easily walk away from their purchase contracts owing to insubstantial (and often time fully refundable) deposits doesn't come close to working. Hence condo projects don't get built in CA. AB 1903 won't change this. Also of note, condos don't pencil financially unfortunately. Per sq ft sales prices that people are willing to pay for condos in urban CA don't support per sq ft condo development costs. Conclusion: AB1903 solves the more minor issue with condo development, but the largest issue remains unaddressed.

"Houston is green [lots of kids] nearly to its core, w/ family-heavy neighborhoods sitting close to downtown. Los Angeles is mostly orange/tan [no/few kids], its children pushed into a handful of pockets.. both sprawling Sun Belt metros, yet one is visibly a place that raises children & the other, increasingly, is not."

All of these companies are based in LA County except one based in Huntington Bch We've become the leader in Hard Tech

Here is the HJTA “deal” to withdraw TPA. It hangs everyone who cares about transfer tax relief out to dry - including the primary funders of TPA!

Things are still in flux, but the compromise being discussed by the Gov office/state legislature and Jarvis will be the worst of all possible outcomes if it goes forward. As things currently sit the comprise would not include transfer tax relief in any form. Transfer tax relief is getting left out as the result of the bldg trades putting pressure on Bass and our chickensh*t LA delegation. The LA delegation is not willing to buck labor and allow for rational transfer tax relief. The consequence is that housing production in LA, SM, etc that have 5.5% transfer taxes will remain f'ed The conclusion is now inescapable. We will never build sufficient housing until and unless we elect politicians who are not beholden to labor. Labor is the enemy of housing production and affordability. Multi-family housing simply does not pencil at prevailing wage/union rates. The bldg trades attitude is that if they don't build the housing in CA (which they never will) then no one is going to build housing in CA.

The only way we get TTs reduced legislatively to a 1.5% cap is if Jarvis pulls their ballot measure. (Up to 3% in a handful of NoCal cities who use TTs for general fund purposes as opposed to special tax purposes like ULA and GS.) That's the quid pro quo. Pull Jarvis and we'd all get legislative relief at a 1.5% cap. Don't pull Jarvis and there will be no legislative cap. And legislative relief would take effect Jan 1, 2027 whereas Jarvis relief would not kick in until Dec 31, 2028 Jarvis is speculative. No assurance it will pass. Whereas legislative relief is certain if Jarvis gets pulled. Polling is not favorable for them although Jarvis is claiming otherwise. For those of us in the business it's far better to take the bird in hand with legislative relief than roll the dice on Jarvis.