On May 9, state Senators Ben Allen and Scott Wiener (pictured) and Santa Monica Mayor Gleam Davis led a town hall on solutions to California’s housing crisis and SB 50 (authored by Wiener). Struck by an apparent lack of evidence to support the approach of the upzoning bill and wanting answers to practical policy questions raised by the mandate, Hydee Feldstein, a retired bankruptcy and commercial finance lawyer who now serves as vice president and co-chair of the Land Use Committee of the P.I.C.O. Neighborhood Council, penned an open letter to Senator Wiener identifying alarming, and legally well-crafted, pocket-lining loopholes that she believes would permanently impact, if enacted, communities across California. She asserts: “SB 50 harms existing residents and favors the intrusion of nameless, faceless capital into our homes, whether owned or rented.” Feldstein notes in the letter that Senator Allen listened and responded to constituent concerns raised at the town hall with his commitment to oppose SB 50, unlike Senator Wiener, who left the town hall after sharing his talking points.
Dear Senator Wiener,
My approach to SB 50 is based on respect and on the assumption that we are both acting in good faith. However, I believe the impetus behind SB 50 seeks to maximize real estate investment capital in California. SB 50 treads heavily on California’s social and financial future and provides rocket fuel to speculative real estate and financial markets—the same markets that boomed and then crashed so badly in or prior to 2007-2008.
Intended & Unintended Impacts of SB 50
Hours have been spent digesting the complex provisions of SB 50. It is doubtful that legislators and analysts understand the impact and unintended consequences. The inescapable conclusion is that SB 50 is not about affordable housing at all, but about providing scale, standardization and certainty to securitizations and financial markets. To the extent that SB 50 is about housing supply, its provisions are designed to maximize the creation of housing supply that is inventory-bound for global capital markets and to minimize the type of housing supply that is the result of good planning and socially-functional residential neighborhoods.
Home ownership represents the vast bulk of what wealth is left for working and middle class homeowners and is the most common wealth creation entry point for working and middle class individuals and families, particularly those of color. Homeownership, tenancy, and small landlord wealth creation are the pocket that global capital wants to appropriate for itself and there is no question in my mind that is what SB 50 (as well as other bills like SB 330 and AB 1485) accomplishes.
Losers Under SB 50 As Currently Drafted:
Tenants and individual landlords also stand to lose under SB 50. By its terms, SB 50 claims to exempt rental property for a long lookback period, but the information database necessary to enforce these provisions does not exist. Even if it did, what about structures developed within the relevant period of time and held as vacant land? There is no timeframe for the demolition of structures to convert the parcel into vacant land, and that is a big loophole.
Small or individual landlords (like me currently) often rely on rental income to live and, out of sheer economic necessity, are responsive to the normal supply and demand fluctuations in the housing markets. In a down market, like the one we experienced in 2008-2011, “mom and pop” landlords necessarily lowered rents in response to vacancies. The development, securities, and securitization markets have no such constraint. Rents for new developments remain stubbornly high and occupancy rates consistently low, often for years after completion when rental rates are determined by the yield and cash flow promised to investors.
These markets have deep pockets and patient capital, so unlike an individual owner facing mortgage, tax, and insurance payments, as well as the need to fund living expenses, REITS and securitizations create units that will sit on the market until they attract the high rentals promised to investors or until they are washed out by a crash and emerge on the other side of Chapter 11 bankruptcy proceedings, reorganized or sold, but still in the hands of investment capital.
Our differing perspectives may originate from our different work experiences. I spent at least 25 years of my 30-year career practicing law in the financial markets (both as a boom-period banking, finance and financial markets lawyer and as a bust-period business, finance and financial markets bankruptcy lawyer).
My intent is NOT to attack you personally or ascribe bad motives to your persistent support of these types of bills. It is possible that you have been persuaded and hold the honest belief that more housing supply of any type is a way to fix the homelessness crisis or the housing shortage. But I am writing to make a public plea to you, 120 legislators, and Governor Newsom to recognize that SB 50 is not a path out of a housing or homelessness crisis at all. Indeed, it would result in massive displacement, create greater wealth disparity, and build zoned housing that is increasingly segregated by economic class, social standing, wealth, and creditworthiness.
Apparent Impetus Behind SB 50:
Providing incentives to capital-starved areas has often been a tool of, but never should be a substitute for good planning. SB 50 removes local control and any planning function entirely even though we are have no lack of capital seeking yield, leaving our homes at risk to investment markets—the same markets that boomed and then crashed so badly in or prior to 2007-2008—from timeshares to the zombie CDO mortgage lenders to what I have been informed is a more recent investment product, particularly attractive to investors in China: the NBO (Never Been Occupied vacant units intended to stay vacant as inventory held for resale or rental but only after appreciation targets are met. The vacant unit dynamic is playing out in the purchase of market rate starter units as in Houston and in the drama of the still half-vacant billionaires row in New York City).
Most of the provisions and amendments in SB 50 are industry-driven. By omission, the bill would permit single-family McMansions and compounds on lots zoned for single-family and duplex residences*. Citizens have a hard time believing Sacramento could possibly do something like this: eliminate density and otherwise upzone a low-density parcel, but not require a single unit of additional housing, encouraging McMansions and luxury, out-of-scale townhouses or rowhouses without any additional housing and without any affordability component. If you do nothing else, please amend SB 50 to ensure that no development is eligible for its entitlements unless the development at least doubles the housing supply that it replaces or for which a parcel is zoned.
This is investor-driven and adds nothing to housing supply of any type. A bigger single-family house, for example, on a lot that used to have a duplex actually reduces housing supply, but maximizes the mortgage loan dollars that can be syndicated or securitized.At a bare minimum, SB 50 should ONLY apply to multifamily residential housing, and must exclude any single-family neighborhood project or single-family housing development to ensure there is an increase in housing supply in exchange for SB 50’s density entitlements… (more)