KGCI: Real Estate on Air - Can We Solve Homelessness If We Spend More Money?

Episode Date: July 10, 2024

Hi, Bill Grouse. Welcome to my weekly real estate market update. One of the reasons that governments never improve because those in charge of our system are never held to account. And it's simple to say, well, it doesn't really affect me. But increasingly, particularly Los Angeles, the homeless situation is affecting all of us. Last year, we had a new tax added on that cost 4% for all homes sold $5 million and up, and 5.5% for homes, $10 million and up. That was homes, that was apartment buildings, that was commercial retail buildings. And you know, obviously, once the city officials have the mechanism or his taxes, they can just lower that number, add more percentages. The tradition's been said, so to speak. And this was all done to help eradicate homelessness,

which is also affecting real estate, and then it depresses values where the homeless accountments are. So at some point, this problem either has to get solved or if we give up, we need to know that and there'll be long-term native consequences. How are we doing on that front? Well, we're going to get into that in detail. But before we get into the specifics of homeless, let's take a look at the real estate market overall and where we are. In any economy, there's always two things, buyers and sellers is demand and supply. Buyers and demand is usually measured by interest rates in real estate. And interest rates have recently inched up slightly, where it's 6.99, last week, 7.02 this week, not a significant change.

If you look at the graph, we're about the same we've been in all year long, slightly above last year's numbers, slightly below the second half of the year. So we're in the same range that's still creating very good demand for more buyers coming in. I have to say, at every property you have, I have multiple offers, I have multiple parties who are interested in buying those properties. On the demand side, I'm sorry, on the supply side, is a number of houses for sale. And that continues to be above last year. I would save about 10%.

We had 460,000 homes for sale last year, 523 now. These are the only two years above the COVID years slightly, but below any other non-pandemic year in history. So by historical standards, even with an increased population, our inventory is by historic standards low. It's about the same as last year. And you can see that inventory is maintaining or declining still, whereas last year is roughing up a bit.

So overall, there's not too many houses. As long as there's not too many houses, you can't have price drops because sellers won't be competing on those prices by lowering them. That's not going to happen at least any time soon. Now, overall, in the market, because real estate is local. I showed you where national statistics are here locally in L.A. The market is a 42 by Alto's research standards. Houtis does a really good job of analyzing all these figures and creating. a market action number. And 42 on their chart is a seller's market. It's not as intense as it was

in the past, but it's the same as last month. And so overall, we're in the range of where we're in a seller's market, but not so intense that it's a frenzy like it was maybe a year or two ago. So right now, based on the market, it's continuing along the same way. So let's take a look at the news, one of the things we'll look at, create some context overall. How are we doing the news? Here's a news flash. I think I'm not sure how you guys feel about this, but Mayor Bass says she no longer thinks our metro is safe. Now, that's interesting. If the metro is not safe because we've had so many real estate developments based on metro stations. We have condos and apartment buildings centered around major new stations being built here in West L.A. area. So if the metro is not safe, you're going to

have all this real estate developed with no place for people to travel because they weren't built with a traditional number of parking spaces and they were designed with the traffic patterns in mind. They were really built for people to be able jump on a bus and go to downtown or the west side. And so this is a big news. In fact, just a year ago, she had said in the state of the union address that her number one job as mayor is to keep Angelina safe. And clearly, while there's a lot of numbers of propaganda, there have been in last couple weeks some very, very widely reported beatings, killings on the metro. And so what she's doing to combat this is pulling LAPD officers off of the rest of the jobs

onto the metro. But of course, that would mean less LAPD officers on the streets, which will cause problems there. So what we're going to see is this crime issue, which is the issue that causes, I think most people who are moving out of L.A. to move out and affects their values negatively, is getting more and more acute and it does not seem to have any particular solution in the near-term futures. It looked like, you know, from where I said. Next in the news, L.A. County, now this was fascinating to me. L.A. County rolled out a second phase of a program called the

rent relief program for landlords. And here's a case where after rent control and giving tenants free rent during COVID and siding with the tenants and giving them more legal services for free and basically making it impossible to be a landlord in L.A. without extreme, extreme care and caution. They're actually going to give out some money to these landlords they've helped identify as problems. Now, it's interesting to note they're only offering this to small mama pop landlords, not to larger landlords, which means we're going to continue to drive away large institutional landlords from our properties in Los Angeles. Also, I notice when you look at the application, application is open May 20th and closed June 4th,

and you've got a Memorial Day weekend in there somehow. So they allow you to sign up for this program as long as you hit the mark there within a week or two-week period. And at the end of the day, I'm sure this will not create but a small ripple in the overall problems that landlords have in Los Angeles, just making things difficult. Okay. So also the news is LA City Council backs a plan to double sewer fees.

And this isn't a big deal. But I think it's an important piece of news in that for somebody like me in my house, I have a standard three-bedroom house in the west of Los Angeles. The cost for sewage is going to go up maybe $50, $100 a month is going to double. Not the whole DWP water bill. That will double later, but just the sewage part of it. But what's fascinating is that it's just another indication. The problem isn't that housing has gone up and done.

doubled. Everything's gone up. You know, food's gone up, cars are gone up, clothes are gone up, even sewage. And what you put in sewage is going up in price. And so this is why overall, the problem we need to be focusing on is not the symptoms. It's the cause, which is inflation and government regulations. Going through the news, this week's episode of Bad News of the week, misleading news, Fortune magazine, one of the worst sources of information, as far as real estate news, I think. They have an article this week called, because investors are scooping up one in five homes and making more money than ever doing it. So a couple of things I would just point out here. One is, it's interesting how investors scoop up homes, right? Fortune magazine has become a

political mouthpiece and every article is designed to further their political perspective. And investors are bad and tenants are good is the narrative here. And it's always investors put in negative light. So they're scooping up as opposed to, in my experience, investors are buying homes from homeowners that are getting cashed out that otherwise would have difficulty getting in their homes sold. Number one. Number two, the truth is the investor portion, if you read this article, you might think it's gone up dramatically. It's about the same. It's always been slightly under 20%, about one and five. It's very rarely been more than that, very rarely been less than that. And so it's really a missing article there.

But more importantly, it says making more money than ever. Well, think about it or make more money than before. Think about it. Everything's got a price. Everything's doubled. Big Macs have doubled. Sewage prices have doubled. What's that has a reason that house's prices have doubled that the investors would make more on each time that they buy property and flip it and sell it?

And the truth is, while their sales price has gone up and their probably gross margins with a sell a property property property after buying it has certainly increased dramatically, so have their costs. And the net margins have really gone down. I can just tell you, I have a number of investors who are struggling because while costs have gone up a lot, the margin, the amount of the money they make per house has not gone up as much. And then they have higher risk. And this is where people get into trouble.

They buy a property thinking they have a small, thin profit, and then they get into it and then try to hold on to get the price they want for it as prices drop. And that's where the problems cause. So again, I just think that article is misleading, making investors look bad. I don't think there's any reason why they're bad. And also that they're making more money than ever. It really is not a true story. Actually, the opposite is a true story. Okay.

So this week we're going to talk about the state of California. stated goal of eliminating homelessness. We had a proposition of the balance raising billions of dollars. We had a taxed in city of LA last year, raising millions, if not billions of dollars they were hoped for. So how is the state of California doing these projects? Well, let's just say overall, the state's record for major project success is not doing so good.

In fact, I would say overall, we're failing miserably. We were actually mocked nationally recently by, in this case, in New York Post, that were being mocked over a high-speed rail bridge to nowhere. And the newspaper kind of, I think, falsely overstated this piece of concrete, which is part of the project, this is a overpass over the viaduct, as if it cost $11 billion. The truth is it's only, it's about 1,600 feet, but a quarter mile.

Nobody's even one to say how much it really does cost. The state goes, oh, that's a lie. really we had 35 projects in the Fresno area near this project and together they only cost two billion dollars. So this is obviously the main piece of that, but the state won't tell us how much that piece costs. But the end of the day, we spend $11 billion in California. We don't have a usable high-speed rail anywhere. And I think that speaks to the problems of government, which is people get elected making promises, but very rarely follow through on them.

and then we as taxpayers are left talking to the bank. Let me give me an example. I found this clip online of our current governor, Governor Newsom, going back to 2008, making promises regarding solving homelessness, whether it could be solved, what kind of attention it required, and that he was the right person to do it. So let me just real quick put this clip on.

And, okay, here we go. Stop the share. Put the shirt back on. I'm so sorry, this is something that is kind of new to me doing this properly. And see, all shares, also share tabs. Yes. And there we go. Let's do this.

Here we go. Let's listen to Governor Newsom. Okay. So the point there being that we've been working on this problem, my entire real estate career at some level. And then even more so I would say of late. on a more intense basis. We just don't seem to be making any traction or any progress on it,

despite spending billions and billions of dollars. So let's take a look at, and again, as I said, the problem is going to be now that we're going to be limited in Los Angeles to whether we can solve this problem or not, because if we can't solve it, we're going to have higher taxes, more regulations and more limits in housing

as the city and county and state compete. So here's an example. This is a report by Yahoo News, that the number of homelessness went up 45% just last year. It shouldn't be surprising, as we've had in an influx of millions of people from around the world, that we'd have more homeless. And here they're saying the Ellic County number went from 45 to about 60,000 people. And the agencies are having difficulty.

They're overwhelmed with the people who are there. One thing I found fascinating is in L.A. County, in the actual program, the total number of people in the system is 1817. So we might have 45 or 60,000 here in Los Angeles County, city, I'm sorry. And yet we seem to be unable to be able to help people and make a dent in the number. One reason why is it's so expensive. Here is a, oh, I just blew it. I did I do that?

I'm sorry. I'm having some technical issues today that I don't normally have. Well, we'll go back to it. Anyhow, oh, here it is. Okay. So here's a case where we spend $51 million on one section of 105 freeway, 105 freeway. If you remember, there's some river encampments there.

There's 600 people who kind of grew in this community. But think about those numbers. 600 people at $51.5 million is about $85,000 per person. That's just to remove them and temporarily get them off the site. right and this is 600 this is not even this is about 1%. So at that rate it would cost $5 billion to get all of the homeless people who just removed in offsite just to give you an estimate number and we're going to get back to an estimate like that.

So we as a city are spending about $900 million a year on homeless currently. So this is a big number in our budget. Another thing, another example was, and I found this study fascinating, the city and state have bought up all kinds of hotels and motels to move people into. But they did a study of the results of this. And only 22% of people moved into housing, move out of it into permanent housing. Now, we know the permanent housing is a permanent, right? People can move into permanent housing and a year later lose a job and need and be homeless again. And yet 78% are just constantly

turned over. So when you see these numbers of moving people out of the 105 freeway costing $51 million, those people, as we know, as you can see their own eyes, just move to another camp. And we're going to move them and move them forever. And that number continues to grow as we continue to spend more money on the issue. Another example of the failure of the city is the properties they do buy that they don't even get used. Here's a case where a study found that 1,200 units the L.A. City owned are vacant. This is after spending $800 million. And so what happens is, you know, commissions are paid and developers get paid money

and politicians get their kickbacks to their friends and families getting these jobs. So money gets spent, but nobody's really accountable for the results. And that's why you see, you know, politicians like our governor moving on to federal, you know, federal jobs because, you know, they're not held accountable for their failure. Here we've spent $28 billion in the state of the last few years. and what do we have to show for our homeless problem here in California, virtually nothing. And so I think the thing that I want to just point out, I don't want to be negative. I just want to be realistic is the increasing homelessness problem

is going to increasingly cause problems for non-homeless people in terms of our taxes are going to continue to go up, and our government is going to be increasingly focused on this problem that is growing, and the way that we're paying for it is causing it to grow. And so there's no long-term solution, I don't believe, on the horizon that we have. Bringing in so many people as such a low income affects our neighborhoods,

affects our tax revenue, affects our ability to have other programs. If you wonder why we don't have new parks, why the facilities are so old, I swim. We don't swim at LA County, LA City facilities anymore because they're so run down and dilapidated.

So anyhow, that's where we're headed. And I think the key is now to hold accountable those people who are getting paid to solve these problems. And this is the election season coming up in November. As you may know from prior episodes, I'm definitely supporting the recall of Governor News,

and this is the second recall, but this is a stronger group I think it's doing it. If you want more information on where to do, go to that, you go to rescue, where am I at here? You can go to rescue California.org and get your petition package. But at the end of the day, what are you going to do about it? I mean, the numbers are the numbers.

Every way drive we see the homeless people, it's only getting worse. The taxes are only going up and the regulations are increasing to cover this. So that's the effect of real estate today. What do you think? Give me your comments. Up, down, like this, don't like this, too negative, too honest. Either way, I'm Apple Gross ProBand and social media.

Appreciate your support. Make you today your best day ever. Thanks.