Home cost increases curbing ownership

The American dream has always included owning a home.  A place you can paint your favorite color, hang a picture, adopt a pet, and best of all know your monthly payment is buying something for you.  There is a feeling of independence and stability when you become a homeowner. 

Since demand is high, there should be a lot of housing available that aspiring owners can buy.  Isn't that what we learned in Econ 101?  Markets respond to demand.  But when it comes to housing that isn't the case - and the reasons - well, it's complicated.

California's homeownership rate hit a high in 2006 of 60.2 percent.  Since the recession it has plummeted to 54.2 percent - almost 10 percentage points lower than the U.S. average of 63.9 percent. 

Pre-2005 ownership increases were to a great extent based on loose lending standards.  The memories are still vivid - a housing bubble that burst resulting in the worst recession in 50 years.  Now officials fear that lending constraints may have gone too far making it impossible for families to meet even minimum loan requirements. 

California's housing costs are the second highest in the country - roughly two and a half times the national average according to Zillow, an on line real estate data base.  In Los Angeles County the median priced single family house is $477,250.  To purchase this home and not pay more than the recommended 33 percent of income, a family needs to make $119,257 per year - far above the average Los Angeles County income of $54,.954.

There are many things driving up the cost of housing.  A recent study by the California Legislative Analyst found that the California Environmental Quality Act (CEQA) was a major reason for high housing costs.  The report stated that the CEQA and entitlement permitting process for a housing project takes local governments about two and a half years to complete. After the project is approved, there are frequently more delays for legal challenges.  All this time, costs add up and are eventually added to the purchase price.

Home loan approvals take into account what new owners will pay in property taxes.   Under the 1978 Prop 13 rules, residential property taxes are capped at one percent of assessed value indexed at two percent per year.  According to the Association of Realtors, a median housing in California costed $70,890 in 1978.  Today that house costs $449,700.  A seller who owned the house prior to the passage of Prop 13 is paying around $1,475 per year in taxes.  Property taxes for the new owner would be over $4,400.

Local zoning rules limit the number of units that can be built.  The rules are usually meant to protect current residents from added traffic congestion and other impacts of new development.  The unintended consequences are that housing projects are either downsized or moved further outside the urban core adding either higher unit costs or transportation costs for the buyer.

A recent Los Angeles County Economic Development Corporation (LAEDC) Business Scan showed 399 new single family housing permits were issued in Los Angeles County in March.  Year to date single family housing permits are slightly below last year's numbers.  But there were 1,631 permits issued in March for multi-family housing, an increase of 153.4 percent year to date.  That's good news.  In the end, no matter how we do it, the solution is more supply.

Drought reversal could bring flooding

According to a recent Public Policy Institute of California (PPIC) statewide survey, two-thirds of Californians consider the drought to be the most critical issue facing the state.  That’s why the news about a 2015 El Nino is so welcomed. This summer will be dry but meteorologists say there is a 90 percent chance of an El Nino in the fall and an 85 percent chance of it lasting through the winter.

El Nino predictions are based on warming Pacific Ocean waters off the west coast of South America near the equator.  An El Nino can alter the location of the jet stream resulting in more Pacific storms and rain.

When it comes to wishing for a strong El Nino, the PPIC blog also reminds us to be careful what we ask for - droughts often end with floods.

The most recent example is Texas - August 2010 to July 2011 was the driest year ever for the state.  Coupled with unprecedented heat, the state experienced wildfires and billions of dollars of economic losses.  Farmers and ranchers felt the most pain with an estimated $7.62 billion loss of crops and livestock.

This year the drought ended and the floods began.  May 2015 was the wettest month ever in Texas with an average of 8.81 inches across the state.  Some communities experienced over five inches of rain in a single day.

In August 2011, 93 percent of the state of Oklahoma was in an extreme to exceptional drought condition.  The Dust Bowl reappeared -- soil was hurled into the air by 60+ mile per hour winds creating clouds so thick cars were forced off highways.

In 2015 the rains returned averaging 14.4 inches across the Sooner state.  Instead of being forced off the roads, cars floated away. 

Australia is one of the driest continents on earth so drought conditions are not unusual.  Still nothing had prepared the Aussies for the almost decade long “Big Dry” - the worst drought ever.  Then in late 2010 and early 2011 the drought ended when torrential rains fell over Northeastern Australia causing one of the worst natural disasters the country ever experienced.

Does this mean we don’t want the rain?  Definitely not - we do want rain.   But strange as it may seem as we carry buckets of shower water to our potted plants, it might be a good idea to do some thinking about being prepared for when the rains return. 

Maybe you think your home or business is safe because you aren’t in a low lying area but think again.  According to FEMA, floods can happen anywhere.

Flash floods can occur quickly carrying rocks and debris in surging water.  Now is the time to assembly an emergency kit ready in case a quick evacuation becomes necessary.

Most insurance policies don’t cover floods.  Now is a good time to check your business and home policies and consider purchasing a flood insurance policy if you aren’t covered.  If you are in a special flood hazard zone you need to get National Flood Insurance.  Check the Flood Map Service Center at msc.fema.gov to find out. 

A few preparations now might lessen the impacts on your purse and your stress level when the rain returns. 

Most think Prop. 13 remains a good thing

The California Business Roundtable recently conducted a statewide survey of likely voters in the 2016 election.  They were trying to find out if voters still supported Prop 13, the 1978 constitutional amendment that caps property taxes until there is a transfer of title.  There are several proposals flying around Sacramento for amending Prop 13 especially regarding taxes on commercial and industrial properties.

As a backdrop to the Prop 13 findings, there are some other interesting results.  When asked if the state was on the right track or the wrong track, 54.9 percent said the wrong track with 45.1 percent saying right track. 

As one might expect, Democrats are feeling better with 70.5 percent saying the state is on the right track while 83.4 percent of the Republicans believed it is the wrong track.  The Independents sided with the Republicans - 62.8 percent said wrong track compared to just 37.2 percent believing things are going well.

The answer to the question of what is the biggest issue facing the state currently is no surprise - the drought - 60 percent of respondents agree.  The next highest issue - lack of leadership claimed a mere seven percent followed by jobs and the economy at six percent.

When it comes to where government should spend more, assuring a long-term adequate supply of water tops the list followed closely by fixing roads and bridges.  Programs on which the respondents thought the state was spending the right amounts included long-term debt reduction, social services and investments in addressing climate change. 

Democrats, Republicans and Independents all agreed there is one program that is getting too much money - prisons and the correctional system.

Surprisingly, 62.8 percent of respondents said that California is still in a recession.  Every day there is more good news about the economy, more jobs, and more people back to work.  But it doesn’t seem to be “trickling down” to voters - 52.5 percent of Democrats, 76.7 percent of Republicans and 62.7 percent of Independents say California is not out of the recession.

After 37 years, it is no surprise that only 35.8 percent of the respondents said they are very familiar with Prop 13 while 42.4 percent are somewhat familiar.  One in five said they are not familiar at all with the proposition.  

Yet, while the details may not be well known, 60.7 percent say Prop 13 is a good thing while only 20 percent say it is a bad thing for California.  Strong support is true regardless of the party:  Democrats 56.2 percent good, 28.9 percent bad; Republicans 77.9 percent good and 10.3 percent bad; Independents 60.7 percent good and 18.6 percent bad.

If the Proposition were on the ballot today, 65 percent of Democrats, 82.2 percent of Republicans and 72.2 percent of Independents say they would probably support it for combined survey result of 72.3 percent support. 

The results provide policymakers with several take-aways: the economy is still fragile for many people, most voters have no desire to “fix” Prop 13, but they certainly want lawmakers to fix the long term challenge of providing Californians with reliable supplies of water. I hope Sacramento is listening.

Watch out for online security breaches

Lately there is a lot in the news about cyber security.  Millions have been affected by breeches at major companies.  But hackers aren’t just after big companies.   If you have any personal or business information on a computer - and most of us do - you are vulnerable too. 

Marc Beaart, Assistant Head Deputy for the Los Angeles District Attorney’s Head Tech Crimes Division, recently spoke to a group of business executives about cyber threats and steps we should take to keep information safe, or at least safer, in a quickly evolving hacking world.

It helps to know some terminology.  Malware is the overarching term describing malicious software that is intended to disrupt a computer and perform actions without the owner’s permission.  Computer viruses and worms are self-replicating programs that install themselves without permission.  Viruses need another program to act as host while worms are self-contained. Both can corrupt your data or steal your personal information.

Ransomware is used by criminals to lock a computer and then demand payment in return for unlocking it.  The extortion message may look official such as posing as a government agency requiring payment of a fine.  I was surprised to learn that businesses often pay the ransom since it can be cheaper than ridding the computer of the ransomware and disrupting a company’s operations.  But if you do pay, don’t be surprised if the hacker returns for another bite at the apple.

A Trojan horse is a stealthy malware.  It is disguised as a safe program offering to help if you will just hit on the link provided and then give some personal information like an account number or passcode.  Keyloggers record your keystrokes and can then steal sensitive information. And a rootkit infiltrates your operating system so it can hide other malware.

Cyber-attacks can come from an email or by connecting to the internet.  Most photocopy machines now send faxes.  That means they connect to the internet and are susceptible to cyber-attacks.  Any machine that shares data or other files through the internet can be attached whether it is in a lab, a processing facility or an office.

There are things you can do to protect your personal information and your business.  First, understand how hackers can gain access to your information.   Approximately 80 percent of breeches occur from inside an organization.  Sometimes the breech is intentional but more often it is accidental.

Second, carefully review any link before connecting.   If it looks strange or doesn’t match the name of the file or company you are trying to access, don’t use it.  Call the reported sender and ask if the email or link is from them.

Third, free memory sticks are a frequently used method of marketing or sharing data.  They are also an easy way for malware to access your computer.  Never use a memory stick unless you are 100 percent sure of the source.  Free game downloads are another emerging technique for getting into your computer.  If you hit that link for the free game, you may get much more than you expected or wanted

Recently, an advertisement for stylish women’s shoes took over the San Gabriel Valley Economic Partnership’s website.  I received a call from a colleague who was trying to find information about one of our events.  We aren’t sure how long the bogus ad controlled our site.  Remember to check your website regularly. We do so now.

The best protection is a good password.  Memorize it.  Don’t keep it under your computer.  Don’t share it with vendors.  Don’t use words in the dictionary and please don’t use 123456.   Everyone knows that one.