Existing law, the Planning and Zoning Law Law, requires cities and counties to prepare and adopt a general plan for their jurisdictions that contains certain mandatory elements, including a housing element. Existing law requires the housing element to include, among other things, an inventory of land suitable for residential development and to make adequate provision for the existing and projected needs of all economic segments of the community. Existing law states legislative findings declaring that the preservation and enhancement of opportunities for homeownership home ownership are beneficial to the well-being and prosperity of the people of the state.

This bill would establish the Task Force on Institutional Investors within the Bureau of Real Estate, under the leadership of the Real Estate Commissioner. The bill would require the task force, on or before July 1, 2018, to submit to the Governor and the Legislature a report that includes information regarding how many large-scale buy-to-rent investors own property in the state for the purpose of renting the property, in which regions of the state their investment activity is occurring, the number, density, and percentage of single-family homes each large-scale buy-to-rent investor owns, an analysis of the potential impacts of their investments, as specified, data on how the structure of the investment instruments in which properties in California are held, and recommendations on how to increase homeownership home ownership among the residents of California and the tracking and monitoring of large-scale buy-to-rent investor holdings. The bill would make various findings and declarations in this regard.

This bill would declare that it is to take effect immediately as an urgency statute.

Existing law, the Planning and Zoning Law requires cities and counties to prepare and adopt a general plan for their jurisdictions that contains certain mandatory elements, including a housing element. Existing law requires the housing element to include, among other things, an inventory of land suitable for residential development and to make adequate provision for the existing and projected needs of all economic segments of the community. Existing law states legislative findings declaring that the preservation and enhancement of opportunities for homeownership are beneficial to the well-being and prosperity of the people of the state.

This bill would establish the Task Force on Institutional Investors within the Bureau of Real Estate, under the leadership of the Real Estate Commissioner. The bill would require the task force, on or before July 1, 2018, to submit to the Governor and the Legislature a report that includes information regarding how many large-scale buy-to-rent investors own property in the state for the purpose of renting the property, which regions of the state their investment activity is occurring, the number, density, and percentage of single-family homes each large-scale buy-to-rent investor owns, an analysis of the potential impacts of their investments, as specified, data on how the structure of the investment instruments in which properties in California are held, and recommendations on how to increase homeownership among the residents of California. California and the tracking and monitoring of large-scale buy-to-rent investor holdings. The bill would make various findings and declarations in this regard.

Existing law, the Planning and Zoning Law requires cities and counties to prepare and adopt a general plan for their jurisdictions that contains certain mandatory elements, including a housing element. Existing law requires the housing element to include, among other things, an inventory of land suitable for residential development and to make adequate provision for the existing and projected needs of all economic segments of the community. Existing law states legislative findings declaring that the preservation and enhancement of opportunities for homeownership are beneficial to the well-being and prosperity of the people of the state.

This bill would prohibit a large-scale buy-to-rent investor, as defined, from placing a bid on a conventional sale of a single-family home, with specified exceptions, for a period of not less than 15 days after the home has been placed on the real estate market. The bill would make various findings and declarations in this regard. establish the Task Force on Institutional Investors within the Bureau of Real Estate, under the leadership of the Real Estate Commissioner. The bill would also require the Department of Business Oversight, task force, on or before January July 1, 2018, to submit to the Governor and the Legislature a report that includes information regarding how many large-scale buy-to-rent investors own property in the state for the purpose of renting the property, which regions of the state their investment activity is occurring, the number, density, and percentage of single-family homes each large-scale buy-to-rent investor owns, and an analysis of the potential impacts of their investments, as specified. specified, and recommendations on how to increase homeownership among the residents of California. The bill would make various findings and declarations in this regard.

Existing law, the Planning and Zoning Law requires cities and counties to prepare and adopt a general plan for their jurisdictions that contains certain mandatory elements, including a housing element. Existing law requires the housing element to include, among other things, an inventory of land suitable for residential development and to make adequate provision for the existing and projected needs of all economic segments of the community. Existing law states legislative findings declaring that the preservation and enhancement of opportunities for homeownership are beneficial to the well-being and prosperity of the people of the state.

This bill would require the Department of Business Oversight to design and implement a registration program for the purpose of registering and monitoring large-scale buy-to-rent investors and analyzing the impacts they are having on Californias real estate market. The bill would require the Department of Business Oversight, in designing the program to consider methods to require large-scale 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. The bill would also prohibit a large-scale buy-to-rent investors, investor, as defined, from placing a bid on a normal conventional sale of a single-family home, with specified exceptions, for a period of not less than 15 days after the home has been placed on the real estate market. The bill would make various findings and declarations in this regard. The bill would also require the Department of Business Oversight, on or before January 1, 2018, to submit to the Governor and the Legislature a report that includes information regarding how many large-scale buy-to-rent investors own property in the state for the purpose of renting the property property, which regions of the state their investment activity is occurring, the number number, density, and percentage of single-family homes each large-scale buy-to-rent investor owns, and an analysis of the potential impacts of their investments, as specified.

Existing law, the Planning and Zoning Law requires cities and counties to prepare and adopt a general plan for their jurisdictions that contains certain mandatory elements, including a housing element. Existing law requires the housing element to include, among other things, an inventory of land suitable for residential development and to make adequate provision for the existing and projected needs of all economic segments of the community. Existing law states legislative findings declaring that the preservation and enhancement of opportunities for homeownership are beneficial to the well-being and prosperity of the people of the state.

This bill would require the Department of Business Oversight to design and implement a registration program for the purpose of registering and monitoring large-scale buy-to-rent investors and analyzing the impacts they are having on Californias real estate market. The bill would require the Department of Business Oversight, in designing the program to consider methods to require large-scale 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. The bill would also prohibit large-scale buy-to-rent investors, as defined, from placing a bid on a normal sale of a single-family home, with specified exceptions, for a period of not less than 90 15 days after the home has been placed on the real estate market. The bill would make various findings and declarations in this regard. The bill would also require the Department of Business Oversight, on or before January 1, 2018, to submit to the Governor and the Legislature a report that includes information regarding how many large-scale buy-to-rent investors own property in the state for the purpose of renting the property which regions of the state their investment activity is occurring, the number of single-family homes each large-scale buy-to-rent investor owns, and an analysis of the potential impacts of their investments, as specified.

Existing law, the Planning and Zoning Law requires cities and counties to prepare and adopt a general plan for their jurisdictions that contains certain mandatory elements, including a housing element. Existing law requires the housing element to include, among other things, an inventory of land suitable for residential development and to make adequate provision for the existing and projected needs of all economic segments of the community. Existing law states legislative findings declaring that the preservation and enhancement of opportunities for homeownership are beneficial to the well-being and prosperity of the people of the state.

This bill would require the Department of Business Oversight to design and implement a registration program for the purpose of registering and monitoring large-scale buy-to-rent investors and analyzing the impacts they are having on Californias real estate market. owners of single-family homes who specifically intend to use the property as a rental property more than intermittently. The bill would require the Department of Housing and Community Development to obtain information on the number of single-family dwellings owned by large-scale buy-to-rent investors, as defined, in postal ZIP Code areas in California. The bill would require the Department of Business Oversight and the Department of Housing and Community Development, Oversight, in carrying out these duties, designing the program to consider methods that, among other things, collect data in a way that protects the privacy of homeowners and tenants, organize data to a level that provides information on the number of single-family homes that are owned and operated as rental properties more than intermittently in each postal ZIP Code area in the state, and make that information publicly available on the relevant departments Internet Web site. to require large-scale 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. The bill would also prohibit large-scale buy-to-rent investors, as defined, from placing a bid on a normal sale of a single-family home, with specified exceptions, for a period of not less than 90 days after the home has been placed on the real estate market. The bill would make various findings and declarations in this regard. The bill would also require the Department of Business Oversight, on or before January 1, 2018, to submit to the Governor and the Legislature a report that includes information regarding how many large-scale buy-to-rent investors own property in the state for the purpose of renting the property which regions of the state their investment activity is occurring, the number of single-family homes each large-scale buy-to-rent investor owns, and an analysis of the potential impacts of their investments, as specified.

Existing law, the Planning and Zoning Law requires cities and counties to prepare and adopt a general plan for their jurisdictions that contains certain mandatory elements, including a housing element. Existing law requires the housing element to include, among other things, an inventory of land suitable for residential development and make adequate provision for the existing and projected needs of all economic segments of the community. Existing law states legislative findings declaring that the preservation and enhancement of opportunities for homeownership are beneficial to the well-being and prosperity of the people of the state.

This bill would require that, on and after January 1, 2017, the number of single family dwellings that are used more than intermittently as rental properties be limited to an unspecified percent age of the total number of single family dwellings in the relevant postal ZIP Code area. The bill would provide that, if the number of these single family dwellings used as rental properties in a postal ZIP Code area already exceeds that percentage on January 1, 2017, the limit on rental properties would apply prospectively to proposed new rental properties. the Department of Business Oversight to design and implement a registration program for the purpose of registering owners of single-family homes who specifically intend to use the property as a rental property more than intermittently. The bill would require the Department of Housing and Community Development to obtain information on the number of single family single-family dwellings used as rental properties owned by large-scale buy-to-rent investors, as defined, in postal ZIP Code areas in California. The bill would require the Department of Business Oversight and the Department of Housing and Community Development, in carrying out these duties, to consider methods that, among other things, collect data in a way that protects the privacy of homeowners and tenants, organize data to a level that provides information on the number of single-family homes that are owned and operated as rental properties more than intermittently in each postal ZIP Code area in the state, and make that information publicly available on its the relevant departments Internet Web site, organized by ZIP Code area. site. The bill would also prohibit large-scale buy-to-rent investors, as defined, from placing a bid on a normal sale of a single-family home, with specified exceptions, for a period of not less than 90 days after the home has been placed on the real estate market. The bill would make various findings and declarations in this regard.

Existing law, the Planning and Zoning Law requires cities and counties to prepare and adopt a general plan for their jurisdictions that contains certain mandatory elements, including a housing element. Existing law requires the housing element to include, among other things, an inventory of land suitable for residential development and make adequate provision for the existing and projected needs of all economic segments of the community. Existing law states legislative findings declaring that the preservation and enhancement of opportunities for homeownership are beneficial to the well-being and prosperity of the people of the state.

This bill would require that, on and after January 1, 2017, the number of single family dwellings that are used more than intermittently as rental properties be limited to an unspecified percent age of the total number of single family dwellings in the relevant postal ZIP Code area. The bill would provide that, if the number of these single family dwellings used as rental properties in a postal ZIP Code area already exceeds that percentage on January 1, 2017, the limit on rental properties would apply prospectively to proposed new rental properties. The bill would require the Department of Housing and Community Development to obtain information on the number of single family dwellings used as rental properties in postal ZIP Code areas and make that information publicly available on its Internet Web site, organized by ZIP Code area.

 THIRD READING  

Bill No: AB 2282

Author:

:

Vote:

SENATE BUS., PROF. & ECON. DEV. COMMITTEE: 6-1, 8/11/16

AYES: Hill, Block, Hernandez, Jackson, Mendoza, Wieckowski

NOES: Bates

NO VOTE RECORDED: Gaines, Galgiani

SENATE APPROPRIATIONS COMMITTEE: 5-2, 8/11/16

AYES: Lara, Beall, Hill, McGuire, Mendoza

NOES: Bates, Nielsen

ASSEMBLY FLOOR: 52-24, 6/2/16 - See last page for vote

SUBJECT:

SOURCE: Author

DIGEST: This bill establishes the Task Force on Institutional Investors within the Bureau of Real Estate; requires the Task Force on Institutional Investors, on or before July 1, 2018, to submit to the Governor and the Legislature a report regarding data collection on large-scale buy-to rent investors, as specified; and defines “large-scale buy-to-rent investor” as a publicly traded company devoted to holding and managing single-family home rental properties, either on behalf of clients or for itself, and which owns more than 100 single-family homes during a calendar year.

ANALYSIS:

Existing law:

1. Establishes the Real Estate Law, administered by the Bureau of Real Estate (CalBRE or Bureau), within the Department of Consumer Affairs, which licenses and regulates real estate salespersons, brokers, and mortgage loan originators. (Business and Professions Code § 1000 et seq.)
2. Makes finding and declarations that the subject of housing is of vital statewide importance to the health, safety, and welfare of the residents of this state, for the following reasons: (Health and Safety Code § 50001)
   
   1. Decent housing is an essential motivating force in helping people achieve self-fulfillment in a free and democratic society.
   2. Unsanitary, unsafe, overcrowded, or congested dwelling accommodations or lack of decent housing constitute conditions which cause an increase in, and spread of, disease and crime.
   3. A healthy housing market is one in which residents of this state have a choice of housing opportunities and one in which the housing consumer may effectively choose within the free marketplace.
   4. A healthy housing market is necessary both to achieve a healthy state economy and to avoid an unacceptable level of unemployment.

This bill:

1. Adds findings and declarations that state the following:
2. It is the intent of the Legislature in enacting this provision to analyze the impacts on the real estate market in California of the investment activities of large-scale buy-to-rent investors that, since October 2013, have involved a mortgage-based security supported by the revenue from single-family rental properties.
3. The emergence of this type of security is likely to grow and scale institutionally owned single-family rental homes to a level that is, at this time, unknown. However, with home prices currently approaching record highs, yet with homeownership at historic lows, it is important to understand the size and scope of investor activity of single-family homes and the impacts it has on the real estate market in California.
4. It is in the best interest of the State of California to help ensure, to the extent feasible, that families and individuals are able to become homeowners.
5. Large-scale buy-to-rent investors own more single-family homes than any other population in the United States, a market once dominated by local, private owners.
6. It is critical to know the impact these new investors are having on California’s housing market.
7. Before any meaningful legislative action take place, more data needs to be collected and analyzed to ensure the proper oversight over this new investment activity. There is currently insufficient data to properly categorize the impacts on families and other first-time home buyers.
8. To the extent that these investments are geographically clustered, the task force shall examine the effects across regions throughout California, which should be examined more closely. Should the Legislature delay in gathering and analyzing the appropriate data, thousands of more homes could be off the market for families and other first-time home buyers to purchase.
9. Creates the Task Force on Institutional Investors (Task Force) within the Bureau.
10. Requires the Task Force to examine the impacts that large-scale buy-to-rent investors are having on the real estate market in California.
11. Establishes the membership of the Task Force as the following:
12. The Real Estate Commissioner, or his or her designee, who shall serve as the chair of the task force.
13. A professor from either the University of California or the California State University with an extensive background and knowledge of the real estate market, to be appointed by the Governor.
14. A local government official with an extensive background and knowledge of the real estate market, to be appointed by the Governor.
15. A real estate expert with background in the rent to buy industry to be appointed by the Senate Committee on Rules.
16. A real estate finance expert, to be appointed by the Speaker of the Assembly.
17. A legal services expert with expertise on homeownership from northern California, to be appointed by the Speaker of the Assembly.
18. A legal services expert with expertise on homeownership from central California, to be appointed by the Governor.
19. A housing counselor certified by the United States Department of Housing and Urban Development from southern California, to be appointed by the Senate Committee on Rules.
20. An expert from a county assessor’s office, to be appointed by the Governor.
21. Requires, on or before July 1, 2018, the Task Force to submit to the Governor and the Legislature a report that includes, but is not limited to, all of the following:
    
22. 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.
23. The number, density, and percentage 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 they are selling each year.
24. Data on the structure of the investment instruments in which properties in California are held, including, but not limited to, factors that could affect the timing and quantity of property turnover in California by investors and the potential effects of the investment structure on California’s rental and homeownership markets.
25. Recommendations to the Governor and the Legislature on how to increase homeownership among the residents of California, and the tracking and monitoring of large-scale buy-to-rent investor holdings, including proposed legislative or regulatory actions, homebuyer assistance programs, and any other recommendations the Task Force deems appropriate.
26. Requires the Task Force be funded by an appropriation from the General Fund.
27. Defines “large-scale buy-to-rent investor” as a publicly traded company devoted to holding and managing single-family home rental properties, either on behalf of clients or for itself, and which owns more than 100 single-family homes during a calendar year.
28. Includes an urgency clause to provide for the expedient collection of data on large-scale buy-to-rent investors intended to provide for meaningful legislative action that will help alleviate the pressing concern of rising home prices.

Background

According to the author, “AB 2282 will establish the Institutional Investors Impact on Real Estate in California Task Force that will examine the impacts large-scale buy-to-rent investors are having on the real estate market. The task force will be composed of nine members with varying expertise in the real estate market.

“In conducting the report, the task force will focus on the number, density, and percentage 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 they are selling each year, amongst other things.”

The Housing market and rise of large-scale buy-to-rent investors. 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 the Department of Finance, California has 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 California.

When rent-backed securities premiered on the market in October 2013, the $479 million offering from the private equity company 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 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.

FISCAL EFFECT: Appropriation: Fiscal Com.: Local:

According to the Senate Appropriations Committee, this bill would incur costs to provide staff support for the Task Force, collect required data, and draft the required report by the Bureau.

SUPPORT: (Verified 8/11/16)

Housing and Economic Rights Advocates

OPPOSITION: (Verified 8/11/16)

California Association of Realtors

ARGUMENTS IN SUPPORT: Housing and Economic Rights Advocates argues that, “AB 2282 takes a thoughtful approach to the issue of the impact on homeownership of having larger scale investors in single family dwellings that are turned into rentals. This bill recognizes that the scale of investment raises questions that localities and the state should have answers to regarding the impact on the homeownership market…We have seen the single family home to rental investment model take root nationally, as well as in our state, and it seems likely to remain a feature of our modern housing market.”

ARGUMENTS IN OPPOSITION: The California Association of Realtors (C.A.R.) underscores that, “CalBRE is a special fund agency which derives its operational budget from licensing fees and subdivision filings. Unfortunately, AB 2282 seeks to use real estate license fees and resources to investigate a community not regulated by CalBRE.” Additionally, C.A.R. highlights that, “The Legislative Analyst’s office would be the most appropriate entity for examining the issue as they recently released a report on Why Housing is So Expensive in California.”

ASSEMBLY FLOOR: 52-24, 6/2/16

AYES: Alejo, Arambula, Atkins, Bloom, Bonilla, Bonta, Brown, Calderon, Campos, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Daly, Dodd, Eggman, Frazier, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Roger Hernández, Holden, Irwin, Jones-Sawyer, Levine, Lopez, Low, Maienschein, McCarty, Medina, Mullin, Nazarian, O'Donnell, Quirk, Ridley-Thomas, Rodriguez, Salas, Santiago, Mark Stone, Thurmond, Ting, Weber, Williams, Wood, Rendon

NOES: Achadjian, Travis Allen, Baker, Brough, Chang, Chávez, Dahle, Gallagher, Grove, Hadley, Harper, Jones, Kim, Lackey, Linder, Mathis, Mayes, Melendez, Obernolte, Olsen, Patterson, Steinorth, Wagner, Wilk

NO VOTE RECORDED: Bigelow, Burke, Beth Gaines, Waldron

Prepared by:

8/15/16 20:10:17

**** END ****

SENATE COMMITTEE ON

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

AB 2282 (Calderon) - Rental housing: large-scale buy-to-rent investors: data collection

*********** ANALYSIS ADDENDUM – SUSPENSE FILE ***********

The following information is revised to reflect amendments

adopted by the committee on August 11, 2016

Bill Summary:

AB 2282 would establish a taskforce within the Bureau of Real Estate to study and report on the impact of large-scale buy-to-rent investors on the real estate market.

Fiscal Impact:

One-time costs, likely from $150,000 to $300,000 per year for two years to provide staff support for the taskforce, collect required data, and draft the required report by the Bureau of Real Estate (General Fund). The Bureau of Real Estate is fully funded by fees assessed on licensed real estate brokers and salespersons. Because the subject matter to be considered by the proposed task force does not directly relate to the licensing or regulation brokers or salespersons, it would be an inappropriate use of license fees in the Real Estate Fund to support the activities of the taskforce.

Author Amendments:

Require the task force to be funded with a General Fund appropriation and prohibit members of the task force from being compensated, beyond per diem payments.

-- END --

SENATE COMMITTEE ON APPROPRIATIONS

Senator Ricardo Lara, Chair

2015 - 2016 Regular Session

AB 2282 (Calderon) - Rental housing: large-scale buy-to-rent investors: data collection

This bill meets the criteria for referral to the Suspense File.

Bill Summary:

AB 2282 would establish a taskforce within the Bureau of Real Estate to study and report on the impact of large-scale buy-to-rent investors on the real estate market.

Fiscal Impact:

One-time costs, likely from $150,000 to $300,000 per year for two years to provide staff support for the taskforce, collect required data, and draft the required report by the Bureau of Real Estate (General Fund). The Bureau of Real Estate is fully funded by fees assessed on licensed real estate brokers and salespersons. Because the subject matter to be considered by the proposed task force does not directly relate to the licensing or regulation brokers or salespersons, it would be an inappropriate use of license fees in the Real Estate Fund to support the activities of the taskforce.

Background:

Under current law, the Bureau of Real Estate licenses real estate brokers and salespersons in the state. Real estate salespersons are licensed and work under a licensed broker, who has retains fiduciary responsibly to the client.

Proposed Law:

AB 2282 would establish a taskforce within the Bureau of Real Estate to study and report on the impact of large-scale buy-to-rent investors on the real estate market.

Specific provisions of the bill would:

• Establish the Task Force on Institutional Investors, within the Bureau of Real Estate;
• Require the task force, under the leadership of the Real Estate Commissioner, to examine the impacts that large-scale buy-to-rent investors are having on the real estate market;
• Establish the membership of the task force;
• Require the task force to report to the Governor and the Legislature by July 1, 2018 with its findings;
• Specify the issues that the task force must consider.

This bill is an urgency measure.

-- END --

SENATE COMMITTEE ON

BUSINESS, PROFESSIONS AND ECONOMIC DEVELOPMENT

Senator Jerry Hill, Chair

2015 - 2016 Regular

Bill No: Hearing Date: August 11, 2016

Subject:

SUMMARY:

Establishes the Task Force on Institutional Investors within the Bureau of Real Estate; requires the Task Force on Institutional Investors, on or before July 1, 2018, to submit to the Governor and the Legislature a report regarding data collection on large-scale buy-to rent investors, as specified; defines “large-scale buy-to-rent investor” as a publicly traded company devoted to holding and managing single-family home rental properties, either on behalf of clients or for itself, and which owns more than 100 single-family homes during a calendar year.

Existing law:

1. Establishes the Real Estate Law, administered by the Bureau of Real Estate (CalBRE or Bureau), within the Department of Consumer Affairs (DCA), which licenses and regulates real estate salespersons, brokers, and mortgage loan originators. (Business and Professions Code (BPC) § 1000 et seq.)
2. Makes finding and declarations that the subject of housing is of vital statewide importance to the health, safety, and welfare of the residents of this state, for the following reasons: (Health and Safety Code § 50001)
   
   1. Decent housing is an essential motivating force in helping people achieve self-fulfillment in a free and democratic society.
   2. Unsanitary, unsafe, overcrowded, or congested dwelling accommodations or lack of decent housing constitute conditions which cause an increase in, and spread of, disease and crime.
   3. A healthy housing market is one in which residents of this state have a choice of housing opportunities and one in which the housing consumer may effectively choose within the free marketplace.
   4. A healthy housing market is necessary both to achieve a healthy state economy and to avoid an unacceptable level of unemployment.

This bill:

1. Adds findings and declarations that state the following:
2. It is the intent of the Legislature in enacting this provision to analyze the impacts on the real estate market in California of the investment activities of large-scale buy-to-rent investors that, since October 2013, have involved a mortgage-based security supported by the revenue from single-family rental properties.
3. The emergence of this type of security is likely to grow and scale institutionally owned single-family rental homes to a level that is, at this time, unknown. However, with home prices currently approaching record highs, yet with homeownership at historic lows, it is important to understand the size and scope of investor activity of single-family homes and the impacts it has on the real estate market in California.
4. It is in the best interest of the State of California to help ensure, to the extent feasible, that families and individuals are able to become homeowners.
5. Large-scale buy-to-rent investors own more single-family homes than any other population in the United States, a market once dominated by local, private owners.
6. It is critical to know to what extent these new investors are crowding out potential owner-occupants or artificially inflating home prices.
7. Before any meaningful legislative action takes place, more data needs to be collected and analyzed to ensure the proper oversight over this new investment activity. There is currently insufficient data to properly categorize the problem, and while the impacts are currently unknown, families and other first-time homebuyers are certainly put at a disadvantage when having to compete against a large investment firm. This can exacerbate income inequality issues in the state and must be addressed sooner rather than later to protect the American Dream of buying and owning a home.
8. To the extent these investments are geographically clustered, they could have unintended ripple effects across regions throughout California and should be examined more closely. Should the Legislature wait longer to gather and analyze the appropriate data, thousands more homes could be off the market for purchase by families and other first-time homebuyers.
9. Creates the Task Force on Institutional Investors (Task Force) within the Bureau.
10. Requires the Task Force to examine the impacts that large-scale buy-to-rent investors are having on the real estate market in California.
11. Establishes the membership of the Task Force as the following:
12. The Real Estate Commissioner, or his or her designee, who shall serve as the chair of the task force.
13. A professor from either the University of California or the California State University with an extensive background and knowledge of the real estate market, to be appointed by the Governor.
14. A local government official with an extensive background and knowledge of the real estate market, to be appointed by the Governor.
15. A real estate expert, to be appointed by the Senate Committee on Rules.
16. A real estate finance expert, to be appointed by the Speaker of the Assembly.
17. A legal services expert with expertise on homeownership from northern California, to be appointed by the Speaker of the Assembly.
18. A legal services expert with expertise on homeownership from central California, to be appointed by the Governor.
19. A housing counselor certified by the United States Department of Housing and Urban Development from southern California, to be appointed by the Senate Committee on Rules.
20. An expert from a county assessor’s office, to be appointed by the Governor.
21. Requires, on or before July 1, 2018, the Task Force to submit to the Governor and the Legislature a report that includes, but is not limited to, all of the following:
    
22. 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.
23. The number, density, and percentage 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 they are selling each year.
24. Data on the structure of the investment instruments in which properties in California are held, including, but not limited to, factors that could affect the timing and quantity of property turnover in California by investors and the potential effects of the investment structure on California’s rental and homeownership markets.
25. Recommendations to the Governor and the Legislature on how to increase homeownership among the residents of California, and the tracking and monitoring of large-scale buy-to-rent investor holdings, including proposed legislative or regulatory actions, homebuyer assistance programs, and any other recommendations the task force deems appropriate.
26. Defines “large-scale buy-to-rent investor” as a publicly traded company devoted to holding and managing single-family home rental properties, either on behalf of clients or for itself, and which owns more than 100 single-family homes during a calendar year.
27. Includes an urgency clause to provide for the expedient collection of data on large-scale buy-to-rent investors. In turn, this measure will provide for meaningful legislative action that will help alleviate the pressing concern of rising home prices.

FISCAL EFFECT: Unknown. This bill has been keyed “fiscal” by Legislative Counsel.

COMMENTS:

1. Purpose. The Author is the sponsor of this bill. According to the Author, “AB 2282 will establish the Institutional Investors Impact on Real Estate in California Task Force that will examine the impacts large-scale buy-to-rent investors are having on the real estate market. The task force will be composed of nine members with varying expertise in the real estate market.

In conducting the report, the task force will focus on the number, density, and percentage 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 they are selling each year, amongst other things.”

1. Background on CalBRE. Real estate licensing in California commenced in 1917. CalBRE is the state entity currently charged with responsibility to enforce the Real Estate Law, the Subdivided Lands Act, and the Vacation Ownership and Time-share Act of 2004. CalBRE’s programs are in place to satisfy the Bureau’s statutorily mandated obligations of licensing and regulating salespersons, brokers, mortgage loan originators, real estate and prepaid listing service licensees, reviewing and approving subdivision and time share offerings, and approving continuing education (CE) and pre-license courses. Within the framework of requirements of Division 4 of the BPC and the Regulations of the Real Estate Commissioner as contained in the California Code of Regulations, each of CalBRE’s programs contribute toward satisfying its mission of protecting and serving the interests of the public in real estate transactions and providing related services to the real estate industry. Specifically, BPC § 10050 requires the Real Estate Commissioner to enforce all laws commencing with BPC § 10000 and
   BPC § 11000 of Part 2 in a manner that achieves the maximum protection for the purchasers of real property and those persons dealing with real estate licensees.
2. The Housing Market and Rise of Large-Scale Buy-to-Rent Investors. 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 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 California.

When rent-backed securities premiered on the market in October 2013, the $479 million offering from the private equity company 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 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.

1. Arguments in Support. Housing and Economic Rights Advocates argues that, “AB 2292 takes a thoughtful approach to the issue of the impact on homeownership of having larger scale investors in single family dwellings that are turned into rentals. This bill recognizes that the scale of investment raises questions that localities and the state should have answers to regarding the impact on the homeownership market…We have seen the single family home to rental investment model take root nationally, as well as in our state, and it seems likely to remain a feature of our modern housing market.”
2. Arguments in Opposition. The California Association of Realtors (C.A.R.) underscores that, “CalBRE is a special fund agency which derives its operational budget from licensing fees and subdivision filings. Unfortunately, AB 2282 seeks to use real estate license fees and resources to investigate a community not regulated by CalBRE.” Additionally, C.A.R. highlights that, “The Legislative Analyst’s office would be the most appropriate entity for examining the issue as they recently released a report on Why Housing is So Expensive in California.”
3. Author’s Technical Amendments. The Author’s office has agreed to the following amendments to alleviate concerns about the language in the findings and declarations section of the bill. These amendments will be taken in Senate Appropriations and will help better capture the bill’s intent.

• On page 3, line 7, strike out “to what extent these new investors are”, and strike out lines 8 and 9 and insert “the impact these new investors are having on California’s housing market.”

The new BPC § 65009.5(a) (5) now reads:

(5) It is critical to know the impact these new investors are having on California’s housing market.

• On page 3, line 13, strike out “problem, and while the”.
• On page 3, line 14, strike the phrase “are currently unknown,” and insert the word “on”.
• On page 3, line 14, strike lines 15 to 19 and insert “home buyers.”

The new BPC § 65009.5(a) (6) now reads:

(6) Before any meaningful legislative action take place, more data needs to be collected and analyzed to ensure the proper oversight over this new investment activity. There is currently insufficient data to properly categorize the impacts on families and other first-time home buyers.

• On page 3, line 21, strike the phrase “they could have unintended ripple” insert “the task force shall examine the”.
• On page 3, line 22, strike out “California and” and insert “California, which”.
• On page 3, line 23, strike out “wait longer to gather and analyze” and insert “delay in gathering and analyzing”.
• On page 3, lines 24 and 25, strike out “purchase by”.
• On page 3, in line 25, strike out “homebuyers.” and insert “home buyers to purchase.”

The new BPC § 65009.5(a)(7) now reads:

(7) To the extent that these investments are geographically clustered, the task force shall examine the effects across regions throughout California, which should be examined more closely. Should the Legislature delay in gathering and analyzing the appropriate data, thousands of more homes could be off the market for families and other first-time home buyers to purchase.

• On page 4, line 4, strike out “expert,” and insert “expert with background in the buy-to-rent industry,”

These amendments will allow the buy-to-rent industry to provide speedy input and information to the Task Force.

• On page 5, between lines 9 and 10, insert:

“(d) The task force shall be funded by an appropriation from the General Fund. No funds appropriated to the Bureau of Real Estate for purposes other than the task force shall be used to fund the activities of the task force. Members of the task force shall not be paid a salary, but may receive a per diem reimbursing them for expenses associated with the activities of the task force.”

These amendments help address C.A.R.’s concern that special fund monies will be used for a non-regulatory purpose and to investigate a community not regulated by CalBRE.

NOTE:

Referral to the Senate Committee on Appropriations.

SUPPORT AND OPPOSITION:

Support:

Housing and Economic Rights Advocates

Opposition:

The California Association of Realtors (C.A.R.)

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:

Author:(Calderon)

As Amended Ver:May 31, 2016

Majority vote

SUMMARY: Requires the Department of Business Oversight (DBO) to create a report on the activities of large-scale buy-to-rent investors and their impact on the real estate market, and prohibits a homeowner from selling their home to a buy-to-rent investor for 15 days when the home is not a short sale or a foreclosure. Specifically, this bill:

1. Requires DBO, on or before January 1, 2018, to submit to the Governor and the Legislature a report that includes but is not limited to the following:
2. 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;
3. The number, density, and percentage of single-family homes each large-scale buy-to-rent investor owns;
4. 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;
5. The length of time large-scale buy-to-rent investors are holding their property as a rental; and
6. How many homes large-scale buy-to-rent investors are selling each year.
7. Allows DBO to hire an independent third party or obtain assistance from another state department to analyze the information necessary to complete the report.
8. Prohibits a large-scale buy-to-rent investor from placing a bid on a normal sale of a single-family home that is not a short sale, foreclosure sale, or real estate owned property for a period of no less than 15 days after the home has been placed on the real estate market.
9. Defines a "large-scale buy-to-rent investor" to mean a publically traded company devoted to holding and managing single-family home rental properties, either on behalf of clients or for itself, and which owns more than 100 single-family homes during a calendar year.
10. Repeals or makes the reporting requirement in this bill inoperative four years after the bill is enacted or four years after the due date of the report.
11. Requires the report created by DBO to be submitted to the Secretary of the Senate, Chief Clerk of the Assembly, and Legislative Counsel.

FISCAL EFFECT: According to the Assembly Appropriations Committee, minor costs, likely in the low tens of thousands of dollars to compile information and produce a report.

COMMENTS:

During the foreclosure crisis companies like Blackstone purchased homes in foreclosure or short sales. These companies rent these homes and securitize the rental income. According to their representative, Blackstone owns 10,000 to 12,000 rental homes in California. Blackstone is buying homes in conventional sales and their rate of home acquisition is about 300 per month nationwide. It is not clear how many of that 300 are in California.

This bill would require DBO to analyze the activities of large-scale buy-to-rent investors and provide a report to the Governor and Legislature that describes how many large-scale buy-to-rent investors there are in the state, how many properties they own, and where they are located. Large-scale buy-to-rent investors are defined as publicly traded companies devoted to holding and managing single-family home rental properties that own more than 100 single family homes during the calendar year. DBO would need to determine the impact of these companies on homebuyers, specifically those who would need a mortgage and are not paying cash for a home, to compete against large-scale by-to-rent investors.

This bill would also prevent a large-scale buy-to-rent investor from bidding on a home sale that is not a short sale or a foreclosure for at least 15 days from the time the home is placed on the market.

Purpose of this bill: 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 [f]or the real estate market to recover, they have converted these properties into permanent rental homes. Of the five largest metropolitan areas in the [United States] 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.'

"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. A mortgage-backed security is created by pooling assets together and then selling interests in that pool to investors, who then receive regular payments from the asset pool. This process provides access to a much larger pool of investors than would otherwise be feasible, increasing liquidity and generally providing a less expensive source of funding than traditional borrowing from banks or private investors.

"While institutional investors only represent a fraction of those in the housing market - midsized companies and small mom-and-pop investors who own less than 10 properties have historically been far more prevalent in most markets -securitization is likely to shift this balance. That being said, one institutional investor, Blackstone, has already become the largest single-family home owner in the country. In fact, some analysts predict the funding of single-family rental acquisitions through securitization will likely become a dominant model quickly, and thus, continuing to shrink the already short supply of homes… Families already have a difficult time trying to save up enough money for a down payment, having to compete against an institutional investor who has the financial backing of big banks and pension funds, just isn't fair from both a monetary standpoint and technological."

Analysis Prepared by: Lisa Engel / H. & C.D. / (961) 319-2085 FN: 0003248

Date of Hearing: May 18, 2016

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez, Chair

ABPCA Bill Id:AB 2282

Author:(Calderon) – As Amended Ver:April 25, 2016

Urgency: No State Mandated Local Program: No Reimbursable: 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.
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:
   1. 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;
   2. 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 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."
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 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.

1. 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

Date of Hearing: April 21, 2016

ASSEMBLY COMMITTEE ON BANKING AND FINANCE

Matthew Dababneh, Chair

ABPCA Bill Id:AB 2282 (

Author:Calderon) – As Amended Ver:April 12, 2016

SUBJECT: Rental housing: large-scale buy-to-rent investors: data collection

SUMMARY: 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.
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 90 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:
   1. 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;
   2. The number of single-family homes each large-scale buy-to-rent investor owns;
   3. 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;
   4. The length of time large-scale buy-to-rent investors are holding their property as a rental; and,
   5. How many homes large-scale buy-to-rent investors are selling each year.
5. Codifies that it is the intent of the Legislature in enacting this provision to monitor the investment activities of large-scale buy-to-rent investors in the State of California that have, since October 2013, designed a mortgage-based security supported by the revenue from single-family rental properties.
6. Makes the following legislative findings:
   1. The emergence of this type of security is likely to grow and scale institutionally owned single-family rental homes to a level that is, at this time, unknown. However, with home prices currently approaching record highs, yet with homeownership at historic lows, it is important to understand the size and scope of investor activity of single-family homes and the impacts it has on the real estate market in California.
   2. It is in the best interest of the State of California to limit the amount of single-family homes that large-scale buy-to-rent investors can own in our neighborhoods and communities. Furthermore, we must protect against the potential displacement of persons residing in single-family home rentals that is harmful not only to the persons displaced by these practices but also to the entire community in which those persons reside. Large-scale buy-to-rent investors own more single-family homes than any other population in the United States, a market once dominated by local, private owners.
   3. Limiting the activity of large-scale buy-to-rent investors can have a positive impact on the housing market by providing a greater supply of homes to individual buyers, protect the real estate market from large fluctuations in home prices, create a stronger sense of community in our neighborhoods, and defend the American dream of becoming a homeowner

EXISTING LAW: States legislative findings and declarations that the preservation and enhancement of opportunities for homeownership are beneficial to the well-being and prosperity of the people of the state (Health & Safety Code, Section 50001).

FISCAL EFFECT: Unknown

COMMENTS:

Need for the bill.

According to the author's office:

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 number of single-family homes. For example, in 2013, a subsidiary of the private equity firm Blackstone took $479 million loan from Deutsche Bank that was secured by a pool of more than 3,000 homes. By creating a bond securitized by revenue from rental properties suggests these investors plan on keeping their properties as permanent rental units, or at the very least, long-term rentals. In fact, according to a recent Federal Reserve Board report, only 7 percent of properties purchased by these investors in 2012 were resold within 24 months. This is what sets the buy-to-rent investors business model apart from the traditional investor, is their stated intention to hold the property as a rental unit for a number of years, possibly even permanently, rather than re-sell in the owner-occupied market.

Institutional investors have played an important role in many markets that were struggling at the time. They helped raise home price, albeit artificially, and reduce the number of vacant properties in the neighborhoods hit hardest by the Great Recession. At the same time, the sheer scope of investor activity in the single-family home market relative to owner-occupant purchases is unprecedented, as is the size of these large, single-family rental portfolios.

Holding thousands of single-family homes in their portfolio puts California communities at risk. If the market predictions from these hedge fund managers are wrong, and fail to pay back their investors of the bonds they’re creating, then we could see another housing crisis with a huge flood of single-family home hitting the real estate market…again. However, this time, not only will housing prices drop dramatically, thousands of families could be disenfranchised to no fault of their own.

Further, and more importantly, homeownership rates are near historic lows. Nationally, homeownership is the lowest it’s been since 1967 at 63.4 percent, however, California’s homeownership rate is almost 10 percent lower, at 54.1% in the fourth quarter of 2015, according to recent census data. What’s troublesome about the lack of homeownership, are large institutional investors are no longer just buying short-sales or foreclosures, which are typically harder for low and moderate income families to buy, but are now buying natural sales of homes. The CEO of Colony American Homes Inc. recently stated, “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. Furthermore, as state before, these institutional investors have computer algorithms that can calculate whether or not they should bid on a property within eight minutes. So, not only do large-scale buy-to-rent investors have a monetary advantage, but they now have a technological advantage, as well.

The foreclosure crisis created massive inventories of foreclosure properties across the nation. Many of these foreclosed homes are just now finding their way onto the housing market. With the private label mortgage backed securities (MBSs) market on life support, institutional investors needed other investment outlets in the housing market. These investors bought large portfolios of foreclosed homes and securitized the rental income. The structure of various single-family rental (SFR) securitizations are very similar as callable and/or non-callable bonds are issued from a single loan, backed by portfolios of SFRS. The bonds typically have terms of two to three years with options for one-year extensions capped at five years total.

On September 19th, 2014, American Homes 4 Rent issued the first bond of this kind bearing a 10-year fixed interest rate, with coupon payment tranches amounting to a weighted average coupon rate of 4.418%. The majority of the portfolio is located in Texas, Illinois, Indiana, Ohio, and North Carolina; markets that have experienced less volatility than other markets. 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. REO-to-rental securitization has been hailed as an 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. SFR industry has expanded tremendously in the past two years.  According to Commercial Mortgage Alert, the US CMBS issuance was about $94 billion and the US SFR issuance was about $6.8 billion in 2014.  As of July 2015, year-to-date US SFR issuance is $5.42 billion up 53% from $2.85 billion for the same period in 2014 whereas year-to-date US CMBS issuance is $55.74 billion up 22% compared to the same period in 2014.  The SFR bond market is currently estimated to be a $12.65 billion market with Blackstone’s Invitation Homes unit having a leading market share of 42.1% through its seven offerings totaling $5.32 billion.  American Homes 4 Rent stands second at $2.08 billion followed by Colony American Homes at $1.75 billion. The business is so profitable that the founder of Blackstone is worth more than $10 billion and for his 60^th birthday party was entertained by Rod Stewart which begs the question of what is more egregious, the securitization of rental properties or that Rod Stewart is available for birthday parties?

Impacts?

What is the impact of large scale rental investment strategies on the housing market? According to Department of Finance data, 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. The impact of rental securitizations on home prices is unclear. Some market observers have found that SFR securitization deals have relied on projected occupancy rates that real estate professionals have called unrealistic at best. Blackstone’s first offering, for example, assumed a 94% occupancy rate and claimed that 100% of properties were occupied when the deal was launched. Within a few months, 8.3% of these properties were vacant or occupied by delinquent renters, causing rental income to fall by 7.6%. Reported vacancies also rose last year after Blackstone offered a second, $1 billion bond in May and Colony Capital launched a $514 million deal in March.

Two issues not addressed in this bill, but that have major impacts on pricing are flipping and foreign cash buyers. RealtyTrac, a real estate foreclosure marketplace, tracks the number of house “flips” and reports they made up 5.5% of last year's real estate sales. Since the housing crash, investors have consistently made up a significant portion of home buyers, but they largely purchased homes to convert to rental property. In the last couple of years, RealtyTrac says the trend has been toward flips. The total number of investors who completed at least one flip in 2015 was at the highest level since 2007, and the number of flips per investor was at the lowest level since 2008. Homes flipped in 2015 were on average purchased at a 26% discount below estimated market value and re-sold by the flipper at a 5% premium above estimated market value. Some real estate experts find that when home flipping numbers go up, it is usually an indication that the housing market is in trouble. He says home flipping tends to artificially inflate home prices. That makes houses less affordable and increases the risk of a bubble. The average flip in California grossed close to $100,000 in profit and impacts the price of surrounding homes.

Another contributor to expensive housing in certain California markets has been the large influx of foreign cash buyers.

According to data from the National Association of Realtors, during 2014/15 the average price foreign clients paid for a house was $500,000, compared to the overall U.S. average house price of $256,000.  Approximately $54.5 billion of sales was attributed to non-resident foreigners, with resident foreigners accounting for $49.4 billion of sales. The bulk of purchases by international clients were all-cash, accounting for approximately 55% of reported foreign transactions.

Amendments

This bill was previously heard in the Assembly Committee on Housing where the author agreed to accept the following amendments in Banking & Finance:

1. Change the prohibition on a large scale buy-to-rent investor from bidding on a property from 90 days to 15 days.
2. The bill applies to companies that hold 10 or more properties. The amendments would change that threshold to 100 or more.

Issues going forward

As the author further refines the bill going forward the following issues should be addressed.

1. The Legislative findings and declarations provide that limiting the activity of large-scale buy-to-rent investors can protect against large home price fluctuations. Given the numerous housing difficulties in California and the multitude of issues that contribute to our housing costs this provision may need to be reworked so as not to give the indication that this one issue will have a significant impact on home price appreciation.
2. The registration program to be administered by DBO lacks detail. It does not give DBO the authority to charge a registration fee nor provide any penalties for entities that do not register. Additionally, DBO is not given authority to confront entities that may report inaccurate information.
3. The entities covered would be required to renew their registration but the process is somewhat unclear and confusing.
4. The report required of DBO mandates that they provide an "analysis of the potential impacts" these large-scale buy-to-rent investors are having on the housing market. Staff believes that DBO may not have the expertise necessary to provide an "analysis" and may need to hire a third party to comply with this provision. The author may want to consider authorizing DBO to hire an independent third party to conduct this study.
5. Prohibits the large-scale buy-to-rent investor from placing a bid on a "normal sale." The term "normal sale" is not a defined term in existing law. The author may wish to define this term.
6. The bill exempts short-sales, foreclosure sales, and real estate owned property from the purchase prohibition even though foreclosure sales provided the initial bulk of properties to these investors. While foreclosures have declined significantly, the author may wish to further examine this issue.
7. The prohibition on buying a home for 15 days also would impact sellers of property.

REGISTERED SUPPORT / OPPOSITION:

Support

None on file.

Opposition

California Apartment Association

Analysis Prepared by: Mark Farouk / B. & F. / (916) 319-3081

Date of Hearing: April 13, 2016

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

David Chiu, Chair

ABPCA Bill Id:AB 2282 (

Author:Calderon) – As Amended Ver:April 12, 2016

SUBJECT: Rental housing: large-scale buy-to-rent investors: data collection

SUMMARY: Requires the Department of Business Oversight (DBO) to collect data about large-scale buy-to-rent investors and prohibits a homeowner from selling their home to a buy-to-rent investors for 90 days when the home is not a short sale or a foreclosure. Specifically, this bill:

1. Includes the following statement of intent:

"It is the intent of the Legislature in enacting this provision to monitor the investment activities of large-scale buy-to-rent investors in the State of California that have, since October 2013, designed a mortgage-based security supported by the revenue from single-family rental properties.

The emergence of this type of security is likely to grow and scale institutionally owned single-family rental homes to a level that is, at this time, unknown. However, with home prices currently approaching record highs, yet with homeownership at historic lows, it is important to understand the size and scope of investor activity of single-family homes and the impacts it has on the real estate market in California.

It is in the best interest of the State of California to limit the amount of single-family homes that large-scale buy-to-tent investors can own in our neighborhoods and communities. Furthermore, we must protect against the potential displacement of persons residing in single-family home rentals that is harmful not only to the persons displaced by these practices but also to the entire community in which those persons reside.

Large-scale buy-to-rent investors own more single-family homes than any other population in the United States, a market once dominated by local, private owners.

Limiting the activity of large-scale buy-to-rent investors can have a positive impact on the housing market by providing a greater supply of homes to individual buyers, protect the real estate market from large fluctuations in home prices, create a stronger sense of community in our neighborhoods, and defend the American dream of becoming a homeowner."

1. Requires the DBO with any assistance that may be provided by the county recorders to design and implement a registration program for the purpose of registering and monitoring large-scale buy-to-rent investors and analyzing the impacts they are having on the state's real estate market.
2. Requires DBO to consider methods to require large-scale 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.
3. Requires DBO, on or before January 1, 2018, to submit to the Governor and the Legislature a report that includes but is not limited to the following:
4. 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;
5. The number of single-family homes each large-scale buy-to-rent investor owns;
6. 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;
7. The length of time large-scale buy-to-rent investors are holding their property as a rental; and
8. How many homes large-scale buy-to-rent investors are selling each year.
9. Prohibits a large-scale buy-to-rent investor from placing a bid on a normal sale of single-family home that is not a short sale, foreclosure sale, or real estate owned property for a period of no less than 90 days after the home has been placed on the real estate market.
10. Defines a "large-scale buy-to-rent investor" to mean a publically traded company devoted to holding and managing single-family home rental properties, either on behalf of clients or for itself, and which owns more than 10 single-family homes during a calendar year.
11. Repeals or makes the reporting requirement in this bill inoperative four years after the bill is enacted or four years after the due date of the report.
12. Requires the report created by DBO to be submitted to the Secretary of the Senate, Chief Clerk of the Assembly, and Legislative Counsel.

EXISTING LAW:

FISCAL EFFECT: Unknown

COMMENTS:

During the foreclosure crisis companies like Blackstone purchased homes in foreclosure or short sales. These companies rent these homes and securitize the rental income. According to their representative, Blackstone owns 10,000 to 12,000 rental homes in California. Blackstone is buying homes in conventional sales and their rate of home acquisition is about 300 per month nationwide. It is not clear how many of that 300 are in California.

This bill would require DBO to develop and implement a registration program to register and monitor large-scale buy-to-rent investors. Large-scale buy-to-rent investors are defined as publicly traded companies devoted to holding and managing single-family home rental properties and that own more than 10 single family homes during the calendar year. A year after registering these companies, DBO would be required to submit a report to the Governor and Legislature that describes how many large-scale buy-to-rent investors there are in the state, how many properties they own and where they are located. DBO would need to determine the impact of these companies on homebuyers, specifically those who would need a mortgage and are not paying cash for a home, to compete against the large scale by to rent investors.

This bill would also prevent a large-scale buy-to-rent investor from bidding on a home sale that is not a short sale or a foreclosure for at least 90 days from the time the home is placed on the market.

Purpose of this bill: 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 or 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."

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. A mortgage-backed security is created by pooling assets together and then selling interests in that pool to investors, who then receive regular payments from the asset pool. This process provides access to a much larger pool of investors than would otherwise be feasible, increasing liquidity and generally providing a less expensive source of funding than traditional borrowing from banks or private investors.

While institutional investors only represent a fraction of those in the housing market - midsized companies and small mom-and-pop investors who own less than 10 properties have historically been far more prevalent in most markets -securitization is likely to shift this balance. That being said, one institutional investor, Blackstone, has already become the largest single-family home owner in the country. In fact, some analysts predict the funding of single-family rental acquisitions through securitization will likely become a dominant model quickly, and thus, continuing to shrink the already short supply of homes…..Families already have a difficult time trying to save up enough money for a down payment, having to compete against an institutional investor who has the financial backing of big banks and pension funds, just isn't fair from both a monetary standpoint and technological."

Arguments in opposition: According to the California Apartment Association, "during our recent foreclosure crises in which millions of single family homes throughout the United States were foreclosed upon, some large scale organizations did, in fact, purchase distressed properties in California; they made extensive repairs to them and offered them for rent. If not for the investment of these companies, many of these homes would still remain vacant, boarded up, and deteriorating, exposing them to trespassers, squatters, and graffiti, endangering our neighborhoods. By putting these homes back on the market for rent, these companies have helped to alleviate our lack of available housing in California and have supported the housing recovery in the areas where they have purchased. Rental companies bought these homes because there was a limited ability for individuals and families to buy them given the tightening of credit after the crises. In a study by members of the Federal Reserve of Governors, they report that, “Despite the large amount of attention that these purchases have attracted, we find that buy-to-rent investors have been a very small share of the aggregate market, comprising 1 to 2 percent of all single-family purchases from 2012 to 2014. In contrast, purchases by other investors accounted for 18 to 19 percent of single-family home purchases during the same period.” They further noted that “. . . this activity also increased the supply of high-quality rental housing, which may benefit a different segment of the population by providing households a way to live in single-family housing and neighborhoods, even if they cannot obtain a mortgage.”

Policy considerations:

Many factors are contributing to the affordable housing crisis facing the state. Lack of new housing stock affordable to buyers is driving up the cost of the existing stock. Many older California's who are ready to downsize and move out of their suburban homes, making them available to first time buyers and families, are remaining in their homes because of a lack of appropriate housing stock that meets their needs.

This bill would limit a homeowners' ability to sell their home within the first 90 days by eliminating a potential purchaser – a publicly traded company that owns more than 10 rental properties. Does the current situation warrant or support the legislature's action to prevent a homeowner from contracting to sell their home to a qualified buyer?

The committee may wish to consider as a first step, prior to limiting a homeowners ability to sell their home to a qualified buyer, requiring DBO to complete the study required by the bill.

Double referred:  If AB 2282 passes this committee, the bill will be referred to the Committee on Banking and Finance.

REGISTERED SUPPORT / OPPOSITION:

Support

None on File

Opposition

California Apartment Association

Analysis Prepared by: Lisa Engel / H. & C.D. / (961) 319-2085, Lisa Engel / H. & C.D. / (916) 319-2085