Housing Crisis or �Hoarding Crisis?

Solutions to having more homes available and lowering housing costs.

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Presented to the Normal Heights Planning Committee on

February 6, 2024

8,000 New Houses Available Tomorrow?

• San Diego allows short-term rentals via a licensing process.
• Tier 1 – vacation home for 20 days or less per year
• 180 licenses
• Tier 2 – vacation home for 20 days or more as long as the owner resides onsite
• 2,549 licenses
• Tier 3 – vacation home year round
• 4,461 licenses
• Tier 4 – vacation home year round
• 1,082 licenses

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As of December 28, 2023

Problem with Tier 2?

• According to the city website, the owner or permanent resident may be absent from the residence for up to 90 days per calendar year.
• This is meant for those who rent out their property while they are away themselves, but for only a few months a year.
• Then why are 264 of these licenses held by someone who has multiple Tier 2 licenses? How can you live in multiple houses for nine months of the year?
• One person holds 12 of these Tier 2 licenses.
• He also holds two Tier 1 licenses;
• Twenty-seven Tier 3 licenses; and
• Nineteen Tier 4 licenses.

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How Can One Person Hold 60 Licenses?

• The city states that only one license per person, right?
• Yes, except for the loophole. The person running the business is the contact. The “Host” is the one that “holds” the license.
• So, while one person can manage the property, can run the business, and can do all of the work, and can have the same tax number on these multiple properties, all the while on the paperwork there is another name.

So What is the Problem with One License per “Host”?

• In a word – scam.
• I wondered about a company I know that rents out 17 houses for short-term (30 days or less) only. It is a lucrative business for them.
• In looking up their “Host” for those 17 houses which have the same contact name, contact phone, and tax numbers (four different ones, but they are used multiple times), I found names of people I personally know.
• People who have never “hosted” visitors.
• People who have never run a vacation rental.
• People who I believe have never set foot on those properties.
• Yet, the city has provided them a license so that this other company can use multiple licenses at multiple locations.

Multiple Tier 2 licenses to the same person here in Normal Heights (92116). Same contact details. Same tax number. Clearly not adhering to the one license per person.

“You should tell the city”, you say?

The city knows and has known, at least since this report was published in June 2023 when city council members were asked for a comment:

This is nothing new.

And it is not just San Diego:

Houses should be �homes, not hotels!

If housing is so bad in San Diego, the city must immediately stop allowing all vacation rentals if they cannot manage it the way it was intended.

Which it currently appears they cannot.

Why You Should Care

A study from 2017, by the National Bureau of Economic Research, Cal State Northridge, and USC, showed how short-term vacation rentals in the area not only increased the monthly rent for long-term renters, but also raised the median house price.

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A study in late 2021, by the University of Nevada, Georgia State University, and Miami University came to the same conclusion.

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Another study in early 2021 done in Portugal showed that this is not a uniquely American phenomenon. As did a study done in Sweden in 2022.

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Beyond STRO

Putting 8,000 housing units back on the market is a good start, but not the only one.

Remember when Scooby Doo taught you that monsters were really just unscrupulous real estate investors in a mask?

All New! Amazing! “Fully Renovated”!

• New Flooring!
• New HVAC!!
• New Plumbing!!!
• New Electrical!!!!

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Must have taken a while to get all of those permits, right?

For Kicks and Giggles

Let’s give them the benefit of the doubt and say they did everything legally and by code-standards for this <1,500 sq ft house.

• New Flooring - $ 8,000
• New HVAC - $30,000
• New Plumbing - $30,000
• New Electrical - $17,000
• New Windows - $ 8,000
• Miscellaneous - $ 7,000

Total upgrades = $100,000

Excessive Profit = Higher Housing Prices

Sell for $1,550,000 In November

Buy for $1,000,000 In August

Upgrades costs $ 100,000 Over those three months

Clear Profit $ ~450,000

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Inflation Penalty

In the pharmaceutical world there is something called the Inflation Penalty. When a manufacturer increases their prices beyond a reasonable amount, the government imposes upon them an inflation penalty, because healthcare, like housing is a necessity.

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California in general, and San Diego specifically, should also impose an inflation penalty on for-excessive-profit flippers.

How it Would Work

Any company (or sub-company of the same parent) that sells two or more homes in a four-year period would be subject. Normal home owners are not buying and selling properties that often, so it is clear if they are buying and selling constantly, they are not real “home owners”.

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Once identified by doing a simple property owner search by records departments, a calculation is applied to the purchase and sale price, as well as the legitimate costs.

A healthy profit margin for a small business is generally accepted as 7-10%.

Another example: 5315 Canterbury Drive, San Diego, CA 92116

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Sold: August 9, 2033 $2,125,000

Listed for Sale: November 17, 2023 $2,995,000

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There were no upgrades listed in the Zillow ad, and there were no permits provided for any work, but let us say they put in $250,000 into the property – for kicks and giggles.

Additional Benefits

In addition to bringing down housing prices, there are side benefits:

• It would expose those flippers who do not pay proper taxes on workers (which I know for a fact is happening). If companies wanted to deduct costs of workers, they will have to provide W-2 or 1099 forms to show that the workers were paid legitimately.
• It would expose those flippers who do not obtain permits and do illegal and unsafe work on properties. The permits would have to be confirmed for the work that was done before it can be deducted as a legitimate expense.
• It would expose those who are claiming work that was actually not done. If the company wants to deduct work on the plumbing as they claim, they will have to show that it was actually done via the materials costs. If they just put in new taps, that is not new plumbing and should not be marketed as such giving buyers false information.
• It would bring back “Fixer Uppers” where first-time home buyers could have a chance at getting a property, instead of flippers and investors snagging up properties before they are even listed.

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Additional Steps to Lower Costs

• 12% of homes in California are owned by foreign investors. That is over 1.5 million.
• Those investors are creating “perpetual renters” where average people cannot compete for purchasing property, thus they have to rent, often at excessive rates higher than actual ownership costs. Currently in California housing units 44.5% are rentals (higher than the national average of 36%). That is only increasing.
• California property should be for California citizens who live here a majority of the year.

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Who is Limiting Ownership to Their Citizens?

• Dozens of countries have put in place bans on foreign ownership of property. Including those in Europe, Asia, Australia, and New Zealand.
• Italy began imposing bans on foreign ownership of houses in 2018 when the average price was € 1,975 per square meter. The average price today for a home is € 1,974 per square meter.

“So many new homes are being looked at as assets, as investments — as opposed to places to raise families and create communities,” Trudeau said when announcing restrictions on non-resident purchases of property in Canada.

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This is correct:

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Houses should be homes, not lines on a ledger.

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Asks of the Normal Heights Community Planning Group

• A letter to the San Diego City Council requesting actions on:
• Ceasing the Short-Term Residential Occupancy program until this “housing crisis” has passed. And request that they put a better enforcement structure in place before the program restarts.
• An inflation penalty tax/fee is implemented to stop the price gouging done by investors, which pushes up the prices for all. Again, this has a side benefit of forcing these “flippers” to follow the laws.
• A moratorium on out of state/country purchasers unless they can produce documentation that they are moving to San Diego from another area for purposes of living here in that property (e.g., documents of the sale of their property in another state, notice to a landlord of moving, documentation of a job offer in San Diego).

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Thank you for your time

and attention.