How’s the market? Yet Another Ill-Conceived Bill – Lake County Record-Bee

If you own a residential rental property, be sure to review Assembly Bill 2710. This bill is a prime example of government intervention to “fix” the free market, but causing more harm than good in the process.

At Selzer Property Management, we manage several hundred residential units, so we are in contact with many owners. Lately, many of them have thrown in the towel on residential rentals in California. They convert their holdings into commercial property, invest in out-of-state residential rentals, or exit the real estate market altogether. The net effect is a decrease in the number of rentals available when we already have a severe housing shortage.

This is followed by AB2710, which requires residential rental property owners to grant first right of refusal to eligible potential buyers who would then have almost a year to decide whether they want (and can afford) to buy – a whole year!

Suppose you inherited the rental property from your parents when they died, and you need the proceeds from the sale of the house to complete the liquidation of their estate, including the payment of estate debts. Why should you keep ownership for a year? Or maybe your situation changes: you’re moving out of the area, experiencing financial difficulties, or just tired of managing a rental. With AB 2710, you will have to wait a year before you can sell.

Financial investments are evaluated according to the rate of return and the associated risk. AB 2710 increases the risk for investors, which means they will demand higher returns. This does two things: it increases rents and delays the development of new rentals until the returns justify the risks. Both are adverse outcomes for the vast majority of California renters.

The best way to create more rentals is to remove unnecessary and unsuccessful regulations that limit landlords. When legislation violates the market economy, the unintended consequences usually end up hurting the people it is meant to help, in this case, people looking for housing. Simply ask any local employer to name the biggest challenge in recruiting people to Ukiah. They will tell you that it is a lack of available accommodation. Or ask a parent what they think about their grown children leaving the area because they can’t find a home in Ukiah.

So who benefits from this bill? Unfortunately, very few. An affordable housing agency may be able to acquire a property that it otherwise could not. Or a rare renter who has the time to scrape together some cash over the course of a year may be able to buy the house they rented. But forcing landlords to keep properties they don’t want will actually reduce the number of rentals available. AB 2710 hurts anyone looking for a place to live, who far outnumber the potential beneficiaries of the proposed bill.

AB 2710 also has other troubling issues, not the least of which is requiring the disclosure of a renter’s private information to multiple agencies. Currently, as a rental landlord, I am only permitted to provide my tenant’s financial information to my mortgage lender and a potential buyer of the property. AB 2710 would require the information to be shared with a multitude of people.

Ultimately, AB 2710 increases the risk of owning a residential rental, which will drive people out of the market. The best they can hope for is to figure out who owns the property. They haven’t added a single square foot to the market.

There is no valid reason for the one-year delay. If someone wants to buy a property, they can make an offer when the property comes up for sale. If this law would only require a seller to notify various agencies that a property is available, I would have less trouble with that, but disclosing tenants’ private information and requiring landlords to wait a year before selling is ridiculous.

If you have any questions about property management or real estate, please contact me at [email protected] or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery. To view previous articles, visit www.selzerrealty.com and click on “How’s the Market Going”.

Dick Selzer is a real estate broker who has been in the business for over 45 years.

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