November 14, 2017

West Coast Real Estate Update: Nov. 14, 2017

Holland & Knight Update
Susan Jennifer Booth | Stacie Andra Goeddel | Robert M. Haight Jr. | Karl J. Lott | Douglas A. Praw

Analysts Say Tax Proposal Could Cut MBS Issuance by $30 Billion

The tax proposal initially released by the House Ways and Means Committee could look very different from what Congress actually approves. However, analysts have said that, if passed, certain provisions in the tax plan could have a significant impact on the issuance of mortgage-backed securities (MBS).

The recently released tax plan would only allow interest on mortgages of an amount up to $500,000 to be deducted on a homeowner's tax return. This is a sharp reduction from the current law that allows the deduction of interest on mortgages of an amount up to $1 million. As this incentive to finance the purchase of a home with a mortgage is reduced, analysts expect some potential homebuyers to elect a smaller mortgage or forego homeownership entirely in favor of renting. Analysts say these factors could lead to a lower volume of mortgage originations and, in turn, reduce MBS issuance by as much as $30 billion. However, analysts also point out that people purchase homes for reasons other than the mortgage interest tax deduction, so the decrease in MBS issuance could more likely be $15 billion.  

Where Will Future Residents of Los Angeles Live?

It is no secret that Los Angeles is facing a severe housing shortage. It is against this backdrop that the Southern California Association of Governments recently released a report that estimates the population of Los Angeles County could increase by 1 million people by 2035.  

In 2013, Mayor Eric Garcetti set a goal of having 100,000 new housing units built in the City of Los Angeles by 2021. Garcetti recently announced that more than two-thirds of that goal already has been accomplished. However, most of the units that have been built are market rate units and do little to ameliorate the affordable housing shortage. The nonprofit group California Housing Partnership Corporation recently indicated that 551,807 new units of affordable housing would need to be built in Los Angeles County to satisfy the demand of lower-income residents.

Garcetti has supported several programs to improve the housing stock in and around Los Angeles, most notably the "28 by 28" plan to expedite transit-oriented developments as well as the decrease in restrictions on so-called "granny flats," also known as Accessory Dwelling Units (ADUs). Time will tell if these measures can create the housing inventory that Los Angeles will need for its growing population.

The Unintended Consequences of State Seismic Regulations

Community Medical Center Long Beach recently announced it will close its emergency room and no longer provide acute care services within the next year and a half because it cannot meet state earthquake safety standards. This followed a similar announcement from Pacific Alliance Medical Center in Los Angeles that it will close because it is unable to afford the cost of a seismic retrofit required by California law.

Long Beach and Los Angeles certainly have other hospitals that provide emergency and acute care services, but the closure and partial closure of these two hospitals make it more difficult for residents to access these types of services, not to mention the hundreds of employees that will now have to find other work. It is doubtful that many people would be against regulations that require hospitals in an earthquake-prone area such as California to be able to withstand a significant seismic event, but this news reminds us that such regulations come at a cost. 

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.

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