The California Home Act, effective Jan. 1, 2022, paved the way for residential lot splitting (into two lots), allowing up to four separate living units to be built for a maximum of two units on each of the two lots.

In October, Assembly Bill 1033 reinstated ADU sales separate from the primary home. And AB 976 also signed by Gov. Gavin Newsom in October removed ADU owner-occupancy requirements. These two new laws offer a viable pathway for ADU construction and expansion for homeowners and real estate investors.

Also see: Duplex housing law met with resistance from California cities

“Yes, arguably more housing, more affordable housing allows less expensive properties in more expensive neighborhoods,” said Guy Cecala, executive chair at Inside Mortgage Finance. “There’s a crying need for more housing and more affordable housing,”

“It’s carving up single-family homes. Most people living in those neighborhoods don’t support them,” said Cecala, referring to common NIMBY reactions to new housing development.

If you’re looking to build an ADU from scratch, stick-built construction costs will run $350 to $400 per square foot, according to Mark Lefitz, vice president of business development at EZ Plans, an architect-design firm. “Soft costs (professional fees such as architectural and engineering and city fees) are $12,000 to $15,000.”

Also see: Want to jump on the ‘granny flat’ trend? This company was created to help

So, for example, an 800-square-foot ADU could cost $320,000 to build (or more depending on the interior).

You can also look into factory-manufactured ADUs which are then installed on site.

“Prefabs can be more expensive than stick builds,” said Steve Lefler, a consultant with Tiny House Alliance. “Electrical circuit costs and sewer connection costs are the biggest expenses.

More housing news: The least affordable housing market since 1984 is getting worse

If a homeowner doesn’t want to go to such lengths building an ADU and then selling it, they can opt to split the lot and sell it to a developer.

Matt Lucido, CEO of Yardsworth, has been buying dozens of inner-city lots in Los Angeles. Ideally, he looks for rectangular lots, say 6,000 to 9,000 square feet with small homes already on the property.

His firm provides a $5,000 non-refundable deposit to the lot seller with a six-month escrow period. A long escrow period is needed to square up the lot-split legal entitlements with the city.

Also see: Cash buyers flood US housing market, no-mortgage buys at 10-year high

“The seller makes somewhere between $100,000 and $250,000 for the lot split sale,” said Lucido. “If we can’t get the split done, the seller keeps the deposit.”

While Lucido is working on constructing properties on certain lot splits, none are completed and sold yet. So, it’s hard to know how much money a lot-split home would fetch since these ADU and lot-splitting laws are relatively new.

So, let’s say you do a lot split but keep the primary residence. How does that affect your property taxes?

“The land carries its own base (separate from the structure),” said Claude Parrish, a property assessor for Orange County. “The city building department must approve it.”

Affordability: 7 in 10 Californians say their kids will be worse off

Cities, I should note, have to follow state law. They cannot make arbitrary decisions like declining lot-split requests.

Parrish offered an example of land valued at $100,000 and evenly split 50/50. One parcel would have land assessed at $50,000 and so would the other parcel. The work involved, he said, is “not for the faint of heart.”

The Subdivision Map Act, enacted in 1974, enables cities and counties to administer, control and supervise the development of land, according to Chris Akin, a title operations manager at Lawyers Title.

“The sale of the ADU and corresponding lot split would have to conform to the Subdivision Map Act,” said Akin. “It’s a mini subdivision.”

Lots that are ineligible include those that have improper zoning (they must be zoned as single-family residential), do not meet minimum lot square footage requirements, cannot have been previously split or exist in floodplain (property near water).

Full disclosure: My firm, Mortgage Grader, does business with Lawyers Title.

So now, how to you finance the ADU construction? Well, that comes in many forms.

Examples range from the FHA 203(k) property rehabilitation loan to Fannie Mae’s HomeStyle and Freddie Mac’s CHOICE Renovation. A cash-out refinance of your existing mortgage or a home equity line of credit also can finance the build.

If you have an existing mortgage there could be problems splitting the property lot. Mortgage lenders don’t allow for partial reconveyances, so homeowners will need to clear any mortgage liens at the time of lot sale or lot split.

If you are considering buying a residential home (or building on a property you already own) to build ADUs and do a lot split, the first thing would be to hire a licensed appraiser. He or she can objectively help you to calculate the projected completed value and what rents these mini homes will command.

Next would be hiring a construction cost estimator. You’ll need an expert to figure out if it’s worth the investment.

Lastly, if you are going to hire a contractor, check him or her out thoroughly. The worst client and reader complaints I’ve heard over the years have been about nightmare contractors who did horrible work, some of which had to be redone. Some contractors even took the money and never did the work or just disappeared for days at a time.

Have your attorney review and approve ahead of signing anything.

Freddie Mac rate news

The 30-year fixed rate fell to an average 7.5%, 26 basis points lower than last week. The 15-year fixed rate fell 22 basis points to 7.03% from a week ago.

The Mortgage Bankers Association reported a 2.5% mortgage application increase compared with last week.

Bottom line: Assuming a borrower gets the average 30-year fixed rate on a conforming $726,200 loan, last year’s payment was $207 less than this week’s payment of $5,078.

What I see: Locally, well-qualified borrowers can get the following fixed-rate mortgages with 1 point: A 30-year FHA at 6.625%, a 15-year conventional at 6.5%, a 30-year conventional at 6.99%, a 15-year conventional high balance at 7.375% ($726,201 to $1,089,300), a 30-year high balance conventional at 7.75% and a jumbo 30-year fixed at 7.25%.

Note: The 30-year FHA conforming loan is limited to loans of $644,000 in the Inland Empire and $726,200 in LA and Orange counties.

Eye catcher loan program of the week: A 30-year adjustable, interest-only and fixed for the first five years, rate at 7.5% with 1 point cost.

Jeff Lazerson is a mortgage broker. He can be reached at 949-334-2424 or jlazerson@mortgagegrader.com.

The alarming gap between low incomes and high housing costs underscores an urgent need for creative, scalable, and sustainable housing solutions.

Responding to the need, philanthropists and entrepreneurs are busy developing innovative housing options. Many of these solutions promise shelter and a sense of dignity and community to those who need it most.

The root cause of homelessness isn’t necessarily the inability to pay for housing; it originates from the inability to locate affordable housing.

Creative solutions are available, but many are impractical or unaffordable. Consider five opportunities …

1. Tiny house villages

Tiny house villages are emerging as a promising, cost-effective solution to homelessness.

These communities consist of individual units equipped with essential amenities like a bed, a kitchenette, and a bathroom.

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Eden Village, a Missouri non-profit organization, emphasizes the high demand for affordable housing. To qualify for residency in its tiny home community, applicants must be chronically homeless, have a disabling condition, and be able to pay $300 each month for rent and utilities.

Cities like Seattle have embraced the cost-efficient tiny home model. Units in tiny house villages represent about 12.5% of all shelter beds and safe places supported by the city. However, they comprise less than 3% of its total homelessness response investments. Construction of the villages takes less than six months.

2. Micro apartments

In densely populated cities where space is a premium, micro apartments, or “micro-units,” are gaining traction.

These modular living spaces, typically less than 400 square feet, often come fully furnished. Micro apartments maximize the utility of limited urban space. Their location often provides easy access to public transportation and job opportunities.

• ECONOMIC NEWS: What’s the big trend? Should I be worried? CLICK HERE!

San Francisco firm Panoramic Interests designed a self-contained, stackable tiny apartment. Its MicroPAD modular homes boast a total floor space of just 160 square feet, including a kitchenette, sleeping area, and bathroom. The popular solution now includes 15 projects and more than 1,000 housing units.

Micro-apartments still have their challenges. Zoning laws in some cities have been a roadblock to their widespread adoption.

Despite obstacles, micro apartments represent a viable solution for single adults who need quick access to housing without the burden of high rent.

3. Shipping container housing

Repurposing shipping containers into livable spaces is an innovative approach to homelessness. The containers are durable, easy to modify, and relatively inexpensive to erect.

Cities including Los Angeles have transformed steel boxes into homes with insulation, plumbing, and other modern amenities.

Shipping container homes are cost-efficient to construct, and they meet urgent demands. The containers are converted into apartments off-site. That way, work can begin while laying the foundation and building a framework.

Confined living space represents the primary limitation of shipping container housing. It’s less than ideal for families with children, but the structures remain viable options for single adults or couples needing quick and affordable housing solutions.

4. 3D Printed Homes

The advent of 3D printing technology has opened new avenues in housing.

ICON, a firm in Austin, Texas, designed a 3D printer that creates entire homes in 24 hours.

• RENT TRENDS: What’s available – and what are landlords charging? CLICK HERE!

These homes are quick to construct, and they require fewer raw materials, reducing  both construction time and overall costs. The technology’s custom designs even cater to specific needs and preferences.

After showcasing its first 3D-printed home, ICON constructed a 3D-printed village serving the Austin-area homeless population. The Community First! Village features a cluster of 400-square-foot, one-bedroom houses made with the company’s second-generation printer.

The technology needed to construct these homes is still emerging, and may face regulatory challenges in the future, but that hasn’t stopped communities from adopting the solution. Despite potential hurdles, 3D-printed homes offer a futuristic solution to a longstanding problem.

5. Metal buildings

About 40% of America’s homeless are on the street each night. Opening additional homeless shelters provides immediate relief. Unfortunately, constructing such facilities generally requires substantial investments of time and money.

While initially designed for industrial use, metal buildings offer a more affordable and less time-consuming solution.

These structures can be repurposed into shelters. Metal buildings are durable and less expensive than traditional housing options. Considering steel buildings boast a lifespan of 50 to 100 years, the potential for a significant return on investment can’t be ignored.

One 23,000-square-foot shelter in San Francisco offers 200 beds plus additional community spaces.

Steel buildings can serve as community homeless shelters, but they also can be partitioned into affordable housing units. With proper insulation and interior modifications, these structures can be transformed into warm, inviting homes.

Crisis by numbers

• According to the U.S. Department of Housing and Urban Development,  582,500 people in the United States face the harsh reality of homelessness every night.
• The Journal of Adolescent Health paints a grimmer picture. Children and youth are considered homeless if they lack a fixed, regular, and adequate nighttime residence. By that measure, one in every 30 adolescents aged 13-17 experience homelessness each year. Likewise, about a third of the U.S. homeless population comprises families with children.
• HUD’s 2022 Annual Homelessness Assessment Report to Congress reveals that 28% of this vulnerable population comprises families with children.
• The issue is not confined to urban settings. Rural areas report a 6% increase in homelessness since 2020, indicating a nationwide crisis.
• The situation has reached a tipping point. With winter approaching, it demands both immediate attention and innovative solutions. Traditional shelters, after all, are bursting at the seams. Only 60% of the nation’s homeless spend their nights in shelters.
• Meanwhile, affordable housing has become a rare commodity. Without a viable remedy, it promises a larger homeless population in the future. The National Low Income Housing Coalition reports a shortage of 7.3 million rental homes that are affordable and available to extremely low-income renters.

This article was produced by Green Building Elements and syndicated by Wealth of Geeks.

Homebuyers who can afford to bypass the highest mortgage rates in two decades are increasingly forgoing financing and paying all cash.

Homes purchased entirely with cash, which means there was no reference to a mortgage on the deed, accounted for 34.1% of all sales in September. That’s up from 29.5% a year earlier and the highest share in nearly a decade, according to a Redfin analysis of home sales in 40 of the nation’s most populous metropolitan areas.

Still, sharply higher home loan borrowing costs, a dearth of homes for sale and rising home prices have dampened home sales overall, which has helped give a boost to all-cash transactions’ portion of all home sales.

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Even as their share of all sales increased, the number of all-cash transactions in September fell 11% from a year earlier, Redfin found. In contrast, home sales overall fell 23% in the same period.

“Were it not for these cash buyers, I think the housing market would be in even worse position than is now,” said Daryl Fairweather, Redfin’s chief economist.

Even homebuyers who use financing are electing to make bigger down payments in order to reduce the size of their mortgage.

The typical U.S. homebuyer put down 16.1% of the purchase price in September, the highest percentage in nearly a year and a half, Redfin said.

The last time all-cash transactions made up a bigger portion of all home sales was February 2014, when the share was 34.3%. Back then, the housing market was still on the mend following the late-2000s housing crash that led to millions of foreclosures. Corporate homebuyers and other real estate investors saw an opportunity to snap up discounted homes and they favored paying in cash.

Today, the forces driving up the share of all-cash home purchases are very different. The housing market is once again in a protracted sales slump, but there isn’t a glut of homes — much less discounted or foreclosed properties —- available to entice a crush of bargain-hunting, cash-paying real estate investors.

The inventory of previously occupied homes for sale nationally is near historic lows, which has kept prices ticking higher despite the market downturn. That means buyers who can pay all cash have a competitive edge over those who are relying on financing.

And then there’s mortgage rates. The average rate on a 30-year home loan has been above 7% since August, hovering at times just below 8%, according to mortgage buyer Freddie Mac. That’s roughly double what it was in February 2014, and a stark increase from just two years ago, when rates on the 30-year mortgage averaged around 3%.

Cash is also king when it comes to the luxury home market, which Redfin defines as properties with a market value within the top 5% of a given metropolitan area. All-cash transactions accounted for 43% of all homes in that category that were purchased in the third quarter, up from 35% a year earlier, Redfin said.

Seven out of 10 Californians think kids growing up in the Golden State will be financially worse off than their parents, according to a statewide survey by the Public Policy Institute of California.

The 71% of adults who share the grim outlook is a record high for the survey, which is in its 25th year. Just 50% of Californians held the same view five years ago.

At the same time, 72% of Californians said they are satisfied with their household’s financial standing and 54% of likely voters said they approved of Governor Gavin Newsom’s handling of jobs and the economy.

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More than half of adults surveyed think things are generally going in the wrong direction in California, and six in 10 likely voters predict bad economic times in the next 12 months.

The sentiment in California mirrors the rest of the nation. Despite strong economic growth and a resilient job market, more middle-class Americans are worried about the state of the economy than a year ago, according to a recent Harris Poll for Bloomberg News. Higher prices for food, gas and rent continue to stretch budgets — the typical American household spends about $730 a month more than last year, according to Moody’s Analytics.

The pessimism comes alongside a worsening housing affordability crisis in the Golden State, already among the nation’s costliest housing markets. The Federal Reserve has raised its key rate to fight inflation, making borrowing more costly for home buyers. At the same time an inventory shortage has propped up prices.

Eight in 10 Californians said they thought the availability of well-paying jobs in their region is a problem, and 21% said the issue has caused them to consider a move out of state. Almost half of lower-income adults under age 35 said they’ve considered moving because of a lack of well-paying jobs.

About half of households earning less than $20,000 said they have been unable to pay a monthly bill or had difficulty paying their rent or mortgage. Three in 10 renters said they have had difficulty paying for housing, compared to 9% of homeowners who said the same.

The survey of 2,250 adults, which includes 1,395 likely voters, was conducted from Oct. 3-19.

It’s been almost a dozen years since California housing has been in “buyer’s market” conditions.

Industry folklore infers that buyers are in control of the market when house hunters can pick from listing inventory that equals six months or more of sales. If supply is three months or less, the homebuying logic says it’s a “seller’s market.” In between, a so-called “balanced” market is in play.

So to hunt for buyer’s markets, my trusty spreadsheet applied those curious definitions to California Association of Realtors stats tracking sales of single-family homes plus some related economic data going back to 1990.

Let’s start by noting that California’s supply of homes for sale was 2.8 months in September. That’s a seller’s market, according to real estate mythology.

You have to go back to February 2012, when supply was 7.5 months, to find the last time California buyers were in control of the market, by this definition.

Over these past dozen years, California housing has been a seller’s market 38% of the time and “balanced” 62%. In that same period, the Realtors’ median selling price for existing single-family homes rose at a swift 8% annual pace.

Clearly, as California house hunters know, buyers were not driving the market.

Lots of options

So what does history tell us about typical California buyer’s markets compared with supposedly seller-friendly times?

Homes for sale are plentiful. Supply averaged 10.2 months in buyer’s market periods stretching back 34 years vs. 2.4 months when sellers are in control.

And there’s no need to rush. Since 1990, listed houses sat for an average 63 days in a buyer’s market vs. 23 for sellers.

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Meanwhile, prices go down. Buyer’s markets average 3.7% depreciation in the previous 12 months vs. 15%-a-year appreciation in seller’s market.

Mortgage rates also dipped when buyers control the market. Since 1990, the 30-year fixed loan rate was down 0.3 percentage points in the previous year for buyers vs. a 0.1 point gain when sellers are in control.

Buyer beware

Those seemingly enticing buyer’s market conditions, however, fail to get house hunters into a buying mood.

California averaged a 26% lower sales rate in buyer’s markets vs. seller’s markets. Even builders pull back, filing 27% fewer permits to construct single-family homes in buyer’s markets.

• RENT TRENDS: What’s available – and what are landlords charging? CLICK HERE!

So why does real estate chill in buyer’s market conditions? Well, that “time to buy” period typically parallels weaker economies that can spook house hunters and owners alike.

California’s unemployment rate averaged 7.7% in a buyer’s market vs. 6.4% when sellers were in control. Job creation statewide shrinks by 62% in buyer’s markets.

Also, ponder this national yardstick of house-hunter interest from the Conference Board: 3% of consumers polled had homebuying plans during California buyer’s markets vs. 5% in seller’s markets.

Bottom line

The spreadsheet says California has been in buyer’s market status one-third of the time since 1990. But it’s a dying breed of house-hunting conditions, when you look at the math by each decades …

1990s: 79% of the decade was a buyer’s market during a decade marked by a painfully slow rebound from a housing crash off late 1980s highs.

• SOCAL JOBS NEWS: What industries are hiring? Who’s cutting back? CLICK HERE!

2000s: 27% buyer’s market with a huge homebuying surge became a bubble that burst into the Great Financial Crisis as the decade ended.

2010s: 3% buyer’s market as housing rebounded from the Great Recession’s carnage.

2020s: No buyer’s markets through September 2023 amid all the pandemic gyrations, including a period of historically low mortgage rates.

History shows a “buyer’s market” designation is a spurious label for what are largely bad times for California pocketbooks.

So maybe buyer’s markets should come with warning labels as a financial calamity may be required to create another one for California house hunters.

Buyers, be careful what you wish for.

One suggestion

House-hunting’s long-running transformation includes people moving less often, consumers accessing detailed market info, near-instant cash buyers and tighter lending standards.

Maybe the buyer/seller-market math should morph, too.

From 1990 through 2006, just before the bubble burst, California was a “buyer’s market” in 49% of all months and a “seller’s market” 17% of the time – using the traditional 6-month/3-month template and Realtor data.

Looking at the past 12 post-crash years – assuming you’d want to match that pattern – a buyer’s market would be 3.25 months-plus of supply and a seller’s market would be 2.25 months or less.

If nothing else, this evolving gap in homebuying supply is another measurement of today’s steep house-hunting challenges.

Jonathan Lansner is the business columnist for the Southern California News Group. He can be reached at jlansner@scng.com

The 2.28-acre site, at the southeast corner of Lake Avenue and Villa Street, had sat empty for 10 years before Los Angeles County and city officials joined back in April in an ambitious plan to reimagine it. That plan includes up to 100 housing units and a goal to expand homeless, mental health and community services in an area officials say is “high priority” for such services.

“This project, in partnership with Los Angeles County, is an opportunity to bring much-needed health care and mental health care services to our residents at one location,” said Pasadena Mayor Victor Gordo in a statement accompanying the announcement. “It also is an opportunity to develop quality affordable housing and improve the overall economic vitality of this part of our City.”

Gordo said the work of developing the site will now commence in earnest, adding that he believes the project is a good example of government collaboration.

In April, the City Council approved an agreement with Kaiser for the property. The Board of Supervisors later did the same, in what was said to be a $12 million purchase.

Early on, there was talk about Fuller School of Psychology and Pacific Oaks College coming on to address the lack of mental health staffing. But that is not part of the agreement.

Officials at the county and city envision the site as a model to address homelessness and the mental health crisis across the state, and locally.

While a specific timeline for the project was not announced, City Manager Miguel Marquez said a request for proposals for the site’s development should be released in about 90 days.

Editor’s Note: This story has been updated to reflect that Fuller School of Psychology and Pacific Oaks College, while discussed in early talks about the site, were not part of the agreement.

The average 30-year mortgage rate plunged last week by the most in more than a year, helping generate the biggest advance in home purchase applications since early June.

The contract rate on a 30-year fixed mortgage slid 25 basis points to 7.61%, the lowest level since the end of September, according to the Mortgage Bankers Association. The group’s index of mortgage applications for home purchases increased 3% in the week ended Nov. 3, the data out Wednesday showed.

The second-straight weekly decline in mortgage rates is the first since mid-June and offers modest relief for a struggling housing market. Still, mortgage rates remain uncomfortably high and are discouraging many homeowners who have locked in rates at much lower levels from moving. That’s put pressure on supply and kept prices elevated.

“Looking ahead, we think that we’ve now seen the peak in mortgage rates and anticipate a steady decline over the next two years,” Thomas Ryan, property economist at Capital Economics, said in a note. “Even so, we don’t expect them to fall below 6.0% before end-2025, far higher than the 4.1% average of the 2010s decade. That will keep affordability stretched and dampen any potential of a major recovery in housing activity.”

The Federal Reserve’s decision last week to hold interest rates steady for a second straight meeting is offering some hope for the housing sector. While policymakers reaffirmed they will keep borrowing costs elevated in the near term, real estate stocks rallied last week on speculation the central bank could be nearing the end of its tightening cycle.

That outlook has helped bring the 10-year Treasury yield down from the peaks reached in October. Mortgage rates tend to move in tandem with government yields.

The MBA’s overall index of applications, which includes purchasing and refinancing, rose 2.5% last week from the lowest level since 1995. Refinancing activity also edged up.

The MBA survey, which has been conducted weekly since 1990, uses responses from mortgage bankers, commercial banks and thrifts. The data cover more than 75% of all retail residential mortgage applications in the US.

The last time America’s housing market was this unaffordable, Ronald Reagan was in the White House.

It now takes nearly 41% of the median household’s monthly income to cover the principal and interest payments on a median-priced home, according to research from Intercontinental Exchange. It comes at a time of uncomfortably high prices after a bout with the worst inflation in a generation. Housing is eating up a bigger portion of paychecks as gas, groceries and other loan prices are sky-high.

Also see: 46% of Southern California houses are asking $1 million or more

Housing now takes up the biggest chunk of paychecks since 1984, according to ICE, the owner of the New York Stock Exchange. That’s up 0.4% from last month’s report, which also showed America’s homes were at the least affordable level in 39 years.

The portion of households’ paychecks needed to pay for housing has surged in the past few decades. Over the past 35 years, this metric averaged less than 25%.

Also see: Economic progress undercut by shortage of affordable housing, report says

Wannabe homebuyers are getting hammered by a painful combination of high mortgage rates and high home prices. The one-two punch of has pushed the principal and interest payment needed to buy a median-priced home up by $144 over just the past month alone, according to ICE. For the first time, monthly payments are above $2,500 – and that doesn’t even include taxes, insurance or other fees.

“The situation was already dire,” Andy Walden, ICE’s vice president of enterprise research said in the report, adding that the recent jump in mortgage rates has made it even worse.

Also see: Southern California has 33 of priciest US ZIPs for homes

This problem is pushing the American dream further from reach for some prospective first-time homebuyers. They’ve been forced to rent instead, delaying their ability to build wealth through homeownership.

Turmoil in the bond market and the Federal Reserve’s war on inflation have driven up mortgage rates to levels unseen since 2000.

After seven consecutive weekly increases, the 30-year, fixed-rate mortgage dipped to an average of 7.76% in the week ending November 2, according to Freddie Mac.

That’s miles away from the pre-Covid rate of 3.8% in the fall of 2019. Aided by emergency action from the Fed, mortgage rates briefly tumbled below 2.7% in late 2020 and early 2021.

The higher mortgage rates go, the less home people can afford.

At today’s rates, monthly payments on a $500,000 home would stand at roughly $3,265 after putting 20% down.

That’s $1,165 more than two years ago, when mortgage rates were barely above 3%.

Despite high borrowing costs, home prices continue to rise amid a supply crunch.

US home prices climbed in August to a record high, marking the seventh straight month of increases, according to S&P CoreLogic Case-Shiller.

Of course, that’s good news for existing homeowners, assuming they don’t want to move.

It’s a key reason Americans’ net worth surged by a record 37% between 2019 and 2022, according to Fed data.

But some younger Americans who want to buy their first homes are on the outside looking in.

ICE notes that the last time housing affordability was this bad, the average home cost about 3.5 times median income. Today, that price-to-income ratio is much worse, at nearly six to one.

A casual approach to desk allocation at work poses a risk to the market for office buildings, according to analysts at Morgan Stanley.

“Along with work from home, hot desking is one of the most structurally damaging headwinds facing the office market,” Sebastian Isola and colleagues wrote in a note to clients.

“Were it to be adopted more broadly, the reduction in floorspace requirements would likely have a considerable impact on occupational demand,” they said.

The property sector has suffered this year as interest rates have soared, while commercial and office real estate firms have been grappling with the shift toward hybrid working models.

Hot desking — the use of flexible work areas that aren’t assigned to specific employees — appears to be most prevalent in the UK, according to a survey conducted by the bank. Among UK respondents, 30% say it’s been introduced since the coronavirus pandemic versus about 20% in Germany and France and only 13% in the US, they wrote.

To be sure, the survey data suggests hot desking was also popular in Britain pre-Covid, the analysts added.

Still, despite informal desk policies and work-from-home practices in Britain, Morgan Stanley still favors London-focused office stocks. Occupiers are gravitating toward city-center locations that are rich in amenities, they said, keeping overweight ratings on Derwent London Plc, Great Portland Estates Plc and British Land Co. Plc.

All three stocks have suffered double-digit percentage declines this year, as higher rates fuel concerns about debt servicing costs and asset valuations.

While the county saw academic improvement, rising employment and incomes, a falling poverty rate and an uptick in gross economic output, stubbornly high home prices and rent are driving people away, according to the Orange County Business Council’s new “Community Indicators Report.”

More than 30,000 Orange County residents fled the jurisdiction in 2022 in search of affordable housing.

“Housing is that one big controlling factor that I believe is going to have some impact on our ability to grow,” said Jeff Ball, business council chief executive. “We need supply. It is clearly a supply issue.”

The solution is to eliminate longstanding, intransigent barriers to development and build more housing, the report said. Local restrictions like parking requirements and developer fees, environmental reviews and political opposition to new housing must ease to get housing costs more in line with incomes.

The high cost of shelter is Orange County’s “biggest Achilles heel,” said Wallace Walrod, the business council’s chief economic adviser. “And (it) bleeds through to the population. Some people are moving out of Orange County because they can’t afford housing here.”

Calling itself the “voice of business,” the council is Orange County’s equivalent of a chamber of commerce. Its annual “Community Indicators Report” seeks to “shape informed responses” to county problems by highlighting key areas of improvement and decline.

The report reads like a giant Wikipedia page, with facts ranging from the county’s total land area (799 square miles) to high school dropout rates (4%) and per capita water consumption (114 gallons per day).

This year’s report includes a special section on housing, taking the position that increased homebuilding is the solution to high housing costs.

But barriers to building hold new development in check, the report said.

They include “well-intentioned” regulations and zoning restrictions; the “time- and resource-consuming” California Environmental Quality Act, or CEQA; resistance to state-mandated homebuilding goals; and neighborhood opposition to new development, or “NIMBYism.”

The report adds that economic factors like high interest rates and rising construction costs also contribute to housing shortages. And it denounces rent control because it discourages rental development.

Recent numbers reflect the sluggishness of homebuilding.

While the state determined that Orange County needs almost 23,000 new homes annually by 2030, city and county governments issued just 5,938 building permits in 2022, according to the St. Louis Fed. The county averaged just under 8,800 permits a year for the past decade.

Meanwhile, only 12% of Orange County households could afford to buy a median-priced house during the first half of 2023, according to the California Association of Realtors. That’s a mere 2 percentage points above the county’s all-time low affordability rate of 10%.

The business council’s proposed solutions are not new. State, academic and industry reports have highlighted those barriers to building for at least a decade.

“The state Legislature has been focused on this for some time. Nothing seems to be working,” Ball conceded.

The business council emphasized the need for CEQA reform.

While environmental groups maintain that weakening CEQA threatens the quality of life, reformists argue it’s been abused, blocking construction for reasons that have nothing to do with the environment.

New laws allow affordable housing and other developments to fast-track the CEQA process, Ball noted.

“We acknowledged the fact that it’s a problem. But rather than choose to address the overall problem, we find targeted, narrow gaps where we choose to address it,” Ball said. “Until we get to more of a broader reform, it’s going to continue to be an issue on our supply side.”

On the bright side, the report cited a wide array of indicators showing that Orange County remains a prosperous, low-crime economic powerhouse.

“Our economy is leading Southern California in the recovery,” Walrod said. Rising economic output “shows continuing recovery from COVID.”

Highlights include:

— The Orange County poverty rate decreased to 9.9%, with 10.8% of the county’s children living in poverty, the report said. That’s down from from a poverty rate of 10.1% the year before, with 12.9% of children living in poverty.

— Employment increased by 47,500 nonfarm jobs in the year ending in September, state data show. The county’s unemployment rate also increased to 3.7%, but that’s because more people are looking for jobs.

— Orange County’s gross regional product (the county-level equivalent of the gross domestic product) increased to $284 billion in 2022 from $275 billion in 2021, a 3% gain.

The county’s economic output is greater than in 25 states, including Louisiana, Alabama, and Kentucky, the report said.

— On the other hand, students’ reading and math scores have yet to fully return to pre-pandemic levels.

— Mental health challenges and substance abuse continue to plague local communities. For example, opioid-related deaths rose to 23 per 100,000 residents in 2021, almost triple the 2019 rate of 8 deaths per 100,000.