Residential construction is being held back in California by a lengthy permitting process, not a shortage of financing, Bank of America Corp. Chief Executive Officer Brian Moynihan said today.
“The money is sitting there,” Moynihan said during a panel discussion with Governor Jerry Brown at a housing forum in Oakland, California. “Financing won’t be the toughest thing.”
Moynihan said BofA has modified about 250,000 mortgages in California amid a home-price rebound in coastal cities. Four of the six priciest U.S. markets are located in the state, the National Association of Realtors said in a Feb. 11 report. The San Jose metropolitan area, home to Silicon Valley, led the nation with a median house value of $685,000 in the fourth quarter, up almost 25 percent from a year earlier. San Francisco ranked third, Anaheim-Santa Ana was fourth and San Diego was sixth. Los Angeles ranked 13th.
The state’s environmental-review process for real estate projects, based on the California Environmental Quality Act, can be a “land mine” that inhibits development, Brown said during the panel discussion.
“Regulatory reform is in order,” he said. “We’re going to do what we can to push a balanced policy” that includes transit-oriented projects.
Moynihan echoed previous remarks in which he urged the U.S. government, lenders and borrowers to lower expectations about homeownership. Government-run mortgage companies Fannie Mae and Freddie Mac should undergo an “orderly transition” to diminish their financing role, and the Federal Housing Administration should return to an original focus on helping low- and moderate-income borrowers, Moynihan said on Dec. 14 at the Brookings Institution in Washington.
“We need to look hard at some of the old assumptions,” Moynihan said at Brookings.
At today’s event, Moynihan said changing the role of Fannie and Freddie is “decades’ work.” The private sector will take over the government’s housing-finance role when “yields rise,” he said.
Demand from private investors for mortgage-backed securities is lifting the market for residential loans not backed by the government, and contributing to the housing recovery in coastal California cities. So-called jumbo or non-conforming mortgages may climb 15 percent to $253 billion this year, according to Inside Mortgage Finance. Mill Valley, California-based Redwood Trust Inc. and New York-based Chimera Investment Corp. are packaging the loans into bonds.
California’s 55 percent ownership rate, which compares with 65 percent nationally, means that state policy makers should encourage more rental projects, Kenneth Rosen, chairman of the Fisher Center for Real Estate & Urban Economics at the University of California, Berkeley, said in an interview before the forum. The Fisher Center sponsored today’s event.
California will always trail the U.S. ownership rate because demand in cities such as San Francisco, Los Angeles and San Diego will keep home values beyond the means of many would-be buyers, said Rosen, who moderated the panel discussion. The state needs a streamlined land-use policy so residential builders “know in six months, not seven years” whether their projects can proceed, he said.