LEGAL/LEGISLATIVE UPDATE – JULY 18, 2016

Published on: July 18, 2016

REASSURING REBOUND

After triggering a bad case of economic jitters in May, the employment report brought a measure of relief in June as employers added 287,000 workers to their payrolls. That stronger—than-expected performance, following a dismal increase of only 38,000 workers in May, tempered fears that the economy might be losing ground, but left uncertain the timing of the interest rate increase the Federal Reserve has been eyeing, but deferring, for most of this year.

The June Department of Labor report was almost entirely positive: The unemployment rate inched up to 4.9 percent from 4.7 percent, as more job-seekers entered the market; new claims for unemployment benefits remained near their post-recession bottom; and employers reported nearly 6 million available but unfilled job openings, suggesting that wages, which increased for the fourth consecutive month, may continue to rise in a tightening job market.

Analysts shaken by the May employment plunge were encouraged by the robust June rebound. “When I look through all the data, there is no smoking gun that the U.S. economy is pulling into a recession now,” Andrew Chamberlain, chief economist at Glassdoor Economic Research, told the New York Times.

While the strong labor market profile no doubt reassured Fed officials, too, it is unlikely to persuade them that the risk balance has shifted away from economic uncertainty (arguing against a rate hike) and toward inflationary fears, arguing in favor of one.

With Britain’s Brexit vote (to leave the European Union) and economic growth slowing abroad, “the economic fog is thick outside [Fed Chair] Janet Yellen’s window, and in those conditions central bankers walk instead of run,” a Bloomberg News report noted. According to that analysis, investors now see no chance the Fed will increase its benchmark rate when the Federal Open Market Committee meets next (July 26-27) and only a 12 percent chance of an increase before the end of this year.

CALM AFTER THE STORM

The U.S. stock markets recovered quickly from their Brexit-induced swoon, as the strong labor market report (see above) and other positive economic indicators overcame concern about fall-out from England’s withdrawal from the European Union.

business-163464_1280The primary impact here, at least thus far, seems to have been to push interest rates to record lows, stimulating a surge in refinancing activity and a more modest increase in home purchases (see below).

In the week following the vote, the Mortgage Bankers Association’s Refinance Index jumped by 21 percent, while the purchase index rose by 4 percent.

“Lower rates produce lower monthly payments and greater buying power—those who are well qualified can afford a home that’s 8 percent more expensive than at the beginning of the year,” Jonathan Smoke, chief economist for realtor.com noted in a recent market commentary. “That’s more than enough to offset the rise in prices during that time.”

The rate decline is proving to be something of a double-edged sword, however – boosting housing affordability, to be sure, but also eroding lenders’ profit margins, making many of them more risk-averse and more inclined to tighten credit standards.

“Many homeowners who bought 10 or more years ago wouldn’t qualify for a similar mortgage today,” Smoke observed in his commentary.

Lawrence Yun, chief economist for the National Association of Realtors, pointed out that while Brexit’s impacts have been largely positive for the housing market thus far, “any prolonged market angst and further economic uncertainty overseas could negatively impact our economy and end up tempering the overall appetite for home buying.”

VIRTUALLY ANNOYING

pokemongo-1517819_1920As if condo managers and trustees don’t have enough on their minds already, now they have to worry about a computer game! An association manger posting recently y to CAI’s on-line forum noted this new concern, asking, “Is anyone having issues with Pokémon Go players creeping around their properties?” He was referring to a Nintendo game played on Smart Phones, has become quickly and wildly popular, sending scores of players on a digitized version of a scavenger hunt. The game designates real places as locations at which players will find the creatures and items they are seeking, superimposed on their home screens.

But as this manager’s question indicates, the intersection between the real and virtual worlds isn’t always smooth. A recent CNN report noted the experience of a homeowner whose property was identified as a Pokémon gym, who “noticed a steady stream of cars blocking his driveway and people hanging out in his yard, all waving their smart-phones.”
Other articles have noted the discovery of a dead body, and armed robbers using Pokémon to track victims in remote locations among the unintended and unanticipated real world byproducts of this virtual game.

The game and problems related to it are still fairly new. Law enforcement officials are cautioning players to remember that “I was playing Pokémon” will not provide much of a defense against a trespassing charge. The best advice for association managers and others who spot I-phone wielding people they don’t know traipsing around their property is to call the police and ask them to deal with the trespassers.

abode-987096_1920STRONG SALES – LINGERING CONCERNS

Existing home sales hit an annual pace of 5.53 million in May, 2 percent higher than April and 4.5 percent above the year-ago level, representing the best showing in nearly nine years. New home sales were less robust – 6 percent below a downwardly revised April total and the fourth consecutive downward revision in this report, which is almost always revised.

Although single-family starts increased by 0.3 percent in May compared to April (and were up more than 10 percent year-over-year), permits, an indicator of future activity, fell 2 percent below the April pace.

The National Association of Realtors’ (NAR’s) pending sales index, the future indicator for the resale market, also declined in May, posting its first year-over-year decline in two years. “There are simply not enough homes coming onto the market to catch up with demand and to keep prices more in line with inflation and wage growth,” NAR Chief Economist Lawrence Yun, said.

Rising home prices are adding to those concerns. Although appreciation rates have been moderating all year, prices continue to rise. The 5 percent year-over-year gain reflected in the Case-Shiller/Standard& Poor’s national index represented the sixth consecutive month in which prices have increased by 5 percent or more – outpacing income gains and undercutting affordability for many buyers.

“Given [the Brexit vote] and the ensuing market reaction, it doesn’t look as if interest rates are going to rise meaningfully any time soon, which means it will remain cheap to finance a home for those that can afford one,” Svenja Gudell, chief economist for Trulia told Housing Wire. “But for many buyers, finding an affordable home to buy in the first place is likely to remain pretty tough.”

SENATORS TARGET SHORT-TERM RENTALS

Three Democratic lawmakers are asking the Federal Trade Commission (FTC) to investigate the impact Air Bnb and other short-term rental companies are having on local housing markets. Sens. Elizabeth Warren (MA), Brian Schatz (HI) and Diane Feinstein (CA) say they are fear these alternatives to hotels, increasingly popular with vacationers and homeowners, are increasing home prices in many communities. In a letter to the FTC, the senators explain that they aren’t concerned as much about individual homeowners renting their properties as about the possibility that commercial operators are renting large blocks of them.

“We write today to urge the Federal Trade Commission to study and quantify the degree to which the rapidly expanding short-term lodging rental market consists of persons or firms acting in a commercial manner by renting out entire residences or multiple residences simultaneously,” they explain, adding, “This distinction is critical to Congress and state and local lawmakers as we seek to assess the wide-ranging impact of the short-term rental industry on the communities in which they operate.”

IN CASE YOU MISSED THIS

Are bubbles surfacing again in the housing market? Realty Trac economist Daren Blomquist sees signs that speculators bidding aggressively for foreclosed properties, may be “over-inflating the market.”

Despite continuing signs of housing market strength, more than half of the respondents to a recent poll said they think buying a home is too difficult for them, and 40 percent agreed with the statement, “Banks don’t want to provide a mortgage to people like me.”

How can a condo association kill a sale? A Wall Street Journal article counts the ways.

A new study has found that abolishing the mortgage interest deduction would reduce home prices by 20 percent. It would also seriously annoy millions of homeowners and the National Association of Realtors, which is the odds that Congress will approve it are somewhere between unlikely and “are you kidding?”

A HUD study described as “rigorous” concluded that counseling is beneficial for first-time buyers. Wow! Who would have guessed?

LEGAL BRIEFS

A Massachusetts Appeals Court decision has strengthened the hand of developers seeking to overcome local objections to 40B affordable housing projects. The decision (Eisai, Inc. v. Housing Appeals Committee will require municipal governments to produce more evidence supporting their claim that the community’s legitimate planning concerns outweigh its need for affordable housing.

construction-19696_1280In this dispute, the zoning board of appeals in Andover rejected an application to build a 248-unit rental housing project in an existing office and industrial park. The Housing Appeals Committee overruled the town and a Superior Court upheld that decision, which the town appealed.

Andover officials argued that the housing plan was inconsistent with its long-established and effective planning and economic development strategies, specifically including recent zoning decisions aimed at encouraging commercial and industrial uses in the area.

In reviewing 40B disputes (which arise in communities where the affordable housing stock falls below the statutory 10 percent minimum), the HAC considers two base-line questions: Whether the community has a viable development plan that considers affordable housing, and if so, whether its interest in promoting that plan trumps its need for affordable housing.

The HAC found that Andover passed the first test (it had a “bona fide” master plan that “had been implemented throughout the town”) but stumbled on the second. In reaching that conclusion, the HAC “clarified” the standards communities must meet to demonstrate that their development plan deserves deference, substituting for the two-part test it has traditionally used (whether the plan “has shown results” and the proposed affordable housing project is inconsistent with it and would undermine it “to a significant degree,” a four-part test that considers:

  • The extent to which the proposed housing is in conflict with or undermines the specific planning interest.
  • The importance of the planning interest, “under the facts presented, measured, to the extent possible, in quantitative terms . . . ;
  • The quality . . . of the overall master plan, including specifically the housing component. For the plan to be given “significant weight,” this guidance says, the board must demonstrate not only that it contains an affordable housing component, but also that this it “has been an effective planning tool.”
  • The “amount [and type] of affordable housing” the community’s plan has actually produced.

Local officials argued that the HAC had not just clarified an existing standard, but had “moved the goal posts,” substituting what they described as “a transparently outcome driven analysis.”

ma_appeals_ctThe Appeals Court disagreed. The “new” factors the HAC introduced “are simply a more detailed explication” of its existing standard, the court said. All “address the ultimate issue whether local concerns relating to municipal planning outweigh the local need for affordable housing.”

Although the HAC did not, in the court’s view, alter the existing standard, it had the authority to do so, the court said, noting, “It is a recognized principle of administrative law that an agency may adopt policies through adjudication as well as through rule-making. Even so, the test the HAC enunciated here was entirely consistent with its prior policies and was well within its statutory and regulatory authority,” the court added.

The court also agreed with the HAC’s conclusion that while Andover’s master plan appropriately considered affordable housing needs, the town had done little to actually address the issue. Quoting the HAC’s decision, the court noted: “The affordable housing that had been built was not “as a result of the 617*617 town’s planning efforts” but, rather, “despite the town’s master plan and affordable housing plan.”

Giving “the appropriate deference” to the HAC, the Appeals Court concluded, its decision to issue the comprehensive permit “is supported by substantial evidence, and is not arbitrary, capricious, or otherwise contrary to the law.”

WORTH QUOTING

“Shifting housing choices by the Baby Boomers and those older may significantly exacerbate the already acute shortage of affordable housing in the years to come.” ─ David Brickman, executive vice president of Freddie Mac’s Multi-family Division, suggesting that demand for rental housing won’t be driven primarily by younger households.

 

Marcus Errico Emmer & Brooks specializes in condo law, representing clients in Massachusetts, Rhode Island and New Hampshire.