Pros and Cons

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In life, you and your marriage partner may find yourselves facing many troubles and situations. While many of these are easier when together, that is not always going to be the case.

There are times when life is taken from a person quickly, leaving the partner without them. You never know what’s going to happen tomorrow.

You can’t predict the future, but you can prepare for the worst. Nobody wants to think about losing their spouse, but it’s a conversation that you should have

To soften the blow of this, insurance is often used to offer financial stability when the cost of the funeral, hospital stay, and bills are too much to handle alone. The cost of a funeral alone can easily add up to $10,000 or more. This can be a heavy bill to leave behind for your family to pay.

When the surviving partner dies, though, that same insurance might not be enough. For many, a survivorship life insurance policy is the go-to for coverage, security, and stability when it comes to dealing with everything left behind.

Common Use for Survivorship Life Insurance Policies

Most insurance policies work by providing money to a specific person after the one who was insured passes. This helps to ease the financial burden left behind by a death, which includes several expenses and more stressful bills that are without that extra paycheck.

With survivorship life insurance, though, two people are covered to pay for the costs associated with an estate. Unlike your ordinary life insurance, this only pays out when both parties have passed, as the name would suggest. It is mostly to cover the taxes and expenses with an estate so that the heir does not have to pay.

An estate comes with costs that could otherwise ruin its value, or at least drop it dramatically. When passing this to an heir, those costs could cause them to receive far less than promised.

Depending on the situation for which this person is receiving the estate that can be damaging. Not only that, but you would also not be giving the person as much as you had hoped. There is a reason they were chosen to receive your estate, obviously, and not giving them the full amount was probably never your plan. With this, you can ensure that they receive as much of the full amount as possible.

There are thousands of families members that find themselves with drastically less heritage than they assumed they would receive because of unpaid expenses, taxes, fees, and much more. If you want to leave your legacy with your children or loved ones, a survivorship insurance policy will protect your savings and allow your inheritance to reach its full potential.

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Estate Planning with Life Insurance

Having any type of final expense insurance is not difficult.

In fact, it is often easier than your average life insurance because it can be issued as a no medical exam life insurance policy. These policies are exactly what they sound like, you’ll be able to get the insurance coverage that you need, regardless of your health or any pre-existing medical conditions.

This can help you to insure your estate without issue so that whoever is receiving it is not stuck with massive bills that chip away at the overall amount. The ease of getting it also makes it easier on you, obviously. While other types of life insurance have stresses and because you to go through several steps to finally be insured, this makes it easier. When going for this type of insurance, it is possible to get it and get out without becoming stressed, worried, or bothered by what must be done.

With the importance of your estate, it is necessary to ensure it goes to your chosen heir in a complete amount. Having survivorship life insurance is the option to keep your estate at full value and help your heir get it without spending large sums of money.

It’s always best to meet with a trusted estate planning attorney to see if you are in need of a survivorship life insurance policy. There are a lot of different factors that you have to consider when deciding if you need a survivorship life insurance policy or a traditional plan. An estate planning attorney can help walk you through the process and make the best decision for you and your family.

Advantages and Disadvantages of Survivorship Life Insurance

Because there are so many different life insurance options, it’s important to understand the pros and cons of each option. Life insurance is one of the most vital purchases that you can make for you and your family, you should make well informed and educated decisions.

Not having the right type of policy, or not having a policy at all, is one of the worst mistakes that you can make. It could leave your loved ones with a mountain of debt and no way to pay for it. That’s not the inheritance that most people want to leave behind after they pass away.

One of the advantages to these survivorship life insurance policies is the standards that most companies used to issue them. If you go with a plan that uses medical underwriting, it’s going to be very different from a traditional term life insurance policy, because it’s based on the health of two people instead of just one.

This means that even if one person doesn’t have perfect health, you’ll still be able to get coverage as long as the other person is in good health. For anyone with any serious health complications or any pre-existing conditions, this can be extremely beneficial.

Another major advantage to these policies is the monthly premiums. In most cases, a survivorship life insurance policy is going to be cheaper than buying two separate policies for each person. These plans will give you life insurance coverage for less expensive monthly payments.

Just like other life insurance plans, there are disadvantages to these policies. The biggest disadvantage is obvious, you won’t receive any payment for the loss of your spouse.

When the first person dies, the surviving spouse will be left with all of the funeral expenses, medical bills, unpaid debts, and much more, but they won’t receive any funds from the life insurance policy. For a grieving spouse, it can be difficult to pay for all of these expenses.

This is where a traditional policy is an excellent tool. One alternative to the survivorship life insurance is purchasing a traditional term life insurance policy for both you and your spouse. These policies only cover one party instead of two.

In most cases, a term policy is much less expensive than most applicants think. Aside from how affordable they are, it’s also much more beneficial when your spouse dies, it will leave you with the money you need to pay off any debts or pay for any funeral expenses.

Just like with most other policies, you can always go with a no medical exam term life insurance plan. They are easy to apply for, and you can get insurance coverage quickly. In some cases, it can be as quick as a couple of days.

Getting Life Insurance

It’s easy to see why everyone should have a quality life insurance policy, but getting an affordable plan can be a long and stressful process. There are hundreds of companies that offer dozens of different insurance products.

Source: goodfinancialcents.com

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Nestled on the picturesque Gulf Coast of Florida, Naples has long been regarded as a captivating destination renowned for its pristine beaches, vibrant cultural scene, and luxurious lifestyle. As you contemplate the idea of moving to Naples, it is crucial to weigh the pros and cons of living in this sun-drenched city. From its flourishing economy and abundant recreational opportunities to its high cost of living and occasional natural hazards, there is a lot to consider. In this Redfin article, we will delve into the 10 most significant pros and cons of living in Naples. So whether you’re looking at apartments for rent in Naples, FL, browsing homes for sale, or you’re just curious about the area – keep reading to learn if Naples is right for you.

Gulf Shore Living in Naples, FL

1. Breathtaking beaches

Naples, the gem of Florida’s Paradise Coast, offers a beach lover’s paradise with miles of pristine, soft, white sands lapped by turquoise waters. Not only are these beaches stunning, but they are also well-maintained and offer a serene place to relax, sunbathe, or engage in water sports. Naples’ shoreline delivers a visual feast and the quintessential coastal Florida lifestyle, from the picturesque Barefoot Beach Preserve to Lowdermilk Beach Park.

2.  Vibrant arts and culture scene

For the culturally inclined, Naples won’t disappoint. The city brims with a rich and lively arts scene that echoes in its many galleries, performance venues, and arts festivals. Institutions such as the Naples Philharmonic and the Baker Museum host a variety of world-class performances and exhibitions. Art shows, craft fairs, and cultural festivals are staples in the local calendar, offering regular opportunities for residents to immerse themselves in a diverse tapestry of artistic expression.

Family Day at the Beach

3. A unique resort lifestyle

Living in Naples feels like an endless vacation with dozens of unique things to do, courtesy of its resort-like ambiance. From high-end shopping districts and gourmet dining venues to luxury spas, the city rolls out a sophisticated lifestyle that mirrors the world’s most popular resort destinations. The array of well-manicured golf courses, lavish residential communities, and top-notch services create a distinct sense of living in a luxurious retreat, offering residents the perks of a holiday year-round.

4. Endless outdoor adventures

Naples is an outdoor enthusiast’s dream, with a smorgasbord of activities. The city’s adjacency to the Everglades presents fantastic kayaking, hiking, bird watching, and wildlife spotting opportunities. Fishing and boating enthusiasts will love the accessibility to the Gulf of Mexico’s bountiful waters. Whether it’s a serene bike ride along the city’s picturesque paths or an exhilarating jet ski adventure, Naples caters to all shades of outdoor passions.

Bird of Paradise Flower

5. Golf capital of the world

For golf lovers, Naples is nothing short of paradise. Fondly known as the “Golf Capital of the World,” the city offers a stunning array of meticulously designed courses that cater to beginners and experts alike. With over 90 golf courses and glorious golfing weather that lasts almost all year, the city delivers an unmatched golfing experience–a compelling reason to consider Naples your new home.

Cons

1. High housing costs 

One significant downside of living in Naples, Florida is the high cost of housing. The allure of the city’s stunning natural beauty and upscale amenities comes at a price, and that price often translates into steep housing costs. When it comes to Naples, Florida real estate, you’ll find that housing prices are considerably higher compared to other cities in Florida. As of April 2023, the median sales price in Naples reached $725,000 In comparison, the median sale price in Orlando stood at a more affordable $360,000, while in Tampa, it amounted to $420,000.

The demand for housing in this desirable location, coupled with limited available land for development, has resulted in a tight housing market and elevated prices. Additionally, the cost of living, in general, tends to be higher in Naples, which can further strain budgets and impact overall affordability.

Condominiums Along The Florida Coast

2. Crowds of tourists

Being a popular tourist destination, Naples can get quite crowded, especially during the winter when ‘snowbirds’ from colder states flock to enjoy the balmy Florida weather. The influx of tourists can lead to overcrowded beaches, long wait times at restaurants, and a general increase in the hustle and bustle around the city, potentially hampering the tranquil lifestyle some residents seek.

3. Danger of hurricanes

Naples’ tropical paradise charm is somewhat tarnished by its vulnerability to hurricanes. Like much of Florida, the city faces an annual threat of these severe storms. This year alone, on average, floods have caused $1,399 in property damage for homeowners. While modern infrastructure and advanced warning systems mitigate the risks, residents must be prepared for potential evacuations, property damage, and the stress associated with hurricane season.

Beautiful Patio Furniture at Estate Home Overlooking Bay

4. Low walkability

Despite its many charms, Naples falls short of walkability. The city has a below-average Walk Score of 35, indicating a strong dependence on cars. This can be a downside for those who prefer a lifestyle where amenities are within walking distance. 

5. Scorching summer heat

Summers in Naples can be intensely hot and humid. The city’s tropical monsoon climate means that summer temperatures frequently rise into the 90s (Fahrenheit), with high humidity levels adding to the discomfort. Those not used to such weather might find the summer months challenging and need to consider this aspect before moving.

Is Naples, Florida a good place to live? The bottom line

With its breathtaking natural beauty, lively cultural scene, and endless opportunities for outdoor adventure, Naples certainly has its merits. However, there are downsides to be mindful of. The high cost of housing can pose a challenge for those on a budget, and the risk of hurricanes and occasional tourist crowds can be drawbacks. Ultimately, the decision to make Naples your home depends on your priorities, financial situation, and tolerance for the mentioned considerations. By carefully evaluating these factors, you can determine if Naples is the right fit for your desired lifestyle and aspirations.

Source: redfin.com

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Las Vegas, with its glitz, glamor, and vibrant entertainment scene, has long been synonymous with a thrilling vacation destination. However, when it comes to choosing a place to call home, many wonder if Las Vegas truly offers a desirable living environment. To help you make an informed decision, let’s explore the pros and cons of living in Las Vegas. From the excitement of world-class entertainment and access to outdoor pursuits to the challenges of scorching summers and traffic congestion, Las Vegas presents many different factors to consider. So, whether you’re looking to rent an apartment in Las Vegas, purchase a home in the area on Redfin, or simply curious about what it’s like living in Las Vegas, join us as we delve into 11 pros and cons to help you determine if Las Vegas is the right place for you to put down roots.

houses with the Las Vegas Strip in the background

Pros of living in Las Vegas

1. An abundance of activities

Las Vegas, known as the “Entertainment Capital of the World,” offers an unparalleled number of activities for visitors of all interests. From iconic resorts along the famous Las Vegas Strip like Mandalay Bay and the Venetian to downtown’s Fremont Street, visitors can explore an array of casinos, live performances, and stage productions. Beyond the gaming and entertainment scene, Las Vegas also offers luxurious shopping experiences, championship golf courses, and rejuvenating spas. For outdoor enthusiasts, the city is surrounded by stunning natural landscapes, such as the nearby Red Rock Canyon and the Hoover Dam. Additionally, Las Vegas boasts a wide range of gourmet dining options, from celebrity chef restaurants to international cuisines. Some of which include Bouchon, Peppermill, and Carson Kitchen.

2. Food scene

Las Vegas has established itself as a food lover’s paradise, offering a remarkable culinary scene that rivals some of the world’s finest cities. Renowned for its diverse and extravagant dining options, Las Vegas boasts a multitude of Michelin-starred restaurants and celebrity chef establishments like Piccaso, Joel Robuchon, Gordon Ramsay Steak, and Giada. 

The Las Vegas Strip alone is home to a staggering array of dining choices, where visitors can savor cuisines from around the globe, including Japanese, Italian, French, Mexican, and many more. Additionally, Las Vegas hosts numerous food festivals and events throughout the year, such as The Great American Foodie Fest and San Gennaro Feast. For those seeking a more casual dining experience, Las Vegas also offers an array of bustling food courts and food trucks like Block 16 Urban Food Hall and Eataly Food Court at Park MGM.

3. Access to nature

Despite its reputation as a bustling city of lights, Las Vegas provides easy access to breathtaking natural wonders and outdoor recreational opportunities. One of the most popular destinations is the nearby Red Rock Canyon National Conservation Area, known for its striking red sandstone formations and picturesque hiking trails. Adventurers can embark on scenic drives, rock climbing adventures, or simply take in the views. Moreover, within a few hours’ drive, outdoor enthusiasts can reach several national parks, including Death Valley National Park, Zion National Park, Bryce Canyon National Park, Joshua Tree National Park, and Grand Canyon National Park. 

Zion Canyon and the Meandering Virgin River at Dusk

4. No state income tax

One of the significant advantages of living or working in Las Vegas is the absence of state income tax, as Nevada does not impose a personal income tax on its residents. This favorable tax environment means that individuals can keep a larger portion of their earnings compared to many other states in the United States. 

5. Great airport

Las Vegas is served by Harry Reid International Airport, which is one of the busiest airports in the United States. As a major transportation hub, Harry Reid International Airport offers excellent connectivity to domestic and international destinations, making it convenient for travelers from around the world. The airport is located just a few miles south of the Las Vegas Strip, allowing for easy access to the city’s resorts and attractions.

6. An up-and-coming sports city

Las Vegas has rapidly emerged as a thriving destination for sports boasting an exciting and up-and-coming sports scene. The National Hockey League (NHL) welcomed the Vegas Golden Knights in 2017. Since its inception, the Golden Knights have made it to two Stanley Cup Finals, one in 2018 and another in 2023. Furthermore, professional football arrived in Las Vegas with the relocation of the Oakland Raiders to become the Las Vegas Raiders in 2020. The state-of-the-art Allegiant Stadium, situated just off the Strip, serves as the team’s impressive home venue. Las Vegas also is home to the Las Vegas Aces, a professional women’s basketball team. The Aces have quickly become a force to be reckoned with, boasting a talented roster and consistently making their mark in the league.

T-Mobile Arena at night

Cons of living in Las Vegas

7. The summer heat

Las Vegas is notorious for its scorching summer heat, creating challenging conditions for residents and visitors. With temperatures often soaring well above 100 degrees Fahrenheit (37 degrees Celsius), the intense heat can be overwhelming and uncomfortable. The relentless sun and lack of shade make outdoor activities during the daytime difficult. 

8. Lack of public transportation

One of the challenges in Las Vegas is the limited availability and effectiveness of public transportation. While the city has made efforts to improve its transportation infrastructure, including the implementation of a bus system and the Las Vegas Monorail, the overall public transportation network remains relatively underdeveloped compared to other major cities. The bus system, while serving some areas, may not offer comprehensive coverage, resulting in longer travel times and limited access to certain destinations. The Las Vegas Monorail primarily operates along the Las Vegas Strip, making it convenient for travelers staying in that area but less useful for those needing to reach other parts of the city. As a result, many residents and visitors rely heavily on private vehicles or rideshares to navigate Las Vegas.

9. Lack of greenery

One of the drawbacks of Las Vegas is its noticeable lack of greenery. The desert landscape surrounding the city means that lush vegetation and expansive green spaces are scarce. Instead, visitors and residents are greeted with a predominance of arid desert terrain characterized by rocky terrain, sparse vegetation, and a limited presence of trees and plants. This scarcity of greenery can make the city feel stark and somewhat monotonous in terms of natural scenery. 

Aerial view of downtown city during dusk in Las Vegas, Nevada, USA.

10. You can’t see stars

One disappointing aspect of Las Vegas is the difficulty in seeing stars due to light pollution. The city’s vibrant nightlife and dazzling displays along the famous Las Vegas Strip create a continuous glow that permeates the sky, obscuring the natural beauty of the stars. The abundance of bright lights, neon signs, and illuminated buildings results in light pollution, which significantly diminishes the visibility of celestial objects. If you want to go star-gazing, expect to drive well outside the city before you begin to see twinkles in the night’s sky.

11. No four seasons

One aspect that some may find disappointing about Las Vegas is the absence of four distinct seasons. The city’s desert climate contributes to hot, dry summers and mild winters, with relatively little variation throughout the year. This lack of distinct seasonal changes can make it feel as though the year blends together without clear transitions between spring, summer, fall, and winter.

Source: redfin.com

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The dividend payout ratio is the ratio of total dividends paid to shareholders relative to the net income of the company. Investors can use the dividend payout formula to gauge what fraction of a company’s net income they could receive in the form of dividends.

While a company will want to retain some earnings to reinvest or pay down debt, the extra profit may be paid out to investors as dividends. As such, investors will want a way to calculate what they can expect if they’re a shareholder.

Understanding Dividends and How They Work

Before calculating potential dividends, investors will want to familiarize themselves with what dividends are, exactly.

A dividend is when a company periodically gives its shareholders a payment in cash, or additional shares of stock, or property. The size of that dividend payment depends on the company’s dividend yield and how many shares you own.

Many investors look to buy stock in companies that pay them as a way to generate regular income in addition to stock price appreciation. A dividend investing strategy is one way many investors look to make money from stocks and build wealth.

Investors can take their dividend payments in cash or reinvest them into their stock holdings. Not all companies pay dividends, and those that do tend to be large, established companies with predictable profits — blue chip stocks, for example. If an investor owns a stock or fund that pays dividends, they can expect a regular payment from that company — typically, each quarter. Some companies may pay dividends more frequently.

Pros and Cons of Investing in Dividend Stocks

Since dividend income can help augment investing returns, investing in dividend stocks — or, stocks that tend to pay higher than average dividends — is popular among some investors. But engaging in a strategy of purchasing dividend stocks has its pros and cons.

As for the advantages, the most obvious is that investors will receive dividend payments and see bigger potential returns from their holdings. Those dividends, in addition to stock appreciation, allow for two potential ways to generate returns. Another benefit is that investors can set up their dividends to automatically reinvest, meaning that they’re holdings grow with no extra effort.

Potential drawbacks, however, are that dividend stocks may generate a higher tax burden, depending on the specific stocks. You’ll need to look more closely at whether your dividends are “ordinary” or “qualified,” and dig a little deeper into qualified dividend tax rates to get a better idea of what you might end up owing.

Also, stocks that pay higher dividends often don’t see as much appreciation as some other growth stocks — but investors do reap the benefit of a steady, if small, payout.

What Is the Dividend Payout Ratio?

The dividend payout ratio expresses the percentage of income that a company pays to shareholders. Ratios vary widely by company. Some may pay out all of their net income, while others may hang on to a portion to reinvest in the company or pay off debt.

Generally speaking, a healthy range for payout ratios is from 35% to 55%. There are certain circumstances in which a lower ratio might make sense for a company. For example, a relatively young company that plans to expand might reinvest a larger portion of its profits into growth.

How to Calculate a Dividend Payout

Calculating your potential dividend payout is fairly simple: It requires that you know the dividend payout ratio formula, and simply plug in some numbers.

Dividend Payout Ratio Formula

The simplest dividend payout ratio formula divides the total annual dividends by net income, or earnings, from the same period. The equation looks like this:

Dividend payout ratio = Dividends paid / Net income

Again, figuring out the payout ratio is only a matter of doing some plug-and-play with the appropriate figures.

Dividend Payout Ratio Calculation Example

Here’s an example of how to calculate dividend payout using the dividend payout ratio.

If a company reported net income of $120 million and paid out a total of $50 million in dividends, the dividend payout ratio would be $50 million/$120 million, or about 42%. That means that the company retained about 58% of its profits.

Or, to plug those numbers into the formula, it would look like this:

~42% = 50,000,000 / 120,000,000

An alternative dividend payout ratio calculation uses dividends per share and earnings per share as variables:

Dividend payout ratio = Dividends per share / Earnings per share

A third formula uses retention ratio, which tells us how much of a company’s profits are being retained for reinvestment, rather than paid out in dividends.

Dividend payout ratio = 1 – Retention ratio

You can determine the retention ratio with the following formula:

Retention ratio = (Net income – Dividends paid) / Net income

You can find figures including total dividends paid and a company’s net income in a company’s financial statements, such as its earnings report or annual report.

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Why Does the Dividend Payout Ratio Matter?

Dividend stocks often play an important part in individuals’ investment strategies. As noted, dividends are one of the primary ways stock holdings earn money — investors also earn money on stocks by selling holdings that have appreciated in value.

Investors may choose to automatically reinvest the dividends they do earn, increasing the size of their holdings, and therefore, potentially earning even more dividends over time. This can often be done through a dividend reinvestment plan.

But it’s important to be able to know what the ratio results are telling you so that you can make wise decisions related to your investments.

Interpreting Dividend Payout Ratio Results

Learning how to calculate dividend payout and use the payout ratio is one thing. But what does it all mean? What is it telling you?

On a basic level, the dividend payout ratio can help investors gain insight into the health of dividend stocks. For instance, a higher ratio indicates that a company is paying out more of its profits in dividends, and this may be a sign that it is established, or not necessarily looking to expand in the near future. It may also indicate that a company isn’t investing enough in its own growth.

Lower ratios may mean a company is retaining a higher percentage of its earnings to expand its operations or fund research and development, for example. These stocks may still be a good bet, since these activities may help drive up share price or lead to large dividends in the future.

Dividend Sustainability

Paying attention to trends in dividend payout ratios can help you determine a dividend’s sustainability — or, the likelihood a company will continue to pay dividends of a certain size in the future. For example, a steadily rising dividend payout ratio could indicate that a company is on a stable path, while a sudden jump to a higher payout ratio might be harder for a company to sustain.

That’s knowledge that may be put to use when trying to manage your portfolio.

It’s also worth noting that there can be dividend payout ratios that are more than 100%. That means the company is paying out more money in dividends than it is earning — something no company can do for very long. While they may ride out a bad year, they may also have to lower their dividends, or suspend them entirely, if this trend continues.

Dividend Payout Ratio vs Dividend Yield

The dividend yield is the ratio of a stock’s dividend per share to the stock’s current price:

Dividend yield = Annual dividend per share/Current stock price

As an example, if a stock costs $100 and pays an annual dividend of $7 the dividend yield will be $7/$100, or 7%.

Like the dividend payout ratio, dividend yield is a metric investors can use when comparing stocks to understand the health of a company. For example, high dividend yields might be a result of a quickly dropping share price, which may indicate that a stock is in trouble. Dividend yield can also help investors understand whether a stock is valued well and whether it will meet the investor’s income needs or fit with their overall investing strategy.

Dividend Payout Ratio vs Retention Ratio

As discussed, the retention ratio tells investors how much of a company’s profits are being retained to be reinvested, rather than used to pay investors dividends. The formula looks like this:

Retention ratio = (Net income – Dividends paid) / Net income

If we use the same numbers from our initial example, the formula would look like this:

~58% = (120,000,000 – 50,000,000) / 120,000,000

This can be used much in the same way that the dividend payout ratio can, as it calculates the other side of the equation — how much a company is retaining, rather than paying out. In other words, if you can find one, you can easily find the other.

The Takeaway

The dividend payout ratio is a calculation that tells investors how much a company pays out in dividends to investors. Since dividend stocks can be an important component of an investment strategy, this can be useful information to investors who are trying to fine-tune their strategies, especially since different types of dividends have different tax implications.

In addition, the dividend payout ratio can help investors evaluate stocks that pay dividends, often providing clues about company health and long-term sustainability. It’s different from other ratios, like the retention ratio or the dividend yield.

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FAQ

How do you calculate your dividend payment?

To calculate your exact dividend payment, you’d need to know how many shares you own, a company’s net income, and the number of total outstanding shares. From there, you can calculate dividend per share, and multiply it by the number of shares you own.

Are dividends taxed?

Yes, dividends are taxed, as the IRS considers them a form of income. There may be some slight differences in how they’re taxed, but even if you reinvest your dividend income back into a company, you’ll still generate a tax liability by receiving dividend income.

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Once seen as the death knell for single-family-home neighborhoods in California, a new law meant to create more duplexes has instead done little to encourage construction in some of the largest cities in the state, according to a new report published Wednesday.

Senate Bill 9 was introduced two years ago as a way to help solve California’s severe housing crunch by allowing homeowners to convert their homes into duplexes on a single-family lot or divide the parcel in half to build another duplex for a total of four units. The law went into effect at the start of 2022.

The bill received bipartisan support and ignited fierce debate between its backers, who said SB 9 was a much-needed tool to add housing options for middle-income Californians, and critics, who blasted it as a radical one-size-fits-all policy that undermined local government control.

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Neither argument has so far proved to be true.

Across 13 cities in the state, SB 9 projects are “limited or nonexistent,” according to a new study by the UC Berkeley Terner Center for Housing Innovation.

The report focused on cities considered high-opportunity areas for duplexes because they’ve reported significant increases in the construction of accessory dwelling units — also known as granny flats, casitas or ADUs — in recent years and have available single-family properties for possible divided lots. ADUs are small, free-standing homes most often built in the backyards of existing single-family homes.

The cities are Anaheim, Bakersfield, Berkeley, Burbank, Danville, Long Beach, Los Angeles, Sacramento, San Diego, San Francisco, San Jose, Santa Maria and Saratoga.

By the end of November, the cities had collectively received 282 applications for SB 9 projects, and had approved only 53. Los Angeles accounted for the bulk of applications with 211 submitted and 38 approved, according to the report. San Francisco received 25 applications and had approved four, while San Diego received seven and had approved none.

Three cities received one application, and in Bakersfield, Danville and Santa Maria, zero were submitted.

Applications for dividing lots seem to be even less popular than for building duplexes. Just 100 applications were submitted, the report noted, and 28 had been approved.

David Garcia, Terner Center’s policy director, said SB 9 is only in its first year of implementation and should be given more time before it’s judged as ineffective. But he added that lawmakers should consider whether the law needs tweaking.

“It doesn’t seem like Senate Bill 9 in its first year has resulted in very meaningful amounts of new housing,” Garcia said. “Pretty much everywhere you look, Senate Bill 9 activity is very marginal. It is nonexistent in some places.”

Homeowners right now have an easier time building an ADU than a duplex, thanks to local and state laws that have eased barriers to construction in recent years, Garcia said. It took multiple rounds of legislation to see productive ADU development, and the same will probably be true for SB 9 projects, he said.

Recognizing that more was needed to speed up housing construction in California, the Legislature began overhauling state ADU laws in 2016, and cities followed suit with their own local ordinances to clear red tape in the building process, which has inspired a widespread ADU movement.

Between the start of 2017 and January 2023, the city of Los Angeles reported receiving 35,098 applications for ADUs. It has issued permits for 25,881 and 13,640 have been granted certificates of occupancy.

Heidi Vonblum, San Diego’s planning director, said the law is new and barriers to development are still being worked out. At the same time, the city has an ADU program that “has been very attractive to property owners,” Vonblum said, while updated zoning rules and community plans have eliminated “the need to rely on other programs.”

It’s a similar situation in Sacramento, where homeowners are allowed to build up to two ADUs on their properties, said Kevin Colin, the city’s zoning administrator. Colin’s team handles one to two ADU applications “each working day,” he said, because there’s such high interest in the projects.

To replicate that success, the Terner Center report suggested cutting fees associated with new duplex development, or adding more uniform standards for SB 9 projects to ensure local governments can’t attach subjective criteria that discourage applications, such as architectural design requirements or stringent landscaping rules. It also proposed revising a mandate that homeowners who split their lots must live in one of the units for at least three years, a key concession lawmakers made to reduce opposition from organizations worried about gentrification.

Senate President Pro Tem Toni Atkins (D-San Diego), author of the legislation, said SB 9 was “never intended to be an overnight fix to our housing shortage.”

“We always said not every homeowner would be able, or want, to utilize the tools provided by the bill on Day One,” Atkins said in a statement. “Subdividing a lot, or even just adding an ADU, is a big investment. This bill was never intended to be a sledgehammer approach — it was meant to increase the housing supply over time, and as awareness of the law increases and more homeowners have the ability to embrace the tools, I’m confident that we will see results.”

Garcia and other housing experts said slow progress could also be attributed to the effects of the COVID-19 pandemic, when prices for building materials shot up and homeowners and buyers faced significant market uncertainty. That was followed by high inflation and interest rates.

But other factors could be contributing to sluggish SB 9 interest.

Matthew Lewis, spokesperson for California YIMBY, a housing advocacy organization that supported SB 9, said both ADUs and duplexes have their financial and logistical pros and cons.

ADUs are an ideal way to generate some “passive income” from a renter, Lewis said, and make great homes for aging parents or young adult children. Duplexes are good for that too, but the additional units can be sold separately for even greater economic opportunity.

On the other hand, ADUs are typically a property extension of the main home, so it can be difficult or even impossible to separately sell the extra unit. Duplexes require significantly more financing, and the addition of a separate sewer line and water service.

“The reality is people will follow the path of least resistance to building the house they want,” Lewis said, adding that it could be worth going back to the drawing board to ensure local governments are doing what they can to ease burdens to duplex development.

Although the Terner Center report offers legislators a limited snapshot of how SB 9 has worked so far, the state is also expected to have more robust data available this summer.

Any attempt to modify SB 9 this year, however, is sure to reignite opposition from many of the dozens of cities and neighborhood associations that tried to block its passage in 2021. Since then, some cities have gone to great lengths to avoid implementing the law, including the Silicon Valley suburb of Woodside, which declared itself a mountain lion sanctuary and invited a stern warning for compliance by the state attorney general’s office.

Source: latimes.com

Apache is functioning normally

This is a guest post from Joanna Lahey, an associate professor of economics at the George H.W. Bush School of Government and Public Service at Texas A&M University and the National Bureau of Economic Research (NBER).

Ellen’s note: Joanna has written four articles about health insurance. This is the first, and every Saturday for the next month, we’ll be publishing one. Given the readers’ concern over the cost of health insurance as well as the ability to get insurance, we think her articles will be a great addition to GRS.

We save for retirement in order to smooth our consumption over time. Money saved now when we have income allows us to eat more than cat food when we’re retired and not bringing in as much.

Mikey eating cat food

Insurance works in much the same way, except instead of smoothing our consumption over time, we’re smoothing it over conditions of the world. In the good state of the world, the one in which we haven’t been hit by a bus, we spend money on insurance. In the bad state of the world, the one in which the bus hits us, the insurance company pays out money to help compensate us for our medical care.

People value this insurance because they are risk averse. For most people, losing money hurts us more than gaining the equivalent amount of money makes us happy. We’re willing to pay a little extra during good times to offset the bad times.

Of course, in reality it’s a little bit more complicated than that. Insurance companies have an incentive to keep you from getting into that bad state of the world, so they might pay for annual check-ups and other sorts of preventive care. Additionally, some people like the idea of using health insurance as a prepayment for expected medical expenses. However, preventive care and prepayment are not technically insurance even if they are bundled in with many policies. The point of insurance is to make the bad times less bad by paying for insurance during the good times and accepting a payout during the bad times.

In an ideal world, this insurance system would just work and the free market could handle everything. People would pay their expected cost of insurance into the insurance system and the insurance would pay out for the people who were unlucky enough to get hit by buses or have other health problems.

Unfortunately, there’s a problem. People who know that they are likely to use medical care value insurance more than people who believe they will never get sick. The problem arises when people know their expected medical costs better than insurance companies do. This situation is called “asymmetric information” — one party (you) knows more than the other party (the insurance company) does.

Death Spiral in the Insurance Market

In this world of asymmetric information, there is theoretically no way for an insurance company to make a profit, or to even exist in the private market. If the insurance company sells insurance at the average cost of medical care — what it expects to pay out on average — then people who know deep down that they’re healthy are going to prefer not to buy the insurance. People who know they are likely to get sick are more than willing to pay the average cost of medical care and sign up in droves. When that happens, the average cost of medical care that the insurance company sees goes up, so they have to charge higher rates for coverage. That means that the folks who expect to have ingrown toenails but no other health problems will drop coverage while the people who expect to get diabetes will stay on. That drives up the average cost of health insurance further, which means that the next healthiest group of people will stop buying coverage and only the most expensive stay on. Eventually only the most expensive person will be willing to buy insurance (and he or she probably won’t be able to afford it). The market fails, and insurance cannot be offered. The private insurance market is broken.

Asymmetric information and this “lemons problem” (the term coined in an article by George Akerlof) are why it is so very difficult to get coverage on the private market and why the coverage is so expensive. It’s also why private coverage deliberately doesn’t cover conditions like pregnancy if it can legally choose not to.

Side note: You may have noticed that even though the private health insurance market is broken, it still exists. That’s because of that risk aversion we talked about in the previous section — most people value insurance more than its expected cost. If they value it enough, they’re willing to pay more and are able to get over the death spiral. Incidentally, David Cutler, one of the main architects of the Affordable Care Act, argues that the individual mandate is not needed — we just need to get the price low enough and risk aversion will get people to buy. Jon Gruber, another of the architects, disagrees — he doesn’t think it is likely that risk aversion will overcome the adverse selection problem.

Why is Health Insurance in the U.S. Bundled With Employment?

The solution to the problem? Group markets for insurance. In a group market, people are in a group for some reason that has nothing to do with health insurance. Working for the same employer functions especially well because adults who work are healthier on average than adults who don’t work. Everyone in the group is charged the same amount for insurance, and the average cost is low enough that the downward death spiral doesn’t occur. The bigger the group, the more risk and costs are spread out and the happier the insurance company is. Large companies get cheaper insurance rates than smaller companies because it’s less likely with a large company that the boss is getting insurance because he just found out his wife has cancer (and even if he did, that cost is spread out across more workers).

Doesn’t that argue that we should have just one group for everybody? Well, yes. However, for historical reasons (price controls during WWII, as several folks pointed out in the comments of this Ask the Readers post), we ended up with our groups being attached to employment. That’s fine if you’re employed by a large firm that offers insurance (or married to someone who is), but makes things more difficult if you’re not.

Why don’t we just tear the system down and start from scratch? Well, it is difficult to destroy a private industry that is around 7 percent of our economy, especially when said industry has powerful lobbyists. It may be more efficient to have government-provided health insurance, but the costs of getting to that point would be large.

Given our current political and institutional situation, we can still get to universal health care even if single-payer insurance is unlikely. In the U.S. that means something like the Affordable Care Act, with its universal mandate, subsidies, and regulations prohibiting preexisting-condition exclusions or charging prices based on anything other than age and tobacco status. I will talk more about the basics of the Affordable Care Act in a future post.

How Much Insurance Should be Provided?

In the ideal world, insurance companies would provide full insurance. They would pay 100 percent of your medical care and maybe something to compensate you for pain and suffering. You’d have to pay a larger premium to get the insurance, but it would be worth it because if you got hit by a bus you wouldn’t be out of pocket for anything. Unfortunately, this is not an ideal world and people are flawed.

  • If you knew you were going to get compensated, you might be less careful about looking both ways before crossing the street.
  • If going to the doctor is completely free, you might go in for a sniffle right away just to be on the safe side rather than waiting a few days.
  • If someone else is paying, you might move to more expensive infertility treatments faster than if you have to pay the bill yourself.
  • Your doctor might decide to do extra tests that only have a small chance of finding anything, because why not?

We call these changes in behavior caused by the program availability “moral hazard.” Moral hazard occurs when people do bad things they wouldn’t have done if they were bearing the full cost of their actions.

Political economy side note: The trade-offs caused by moral hazard are one of the main points of disagreement between political parties. Public programs help deserving people who need help, but they can also cause people to do bad things in order to qualify for the public programs (through moral hazard). Programs that help children tend to be popular with politicians on both sides because children don’t have moral hazard with respect to government programs — they’re not the decision-makers.

In order to keep moral hazard down, it is optimal to provide less than full insurance. So insurance companies don’t pay the full amount of every bill. That’s why we have deductibles and co-payments and coinsurance.

Terms You Need to Know

Premium: The (usually monthly) amount that you pay to the insurance company to buy insurance. (Mine is $693/month for my dependents and me.)

Deductible: Some amount of money that you have to pay before the insurance starts paying anything. (Mine is $750.)

Co-payment: A flat dollar amount that you pay when you show up at the doctor (or the hospital) no matter how much your visit actually costs. (Mine is $35 for in-network and $45 for out-of-network.)

Coinsurance: After you reach your deductible, you may still be responsible for some of the costs. Coinsurance is a percent of the costs that you pay. (Mine is 30 Percent.)

Sometimes economists will group all three of these together: deductible, co-payment, and coinsurance under the umbrella term of “co-payment.” We do this because they’re all ways of cost-sharing and thus reducing moral hazard. Living in Texas, I get all three types. The bill for my daughter’s birth was $750 for the deductible, $35 co-payment for the doctor, and 30 percent coinsurance of $2,345 + $191 + $218 is $826 for my share of the rest (assuming that all of the bills have finally come in). So a total bill of $1,611.

That’s a lot of information about the basics of health insurance. Next time I will talk about the pros and cons of different kinds of insurance you can get in the U.S. (PPO, HMO, HDHP, ACO).

Source: getrichslowly.org