The State of Housing Affordability
C. A. R. Magazine, Roger Cruzen
Top Producers Gilroy Office, 2015
Marta Dinsmore, Realtor GRI Intero Real Estate Services DinsmoreThePowerOfTwo. com 408.840.7420 DRE # 01352339
Sean Dinsmore, Realtor Intero Real Estate Services DinsmoreThePowerOfTwo. com 408.840.7327 DRE # 01966405
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The headlines are impossible to ignore.“ California’ s Affordable Housing Crisis Spreads to the Middle Class,” from the San Francisco Chronicle.“ California’ s Housing Costs Hurt Economy, Increase Poverty, Report Says,” The Wall Street Journal reported.“ California’ s Housing Affordability Crisis Isn’ t Going Away,” warned an article from HousingWire. Beneath the headlines and in dozens of academic studies reside the details of an unprecedented housing affordability crisis that threatens the well-being of millions of hard-working Californians and the longterm health of the state’ s economy. This month, California Real Estate explores the current state of the crisis, some of the factors that have caused it, the growing impact on the middle class, and how California Realtors ® are getting involved in solutions to the problem.
Factors Behind the Crisis
Housing affordability is a national problem that exists to some degree in almost every community. Among the factors driving the crisis in California:
• Inadequate supply: For starters, the supply of homes available to buy or rent doesn’ t come close to keeping up with the housing needs of nearly 40 million people. Although California expects to add 330,000 residents a year through 2020, only 44,145 single-family and 52,932 multi-family building permits were issued in 2015, according to the California Department of Housing and Community Development. Another 100,000 units would be needed on top of that just to keep up with this year’ s need, let alone make up for the hundreds of thousands of homes that weren’ t built during the Great Recession.
• Rising home prices and rental costs: California’ s ongoing shortage of housing inventory has pushed home prices back to pre-Recession levels. That’ s good news for homeowners but not so much for would-be homebuyers. With median home prices in some cities over or near $ 1 million, teachers, first-responders, office workers and
GILROY • MORGAN HILL • SAN MARTIN NOVEMBER / DECEMBER 2016 gmhtoday. com
others whose jobs are required to keep a community functioning are priced out of the market.
• Lagging incomes: After peaking at $ 68,450 in 2007, California’ s median household income fell for five consecutive years before rebounding in 2013 and 2014, when it reached $ 61,933, according to U. S. Census Bureau figures. Although California’ s median income is approximately $ 9,000 more than the national median, its median home price is two-and-a-half times higher than the comparable national figure.
• Prop. 13: The property tax protections afforded by 1978’ s Prop. 13 are discouraging many Baby Boom emptynesters from downsizing at a time when they otherwise might be making those homes available to Generation X families. This trend has contributed significantly to the state’ s inventory shortage.
• The high cost of new construction: Why aren’ t developers building affordable homes in California’ s coastal metropolitan areas, where the majority of jobs are located? Because metro California land prices are two to four times higher than they are elsewhere, labor is 20 percent more costly, and developers fear the legal and other costs of proposing higher-density but lower-priced development. Add in tens of thousands of dollars in development and other fees, the cost of California Environmental Quality Act( CEQA) reviews and subsequent litigation, and affordable developments suddenly don’ t pencil out.
• Growing opposition: They may agree that more affordable housing is needed, but local homeowners routinely oppose higher density in-fill developments they fear may add traffic or affect the environment. Elected officials, meanwhile, often are more interested in commercial projects that attract tax revenues without requiring investments in schools and other infrastructure costs.
Fewer Homebuyers, More Renters
These and other factors have combined to create a housing affordability“ train wreck,” said University of Southern California’ s Dowell Myers, who has written extensively about the crisis. The Great Recession, he said, decimated the homebuilding industry