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