California Homes Require Real Reach

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In the 1950s and 1960s, Southern California was ground zero for the "American Dream" of owning a house. From tony Newport Beach and Bel-Air to the more middle-class suburbs of the San Fernando Valley and Garden Grove to working-class Lakewood, our region created a vast geography of opportunity for prospective homeowners.

Today, with house prices again skyrocketing, Southern California is morphing into something that more resembles a geography of inequality. Now, even the middle class is forced into either being "house poor" or completely shut out of homeownership, or may simply be obliged to leave the area. Even more troubling is that the working class and the poor suffer from the kind of crowded, overpriced housing conditions sadly reminiscent of those experienced during the Depression and the Second World War.

Judged by the "median multiple" – the median income divided by the median house price – California's prices for a generation have soared well above the national averages. Demographer Wendell Cox notes that, until the early 1970s, California's house prices were similar to those in the rest of the United States. National Association of Realtors data indicate that the median house price in California at that time was 7 percent above the national average. By 2013, the price differential had risen to 109 percent.

This has little to do with such things as construction costs, which have not risen as quickly in most of California as elsewhere, but are largely the result of soaring land costs and stiff fees imposed on housing. Attributable largely to regulatory factors that restrict building in many areas, the cost of finished land for comparably priced houses has increased nine times as much in California as in the rest of the nation since 1970. Portland State University economist Gerald Mildner refers to this as "Economics 101," indicating that "as the demand for property in a region grows, the increase in demand translates into some combination of more space and high prices, depending upon the elasticity of supply."

Beside regulatory restraints, California housing prices are driven up by the highest impact fees in the nation. An annual survey by Duncan and Associates shows that the average impact fee in California for single-family residence in 2012 was $31,100 per unit, nearly 90 percent higher than the next most expensive state and 265 percent higher than the norm among jurisdictions that levy such fees, which typically pay for capital improvements, like water and wastewater facilities, required by a new development. Many states and localities on the other side of the Sierras do not.

These fees also impact multifamily housing; the state's fees on multifamily units averaged $18,800, 290 percent above the average outside the state.

Construction penalized

California's emerging housing crisis, then, is not, as some suggest, a reflection of the state's constrained geography or economic superiority. The two most-recent spikes in housing costs have occurred as the state's median income has dropped from well above to just about the national average. Neither can we blame a huge surge of new residents, since California's once-buoyant population growth has slowed to levels similar to those of the rest of the country.

Instead, the roots of our state's massive social regression lie in political choices made by the state, counties and cities. This trend likely will intensify, as regulators interpret the state's climate-change legislation to further penalize construction of single-family houses preferred by most California families. Particularly vulnerable will be the starter-home market, once the engine of California's egalitarian middle-class culture.

Some "new urbanists" and greens argue that such restrictions will eliminate wasteful "McMansions" and spur construction of more "sustainable" dense housing for the working masses. Yet, in reality, the impact of highly restrictive housing polices tend to be felt most by both middle-class families and the least-affluent, who find themselves unable to buy housing or, in some cases, are forced to spend huge percentages of their income on rent.

The growing affordability crisis seems likely to worsen as the housing market recovers. Given the paucity of new home construction, and ever-tightening regulation, California's housing market is particularly vulnerable to wild swings in prices; the year-on-year median house price increase as of May 2013 was the greatest since 1980, even greater than in any of the past decade's "bubble" years. Overall, price gains in the state were two to three times stronger than that in the rest of the nation.

This process has been further accelerated by the presence of investors in the local market. Investors, many from Asia, now account for upward of one in four home purchasers in the state.

Among the biggest losers here is California's middle class, particularly young families without large family endowments. Some 60 percent of U.S. households can now afford to buy a house, according to the National Association of Home Builders / Wells Fargo Housing Opportunity Index, but that percentage has dropped even in the Riverside-San Bernardino (40 percent) and Sacramento (50 percent) metropolitan areas, while San Jose, Los Angeles and San Diego had affordability levels of 20 percent to 30 percent. The lowest level, 17 percent, was found in the San Francisco metropolitan area. We can expect these numbers to worsen in the immediate future.

These numbers will impact a wide range of people, including many with skills desired by employers. According to an analysis of Orange County average salaries for National Core, a nonprofit housing developer based in Rancho Cucamonga, even a biomedical engineer or a nurse in O.C. does not earn enough to buy a house there. As economist and author Claude Gruen has suggested, more restrictive land-use regulation "is to the middle class what the economic disaster of slum clearance was to the poor."

Renters don't escape

Nor will the poor, or renters, benefit from these policies. The nation, and the state, have had programs to help lower-income residents, but these programs meet only a fraction of the need. Los Angeles County had a waiting list 17 times its potential supply of housing, according to a 2004 report by the National Low Income Housing Coalition. With relatively little new product being produced, it's unlikely this situation can improve, as potential homeowners are shoved into the rental market, boosting rents higher.

The net result is that more Californians are becoming house poor or "rent" poor. According to American Community Survey data analysis done for National Core by this author and demographer Wendell Cox, this state has four of the six major metropolitan areas with the largest share of renters spending more than 30 percent of their income on rent – led by Riverside-San Bernardino, Los Angeles-Orange County, Sacramento and San Diego – are located in the Golden State. This includes a majority of renter household in the cities of Los Angeles, Glendale, Anaheim and Santa Ana.

Even more troubling is a growing percentage of working households suffering housing-expense burdens of 50 percent or more of income. California again leads the way, according the National Housing Conference, with Los Angeles and San Diego among the top five major metro areas.

This emerging social disaster has received little attention from the so-called progressives, whose policies in part are responsible for the state's growing housing crisis. In large part due to housing, and lack of good middle-class jobs, California now has the highest poverty rate (when adjusted for the cost of housing) of any state.

Not only are working-class Californians poorer, they also are subject to ever-higher levels of overcrowding. On a percentage basis, four California major metropolitan areas are in the 10 regions in the country with the most families doubling up. The top two are Riverside-San Bernardino and Los Angeles, followed by San Jose and San Diego.

Overcrowding is particularly tough on children, who suffer greater problems with health and academic performance. Another study associated psychological problems with children from overcrowded housing.

Long drives to work

Finally, the housing crisis also creates significant environmental problems. The unaffordability of housing has forced many Californians to seek shelter far from work. Among commuters traveling 60 minutes or more to work, Riverside-San Bernardino is third-highest, followed by Los Angeles, eighth, and San Francisco, ninth. Among major metropolitan areas with the highest share of commuters traveling 90 or more minutes one way, Riverside-San Bernardino ranks second, in a virtual tie with New York, followed by Sacramento, seventh, and Los Angeles, eighth.

For both California's middle- and working-class, our housing regulatory regime serves as a kind of tax – a nearly confiscatory one – that works particularly against families, the poor and those who do not possess considerable family wealth. The result is a California that is increasingly out of sync with the very dream that has brought millions from all over the country.

Joel Kotkin is executive editor of NewGeography.com and Distinguished Presidential Fellow in Urban Futures at Chapman University, and a member of the editorial board of the Orange County Register. He is author of The City: A Global History and The Next Hundred Million: America in 2050. His most recent study, The Rise of Postfamilialism, has been widely discussed and distributed internationally. He lives in Los Angeles, CA.

This piece originally appeared at The Orange County Register.

Photo of Los Angeles housing by Wendell Cox.



















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Land price inflation always outpaces space trade-offs

".....Some 'new urbanists' and greens argue that such restrictions will eliminate wasteful 'McMansions' and spur construction of more 'sustainable' dense housing for the working masses. Yet, in reality, the impact of highly restrictive housing polices tend to be felt most by both middle-class families and the least-affluent, who find themselves unable to buy housing or, in some cases, are forced to spend huge percentages of their income on rent....."

The new urbanists routinely assure us that housing can be made MORE affordable because of much reduced consumption of land. In fact in many cases, the central planners have computer models that predict this. But there is not one single example in real life, that supports this assumption. The computer models are therefore an example of "garbage in, garbage out".

It is easy to observe from the Demographia Reports, that every city with a median multiple of 3 is a city where lower density new development is the norm; and every city where higher density new development is the norm, has a median multiple of around 6 and often very much higher. The 1/10 of an acre lots in the latter case are always at least double the price of a quarter acre lot in the former case, and comprise a higher portion of the "house and land" package total cost.

The gainers are of course the original vendors of land, plus all incumbent land owners within the urban area. As far back as 1984, Cheshire and colleagues at the LSE calculated that the price of land per square foot was more than 300 times higher in the centre of a city with growth containment versus one without; netting out all other contributing variables.

It is scandalous that the advocates of growth containment present the advocates of freedom to develop, as being the ones with "vested interests".

California is paradise

I get a weird thought when I read this...reminded me that people are being attracted to leave and move to TX. Are the truly wealthy behind these green initiatives on purpose to depopulate? Nudging people via taxation? The elite naturalists want to make Cali pristine again?

There are twps near me that refuse sewer plants because they want to keep their residential areas w/ septic only, it keeps development out and promotes large single fam housing. As a result, that twp's absolutely gorgeous, but it is considered very quiet and exclusive full of expensive properties. Bucolic. Their twp supervisors do not even allow gas stations, certainly no fast food.

But there is more affordable housing right on their borders.

Plumbing Costs

I'd like to see what the real cost of water management plays in this formula. The average housing of southern California is not solidly built. There's few basements and the dry climate allows the use of materials that would be destroyed most everywhere else in America. SoCal builds fast and easy. So the impact fees and cheaper buildings means land costs and development fees are even higher than they appear. When you take arid land and supply a pipe full of water to it you make a commodity as precious as gold, but at a never ending cost to maintain. The reservoirs, aqueducts and management districts all must be a significant burden. Furthermore, when you then add to it the extensive supper highway networks with their elaborate flyovers and ramps built to resist earthquakes, the infrastructure burden grows even more. It costs a lot of money to make a dessert into paradise. This should have been obvious all along.

Don't the USERS pay for the water they use?

Southern California is not alone in drawing drinking water from distant places.

Consider that New York City and some of its neighbors get water from the massive reservoirs in the Delaware River watershed.

San Francisco depends on water from the Hetch Hetchy Reservoir in Yosemite National Park.

Boston gets much of its water from the massive Quabbin Reservoir (formed by damming the Swift River) located over 60 miles west of the city.

In general, water users (not taxpayers) pay for the water that they consume.

As a liberal, this is a source of shame

It's very sad to see (supposedly) liberal people advocating for these damaging and anti-family policies.

I would love to ask those that advocate for these policies (starting with Gov. Jerry Brown himself) one question:

What would Gov. Pat Brown do?

Yes, Jerry is Pat Brown's son. But in terms of stature, I think Pat Brown stands much taller than his son. Yes, I admit it - I assert that Pat Brown was one of the greatest state governors in the 20th century of any state.

Not just California.

He got things built (freeways, water aqueducts, high-voltage power transmission lines, schools, college and universities) that made California what it is today.