Eureka

Hot Market, Exorbitant Prices, And A Debate Over Policy Remedies

Tuesday, May 19, 2015
Image credit: 
Lukiyanova Natalia / frenta, Shutterstock

Not that housing in California defies logic but consider this tale of a home that went on the market in San Francisco back in February 2015.

Located in the city’s Outer Sunset District, the four-bedroom home was listed at $799,000 – a bargain by local standards (in April, the median asking price for a San Francisco property was a shade under $1.01 million).  Why the discount? Because, as this listing warned, the house was “in a deteriorative state; needs everything, not for the novice.” Which served only to spark a bidding war. The listing sold in less than two weeks for $411,000 over its asking price, with the buyer paying in cash.

Welcome to the contradiction that is homeownership versus affordable living in the Golden State. At present, an average California home costs $437,000 – about two-and-a-half times the $179,000 national average. If that’s too rich for your blood, renting doesn’t offer much solace. California's average monthly rent is about $1,240 – 50 percent higher than the national average of $840 per month (according to the real estate firm, Zillow, the average home rent in San Francisco now exceeds $3,100 – a 15 percent increase this past year versus the 3.7 percent gain nationwide).

Here’s the dilemma facing Californians: the higher the prices rise, the more buyers want to get in on the action. The Golden State is home to eight of the nation’s ten fastest-moving housing markets, with San Francisco, San Jose, and Oakland leading the way. Not surprisingly, San Francisco has been ranked as the nation’s worst city for renters.

All of which raises some thorny question as to what this means for the future of America’s fabled nation-state:

  • As housing becomes less affordable, what happens to low-income households who must surrender larger portions of their income to pay the mortgage or rent?
  • As housing in California’s job-expanding coastal communities continues to skyrocket, how far will workers need to move (and burn up time and gasoline in their daily commutes) to find an affordable home?
  • As California housing costs steepen, will the higher prices prove to be a drag on the state’s economy as businesses and skilled workers decide they’d rather live in another state where real estate is a better bargain?
  • How does California strike a balance between a growing population looking for housing with a growing number of cities and communities that have adopted growth-control policies?
  • Finally, how should the state government attack the problem? To date, Sacramento has  subsidized affordable housing starts through bonds and tax credits. Is it time for lawmakers to shift their focus to easing home and apartment construction in California’s coastal urban markets?

In March, California’s Legislative Analyst’s Office (LAO) issued a report on the causes and consequences of the state’s high housing costs. It points to a few obvious culprits: the housing supply along the coast doesn’t meet the demand of people wanting to live there, and higher building costs (such as labor, materials, and government fees) aren’t helping matters.

The report ends on this sobering note: “If California continues on its current path, the state’s housing costs will remain high and likely will continue to grow faster than the nation’s. This, in turn, will place substantial burdens on Californians – requiring them to spend more on housing, take on more debt, commute further to work, and live in crowded conditions. Growing housing costs also will place a drag on the state’s economy.” So much for California Dreamin’.

In this edition of Eureka, we’re taking an in-depth look at California’s housing concerns.

  • Carson Bruno, a Hoover research fellow, analyses the new Hoover Golden State Poll that surveyed Californians’ opinions on the state’s housing market.
  • Wendell Cox, an international policy consultant and expert on urban density and housing affordability, describes what he sees as a “profound policy failure” on the part of California’s leadership. 
  • Loren Kaye, president of the Sacramento-based California Foundation for Commerce and Education, explains how the California Environmental Quality Act (CEQA) is a lead culprit in the Golden State’s infrastructure underinvestment.
  • Finally, Carol Galante, the I. Donald Terner Distinguished Professor in Affordable Housing and Urban Policy at UC Berkeley, offers a blueprint for California moving forward.

And before all of that, we have this podcast offering an insight into the findings of the latest Hoover Golden State Poll on California housing.

We hope you enjoy the series – and that it gets you thinking about where California stands and if we’re moving in the right direction.