Housing Availability Careening Over the Cliff in California
Want to buy a home? If you make less than six figures and don’t have a healthy down payment in your bank account, with reserves, it isn’t possible in most of California.
Median home prices in Southern California surged 8.2 percent last year according to real estate data firm CoreLogic, to an all-time high of $507,500. That surpasses the high of $505,000 from the last bubble in 2007.
Unfortunately for prospective first time home buyers, this rise in value isn’t driven by sketchy lending practices that caused values to artificially skyrocket before the recession. These increases, which took 10 years to occur, are the result of the steady decline of available housing in the marketplace bolstered by a similar steady increase in demand.
Putting it in simple terms, there are too few homes available for a growing population.
Another issue that is often ignored is the increase in home rentals. During the “Great Recession” and the housing collapse, thousands of investors scooped up homes at basement prices. Instead of selling those properties as the market increased, many of those properties are now fulltime rental homes for families that either can’t afford to buy, don’t want to buy (another recent phenomena), or whose credit was so damaged by the recession that they aren’t qualified.
California is just starting to realize that there is a problem. Unfortunately, state official’s concepts for solving the housing problem is to build more government subsidized low-income units. The legislature passed a new $75 fee on all mortgage refinances in an effort to fund this program. These programs have never lived up to their hype. Besides, making the purchase of a house more expensive isn’t likely to solve our problems.
Another cockamamie idea from the Brown Administration is to meet demand by building infill housing in urban areas, in an effort to bolster the declining ridership of mass transit with the idea that Millennials want to live in tiny apartments and condos and will eschew the California tradition of owning a car. They won’t and they aren’t.
And here lies the real problem. Government at all levels in California are doing everything in their power to reduce supply through regulation and restrictive zoning, while piling on ever-higher fees on new construction. This isn’t just a Newport Beach issue, it is occurring in every city and county in California to one extent or another.
Environmentalists and current residents use the California Environmental Quality Act (CEQA) to stop even the most reasonable housing projects. The newest idiocy is to require new projects to determine their impacts on Green House Gases, as if building a new home for a family that already lives in California is going to have any impact on their carbon footprint.
There are some solutions. The state needs to revise CEQA, but this is unlikely. So the answer lies at the local government level. Cities in particular, need to begin lowering barriers to new home construction. Allowing for increased housing density, reducing building fees, and improving permit approval times should be of paramount importance.
It is in local government’s best interest to do so. The lack of available housing stock, means that older homes are unlikely to be sold. Those houses that were purchased at the basement prices of 2008-11, have their values locked in under Proposition 13. For local governments to realize the increased property tax revenues from the record property values of today’s housing market, those houses have to be sold and purchased at today’s prices.
It would be wise for our elected officials to realize the damage they are doing to California residents and future generations. It’s just another nail in the California economic coffin.