When the California Legislature reconvenes in a few weeks, it will have dozens of new members, thanks to term limits and redrawn legislative districts after the 2020 census.
There are no shortage of critical issues that the Legislature and newly re-elected Governor Gavin Newsom should address, but none more important than a chronic housing shortage. This shortage leads not only to severe overcrowding, especially in urban areas, but also to rents that are major factors in California’s highest poverty and homelessness rates.
Much of the housing policy debate has, for good reason, focused on the lack of affordable rental housing for low- and middle-income families. Building more of this housing is the flashpoint of the ongoing conflict between state and local governments.
That said, there is another dimension to California’s housing dilemma – the growing inability of families, even those with six-figure incomes, to buy homes and build generational wealth.
Fewer than 55% of Californians live in homes they or their families own, the second-lowest rate of any state and slightly higher than New York.
Why? It’s that homes cost more in California than in any other state except Hawaii, with median current home sales well over $800,000, reflecting both the lack of supply and the high state construction costs.
Construction overhead includes high land and labor costs, heavy regulatory hurdles, mandatory features, and fees that add tens of thousands of dollars to the cost of each unit. Even building relatively small rental apartments for low- to middle-income families averages over $500,000 per unit and can reach $1 million.
The bottom line, according to the California Association of Realtors, is that only 18% of California households can afford a single-family home at the median price of $829,760. That’s because you need an income of at least $192,800 to make payments on a 30-year mortgage with an interest rate of 5.72%. Since this data was calculated, mortgage interest rates have climbed to more than 7%, further reducing affordability.
The relationship between home prices and income is key to understanding how affordability has taken a hit in California.
Yes, California families have relatively high personal incomes compared to other states, well over $100,000 on average. But they are low compared to house prices.
Recent research by a Southern California real estate agency, Los Feliz Realtors, tells the story. It gathered data on income, size and home prices for each state to determine relative affordability.
He found that West Virginia has the most affordable housing market in the country. The average 1,714-square-foot home (larger than the California average) costs $129,103, just double the state average household income of $66,332. Not surprisingly, West Virginia also has the highest homeownership rate in the country, 77.8%.
California, meanwhile, has the second-lowest accessibility index in the country, with only Hawaii lower. At the time the data was collected, California had an average home price of $760,000, nearly seven times its average income of $111,622.
Texas, California’s great economic, cultural and political rival, is not as affordable as West Virginia but is the 12th most affordable state, with an average price of $289,896 and income average of $89,506.
Behind these figures hides a socio-economic crisis. California has become a two-tiered society, and one of its many divisions is between those who own their homes and those who have little or no hope of becoming homeowners as their rents mount. It also explains why so many Californians are fleeing the state for more affordable places.
CALmatters is a public interest journalism company committed to explaining how the California State Capitol works and why it matters. Dan Walters has been a journalist for nearly 60 years, spending most of those years working for California newspapers.