- Over-regulation, the high cost of living, slow new construction and the lack of affordable housing available for sale are all stifling the growth of homeownership in California.
“In a few years, California will be a majority renter state,” predicted California Association of Realtors Chief Economist Leslie Appleton-Young during the association’s “The California Series: State of the State” panel this week.
Appleton-Young, along with California Business Roundtable President Rob Lapsley, Los Angeles City Controller Ron Galperin, and California Budget and Policy Center Executive Director Chris Hoene as panelists, said the future of homeownership in California is hanging in the balance.
High cost of living, the lack of job growth for middle-class individuals and families, the lack of access to affordable housing, and local regulations are all keeping developers from meeting affordable housing needs.
What’s holding up progress?
1. The exorbitant cost of living
“You could buy a really beautiful house [in Atlanta] for what it would cost to remodel a kitchen here,” said Galperin of his recent trip to the Peach State’s capital.
Although his comment was met with chuckles, Galperin and the audience quickly turned serious — realizing that many Californians simply can’t afford to buy homes and barely afford to live in the state.
According to the California Legislative Analyst’s Office, the average home price in California is $437,000, more than double of the national average of $179,000. Renters aren’t faring that much better. The average rent in California is $1,240, double that of the national average ($840).
Beyond housing costs, Hoene says real estate and housing professionals need to consider the overall cost of living that includes things such as utilities, transportation, child care and health care paired with the burden of some of the highest income, property and sales taxes in the nation.
Hoene estimated that a family of four in San Francisco would barely be making it on a yearly income of $100,000 — an income that would be considered solid in other more affordable parts of the nation.
The Supplemental Poverty Measure is considered more accurate than the Official Poverty Measure since it factors in cost of living instead of relying on raw income level numbers.
“We’re losing people who are in the working middle class,” he said.
On the business side, Lapsley said companies are feeling the pressure to offset these high living costs, and some are beginning to offer monetary incentives to keep attracting talent such as moving bonuses into the thousands of dollars.
“Housing has literally become the No. 1 issue,” he said.
He said this is driving companies away from California, as evidenced by the number of Fortune 500 companies who have moved their headquarters to other states. As of 2016, 53 Fortune 500 companies are in California, which Lapsley estimates is a third of the number in the 90s.
2. Regulations slowing inventory growth
Each panelist agreed regulations are important for safeguarding the community, but that there’s too much room for regulations to be misused, thus slowing down the development of affordable housing structures.
“It comes down to supply and demand — and the fact of the matter is that the more you do to constrict supply, the more difficult you make it to build housing, the more impediments you put in the way, the more fees you put into the whole process, the more expensive it’s gonna become and the less supply you’re going to have. It’s that basic,” Galperin said.
The panelists specifically mentioned the California Environmental Quality Act (CEQA), a statute that “requires state and local agencies to identify the significant environmental impacts of their actions and to avoid or mitigate those impacts, if feasible.”
Galperin says CEQA is important to ensuring that projects, housing or otherwise, don’t harm the environment in the short or long term, but there’s an “unlimited window to litigate,” which lengthens the time projects take or kills the project altogether.
He also noted that California’s notoriously strict local zoning and building guidelines keep builders in limbo, lengthen the project timeline and drive up costs, all of which makes it harder to close the supply gap.
“There is so much more than looking at density issues,” Galperin said. “[You have to] look at walkability, design, quality, etc.”
“These are the rules you created,” he added. “Are you happy with the result? No.”
Lapsley agreed and said every business needs “a sense of certainty,” and local officials need to understand that “time is money.”
Both men said local zoning boards need to consider editing their requirements for a more streamlined, quick and effective building process.
“Someone is always going to be opposed to something,” Lapsley says of over-regulation.
3. The ‘not in my neighborhood’ mentality
Community members’ negative perception of affordable housing is another major roadblock to solving this problem.
Each panelist noted that longstanding community members often have a “not in my neighborhood” mentality because they’re afraid that affordable housing structures won’t fit in the style and ambiance of their neighborhood or could bring in an unsavory crowd.
Hoene says real estate professionals and developers have to reassure communities that having affordable housing structures, whether it be small, single-family homes or apartment buildings, will add to the existing culture of their neighborhood, not take away from it.
Plus, he says these areas are quickly losing the working middle class — the backbone of cities across the nation.
What’s the solution?
According to the panelists, the solution isn’t easy and will take some real legislative work.
Rolling back regulations, building more affordable housing and reducing the cost of living will be the biggest ways to bolster homeownership in California, and the panelists said associations like CAR should begin reaching out to companies to work with them on ways to lift the burden for new talent and current employees struggling to find affordable housing.
They also suggested that real estate professionals become knowledgeable about laws and regulations that are slowing the building process.
“This is the perfect time to get involved,” Lapsley said.