Out of Control Policy Blog

California Still Home to the Least Affordable Housing Markets

To those of you following California housing issues, this news will hardly come as a surprise:

Housing affordability in California continued to be the worst in the nation during the first quarter of 2006, according to a national survey released today, the California Building Industry Association announced.

In fact, because three additional metro areas in California were added to the survey, prepared by CBIA's sister organization, the National Association of Home Builders, California is now home to the nine least affordable metro areas in the nation and 18 of the bottom 20.

Layne Marceau, CBIA's 2006 Chairman and a Bay Area homebuilder, said the state's growing housing affordability crisis won't improve until state and local policymakers enact long-overdue reforms that will allow builders to meet the strong demand for homes and condominiums at all price points.

"California homebuilders are eager to meet the demand for new homes and condos, and we continue to work with policymakers in Sacramento and around the state to enact reforms that would allow us to produce the range of new homes that is needed to accommodate our growing population," Marceau said.

"Unfortunately, if these reforms aren't made, there's little hope that affordability will be significantly increased or that California's dismal homeownership rate, now 13 percentage points below the national average, will significantly improve."

Marceau said reforms include legislation now pending to require communities to plan for new growth, streamline the process for building new high-density homes and condos in existing urban areas, and require local governments to show a connection between the impacts of growth and the developer fees they charge. He noted one Sacramento-area community is now considering boosting its average "developer fee" – in reality a hidden tax on new-home buyers – to $100,000 per home.

According to the quarterly NAHB/Wells Fargo Housing Opportunity Index, Los Angeles County once again was the nation's least affordable metro area, as only 1.9 percent of the new and existing homes sold between January and March were affordable to county residents earning the median income. That's down from 2.3 percent in the fourth quarter of 2005.

The second-least affordable metro area was Orange County at 2.5 percent, followed by Santa Barbara County, Stanislaus County, and Monterey County. Other California metro areas in the bottom 10 nationally were San Diego County at No. 6, followed by Merced County (7), Napa County (8), and Santa Cruz County (9). The New York City metro area and its neighboring Long Island suburbs tied for 10th.

I wrote about California's housing crunch in an op-ed last month. As I see it, California is in a tight spot, and the stakes of inaction are huge:

The only realistic way for California to begin to produce the massive quantities of new housing needed to address the supply-demand imbalance and reduce housing costs is for state and local governments to remove regulatory obstacles to new housing and ensure a sufficient supply of developable land to meet long-term housing needs.

This is no small task. Current homeowners have a strong incentive to maintain their high property values by keeping a tight rein on new development. California law gives citizens a strong voice in local planning decisions, and in many areas, citizens have successfully used the ballot box to impose strict local growth limits. Likewise, California's strong environmental lobby is heavily invested in current policies aimed at controlling growth and restricting development and will likely resist any effort to relax growth controls.

Hence, California politicians are trapped between a rock and a hard place. If they embrace sweeping reforms that would relax land use regulations and limit citizen involvement in the development process, then they are likely to face a backlash in the current political climate. If they do nothing, then housing supply shortage is likely to worsen, the repercussions of which could ultimately drive citizens and businesses to other states and damage California's long-term economic outlook.

The key to California's future is increasing the awareness on the part of politicians and citizens of the high costs of the state's current approach to growth management and the severe economic impacts on millions of families. Without strengthening the political will to radically revamp growth management in California, then we face the danger of killing the goose that laid the Golden State.

For more on this, see Reason's research on growth and land use issues here.

Leonard Gilroy is Director of Government Reform


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