California’s housing supply and affordability crisis is well-chronicled and has attracted national attention from several noted scholars and economists. The numbers are stark: California’s median home price of $550,000[1] is one of the most expensive in the country at a time when its homeownership rate of 54 percent ranks last. In June, the Center for California Real Estate published a series of articles on what ails California – and potential solutions. The sobering conclusion: find a way to increase housing supply now or lose generations of potential homebuyers.
California builds about 80,000 new housing units a year at a time when it should be producing 180,000[2]. If this trend isn’t reversed, the state homeownership rate – already last in the country – will continue to lag the rest of the nation by about 10 percent through 2030, concludes William R. Emmons and Lowell R. Ricketts in California Homeownership in 2030 and Beyond. Potential homebuyers will either flee to more affordable states or may never own a home at all.
The underpinnings of California’s housing supply crisis may be rooted in a lack of supply but has other culprits: burdensome land-use and zoning regulations, high costs and lengthy permitting processes. And, as Kevin T. Leicht, professor of sociology at the University of Illinois, Urbana-Champaign writes in Inequality, Mobility, and the State of the American Dream, “real median family incomes are 15 percent lower now than they were in 1969.” Stagnant incomes for many Americans are outweighed by rising inequality and an increased income and wealth gaps that results in fewer people able to afford a home.
Reid Cramer, Senior Fellow at New America, zeroes in on the symptom of California’s problem. In Rebuilding Pathways to Homeownership, he challenges policymakers to effect long-term solutions that help younger households become better positioned to buy a home. Among his priorities: unlocking more affordable housing and improving down payment capabilities.
There is light at the end of the tunnel. Mark Fleming, chief economist for First American Financial Corp., sees a direct nexus between higher education attainment and homeownership. Learning to Achieve the American Dream reveals that education matters. Earn a bachelor’s degree and you increase the likelihood of owning a home by 3 percent. Get a graduate degree and homeownership jumps another 3 percent.
If California is to unlock supply and create long-term housing growth and opportunity, policymakers need to refocus their approach, contends Loren Kaye, president of the California Foundation for Commerce and Education. In Fostering Growth and Opportunity in California for a Strong Middle Class, Kaye singles out further investments in transportation and water infrastructure; removing onerous regulations to unlock housing supply; producing more affordable energy; updating labor laws; and renewed investment in education to produce a more skilled workforce as the five keys toward increasing the supply of affordable housing in California.
Increased financial counseling and an innovative pilot program in Maryland designed to help first-time homebuyers with excessive college debt are also cited among the basket of work by CCRE’s stable of economists. The full report is available here.
Geoff McIntosh is President of the California Association of REALTORS®. CCRE is an institute from the CALIFORNIA ASSOCIATION OF REALTORS® dedicated to intellectual engagement in the field of real estate. Its mission is to advance industry knowledge and innovation with an emphasis on convening key experts and influence-makers.