housing affordability in california · county median price* price that median-income households can...

HOUSING AFFORDABILITY IN CALIFORNIA

November 12,2015

San Jose Hearing

Oscar Wei, Senior Economist

HOUSING AFFORDABILITY PEAKED Q1 2012 PRICES V. LOW RATES AND INCOME GROWTH

California vs. U.S. – 1984-2015

% OF HOUSEHOLDS THAT CAN BUY A MEDIAN-PRICED HOME

SERIES: Housing Affordability Index of Traditional Buyers SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

56%

30%

71%

57%

0%

10%

20%

30%

40%

50%

60%

70%

80% CA USAnnual Quarterly

MEDIAN MONTHLY MORTGAGE PAYMENT - CA

What Will Happen When Mortgage Rates Increase?

$0

$400

$800

$1,200

$1,600

$2,000

$2,400

$2,800

3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%

$1,636 $1,743

$1,853 $1,966 $2,083

$2,203 $2,327

$2,453

Q2-2015 Median Price $485,100

20% Downpayment

INTEREST RATE

MONTHLY MORTGAGE

SERIES: Housing Affordability Index SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

MINIMUM QUALIFYING INCOME - CA


$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%

$87,761 $92,021

$96,425 $100,968 $105,646

$110,454 $115,384 $120,432


20% Downpayment

INTEREST RATE

Minimum Qualifying Income


HOUSING AFFORDABILITY INDEX - CA


0%

10%

20%

30%

40%

50%

3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%

34% 32%

30% 28% 26% 25%

23% 21%


20% Downpayment

INTEREST RATE

% OF HOUSEHOLDS THAT CAN BUY, ALL ELSE CONSTANT


HOUSING AFFORDABILITY IN CA: BY COUNTY

62

57 56 55 54 50 50

47 46 44

41 40 37

30 30 28 27

25 25 25 23

21 20 19 18 18 17 16 13

10

0

10

20

30

40

50

60

70 2015 Q2


% able to purchase median priced home

$27,010

$45,340

$69,990 $71,630

$87,520 $89,250

$98,400

$119,970

$95,978

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

RetailSalespersons

Chefs andHead Cooks

ElementarySchool

Teachers

Firefighters Police andSherriff's

PatrolOfficers

ComputerProgrammers

RegisteredNurses

SoftwareDevelopers

(Applications)

Min. IncRequired toBuy a Med.

Home

HOW WAGES MEASURED AGAINST INCOME REQUIRED TO BUY A HOME

SOURCE: Bureau of Labor Statistics, C.A.R.

2014 Annual Mean Wage

California

$30,340

$52,690 $49,230

$70,680 $88,390

$97,570

$124,980 $118,690

$267,783

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

RetailSalespersons

Auto.Mechanics

Chefs andHead Cooks

ElementarySchool

Teachers

Firefighters ComputerProgrammers

RegisteredNurses

SoftwareDevelopers

(Applications)


Home




San Francisco

$26,870

$42,610 $44,330

$72,720

$82,830 $86,840

$93,180

$103,790

$88,082

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

RetailSalespersons

Auto.Mechanics

Chefs andHead Cooks

ElementarySchool

Teachers


RegisteredNurses

SoftwareDevelopers

(Applications)


Home




Los Angeles

$26,610

$46,790 $50,730

$67,300

$58,520

$75,980

$105,390 $103,730

$57,581

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

RetailSalespersons

Auto.Mechanics

Chefs andHead Cooks

ElementarySchool

Teachers


RegisteredNurses

SoftwareDevelopers

(Applications)


Home




Sacramento

County Median Price*

Price that Median-

Income Households

Can Afford

Difference in $ Difference in %

San Francisco $1,247,570 $383,670 $863,900 225.2%

San Mateo $1,075,390 $452,020 $623,370 137.9%

Santa Clara $884,030 $474,230 $409,800 86.4%

Los Angeles $436,010 $275,530 $160,480 58.2%

San Bernardino $222,310 $255,970 -$33,660 -13.1%

San Diego $475,230 $312,180 $163,050 52.2%

Fresno $216,160 $216,910 -$750 -0.3%

Merced $203,930 $230,350 -$26,420 -11.5%

Sacramento $282,770 $272,310 $10,460 3.8%

California $446,980 $304,490 $142,490 46.8%

HOW MUCH HOME CAN A TYPICAL HOUSEHOLD AFFORD

2015 – Q2

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

*Includes existing single-family homes, condos, and townhomes

CALIFORNIA HOUSING MARKET OUTLOOK

2010 2011 2012 2013 2014 2015p 2016f

SFH Resales (000s) 416.5 422.6 439.8 414.9 383.3 407.5 433.0

% Change -12.3% 1.4% 4.1% -5.9% -7.6% 6.3% 6.3%

Median Price ($000s) $305.0 $286.0 $319.3 $407.2 $447.0 $476.3 $491.3

% Change 10.9% -6.2% 11.6% 27.5% 9.8% 6.5% 3.2%

Housing Affordability

Index 48% 53% 51% 36% 30% 31% 27%

30-Yr FRM 4.7% 4.5% 3.7% 4.0% 4.2% 3.9% 4.5%

SERIES: CA Housing Market Outlook SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

VERY SLOW REAL INCOME GROWTH

$0.00

$10,000.00

$20,000.00

$30,000.00

$40,000.00

$50,000.00

$60,000.00

$70,000.00

198

4

198

5

198

6

198

7

198

8

198

9

199

0

199

1

199

2

199

3

199

4

199

5

199

6

199

7

199

8

199

9

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

U.S. CAIn 2013 Dollars

SERIES: Median Household Income SOURCE: US Census Bureau, Current Population Survey

2013 gap = $5600

INVENTORY CONTINUED TO DECLINE FROM LAST YEAR

Sep 2014: 4.2 Months; Sep 2015: 3.7 Months

Note: “Unsold Inventory Index” represents the number of months it would take to sell the remaining inventory for the month in question. The remaining inventory for the month is defined as the number of properties that were “Active”, “Pending”, and “Contingent” (when available) and divide the sum by the number of “Sold” properties for the month in question.

0

2

4

6

8

10

12

14

16

18

Jan

-05

Jul-

05

Jan

-…

Jul-

06

Jan

-07

Jul-

07

Jan

-…

Jul-

08

Jan

-…

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

SERIES: Unsold Inventory Index of Existing Single Family Homes SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

AFFORDABLE INVENTORY AVAILABLE TO MEDIAN-INCOME HOUSEHOLDS

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

67.2%

28.5%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2015 Q2

CA PERMITS UP BUT MORE UNITS NEEDED

2014: 85,065 Units, Up 3.4% from 2013

2015f: 89,318 Units

SERIES: New Housing Permits SOURCE: Construction Industry Research Board

0

50000

100000

150000

200000

250000

300000

350000 Single Family Multi-Family

Household Growth: 165,000/yr

• Housing supply constrained in long-run – New construction recovery is very slow

– Production has fallen short of housing needs

– Short on new units since 2005

• Inhibited by – Fiscal interests of local government

– Residents who disdain further development, especially multi-family

– Unfavorable legal/business environment for development in general & multi-family in particular

INADEQUATE HOUSING SUPPLY ISSUE

SHARE OF FIRST-TIME BUYERS REMAINS BELOW LONG-RUN AVERAGE

29.5%

0%

10%

20%

30%

40%

50%

% First-Time Home Buyers Long Run Average

Long Run Average = 38%

SERIES: 2015 Housing Market Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

11.3%

6.4%

6.9% 3.7%

0%

10%

20%

30%

40%

50%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

All Hombuyers First-Time Buyers Repeat Buyers

Down Payment

PERCENT OF BUYERS WITH ZERO DOWN PAYMENT


Q. Please indicate the type of mortgage.

WHILE THE SHARE OF FHA INCREASED FROM THE RECENT LOW, IT WAS STILL MUCH LOWER THAN 2009

16% 19%

7% 5%

0%

10%

20%

30%

40%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

FHA VA


HOUSING AFFORDABILITY GAP

• Affordability crisis goes beyond low income households – Lack of affordable housing for low income

service workers is apparent

– Less obvious problem: moderate income households who cannot afford homes in/near communities where they work

– In general, there are programs to assist the first group, but not the second group

REASONS FOR RENTING INSTEAD OF BUYING

44%

9%

6%

6%

6%

5%

5%

3%

2%

Can't afford to buy

Poor credit / Can't qualify

Renting is easier

Young/Starting out/Not ready

Flexibility/Freedom if renting

Cost/Upkeep/Responsibility

Plan to / Saving for down

Never considered it/No interest

Disabled/On disability

SERIES: 2013 Renter Survey SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

REASONS FOR CHANGING COUNTY ALL BUYERS (2014 VS. 2015)

14%

16%

5%

10%

9%

13%

8%

3%

3%

18%

23%

14%

10%

10%

10%

8%

7%

5%

0%

14%

0% 5% 10% 15% 20% 25%

Housing affordability

Quality of life

Second home

Shorter commute to work/school

Job change

Closer to family/relative

Quality of school

Retired

Quality of community services

Other

2014 2015


HOW DID WE GET HERE?

Why the Production Shortfall?

• Shortage of Land: – Production shortfall greatest in cities where need is most critical

• High Costs of Development – Fees in most California communities are higher than elsewhere in

US

– Infill development costs higher than suburban development costs

– Environmental policies, etc increase costs

– Lengthy permitting process increases cost per unit produced and favors deep pockets

• General Desire for Low Density Land Use – Preference for detached single family homes

– Disdain for multifamily developments

• Cost of service to cities higher than other land uses

• NIMBYism: – Desire to preserve existing character of community

– Dislike for multifamily, higher density development by residents and officials

– Quality of life concerns

– Fear of crime and other negative aspects associated with density

HOW DID WE GET HERE?

SOLUTIONS

• Production Gap is Primary Source of CA’s Housing Problems

• Solutions must include:

– Increase in Production

– Revitalization of Neighborhoods

– Change Incentive Structure Facing Cities • Fiscal

• Housing & Zoning Requirements

• Improve Business & Legal Climate for Developers

• Attitude Shift is Essential to Moving Toward Solutions and an Attitude Shift Requires Education and Heightened Awareness of Problems, Implications, and Solutions!

THANK YOU!

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