Welcome to the April Housing and Real Estate issue of NorthBay biz magazine. In addition to all the stories, this month, there’s a special report on healthy living. I invite you to enjoy all the special features and columns in the regions only locally-owned, formerly glossy business publication. You can rely on NorthBay biz as your local source for business news and information, because, “Helping grow your business isn’t just something we do…It’s all we do!”
A “hot housing market” is a familiar phrase, but a massive understatement if you’re using it to describe the Bay Area. I recently heard a Realtor talking about prices in an “overheated” housing market in Texas make the comparison to California by saying, “and then there’s the Bay Area.” Here’s what she meant: According to the Mercury News, in the San Jose metro area the median down payment for a house is slightly more than $192,000! Travelling north into Marin County, the 20 percent down payment necessary to buy a home there, is slightly less, at an average cost of $165,000. In a market like this, with extremely high rents coupled with low incomes, it becomes impossible for the vast majority of buyers to save enough money to qualify for a down payment on a home.
Comparatively, across the rest of the country, down payments on a home purchase average around $40,000. Applying a little math, it’s easy to figure out that the down payment needed to buy a home in the Bay Area would pretty much make you a cash buyer anywhere else in the country.
What’s the answer to these skyrocketing prices that are denying home ownership to so many California families? There’s one solution. Pretty simple really—build more housing of every kind and start right now. According to the Department of Housing and Community Development, California built only 47 percent of the housing it needed to serve its population growth between 2003 and 2014. By many estimates, California is now more the 1 million housing units behind in satisfying current housing demand. Going forward, population growth alone will require another 1.8 million more housing units be built between 2015 and 2025 to serve demand.
With demand so far outpacing supply, where do you think housing prices are headed in the future? And a housing market like this takes its toll on everyone, but especially on our kids and young families just starting out on life’s journey.
So now it becomes clearer why so many people in their mid-twenties are still living at home with their parents. According to Joel Kotkin, editor of New Geography, “More than 20 percent of people age 20 to 34 live in poverty, up from 14 percent in 1980. Since 2004, home ownership rates for people under 35 have dropped by 21 percent, outpacing the 15 percent fall among those aged 35 to 44.” If you want further proof, there’s this fact—since 2000, the number of people aged 18 to 34 living at home has increased by more than 5 million! It becomes obvious that basic economic truths are in play here. High home prices and low incomes are keeping the younger generation from investing in their futures and becoming homeowners.
What’s the root cause of this housing crisis? There are many, but answered simply, probably the single most significant factor was the well intentioned, California Environmental Quality Act (known as CEQA). CEQA became a tool in the hands of activists. It was used as a weapon to restrict, reduce and sometimes completely stop housing growth across the state. The single-family homes and apartments eventually built were often delayed or ultimately completed at dramatically higher costs than first projected.
When state and local governments joined in with demands and conditions to be met (before housing of any type could be built) a statewide housing shortage became reality. Regulatory fees, almost three times the national average, added $50,000 to $85,000 in costs per unit to any housing project. Currently, demands that new homes under construction must meet “zero emission” requirements add another $25,000 to $30,000 in costs. Fees and regulations are strangling the industry.
Because of these mandated demands, California ranks second to last in the country in middle-income housing affordability, trailing only Hawaii. That leaves our state with the not-so-proud distinction of possessing 14 of the nation’s 25 least affordable metro areas. Home ownership rates across the state are among the lowest in the country. And to close, here’s this sad statistic from Core Logic, “For every two homebuyers who come to the state, five families leave.
We can do better.
That’s it for now. Enjoy this month’s magazine.
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