Californian families suffer from a chronic housing shortage

When the California legislature reconvenes in a few weeks, it will have dozens of new members thanks to term limits and new legislative districts drawn after the 2020 census.

There’s no shortage of critical issues for the Legislature and newly elected Governor Gavin Newsom to address, but none ranks higher than a chronic housing shortage. This shortage not only causes severe overcrowding, particularly in urban areas, but also rents, which are the main contributors to California’s highest poverty and homelessness rates nationwide.

Much of the policy debate about housing has focused on the lack of affordable rental housing for low- and middle-income families, and with good reason. The construction of more homes is the focal point in the ongoing conflict between the state and local authorities.

But there is another dimension to the housing problem in California — the increasing inability of families, even those with six-figure incomes, to buy homes and build generational wealth.

Less than 55% of Californians live in homes they or their families own, the second lowest rate of any state and only slightly higher than New York.

Why? In fact, homes in California cost more than any other state except Hawaii, with current median home sales well over $800,000, reflecting both the lack of supply and the state’s high construction costs.

Construction costs include high land and labor costs, high regulatory hurdles, mandatory features, and fees that add tens of thousands of dollars to the cost of each unit. Even building relatively small rental housing for low- and middle-income families averages over $500,000 per unit and can cost as much as $1 million.

The bottom line is, according to the California Association of Realtors, only 18% of California households can afford a single-family home that averages $829,760. That’s because an income of at least $192,800 is required to make payments on a 30-year mortgage with an interest rate of 5.72%. Since this data was calculated, mortgage rates have risen to over 7%, further reducing affordability.

The relationship between home prices and income is key to understanding just how much affordability has suffered in California.’

Yes, California families have relatively high personal incomes compared to other states, averaging well over $100,000. But they are low relative to home prices.

Recent investigations by a Southern California real estate agent, Los Feliz Realtors, tell the story. It collected data on income and house sizes and prices for each state to determine relative affordability.

Turns out West Virginia is the cheapest housing market in the nation. The average 1,714-square-foot home (larger than the Californian average) costs $129,103, or just double the state’s median family income of $66,332. Unsurprisingly, West Virginia also has the highest homeownership rate in the nation at 77.8%.

California, meanwhile, has the second-lowest affordability index in the country, only lower than Hawaii. At the time of data collection, California had an average home price of $760,000, nearly seven times its median income of $111,622.

Texas, California’s arch rival economically, culturally and politically, is not as affordable as West Virginia but is the 12th cheapest state with an average price of $289,896 and an average income of $89,506.

Behind these numbers lies a socio-economic crisis. California has evolved into a two-tier society, and one of the many divisions is between those who own their homes and those who have little or no hope of ever becoming homeowners as their rental income piles up. It also explains why so many Californians are fleeing the state to find more affordable places.

Dan Walters is a columnist at CalMatters.