California Homes Require Real Reach

August 28, 2013

In the 1950s and 1960s, Southern California was ground zero for the "American Dream" of owning a house. From tony Newport Beach and Bel-Air to the more middle-class suburbs of the San Fernando Valley and Garden Grove to working-class Lakewood, the region created a vast geography of opportunity for prospective homeowners. Today, with house prices again skyrocketing, Southern California is morphing into something that more resembles a geography of inequality, says Joel Kotkin, a distinguished Presidential Fellow in Urban Futures at Chapman University.

Now, even the middle class is forced into either being "house poor" or completely shut out of homeownership, or may simply be obliged to leave the area. Even more troubling is that the working class and the poor suffer from the kind of crowded, overpriced housing conditions sadly reminiscent of those experienced during the Depression and World War II.

  • Judged by the "median multiple" (the median income divided by the median house price) California's prices for a generation have soared well above the national averages.
  • Demographer and National Center for Policy Analysis adjunct scholar Wendell Cox notes that, until the early 1970s, California's house prices were similar to those in the rest of the United States.
  • The National Association of Realtors data indicates that the median house price in California at that time was 7 percent above the national average. By 2013, the price differential had risen to 109 percent.

Portland State University economist Gerald Mildner refers to this as "Economics 101," indicating that "as the demand for property in a region grows, the increase in demand translates into some combination of more space and high prices, depending upon the elasticity of supply."

Besides regulatory restraints, California housing prices are driven up by the highest impact fees in the nation.

  • An annual survey by Duncan and Associates shows that the average impact fee in California for a single-family residence in 2012 was $31,100 per unit, nearly 90 percent higher than the next most expensive state and 265 percent higher than the norm among jurisdictions that levy such fees, which typically pay for capital improvements, like water and wastewater facilities, required by a new development.
  • These fees also impact multifamily housing; the state's fees on multifamily units averaged $18,800, 290 percent above the average outside the state.

Source: Joel Kotkin, "California Homes Require Real Reach," New Geography, August 19, 2013.

 

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