HOUSING AFFORDABILITY C.A.R. Research & Economics

HOUSING AFFORDABILITY

C.A.R. Research & Economicswww.car.org/marketdata

HOUSING AFFORDABILITY AND HOMEOWNERSHIP

2015 - WHERE ARE WE TODAY?

• Housing market is under-preforming given fundamentals – Low mortgage rates– Job & Income growth are back

• And yet…– Sales off 7.6% in 2014 compared to 2013– Share of first-time buyers LOW– Affordability key concern for renters

INADEQUATE HOUSING SUPPLY ISSUE

• Housing supply constrained in long-run– New construction recovery is very slow– Missing 165,000+ new units per year – Production has fallen short of housing needs

• 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

CALIFORNIA’S 3 HOUSING GAPS

• Housing Gaps: – Housing affordability gap– Homeownership gap– Housing production gap

• Chronic problems spanning decades

AFFORDABILITY GAP

HOUSING AFFORDABILITY DOWN SHARPLY SINCE Q1 2012

California vs. U.S. – 1984-2014% OF HOUSEHOLDS THAT CAN BUY A MEDIAN-PRICED HOME

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

19841986

19881990

19921994

19961998

20002002

20042006

20082010

2012

Q2 2012

Q4 2012

Q2 2013

Q4 2013

Q2 2014

Q4 20140%

10%

20%

30%

40%

50%

60%

70%

80% CA USAnnual Quarterly

HOUSING AFFORDABILITY IN CA: BY COUNTY

SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

HAI

0

10

20

30

40

50

60

7064

59 57 56 56 53 5350 49

4541

31 29 29 28 27 27 26 24 23 22 21 21 2017 15 15 14

% able to purchase median priced home2014 Q4

INCOME REQUIRED TO BUY A MEDIAN-PRICED HOME IN CA: (PEAK VS. CURRENT)

2012 Q1 2014 Q4$0

$20,000

$40,000

$60,000

$80,000

$100,000

$56,324

$91,552 • Change in minimum required income: $35,228

• Increase in income attributed to interest rate increase: $338 (1.0% of total change)

• Increase in income attributed to price increase : $34,890 (99.0% of total change)


VERY SLOW REAL INCOME GROWTH

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

$0.00

$10,000.00

$20,000.00

$30,000.00

$40,000.00

$50,000.00

$60,000.00

$70,000.00

U.S. CAIn 2013 Dollars

SERIES: Median Household IncomeSOURCE: US Census Bureau, Current Population Survey

2013 gap = $5,600

Chefs and Head Cooks

Teachers Firefighters Police and Sherriff's Patrol Of-

ficers

Computer Pro-

gram-mers

Registered Nurses

Software Developers

(Applica-tions)

Min. Inc Required to Buy a Med.

Home

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$47,540$55,660

$71,630

$86,040$89,450$96,980

$112,180

$91,552

HOW WAGES MEASURED AGAINST INCOME REQUIRED TO BUY A HOME

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

Annual Mean Wage

California

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

HOUSING AFFORDABILITY INDEX - CA

What Will Happen When Mortgage Rates Increase?

3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%0%

10%

20%

30%

40%

50%

36%34%

32%30% 28% 26%

24%23%

Q4-2014 Median Price $452,140

20% Downpayment

INTEREST RATE

% OF HOUSEHOLDS THAT CAN BUY, ALL ELSE CONSTANT


MEDIAN MONTHLY MORTGAGE PAYMENT - CA


3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%$0

$400

$800

$1,200

$1,600

$2,000

$2,400

$1,525$1,624

$1,727 $1,833$1,942

$2,054$2,169

$2,286Q4-2014 Median Price $452,140

20% Downpayment

INTEREST RATE

MONTHLY MORTGAGE


MINIMUM QUALIFYING INCOME - CA


3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$81,798$85,768

$89,873$94,108$98,468

$102,949$107,544

$112,249Q4-2014 Median Price $452,140

20% Downpayment

INTEREST RATE

Minimum Qualifying Income


HOMEOWNERSHIP GAP

HOMEOWNERSHIP RATES

California Vs. U.S. – 9.9% gap in 2014

40%

45%

50%

55%

60%

65%

70%

75%

53.7%

Peak: 60.2%

54.9%

64.5%

Peak: 69.0%

64.8%

CA US

SERIES: Homeownership RatesSOURCE: U.S. Census Bureau

HOMEOWNERSHIP RATE BY AGE OF HOUSEHOLDER

SOURCE: Census Bureau

OVER 1/3 LIVE WITH THEIR PARENTS

What is your current living situation?

I rent I live with my parents

I own I live in a dorm

Other:0%

5%

10%

15%

20%

25%

30%

35%

40%

45%41%

36%

20%

1%1%

SERIES: 2014 Millennials SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

MILLENNIALS’ BIGGEST CONCERNS

What are your biggest concerns about home ownership?

Price/Affordability (45%)

Problems with Credit, Mortgages, or Taxes (19%)

Maintenance/Upkeep (14%)

Satisfaction with Home/Location (7%)

Responsibility (4%)

SERIES: 2014 Millennials SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

SHARE OF FIRST-TIME BUYERS UP IN ’14 BUT STILL BELOW LONG-RUN AVERAGE

2005 2006 2007 2008 2009 2010 2011 2012 2013 20140%

10%

20%

30%

40%

50%

28.1%30.5%

% First-Time Home Buyers Long Run Average

Long Run Average = 38%

QUESTION: Was the buyer a first-time buyer?SERIES: 2014 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

WHY DO WE CARE ABOUT LOW LEVEL OF FIRST-TIME BUYERS?

• It signals a constrained flow of new households in the housing market

• Trade-up market cannot be replenished in the long run

• First-time buyers represent the main impulse that drives the state’s homeownership rate

REASONS FOR RENTING INSTEAD OF BUYING

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

44%

9%

6%

6%

6%

5%

5%

3%

2%

SERIES: 2013 Renter SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

STUDENT LOAN DEBT:25% OF RENTERS

Yes; 23%No; 75%

Refused; 2%

Student Loan Debt

SERIES: 2013 Renter SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

<$10,000

$10-$20K

$20-$50K

$50-$100K

> $100K

Refused

78%

8%

6%

3%

2%

2%

Amount of Debt

STUDENT DEBT: DRAGS ON HOME SALES

CALIFORNIA’S HOUSING DELIMMA

• Even with everything (or at least most things) going right, our homeownership market is in trouble…

• The rental market, even with the conversion of 500,000 SFH’s, is still exhibiting inadequate supply

• CA Housing Needs = Minimally 165,000 Units Annually– Regulatory Problem– Impact Fees– Public Attitudes

HOUSING PRODUCTION GAP

CA PERMITS UP BUT MORE UNITS NEEDED

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

SERIES: New Housing PermitsSOURCE: Construction Industry Research Board

0

50000

100000

150000

200000

250000

300000

350000 Single Family Multi-Family

Household Growth: 220,000-250,000/yr

2009 2010 2011 2012 2009 - 2012-200,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

-5,485165,105

223,058

575,156

957,834

Households not formed

# OF HOUSEHOLDS LOST IN THE GREAT RECESSION

SOURCE: California Dept. of Finance; compiled by C.A.R.

POPULATION AND HOUSEHOLDS WILL CONTINUE TO GROW

California 1970-2020

1970

1973

1976

1979

1982

1985

1988

1991

1994

1997

2000

2003

2006

2009

2012

2015

2018

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

SOURCE: Moody’s Analytics

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

HOW DID WE GET HERE?

• 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

WHAT IS OUR FUTURE?

“…If current trends continue, California will build less than 60 percent of the new housing needed over the next 20 years.”

Little Hoover Commission Report on Housing in California

SOLVING CALIFORNIA’S HOUSING PROBLEM

SOLUTIONS

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

• Solutions must include:– Increase in Production

• Infill and brownfield opportunities in urban areas where shortage is critical

– Revitalization of Neighborhoods– Change Incentive Structure Facing Cities

• Fiscal• Housing & Zoning Requirements• Enforce housing elements of general plans, create incentives to

comply– Improve Business & Legal Climate for Developers

SOLUTIONS

• Attitude Shift is Essential to Moving Toward Solutions…– By Households as Residents– By Households as Taxpayers– By Local Elected Officials– By State Officials

• … and an Attitude Shift Requires Education and Heightened Awareness of Problems, Implications, and Solutions!

• Solutions will take time

SOLUTIONS - LOCAL

• Permanent city affordable housing subsidy source• Dedication of a share of county tax increment

financing to affordable housing• Revise zoning code and/or density bonus

ordinance to increase• Ease parking and set-aside requirements to

enable more backyard homes; granny flats• Convert unlawful but affordable units• Collaborate with business community

SOLUTIONS - STATE

• CEQA Reform• Inclusionary Zoning• Experiment with social impact bonds &

health funds as a source

2015 FORECAST

CALIFORNIA HOUSING MARKET OUTLOOK

2009 2010 2011 2012 2013 20142015f

SFH Resales (000s) 474.9 416.5 422.6 439.8 414.9 383.3 402.5

% Change 24.5% -12.3% 1.4% 4.1% -5.9% -7.6% 5.0%

Median Price ($000s) $275.0 $305.0 $286.0 $319.3 $407.2 $447.0 $478.7

% Change -21.1% 10.9% -6.2% 11.6% 27.5% 9.8% 7.1%Housing Affordability Index 51% 48% 53% 51% 36% 30% 27%

30-Yr FRM 5.0% 4.7% 4.5% 3.7% 4.0% 4.3% 4.5%

SERIES: CA Housing Market OutlookSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

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HOUSING AFFORDABILITY C.A.R. Research & Economics