HOUSING AFFORDABILITY IN CALIFORNIA November 12,2015 San Jose Hearing Oscar Wei, Senior Economist

HOUSING AFFORDABILITY IN CALIFORNIA

November 12,2015San Jose Hearing

Oscar Wei, Senior Economist

HOUSING AFFORDABILITY PEAKED Q1 2012PRICES 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 BuyersSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

0%

10%

20%

30%

40%

50%

60%

70%

80%

56%

30%

71%

57%

CA USAnnual Quarterly

MEDIAN MONTHLY MORTGAGE PAYMENT - 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

$400

$800

$1,200

$1,600

$2,000

$2,400

$2,800

$1,636$1,743

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

$2,203$2,327

$2,453Q2-2015 Median Price $485,100

20% Downpayment

INTEREST RATE

MONTHLY MORTGAGE

SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

MINIMUM QUALIFYING INCOME - 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

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$87,761$92,021

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

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

Q2-2015 Median Price $485,100

20% Downpayment

INTEREST RATE

Minimum Qualifying Income


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%

34%32%

30%28% 26% 25%

23%21%

Q2-2015 Median Price $485,100

20% Downpayment

INTEREST RATE

% OF HOUSEHOLDS THAT CAN BUY, ALL ELSE CONSTANT


HOUSING AFFORDABILITY IN CA: BY COUNTY

Kings

USA

San B

ernar

dino

Mer

ced

Tulare

Fres

no

Mad

era

Sacra

men

to

Solan

o

Plac

er

Stanisl

aus

River

side

San Jo

aquin CA

Los Angel

es

San Luis

Obispo

Mon

tere

y

Sonom

a

Ventu

ra

San D

iego

Napa

Orange

Santa

Cru

z

Santa

Clara

Alam

eda

Contra

-Cos

ta

Mar

in

Santa

Bar

bara

San M

ateo

San F

rancis

co0

10

20

30

40

50

60

7062

57 56 55 5450 50

47 46 4441 40

37

30 30 28 27 25 25 25 23 21 20 19 18 18 17 1613

10

2015 Q2


% able to purchase median priced home

Retail Sales-

persons

Chefs and Head

Cooks

Elemen-tary

School Teachers

Fire-fighters

Police and

Sherriff's Patrol Of-

ficers

Com-puter Pro-

grammers

Regis-tered

Nurses

Software Devel-opers

(Applica-tions)

Min. Inc Required to Buy a

Med. Home

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$27,010

$45,340

$69,990$71,630

$87,520$89,250

$98,400

$119,970

$95,978

HOW WAGES MEASURED AGAINST INCOME REQUIRED TO BUY A HOME

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

2014 Annual Mean Wage

California

Retail Sales-

persons

Auto. Mechan-

ics

Chefs and Head Cooks

Elemen-tary

School Teachers

Fire-fighters

Computer Pro-

gram-mers

Regis-tered

Nurses

Software Develop-ers (Ap-

plications)


Med. Home

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$30,340

$52,690$49,230

$70,680$88,390

$97,570

$124,980$118,690

$267,783




San Francisco

Retail Sales-

persons

Auto. Mechan-

ics


Elemen-tary

School Teachers

Fire-fighters

Computer Pro-

gram-mers

Regis-tered

Nurses


plications)


Med. Home

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$26,870

$42,610$44,330

$72,720

$82,830$86,840

$93,180

$103,790

$88,082




Los Angeles

Retail Sales-

persons

Auto. Mechan-

ics


Elemen-tary

School Teachers

Fire-fighters

Computer Pro-

gram-mers

Regis-tered

Nurses


plications)


Med. Home

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$26,610

$46,790$50,730

$67,300

$58,520

$75,980

$105,390$103,730

$57,581




Sacramento

County Median Price*Price that Median-Income Households

Can AffordDifference 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 20142015p2016f

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 OutlookSOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

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 = $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

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

AFFORDABLE INVENTORY AVAILABLE TO MEDIAN-INCOME HOUSEHOLDS

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

0%

10%

20%

30%

40%

50%

60%

70%

80%

67.2%

28.5%

2015 Q2

CA PERMITS UP BUT MORE UNITS NEEDED

2014: 85,065 Units, Up 3.4% from 20132015f: 89,318 Units

SERIES: New Housing PermitsSOURCE: Construction Industry Research Board

19801982

19841986

19881990

19921994

19961998

20002002

20042006

20082010

20122014

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

0%

10%

20%

30%

40%

50%

29.5%

% First-Time Home BuyersLong Run Average

Long Run Average = 38%

SERIES: 2015 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS®

20002001200220032004200520062007200820092010201120122013201420150%

10%

20%

30%

40%

50%

11.3%

6.4%

6.9%3.7%

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

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150%

10%

20%

30%

40%

16%19%

7%5%

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

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®

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

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

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

14%

16%

5%

10%

9%

13%

8%

3%

3%

18%

23%

14%

10%

10%

10%

8%

7%

5%

0%

14%

2015 2014


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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HOUSING AFFORDABILITY IN CALIFORNIA November 12,2015 San Jose Hearing Oscar Wei, Senior Economist