As We See It
Not only do prices that make housing unaffordable for anyone not making upward of $200,000 annually, but the recent spike in interest rates, which have sparked some owners lowering asking prices, probably won’t mean housing will get much cheaper, real estate analysts say – not with supply so low and demand so high.
It remains a seller’s market. The state says 180,000 new housing units are needed each year to begin to close the supply and demand inequality that continues to drive prices out of reach for the majority of residents. The median home value for the entire state is almost $900,000, the highest in the United States, according to the state Department of Finance (and more than $1.5 million for much of Santa Cruz County) – a more than 250% increase from a decade ago. In roughly that same period, the median household income in the state has risen just 28%, from $61,400 to $78,700.
Renters aren’t faring any better. The national real estate site Zillow also expects rent prices in the region to rise as rental demand continues to increase. Our Bay Area News Group recently reported that at $3,295, typical rents in the San Jose area rose more than 12% from the previous year.
The dismal reality is that California has the nation’s second lowest level of homeownership. Just 56% of California’s families live in homes they own, barely higher than New York’s 55% rate and nearly 10 percentage points behind the 65% national rate. That figure is even lower for Black Californians, at 37%, and Latinos, at 44%, statewide.
“Homeownership has long been a central feature of the American dream,” a recent Public Policy Institute of California report stated. “It is the leading source of wealth for most families, and over the long run provides families with more stable and lower housing costs compared to renting. Yet … homeownership is out of the reach of many Californians.”
This is one of those crises where government has to be a solution. One way is to enforce regional housing goals. All cities and counties need to contribute their fair share to meeting housing needs but many communities have worked around requirements for new housing units mandated under the state’s Regional Housing Needs Allocation goals. These requirements can seem overwhelming for communities such as Santa Cruz, where the city was tasked with developing a minimum of 747 new housing units by the end of 2023. And according to according to the AMBAG draft RHNA plan, the state may expect as many as 3,400 new housing units from the city by 2031.
Under this program, concurrent with a buyer’s main mortgage, the state offers a second mortgage that covers 17-20% of the home’s price. Buyers would make no payments on this loan until they sell. The idea is to cover the down payment, which means buyers don’t have to save as much up front; it also means their main mortgage is lower, which reduces monthly payments.
While this program has good intentions, it would help only an estimated 7,700 families in a state where about 7 million families are renters. Program sponsors also recognize that pumping money into the system could just drive prices even higher. Others worry that government intervention in home ownership led to the 2008 foreclosure crisis when people were enticed to buy homes they couldn’t afford.
The ultimate solutions will take much deeper changes: Removing local impediments to housing construction, getting more housing near jobs and transportation, creating policies that lead to more middle-income jobs and improving educational outcomes for poor children in a state where more than a third of the state’s nearly 40 million residents live with financial distress.