California's Housing Affordability Continues Downward Spiral; CBIA Renews Call for Housing Policy Reform
August 25, 2005
Contact: Deana Vladic
CBIA Communications Specialist
(916) 443-7933 ext. 346
dvladic@cbia.org
or John Frith
CBIA Public Affairs Director
Extension 332
jfrith@cbia.org
(Note to editors: Charts documenting the decline in affordability for most California metro areas and a table listing the "bottom 40" metro areas nationwide have been posted on the CBIA Web site.)
SACRAMENTO - California's housing affordability continued to free-fall during the second quarter of 2005, plunging in several areas that had been still reasonably affordable and declining in all but one metro area around the state, the California Building Industry Association announced today.
Robert Rivinius, CBIA's Chief Executive Officer, said the report is the latest proof that state and local policymakers must take action to reverse the downward affordability spiral, which he said is due primarily to the fact that new housing supply has not kept pace with the state's inexorable population growth. California is adding between 500,000 and 600,000 people a year, equivalent to adding the population of a Boston or Milwaukee every year.
"Even with housing production at its highest level in 15 years, our industry still should be building another 30,000 to 40,000 homes and apartments a year to keep pace with population growth," Rivinius said.
"During the 1990s, affordability was not great by national standards, but it still stood at 50 or 60 percent in many parts of the state," he said. "Even in San Francisco, it was in the 20-percent range. But today, affordability can be measured in single digits in half our metro areas, and less than 30 percent in our most affordable region. The national average, meanwhile, is 45.9 percent.
"Every quarter, the picture gets bleaker for California families trying to achieve the American Dream of homeownership. How much worse do things have to get before state and local policymakers understand why we have such unaffordable housing costs and do something to fix the problem?"
The National Association of Home Builders/Wells Fargo Housing Opportunity Index released today calculates the percentage of new and existing homes sold in a metro area during the second quarter of 2005 that the median-income family in that area could afford to buy. (See the footnote at the end of the release for a more comprehensive explanation of how the index is calculated.)
The report found that affordability plummeted by 9 percentage points or more during the second quarter in three metro areas - Bakersfield (down 9.8 percentage points), Chico (down 9.7 percentage points), and Redding (down 9.0 percentage points).
In the states most "affordable" area, Tulare County, the affordability rating was just 29.3, down from 35.0 three months earlier. Nationwide, the report found that only seven metro areas outside the Golden State were less-affordable than Tulare County - New York City; Nassau-Suffolk, NY; Barnstable Town, Mass.; Reno, Nev.; Miami, Fla.; Boston; and Newark, NJ.
The 10 least-affordable metro areas nationwide during the second quarter and their affordability ratings were:
* Santa Barbara County (3.2 percent)
* Los Angeles County (3.6 percent)
* Monterey County (3.7 percent)
* Orange County (4.4 percent)
* Merced County (4.7 percent)
* San Diego County (5.1 percent)
* Santa Cruz County (5.3 percent)
* Stanislaus County (6.1 percent)
* San Joaquin County (7.3 percent)
* San Luis Obispo County (8.5 percent)
Only Solano County recorded a slight increase in affordability, from 16.2 percent to 17.2 percent, attributed to a higher number of homes lower-priced homes on the market.
Despite the fact that California is home to the 10 least-affordable metro areas in the U.S., along with 18 of the bottom 21 and 24 of the bottom 31, Rivinius said it does not appear that help from the Legislature is on the way.
"Far from making needed reforms to allow production to keep up with demand, lawmakers keep coming up with new proposals designed to make building homes and apartments for California's families more difficult and more expensive," he said.
As one example, Rivinius pointed to a bill being heard by the Legislature this week, SB 44, which would limit housing opportunities by requiring jurisdictions to adopt duplicative and unnecessary new air-quality planning requirements that do nothing to clear the air but make housing approvals take longer and ultimately make housing more expensive.
"The author and the sponsors of the bill have been very vocal about their interest in curtailing suburban housing or making it so expensive that it discourages middle-class homebuyers," he said.
SB 44 is just one of several bills awaiting action in the Legislature that would increase housing costs and worsen the affordability crisis. Other bills awaiting consideration as the 2005 session draws to a close include ones that would limit development because of the purported health risks of certain rocks, make housing contracts more costly to execute, and empower local growth opponents to block affordable housing developments.
"Instead of throwing up more roadblocks to homes and apartments that our state desperately needs, legislators should be taking steps to ensure that well-planned growth can occur when and where it's needed and bring down the land costs that make it impossible to build homes that first-time buyers can afford," Rivinius said.
To increase the availability - and affordability - of housing, CBIA is sponsoring legislation that would increase homeownership opportunities by:
* removing regulatory barriers to housing production;
* making sure that there's an adequate supply of land to build well-planned housing in all communities;
* streamlining the approval process to increase the supply of more-affordable higher-density homes and condominiums in the state's job centers;
* and requiring local governments to provide more justification - and be more accountable - for the fees, ultimately paid by new-home buyers, that drive up the cost of each new home by tens of thousands of dollars.
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The California Building Industry Association is a statewide trade association representing more than 6,300 businesses - homebuilders, remodelers, subcontractors, architects, engineers, designers, and other industry professionals. Homebuilding generates more than $60 billion a year to the California economy and creates an estimated 526,000 jobs statewide.
The NAHB/Wells Fargo Housing Opportunity Index calculates the share of homes sold in an area that would have been affordable to a family earning the median income. For income, NAHB uses the annual median family income estimates for metropolitan areas published by the Department of Housing and Urban Development. NAHB assumes that a family can afford to spend 28 percent of its gross income on housing, a conventional assumption in the lending industry. That share of median income is then divided by 12 to arrive at a monthly figure. On the cost side, the monthly principal and interest is based on a 30-year fixed-rate mortgage with a 10 percent down payment. The interest rate is a weighted average of fixed and adjustable rates during that quarter. The cost also includes estimated property taxes and property insurance.
The Index is a reinvention of the popular NAHB affordability index that was discontinued after the first quarter of 2002 due to budgetary constraints. While similar to the earlier HOI, the index now incorporates newly revised HUD data for household income, which was previously underestimated in some markets, and revised property tax and insurance data in several metro markets. Prices of new and existing homes sold are collected from actual court records by First American Real Estate Solutions, a marketing company. Mortgage financing conditions incorporate interest rates on fixed- and adjustable-rate loans reported by the Federal Housing Finance Board.
