State's Housing Crisis Continues to Worsen in 2005, Report Finds
CBIA Urges State and Local Officials to Make New Year's Resolution to Improve State's Homeownership Rate in 2006
December 1, 2005
Contact:
John Frith
CBIA Public Affairs Director
(916) 443-7933 ext. 332
(916) 803-3005 (cell)
jfrith@cbia.org
or
Deana Vladic
CBIA Communications Specialist
(916) 443-7933 ext. 346
dvladic@cbia.org
(Editors: A table listing the nation's 40 least affordable communities and a series of charts marking the decline of affordability in California metro areas have been posted on the CBIA Web site. An explanation of how the report is calculated is found at the end of this release)
SACRAMENT0 - A report released today showed that California's housing affordability crisis continued to worsen in the third quarter of 2005, prompting the California Building Industry Association to urge state and local officials to make a new year's resolution for 2006 to improve the ability of California families to buy a home.
"Once again, it's been documented that California communities are the least affordable in the nation," said CBIA Chairman Layne Marceau, a Bay Area homebuilder. "This is directly due to more than 30 years' worth of actions by state and local governments that have limited housing production and made new homes, condominiums, and apartments ever-more expensive to build."
"There's simply no reason why 89 percent of the families in Indianapolis can afford to buy the median-priced home there while less than 3 percent of the families in Los Angeles can do so. There's no reason why California's homeownership rate is the second-lowest in the nation.
"When will our state and local policymakers stop doing everything they can to make housing more expensive and take long-overdue steps to make homeownership a reality for more California families - especially those seeking to buy their first home?"
The National Association of Home Builders/Wells Fargo Housing Opportunity Index, which analyzes affordability for 161 metro areas across the nation, found that - as usual - California's 24 metro areas were at the bottom of the list.
The respected national survey of housing affordability, which analyzes what percentage of homes for sale in a metro area are affordable to households earning the local median income, found that 18 of the 20 least-affordable housing markets were located in California, including the bottom nine. In the state's most affordable metro area - Butte County - only 25 percent of area households could afford to buy the median-priced home.
According to the study, the nation's 10 least affordable metro areas during the third quarter and their affordability rates were:
* Los Angeles County (2.4 percent)
* Merced County (2.5 percent)
* Monterey County (2.7 percent)
* Orange County (3.2 percent)
* Santa Barbara County (3.7 percent)
* Stanislaus County (4.4 percent)
* Santa Cruz County (4.6 percent)
* San Diego County (5.1 percent)
* San Joaquin County (5.7 percent)
* New York City (6.7 percent)
In comparison, major metro areas in other parts of the nation found high levels of affordability, including Indianapolis (89.7 percent), Detroit (86.6 percent), Oklahoma City (82.9 percent), St. Louis (80.7 percent), Atlanta (75.8 percent), Denver (63.5 percent), Dallas (61.6 percent), and Salt Lake City (58.1 percent).
Marceau said even more alarming is the fact that affordability continues to get worse each quarter. During the third quarter, affordability fell in 21 of the state's 24 metro areas - by 6 percentage points or more in Kern, Tulare, and Solano counties. Affordability increased marginally in Sonoma and Santa Barbara counties and held steady in San Diego County.
Since the fourth quarter of 2004, affordability has declined in all of the state's metro areas - most dramatically in Central Valley communities where until recently affordability hovered in the 40- to 50 percent range.
In Kern County, affordability fell from 42.1 percent in the fourth quarter of 2004 to 23 percent in the third quarter of 2005. Other Valley metro areas experienced similar declines: Butte County - 40.2 percent to 27.9 percent; Tulare County - 40.1 percent to 23.3 percent; Shasta County - 30.4 percent to 18.1 percent; and Fresno/Madera Counties - 25.3 percent to 12.9 percent.
Marceau said the main reason for the state's housing affordability crisis is simple economics - homebuilders need to build nearly 250,000 new homes and apartments each year to keep up with population growth, but even in a good year just over 200,000 are actually constructed.
"Thanks to growth control measures, development approval processes that can take 10 years or more, endless environmental lawsuits by activists opposing new housing and all of the other built-in obstacles, it's nearly impossible to meet the state's housing needs. But until supply catches up with demand, housing affordability will only get worse," he said.
To increase the availability - and affordability - of housing, CBIA is sponsoring legislation designed to remove barriers to production by:
* 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 6,400 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.
