California Housing Market

Homeownership, Housing Affordability and

Challenges for California

Sustainable Homeownership Conference 2017

June 9, 2017
Joel Singer
Chief Executive Officer
 Californias housing dilemma
Our homeownership market is in trouble

The rental market, even with the conversion of 500,000

SFHs, is still exhibiting inadequate supply...

and the states housing policies continue to amplify to

the emerging crisis.
 Homeownership: Where Are We Today?
California Vs. U.S. 10.3% gap in 2016
75% CA US

70% Peak: 69.0%

64.5%
65% 63.4%

60%
Peak: 60.2%
55%
53.7%
53.8%
50%

45%

SERIES: Homeownership Rates

SOURCE: U.S. Census Bureau
 0%
10%
20%
30%
40%
50%
60%
70%
80%
New York
California

53.8%
Nevada
Rhode Island

SOURCE: U.S. Census Bureau

SERIES: Homeownership Rates
Hawaii
Massachusetts
Texas
North Dakota
Washington
Arizona
New Jersey
Georgia
Colorado
Oregon
Connecticut
Louisiana
Florida
Alaska
Illinois
North Carolina
Ohio
Virginia
Amongst All States

Tennessee
Maryland
Missouri
Oklahoma
Kansas
Montana
New Mexico
Arkansas
Homeownership Rate

Wisconsin
Kentucky
Nebraska
Pennsylvania
South Carolina
South Dakota
Alabama
California Ranked the 2nd Lowest

Mississippi
Iowa
Wyoming
Idaho
Indiana
Utah
Vermont
New Hampshire
Minnesota
Maine
Michigan
Delaware
West Virginia
 Homeownership Rates Declined the most
for Younger Generations
California
80%
65 &Above

70%
45 64

60%

50% Overall

40% 35 44

30%
Under 35

20%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
SERIES: Homeownership Rates
SOURCE: U.S. Census Bureau, American Community Survey
 Homeownership Will Deteriorate if the Trend
Continues
California Homeownership Rate
70%

60% 59.7%
57.1% 52.8%
56.1%
50.0%
52.1%
50% 47.3%
47.9%
51.3%
44.2%
45.9%
40%
41.0%

30%
2000 2005 2010 2015 2020 2025 2030 2035 2040
Fast Slow Avearge

SERIES: Homeownership Rate

SOURCE: U.S. Census Bureau, American Community Survey, C.A.R. projection
Housing Affordability
 CA Housing Affordability Lags U.S.
California vs. U.S. 1984-2017
80%
Annual Quarterly
% OF HOUSEHOLDS THAT CAN BUY A

70% CA US

60%
57%
MEDIAN-PRICED

50%
HOME

40%

30% 32%

20%

10%

0%

SERIES: Housing Affordability Index of Traditional Buyers

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS
 Rising Home Prices Lower Housing Affordability
Level
California, April 2017: $536,750, +3.7% MTM, +5.4% YTY
P: May-07
$700,000
$594,530
Apr-16: Apr-17:
$600,000 $509,240 $536,750

$500,000
T: Feb-09
$245,230
$400,000 -59% from
peak
$300,000

$200,000

$100,000

$-

SERIES: Median Price of Existing Single Family Homes

SOURCE: CALIFORNIA ASSOCIATION OF REALTORS
 Lackluster Income Growth Also Contributed to
the Affordability Issue
Household Income vs. Home Price
40%

30%

20%

10%

0%

-10%

-20%

-30% Income growth could not keep

-40%
up with price growth until recently
-50%
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Income Growth Price Growth

SERIES: Household income growth vs. Home price growth

SOURCE: U.S. Census Bureau, Current Population Survey/Annual Social and
Economic Supplement, CALIFORNIA ASSOCIATION OF REALTORS
 Supply Shortage Is the Primary Reason for
the Affordability Issue

Existing inventory has been trending down

California is building far less than our demographic

demand
 Fewer Units Turning Over Since the Great Recession

Housing Turnover Rate

10% (Single-Family Homes only) Long-Time Homeowners are not
9% CA
moving as in the past because:
8% CA turnover rate trend

7%
Demographic shift
6%
Low rate on current mortgage
5%
Low property taxes
4.5%
4%
Capital gains hit
3%
Where can I afford to go?
2%

1%

0%
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014

SERIES: Percent of existing single-family homes being sold

SOURCE: Census Bureau, American Community Survey, Moodys Analytics, C.A.R.
 It Could Get Worse

As bleak as it is, the California homeownership situation is

more likely to deteriorate than improve if:

Interest rates rise

States economy slows
Current tax proposals are enacted
Legislative environment focus remains solely on rental housing
production
Lack of New
Construction
 Missing 80,000 New Units Annually
2016: 98,881 (47,889 sf, 50,992 mf)
350000
2017f: 100,246 (51,720 sf, 48,526 mf )
300000
Single Family Multi-Family CA HCD Projected
250000 Housing Needs:
180,000/yr.
200000

150000

100000

50000

SERIES: California New Housing Permits

SOURCE: Construction Industry Research Board
 CA has produced less housing per capita
than other states

SOURCE: U.S. Census Bureau, McKinsey Global Institute

 Housing Supply Gap Will Be Over 2 Million at
Current Construction Pace

1,335,256
With housing needs increasing at a
rate of 180,000 every year, California

-1,016,140 will need more than 3.3 million units

by 2030 to fill the housing demand
-2,020,884
-2,340,000 and bring it back to 2005 level.
At the current construction pace,
-3,356,140
however, California will have a
Supply gap Demand Total Housing New supply at Gap to fill by backlog of over 2 million by 2030
since 2005 addition by Demand by current 2030 to get
2030 2030 construction back to 2005
rates Level

SERIES: Housing Supply Gap

SOURCE: Calculation by CALIFORNIA ASSOCIATION OF REALTORS
 California Not Building Enough Because

Community Resistance Blocking/delaying

new housing

Project Reviews and CEQA

Land Availability/Bias Toward Commercial

Development
 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
 Building in California is Expensive
Land Costs
2 to 4 times higher on California (CA) Coasts
High land costs usually mean more units being
built on each plot of land, but not the case in
CAs coastal metros
During the 2000s housing density of a typical
neighborhood in CAs coastal metro rose only
4%, considerably less than the 11% average
increase in the comparison group
The new housing unit in the comparison group
was also 40% more dense than that built in CA.
SOURCE: CA Legislative Analyst Office
Building Costs
$50k to $75 higher in California (CA)
Include labor, building material and
government fees, all higher in CA than other
states
Development fees are higher in California
than the rest of the country. A 2012 national
survey found that the average development
fee levied by California local governments
(excluding water-related fees) was $22,000
per single family home, as compared to the
$6,000 per single-family home in the rest of
the country.
 Case Study: Restrictive Zoning in L.A.
Los Angeles Zoned Residential Capacity

Los Angeles was zoned to

accommodate 10 million people
in 1960

Today, the city is zoned for only

4.3 million people after decades
of population growth and
increase in housing demand.

SERIES: Los Angeles Zoned Residential Capacity

SOURCE: Morrow (2016), the White House: Housing Development Toolkit
 More Californians Moving out than Moving in.
Their Top Destinations
Inflow Outflow (CA, 2011-2015) Net Migration (2011-2015)

Texas -124,064

Nevada -92,367

Arizona -74,038

Oregon -70,354

Washington -32,598

Colorado -31,432

Idaho -28,056

Utah -25,147

North Carolina -21,230

Georgia -16,403

300 200 100 0 -100 -200 -300 -400

Thousands

SERIES: California Migration

SOURCE: U.S. Census, Calculations by the California Association of REALTORS
 Californians with Lower Incomes Were More
Likely to Move out of the State, but
Net Migration by Personal Income (2011-2015)
-69.0 Under 10,000
-51.3 $10,000 to $19,999
-45.7 $20,000 to $29,000
-20.8 $30,000 to $39,999
-12.4 $40,000 to $49,999
16.1 $50,000 to $74,999
15.7 $75,000 to $99,999
14.5 $100,000 to $149,999
-1.2 $150,000 to $199,999
6.5 $200,000 to $250,000
-3.3 Over $250,000

-80 -60 -40 -20 0 20 40

Thousand
SERIES: California Migration
SOURCE: U.S. Census, Calculations by the California Association of REALTORS
 Young Adults and Baby Boomers also Moved Out of
California at a Faster Rate than Other Age Groups
Net Migration by Age (2011-2015)

-1.9 Over 65

-28.1 51-65

-45.3 41-50

-14.3 26-40

-55.7 18-25

-4.7 Under 18

-60 -50 -40 -30 -20 -10 0

Thousand
SERIES: California Migration
SOURCE: U.S. Census, Calculations by the California Association of REALTORS
What Can Be Done?
 Inadequate Housing Supply
Build More: Regulatory Changes Are Essential

Free the Existing Inventory

Add Secondary Units

Recycle Retail and Commercial Projects

Utilize Surplus Land (where ever available)

 Solutions

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 CEQA Reform
 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

 Thank You

This presentation can be found on

www.car.org/marketdata
Speeches & Presentations
joels@car.org