Market Poses Challenge For First-Time Homebuyers
By Samantha Mehlinger - Staff Writer
October 22, 2013 – At the California Association of Realtors (CAR) EXPO held earlier this month at the Long Beach Entertainment & Convention Center, a panel of housing and development academics met before an audience of real estate professionals to discuss the future of housing in California. Their conversation revolved around rising home prices creating an obstacle for first-time homebuyers.
Rising home prices have been helping homeowners gain back some equity in their homes that was lost when the housing bubble burst along with the economy in 2008 – the median price of homes has risen 24.4 percent from September of 2012 to September 2013, according to CAR. That’s beneficial for homeowners looking to sell, but not favorable for first-time homebuyers, because, according to the panel, public policy in California is making upward mobility and housing affordability very difficult for the middle and working classes.
The panel was moderated by CAR CEO Joel Singer and included: Perry Wong, director of research at the Milken Institute, who specializes in regional economics, development and economic forecasting; Joel Kotkin, a professor of urban development, fellow at Chapman University in Orange County and fellow at the London-based think-tank, the Legatum Institute; and Joe Matthews, fellow at Arizona State University, co-president of the Global Forum on Modern Direct Democracy and California editor for Zocalo Public Square, a Los Angeles-based ideas exchange.
According to Kotkin, California’s median multiple – the ratio of median household price to median household income – is imbalanced, with the median income unable to pay for the median cost of a home. “So what we’re seeing is a state where the dream of upward mobility . . . is really in serious trouble,” Kotkin said.
If housing affordability is factored in, California’s poverty rate becomes the highest in the nation, he continued, noting that, while the middle class made up 60 percent of California’s population in 1980, it now constitutes 48 percent. In Los Angeles, only 30 percent of potential buyers can afford to purchase a home, he added.
Kotkin also raised concern that the “California dream” is in jeopardy particularly for African-Americans and Latinos. In Atlanta, about 40 percent of African-American residents own homes, he said, but in California the rate is about half that.
Typically, a 20 percent down payment is required for a home purchase which, Wong said, most young homebuyers in California cannot afford given the rise in home prices, particularly in areas such as Los Angeles and San Francisco. He suggested that policy reforms are needed to allow buyers with decent monthly incomes to enter the housing market.
When housing affordability is harder to achieve, family formation is affected, Kotkin said, reducing birth rates and causing younger, first-time homebuyers to move out of state. This could cause parts of the state with costlier housing – such as Los Angeles and San Francisco – to become dominated by wealthy, elderly people. For instance, he remarked, “If you look at demographics of some of the nicer parts of Orange County, it is really becoming quite geriatric.”
Matthews cited a high cost of living, high tax rates and a stringent regulatory environment as burdens to economic growth and housing affordability. Kotkin commented that California’s policies make job growth in the middle and lower classes difficult.
Kotkin said that the state must find a way to create middle and working class jobs and get rid of the “incredibly stupid” regulatory environment, citing fees and Assembly Bill 32 – a bill meant to reduce greenhouse gas emissions – in order to solve problems such as housing affordability and market growth.
Wong, on the other hand, said he was more optimistic about the market than Matthews and Kotkin, noting that he doesn’t think it is going to become difficult to sell houses in California despite these obstacles.
All agreed that policy reforms are needed to boost economic growth and housing affordability but did not offer concrete suggestions as to what policies should be reformed. Singer redirected the conversation with the comment: “Let’s recognize that California has huge public policy problems . . . I don’t want to spend a lot of time discussing it because, quite frankly, we’re not going to get there very quickly.”
“We need people, we need growth, and we need it yesterday,” Matthews asserted. Wong pointed out that Californians elected the officials responsible for maintaining the policies hindering economic growth, so, he said, “We really have nobody to blame but ourselves,” earning a swell of laughter from the audience.
The Latest News
- UPDATED: $85 Million Increase To Middle Harbor Budget Approved
- Covered California To Provide Online Enrollment For Small Group Health Insurance
- Markets Remain On Slow Growth Trajectory As Pockets Of The Economy Gain Strength
- New Ordinance To Lay Groundwork For Adaptive Reuse Projects In Long Beach
- Port Of Long Beach’s Engineering Bureau Examined By Consulting Firm, May Be Restructured
- Banks Reposition Brick-And-Mortar Retail Strategy As Mobile, Online Usage Increases
- Labor Ordinances To Be Drafted For Airport And Convention Center