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The Wall Street Journal

Tuesday March 17, 2015

California's Housing Costs Hurt Economy, Increase Poverty, Report Finds
State's average home price is about 2½ times the national average

By Alejandro Lazo
 

Homes are under construction at the Yarberry Lane housing development in Petaluma, Calif., north of San Francisco.

California's high housing costs are crimping economic productivity, increasing poverty rates, lowering homeownership, increasing crowding and lengthening commute times, a new state report says.

California has some of the most expensive housing markets in the U.S.—a result of the slow pace of development in high-demand coastal cities. The average home price in California, $440,000, is about 2½ times the national average, while California's average monthly rent, $1,240, is about 50% higher than the average U.S. rent, according to a report released Tuesday by the state legislature's independent analyst.

"The state's high housing costs make California a less attractive place to call home, making it more difficult for companies to hire and retain qualified employees, likely preventing the state's economy from meeting its full potential," the report's authors wrote.

That high cost is largely driven by a slow pace of construction in the state's major coastal markets, where demand for homes is highest and prices are bid up, the report said. Between 1980 and 2010, for instance, new home construction in the state's coastal metro areas increased by 32%, compared with 54% nationally, the report said. In Los Angeles and San Francisco, the supply of new housing grew even more slowly, by about 20%.

Coastal communities tend to limit new construction through local ordinances, planning boards and voter initiatives, the report said. Costs are often higher, and high-density development is also lower in coastal communities.

As a result, Californians pay a larger portion of their incomes toward housing, which has increased the supplemental poverty measure, a key gauge of poverty that takes housing costs into account. California's rate of poverty by this alternative measure is 23.4%, the highest in the country. High housing costs have also led to delays in home purchases, more debt, longer commutes and a higher propensity toward living in crowded conditions, the report found.

"For the vast majority of low-income and working people, the struggle to keep a roof over their heads becomes more difficult day in and day out," said Larry Gross, executive director of a Los Angeles-based tenant advocacy group, Coalition for Economic Survival.

The report urges the legislature to pass laws that would promote more density in urban areas. It also advises the legislature to consider changes to the state's environmental review process for new development, as well as changes to local land use and authority.

Dave Cogdill, president and chief executive of the California Building Industry Association, said that supply and demand has long been the driving factor behind the high costs of California's real estate. While high-density projects might decrease costs, and governments have been increasingly interested in promoting such development, there appears to be less interest from consumers, he said.

"There is a number of things that 'can' be done, but it is a matter of market acceptability for that type of product," Mr. Cogdill said. "It appears to us that people, given their choices, would prefer to have a single-family detached residence on their own, on a plot of land somewhere. That continues to be the premier product."


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