The Real Problem

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The long-awaited recovery of California’s housing markets is welcome news. But it’s also time to reconsider that exorbitant housing costs are arguably the Golden State’s principal economic shortcoming.

Out of Reach by the National Low Income Housing Coalition compares and contrasts on a state-by-state basis “the gap between wages and rents across the country.” Unfortunately, California compares quite unfavorably with most states (and Texas in particular).

The collapse of the housing market in the wake of the Great Recession drove up the demand for rental units. According to the U.S. Census, in 2011, over one third of American households were renters. The nation’s rental vacancy rate dropped from 8% directly at the beginning of the recession to 4.5% by the third quarter of 2012. The, so far, inadequate investment in new affordable housing units coupled with the fact that nearly a third of renter households live in poverty has created a severe affordability problem.

The map above indicates the number of hours of minimum wage work would be needed to pay rent for a typical two-bedroom apartment. As you can see, California ranks as nearly the least affordable state, behind only Hawaii, Maryland/D.C., New York, and New Jersey. California is also notably less affordable than Texas, which largely explains the migration of middle and low-income households to the Longhorn State.

The map below estimates the full-time hourly wage that a household must earn to afford a decent apartment at the HUD estimated Fair Market Rent (FMR), while spending no more than 30% of income on housing costs.

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3 Comments

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3 responses to “The Real Problem

  1. This article ignores simple economics. Should a two bedroom apartment in Santa Monica a short walk from the beach be comparable in price to one in Dallas or OK City? Obviously not. There is more demand for land in California because the land carries with it amenities that are not found in the other locale and the amenities carry a price tag. To draw the implication that this will remain a problem until it is as inexpensive to live in California as it is in Alabama is to engage in specious logic.

    • But what about Bakersfield? Or even Sacramento, only two hours from somewhere you’d rather be? The California Budget Project studied cost-burdened households, several years ago, and their figures show that tenants are cost-burdened no matter where they live in California. In fact, the richer counties have fewer cost-burdened tenants, simply because they tend to have higher incomes. So affordable housing is a problem throughout the state, not just in Santa Monica. (In fact, affordable housing is a nationwide problem. The fastest increases in rents have been in the Romney states.)

      Second, moving to Bakersfield may not help much anyway, since tenants then face large increases in transportation costs. Driving a couple hundred miles a day will wear out a car very fast, and public transportation in outlying areas is often sketchy. In addition, a study some years ago–I cannot remember where it was or who did it–found that when families move to outlying areas, one parent eventually has to find a lower-paid job closer to home. If you’re 100 miles from home, what happens if one of your kids gets sick at school or after-school care falls through?

  2. First, supply and demand has a limited impact on the cost of rental housing. John Gilderbloom found that the most important factors were: the cost of the alternative, the median income of the community, and professionalism in the property management industry (uh, price-fixing). And he did this research in the 1980s. Research that counters the ruling conventional wisdom on tenant issues is still fresh 30 years later–no one’s ever heard of it.

    Second, California wants the workers, but doesn’t want to have to pay the cost required to house them decently. California could, for instance, deny permits for industries that employ workers who don’t make enough money to afford housing. But then California wouldn’t have restaurant workers, hotel maids, janitors, nursing home staff, delivery persons, and the other occupations that make middle class life comfortable. (I’ve often thought that an interesting project would be to disappear all of the people who have incomes below the median wage for a month–”A Month Without a Service Worker”.)

    Third, Governor Brown’s proposal that lower income workers commute to their low-paid service jobs from other areas is not an idea that would reduce California’s carbon footprint. Perhaps richer areas would be more willing to provide affordable housing if they were charged for the excess carbon usage of workers who had to drive a couple hundred miles a day for work.

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