There are markets for unaffordable housing and then there are markets for “impossibly unaffordable housing.” Four of these markets are in California, according to a recent study.
The housing crisis is an obstacle to social advancement, and the Golden State is at risk of suffering from particularly severe stratification, as shown by the annual Demographia International – Affordable housing Report prepared by Chapman University in California and the Frontier Center for Public Policy in Canada.
“High housing prices relative to incomes have had a distinctly feudalizing effect on our home state of California, where the primary victims are young people, minorities and immigrants,” wrote Chapman’s Joel Kotkin. “Restrictive housing policies may be portrayed as progressive, but in social terms their effects could be described as regressive.”
The report points to “urban containment measures” designed to limit urban sprawl and increase population density. These measures have led to higher land prices, which in turn have led to dramatically higher real estate prices, the report says.
The trend toward increasing densification was aimed at reducing dependence on cars and highways, avoiding traffic congestion and making neighborhoods more pedestrian-friendly. But the report says that while these measures were well-intentioned, they resulted in land prices within city limits being eight to 20 times higher than outside.
To determine affordability, the report examined 94 markets in Australia, Canada, China, Ireland, New Zealand, Singapore, the UK and the US and compared the median house price in each location to the median income.
A price-to-income ratio of 3 and below was considered affordable, with higher ratios corresponding to increasing unaffordability. A ratio of 9 or more was called “impossibly unaffordable.” Of the 11 cities in this category, four are in California.
- Hong Kong (16.7)
- Sydney (13.8)
- Vancouver (12.3)
- San Jose (11.9)
- Los Angeles (10.9)
- Honolulu (10.5)
- Melbourne (9.8)
- San Francisco (9.7)
- Adelaide (9.7)
- San Diego (9.5)
- Toronto (9.3)
The report also warned that the housing crisis posed an existential threat to the middle class, noting that high housing costs had lowered living standards and increased poverty.
“The middle class is under pressure, particularly because of rising land prices,” it says. “As land has been rationed to curb urban sprawl, excess demand over supply has driven up prices.”
The report noted that all cities where housing is “unaffordable” have urban planning policies that encourage higher densification and recommended that cities make more land available to reduce housing costs.
In the US real estate market, the problem of increasing affordability of residential properties is reflected, for example, in the Disappearance of the $200,000 starter homeThis has left many millennials trying to move into larger homes to accommodate their growing families out in the cold.
But prospectively Buyers revolt against high property priceswhich results in more properties remaining unsold on the market and asking prices falling.
This dynamic has continued during the critical Spring sales seasonwhich is only slowly phasing out given the weak demand.