Housing Affordability Analysis, 2014-Q4
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Transcript of Housing Affordability Analysis, 2014-Q4
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HOUSINGAFFORDABILITY
C.A.R. Research & Economicswww.car.org/marketdata
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HOUSING AFFORDABILITY ANDHOMEOWNERSHIP
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2015 - WHERE ARE WE TODAY?
Housing market is under-preforming givenfundamentals
Low mortgage rates Job & Income growth are back
And yet Sales off 7.6% in 2014 compared to 2013 Share of first-time buyers LOW Affordability key concern for renters
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INADEQUATE HOUSING SUPPLY ISSUE
Housing supply constrained in long-run New construction recovery is very slow Missing 165,000+ new units per year Production has fallen short of housing needs
Inhibited by Fiscal interests of local government Residents who disdain further development, especially
multi-family Unfavorable legal/business environment for
development in general & multi-family in particular
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CALIFORNIAS 3 HOUSING GAPS
Housing Gaps: Housing affordability gap Homeownership gap Housing production gap
Chronic problems spanning decades
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AFFORDABILITY GAP
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HOUSING AFFORDABILITY DOWNSHARPLY SINCE Q1 2012
California vs. U.S. 1984-2014% OF HOUSEHOLDS THAT CAN BUYA MEDIAN-PRICED HOME
SERIES: Housing Affordability Index of Traditional BuyersSOURCE: CALIFORNIA ASSOCIATION OF REALTORS
0%
10%
20%
30%
40%
50%
60%
70%
80% CA USAnnual Quarterly
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HOUSING AFFORDABILITY IN CA: BY COUNTY
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS
HAI
6459 57 56 56 53 53
50 4945
41
31 29 29 28 27 27 26 24 23 22 21 21 2017 15 15 14
0
10
20
30
40
50
60
70
% able to purchase median priced home2014 Q4
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INCOME REQUIRED TO BUY A MEDIAN-PRICEDHOME IN CA: (PEAK VS. CURRENT)
$56,324
$91,552
$0
$20,000
$40,000
$60,000
$80,000
$100,000
2012 Q1 2014 Q4
Change in minimum required income:$35,228
Increase in income attributed tointerest rate increase:$338 (1.0% of total change)
Increase in income attributed to priceincrease :$34,890 (99.0% of total change)
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS
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VERY SLOW REAL INCOME GROWTH
$0.00
$10,000.00
$20,000.00
$30,000.00
$40,000.00
$50,000.00
$60,000.00
$70,000.0019
8419
8519
8619
8719
8819
8919
9019
9119
9219
9319
9419
9519
9619
9719
9819
9920
0020
0120
0220
0320
0420
0520
0620
0720
0820
0920
1020
1120
1220
13
U.S. CAIn 2013 Dollars
SERIES: Median Household IncomeSOURCE: US Census Bureau, Current Population Survey
2013 gap = $5,600
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$47,540$55,660
$71,630
$86,040 $89,450$96,980
$112,180
$91,552
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
Chefs andHead Cooks
Teachers Firefighters Police andSherriff's
Patrol Officers
ComputerProgrammers
RegisteredNurses
SoftwareDevelopers
(Applications)
Min. IncRequired toBuy a Med.
Home
HOW WAGES MEASURED AGAINST INCOMEREQUIRED TO BUY A HOME
SOURCE: Bureau of Labor Statistics, C.A.R.
Annual Mean Wage
California
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HOUSING AFFORDABILITY GAP
Affordability crisis goes beyond lowincome households Lack of affordable housing for low income service
workers is apparent Less obvious problem: moderate income
households who cannot afford homes in/nearcommunities where they work
In general, there are programs to assist the firstgroup, but not the second group
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HOUSING AFFORDABILITY INDEX - CA
What Will Happen When Mortgage Rates Increase?
0%
10%
20%
30%
40%
50%
3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
36%34%
32%30% 28% 26%
24%23%
Q4-2014 Median Price $452,140
20% Downpayment
INTEREST RATE
% OF HOUSEHOLDS THAT CAN BUY, ALL ELSE CONSTANT
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS
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MEDIAN MONTHLY MORTGAGE PAYMENT - CA
What Will Happen When Mortgage Rates Increase?
$0
$400
$800
$1,200
$1,600
$2,000
$2,400
3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
$1,525$1,624
$1,727 $1,833$1,942
$2,054$2,169
$2,286Q4-2014 Median Price $452,140
20% Downpayment
INTEREST RATE
MONTHLY MORTGAGE
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS
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MINIMUM QUALIFYING INCOME - CA
What Will Happen When Mortgage Rates Increase?
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5%
$81,798$85,768
$89,873 $94,108$98,468
$102,949$107,544 $112,249
Q4-2014 Median Price $452,140
20% Downpayment
INTEREST RATE
Minimum Qualifying Income
SERIES: Housing Affordability IndexSOURCE: CALIFORNIA ASSOCIATION OF REALTORS
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HOMEOWNERSHIP GAP
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HOMEOWNERSHIP RATES
California Vs. U.S. 9.9% gap in 2014
53.7%
Peak: 60.2%
54.9%
64.5%
Peak: 69.0%
64.8%
40%
45%
50%
55%
60%
65%
70%
75% CA US
SERIES: Homeownership RatesSOURCE: U.S. Census Bureau
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HOMEOWNERSHIP RATE BY AGE OFHOUSEHOLDER
SOURCE: Census Bureau
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OVER 1/3 LIVE WITH THEIR PARENTS
What is your current living situation?
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
I rent I live with myparents
I own I live in a dorm Other:
41%
36%
20%
1%1%
SERIES: 2014 Millennials SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS
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MILLENNIALS BIGGEST CONCERNS
What are your biggest concerns about home ownership?
Price/Affordability (45%)
Problems with Credit, Mortgages, or Taxes (19%)
Maintenance/Upkeep (14%)
Satisfaction with Home/Location (7%)
Responsibility (4%)
SERIES: 2014 Millennials SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS
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SHARE OF FIRST-TIME BUYERS UP IN 14 BUTSTILL BELOW LONG-RUN AVERAGE
28.1%30.5%
0%
10%
20%
30%
40%
50%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
% First-Time Home Buyers Long Run Average
Long Run Average = 38%
QUESTION: Was the buyer a first-time buyer?SERIES: 2014 Housing Market SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS
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WHY DO WE CARE ABOUT LOW LEVELOF FIRST-TIME BUYERS?
It signals a constrained flow of new households inthe housing market
Trade-up market cannot be replenished in the longrun
First-time buyers represent the main impulse thatdrives the states homeownership rate
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REASONS FOR RENTING INSTEAD OF BUYING
44%
9%
6%
6%
6%
5%
5%
3%
2%
Can't afford to buy
Poor credit / Can't qualify
Renting is easier
Young/Starting out/Not ready
Flexibility/Freedom if renting
Cost/Upkeep/Responsibility
Plan to / Saving for down
Never considered it/No interest
Disabled/On disability
SERIES: 2013 Renter SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS
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STUDENT LOAN DEBT:25% OF RENTERS
Yes, 23%
No, 75%
Refused, 2%
Student Loan Debt
SERIES: 2013 Renter SurveySOURCE: CALIFORNIA ASSOCIATION OF REALTORS
78%
8%
6%
3%
2%
2%
$100K
Refused
Amount of Debt
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STUDENT DEBT: DRAGS ON HOME SALES
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CALIFORNIAS HOUSING DELIMMA
Even with everything (or at least most things) going right, ourhomeownership market is in trouble
The rental market, even with the conversion of 500,000 SFHs,is still exhibiting inadequate supply
CA Housing Needs = Minimally 165,000 Units Annually Regulatory Problem Impact Fees Public Attitudes
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HOUSING PRODUCTION GAP
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CA PERMITS UP BUT MORE UNITS NEEDED
2014: 85,065 Units, Up 3.4% from 2013
SERIES: New Housing PermitsSOURCE: Construction Industry Research Board
0
50000
100000
150000
200000
250000
300000
350000 Single Family Multi-Family
Household Growth: 220,000-250,000/yr
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-5,485 165,105223,058
575,156
957,834
-200,000
0
200,000
400,000
600,000
800,000
1,000,000
1,200,000
2009 2010 2011 2012 2009 - 2012
Households not formed
# OF HOUSEHOLDS LOST IN THE GREATRECESSION
SOURCE: California Dept. of Finance; compiled by C.A.R.
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POPULATION AND HOUSEHOLDS WILLCONTINUE TO GROW
California 1970-2020
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5,000,000
10,000,000
15,000,000
20,000,000
25,000,000
30,000,000
35,000,000
40,000,000
45,000,00019
70
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
SOURCE: Moodys Analytics
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HOW DID WE GET HERE?
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
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HOW DID WE GET HERE?
General Desire for Low Density Land Use Preference for detached single family homes Disdain for multifamily developments
Cost of service to cities higher than other land uses
NIMBYism: Desire to preserve existing character of community Dislike for multifamily, higher density development by residents
and officials Quality of life concerns Fear of crime and other negative aspects associated with density
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WHAT IS OUR FUTURE?
If current trends continue, California will build less than 60percent of the new housing needed over the next 20 years.
Little Hoover Commission Report on Housing in California
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SOLVING CALIFORNIASHOUSING PROBLEM
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SOLUTIONS
Production Gap is Primary Source of CAs Housing Problems
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
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SOLUTIONS
Attitude Shift is Essential to Moving TowardSolutions
By Households as Residents By Households as Taxpayers By Local Elected Officials By State Officials
and an Attitude Shift Requires Education andHeightened Awareness of Problems, Implications, andSolutions!
Solutions will take time
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SOLUTIONS - LOCAL
Permanent city affordable housing subsidy source Dedication of a share of county tax increment
financing to affordable housing Revise zoning code and/or density bonus ordinance to
increase Ease parking and set-aside requirements to enable
more backyard homes; granny flats Convert unlawful but affordable units Collaborate with business community
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SOLUTIONS - STATE
CEQA Reform Inclusionary Zoning Experiment with social impact bonds & health
funds as a source
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2015 FORECAST
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CALIFORNIA HOUSING MARKET OUTLOOK
2009 2010 2011 2012 2013 2014 2015f
SFH Resales (000s) 474.9 416.5 422.6 439.8 414.9 383.3 402.5
% Change 24.5% -12.3% 1.4% 4.1% -5.9% -7.6% 5.0%
Median Price ($000s) $275.0 $305.0 $286.0 $319.3 $407.2 $447.0 $478.7
% Change -21.1% 10.9% -6.2% 11.6% 27.5% 9.8% 7.1%Housing AffordabilityIndex 51% 48% 53% 51% 36% 30% 27%
30-Yr FRM 5.0% 4.7% 4.5% 3.7% 4.0% 4.3% 4.5%
SERIES: CA Housing Market OutlookSOURCE: CALIFORNIA ASSOCIATION OF REALTORS
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