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No Easy Answers For State's Complicated Housing Mess

In the first quarter of 2011, 53% of buyers could afford the median-priced single-family in California, and 60% could afford the median-priced condo or townhouse, according to the California Association of Realtors.

This is a remarkable turn from the years of the housing bubble, when CAR's affordability index dived to the low teens. Pegging a lower median price and making more generous lending assumptions, the National Association of Homebuilders now places California's housing affordability index at 64.6%.

At the same time, about one-third of California homeowners are underwater, owing more on their mortgage than their real estate is worth, according to CoreLogic, Inc., a leading analyst.

This is the way things are going to stay for a while, apparently. Real estate experts predict housing prices will either fall a touch more, or increase by a few percentage points during the next three or four years. And California housing construction remains in a slump, with the Construction Industry Research Board predicting in late May that builders would pull permits for 51,000 units this year. That total is an increase from 36,000 in 2009 and about 45,000 last year, but it's still remarkably few units for a state that continues to add about 500,000 residents a year.

"California is in a situation which shouldn't be possible to be in," Jed Kolko, associate director and research fellow at the Public Policy Institute of California told me. "That is a situation of falling prices, and a situation of high prices."

Here's what he means: California's median home price has fallen by nearly half in five years to about $290,000, yet it is still roughly 75% greater than the national median. Moreover, prices remain the least affordable in the job-rich coastal urban areas such as San Francisco, Silicon Valley and Orange County, while housing has become extraordinarily inexpensive in job-poor inland areas such as the San Joaquin Valley and San Bernardino County locations where the median price is less than the national average.

"Just because prices have fallen a lot doesn't mean prices are low relative to incomes in California and relative to other states," Kolko said.

Still, there's no denying that real estate prices have nose-dived. That's the primary reason that one-third of homeowners are underwater and that California continues to be among the foreclosure leaders.

So California finds itself in the seemingly intractable position of needing to boost the supply of affordable housing while also bolstering real estate values. "It's very hard to make policy for two problems that call for almost two completely different solutions," Kolko observed.

Making the problems even more difficult to tackle is the fact that California is composed of many different, yet overlapping, housing markets. In the Central Valley, including Sacramento itself, housing affordability is no longer much of an issue. But in much of the Bay Area, San Diego and Los Angeles, a shortage of affordable units remains a problem for households and for businesses. You would think this situation presages the resurgence of the monster commute from homes in Hesperia to jobs in Pasadena, or from Merced to Santa Clara. However, gasoline costs $4 a gallon now, and we are all aware that fuel prices could spike upward again with little warning.

It's no surprise that the policy response at the state Capitol is confused. After years of being a high profile issue, affordable housing has faded into the background. The Brown administration proposes eliminating redevelopment (the state's largest ongoing source of funding for affordable housing development) and the Department of Housing and Community Development's housing element review and technical assistance functions. Bills in the Legislature are all over the map, but the only ones that appear to be moving forward are those that tinker at various fringes. The California Housing Law Project reported last week, "With an increasingly bold mod (moderate) caucus, the Senate appears hostile territory for legislation to address the housing needs of low-income families this year."

On the issues of foreclosures and lending, the state has limited authority, as the federal government does most of the regulating. Plus, banks and other lenders continue to exert a great deal of influence over state lawmakers, as financial institutions can make much larger campaign donations than can homeowners who are drowning in debt. Again, most of the bills that have moved through the Legislature since the real estate market crashed have addressed minor matters.

If you've read this far in hopes of finding light at the end of the tunnel, you're going to be disappointed by the pervasive darkness that I see. The overall market is weak and is going to remain so. Housing policy, not only at the state level but also at the federal level, is equally weak. In an era of black-and-white politics, our housing problems require answers in many shades of gray. Cities and counties that make real decisions about what housing gets built are mostly pawns in a game they don't control.

Senate Bill 375 would have us making housing decisions based in large part on climate change considerations. It's a noble thought, perhaps even visionary, and it's driving conversations about urban development patterns that we probably should have had decades ago. But may I suggest that other climates need to change before California can start truly thinking on such a grand scale.

Paul Shigley

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Josh Stephens on The Urban Mystique at SPUR: January 19
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