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Developers Not Building the Homes California Needs

California's housing shortage is usually represented by the number of single-family detached and multi-family housing units and their relative affordability. This characterization leaves out other important factors, such as the range of household sizes and types, lifestyle and location preferences. Another missing element is household wealth that accumulates through home ownership and the influence of the mortgage interest income tax deduction on home-buying decisions (including purchasing a second home). When one compares types of households to size and types of units, it appears that the market may not be providing the size and types of housing California's populace wants. The underlying assumption is that small households without children under age 18 would generally prefer smaller units in multi-family developments, while larger households would prefer single-family houses. That is a gross generalization; income, personal preferences, and housing units that are actually on the market at any one time are also factors when people choose their residences. But follow along for the sake of argument while I track households to housing units since 1990 at the state level. The table below shows that the number of households created between 1990 and 2000 was 90,000 more than the number of housing units. Those 90,000 households used up most of the vacant inventory generated by the late 1980's surge in apartment development. During the 1990s, the median number of rooms per unit and persons per household each increased slightly, seemingly showing that units and households were well matched. The types of units constructed also show little change, with a small increase in the percentage of units that are single-family dwellings offsetting a small decline in the number of units in structures with 10 or more units. But, consider the numerical increases in the two extremes of unit and household types. Families with children increased by 741,829, which roughly matches the increase of 777,617 single-family dwellings. The remaining 379,835 increase in one-person and all other households squeezed into the 254,050 new non-single-family dwellings, plus the vacant inventory. Nationally and in California, developers continue to build single-family dwellings, and those houses are getting larger, which is one reason that they cost so much. In 2000, 78% of all non-public housing starts in the nation were single-family dwellings. Nationwide between 1970 and 1999, new units with four or more bedrooms increased by 42%; median floor area increased by 46.5%; and the number of units with 2.5 or more bathrooms increased by 244%. And in the West, developers are building these larger houses on smaller lots. In 1997, the median single-family dwelling lot size in the Western states was 0.23 acres one-third smaller than the national median of 0.35 acres. Given these data and the underlying assumptions, there appears to be a divergence between what developers are building namely, large single-family houses and what people need from the housing market. The majority of California households are without children (61% according to Census 2000), and they may prefer alternatives to large single-family structures if the market provided more choices. And this segment of the population is likely to grow as the baby-boomers age and their accumulated wealth and tax laws suggest a growing second-home market. Even the for-sale market could meet what appears to be a growing demand for housing alternatives. For example, a small four-unit condominium project developed on two small single-family lots could be of greater value than two typical single-family houses (with postage stamp yards). If each condo was worth $250,000, the total market value of $1 million would be $200,000 more than the value of two $400,000 single-family units. Instead of responding to what people need, we are heading down a path that pits ever-increasing costs of large single-family dwellings against the incomes of one- and two-person households. The small household may be the next market segment to decline now that the vacant inventory is depleted. Maybe it's time to invest in a roommate matching business. California 1990 Dist. 2000 Dist. Change Year-Round Housing Units 11,182,882 12,214,549 1,031,667 9.2% 10 or more units 1,899,934 17.0% 1,984,729 16.2% 84,795 4.5% 2-9 units, mobile homes, RVs, etc. 2,351,999 21.0% 2,521,254 20.6% 169,255 7.2% SFD and 2-4 units 6,930,949 62.0% 7,708,566 63.1% 777,617 11.2% Median number of rooms per unit 5.3 5.4 0.1 2.5% Households (occupied units) 10,381,206 11,502,870 1,121,664 10.8% 1-person 2,429,867 23.4% 2,708,308 23.5% 278,441 11.5% All Others 4,123,258 39.7% 4,224,652 36.7% 101,394 2.5% Families w/related children < age 18 3,828,081 36.9% 4,569,910 39.7% 741,829 19.4% Median persons per household 2.8 2.9 0.1 3.9% Sources: 1990 and 2000 Censuses, Statistical Abstract of the United States: 2000.
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