There are unaffordable housing markets and then there are “incredibly unaffordable” markets, four of which are in California, a recent study found.
The housing crisis poses a barrier to upward mobility, and the Golden State risks suffering from particularly severe stratification, according to an annual study. Housing affordability Demographia International report prepared by Chapman University in California and the Border Center for Public Policy in Canada.
“High housing prices relative to incomes are having a clear feudal effect on our home state of California, where the primary victims are young people, minorities and immigrants,” writes Chapman’s Joel Kotkin. “Restrictive housing policies may be considered progressive, but from a social perspective their impact is better described as regressive.”
The report points to “urban containment policies” designed to limit urban sprawl and increase population density. This led to rising land prices, which led to a sharp rise in housing prices, he explains.
The trend towards increasing population density was aimed at reducing dependence on cars and freeways, improving traffic congestion and making neighborhoods more walkable. But the report says that while these policies were well-intentioned, they have resulted in land prices within city limits being 8 to 20 times higher than outside them.
In determining affordability, the report looked at 94 markets in Australia, Canada, China, Ireland, New Zealand, Singapore, the UK and the US, comparing the average house price in each region to the median income.
A price-to-income ratio of 3 or lower was considered affordable, with higher values corresponding to worsening levels of unaffordability. A factor of 9 and above was labeled as “incredibly 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 warns that the housing crisis poses a real threat to the middle class, noting that high housing costs have led to lower living standards and increased poverty.
“The middle class is under threat mainly due to rising land prices,” the report says. “As land was rationed to curb urban sprawl, demand outstripping supply drove up prices.”
The report notes that all of the “incredibly unaffordable” cities follow urban planning policies that favor higher population densities, and recommends that cities open up access to land to reduce housing costs.
In the US housing market, the decline in housing affordability has been demonstrated by the disappearance of the $200,000 starter home. As a result, many millennials are trying to move into larger homes to accommodate their growing families in the cold.
But potential buyers are rebelling against high home prices, leaving more unsold properties on the market and driving down asking prices.
This dynamic comes during the critical spring sales season, which is ending amid weak demand.