Real estate crisis: high home prices are “feudalizing” California

There are unaffordable housing markets and then there are “incredibly unaffordable” markets, four of which are in California, according to a recent study.

The housing crisis represents an obstacle to upward mobility, and the Golden State is at risk of especially acute stratification, according to the annual Demographia International Housing Affordability report, produced by Chapman University in California and the Frontier Center for Public Policy in Canada.

“High housing prices, relative to incomes, are having a clearly feudalizing impact in our home state of California, where the main victims are young people, minorities and immigrants,” wrote Chapman’s Joel Kotkin. “Restrictive housing policies may be presented as progressive, but in social terms their impact might be better characterized as regressive.”

The report notes “urban containment policies” that aim to limit sprawl and increase density. This has resulted in higher land prices, which has translated into dramatically higher home prices, he explained.

The trend toward greater density was aimed at reducing reliance on cars and highways, improving traffic jams, and making neighborhoods more walkable. But the report says that while such policies were well-intentioned, they resulted in land prices being eight to 20 times higher inside urban containment boundaries than outside them.

To determine affordability, the report analyzed 94 markets in Australia, Canada, China, Ireland, New Zealand, Singapore, the United Kingdom and the United States, comparing the median home price in each location to median income.

A price-to-income ratio of 3 or less was considered affordable, and higher ratios corresponded to worsening levels of unaffordability. A proportion of 9 or more was labeled “impossibly unaffordable.” Of the 11 cities in that category, four of them are in California.

  1. Hong Kong (16.7)
  2. Sydney (13.8)
  3. Vancouver (12.3)
  4. San José (11.9)
  5. Los Angeles (10.9)
  6. Honolulu (10.5)
  7. Melbourne (9.8)
  8. San Francisco (9.7)
  9. Adelaide (9.7)
  10. San Diego (9.5)
  11. Toronto (9.3)

The report also warned that the housing crisis represents an existential threat to the middle class, noting that high housing costs have reduced living standards and increased poverty.

“The middle class is under siege primarily due to escalating land costs,” he said. “As land was rationed in an effort to curb urban sprawl, excess demand over supply drove up prices.”

The report noted that all “impossibly unaffordable” cities follow urban planning policies that favor greater density, and recommended that cities open up land availability to reduce housing costs.

In the US housing market, the worsening affordability problem has been exemplified by the disappearance of the $200,000 starter home. That has left many millennials trying to move to larger homes to accommodate their growing families in the cold.

But would-be buyers have rebelled against high home prices, resulting in more unsold properties on the market and lower sales prices.

That dynamic has played out during the critical spring selling season, which is coming to an end with a whimper amid weak demand.

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