LAO: CA housing costs likely to keep ‘rapidly rising’

by Chris Reed | March 21, 2015 12:34 pm

houses_1The state Legislative Analyst Office’s new report[1] on the high cost of housing in California got some coverage[2] around the state, with a primary focus being its call for 100,000 additional housing units being built a year. The LAO says state leaders should have a goal of creating enough housing stock to put downward pressure on home-purchase prices, which are 2.4 times higher in California than in the U.S., and on rent, which is 50 percent higher.

High housing costs are the main reason that California has the nation’s highest poverty rate when cost of living is included. More than 23 percent of residents struggle to make ends meet compared with 14 percent of Americans.

One of the LAO’s most provocative findings got scant attention. It was that as high as housing costs already are relative to the nation, the disparity is probably going to get worse:

As we have discussed, a collection of barriers have prevented California’s housing developers from responding to high demand to live on California’s coast by building more housing there. Our analysis in this section suggests that these barriers have created a major disconnect between the demand for housing and its supply. Looking forward, there are many reasons to think this dynamic will continue.

Many of the primary factors that make California desirable — moderate weather, natural beauty, and coastal proximity of its major metros — are ongoing. At the same time, we see no signs that coastal community resistance to new housing construction is abating. In addition, many state and local policies that have slowed or stopped development in recent decades remain in effect today.

We therefore think that, in the absence of major policy changes, California’s trend of rapidly rising housing costs is very likely to continue in the future. … In our view, this major finding that demand for housing in California substantially exceeds supply should inform discussions and decision making regarding state and local government housing policies.

Much of the coverage of housing costs has focused on how they exacerbate poverty. The LAO report notes that low-income families in Los Angeles, for example, spent two-thirds of their money on housing alone.

But if the LAO is right and housing costs continue their rapid rise, this will push upper-middle-class families down into the middle class, and middle-class families into the working poor. The implication is that without commensurate increases in family income, higher housing costs are likely to drive state poverty even higher than the present 23 percent.

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