My alma mater, Chapman University, and the California Association of Realtors’ Center for California Real Estate just came out with a report that is just about as pessimistically named as you can get. Ready for it?
“Fading Promise: Millennial Prospects in the Golden State.”
This gleefully titled summation of my future in California was authored by Joel Kotkin, director of Chapman’s Center for Demographics and Policy, and Wendell Cox, an urban planner and owner of consulting firm Demographia.
The basic premise of the report is unsurprising: California housing is becoming increasingly unaffordable. According to the report, it is the second-least affordable state to live in for middle-income households after Hawaii.
As of the fourth quarter in 2016, only 34% of Los Angeles-area residents could afford to buy a house, according to the report. Monthly mortgage payments in Los Angeles and the Bay Area take 40% of household income, compared with 15% nationally, according to the report.
The homeownership rate among Millennials in California is the third worst of all the states, with only 25.3% owning homes. Homeownership among 25- to 34-year-olds in California has also been declining faster than the U.S. average.
Home prices in California continue to rise due to high demand for housing and short supply – a situation exacerbated by stringent development standards. Just try saying “CEQA” (the acronym for the California Environmental Quality Act) around a real estate developer, and see what it does to his or her expression.
Environmental impact fees for new developments are one issue, as are land-use policies that impose “urban growth boundaries” to restrict new suburban housing tracts, according to the report.
As housing prices rise, Millennials continue to be worse off financially than prior generations. We earn $2,000 less than the same age group did in 1980, according to the U.S. Census Bureau. And more than 20% of Millennials aged 18 to 30 live in poverty, compared with 14% in 1980.
Another woeful tidbit: “A millennial with a college degree and college debt, according to a recent analysis of Federal Reserve data, earns about the same as someone of the Baby Boomer generation did at the same age without a degree.”
Some have made the argument that Millennials are simply less interested in purchasing property. But as Kotkin and Cox point out, both Fannie Mae and the California Association of Realtors have conducted recent surveys that showed roughly 80% of Millennial renters believe homeownership is a safe investment and makes more financial sense.
I asked my Facebook friends whether they felt buying a home was feasible for them right now, and I received numerous replies with varying degrees of frustration.
A recently married friend, age 26, commented that she and her husband just moved to Washington State in the hopes of eventually being able to buy a home. Rental rates in California make it too difficult to save for a down payment, she noted.
A high school classmate who studied at UC Santa Barbara said buying a home in California does not seem feasible unless she and her spouse compromise and live in a bad neighborhood. They might move out of state.
A married college friend and her husband have been approved for loans for single-family homes and condos – but only at the price points of $190,000 and $230,000, respectively. “Just nothing exists in that price range,” she said.
Three friends, all former college peers, managed to purchase homes with partners. One, a married, 29-year-old schoolteacher, was able to purchase a $590,000 three-bedroom, one-bathroom home in the City of Orange in 2016. The down payment was made with her savings, and her husband’s income supplements monthly mortgage payments.
Another friend purchased a $270,000 condo in Tustin in April 2016 with her boyfriend. “I started thinking about saving for a house my senior year of college, 2012, and it took me four years and paying off $10,000 worth of debt to get there,” she said.
Perhaps the most unique situation among these was a former college peer who is married to an active-duty member of the military. Due to the short supply of homes available in California, she had a tough time even finding one to make an offer on. “Houses are gone within days, sometimes hours, of going on the market,” she said.
She and her husband eventually paid $570,000 for a home in San Diego County. The only reason they were able to afford the home was that her husband qualified for a VA loan, which requires no down payment, she emphasized.
All speculated that California is in a housing bubble. But as someone who has been covering real estate for four years, I can tell you that experts agree – we are not. Say the word “bubble” to a real estate agent or an economist, and they’ll quickly wave you off. The reaction is so predictable that I gave up asking the question.
With all that being said, I offer up this note to my home state.
Dearest California,
If you want to keep your future workforce here, you need to build more housing. Release developers from your stranglehold. Figure out how to do so responsibly, or you might see an exodus of those of us who aren’t willing to fork over half our paychecks to stay in the sun.
(Note: If you have a comment or suggestion regarding Millennial Pulse, please send an e-mail to the writer at: samantha_mehlinger@lbbj.com.)