California? Dreaming!

It should come as no surprise to any real estate developer, housing policy advocate or would-be homeowner that California has emerged as America's least affordable state. From Palo Alto to Orange County, California remains "The Golden State" for the priveleged few who possess 'the gold' to purchase its over-priced housing.

With median home prices in the San Francisco Bay area topping out at over $713,000, fewer than 10% of area households are able to afford the vast sums to get into the housing game. As the US enters into its fourth month of a double digit housing sales slump (when compared to 2005), the silver lining in this cloudy housing picture may be a leveling off of housing prices in California markets.

While this is likely to give some short term relief, Americans' penchant for quick fixes and easy money have led us to treat homes not as homes - but as investments. In California, an uptick in home foreclosure rates combined with a stampede of households (previously gulled into 1-3 year adjustable rate mortgages) to seek new ARMs or (for the lucky few) fixed-rate mortgages will lead to further erosion (opportunity?) in the housing market.

Expanding housing opportunity in California will require a paradigm shift of dramatic proportions. First and foremost, the seemingly inexhaustible supply of developable land will require a different approach - one that requires increasing density, carefully examining and exploiting infill opportunities (especially in older communities and inner-ring suburbs), building townhouses or (quelle horreur!) multi-family housing over single family detached housing. It will require public/private partnerships, the cooperation of local governments and homebuilders and (most importantly) the participation of California's diverse citizenry to guide the process.

This new housing paradigm, based on participatory planning, zoning reform and diversity of housing options, runs contrary to the western mind - of manifest destiny, exploiting the land (remember - there's gold in them thar hills), of getting the government off of our backs. But this isn't an argument about the rights of land ownership - it boils down to sustainability.

Home to over 36 million Americans, California is our most populous state - yet our least affordable. We stand at a critical juncture - to continue pell mell development, turning the California desert into suburban landscapes for bankers, brokers or aspiring country squires. Or, to seek balanced development so that those that teach and care for the children and families of our bankers and brokers have a place to call home. The former will stem from inertia; the latter will require innovation, political will and the participation of the people. In following this new housing paradigm, truly, then, Californians will be able to live into their motto - Eureka! (I have found it!)

Sprawl is a lot of things, but to name sprawl as the culprit for affordability is simplistic and not likely to be true. Sprawl exists all over the united states, especially the southeast US, where home prices are much lower than in CA.

There are many reasons why housing is so expensive in CA. Land values, boom and bust economy, lots of jobs, high levels of immigration, high construction costs etc. Increasingly, studies show a strong relationship between the level of regulation and the price of a home. In CA, the planning and environmental approval process can be *years* longer than a similar project elsewhere, and involves higher fees, extensive mitigation meaures, and whatnot.

Here's a good example: inclusionary housing.

Let's say that a developer has a 20 unit project, and the city requires that 10% of the units be available to low/moderate income households. For this example, let's say that 2 units will be sold for about $250,000 while the 18 other units will sell for the market price of $600,000. Doing the math, the developer would take in about $700,000 less for the project ($350,000 reduction in sales price x 2 units).

In theory, the developer will "eat" that cost. But with thin margins in the building industry (especially in today's market), most of that $700,000 will actually be paid by the market-rate homebuyers in the form of an increased sales price. In this case, that increased sales prices could be almost $39,000 each, or a $39,000 subsidy to your new moderate-incomed neighbors.

Speaking for myself, I'd rather give them cookies.

The main culprit here is SPRAWL.

The simple solution to counteracting a housing shortage (In such a HIGH DEMAND state like Cali) is to BUILD UP.

This is not rocket science...

I would love to see the evidence for this. I really don't think there is any. My impression is that rampant speculation is at fault. thoughts?