To live and buy in L.A.
IF Southern California’s housing market of the last six years were a hit song, owners who have seen their homes double in value would be humming “We’re in the Money.” But for countless others who can’t afford to buy or to pay rising rents, the flip side of the record would be “Desperado.”
Despite political strides -- Los Angeles last fall fully funded for the first time a $100-million affordable-housing trust -- and the construction of new homes in all price ranges, the region’s persistent housing crisis has only gotten worse, experts say. Record-high home prices, unflagging demand, population growth, lack of developable land, sky-high land and building costs and government regulations have exacerbated the situation.
“The problems that were signaled in 2000 are cemented now,” said Henry Cisneros, chairman of the housing development firm CityView and former secretary of the U.S. Department of Housing and Urban Development. “It’s built into the DNA of California, and we’re getting farther behind every day.”
Middle-income residents have been particularly hard-hit by high prices and a limited housing supply. The failure of cities to invest enough money in housing and the lack of smart-growth planning have compounded the problem, said Los Angeles Mayor Antonio Villaraigosa.
“We’ve had a diaspora of the middle class from our city,” Villaraigosa said. “We’ve got the infrastructure, and we must provide the housing to grow our economy and support our middle class.”
Only 12% of households in Los Angeles County, for example, can afford a median-priced home, according to the California Assn. of Realtors’ most recent statistics, compared with about 38% in the summer of 2000.
Considering the record run-up in prices, it’s no wonder. The median price for a home in Southern California in April 2000 was $201,000, compared with $485,000 in April 2006. In Los Angeles County, the median price rose from $195,000 to $508,000; in Orange County, from $262,000 to $628,000, according to DataQuick Information Systems, a La Jolla-based research firm.
The situation probably will not change anytime soon. In the last 62 years, there has been only one significant downturn in home prices, and that was between 1990 and 1996 -- amid an exodus of defense-industry jobs -- suggesting that a sustained decline is rare, said Michael Carney, finance and real estate professor at Cal Poly Pomona.
The main culprit behind the latest price hike is the unrelenting demand for limited housing, a problem fueled by record-low mortgage-interest rates, adjustable-rate financing and a population stampede into Southern California that shows no sign of slowing.
From April 2000 to July 2005, California gained 1.56 million people through natural increase -- the difference between births and deaths -- and 1.42 million from international immigration, according to U.S. census statistics. Domestically, more residents left California than moved here from other states. Southern California’s population is approaching 17 million people and growing at a rate of 200,000 to 300,000 per year.
Meanwhile, developable land in the Southland continues to shrink. And residential projects slated for urban areas on old industrial and commercial sites -- which could add significantly to the region’s housing stock -- often take years to get underway.
In Orange County, where land costs $1 million to $2 million per acre and the need is particularly acute, 7,206 permits for homes and apartments were issued in 2005, compared with 12,400 in 2000, according to statistics from the Construction Industry Research Board.
One of the few Southland counties with significant developable land -- Riverside County -- issued a bounty of 34,000 permits for new homes and apartments last year, compared with 15,400 in 2000. But that number still falls far short of the need, housing experts say.
And then there are the spiraling land and construction costs.
“We used to think that $10,000 to $15,000 per unit for just dirt in Rancho Cucamonga and Ontario was a lot of money,” said Hunter Johnson, president of LINC Housing Corp., a Long Beach nonprofit that builds, renovates and preserves affordable homes. “Today, in many of these same Inland Empire neighborhoods, the cost for land can range from $35,000 to $50,000 per unit.”
Getting permits is difficult with not-in-my-backyard sentiment and government regulations that often are redundant, builders say. Also, fees required by local governments for schools, sewers and other infrastructure in new communities have doubled to between $50,000 and $70,000 per unit since 2002, said Randy Jackson, president of the Planning Center, a private urban-design firm in Costa Mesa.
Contributing to the shortage of moderately priced “workforce housing” are builders’ preference to construct more profitable “luxury” homes and buyer demand for upscale housing, industry analysts say.
In downtown areas, where major efforts are underway to increase high-density housing, many builders are converting historic buildings -- which often housed apartments -- into high-end condos, further eroding the low- to moderate-price housing inventory.
The bright spots
Builders are eager to point out that the picture is not all bleak, however, and that, in fact, strides have been made to provide housing at all price levels. Compared with the 72,000 total new housing units permitted in seven Southern California counties in 2000, there were 106,400 new homes approved in 2005, according to the research board.
And building high-density urban housing on land previously used for other purposes has caught on.
“I’ve seen a shift from a small niche segment of our industry doing infill to the point now where most builders -- certainly the majors -- have included this type of building in their business models,” said Rich Ambros, chief executive of the Building Industry Assn. of Southern California. “In the years to come, you’ll see a greater supply of workforce housing.”
Squeezing more houses onto smaller acreage is widely acknowledged among urban planners, academics and a growing number of city officials and builders as a solution to housing California’s booming population. The Wilshire Corridor, Hollywood, downtown Los Angeles, Anaheim, Fullerton and Inland Empire cities such as Ontario and Fontana now have high-density developments either built or going up, with jobs and public transportation close by.
That’s great for some, but for other buyers and renters, it’s still a Herculean struggle to live within their means and maintain a reasonable quality of life in Southern California.
Tim Morrison, a 45-year-old executive at a construction-financing company, has commuted 50 miles each way from Glendora -- on three trains and a bus -- to his Northridge job each day for eight years. His wife, Edwina, 49, a nursing communications technician at Cedars-Sinai Medical Center in Los Angeles, has commuted for 12 years. It was worth it, Tim said, to provide a larger home and good schools for their kids, who now are out of the house.
Tim had a Thomas Edison moment last year when he saw an advertisement for new Standard Pacific condos about to go up across the street from Union Station. Morrison knew he had to get one. The day the sales office opened in March, he and Edwina were among the first to purchase. They bought a $586,000, two-bedroom condo with a view at Axis at Union Station, which they expect to move into this month.
“For us, moving downtown near transportation was a no-brainer,” Tim said. “As soon as I saw the sign for these condos, I knew it was what we were looking for.”
Bentley Hodges and his wife, Catherine, both 28, thought they knew what they were getting into house-wise when Bentley accepted an investment-banking job in the west San Fernando Valley 2 1/2 years ago.
After selling their three-bedroom, 2,000-square-foot home in Minneapolis for $270,000, they felt sure they could find a Los Angeles home for $350,000. That optimism quickly turned to despair after the couple looked at “junky, 800-square-foot homes” in the West Valley, Bentley said. They finally found a two-bedroom “major fixer” in West Los Angeles for $580,000.
Bentley said he has endured a dawn-to-dusk commuting schedule so that he and Catherine, a physical therapist, can live in a decent house they can afford (barely). He leaves home for his office at 7 a.m. and returns after 6:30 p.m., when traffic eases.
But a recent move by a co-worker has gotten Bentley to thinking. His colleague transferred to Plano, Texas, and used the profits from the sale of his home here to purchase with cash a five-bedroom, five-bathroom house for $400,000.
“We like L.A., but you get more value for your dollar out of state,” he said. “I’m not sure where the future will lead us.”
Generation Y Us?
The Hodgeses, who were able to use home equity to buy, are the lucky ones. As baby boomers’ children -- the bulging demographic dubbed Generation Y -- think about entering the market, the inability to find houses they can afford has pushed home-buying far into the future for some.
Taylor Stephens, 25, and boyfriend Nicholas Barger, 23, live in a cozy Hollywood apartment that rents for $1,500 a month. The couple spends about 50% of their monthly income on rent.
Stephens said that although she will graduate from Cal State Northridge without student debts, her salary as an educator won’t be sufficient for her to buy a home for at least 10 years.
“It feels way out of reach to have a home in any of Los Angeles’ hot spots, where I would prefer to buy,” said Stephens, a master’s student and teaching assistant at a Lawndale school. “I’d rather move to another city [outside of Southern California] that’s more affordable and have a home than move far out of town here.”
Gen-Y buyers who can afford a mortgage typically buy for investment purposes, said Tom Kunz, president and chief executive of Century 21.
The bulk of them purchase condos and prefer living close to their jobs, usually in urban areas. Their parents often provide part or all of their down payments, agents say.
Hard as it is for higher-earning young adults to buy a Southland home, low-income residents face far greater challenges.
Workers with poor credit who live paycheck to paycheck are struggling to find rental housing that does not eat up more than 50% of their incomes. However, experts claim that the number of multiple families living in a single unit is fewer than half a decade ago. According to U.S. census data, more than 60% of Los Angeles residents are renters.
Despite the significant inroads by Southern California builders dedicated to constructing and rehabilitating affordable housing, cities still struggle to keep up with the demand because of the loss of federally subsidized housing units.
“You must be very mission-driven to provide affordable housing, because the Section 8 [federally subsidized] requirements are tough,” said Johnson, of LINC Housing Corp. Most landlords, he added, “don’t want the bother.”
There is hope on the horizon.
Mayors and city council members who used to view housing as a no-win situation politically have begun to press for permanent sources of affordable-housing funding, and some have helped streamline the process for high-density urban building.
In Orange County, Anaheim Mayor Curt Pringle’s support paved the way for approval of the Platinum Triangle, an 840-acre mixed-use development surrounding Angel Stadium and the Arrowhead Pond, with a potential 9,500 residential units. The first phase is scheduled to open this month.
L.A. Mayor Villaraigosa has proposed a $1-billion bond to provide funds for affordable housing. The mayor also announced in March that the city would spend nearly $51 million this year to increase the supply of affordable housing.
Gov. Arnold Schwarzenegger recently signed the $2.85-billion Strategic Growth Plan housing bond, which will provide homeownership and rental opportunities to more than 34,000 Californians.
Among additional measures being considered to help solve Southern California’s housing crisis are further recycling of industrial and commercial sites for residential use; inclusionary zoning, which would require developers to include some below-market units in new developments; more mixed-income development; and protecting the existing supply of rental housing.
Will there still be talk about a housing crisis at the end of this decade?
“I hope not,” Villaraigosa said. “I do know this: The best way to avoid that discussion is to do something about it now.”
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Going up, up, up
A look at the increase in median home prices:
*--* Median price Median price Percentage County April 2000 April 2006 change
Los Angeles $195,000 $508,000 161% Orange 262,000 628,000 140 Riverside 157,000 409,000 161 San Bernardino 135,000 360,000 167 San Diego 222,000 505,000 127 Ventura 256,000 584,000 128 Southern California 201,000 485,000 141
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Source: DataQuick Information Systems
