California’s War on the Emerging Generation
This article appeared in the OC Register.
It should be the obligation of older citizens to try to improve the prospects for their successors. But, here in California, as seen in a new report issued by the Chapman Center for Demographics and Policy, we seem to have adopted an agenda designed to make things tougher for them.
Millennials everywhere face many challenges. The U.S. Census Bureau estimates that, even when working full-time, they earn $2,000 less than the same age group made in 1980. Nationwide, 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.
But California millennials face an even greater challenge than most. Despite the anecdotes of youthful fortunes emanating from Silicon Valley, California’s millennials, on average, do not earn more than their counterparts elsewhere. Yet, they confront the highest housing prices in the nation, now 230 percent of the national average.
These prices hit the newest and youngest buyers hardest. California boomers have rates of homeownership close to the national average, but people aged 25 to 34 suffered the third-worst homeownership rate (25.3 percent) among the 50 states. In San Francisco, Los Angeles and San Diego, the 25-34 homeownership rates range from 19.6 percent to 22.6 percent — approximately 40 percent or more below the national average. That is no surprise here, given that in Los Angeles and the Bay Area a monthly mortgage takes, on average, are close to 40 percent of income, compared to 15 percent nationally.
California’s young people are also staying with their parents more than their counterparts elsewhere. Overall, approximately 47 percent of 18-34s lived with parents or other relatives in 2015, according to the American Community Survey. In California, the figure was 54 percent.
These soaring prices could have severe demographic consequences. For every two homebuyers who have come to the state, five homeowners left, the research firm Core Logic has found. If millennials continue their current rate of savings, notes one study, it would take them 28 years to qualify for a median-priced house in the San Francisco area, but only five years in Charlotte, N.C., or three years in Atlanta. A recent ULI report found that 74 percent of all Bay Area millennials are considering a move out of the region in the next five years.
This exodus could accelerate over the next decade, as most millennials reach their 30s, marry, settle down, start families and consider a home purchase. We have already passed, in the words of USC demographer Dowell Myers, “peak urban millennial.”
The future market demand for affordable single-family homes seems likely to continue expanding. Nationally, among home purchases made by those under 35, four-fifths choose single-family detached houses, a form that is increasingly out of reach. This is not due to preference. Indeed, according to a California Association of Realtors survey, 82 percent of millennial renters in the state believe that purchasing a home is a clever idea and a safe investment.
Some assume that building more high-density housing will solve California’s severe housing affordability crisis. Unfortunately, construction costs for higher-density housing range up to 7.5 times the cost of building detached housing. Equally important, the clear majority of new households generally prefer single-family residences by a wide margin.
To solve this problem, we need new policies
California’s extraordinary run-up in housing costs reflects, in large part, disastrous government policy. In recent decades, land-use policies have generally included “urban containment” strategies that impose “urban growth boundaries” that significantly restrict new suburban detached housing tracts from being built on greenfield land. Homebuilding around the state, including in urban areas, is often seriously delayed, or fails to obtain approval at all due to the California Environmental Quality Act.
Other regulatory factors that drive up California prices include high impact fees, which can add upward of $50,000 — two and half times the national average. The impending 2020 mandate for “zero emissions” homes promises to boost this by an additional $25,000 a home.
The delays and endless reviews associated with new development have depressed California’s pace of new building well below the national average, particularly in comparison with prime competitor states, such as Texas. California’s six major metropolitan areas all had detached housing building rates below the national average from 2011 to 2015, and only San Jose exceeds the national average in multifamily permits.
Ultimately, unless its housing issues are addressed, California may also sacrifice its greatest resource: the next generation. California has a below-replacement fertility rate, and now has the lowest birth rate since 2007. This is critical at a time when immigration is dropping and out-migration is again ticking up.
Fortunately, California can meet this challenge. The state retains a large existing stock of family-friendly housing and vast expanses of land, particularly in the state’s interior, where new affordable housing could most efficiently be built. Many opportunities for new, multiunit urban housing exist in redundant industrial and retail space.
Given that much of our millennial housing shortfall is self-inflicted, the older generation still has time to reform the current misguided policies. Our state still can reverse course and restore the promise of the California dream to our children and grandchildren.
Joel Kotkin is the Roger Hobbs Distinguished Fellow in Urban Studies at Chapman University and executive director of the Houston-based Center for Opportunity Urbanism. His newest book, The Human City: Urbanism for the rest of us, was published in April by Agate. He is also author of The New Class Conflict, The City: A Global History, and The Next Hundred Million: America in 2050. He is executive director of NewGeography.com and lives in Orange County, CA.