Dave Miller leaves work in his gold GMC Sierra in midafternoon, loaded up with Arizona iced tea and sesame seeds. He tunes the radio to 95.5 FM KLOS, classic rock.
An auto maintenance supervisor in Garden Grove, Miller lives in Moreno Valley. On a bad day — a Friday — the drive home takes three hours.
The roughly 120-mile round-trip commute is a trade-off. Miller and his wife, Gigi, a hairstylist, bought their 2,000-square-foot, four-bedroom house with a three-car garage last year.
The price: $285,000.
“In Orange County, I couldn’t have half of what I have,” said Miller, 49.
Indeed, the Millers paid less than half of Orange County’s latest median home sale price, which hit a record high $651,500 in May, according to data firm CoreLogic. Riverside County’s median was $330,000, and the six-county Southern California region reached $459,500.
The region’s housing crunch is steep, by any economic measure. A database of housing affordability statistics created by The Associated Press shows Southern California’s two main metropolitan regions — Los Angeles/Orange counties and the Inland Empire — consistently rank among the U.S. markets that most stretch the household budgets of both homeowners and renters. Data used census figures through 2014, the latest available.
Among the 40 largest U.S. metro areas, census figures show L.A.-O.C. had the lowest homeownership rate, the most financially stressed owners and the highest percentage of middle-aged households who were renters. The Inland Empire had the most people per rental unit, the highest share of single-family homes rented, and the second-highest level of financially stressed renters.
The problem has been three decades in the making. The region’s population and economic growth has outpaced local willingness to build more housing. For example, for every four jobs created in L.A.-O.C. and the Inland Empire between 2011-2014, only roughly one new housing unit was permitted.
All told, a shortage of housing options has boosted home prices and rents and essentially raised the entrance fee to Southern California living.
Lucy Dunn, a former state housing chief who now heads the Orange County Business Council, is frustrated by the response to the housing shortfall not just regionally, but statewide. Construction is problematic, what Dunn sees as self-inflicted hurdles from unfriendly review processes to quirky environmental laws to unyielding neighbors.
“It’s simple. It’s about the supply,” Dunn says.
Just ask Dave Miller.
Miller, who works for Orange County Vector Control, hits the road at 4 a.m. His morning drive goes more smoothly, though there’s some congestion, even then. His average trip to work takes about one hour and 15 minutes.
Bob Irish, the real estate broker who sold the Millers their house in Sunnymead Ranch, has offices in Orange and Riverside counties. He sees homebuyers getting priced out of both places.
Say an average worker can afford to spend $400,000 on a house, he said. That’s likely to get them only a condo in Orange County.
“Even then, it’s a little one,” he said.
“$400,000 used to get you Corona, then Riverside. Now you have to go out to Moreno Valley to find it,” said Irish, who owns Newport Realty in Newport Beach and Lake Hills Realty in Riverside.
“I think we’re running out of room on prices,” the broker said. “We’re back at over $200 a foot in Riverside. At the bottom (of the housing crash) we were at $100 a foot. And you could buy whatever you wanted.”
STEEP COSTS
The Great Recession, while painful for most households across the region, ended up being extra painful for renters.
Easy lending terms of the past decade’s boom allowed too many unqualified house hunters to buy homes. When the economy practically collapsed in 2009-10, numerous families lost their homes to foreclosure. It was a double-whammy: depressing home values and boosting the need for rentals from displaced households.
Cheap interest rates, used to stimulate the ailing economy, was a boon to the remaining homeowners. As a result, census stats show that between 2010 and 2014, the cost of owning a home dropped 10 percent in L.A.-O.C. and 18 percent in the Inland Empire.
Renters were not as lucky.
Heavy demand for rentals pushed up already lofty costs by 3 percent in L.A.-O.C. In the same four-year period, rental costs dropped in the Inland Empire by just 2 percent, census data show.
As a result, 55 percent of Inland Empire renters were financially stressed in 2014, by census math. It was the second-highest share of renters spending more than 30 percent of their income on housing among the 40 largest markets. L.A.-O.C. was third at 53 percent. (Miami was the worst.)
Housing costs also strapped local homeowners. Census stats show 40.5 percent of L.A.-O.C. owners were spending 30 percent-plus on housing in 2014, the highest in the nation. In the Inland Empire, it’s 38.8 percent financially stressed owners vs. 29.5 percent average among the top 40 U.S. markets.
“Even before we had a robust job market we had a housing problem,” said Leslie Appleton-Young, chief economist for the California Association of Realtors. “We’re doing a very poor job of accommodating our population.”
Housing’s steep financial toll isn’t just a simple pocketbook issue.
It has forced people to cram into residential units — or take long commutes —to save money. That crowds neighborhoods and freeways and puts extra wear and tear on the region’s infrastructure.
To combat financial strain, local renters doubled up in pricey units. The Inland Empire in 2014 had 3.3 people per rental, tops among the 40 largest U.S. markets, census data show. L.A.-O.C. has the second-most crowded rentals, with 2.9 people per unit.
Max Gardner sees many of these housing-linked woes play out in his job as chief executive of United Way Orange County, which supports many nonprofit efforts to combat everything from homelessness to poverty to educational deficiencies.
Inadequate housing disrupts the quality of life for financially stressed households, Gardner says. It can create family relationship problems or health issues. Youngsters in such situations may struggle at school. These challenges can compound on a family and limit future earnings potential as well.
“If you don’t have a holistic solution, we’re not going to change the fundamental problems,” he says.
GROWING PAINS
In many ways, the housing crunch is an outgrowth of a solid economic recovery.
Economist Christopher Thornberg doesn’t see a housing affordability problem, noting a decent pace of homebuying after the recession. Rather, there’s a huge imbalance between the success of the region’s job market growing rapidly out of the Great Recession and residential construction.
“Demand is driven by a hot economy and one of the most sublime living environments in the world,” says Thornberg, head of the UC Riverside business school’s forecasting center. “Supply is constrained because we refuse to take any real actions. We’re becoming a country club region. We are squeezing the little people and keeping the place for the more well-heeled.”
Between 2010 and 2014, L.A.-O.C. added 349,000 jobs — 6.7 percent growth that easily topped the 3.9 percent growth seen in the nation’s 40 largest metro areas combined, government job stats show. The Inland Empire added 109,000 jobs, 9.6 percent growth, in the same period.
But developers were scarred from recessionary losses and limited by skittish lenders unwilling to fund much new construction. As a result, construction of new homes and apartments stalled to a pace that’s at least half of what was considered necessary to house the region’s new workers.
The mismatch means in Long Beach that only roughly 2 percent of apartments are empty, says Spencer Pabst of the Pabst Kinney brokerage. A new rental listing will quickly get two or three applications without those apartment seekers ever seeing the unit.
“If there’s demand, it’s going to increase prices,” Pabst said. “The market for apartment buildings has probably been the hottest asset class in real estate.”
Consider the supply shortfall. In the 2004-07 boom, developers in the L.A.-O.C. area filed permits to build 131,000 resident units, according to the Real Estate Research Council of Southern California. Post-recession, between 2011-14, just 87,000 units were planned — or roughly one unit for every four new jobs.
The building drop was sharper in the Inland Empire. Before the recession, developers filed 163,000 building permits. After the downturn officially ended, permitting ran at one-fifth of the boom’s pace — just 30,000 units — in 2011-2014.
Thornberg fears the housing crunch is pushing middle-income workers out of the region.
“We’ve ended up with a critical labor shortage in what I’ll call ‘midskill’ jobs,” he said. “Need a machinist or a construction worker? Good luck finding one.”
POSTSCRIPT
The regional housing crunch hasn’t abated in the past two years.
Consider that homes have appreciated far faster than local paychecks. That shows up in one measure of home affordability from the National Association of Home Builders, which reflects home gains outstripping raises by at least 5-to-1 in two years.
By the association’s math, just 15.6 percent of homes sold in Los Angeles in the first quarter met “affordable” standards. That’s down from 17.7 percent in 2014.
Orange County affordability fell to 16.2 percent from 17.4 percent. And the Inland Empire, far more affordable at 43.4 percent in 2016’s first three months, is down, too, from 46.8 percent two years ago.
It’s a dilemma that’s nudging the public — especially in the Western U.S. — to think that an affordable roof over their head, owned or rented, might be a dream.
A recent MacArthur Foundation survey found 77 percent of those polled in Western states agreed it is harder today to have stable, affordable housing than it was for previous generations. That’s the highest share of housing angst of any U.S. region and above the 68 percent who felt the same nationwide.
The poll found 49 percent in Western states said housing affordability was a serious problem in their community, highest of the four regions tracked and above the 39 percent found nationwide.
The growing cost challenges also were found nationwide to be steeper for renters (76 percent agreeing) than homeowners (64 percent) and among lower-income households (76 percent of those making under $40,000 a year).
It’s not that the 1,200 Americans polled in April and May are down on homeownership, as 60 percent saw homeownership as a solid investment vs. 50 percent two years ago.
Instead, Rebecca Naser of Hart Research, which conducted the poll, said Americans see housing as a critical component to financial well-being.
Despite an overall improving economy and real estate markets, housing costs are stressing many families. Naser noted 53 percent of those polled said they had to make some sacrifices due to high housing costs, and of those making sacrifices, 24 percent worked extra hours or took a second job.
“People look at the (positive) economic indicators and don’t see that in their own lives,” Naser said. “People had to go into the red in wake of the housing crisis, and they haven’t caught up.”
AFFORDABILITY
Here’s a look at the local house hunter’s affordability challenge using one benchmark, an index managed by the National Association of Home Builders. Here’s how first-quarter data stacked up vs. 2014 trends:
Inland Empire: 43.4 percent of homes affordable this year vs. 46.8 percent in 2014. Home prices rose 11.5 percent, incomes up 1.2 percent.
Los Angeles County: 15.6 percent of homes sold in 2016 deemed affordable to the median household income vs. 17.7 percent in 2014. This was the result of home prices rising 11.9 percent as incomes increased just 2.4 percent since 2014.
Orange County: 16.2 percent of homes affordable this year vs. 17.4 percent in 2014. Home prices rose 7.9 percent, incomes up 1.9 percent.
By Jonathan Lansner and Marilyn Kalfus
