On May 4, 2023, UC Berkeley’s Terner Center for Housing Innovation published the research paper titled, “The First Step Is The Hardest: California’s Sliding Homeownership Ladder.” The paper tracks how homeownership rates have changed within the state. However, the intent was to specifically track affordability challenges. Co-author Issi Romem said: “The problem is when people don’t become homeowners because they can’t afford to.”
To close out the summer, the Terner Center held a webinar discussing the paper’s findings with a group of California housing experts. The event was moderated by the report’s co-author and Terner Center’s Policy Director David Garcia.
The first 15 minutes of the webinar was helmed by Romem, who offered concise explanations of the report’s data findings. From there, the floor was opened up to three additional speakers:
- Ellen Martin, director of business development and stakeholder relations, California Finance Agency
- Noerena Limón, principal, Mariposa Strategies
- Jeff Schroeder, senior vice president, Ponderosa Homes; and a member of the California Building Industry Association
While much of the discussion was California centered, with time dedicated to problems particular to the state (e.g. local legislation such as Proposition 13, insurers leaving the state due to endemic wildfires, etc.), many of California’s challenges apply nationally, too.
Key findings of the report:
- The difference in homeownership rates between California and the rest of the U.S. is 15%, but the difference in ability to afford a home is only 8%.
- California was last on par with national homeownership in 1960; since then it has diverged downward.
- The “Age of prevalence”—the youngest age at which more than 50% of households are homeowners—was 32 in California during the 1980s. By 2021, it rose to 49. However, the decline in homeownership affordability is not specific to any age group within California.
- While certain groups (Blacks and Latinos) are less likely to be homeowners in California, the declines in homeownership are (proportionally) near identical across racial lines.
- This “uniformity of decline” suggests affordability is the challenge that must be addressed.
- Alternate scenarios posed:
- If house prices in California rose in line with income: 43% smaller decline
- If house prices rose like the rest of the country: 48%
- If house prices rose with inflation: no decline at all
- The panelists agreed that lack of inventory is the largest impediment to Californians becoming homeowners, but this has been compounded by interest rates and, in turn, price hikes.
Panelist quotes
Romem
“We have been building here for the past 15 years in a pattern I call ‘Islands of densities’ in a sea of no growth.’ Large, 50-plus family units either clustered around BART stations or corridors, and everywhere else low density that may not be touched and is holier than thou. That’s problematic because we’re basically segregating the renter class from the owner class.
“It’s going to take, best case scenario, decades for (legislative changes) to bear fruit because once legislation changes, a system of construction, finance and development needs to emerge and gradually rebuild itself and then operate. And that doesn’t happen in two, three, four years.”
Limón
“The only way that California increases its homeownership rate is by understanding the weight that the Latino community plays in that number. Since 2013, Latinos have accounted for 76% of homeownership growth, and if we look at household formations, Latinos have accounted for 82%, so we really need to create the environment for these communities to access homeownership. But as we noted, it’s becoming more and more inaccessible, especially if you don’t rely on generational wealth.
“The way we solve our housing crisis is by creating smaller units, creating more condos and townhomes. The time of creating entire communities of single-family homes, I think, is past us.”
Martin
“If you go back to March 2020, the median price for a single-family home in California was about $600,000. That was affordable to a borrower that had an ability to make a 3% down payment and a $2,500 monthly payment…fast forward to today, now that interest rates have gone up, that same borrower can only afford a home priced at $400,000.
“The down payment assistance that we at (California Finance Agency) can offer is only as good as the inventory of homes out there that are affordable for our borrowers to purchase.”
Schroeder
“If you come in now and try to buy a median-priced home in the Bay area, good luck, unless you’ve got a lot of cash from somebody, or saved, or you sold a bunch of stock.
“There’s plenty of insurers out there who are willing to insure Californians, but they’ve experienced incredible losses over the last five years with fires and what not, and they’re operating in a regulatory environment which is not allowing them to operate profitable business in California.”
