Modesto: From #5 to #207 in 5 years!

I came across an interesting article while researching my blog post on averages from two weeks ago about the cities with the most affordable housing. Modesto was the fifth most affordable city in the US in the 2nd quarter of 2012 according to the National Association of Home Builders/Wells Fargo Bank Housing Opportunity Index that comes out quarterly:

5. Modesto, Calif. 

Median housing price: $135,000

Located in Northern California’s Central Valley and earning a Housing Opportunity Index rating of 91.5, Modesto offers affordable housing within reach to households earning the city’s median income of $62,000.

An HOI of 91.5 means that 91.5% of the homes for sale during that quarter were affordable to people earning the median income for that area.

But what a difference 5 years makes! In the current list, Modesto comes in 207th out of 233 metropolitan areas with an HOI of only 40.6!

Part of the decrease was due to a decrease in the median income to $57,500. But the biggest factor contributing to that was the doubling of the median home price from $135,000 in 2012 to $278,000 this year. And that is caused by people working in the Bay Area being shut out of the housing market (like me). Four of the 12 least affordable areas in the country are in the San Francisco Bay Area, with the San Francisco - Redwood City - South San Francisco metropolitan area being the worst in the nation with an HOI of 7.6...meaning that only 7.6% of the homes sold in the last quarter were affordable to those making the median income of $113,100 (the median home price was $1.22 million!). While at the other extreme, 96.9% of the homes in Kokomo, IN are affordable to those making $62,500 per year, with a median home price of $119,000! That means a home in SF costs ten times as much as a home in Kokomo, but the income is only about twice as much.

When the demand increases, without a corresponding increase in supply, the price goes up. But why aren't more homes being built? From an article in National Review:

Why is California’s housing so expensive? Supply constraints. The LAO calculates that if California’s market were free enough to keep prices at 80 percent above the national average, as they were in 1980, we would have 2.7 million more homes, and 7 million more Californians today. 

After the Second World War, California’s housing market was relatively free, making the housing supply plentiful and cheap. Things started to change in the 1960s. Policies from every level of government since then have made it harder to build affordable, market-rate housing.

Local governments bear the brunt of responsibility. They began aggressively instituting zoning and environmental regulations meant to plan the development of their communities to meet particular visions — often quite nice visions, and conservative ones at that. Some regulations were obviously wrong, aimed at overt racial exclusion; but plenty of others focused on aesthetics, historic preservation, the promotion of single-family homes with two yards and a pool, crime reduction, traffic, density, environmental protection, or even efforts to provide affordable housing. This panoply of policies led to a near-cessation of market-driven construction in many cities and to its slowdown in others.

Also from the same article:

Californians and all Americans who want to ameliorate the condition of those with the least means should not start with incomes, which must compete globally. A minimum-wage increase sounds nice, but it could easily put people like the Hernandezes out of work. And the benefit would be marginal, at best. Rather, we should examine the expense, housing, that wipes out two-thirds of the incomes of California’s impoverished households, and a large share of the incomes of people in the middle class. The solutions won’t cost a dime; but they will require political courage. They will require an understanding of not only the problems but also the principles that undergird the successes of all flourishing societies – places more or less like California in the 1960s or like present-day Texas: individual rights and equality under the law, ideas that, today, are almost as distorted as California’s housing market.

So, unless California communities, and other communities across the country,  re-examine their housing rules, the costs of housing will continue to go up.

Interesting days

Today - Candy Corn Day, Create A Great Funeral Day and Checklist Day

Tomorrow - Halloween, Caramel Apple Day and Magic Day

Next Monday - Saxophone Day, Job Action Day, Broadcast Traffic Professionals Day and Nachos Day

November 30 - Computer Security Day and Stay Home Because You're Well Day