By Debra Varnado / Capital & Main

It’s no secret that California residents pay more for housing than residents in most other states, especially in the metropolitan coastal areas and Silicon Valley cities. Los Angeles, San Diego, San Francisco, San Jose, Palo Alto and other highly attractive, jobs- and amenities-rich cities are widely documented as being the least-affordable housing markets in California.

Obtaining decent affordable rental housing and earning enough income to sustain a family are increasingly more difficult goals to achieve. The American Dream of homeownership, and of building and maintaining stable communities, is fading in the face of this new socio-economic reality.

The state’s poorest families pay up to two-thirds of their income on housing

Red flags abound: The state’s poorest families pay up to two-thirds of their income on housing, firmly placing them in the severely “rent burdened” category of households. (Families that spend more than 30 percent of their income on rent are considered rent-burdened by the U.S. Department Housing and Urban Development and other agencies.) Individuals and families with higher incomes are not immune to the skyrocketing housing costs. Lisa Payne, policy director at the Southern California Association of NonProfit Housing, told Capital & Main, “In Los Angeles County, in order to afford average rent, a family of four needs to make $72,000 annually or $34 an hour. To buy a home, a family of four needs to make $120,000 annually or $57 an hour.”

In Los Angeles County, in order to afford average rent, a family of four needs to make $72,000 annually or $34 an hour.

In April 2015, Standard & Poor/Case-Shiller reported that L.A. housing prices were up 126.36 percent over the year 2000. The index that regularly measures home prices in the U.S. showed that San Diego had the third highest growth in housing prices nationwide, with about a 105 percent increase. San Francisco, like Los Angeles,  is a majority-renter city, and it has seen its housing prices increase by 95 percent. In four-county Silicon Valley, 40 percent of renters are rent-burdened. Because workers are increasingly unable to live near where they are employed, work commutes have grown by as much as 33 percent in the last two years. Although the region boasts an average yearly income of $116,033, almost a third of its residents in 2012 did not make enough money to meet their basic needs without public assistance.

According to California Legislative Analyst Mac Taylor, “California probably needs to construct 100,000 to 140,000 new housing units annually — almost exclusively in its coastal communities — to seriously mitigate its problems with housing affordability.”

At the same time, several policy challenges, discussed below, will continue to contribute to the crisis and work against achieving this modest target.

Stagnant Wages, Skyrocketing Housing Costs

“Part of the problem is the income-and-costs mismatch, both in the apartment and homeownership markets,” Lisa Payne, policy director at the Southern California Association of NonProfit Housing told Capital & Main. “We don’t have policies in effect to solve this issue.”

[A]ccording to a New York University’s Furman Center study, rents in Los Angeles went up 11 percent while wages fell by four percent between 2006 and 2013.

A report by the Neighborhood Housing Services, Los Angeles County, concluded that stagnating income is clearly worsening affordability. “Incomes are not keeping up with rising housing costs…incomes have stagnated entirely,” the report said. “After adjusting for inflation…incomes are more or less right where they started in 2000 for the median household.”

And according to a New York University’s Furman Center study, rents in Los Angeles went up 11 percent while wages fell by four percent between 2006 and 2013.

“Income disparity is significant,” Mike Rawson, director of the Public Interest Law Project in Oakland, told me. “You have to look at the system first and what’s causing income disparities all along our coastal cities and towns.”

“Many jobs are being created in high-growth industries, but their wages do not respond to the actual need in terms of housing. They don’t pay the amount that it takes to live in high cost coastal areas and in the Silicon Valley communities,” said Cesar Covarrubias, executive director of the Irvine-based Kennedy Commission, an affordable housing advocacy group.

Ellis Act Violations

According to the Los Angeles Alliance for a New Economy, Airbnb has been responsible for removing approximately 7,795 units from the L.A. housing market.

Enacted by the state legislature in 1985, the Ellis Act allows landlords to legally go out of the rental market business under specific conditions, including if their property is demolished or permanently withdrawn from the market. Landlords also can legally evict tenants, removing apartments from rent control laws.

Evictions have displaced long-term tenants and have led to the loss of rent-controlled, affordable units that are increasingly being rented at higher prices to tourists. Landlords and property managers use Airbnb, the online room-sharing service, to also share information regarding newly-available properties. According to the Los Angeles Alliance for a New Economy, Airbnb has been responsible for removing approximately 7,795 units from the L.A. housing market.

Dismantling of Community Redevelopment Agencies

California’s community redevelopment agency system, created more than 60 years ago, ceased to exist in 2012, resulting in a multibillion dollar disinvestment in affordable housing. CRAs were required to spend 20 percent of their tax increment money to develop rental units and homeownership for low and moderate families.

“The policy that allowed for the dismantling was huge and awful,” Lisa Payne said, while, according to Mac Taylor, CRAs “received over $5 billion in property tax revenue annually.”

“CRAs had a type of inclusionary policy, [but] with all the disinvestment… money is needed to fill the gap between income and what people can afford,” Payne said. “You either ask the private sector [to do this] by including some in their building, or you do it with government funding or regulating the rents.”

Deterrents to Inclusionary Zoning

Just over one-third of California cities have inclusionary zoning laws to ensure that a share of new “for sale” housing is affordable to people with low-to-moderate incomes. City officials may now be inclined to question their legality in light of the legal action opposing San Jose’s ordinance, which would have required developers to sell some of their new units below market rate or pay a fee as a condition of receiving building permits.

The California Building Industry Association (CBIA) is petitioning the U.S. Supreme Court to hear arguments against San Jose’s ordinance, which was upheld by the California Supreme Court in 2015. The case could be a test of the constitutionality of inclusionary zoning. Cities that do not now have such ordinances may await the Court’s decision before pursuing them.

Cities with or without inclusionary zoning ordinances cannot legally set rental rates for new, post-1978 rental properties within their jurisdiction. California’s Costa-Hawkins Act allows rents to be increased to market rates after the units are vacated voluntarily or after eviction, but it preempts cities from setting rent control on new units.

Citing Costa-Hawkins, California’s 2nd District Court of Appeal struck down the City of Los Angeles’ inclusionary housing mandate in 2009. While the city did not have an inclusionary zoning ordinance, it had required mega-developer Geoffrey Palmer to comply with a 1991 specific plan that included making new rental units affordable to low-income households. Palmer prevailed under Costa-Hawkins in Palmer v. City of Los Angeles.

Growth Restrictions and Dodd Frank

Housing development in Los Angeles and in other coastal areas is oftentimes blocked or slowed by voters at the ballot box, adopted zoning ordinances, and NIMBY(Not in My Back Yard) politics. Restrictions and caps are placed on the number and types of new housing units that can be developed, effectively favoring single family construction over higher-density, multiple-family developments.

In Los Angeles, the slow growth movement reached a high point in the 1980s with calls to prevent the “Manhattan-ization” of the city via high density high-rises. Despite claims that higher densities would conflict with the California lifestyle, higher densities are not always seen as a negative. Instead, densification is considered warranted and a means to revitalize blighted, under-utilized areas; decrease automobile use and its associated costs; and increase walking, biking and transit use.

According to Professor Greg Morrow of the University of Calgary, Canada, “The homeowner revolution in Los Angeles  – and its damaging impacts on the City’s social, economic, and environmental sustainability  – demonstrates the need for the re-assertion of a professional role for planners . . .”

In his doctoral dissertation, the University of California, Los Angeles graduate wrote, “… the slow-growth movement was facilitated by the shift from top-down planning during the pro-growth, post-war period to a bottom-up community planning process post-Watts. … areas with well-organized homeowner groups with strong social capital were able to dramatically decrease density as a means of controlling population growth…”

Henry Grabar, writing in Salon.com, concluded, “Los Angeles and its satellites — once the land of the American homeowner dream — now form the most stunted urban region in the country.” Los Angeles, he added, has “reached capacity.”

Writing in the California Planning and Development Report, contributing editor Josh Stephens has claimed that “…homeowners pushed through anti-growth legislation, advocated by residents who wanted to keep Los Angeles all to themselves.” Stephens contends that “… six million men, women and children were zoned, voted and legislated off the island.”

While the supply of housing in Los Angeles has been constrained, demand has continued to grow. Socioeconomic data and real estate studies document the rise in population, high rent levels, low vacancy rates and less than robust building permit activity — the latter, often a casualty of California’s complicated environmental review process.

Other regulations have also taken a toll, including new stringent federal mortgage disclosure regulations. Banks and their customers who are applying for mortgage loans now are confronted with new rules as a part of the Dodd-Frank legislation passed by Congress in 2010. The 2,300 page act contains 400 new rules that took effect on October 3, 2015. These rules reformed mortgage lending, borrowing practices and disclosures to prevent another housing bubble and market collapse like the one that occurred in 2007. That collapse led to a record number of foreclosures and catastrophic loss of homeowner equity.

Under Dodd-Frank’s torturously titled Truth in Lending Act Real Estate Settlement Procedures (TILA-RESPA) Integrated Disclosure or TRID rules, banks and credit unions vet the financial fitness of potential new homeowners for mortgages. But housing advocates, banks and industry associations complain the regulations have lengthened the time required to complete a loan, “sometimes doubling it from 30 to 60 days,” according to Lori Gay, President and CEO of L.A. County’s Neighborhood Housing Services. The extended time required for loan completion hinders the competitiveness of prospective homeowners. “Lenders are just skittish– afraid of making a mistake, so they don’t make a decision,” Gay said. Not helping matters is the fact that, in rolling out the new procedures, financial institutions have experienced technological glitches and bugs implementing the changes.

Unlike the pre-recession period from 2003-2007, TRID requires far more reporting to ensure prospective homeowners can afford a loan. “The mortgage industry can’t do like they did back in the wild days when all a buyer had to do was have a pulse to get a loan,” said Glenn Hayes, President/CEO, of non-profit NeighborWorks, Orange County, which assists working families in the area of affordable housing.

While the required environmental impact assessments, growth control measures and new mortgage disclosure regulations were created out of legitimate concerns, they are sometimes misused or have had unintended consequences for affordable housing. In the case of the TRID regulations, the impacts may resolve themselves with time and improvements in technologies and a shortened learning curve. Other impacts may be resolved through litigation or legislation.

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Debra A. Varnado is the founder, editor and publisher of The Fifth Avenue Times Online Journal and Newsletter. Her work has been published by Oxford University Press, Tsehai Publishers and Distributors, StorySouth.com, Howard University, George Mason University and the Wave Community Newspaper.