Skyrocketing Housing Prices in California

Mar 18th 2015

 Thesis: To resolve too expensive housing problems in California, its government should pass laws for construction or introduce various rent methods.

Because of the subprime mortgage shock in 2008, many people realize the significance of housing debt and its impact on the economic situation. In California, problems related to housing occur again, influencing on economic productivity, poverty rate, homeownership and commute time. According to Wall Street Journal, California has some of the most expensive housing market in the U.S. “The average home price in California, $440,000, is about 2½ times the national average, while California’s average monthly rent, $1,240, is about 50% higher than the average U.S. rent (Wall Street Journal).” High cost of housing affects on the California economy because many employees try to avoid California to live, making companies difficult to hire and retain qualified employees.

To solve these problems, we should figure out why California has more expensive houses than other regions. Wall Street Journal points out that new home construction rate is much lower in California than the average in the U.S.; the rate in the state’s coastal metro areas increases by 32%, compared with 54% nationally. The low rate of new construction means the lack of supplies in housing, making the housing price increase. Also, some experts argue that the legislature should pass laws which would promote more density in urban areas, which is banned for the state’s environment. Randal O’Toole also contends the same statement that urban planners have crammed about 95% of Californians into just 5.1% of the state’s land area.

I suggest two options to solve the density population problem in California. First one is reviewing the restrictions in development or construction. It is obvious that California has lower rate of new construction than the average rate in the U.S., because its government has strict rules in order to protect the environment. But, according to Randal O’Toole, if Californians could live at the same densities as the rest of the U.S., the state’s urban areas would cover 8.5% of the state, instead of 5.1%.

Another resolution is introducing various rent options to California. For example, Korea has a unique leasing option; tenants deposit a bunch of money (basically gives to the apartment agency) and pay less monthly rents than those who don’t deposit money. This option is flexible that monthly rents can vary depending on the amount of deposit. When tenants want to leave or the agreement terminates, homeowners should give back the deposits. This option can reduce the burdens of monthly rents for tenants while homeowners can invest that big pile money and get extra earnings.

Although I point out two options, the later one only can be a temporary solution. The fundamental problem in California is the supply of houses is too low compared to its demand, increasing the housing prices. Some people may argue that it is the nature of the economics and should let it go. However, the pure economic theory doesn’t always fit to the reality which has numerous factors. If the Californian government shouldn’t solve this problem, middle and low income families in the state will be more suffering than others.

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