Revised Post 3: Skyrocketing Housing Prices in California

Mar 21st 2015

 cali_housing

(https://goldenstateoutlook.wordpress.com/2013/04/02/the-real-problem/)

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

Because of the sub-prime 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).” Furthermore, the picture above shows the hours of minimum wage to afford a typical two-bedroom rent fee, describing that California is the most expensive state to live for workers. 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. Furthermore, according to Rothbard, there is a tendency that pro-development is bad for the environment, but that’s not necessarily the Californian case. “In a city with so much air pollution, more density-with people living closer to work and driving less-can be more environmentally friendly (Rothbard).”

cali_greenbelt

(http://en.wikipedia.org/wiki/California#/media/File:California_population_map.png)

I suggest three 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.

Finally, the Californian government can support families by giving some subsidies. However, this option seems impossible because the government is almost broke; everyone knows that California State has severe problems in its budget.

Although I point out three options, the second and the third one only can be temporary solutions. 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. And it already happened that that many workers, or middle class families (those who make less than $50,000 a year), left California.

3 thoughts on “Revised Post 3: Skyrocketing Housing Prices in California

  1. KT Lee

    I can see that California is one of the most expensive places to live due to its wonderful weather and surroundings. But I have read an article that California might not be a safe place because of earthquake that could hit the place in the near future. Wouldn’t this cause a change in price of houses in California as people are sensitive to the security ??

    1. Guyeon Kim Post author

      Well, I do not think so. I think the security problem little affect on the housing prices in California. Think about all the luxurious houses in California. (Although my post is all about normal homes for middle class and lower class families, it is true that California has one of the most expensive houses in the world.) Furthermore, Florida is typically in danger of tornadoes, but this is not the main reason of high-price rent fees in the state and it doesn’t seem that the price will change because of disasters (until now).

  2. luctommo@umich.edu'Lucas Morrison

    I’m a little confused that you point out how higher density areas have a lower environmental impact, which would help the Californian government achieve it’s goals, but then you propose construction reform to lower density to that of the national average. Shouldn’t the government of California be pushing the growth of denser areas, rather than more spread out development?

    Reducing urban sprawl has been one of the main trends in urban planning for a few years now, as planners and developers realize the environmental benefits of denser urban areas.

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