There are unaffordable housing markets, and then there are "impossibly unaffordable" markets, four of which are in California, a recent study said.
The housing crisis represents an obstacle to upward mobility, and the Golden State risks suffering from especially acute stratification, according to the annual Demographia International Housing Affordability report, which was produced by Chapman University in California and the Frontier Center for Public Policy in Canada.
"High housing prices, relative to incomes, are having a distinctly feudalizing impact on our home state of California, where the primary victims are young people, minorities, and immigrants," wrote Chapman's Joel Kotkin. "Restrictive housing policies may be packaged as progressive, but in social terms their impact could be better characterized as regressive."
The report points to "urban containment policies" that are meant to limit sprawl and increase density. Those have resulted in higher land prices, which have translated to dramatically higher home prices, it explained.
The trend toward increasing density was geared toward reducing reliance on cars and freeways, improving gridlock, and making neighborhoods more walkable. But the report said while such policies were well intentioned, they resulted in land prices being eight to 20 times higher in urban containment boundaries than outside of them.
In determining affordability, the report looked at 94 markets in Australia, Canada, China, Ireland, New Zealand, Singapore, the U.K., and the U.S., comparing the median home price in each location against the median income.
A price-to-income ratio of 3 and below was deemed affordable, with higher ratios corresponding to worsening levels of unaffordability. A ratio of 9 or above was labeled "impossibly unaffordable." Of the 11 cities in that category, four of them are in California.
- Hong Kong (16.7)
- Sydney (13.8)
- Vancouver (12.3)
- San Jose (11.9)
- Los Angeles (10.9)
- Honolulu (10.5)
- Melbourne (9.8)
- San Francisco (9.7)
- Adelaide (9.7)
- San Diego (9.5)
- Toronto (9.3)
The report also warned that the housing crisis poses an existential threat to the middle class, noting that high housing costs have reduced standards of living and increased poverty.
"The middle-class is under siege principally due to the escalation of land costs," it said. "As land has been rationed in an effort to curb urban sprawl, the excess of demand over supply has driven prices up."
The report pointed out that all of the "impossibly unaffordable" cities follow urban planning policies favoring more density, and recommended that cities open up the availability of land to reduce housing costs.
In the U.S. housing market, the worsening affordability problem has been exemplified by the disappearance of the $200,000 starter home. That's left many millennials trying to upgrade to bigger homes to accommodate their growing families out in the cold.
But prospective buyers have been revolting against high home prices, resulting in more properties sitting on the market unsold and lower asking prices.
That dynamic has played out during the critical spring selling season, which is winding down with a whimper amid weak demand.
